Lecture 4 - Product Adaptation and Standardisation PDF

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International Marketing Lecture 4 – Product Adaptation and Standardisation Exam Preparation (from week 3) Marketing research is one of three sources of international marketing information, and as such is important to international market orientation. a) Define marketing research. (10 points) b) Explain what the difficulties are in collecting primary and secondary data about international markets. (20 points) c) Discuss cross-national equivalence, and how it affects international market research. (20 points) Question a) • You can expect similar types of questions, not the same questions. One of the features for getting a good answer would be not to forget to highlight a key point, which is about uncertainty. You do market research because there is risk and uncertainty about an unfamiliar market. Important. A lot of the topics we cover fall in this umbrella of unfamiliarity of foreign markets. •

One of the things to highlight in the answer, is to highlight the purpose of doing market research, which is reducing uncertainty about an unfamiliar market. That is a key point.

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It is also important to link it to international market orientation, which is the idea that firms that look at international marketing as part of their strategy, effectively achieving growth outside of their home (familiar) market, carries a risk. International marketing can bring growth, but there are also elements of uncertainty.

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Next week we will look at the topic of foreign market entry (market attractiveness). How to choose the market which is the most attractive. There are types of market research. There is research that looks at the attractiveness of the market, which looks at using secondary data and there is also research that looks at micro-level aspects.

Question b) • Difficulties in collecting primary data: It would take time, cost, relatively-speaking doing primary research than doing secondary research. Difficulties in collecting secondary data: it might be outdated, might not answer the questions you are looking for, cross-national equivalence. •

You must provide an example; you are trying to sell your knowledge of the topic. For example, if you state that the data might be outdated, you need to stop, explain it, explain the consequences and provide an example: “I know why these things matter”, key criteria when evaluating essay answers.

Question c) • People might not understand your question, for example, the concepts of these might not mean the same for different people or consumers. We looked at functional equivalence of questions using the example of milk: different people will interpret questions differently. •

An example they use in one of the articles is around the concept of friends. How friends mean different things when you translate it in different countries. The way in which some cultures think about friendship, etc. Provide some examples.

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The implications: a key argument is this idea of comparison. One of the things we do is cross-cultural comparison when we research, we compare markets. When we compare markets to evaluate their attractiveness, if you are not measuring the same thing, we might

overestimate how good a market is or the other way round. Or, for example, in terms of resistance to an innovation. Implications, consequences, are very important. Consequences of doing or not a certain thing. For the papers, give a quick reading, grasp the most important ideas/implications, what the papers talk about or examine, do not spend time on learning technical things, etc. Just understand the papers and remember the main points to use them as examples for the exam and how to link them with the theory and use them as support for the ideas added in the essays. Need to be aware of the papers, what they explain or present, but do not learn by heart. On the 25th November, guest lecture of Uniqlo. Lecture Objectives and Structure To examine the “adaptation and/or standardisation” decision which international marketers have to make as part of their programme. It is not dichotomous. It is not about choosing one or the other, it is about scaling. How much ‘adaptation’ and how much ‘standardisation’. Some of the adaptations are required to do, for example plugs, you have to do it by law. There are regulations. Other examples are translations of instructions, how they must be translated. There are some adaptations you must do by law. Even if a company wishes to standardise as much as possible, there will always be some level of adaptation as required by regulation. It is the degree we are talking about, the optimal balance is a key term. • • • • •

Product decisions Reasons for adaptation Reasons for standardisation Decision-making tool Country-of-origin effects

Introduction “When going or operating abroad, firms face the challenge of finding the optimal balance between standardizing and adapting their marketing strategies across national borders in order to be successful” Schmid and Kotulla (2011, p. 491). You need to remember the idea that adaptation costs a lot of money, which means you are changing your initial product offer. The idea is that you want to standardise your product offering as much as possible in order to reduce costs. Ideally, you want to just ship your products without changing anything. In the next 2 weeks, we will explore the possibility that when you enter a market, you might see that they use your product in a different way, and you change your original market. This would essentially mean that you would innovate in a market and then learn from that other market and change your original market. This process is called reverse innovation. Product decisions

