Global Marketing - PDF

Global Marketing - Marketing concerns the entire organization - Finance department offers attractive options for customers - Operations designs hassle-free customer interaction processes - IT creates attractive customer interfaces - Human resources select employees w/ suitable knowled...

Global Marketing - Marketing concerns the entire organization - Finance department offers attractive options for customers - Operations designs hassle-free customer interaction processes - IT creates attractive customer interfaces - Human resources select employees w/ suitable knowledge & skills to serve customers - Procurement department is sensitive to customers´ ethical concerns when they source from abroad **Strategy** - Strategy always involves a choice - Simple: strategy as a plan chosen to bring about a desired future - there are 3 central questions to generate strategic choices/ options: 1. Where do we compete? 2. How do we compete? 3. With whom do we need to develop key relationships? What is strategy? "where do we compete?" - Not only refers to geographical market area, also to: - Choice of technology (e.g. different operating systems) - Choice of customers (b2b; b2c) "How do we compete?" - Not only revolves around analysis of competitive positioning & generation of competitive advantage - Forces marketers also to: - Question the vision & mission of their company - Includes its fundamental ethical values & corporate social responsibility "With whom do we need to develop key relationships?" - Company has to forge key relationships if it wants to deliver customer value - Might have to work w/ competitors (co-opetition) - Certainly, need collaborators (e.g. distributors, agents, joint venture) - Suitable managers or employees - Choosing the right customers - More complex if GLOBAL - Each time a company enters a new geographical market, answers that may have been correct in the familiar home environment need to be called into question again [Global Marketing ] - defined as firm´s commitment to coordinate its marketing activities across national boundaries in order to find & satisfy global customer needs better than the competition - implies that firm is able to: - Develop global marketing strategy, based on similarities & differences between markets - Exploit knowledge of the headquarters (home organization) through worldwide diffusion (learning) & adaptions - Transfer knowledge & "best practices" from any of its markets & use then in other international markets [Coordinate its marketing activities: ] - Coordinate & integrate marketing strategies & implement them across global markets - Which involves centralization, delegation, standardization & local responsiveness [Find global customer needs: ] - Involves carrying out international marketing research & analyzing market segments, as well as seeking to understand similarities & differences in customer groups across countries [Satisfy global customers: ] - Adapting products, services & elements of the marketing mix to satisfy different customer needs across countries & regions [Being better than the competition:] - Assessing, monitoring & responding to global competition by offering better value, lower prices, higher quality, superior distribution, great advertising strategies, or superior brand image **Global marketing & globalization** - Globalization increased consumer choices - Globalization decreased global poverty - Supply chains, ability to serve new country markets, chance to benefit from globally mobile capital markets, lower communication & transportation costs Negative aspects: - Regional & country-specific differences are very enduring - Undermined local cultures, promoting unsustainable consumption, places profit ahead of human rights have always existed "don't think global- think regional" "Think globally but act locally"  **Global Integration/ market responsiveness** [Global integration ] - Recognizing the similarities between international markets and integrating them into the overall global strategy [Market responsiveness] - Responding to each market´s needs & wants  The new "VUCA" World - Global strategies need to be - Different than the past - More nuanced - More fine-grained - Less standardized - Less centralized - CSR & Sustainability gain importance **Sustainable Development Goals** - 2030 Agenda for Sustainable Development - Adopted by all United Nations Member States in 2015 - Shared blueprint - For peace & prosperity for people & the planet - 17 Sustainable Development Goals (SDGs) - Urgent call for action by all countries -developing & developed - In global partnership - Hand-in-hand w/ strategies - To end poverty & other deprivations - Improve health & education, reduce inequality & spur economic growth - While tackling climate change & working to preserve our oceans & forests [Translation of SDGs]  [How can a global marketing strategy help? ] [Sustainable Marketing ] "Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large." (AMA, 2017) "Sustainable marketing is the process of creating, communicating, and delivering value to customers in such a way that both natural and human capital are preserved or enhanced throughout." (Martin & Schouten, 2014, p. 18) -\>2^nd^ quote is build on 1^st^ quote [International Trade Theories ] - Help to understand make sense about observed phenomena - Attempt to explain why countries trade w/ each other - Attempt to explain how companies internationalize - A whole range of theories [The Uppsala Model of Internationalization ] - Stage Model