International product and service strategies PDF

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LECTURE 7: week 25

International product and service strategies (QUESTION 4) After carefully identifying international marketing opportunities, having identified the target markets and selected the market entry strategy, the ultimate success of the venture will depend on the value proposition of the product or service. More markets are reaching maturity, with established products and services moving to become commodities; quality is taken for granted and customer satisfaction is regarded as standard; the value proposition moves ahead of that standard to one of high addedvalue and an aim to delight rather than simplify satisfy the customer. Product and service management aims to focus on that gap and bring to market developed or new products and services.

1. Evaluating the product/service      

For what purpose has the product been developed? o how would it be used in that country? What distinctive properties does it have? What benefits is the consumer expected to gain? How is it positioned? o what image do consumers perceive it to have? Which consumer segments are expected to buy it? o on what occasions and for what purpose? How does it fit into the total market?

In many cases in the past, the move to international marketing was driven by saturation of the domestic market or the need to offload surplus capacity. Products were seen as tangible, physical items and services as concentrating more on customers’ needs and wants. The distinction has become blurred, with the understanding that the majority of products are bought to solve a problem or enable customers’ needs to be met. Apart from antiques or art collecting very few customers buy products just for their own sake. The product delivers a “service” e.g. an alarm clock wakes the customer up at the chosen time; or a mobile phone allows the owner to communicate with people and organisations. Some products carry features and attributes that go beyond their initial product benefits. For example people buying Chanel perfume are not just buying a fragrance, they are making an aspirational statement. Buying Fairtrade chocolate is not just about taste and quality, but also demonstrating your ethical values in practice.

2. Factors affecting the management of international products and services      

Balance between standardisation and adaptation Product accessibility and ethical issues Green environmental issues Shortening product life cycles Effect of differing market entry methods Changes in marketing management

LECTURE 7: week 25

Cultural factors Some products have little cultural variation (e.g. airline travel or personal computers), others do adapt to different cultural contexts. For example, Nokia responded to the needs of the rural Indian customer by offering a dust resistant keypad and inbuilt flashlight; this is a demonstration of ‘think global, act local’ (Ohmae, 1989). Usage factors The same product may be used in different ways in different countries, due to culture or to geographical factors such as climate and terrain e.g. in order to sell 4x4 vehicles in Africa, Toyota adapted them to suit the tropical nature of the environment. Legal standards Standardised products can sometimes be acceptable and comply with local regulations in one country, while conflicting with regulations in another nation. For instance the pharmaceutical manufacturer CAPS of Zimbabwe (www.caps.co.zw) would find it difficult to sell its anti malaria tablets in the UK, because of differences in health legislation. Drug companies can regularly face challenges in certain countries that have a different regime of public health; local clinical trials may be required before licences are issued. Shortening product life cycles Globalisation has created global suppliers with the resources to copy successful products. When this is combined with the rising pace of technological innovation, the result is that product life cycles are becoming shorter, and improvements are added more frequently to retain some form of lead with the increasingly augmented product. Green environmental issues International markets with different environmental, health and safety regulations have allowed less scrupulous companies to save on environmental costs such as disposal or emissions by moving their manufacturing activities to less demanding countries. This global practice is being increasingly challenged and limited by international pressure groups. The key issues that international firms must consider as they plan to market their products or services are: Greater public awareness means that any unacceptable actions will become news: bad publicity will affect the company’s image, brand and level of approval by customers and stakeholders, e.g. the reaction to the BP oil spill. More environmental regulations at home and abroad: the body of regulations is being extended over more products and over the entire product life cycle. Greater stakeholder awareness of multi-national enterprise (MNE) behaviour through improved global communications and increased visibility: certain investors’ groups have withdrawn equity stakes in companies, such as tobacco or arms manufacturers, in response to pressure from a better informed public. Increasing expectations of good corporate citizenship have influenced companies to avoid or minimise environmental impact from their products or services.

LECTURE 7: week 25 Greater cross-border concerns are putting pressure on neighbouring countries to review the impact overseas investors may be having on the environment. All these drivers combine to place environmental awareness on the corporate agenda. These drivers impact on the nature of products and services and their design, materials, patterns of usage, energy implications and disposal and recycling.

3. Towards standardization     

Markets are becoming more homogeneous More identifiable international consumer segments Increase in number of firms moving towards globalisation Discuss – what else? Read Levitt (1983) – Insightful theory on standardisation/adaptation even although it was written over 20 years ago!!

