ADAPTING PRODUCTS AND SERVICES.docx

**ADAPTING PRODUCTS AND SERVICES** Why Is This Important? Once an organization makes the decision to proceed with a trade initiative in a new international market, there are many marketing details to consider and plan. One consideration is whether products and services should be adapted for the tar...

**ADAPTING PRODUCTS AND SERVICES** Why Is This Important? Once an organization makes the decision to proceed with a trade initiative in a new international market, there are many marketing details to consider and plan. One consideration is whether products and services should be adapted for the target market, and if so, what the nature of those adaptations will be. There may be adaptations that must be made to comply with trade laws and product standards. There may also be adaptations that an organization chooses to make to improve the appeal of its products and services in the international target market. International trade practitioners cannot assume that the products and services offered in the domestic market are suitable for an international market because even small differences in a country's legal, political, socio-cultural, economic and geographic environments can impact sales. For example, consider a software company that wants to export its product to two very different international markets. It adapts its product to be simpler for one international market that is less familiar with technology, and creates a more complex version of the same product for another international market known for its early adoption of new technology. There are many options in the type and extent of product and service adaptations for international markets. Adaptation Options 1. Make no or only minor modifications to products and services, or their packaging. At times, modifications to products and services may not be necessary and the organization can export the same product it sells in domestic markets. This may occur when the organization: Deals with international customers with similar product specifications, e.g. paint Supplies parts for products exported without modifications, e.g. microprocessor for computers Produces a unique product sold on the basis of its status or foreign appeal, e.g. Gucci watches Sells a product that is sold exclusively on a commodity or price basis, e.g. wheat A standardized product or service is one that is marketed in more than one country without modifications. Standardization is based on the belief that consumers share some common values, beliefs and consumption patterns. Considerations such as potential demand, cost of modifications, specific requests from buyers, the nature of competition and potential profit affect an organization's decision to standardize. They also consider several advantages and disadvantages. The advantages of standardization include: Economies of scale in production, stock control, sourcing of components, training and servicing Rapid recovery of investments made in developing the product or service Easier organizational, managerial and control procedures Increased likelihood of achieving a global brand Disadvantages of standardization include: Loss of marketing flexibility in foreign markets (an inability to match the product or service to specific local requirements) Discouragement of creativity and innovation, especially among local personnel Loss of local personnel because of low incentives to innovate and inability to accommodate local market's specific needs 2. Modify products, services, production processes and/or packaging to meet mandatory/legal requirements including government legislation, trade agreement terms, partner agreements (e.g. alliances) and industry standards (e.g. dairy farm practices). The following are examples of factors that result in mandatory adaptations: Ingredients that are banned or compulsory, e.g. beer sold in Germany cannot contain any ingredients other than water, hops, malt and yeast Tariff structures and taxation Technical specifications and standards, e.g. traceability of agricultural products throughout feed and food chain Quality control, e.g. adapt fruit inspection procedures and standards for target market Testing and approval procedures, e.g. pharmaceuticals sold in Japan must be tested in-country Mandatory requirements for environmentally friendly product disposal Safety standards (e.g. millwright certification traceability back to structural components) 3. Modify products, services and/or packaging to improve marketability. Modifications are typically based on these factors: How the product will be used, e.g. offering manual versus motor operated tools Size options and labelling, e.g. labelling men's shoes as size 10 in Mexico and as size 45 in Europe Packaging preferences, e.g. colours, shape Cultural preferences, e.g. North American preference of making bulk purchases, Japanese desire for beautiful packaging Transportation and storage requirements, e.g. size of bottles Sustaining reputation as being leading-edge Climate and geography, e.g. changing fertilizer formulas to adjust to local soil conditions Social movements, e.g. reducing environmental footprint, adhering to corporate social responsibility policies Adaptations are not limited to the product or service offered. Modifications can also be made to pricing, financing, customer support, delivery methods and promotional strategies to improve appeal and fit for the international target market. 