by Johanson & Wiedersheim-Paul (1975) - Aim: explain how companies globalize - Predicts an incremental commitment to internationalization subject - To increase knowledge of foreign market operations - Organic approach  - Has been extended by Welch & Loustarinen (1988) - Operated w/ 6 dimensions of internationalization 1. Sales objects (what?): goods; services; know-how; systems 2. Operations methods (how?): agents; subsidiaries; licensing; franchising; management contracts 3. Markets (where?): political/ cultural/ psychic/ physical distance differences between markets 4. Organizational structure: export department; international division 5. Finance: availability of international finance sources to support the international activities 6. Personnel: international skills, experience & training Key components:  [Underlying assumption: ] - That internationalization us a slow & iterative process Criticism: - Model is too deterministic - Does not consider interdependencies between different country markets - Service industries may differ from this process (cumulative reinforcement of foreign commitments is absent) - Does not explain leapfrogging [Leapfrogging ] - Leapfrogging tendency not only involves entering distant markets - We can also expect a company to leapfrog some intermediate entry modes (- certain things are the same & can be taken into the new market -it is possible to jump over some steps when entering a new market) [Born Globals ] - Defined as companies that: „from or near their founding, seek superior business performance from the application of knowledge-based resources to the sales of outputs in multiple countries. " or „A Firm that from its inception pursues a vision of becoming global and globalizes rapidly without any preceding long-term domestic or inter-nationalization period. " - Represent firms operating under time & space compression conditions that have allowed then to assume a global geographic scope from the moment of their start-up - A "time-space compression" phenomenon - Means that geographical processes can be reduced & compressed into "here & now" trade - Information exchange over the globe can be achieved if available infrastructure, communication & IT devices & skilled people are put in place Key constructs & relationships of the Model: EXAMPLE: Skype - Launched in 2003 - Product: voice over internet protocol (VoIP) communication tool - using readily available and free Internet phone - technology, created an alternative option to expensive long-distance telephone calls and video conferencing - within 6 months: 2.4 mil users in 200 countries - 2014: 40% of international call market - "revolutionizing the communication industry" EXAMPLE: Airbnb - Launched in 2008 - 2010: listed over 50.000 properties in \>8000 cities worldwide - "Sharing Economy" - Acting as broker between hosts renting out their properties & guests [Summary] - Internet-based born globals emerge more & more - Born globals are challenging traditional theories - Based on advances in communication technology - 2 extreme pathways: organic vs. born global  **Analytical Frameworks** - Global marketing strategies need to be effective in different regions, countries & cultures - Decision-makers need to understand the relevant differences & similarities of markets they operate in - Subtle differences in consumer behavior, regulations, business practices - Even minor differences can make a change How can we start? - Need to understand the characteristics of foreign market environment How can we do this? - By applying analytical frameworks to guide & structure our analysis [The CAGE Distance Frameworks] - Developed by Pankaj Ghemawat - Relates to the context of "semi-globalization" - 4 central differences should be considered: - CAGE distinguishes between *bilateral & unilateral* factors - *unilateral*: country-specific or internal distance factors - *bilateral factors (external distance)*: differences between countries - *unilateral factors (internal distance):* attributes of each country  Tension between local responsiveness & global synergies: The PESTEL framework  - several versions/ acronyms exist e.g.: PEST; PESTELED; PESTLE - toolbox for analyzing market environment - used to identify external forces that face an organization - external forces, also called macro-environment  [summary:] - CAGE stands for cultural, administrative, geographical, and economic - The framework focuses primarily on the distance between the home country & the host country - CAGE model also looks at country-specific or internal distance factors - PESTEL distinguishes between political, economic, social, technical, environmental, & legal dimensions - Global marketing executives use these frameworks as a toolbox for analyzing foreign market environments **Balancing Global Synergies & local responsiveness** **[Basic strategic options ]** - In view of contravening forces 1. Pushing companies toward integration or local responsiveness 2. Should companies attempt to achieve economies of scales & scope through standardization - Should they adapt to local governments, markets & cultures wherever they can? - No best way to organize & manage a corporation - Ne best way to make decisions that will result in optimal outcomes for all businesses - Organizational choices are dependent: - On firm´s external & internal background - Must be grounded in this context - Environment-strategy-structure paradigm - Suggests that superior performance comes from a good fit between corporate strategy & environmental demands - and between organizational strategy & structure - major issued in global marketing - standardization vs. Adaption - Some products are global products, - meaning they can be sold in foreign markets with virtually no adaptation Adaption: - Most products need some changes in the product or promotion strategy - to fit new markets 4 basic options to approach Standardization vs. Adaption 1. domestic market orientation 2. global orientation 3. multinational orientation 4. glocal orientation - companies need to balance global integration w/ local responsiveness - questions arise about which decisions & activities to centralize & localize - can involve decisions on: - remit & location of authority between headquarters regional HQ vs. national subsidiaries - decisions on whether value-adding activities (e.g., production or back-office activities) should be located in the home market or overseas markets - Similarly: marketers grapple with standardization vs adaptation decisions For example: - which aspects of the marketing mix to standardize across different country markets adapted to country-specific requirements Differentiation between: 1\. Mandatory Aspects 2\. "Should be" (optional) Aspects **Balancing Global Synergies & local responsiveness** **[Implications for Global Structure ]** [The I/R Framework ] - MNC exposed to 2 strategic forces - Global integration - Local responsiveness - Integration/ Responsiveness Framework (I/R) - 4-fold typology - Based on different strengths of the 2 forces [Global integration] means: - Interconnecting the intl. activities of the MNC - Achieve synergy effects - By identifying the strengths - Linking the countries in which the MNC operates - Economies of scale are high in specific industries - Intl. standardized products are necessary = connecting international activities across all countries to achieve synergy & scale effects - Forces for global integration can also be called: industry globalization drivers Industry globalization drivers: 4 categories 1. Market drivers 2. Cost drivers 3. Governmental drivers 4. Competitive drivers  [Local Responsiveness ] - MNC operates in heterogeneous conditions in different host countries - Local unit in each country deals w/ different: - local customers - host governments - market & distribution structures - competitors - multinational flexibility - ability of a company to exploit the opportunities that arise from this heterogeneity, is necessary (?) - pressure to adapt varies by industry - necessary bc. of **difference in customer demand** - caused by cultural differences in tastes, different environmental conditions, or different income levels/distribution - different structure of the distributive sector - makes adaptions to the distribution strategy necessary - different competitive situation in different markets - forces a company to change - protectionism by government - need to produce locally &/ or adapt products to specific markets - necessary/ beneficial bc. of labor conditions - labor costs/ skill level requires adaption of production process - to optimize efficiency - or due to (non-)availability of suppliers - **differences in country conditions** - low number of potential suppliers - might make higher level of vertical integration in production steps more/ less efficient - due to lack of alternatives - Different work attitudes - may be rooted in different cultures, - make different leadership styles more/less effective in different countries = Connecting international activities across all countries to achieve synergy & scale effects Based on the centrality of decisions vs the differentiation of concept [Intl. Organization] - Objective: Secure the existing business in home market - some locations in border near countries - low ability to consider specific demands in other countries - Standardized concepts - Only national companies as main competitors - 1-20% revenue made by export [Multinational Organization] - Objective: International success - Many different countries in portfolio - Daughter firms with high local responsibilities - Focus on specifics of each country/ different formats - Decentral buying and purchasing - a group of relative independent daughter comps [Global Organization] - Objective: Better intl. competitiveness - Realization of intl. optimal strategy - Integration of all activities in a common system - national specifics not in focus - Standardized formats - Central buying and purchasing - daughter comps. w/o responsibilities [Transnational Organization] - Objective: Solution of conflicts and global learning - Differentiation through specialized units - Worldwide networking of all organizational units - Intl. know-how and information transfer - virtual organization without headquarter  [Summary] - I/R-Framework - Builds on tension - Usually considered the most relevant, particularly in management - dual forces for global integration & local responsiveness - global efficiency & multinational flexibility - considered primary objectives of MNC - difficult to achieve simultaneously - worldwide learning is considered crucial for the innovation capacity of an MNC - certain level of integration is beneficial for MNC learning **[Global Marketing Strategy as a Balancing Act ]** *How can MNCs achieve local responsiveness & global/ regional synergies the best way?