Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 11 Global Products

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. IntroductionIntroduction Global products are usually standardized Global brand 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 P& G’s Ariel and Vizir in Europe Korea’s ginseng tea makers covering the Asian market

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. The Pros and Cons of Standardization The Advantages of Standardization Cost Reduction Improved Quality Enhanced Customer Preference Global Customers Global Segments

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. The Pros and Cons of Standardization The Drawbacks of Standardization Off-Target Lack of Uniqueness Vulnerability to Trade Barriers Strong Local Competitors

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Localization versus Adaptation Basic Requirements Localization Generally speaking, localization avoids having potential customers reject the product out of hand Compatibility Requirements Localization represents the adjustments in the product specifications necessary for it to function in the foreign environment Multisystem Compatibility In many products today, localization is accomplished by building in compatibility with multiple systems at the outset

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Pitfalls of Global Standardization Reasons for Product Standardization Failure Insufficient Market Research Similarities among customers are often assumed rather than proved Overstandardization Standardization should not encroach onto the positioning strategy Poor Follow-Up Follow up needs to be implemented if a campaign is to succeed Narrow Vision The vision at the headquarters should not be narrow and inflexible Rigid Implementation Some flexibility in implementation needs to be retained by local units

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Product Lines Reasons for Product Line Differences History Different local products were well established before standardization was feasible M&A (Mergers & Acquisitions) Complete integration is difficult if the product lines are formed through M&A Preferences Differences in preferences give strategic rationale for product line customization Capacity Global product lines need large production capacity Channels Differences in channel structure make it difficult to support the same product lines

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. 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. Market Research Focus Groups and Surveys Focus groups offer the development team a chance to hear spontaneous reactions to a new concept and hear suggestions for improvement The survey addition is useful with global products and different country sites

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. 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 Target Product Research By analyzing the leading brands and their attributes, companies are able to understand what appeals to their consumers Sales Forecast The appropriate sales forecast approach is based on the product life cycle Test Marketing Once the sales forecast looks promising, the new product is usually placed in production and test marketed (see Ch. 4)

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Globalizing Successful New Products New Product Success Factors The most important factor determining new product success are the relative product advantage and technological synergy with a company’s existing products and processes Global Diffusion Five specific product-related factors Relative advantage – The leading cause of new product success Compatibility – Can the product be used without any problem? Complexity – Is the new product easy to use? Trialability – Is it easy to try the new product? Observability – So, how much faster does it connect to the Internet?

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Globalizing Successful New Products Global Diffusion Three country-specific variables that influence innovative and imitative propensities Cosmopolitanism The degree to which a culture is open to outside influences Geographic Mobility Influences the propensity of imitation The Proportion of Women in the Workforce The higher this proportion, the less time there is for innovation

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Brand Management Brand Equity The net revenues the brand can be expected to generate over time Global Brands Three advantages to using global brands Demand spillover Global customers Scale economies

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Brand Management The Brand Portfolio At any point in time, companies are likely to have A portfolio of a few global brands and several local brands The brands are typically managed in a hierarchical fashion and can take several forms In one, the most important global brands are at the top, followed by regional and local brands Alternatively, the top can be the corporate brand, possibly global, followed by subbranded model names Brand sales tend to follow a cycle similar to the product life cycle

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Brand Management Brand Globalization Potential Questions about appropriateness or brand fit Does the brand make sense outside of the source country? If the name suggests a country association, is the effect positive? Is the name available legally in many countries? Does the brand complement other global brands in the portfolio? Should the growth be limited to the creation of a regional brand? Implementation Issues in implementing the globalization strategy Is the globalization product-based? Which local brands should be chosen for the changeover?

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Global Brand Management Changeover Tactics Once the target brands have been identified, standard brand changeover tactics can be employed The fade-in/fade-out gradual option is the most common 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 Using extensive forewarning is another approach to name changeover

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Defending Local Products The typical reason for the success of local products is the customization involved In industrial markets Personal attention, fast delivery, and prompt after-sales service are all factors tending to favor local products In consumer goods The sameness of global products creates a potential for local products in special niche segments of the market

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Counterfeit Products Counterfeit or knockoffs are fake products designed and branded to mislead the unwary customer into assuming that they are genuine Counterfeit products pose an ominous problem in the global marketplace Firms make an effort to find the factories that turn out the counterfeits and they track the fakes in the stores