4. Make changes to create a global product or service suited to all markets. This is a type of standardized product, but rather than creating consistency by making few or no changes to a domestic product or service, this option involves designing a product or service suited to all or numerous international markets. An example of such a product is Apple's iPhone. Apple's design is standardized and it offers the same range of products across all regions. They do provide some customization in the form of technical requirements, such as power sources, prices, as well as customer service and support. For example, every Apple store is located in a building suited to the local culture and customer service representatives follow protocol that is tailored to the region.3 Of the four adaptation options listed above, an organization will choose based on the information gathered about the target market and the organization's capacity to make the desired adaptations. In some instances, the best strategy may be to develop a new product or service for the international target market. Market Research To identify necessary and optional adaptations, international practitioners review existing research results and conduct additional, more detailed market research as needed. During the feasibility stage of the development process, the organization will have conducted an analysis of a potential market's legal,will have revealed information about the suitability of products and services for the market. Research continues during the development of the international business plan, the selection of a market entry strategy, and the decision about what adaptations (if any) will be made to products and services. To identify mandatory adaptations, the organization must obtain the details of the requirements from international and country-specific government/ authorities. Regulations affecting product and service design, and development and ancillary features, such as labelling and packaging, are typically found in the areas of health and safety, intellectual property, standards and language. Professional services are often regulated and exporters must adhere to the certification and standard levels of professional industry associations and governments in the international market. Services related to the health care profession, legal and accounting services, and engineering and architectural services may fall under these categories. In the area of advisory or consulting services, local standards will vary from country to country, and in most cases do not require any form of certification. The market research topics that follow are related to adaptations focused on customer needs and preferences. Various types of research can be conducted to gather this type of information, including concept screening, customer satisfaction studies, segmentation research and pricing strategy research. When conducting research in or on foreign countries, marketers need to be aware of potential cultural bias in the research instruments and strive to minimize it by ensuring translations are accurate and interviews are conducted by researchers of the same cultural background as the research subjects. Defining the Customer The first level of differentiation between customers is whether the potential buyer is another business, a consumer or both. For to business (B2B) customers, research on the economic development level of a country will indicate some of the challenges these customers face, such as availability of technology, labour force skills and costs, energy costs and availability of supplies. A study of local competitors can reveal the features of competitors' products and services (including pre-sale, post-sale and repairs) and the challenges for which they have not yet provided solutions to the target market. Research about a business audience can be used to create a business profile that summarizes its key characteristics. A business profile typically includes information such as demographics, location, estimated demand, purchasing decision makers, industry status and players, and unresolved problems or challenges. Information included in a customer profile focused on business to consumers (B2C) is described below. Customer Profiles Customer profiles are used for product and service adaptations and other marketing decisions. Profiles are also often created for specific segments for the market. Customer profiles are almost certain to be diverse within every foreign market, taking into account income levels, culture, living standards, fashion, religion, politics and general attitudes toward imported products. Important aspects of the customer profile are summarized in Table 1 1, and include the demographic portrait, the estimated demand and purchase motivation. Demographic Portrait This part of the profile demonstrates a detailed understanding of the organization's customers and typically includes demographic characteristics such as age, gender, career or job, income, level of educational attainment, geographic location and language(s) spoken. Estimated Demand Based on collected research, marketers estimate demand for products and services, and the rate at which the demand is expected to grow. Purchase Motivation It is important to understand what motivates customers to buy. Are they looking for savings or a way to simplify their lives? Perhaps they are seeking attention or safety. Why will customers choose the company's product or service over the competition? Is what they have to offer too inexpensive or too costly? Do they offer something unique? What cultural factors influence the values, preferences and behaviours in this target market? n the digital age, the profile may also include a description of the customer journey from when they were first introduced to the brand or a product/service through to them becoming a loyal customer. Identifying the Needs and Preferences of Customers Information about customers is collected and analyzed on an ongoing basis to make decisions about developing, adapting or eliminating products. The prevalence of online activity has created a need and an opportunity for marketers to capture or harvest information about the target market and customers using digital monitoring. This involves capturing mentions of an organization's brand or other related topics such as products, services, promotions and even competitors. Social media can be tracked, along with other digital media such as blogs, news sites and forums. Figure 1 2 illustrates the steps of digital monitoring. The captured data is analyzed and insights sought such as who is saying what, and where the communication takes place. Feedback about products and services can come from sources other than the Internet. For example, foreign agents and other local representatives may ask for product modifications to please their customers. An organization can also routinely ask customers for their opinions through online surveys and customer advisory boards. The organization's sales team should provide feedback from current and potential customers that is obtained through sales calls. Finally, organizations consider data from behavioural research when developing or adapting products and services. When conducting customer preference research, a three-stage process can be used: 1 \| Find out what problems or challenges customers are dealing with. 2 \| Design or adapt a product or service so that it will solve the problem and address the challenges. 