Chapter
12
Global Products
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
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
Standardization Pros and Cons
ADVANTAGES
DISADVANTAGES
•
Cost Reduction
•
Off-Target
•
Improved Quality
•
Lack of Uniqueness
Enhanced Customer
Preference
•
•
Global Customers
•
Global Segments
Vulnerability to Trade
Barriers
•
•
Strong Local Competitors
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.
Uniform vs Adapted Product
+
PREFER
Line shows
likelihood of
Purchase
Uniform
REJECT
-
Localized
Adapted
Optimal Level of Standardization
Incremental
manufacturing
cost
Combined
costs
Fully adapted
Cost of
lost sales
Fully standardized
What to Standardize?
•
•
•
•
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
Pitfalls of Standardization
•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
Why do Global Product Lines Differ?
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.
Honda’s Non-Global Car Models
EUROPE
ASIA
NORTH AMERICA
LATIN AMERICA
Honda Stream
Honda City
Honda Element
Honda Fit
Goodyear’s Globally Uniform Tires
EUROPE
Goodyear Eagle F1
ASIA
Goodyear Eagle F1
NORTH AMERICA
Goodyear Eagle F1
LATIN AMERICA
Goodyear Eagle F1
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.
“64 ideas make one successful product”
Number of
surviving
new
product
ideas
Idea
generation
(leading markets)
Preliminary
screening
Concept
research
(focus groups,
concept testing)
Sales
forecasting
Test
marketing
Target Positioning
 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 cellphones when the company decided not to follow the trend into
the so-called clamshell phone models with lids.
Target Positioning:
The Diagonal for “Me-too” Offerings
HI END
PRODUCT
SPECIFICATION
TARGET
BRAND
LO END
LO PRICE
PRICE POSITION
HI PRICE
New Products’ Speed of Diffusion
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?
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
company
Colgate
Kraft GF
Nestle
P&G
Quaker
Unilever
total
total number
brands found in
of brands
50% or more countries (%)
163
6 (4%)
238
6 (3%)
560
19 (4%)
217
18 (8%)
143
2 (1%)
471
17 (4%)
17921
Source: Journal of Consumer Marketing 12 no. 4 (1995)
brands marketed
in only one country (%)
59 (36%)
104 (44%)
250 (45%)
80 (37%)
55 (38%)
236 (50%)
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 antiglobalization sentiments against global brands) the
brand equity can go down very quickly.
Global Brand Equity
BRAND EQUITY is sometimes measured in terms of the
discounted net revenues the brand is expected to
generate over time.
1
2
3
4
5
6
7
8
9
10
Brand Name
Coca-cola
Microsoft
IBM
GE
Nokia
Intel
Disney
Ford
McDonald's
AT&T
2001 Brand Value ($ billions)
68.9
65.1
52.8
42.4
35
34.7
32.6
30.1
25.3
22.8
Source: Business Week 8/6/2001
Advantages of Global Brands
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.
Disadvantages 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.
Globalizing a Brand Name: Checklist
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?
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.
Counterfeit Products
• 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
Actions Against Counterfeits
“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)
Takeaway
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.