product standardization although there is increasing demand for local variety as economic growth...
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Product standardization
Although there is increasing demand for local variety as economic growth takes place and as anti-globalization sentiment spreads, global products and brands are usually standardized in some ways.
Global product examplesGillette razor bladesSony television setsBenetton sweaters
Regional products and brands are unique to a particular trading regionHonda’s European car model “Concerto”P& G’s Ariel and Vizir in Europe
The Pros and Cons of Standardization
The Advantages of StandardizationCost Reduction
Scale economies (input and process)Scope economies (synergy, brand equity)
Improved Quality (reliability)Better equipment, more experience
Enhanced Customer Preference (no surprises)Global Customers (mobility)Global Segments (convergence)Time to Market
Centralized R & D
The Pros and Cons of Standardization
The Drawbacks of StandardizationOff-Target (requires homogeneity)
OUR
PRODUCT
S1 S5
S3S4
S2
S6
The Pros and Cons of Standardization
The Drawbacks of StandardizationOff-Target (requires homogeneity)
OUR
PRODUCT
S1 S5
S3S4
S2
S6
Prod A
Prod B
Prod C
The Pros and Cons of Standardization
The Drawbacks of StandardizationLack of Uniqueness
Is uniqueness an important attribute?Vulnerability to Trade Barriers
More barriers, less standardizationStrong Local Competitors
Can we afford the handicap of standardization?
Localization versus Adaptation
Localization is a hygiene factor (price of admission)Adaptation is a motivator (add value and attractiveness)Basic Requirements
LocalizationGenerally speaking, localization avoids having potential
customers reject the product out of handCompatibility Requirements
Localization represents the adjustments in the product specifications necessary for it to function in the foreign environment
Multisystem CompatibilityIn many products today, localization is accomplished by
building in compatibility with multiple systems at the outset
PREFER
REJECT
Line shows likelihood of
Purchase
Uniform Localized Adapted
+
-
Uniform vs Adapted Product
Fully standardizedFully adapted
Incremental manufacturing cost
Combined costs Cost of
lost sales
Optimal Level of Standardization
• 100% standardization is rare
• Usually starts with a core product as the foundation
• Various features are added, these may differ according to the country market
• Can also involve modular design, where various features are packaged as modules, different assembly combinations in different markets
What to Standardize?
How standard is standard?
Modular ApproachMix and match common components (Ford)
Core-Product (Platform) ApproachUniform baseAttachments added to localize
John Deere – 6 ‘families’ (platforms)Electrolux – 15,000 products
How standard is standard?
Philadelphia Cream Cheese: 14% fewer calories in Italy
Hellmann’s Mayo: ½ the saturated fat in London
Kellogg’s All-Bran bar: 1/3 the sodium in Mexico
Kraft’s Lunchables: 56% more fat in USUS brands tend to be higher in fat, calories,
sugar and genetically engineered substances
•Insufficient Market Research
Similarities among customers are assumed, not proven
•Overstandardization
Standardization compromises the positioning strategy
•Poor Follow-Up
Follow ups need to be implemented if a campaign is to succeed
•Narrow Vision
Goals should not be narrow and inflexible
•Rigid Implementation
Some flexibility in implementation needs to be retained by local units
Pitfalls of Standardization
Strategic Alternatives
Same Product, Same Communication (dual extension)Lip balm, cameras
Same Product, Different Communication Wrigley – same gum but:
US – smoking substituteEurope – dental benefitsFar East – facial fitness
Different Product, Same CommunicationOften, acquired brands
Different Product, Different CommunicationDifferent culture and physical environment – Slim-Fast
History
Different local products were well established before standardization was feasible
M&A (Mergers & Acquisitions)
Complete integration is often difficult in M&A cases
Preferences
Differences in preferences force product line customization
Capacity
Global product lines need large production capacity
Channels
Channel loyalties makes it difficult to drop local products.
Why do Global Product Lines Differ?
Developing New Global Products
Five Stages of the New Product Development ProcessIdea Generation
Local subsidiaries are likely to have some ideas from their respective markets and new technology is a common source of new product ideas
Preliminary ScreeningThe most immediate evaluation of an idea is whether it is
compatible with the company objectives, strategies, and resources.
Concept ResearchFocus Groups offer the development team a chance to hear
spontaneous reactions to a new concept and hear suggestions for improvement.
Developing New Global Products
Five Stages (cont’d)Concept Testing
A more formal approach to selecting product attributes is using techniques such as trade-off analysis or conjoint analysis
Sales ForecastThe appropriate sales forecast approach is based on the
product life cycle (see Ch.4)Test Marketing
Once the sales forecast looks promising, the new product is usually placed in production and test marketed.
Idea generation
(leading markets)
Preliminary screening
Concept research
(focus groups, concept testing)
Sales forecasting
Test marketing
Number of surviving
new product
ideas
“64 ideas make one successful product”
Because new product development is so uncertain, many firms practice “TARGET POSITIONING”.