3 \| Test the product or service with customers and ask for their feedback. Another form of primary research used to gather information about customer preferences is photo-elicitation. Photo-Elicitation Research Technique Photo-elicitation is a research technique in which the researcher uses pictures to direct an interview and encourage dialogue. This technique has been successful in gaining a better understanding of cultural issues before the introduction of a new product or service. Photo interviews work for cross-cultural market research for the following reasons: Interpreting photos encourages research subjects to comment on both social and cultural elements that are important to them and what subjects think may be important to the researcher. Photos of familiar items and situations can trigger memories and often reveal hidden opinions and explanations. The photo-elicitation technique called ZMET® asks research subjects to select photos that remind them of a product or brand, but do not contain an image of that specific product or brand. The research subjects take these photos with them to a one-on-one interview where the researcher poses questions to elicit their unconscious associations with a product or brand. This information can be used to explore cultural impacts on product or brand use, and to create promotional campaigns based on the unconscious thoughts and feelings of customers. Purchase motivations are often influenced by other people, particularly individuals who are considered purchasing decision makers in the organization or household. However, at their foundation, purchase motivations are most influenced by cultural values. Market Segmentation Product and service adaptations may be targeted at a specific segment of the international market. If the target market is too broadly defined, customer needs and values will be too different and perhaps even contradictory. For example, an engineering consulting firm might segment its customers into private sector, public sector and international clients. Although the service offered is engineering in all cases, the experience will differ with each client segment and each project. Larger businesses analyze in even more depth, segmenting their customer list into different categories by using different criteria such as spending history and responsiveness to offers. Segmentation of customers is based on factors related to buyer expectations and the settings in which buyers make their decisions to consume products and services. Segmentation is a means of capturing value; customers often receive and pay for benefits they value. Segmentation allows marketers to tailor products to better satisfy needs and communicate with customers using media popular with each individual market segment. Focusing on the most relevant market segments allows organizations to highlight the unique benefits and differential of its products or services. In this context, differentiation involves singling out one element that creates the benefit of most relevance to customers and makes the organization stand out in the marketplace. Impact of Culture Although homogenization of consumer tastes and preferences is increasing around the world, in most cases consumers in different countries exhibit unique preferences for features, ingredients, components and other characteristics of products and services. While Coca-Cola is a product that has succeeded in a wide variety of different markets, McDonald's recognized that it could not sell beef hamburgers in India where the cow is considered sacred. The first priority for any organization is to make sure it is marketing the right product or service to the right market segment. Satisfying customers is challenging enough in a domestic market, but it can be quite daunting when addressing multiple international market segments, each driven by a unique set of values. The variation in values is largely a result of the culture in which customers were raised. Cultural variations are not only evident between countries, but also within them. Cultural differences present a challenge to international trade practitioners because culture is influenced by multiple facets of a society, and can be difficult to understand. But it is a challenge worth facing as cultural ignorance can jeopardize business success. Uninformed international trade practitioners can violate the cultural norms of another country and offend business associates or consumers without intending to. For example, in Latin America, it is a cultural norm for business associates to have casual physical contact. It is common for business associates to link arms when walking together. To refuse this physical contact could be considered insulting, unfriendly and could damage the trust in a business relationship.6 It is particularly important to understand the business and social norms and expectations when selling services. Culture influences buying decisions. The customer's culture impacts the importance they place on factors, such as price and personal relationships, when deciding whether to make a purchase or not, and if making a purchase, which product or service to choose. These factors can have a significant influence on whether a business deal goes through. For example, organizations in Asian countries are more likely to first consider a long-term business relationship and then review the price structure to see if it is fair. Indeed, in many markets, a long-term business relationship is critical because it fosters mutual trust and respect between the parties involved and improves customer loyalty. When businesses demonstrate that they are committed to the relationship, it provides a foundation for trust, which reinforces the stability of an ongoing relationship. So, when price is a secondary consideration, an organization would be wise to establish a long-term relationship rather than employing a sale-by-sale approach. In international trade, disruptions in a supplier relationship can be challenging, so this need for trust often extends the sales process. It takes much more time and money to win new customers, so organizations need to work especially hard to keep existing