* MNC: 3 primary objectives 1. achieving operational efficiency 2. managing risks 3. developing internal learning capabilities - MNCs need to develop global scale efficiency, multinational flexibility, & the ability to develop innovations & leverage knowledge on a worldwide basis - MNC efficiency & ability to learn depend on how well it manages to integrate activities that are geographically dispersed - Most situations: neither full centralization of decision making in HQ nor full local control would be feasible/ desirable From a global marketing perspective: Is it possible (& desirable) to standardize all aspects of the business? - It is virtually possible - Marketing = interface between the company & customers - Nee to diversify marketing activities e.g.: food industry higher pressure to standardize reality: - Global marketing managers need to determine which specific marketing plans & programs can be standardized worldwide \+ which must be adapted to various local environments 4 dimensions to consider 1. Company´s overall strategy 2. Product 3. Marketing mix 4. Countries where the firm operates 1. Company´s overall strategy - Global marketing program needs to be aligned with & contribute to the implementation of the company´s broader global strategy - Any misalignment of company´s strategy w/ its external environment is problematic 2. The product - Global marketing decisions are linked to the company's portfolio of products & services - product portfolio, that is culture-bound will be more challenging to market globally than one that is less culturally sensitive - if the products benefit from high-scale efficiencies, they can be sold at very competitive prices, which diminishes the resistance of consumers to less culturally sensitive products - resistance to global products of young people tends to be lower 3. Marketing Mix - Balance: standardization & adaptation - should be considered separately for each element of the marketing mix - physical product may be standardized - the price, the distribution, the advertising, or the sales promotion may vary - branding & packaging are also more often standardized than promotion activities 4. Countries where the firm operates - decision to balance global integration & local responsiveness will impact each national subsidiary differently - HQ must take this diversity into account **[Developing a global marketing strategy ]** We have laid the conceptual and theoretical grounds for developing a GMS - What is marketing? - What is strategy? - What is global? [How does it start?] - With decisions - Mission & vision cascade down to the required management systems [3 decisions linked to marketing ] - Core decision: embedded in & determined by the purpose of the organization - Way decisions are taken & how they are executed are influenced by the management system of a company [Purpose ] The core reason for existing beyond profit  Why do we do what we do? - Clear purpose is needed - to guide subsequent strategic choices - it is the basis for all other decisions - every organization needs to be clear about why it exists - defining an organizational purpose is complex, critical, & ideologically charged - controversial statement: "purpose of the organization is to create a customer" [the "where"- Porter´s 5 Forces model ] standard tool for mapping competitive environment Threat of new entrants - increases, if the capital required to enter the market is low & the company does not have any patent protection threat of substitutes - driven by availability of suitable alternatives in the market - costs buyers incur when switching from one product to another & differential or cost advantages the company may have bargaining power of [buyers] (Verhandlung) - largely depends on the number of buyers relative to suppliers - other factors: the switching costs of the buyers & the bargaining leverage, which is high in industries w/ high fixed costs - major factor is also the degree of differentiation bargaining power of suppliers - driven by the concentration ratio in the industry - in an oligopoly, the bargaining power of suppliers tends to be higher than in a fragmented, competitive industry - switching costs & the degree of differentiation play a role the competitive rivalry - primarily driven by the firm concentration ratio & the competitive advantages [the "where"- domain positions ] - how can we act on our "playing field"? - 4 key domains: 1. Product 2. Customer 3. Distribution 4. Value chain  [LATTE supply chains ] **L**ocal **A**uthentic **T**raceable **T**ransparent **E**thical supply [Market Position & Attractiveness ] - It is important to distinguish between market position & market attractiveness - Review of domain positions may lead to a new market - This results in different - Products - Services portfolios - Customer types =\> all this impacts the market position - Segments - Distribution methods - Positions In the value chain [Low Cost vs. Differentiation Mindset ] - Low cost strategy, also known as a cost leadership strategy - Companies try to produce their products at unit costs that are lower than those of their competitors - Requires emphasis on standardization & willingness to sacrifice nonconforming customers - Cost leader = managers - Are forever seeking to better understand cost drivers - Modify their operations accordingly - Differentiators = managers - Are forever attempting to deepen their holistic understanding of customers - To learn how to serve them more distinctively  - Ikea & McDonalds are combining the approaches - Stuck in the middle could be sweet spot for some companies [Treacy & Wiersema´s market leader triangle ] [Resources] -What about resources? - Often central for decision making - Determine the framework for action - Controlling resources may lead to sustainable, competitive advantages - [Resources Based View] common for corporate strategy [Resource Based View ]  - resources & capabilities should reinforce each other should be supported by related activities **[The Role of Brand Identity ]** [Brand Authenticity ]  authenticity of a brand = degree to which the brand´s behavior is causally linked to brand identity - What does that mean? - Focus on the actions of the employees working for & w/ a brand - Brand employees´ motivation for action can be intrinsic or extrinsic Extrinsic motivation - Determined by external environmental stimuli - Extrinsically motivated: brand employees´ activity reacts to new environmental conditions - They orient their behavior opportunistically - Taking advantage of new market profit opportunities e.g.: competitors may be copied w/o reflection & short-term trends integrate into the brand intrinsic motivation - Describes behavior rooted in & driven by a brand´s self-image (brand identity) How do consumers make sense of external & internal motivation? - For consumers, it is often difficult to directly asses the motivation of brand employees - Consumers indirectly form their judgments regarding the authenticity of a brand, comparing the officially communicated brand promise with their personal experiences at the brand touchpoints - Information communicated by third parties (e.g., media, friends, and influencers) about the brand is also integrated into the consumers' own judgment of authenticity Identity-based understanding of brands provides 2 dimensions for brand authenticity 1. Integrity (intrinsically motivated brand behavior) 2. Originality [Integrity ] - Defines the avoidance of brand exploitation by aligning brand behavior w/ fundamental brand values & beliefs 2 critical components of integrity are cohere & continuity Coherence: - Specific point in time - How well consumer´s experiences at various brand touchpoints fit together Continuity - Extend to which brand retains essential characteristics over an extended period [Originality ] - refusal to imitate other brands while designing a brand promise & is defined as the "perceived originality of the brand positioning" for a brand to be perceived as authentic - it must demonstrate integrity & originality - incl. coherence & continuity  Brand management assist in: - planning - coordination - control - of all measures remember: MARKETING IS EVERYTHING touchpoints of Brand Management in GM: 1. strategic brand/ marketing management 2. operative brand/ marketing management 3. brand control **[Targeting, Segmentation, & Positioning ]** = Holy trinity of marketing - define central battleground in any marketing strategy - mistakes can be costly + might result in failure - getting it right = critical prerequisite for corporate success [Market segmentation ] - aims to divide market into smaller units - e.g.: country groups, individual countries, industries/ or individual consumer groups - logic: respond similarly to marketing activities - selection of any country is also a segmentation! Correct Segmentation: 1. essential element of intl. marketing strategy 2. critical factor for success in global markets [Targeting ] - builds on results of segmentation - evaluation of the attractiveness of each segment - choosing to target 1/ several of the segments targeting 1 segment: -\> concentrated strategy targeting several segments, each w/ unique marketing mix: -\> differentiated strategy [What is the smallest amount of person we can target?] - in digital Marketing, it has become technically possible to „segments of one" consumer [Positioning ] - create a clear, distinctive & desirable place - relative to competing products & service - in minds of target consumers - product should: - differentiate itself from competing products: to create superior customer value - ideally: unique selling proposition (USP) that clearly differentiates it from competing offers & makes it attractive to the target customers [Market Segmentation in Global Context ] - effective segmentation requires the market segments to possess 6 attributes - fulfilling all 6 attributes is often difficult - in digital marketing: segments tend to be more fine-grained - various approaches for segmentation Major segmentation types: - geographic - demographic - psychographic - behavioral [Geographic segmentation ] - simple approach - divides the world/ given country market - into geographic subsets - most statistics a company needs are compiled on country-by-country basis - geographic segments tend to be located close to each other - also, relevant if segments differ within a country [demographic segmentation ] - widely used & based on readily available & measurable consumer characteristics - age, gender, family size, family life, cycle, income, occupation, education, religion, race, or nationality - in B2B marketing: conceptually equivalent measures: - company age, size, and profitability, as well as the type of industry or the technology used - particular important: income (Gross National Income) per Capita - mixed bag: data often only useful in combination w/ other data psychographic segmentation - uses: attitudes, interests, opinions, values & lifestyles - explains differences between consumers´ behavior - often more appropriate than demographic segmentation - global psychographic segmentation across the world fashion market - 4 psychographic segments: that cut across cultural boundaries 1. Fashion leaders 2. Conspicuous fashion consumers 3. Sensational