It is important to recognise that virtually all products and services must be adapted to some degree. Total standardisation is not often a viable strategy: Vignali (2001) analysed the marketing mix of McDonalds and concluded that it combined elements of globalisation and internationalisation, for example McDonalds has adapted its menu to meet local tastes; Disney Paris could not enforce the Disney no-alcohol ban and made wine available to meet the French expectations. However, the core concept remains unchanged- standardised. Innovative products start by creating a unique service e.g. the introduction of the mobile phone created portable long distance voice communications. As competitors enter the market, the unique selling point becomes standardised, driving the industry to create new and additional benefits: in this case texting, built-in cameras, and access to the Internet. This fragments the new market, as providers choose their own profile of benefits to differentiate themselves. Some organisations resist adaptation and believe that over time consumers will adapt instead, as they become used to the standardised product. Product standardisation is moved along by these global trends:  Markets are becoming more homogenous  There are more transnational consumer segments  Large global players moving towards globalisation are forcing greater standardisation in their industry sectors Arguments against product standardisation point out a lack of nimbleness in local markets: market opportunities may be taken up by a more flexible local competitor. Standardised products can invite competitors to copy, at even lower prices. This dilutes the differentiation and a commodity market can be created: i.e. to compete with products being copied, manufacturers focus on the augmented product. For example, in the domestic appliance market, most suppliers provide broadly equivalent products, so promotion may move to the augmented features such as interest free credit or free home delivery.

LECTURE 7: week 25

4. Standardisation v Adaptation

5. Determining the product range         

Overall growth/profit objectives Experience, philosophies and attitude of the company Characteristics of the market Requirements, expectations and attitudes of the consumers The products and services themselves Ease of distribution Support required from elements of the marketing mix Environmental constraints Level of risk the company is prepared to take

Having scanned the international markets and selected target countries, the list of potential opportunities for the marketing of a company’s products will be influenced by a number of internal and external factors. The internal factors include the operational framework defined by the overall company objectives and business plan, which will set boundaries on levels of growth required and minimum return on investment to be tolerated. Other internal factors are how compatible the proposed international venture is with the current culture and commercial traditions e.g. does the company have the appetite and the resources to take on this development? External factors range from the economic condition of each target country, to barriers to trade and the level of technical sophistication amongst the population. The company will consider what level of technical support, service and maintenance may be available to meet the target population’s needs. Other concerns include ease of distribution, and local marketing support. Given the complexity of choices and the number of factors that are brought to bear on product policy, a wide range of product marketing strategies exist. Mesdaq (1985) identify three basic choices:

LECTURE 7: week 25 SWYG: Sell What You Have Got SWAB: Sell What People Actually Buy GLOB: Sell the same product GLOBally, and ignore national frontiers SWYG is the most common export strategy, and the most common reason for failure. It is a product-orientated approach more concerned with maximising sales of a domestic product. Mesdaq points to companies that started off as SWYG and then adapted to SWAB: e.g. when the Volkswagen Beetle was being manufactured in Mexico the plan was to sell the cars into the North American market, however, the level of carbon emission from the engines exceeded what was acceptable for that market and modifications had to be made. SWAB is the classic differentiated product approach, but while meeting local needs the cost of doing so in terms of manufacturing, logistics and financial resources may outweigh profits arising from major local adaptation. Companies applying a SWAB product strategy may be limited to one or a few overseas markets because of the costs of adaptation. GLOB is the route chosen by many international brands such as Johnnie Walker, Heinz and Heineken. The GLOB product will have a strong brand and an intrinsic or unique added value e.g. Scotch whisky can only come from Scotland, and Champagne from the Champagne region in France: local adaptation would dismantle the product and lose the unique and exclusive features customers are seeking. The standardisation versus adaptation continuum is a central component of any international product strategy as the marketers consider the “product” element of the marketing mix.

6. The international product life cycle

In the domestic market, businesses can monitor and manage a portfolio of products by using concepts such as the Product Life Cycle and the Boston Consulting Group (BCG) portfolio matrix. Both concepts can also be applied to the management of a product, brand or product range across a portfolio of countries. After a product is launched and established in the domestic market it can be entered into overseas markets. The

LECTURE 7: week 25 diagram shows the same product at the mature stage of its life in Market A, growth stage in Markets B and C and the introduction stage in Market D The challenge for the company is to decide how to resource product development or market development, or a combination of both. This model would be suitable for companies operating in slower moving, stable markets that allow the product sufficient life to run through the chosen markets. High tech, innovative products may find that the latest technology has already overtaken them and ended their product life cycle, perhaps before the company has recouped the costs of entering the various markets, making this model unsuitable.

7. The portfolio approach to strategic analysis BCG matrix

The matrix provides a framework on which to plot the firm’s current strategic position, and its products and their position relative to country selection. The variables are the growth rate of the selected market from low to high and the relative market share. These boxes show: Low market share in a high growth market: the “QUESTION MARKS” High market share in a high growth market: the “STARS” High market share in a low growth market: the “CASH COWS” Low market share in a low in a low growth market: the “DOGS” Identifying and agreeing which box a product or service lies in currently can coordinate the firm’s thinking and indicate new strategic options. For example, finding a product in the “Cash Cow” box may accelerate sales to create a cash flow (US), to fund new products or new markets. Products related to ‘dogs’ and are in the decline stage of a market (Italy) may have to be harvested and disinvested.