customers satisfied so the relationship stays strong. Language Considerations Language is arguably the most important element of culture. Adaptations of text for product labels, packaging, advertisements, and user manuals and other content, should be implemented by individuals with intimate knowledge of the local language and its regional differences, figures of speech, new words and lang. The gestures of nonverbal language are also important to understand for any images or videos that are used to communicate with the target audience. For example, some cultures, a nod of the head means yes and a shake of the head means no; in other cultures the meaning of these gestures is the reverse. Because of differences in the nuances of language, literal translations are seldom accurate. For example, the Japanese word "hai" is literally translated as "yes". To Americans, that can imply "Yes, I agree". To the Japanese speaker, however, the word may mean "Yes, I hear what you are saying" (without any agreement expressed), or even "Yes, I hear you are saying something even though I am not sure exactly what you are saying."7 Japanese listeners have an advantage over other listeners in such cases as they have the background to interpret the message from the context of the situation. A European syrup producer hired an international research company to conduct a survey of the Swedish market. The syrup product they wanted a market survey of was a solution of sugar dissolved in water and flavoured with fruit juice. Syrup was incorrectly translated as "blandsaft", a Swedish term for concentrated fruit juice, a local substitute for syrup with much less sugar. Thus, when the survey results came in, they captured opinions of a familiar local product rather than the European manufacturer's product.8 Culture holds many nuances. Cultural influences are evident in the subtle differences of language such as whether the audience prefers the active or passive voice. Culture impacts people's perceptions of space, symbols and time, among many others. It is almost impossible for someone raised in one culture to have a deep understanding of other cultures. For this reason, international trade practitioners must consult people who have lived in the local culture for an extended period to provide insights that allow for beneficial product and service adaptations. Perceived Value of Products Enhancing the marketing effort means increasing the value that the customer perceives in the product or service offered. Since the customer determines value, the customer is where organizations should start when considering how to improve value. The approach that an organization takes for perceived value depends on the nature of the product or service offered. Table 1 2 illustrates how three different products have distinct combinations of characteristics that have low, medium or high impact on customers' purchasing decisions. For example, the most influential characteristics of diamonds are design and prestige. Customers that value design and prestige are more likely to buy diamonds than those who place more value on different product characteristics such as function or utility. More details about the value proposition of services will follow. Perceived Value of Services The intangible nature of services can make them more difficult to sell. Service providers need to understand how customers assess services. One way marketers can do this is to understand the relationship between perceptions and expectations. This relationship has been described as: Satisfaction = Perceived Value -- Expectations9 If customers perceive that an experience has exceeded their expectations, the customer is satisfied. If customers perceive that an experience has not met their expectations, then the customer is dissatisfied. Not all customers are the same. Their culture, life experiences, age and other characteristics cause great variation in perceptions and expectations. For service providers, this means that they need to understand customer expectations in the target market. Understanding expectations allows organizations to set a benchmark for perceived value that will result in customer satisfaction. Although each customer's perception of value is unique, aspects of perception can be objectified and business strategies used to address issues. For example, if customers consistently stand in line to wait for service, then they would likely perceive shorter waiting times as valuable. The service provider could influence the perceived value of their service by adding additional staff to reduce waiting times. However, customers vary and what might be considered a short wait for some may be too long for others. Perceived value can be expressed in the following way: Perceived value = (Results + Process + Emotional Value) (Price + Inconveniences + Uncertainties)10 The numerator of this equation includes what the customer receives from experiencing the service. Results are the outcomes, what the customer hopes to obtain from using the service. The process refers to the factors of delivery, e.g. wait times, information provided, the interaction. Emotional value is what the customer feels about the service, brand or the event when experiencing it. The denominator is the cost of the service to the customer. In addition to the monetary cost of the service paid by the customer, there is also the cost of any inconvenience, such as wait times, parking or delays. Uncertainties are the cost of the unknown---what the customer is unsure of in relation to the service---and they can cause anxiety. Service providers can influence these factors using business strategies. For example, costs can be controlled to ensure prices are reasonable for the customer, contingency plans can be put in place for inconveniences, and money-back guarantees offered to reduce uncertainty. Meeting the customer's expectations for results and process also increases the emotional value of the service. Figure 1 3 shows the factors that contribute to the benefits and costs that influence how a customer views the value of a service. Ideally, the "Total Customer Benefits" outweigh the "Total Customer Costs", creating an overall positive perception of the service. By defining the customer, assessing customer satisfaction and determining the perceived value of the service, the service provider can identify