seekers 4. Sociable followers  [Behavioral segmentation ] Segmentation methods can be classified into: Identifier & response approaches - Focusses on whether & how people buy & use a product - Typical segments describe volume & frequency of use - Behavioral segmentation approach: Roger´s Diffusion of Innovation Model - Categorizes consumers based on their willingness & readiness to accept innovations - 5 Types/ Phases: 1. Innovator 2. Early Adopters 3. Early majority 4. Late majority 5. Laggards [Targeting approaches ] - Countries-as-segments - Segments-within-countries - Global segments [Segment-Target Interaction ]  [Positioning ] 3. steps are helpful in positioning a product: 1. Establishing a frame - Signaling what can be achieved w/ the brand 2. Clarifying areas of parity - Signaling why the brand is a credible player 3. Ways of differentiation - Achieved via brand performance, brand imagery, & consumer insights (think about USP) **Positioning** 1. Differentiation via brand imagery Consumer insights - Were do you come from as a company **Global Product & Service Offerings** [Solutions ] You have to consider: - What do we offer? - What do consumers buy? - Product vs. solution Marketing Mantra - "consumers buy solutions not problems" - E.g.: drill, not because you collect them, but because you want to hang a picture - Conceptualization of products as vehicles that help consumers to achieve solutions Are products only physical objects? - Physical products - Services - Places - Persons - Organization - Information - Ideas - Product types can also be bundled - Goal: turn products into solutions [Example]: Case: flight attendant serving coffee on board of a plane Problem: people want to stay hydrated & awake when travelling to a destination far away Products: Service (Pilot, Cabin Crew), coffee, transportation (plane) - Different bundles - according to your needs - term: product refers to the overall offer - in turn, various elements of the marketing mix need to be viewed holistically - is needed to send a coordinated message to the customers [Product Dimensions: ] - defining a product may seem a simple task at first glance - closer look: reveals that it is more complex than one may anticipate - commonly used framework places core customer value at the center of each product - referred to as: core benefit - problem-solving benefit -\> consumer is looking for - next level: actual product & incl. attributes - brand name, quality, design, packaging,... - augmented product: - creates additional customer value, through supplementary services - benefits products provide reach well beyond the tangible level - include psychological & symbolic elements - they aim to satisfy consumer needs & provide the all-important solutions for the consumer Product-service continuum  In global marketing context: - company may provide the same core product worldwide - adapt its brand name & design - offer different support service levels consequences: - symbolic & psychological attributes of the product may vary - International marketers need to be aware that the core consumer value or core benefit sought may differ between countries - Even when physical products are identical [Product Types] - Fundamental distinction: consumer & business products Consumer - Convenience items - Purchased frequently w/ minimal effort - Usually inexpensive - E.g.: milk, soft drinks, gasoline - Shopping products - Commonly purchased after the comparison of different offers - Factors such as: product features, design, quality & price play a role - E.g.: cars, cell phones - Specialty goods - Purchased regardless of price & location - E.g.: Tiffany diamond ring, LV handbag - Unsought items - Goods that are marketed, but for which the consumer may not see the immediate purchase need - E.g.: pre-paid funeral - life span: (non-) durable goods -\>can be viewed critically [Standardization Adaptation Debate ] - in global marketing context: marketing managers typically struggle w/ balancing standardization vs. adaptation Five basic alternatives exist: 1. product developed for domestic market is sold intl. w/o modifications 2. domestic product is sold internationally w/ some adaptation 3. global standardized product is created for transnational segments across different national markets 4. global product is created to target transnational segments across different national markets, w/ some adaptations to meet local country differences 5. new product is created for a foreign market - optimizing standardization & adaption [contingency perspective ] - degree of standardization & adaption also depends on the product type - it is about the balance - coca cola adapts due to regulations related to sugar, but still mostly keeps the taste the same - claims that firms: - neither fully standardize - nor adapt but apply a combination of both - Modularity & programmability help in this process! - Modularity involves breaking down a product into separable constituents, - allowing standardization of some & adaptation of others - modular architecture permits incorporation of standardization benefits while still considering local particularities \+ it considerably reduces the complexity of managing the product design - Instead of unique products, the portfolio consists of a more easily controllable number of components - Programmability involves a standardized product w/ adjustable features that the customer may individualize - Permits individualizing standardized products after their purchase - often used in software (e.g.: certain system)