Global Products Chapter 12 © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Outline The pros and cons of global product standardization Localization vs Adaptation Global product lines Developing global new products Global brands and brand equity The pros and cons of global branding Counterfeit products Takeaways.

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 examples Gillette razor blades Sony television sets Benetton sweaters Regional products and brands are unique to a particular trading region Honda’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 UniformLocalizedAdapted + - 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?

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’s Globally Uniform Tires

Developing New Global Products Five Stages of the New Product Development Process Idea 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 Screening The most immediate evaluation of an idea is whether it is compatible with the company objectives, strategies, and resources. Concept Research Focus 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 Forecast The 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.

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 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 strategy The global brand is linked to the local brand for a time, after which the local brand is dropped A less gradual approach, sometimes called summary axing Simply drops the local brand name and introduces the new brand Companies 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

LOCALIZATION – fitting a product/service to local regulations and usage requirements ADAPTATION – fitting the product to buyer preferences A STANDARDIZED GLOBAL PRODUCT might not be adapted to consumer preferences but must still be localized. Takeaway

Product standardization is never 100%, but management must select which features to keep uniform and which to adapt to local markets. When preferences show wide variance across countries & the feature is important, adaptation will be necessary. Takeaway

Developing a globally standardized product requires data analysis, input from local subsidiaries, & a great deal of managerial judgment. New product ideas often come from leading markets; their diffusion rate is a function of fit with local infrastructure & preferences. Takeaway

Global brands are often the most valuable assets of a global firm. Most companies have a portfolio of brands, & management must decide which should be promoted as global. Takeaway

Counterfeit products are damaging to the brand’s equity & must be controlled, often by direct intervention. Takeaway