the selling points for the service being offered. This information helps service providers adapt and customize their services and develop their value propositions. Value Proposition Statements A value proposition is a promise of value to be delivered by the provider of products and services. The value proposition is a statement that explains how a product or service will deliver specific benefits, solve the customer's problems or improve their situation. It tells the customer why they should buy from the organization and not from the competition. Whatever the platform, whether it is a website, proposal or bid, the value proposition is the introduction to the service or product being offered. An effective value proposition should: Be easy to read and understand. Attract attention of the intended audience. Specifically describe the product/service, and for whom it is useful, and why. Describe the key benefits or features of the product/service. Provide images or videos that show the product/service in action and reinforce the main message of the service. Describe the end-benefits and features being offered, i.e. the expected results a customer will get from purchasing and using the product/service. Avoid excessive hype, superlatives and business jargon. Highlight the difference between the organization's value proposition and that of the competition, as well as how it is unique and of value to customers.11 The format, level of detail, amount of content, nature of the content (e.g. use of the potential customer's name, pricing) will depend on what type of document is being created for the value proposition. A generic sales and marketing document will be shorter, broader in scope of content and less detailed, but designed to attract the reader's attention. Proposals or quotes have a greater level of detail and focus on how the product/service will benefit a customer. They may include offers of assembly, installation, maintenance assistance, warranty extension inclusions or options, as well as details of how the product/ service will be delivered. A value proposition is most commonly used as a sales tool for services and to negotiate sales contracts and/or service agreements. Enhancing Perceptions of Value There are other ways of enhancing customers' perceptions of value. The terms of an agreement or the way a transaction is structured can be vitally important in making it more attractive to customers. Apart from the nature and characteristics of a product or service and how the organization promotes it, the organization can create additional value for customers in one of the following ways: Offering to enter alternate forms of trade, such as counter-trade Adopting innovative approaches to logistics Using creative financing and payment terms Providing comprehensive after-sales service, including operator and maintenance manuals, how-to on-line troubleshooting, and warranties Changing the design or development process of a product or service to increase benefits and value Organizations can use one or more of these approaches either to secure the deal or to enhance the offer. Regardless of the approach an organization takes, the end result is that it is finding additional ways to provide value to customers. Growth Hacking According to Ryan Holiday, the author of Growth Hacker Marketing: A Primer on the Future of PR, Marketing and Advertising,12 Adaptation Decisions To choose the best approach for adaptations, organizations will factor in not only their market research, but also their product definition and product life cycles. See Unit 2 in this module for more information about product life cycles. For more information on product definition, see the module Product Development in the course Products and Services for a Global Market The marketing team does not make decisions about product or service adaptation on its own. Marketers provide insights from the customer perspective that are blended with those of the design team, operations, maintenance, sales, customer service and finance. Once decisions about product and service adaptations have been made, any additional changes such as packaging, labelling, logo and messaging are identified. Organizations have several options when it comes to adapting its message to customers: Same product, same message: Coca-Cola is an organization that uses this approach. It is appropriate when the product fills similar needs and is used in a similar way abroad and at home. Same product, different message: This strategy is used where the product serves different needs or is used differently in the foreign market. For example, bicycles are recreational items in North America, but they provide basic transportation in China, India and Holland. Different product, same message: Esso adjusts its gasoline to suit different weather conditions throughout the world, but still uses the same promotional message. Different product (for the same use), different message: This involves changing both the product and the message to reflect differences in both product function and use. Makers of feminine hygiene products often employ this strategy. The demand of adaptations on financial resources is always an important consideration. The estimated cost of adaptations needs to be compared to estimated increase in income to confirm whether the planned adaptations should proceed, be altered/revised, or be abandoned. This decision is also based on the degree of commitment to the specific foreign market, since an organization with short-term goals may have a different perspective than an organization with long-term goals. For more information, see Unit 3 When moving into a new market with existing or adapted products, international trade practitioners seek protection for their Intellectual Property (IP). To do this, they identify the regulatory framework for IP registration and investigate whether international standards or those of other jurisdictions are recognized in the target market. Laws governing IP registration, patents, copyrights and trademarks vary among countries. Practitioners can access dependable resources, such as the World Intellectual Property Organization (WIPO), to better understand how IP issues apply to their products and services. It is wise to consult with an IP lawyer or specialist to learn more about how the organization can obtain the desired IP protection.