Within every ‘offering’, there is always a core customer value. There is always a need that you need to focus/address. Sometimes this is not clear, in terms of what you are offering. An example would be the new phone that is being marketed which can be converted into an Ipad. Are you offering a tablet, phone or both? You have a customer value in every offering. The universities would be an example. There are probably other universities that are teaching the same module “International Marketing” and offering the same courses, being the attainment of a degree the core value of a university in the eyes of consumers (students). However, there are differences, whether in terms of lecturers, universities, course structures etc. Around that there is this idea of an “augmented product”. The idea is that when you look at an offer, you need to evaluate which bit of this offer you will have to adapt when you take that offer abroad. There are things which directly impact what you offer. In some cases, you will have to modify your offer. If you compare Apple and Google, Google refused to let China have access to their data, they blocked their offering in China and decided not to operate in China because of the local regulations and lack of freedom of personal data in China. Apple considered that China is way too big as a market and decided to adapt their offering. Apple agreed with the Chinese government that the government would have the right to check every app before they are launched. The adaptation is also sometimes linked to other decisions. The way you adapt your product has to be determined by how you play by the rules of the game given the market attractiveness. You must be careful when doing this. Paper on why Google did this, perhaps they thought this would affect their brand internationally... There are different levels, ways, reasons which impact the decisions and they are very consequential for companies. •

Physical features (core benefit and actual product) ▪ (e.g., size, features)

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Symbolic attributes (actual product) ▪ (e.g., brand name, country of origin)

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Service attributes (augmented product) ▪ (e.g., after sales service)

Typically, you need to think of the type of products. Technology products, for example, require very little adaptation. On the other side of the scale, food, requires adaptation given the different tastes around the world or eating habits, regimes. Types of products matters.

Symbolic attributes relate to how the people relate to a certain product; the positioning is important. For example, who is my brand ambassador in different countries (local or global ambassador decision-making). Service attributes would be the type of services. This could be legal too. For example, a country might impose a certain period of product guarantee and this might differ from the original product offering. Some people would not consider this as product adaptation as it is imposed, forced. These are things to care of even though they are not part of the core value.

The standardisation/adaptation decision Adaptation

Standardisation

Standards and regulations

Standards and regulations

Physical environment

Efficiencies

Consumer preferences

International product use

Marketing/competitive environment

Simplification

Brand name incongruity

Favourable brand name

Simplification

Positive country of origin perceptions

Consumer engagement

In some markets you do more standardisation than others given the level of competition, legislation, consumer preferences and similarities. Product adaptation comes with a lot of things. Product adaptation is not concerned with the core values, features, functions, the functional part of a product, but rather with the non-functional part of a product which is its non-functional part: the actual product and the so-called augmented product, if we consider the graph above. The example of last week: is this product adaptation? The best answer for the exam, combination of 2 ideas, critical thinking, however…look at another possibility This is Starbucks’ moon cakes, which you give as a gift in the moon festival in China. Is this product adaptation? It is not. Adaptation assumes that something already exists in the unfamiliar market, the host market. As this did not exist before, it cannot really be considered adaptation, because Starbucks are only offering a new product which was not there before, launched a new product in the market, but did not adapt an existing product.

But what if we think about the Starbucks offer more than just the product? On the other side, what if we think about the offer of the brand? You are adapting the offering of the brand to suit the local market. You do not think about the product that Starbucks is offering but you think about the Starbucks offer of the brand. You are adapting the Starbucks offer. However, strictly speaking about product adaptation, the classic theory of product adaptation, this could not be considered a product adaptation. In the strict product adaptation decision, there must be an existing product which offers the same functional value. Physical features ADAPTATION Local standards and regulations

“Complying with applicable regulations in every country in which Avon products are sold”.

Whether a product can be considered a product adaptation or not depends on the focus: product strategy or offer strategy. Are you looking at the product perspective or the offer perspective? Consumer preferences 1

Consumer preferences 2 Example of Coca Cola. “Though the formula for Coca-Cola concentrate doesn’t change, there can be slight differences in sweetness since bottling agencies may change the amount of sweeteners used to fit the local population’s palate, and some versions of the cola are said to be sweeter or sharper in other countries”. Consumer preferences 3 “Unilever markets Persil in Ireland and the United Kingdom, Europe, Latin America (except Mexico), China, Australia and New Zealand. Unilever also sells Persil in France. In this market, the brand focuses on "natural" ingredients and "skin-friendly" formulations”. Marketing environment

“The beer is brewed under licence internationally in several countries, including Nigeria, the Bahamas, Canada, Cameroon, Kenya, Uganda, South Korea, Namibia, and Indonesia. The unfermented but hopped Guinness wort extract is shipped from Dublin and blended with beer brewed locally”. The marketing environment is very important in terms of what can impact the adaptation. This is also connected to how you produce the product. *There are interconnections between different topics. This is connected in a way to “where you want to sell”. In some regions, it might be challenging to export to a foreign country, or simply put, there might be some products that are difficult to be exported from a certain distance. Therefore, the only way you can adapt to supply to a region is by selling it using local resources. For example, localising production and operations could become requirements. The marketing environment sometimes forces you to adapt your offering or even operations. One key component that makes international marketing unique is this differentiation and evolution from cost of production to cost of supply. One of the factors about cost of supplying is the distance. In some markets, you might decide to go and produce there locally because it is easier, avoids local constraints, regulations, but by doing so the resources you have in the home country will be different to the resources you have there, you will have to adapt your production to a certain extent, for example you might want to employ local workers, you will have to use local resources. In this country you will therefore decide not to export, but instead enter the market through FDI localising production.

