Global Products and Services

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 setsGuess jeans

Regional products and brands are unique to a particular trading regionHonda’s European car model “Concerto”P& G’s Ariel and Vizir in Europe

• Cost Reduction

• Improved Quality

• Enhanced Customer Preference

• Global Customers

• Global Segments

• Off-Target

• Lack of Uniqueness

• Vulnerability to Trade Barriers

• Strong Local Competitors

DISADVANTAGESADVANTAGES

Standardization Pros and Cons

Localization vs Adaptation

LOCALIZATION: THIS REFERS TO THE CHANGES REQUIRED FOR A PRODUCT OR SERVICE TO FUNCTION IN A NEW COUNTRY (EX: FAX MACHINES FITTED WITH NEW TYPES OF TELEPHONE JACKS FOR USE IN A FOREIGN COUNTRY). LOCALIZATON AVOIDS HAVING POTENTIAL CUSTOMERS REJECT A PRODUCT OUTRIGHT.

ADAPTATION: WHEN PRODUCTS ARE CHANGED TO MATCH CUSTOMER TASTES OR PREFERENCES. ADAPTATION GIVES CUSTOMERS A POSITIVE REASON FOR CHOOSING A GIVEN PRODUCT.

NOTE: A standardized product still needs to be localized to function properly.

PREFER

REJECT

Line shows likelihood of

Purchase

Uniform Localized Adapted

+

-

Uniform vs Adapted Product

• 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?

•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

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?

EUROPE

ASIA

LATIN AMERICA

NORTH AMERICA

Honda City

Honda Element

Honda Fit

Honda Stream

Honda’s Non-Global Car Models

EUROPE

ASIA

LATIN AMERICA

NORTH AMERICA

Goodyear Eagle F1

Goodyear Eagle F1

Goodyear Eagle F1

Goodyear Eagle F1

Goodyear’s Globally Uniform Tires

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.

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 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

• Accounting

• Advertising

• Banking

• Broadcasting

• Computer services

• Consulting

• Data processing

• Design & engineering

• Distribution

• Education

• Entertainment

• Health care

• Insurance

• Investment banking

• Leasing

• Legal Services

• Lodging

• Media

• Reservation systems

• Restaurants

• Tourism

• Telecommunications

• Transportation

• Utilities

The Service Industries

• INTANGIBILITY – you cannot easily touch a service

• HETEROGENEITY – the service is not exactly the same each time

• INSEPARABILITY – services are produced when they are consumed

• PERISHABILITY – you cannot store a service

Characteristics of Services

CORE SERVICE: IS WHAT THE BUYER IS REALLY BUYING. FOR EXAMPLE, AN OIL CHANGE AND TUNE-UP FOR YOUR CAR PROVIDES TROUBLE-FREE OPERATION.

FORMAL SERVICE PACKAGE: SPECIFIC SERVICES OFFERED TO THE CUSTOMER INCLUDING PRICE, SERVICE FEATURES, THE PACKAGING, GUARANTEES.

AUGMENTED SERVICE: THE TOTALITY OF THE BENEFITS A CUSTOMER RECEIVES OR EXPERIENCES THEY HAVE WHEN BUYING THE PRODUCT.

The Service “Product”

Generic benefits

Provider’s behavior

Physicalsurroundings

Provider’s appearance

Brand image

Features

Quality

Packaging

After-salessupport

Price

Warranty

Core service

Formalservice package

Augmentedservice

The service as a “product”

• Stage in the Life Cycle – potential is highest during the maturity stage because then the service is fully developed and can be blueprinted.

• Infrastructure barriers – service applicability depends on availability of infrastructure, as when, for example, warehouse stores require customers to take home large items in their own cars.

• Idiosyncratic Home Markets – special regulations induce domestic service providers to develop practices that are not applicable elsewhere, as when, for example, advertising agencies in Japan produce television programs whose sponsorship the agency controls.