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8. The brand evaluation equation

International marketers also need to consider the power of branding in international markets as part of the portfolio/product decisions. The power of a brand is a major consideration in portfolio management and the benefits offered and perceived by the target audience. Brand value draws attention to the offer of the tangible and intangible benefits of the brand and how the consumer perceives these benefits. The challenge for the international marketer is to what extent the intangible benefits from branded products vary between countries, cultures and individuals. For example, as you have looked at the case study in relation to Nike in China, the perceived benefits to the Chinese consumer is one of status, esteem and self-identity but is this the same in other countries? Branding is a major consideration for international marketers in terms of image and positioning. The perceived image of the product or service is the most visible element and can add or detract to the perceived value. This will impact on levels of interest or demand, and work through to sales and loyalty. In international marketing there is the added dimension of varying perceptions of value from country to country. Some brands either benefit from country of origin being a positive and attractive factor, or suffer from it being a negative one. Country of origin effects Products and services have both intrinsic and extrinsic features. Intrinsic ones would tangible and practical, such as performance, quality and design; extrinsic ones are cues such as packaging, brand image and country of origin. When the buyer has little intrinsic knowledge of the product they are more influenced by extrinsic features. Some products are strongly associated with a particular country e.g. silks from China, spices from India, chocolate from Belgium and cars from Germany.

LECTURE 7: week 25 Company image Company image, as seen through packaging, point of sale, advertising and sales promotion, is becoming increasingly important in international markets where there may be no common language. For example, retailers Aldi (German) and Lidl (Sweden) both operate in the low cost consumer market that is expanding due to the recession: low cost and good value is the image these retailers project, reflected in warehousetype outlets, low staffing levels, plain décor and basic merchandising. Customers’ perception of ‘being in the right place for a bargain’ is reinforced visually at every step of their purchase. High status business-to-business companies, such as IBM, use their image in the same way - to convince current and prospective companies that they are professional and reliable

9. The Best Global Brands (2014)

Major brands convey an extra message to their customers: it can be ‘quality’, ‘luxury’, ‘fun’, ‘modern’ or ‘cutting-edge’, for example. Brands are traditionally built over long periods of investment, protection and nurturing; consistent management across countries and a high investment in advertising are also features. “Brand value” can appear on a company’s balance sheet to represent the financial worth of the brand alone: a commodity can have high sales revenue but limited or no brand value, so the commodity’s worth to the company is represented by actual profits alone. Brand value goes further, by showing profit generated and adding a capital value to represent the future cash flow that can arise from the power of the brand to sell product. This capital value is treated the same as a tangible asset such as a factory or stock

10.But BEWARE – Brand piracy!     

Outright Piracy Reverse engineering Counterfeiting Passing-off Wholesale infringement

Given the significant marketing advantage and financial gains to be achieved from brands, they are targets for copying by brand pirates, who produce inferior goods and then package them as a genuine brand. The forgery can take place in a number of ways: Outright piracy - complete copy with the brand trademark shown as the original.

LECTURE 7: week 25 Reverse engineering - here technical products are stripped down to expose the product design, materials and manufacturing process. The forger then copies the manufacturing and sells the component or full product to the market. Particularly common in the electronics market. Counterfeiting - the product is copied to an inferior standard but the brand label or trademark appears to be legitimate. Common in the clothes market with brands like D&G or Burberry being targets. Wholesale infringement - this is registration of real brand names in overseas or developing markets rather than selling fake products. Unlike the other examples this is legal and there are numerous examples of individuals registering dot.com domains in foreign markets ahead of any interest from the brand. When the brand does want to enter the market they have to buy the registered domain name from the individual who registered it first. Brand piracy is a vast trade that covers virtually all products on the market. It has been estimated that 90% of the software used in India and China is counterfeit. It can cost the brand owner millions of dollars in lost revenue, and damage their reputation. The Indian government is supporting active controls through an anti-piracy website www.antipiracy-india.com.

11.New product development process (new products for existing/new markets)      

Idea generation Initial screening Business analysis Development Market testing Commercialisation and launch

Out with brand management, international marketers are constantly reviewing their product and services offer, as the nature of customer demand develops and expands across international markets. The process of new product development appears to be common to most organisations across the world. The stages are: Idea generation. A global scan of the market to avoid duplication and discover missing segments and opportunities. The organisation would normally involve many stakeholders including staff, suppliers, distributors and external consultants and experts. Initial screening. A filter based on knockout factors such as cost, compatibility with existing products and services, likely demand, ability to create the product and suitability for international markets. This screening process would be the first, broad review of ideas to select a manageable list of those worthy of closer study. Business analysis. A check o...