Step 1: Track which of the competitors’ new products appeal to consumers and find what features are desired.
Step 2: Reverse engineer the competitive success products.Step 3: Develop own “me-too” version.Step 4: Add new features to provide differentiation and a
superior offering.
Note: Firms cannot let competitors stay unchallenged. Ex. Nokia lost a big chunk of its leading market share in cell-phones when the company decided not to follow the trend into the so-called clamshell phone models with lids.
Target Positioning
TARGET BRAND
PRODUCT SPECIFICATION
LO END
HI END
LO PRICE PRICE POSITION HI PRICE
Target Positioning:The Diagonal for “Me-too” Offerings
Relative advantage – how much better is the new product?
Compatibility – can the product be used in terms of local infrastructure & customs?
Complexity – is it easy to use?
Trialability – is it easy to try the new product?
Observability – are the advantages obvious?
New Products’ Speed of Diffusion
Global Brands
GLOBAL BRANDS ARE BRANDS ASSOCIATED WITH GLOBAL PRODUCTS WHICH ARE WELL KNOWN IN ALL MAJOR MARKETS OF THE WORLD.
Ex's: SONY, MERCEDES-BENZ, MICROSOFT, COCA-COLA.
THE TYPICAL MULTINATIONAL FIRM HAS A “PORTFOLIO” OF BRANDS, SOME OF WHICH ARE GLOBAL, SOME ARE REGIONAL, AND SOME LOCAL ONLY.
company total number brands found in brands marketedof brands 50% or more countries (%) in only one country (%)
Colgate 163 6 (4%) 59 (36%)Kraft GF 238 6 (3%) 104 (44%)Nestle 560 19 (4%) 250 (45%)P&G 217 18 (8%) 80 (37%)Quaker 143 2 (1%) 55 (38%)Unilever 471 17 (4%) 236 (50%)total 17921
Source: Journal of Consumer Marketing 12 no. 4 (1995)
Typical Global Brand Portfolios
Global Brand Equity
Brand Equity is the value of the positive associations that consumers have with a product’s brand name.
These associations often involve emotional attachments, affinity, positive brand image, and brand identity.
They also involve cognitive factors such as familiarity, knowledge and perceived quality, as well as social factors including peer group acceptance.
When these associations turn negative (as in anti-globalization sentiments against global brands) the brand equity can go down very quickly.
Brand Name 2001 Brand Value ($ billions)1 Coca-cola 68.92 Microsoft 65.13 IBM 52.84 GE 42.45 Nokia 356 Intel 34.77 Disney 32.68 Ford 30.19 McDonald's 25.3
10 AT&T 22.8
Source: Business Week 8/6/2001
BRAND EQUITY is sometimes measured in terms of the discounted net revenues the brand is expected to
generate over time.
Global Brand Equity
DEMAND SPILLOVER – The name is familiar because of media spillover, satellite
communications, word-of-mouth etc.
GLOBAL CUSTOMERS- People travel to many countries and multinational customers operate in many locations, making the global
brand a natural choice everywhere.
SCALE ECONOMIES – any spending on product improvements and advertising can
be leveraged across more markets.
Advantages of Global Brands
NEGATIVE SPILLOVER –Bad news travel faster across country markets
PRODUCT LINE SPILLOVER - Negative spillover affects also other products with the
same brand name.
BRAND LOYALTY – Local brand loyalties can be strong.
Disadvantages of Global Brands
1. Does the brand name make sense outside of the source country?
2. If the name suggests a country association, is the effect positive?
3. Is the name available legally in many countries?
4. Does the brand compete with other brands in the portfolio?
5. Should growth be limited to the creation of a regional brand?
Globalizing a Brand Name: Checklist
Changing a Local to a Global Brand
Changeover strategies:The fade-in/fade-out gradual option is the most common
strategyThe global brand is linked to the local brand for a time, after
which the local brand is droppedA less gradual approach, sometimes called summary axing
Simply drops the local brand name and introduces the new brandCompanies also use extensive forewarning in media
announcements to minimize changeover dissonance among loyal customers.
• COUNTERFEITS OR KNOCKOFFS ARE FAKE PRODUCTS THAT ARE DESIGNED AND LABELED SO
AS TO MISLEAD THE CUSTOMER INTO ASSUMING THAT THEY ARE “THE REAL DEAL.”
• WORLDWIDE LOSSES DUE TO COUNTERFEITING IS OVER $20 BILLION ANNUALLY
• COUNTERFEITERS OPERATE AT ALL LEVELS OF THE ECONOMY, JUST ABOUT ANY PRODUCT OR
TECHNOLOGY DEVELOPMENT IS FAIR GAME
Counterfeit Products
“SEARCH & DESTROY” – firms hire private investigation agencies to track down fakes in stores and
locate counterfeit factories
CODING DEVICES – firms encode unique signatures to products
(e.g. Levi’s micro-weave patterns, Microsoft’s Windows 95 tracking codes)
Actions Against Counterfeits