STANDARDISATION Efficiencies “Experience effect & Economies of scale”. Standardisation is positive in terms of cost reduction as it involves economies of scale. It is easier to produce the same item, especially when it comes to goods rather than services.

International standards International product use

Some companies and brands do well by standardising their offer, some companies do well by customising their offer. Samsonite is an example of a brand that looks at the way in which a product is be used and in what way it is to be used. They consider that suitcases are used in the same way around the world and therefore they keep it as it is.

Symbolic Attributes ADAPTATION Regulations

Consumer engagement

Another way in which companies engage is through adaptation, engagement. We now introduce the term service. Google provides a service, an offer which is a service: Google search. Google search offers a service of searching but it has this doodle and sometimes it creates customised doodles which are aimed at engaging with consumers. This idea of how to engage with the audience is very important in international marketing in a particular event and through that the way you use that event. Consumer engagement through adaptation is different, Google needs to adapt to the different countries. STANDARDISATION Favourable brand image

EuroDisney re-branded to Disneyland Paris. Positive country of origin perception A lot of countries they use that adaptation and standardisation and they use that as part of country-of-origin. Decision (support) tool Schmid and Kotulla (2011)

Paper to read. This paper looks at all the important variables. This paper is known is known and used as a decision-support tool in the sense that managers can look at that and they can look at it in terms of the key variables that can lead to adaptation and standardisation. •

Using an example, price elasticity of demand, would be one where you look at the competition. Price elasticity consider for example, if you introduce a brand to the market, the degree of switching from one brand to the other gives you an idea of price elasticity in a certain market.

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You would look at this model if you wish to have standardisation. For example, you are looking at the homogeneity of consumer preferences. In some cases, consumers want to consume a product from a brand because they see the other consumers consuming the same, this idea of homogeneity. This is typically the case when there is a strong global brand image which consumers value globally, e.g. Apple.

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The preference is not for the functional attributes, but for the symbolic attributes. Starbucks consumers, for example, don’t actually go to Starbucks for the coffee, but for the Starbucks experience, part of the local branding. In that case, you would keep that standardisation.

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One of the key variables of a global brand is that there is demand for that brand, but sometimes consumers don’t actually know why that brand is good or better in general. They cannot ‘differentiate’ their functional attributes. Studies have shown that consumers cannot actually differentiate them, they do not see the difference in terms of their functional attributes. That’s the idea, consumers want to consume a brand more than the functional attributes. Something we will pay special attention to is this idea of country of origin perception.

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If a market has a high cross-price elasticity, which means that consumers are able to substitute, one of the ways in which you can differentiate yourself is by adapting your offer based on local preferences.

Country-of-origin effect • • • • •

We have encountered this concept before How does it affect the evaluation of product/brand attributes? Why do we need to study COO again under this theme of adaptation/standardization? Effect on which types of attributes COO as information signal: extrinsic or intrinsic attributes?

The COO is related to how people see some countries as better at producing something than others. The way in which we interpret and use that to make decisions. Information signal is an important term: you use it as a guide to evaluate whether a product is good or bad. The debate remains: does it really affect its intrinsic attributes or its extrinsic attributes? By extrinsic, we mean the attributes you can compare (if you think about a computer for example you can compare battery life, screen size, etc). Intrinsic attributes are things you don’t know about the product (intangibles). Sometimes a company can be attached to the functional attributes of a product. In some cases, the brand or the country of origin can be attached to the functions of a product. The debate continues, how do consumers use this COO as a signal of the quality of attributes? This matters because when I am going to another country and try to sell a particular product you need to decide how to position your brand against the other brands in that local market: do I position the brand in terms of advertising, symbols or in terms of the functional attributes of the product? In fashion, for example, where cultural references are important as part of the offering, you use these as symbolic attributes. Why does this matter? It is the way in which there are differences and similarities in terms of the brands but more importantly how the market interprets the signal of country of information. How the consumer interprets the country of origin.

Types of effects Products exported from another country

Types of effect where this can be manifested. There are products that form part of the brand, also in terms of the name itself, how they use that and the way they operate. In some product categories it is much clearer how they use this. *Sometimes people forget about the country of origin and companies act upon this. The CEO of the Houston Rockets said something he shouldn’t have said about Hong Kong. The Chinese government then responded. Then COO starts to be important. Designed in one, manufactured in another “Assembled”

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