Three factors that influence the globalization potential of services

Service Globalization Potential

Reasonable similarity to the home country situation

Distilling exactly what the key features of the product/service concept are

Localization of the key features to another environment while still maintaining the FSA's of the firm

2

1

3

Keys to Successful Service Globalization

1. EXPORTING – where services can be transferred via communications media or personal travel to countries

2. LICENSING – when local involvement is important, where the service can be standardized (e.g. franchising)

3. STRATEGIC ALLIANCES – when a local presence is necessary but where government regulations are restrictive to foreigners

4. FOREIGN DIRECT INVESTMENT – when a local presence is feasible, where foreign ownership is permitted

The Four Service Entry Modes

Foreign Entry of Services

Tourism exports provide an illustration of foreign trade in services, as when Americans visit France.

A franchising expansion by McDonalds provides an illustration of a licensing mode of service entry.

In marketing research, it is common to strike up alliances with research firms in other countries to be able to provide global coverage to clients.

In consulting services, foreign direct investment is sometimes necessary, as when Price-Waterhouse opens an office in Brussels.

1. MARKET SEGMENTATION – typically new services from abroad target very specific segments or audiences

2. POSITIONING – the customer benefit of the service needs to be identified clearly to position the service accordingly

3. PRODUCT LINE – a service provider that fits the local infrastructure

4. BRANDING – is always important given the intangibility of services.

The Local Marketing of a Service

5. PRICING – competitive parity, costs, demand, and the value of time spent by customers must be factored in

6. PROMOTION – many professional services have restrictions on promotional activities that differ across countries

7. DISTRIBUTION – since a service is produced & consumed at the same time, service delivery is identical to service production; consequently, distribution becomes the “critical incident” or “moment of truth.”

The Local Marketing of a Service (cont’d)

CRITICAL INCIDENTS/MOMENTS OF TRUTH – the period of time during which an individual consumes the service

Desired Service – highest or ideal quality

Predicted or Expected Service – lies somewhere between the desired & the adequate service

Adequate Service – forms the lower limit below which the service quality is unacceptable

Perceived Service –must lie between the desired & the adequate service levels to make sure customer is satisfied

Service Quality

Desired Service

Predicted/Expected Service

Adequate Service

(Perceived Service low)

Surprise

Acceptable

Dissatisfaction

Zone of tolerance

Performance Gap

Service Quality:The Gap and the Zone of Tolerance

(Perceived Service high)

Inadequate Service

•Since services are intangible, service quality is more difficult to quantify, allowing for a more subjective

view

•Different cultures have different habits and preferences and therefore different definitions of

service quality

•So culture affects perceived service quality & customer satisfaction strongly

•And what is considered high service quality in one country is not necessarily high in another country.

Culture and Service Quality

• Asking • Listening

JapaneseAmericans

• Expressing doubt • Expressing sympathy

• Explain what cannot be done • Explain what can be done

• Defending company policy • Apologize for company policy

• Responsibility of the buyer • Responsibility of the seller

• “We’ll fix it, but…” • “I’m very sorry”

• Low customer satisfaction • High customer satisfaction

Personal Service Quality:Differences in Complaint Handling

ADVANTAGES – allows franchisee to start a business with limited capital, benefiting from local experience of franchiser

DISADVANTAGES – franchiser’s ability to dictate many facets of the business may seem overly intrusive

• Has been growing in the last two decades

• Mitigates risk of financial exposure in other country markets

• Common method of penetrating new markets, leveraging existing brand names

• Firms provide pre-planning tools to entice local investors

E.g. McDonalds, KFC, Wendy’s, Dunkin Donuts, Pizza Hut

Close-up: Fast Food Franchising

• Professional services are expanding globally despite idiosyncratic local regulations

• A gradual move toward making regulations more homogeneous benefits this expansion (e.g. EU certification of lawyers & doctors)

• Accounting standards are converging, allowing accounting firms to go global, with clients outside their home countries

• Increased sophistication in creating strategic alliances aid global service expansion

E.g. lawyers, doctors, accounting firms

Close-up: Professional Services