International Marketing: Global Product Strategy PDF

International Marketing Chapter 7 : Global Product Strategy Product is a complex combination of tangible and intangible elements that distinguish it (the product) from the other entails in the market palace. Consists of ○ Core Product - the product itself (car or laptop) ○...

International Marketing Chapter 7 : Global Product Strategy Product is a complex combination of tangible and intangible elements that distinguish it (the product) from the other entails in the market palace. Consists of ○ Core Product - the product itself (car or laptop) ○ Augmented Product - additional services or benefits that come along with the product (warranty a new software) Some Product Modification is Usually Necessary Options available to the firm depend on where customer segments are homogeneous or heterogeneous Homogenous Customer Segment = One Global Product Strategy Heterogeneous Customer Segments ○ Multi Domestic Product Strategy - different product for each region ○ Mass Customization Product Strategy -add country specific product features on a common global plait form Example - full body swimwear for Muslim women Standardization Standardization selling the same product worldwide Advantages ○ Cost Savings in production (economies of scale) ○ Global Customer Segments may exist and can be targeted with a standardized product  Generally some product changes are needed as standardization results in products that are Off Target - do not appeal completely to any consumer markets Standardization also results in products which are not unique ○ Firms forgeries the segment of the market that wants exclusivity The company leagues itself vulnerable to local firms that can more precisely cater to local tastes Localization Vs Adaptation Localization changes required for the product to function in the specific foreign country. Localization avoids having potential customers reject the product out of hand. Product does not enter the consumer’s consideration set. In many products, localization is accomplished by building in compatibility with multiple systems at the outset Example : Electrical plugs in NA, Eastern Europe and Africa are different. Adaptation – Changes are made to the product in order to better match consumer tastes and preferences. More precisely referred to as discretionary adaptation. Adaptation provides consumers with a reason to purchase the foreign product over the domestic Factors Influencing Adaptation 1. Country Level Characteristics ○ Government Regulations - bilingual labeling in canada ○ Economic Development - backward innovation ○ Climate - reduce fat content to raise melting point in Nestle chocolate 2. Industry & Firm Level Characteristics ○ Company resources ○ Competition ○ Product life cycle 3. Product Characteristics  ○ Degree of cultural grounding. Non-durable consumer products - food tend to be more culture bound than industrial or technology products Economics of Adaptation The firms incremental manufacturing costs will decrease steadily as it moves from producing a fully adapted or customized product to one that is fully standardized Increased standardization, however, also results in lost sales as the product will be off-target in a number of country markets. The cost of lost sales and the cost of manufacturing may be combined to determine the extent of adaptation a firm should undertake. Brand Strategies : Brand Portfolios ​Brand - defined as a name, logo, term, sign, symbol or some combination of these that serves to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors (AMA). Companies will generally have a portfolio of local and regional/global brands (not just a single brand). Deliberate strategy (cater to local preferences) or the result of M&A activity Can the Brand be Global? Ask the following Does the brand name make sense outside of the source country? If the name suggests a country association, is the association positive? Is the name available legally in many countries Does the brand complement other global brands in the portfolio? Should growth be limited to the creation of a regional brand? Implementation – Should local brands be replaced? ○ Questions about implementing the globalization strategy Does the firm simply change an existing local brand name? Which local brands should be chosen for the changeover? Local country resistance??? Brand Change Over Strategies Fade In Fade Out - gradual option is the most common - here the global brand is linked to the local brand fro a time, after which the local brand is dropped Linking may take place in one of two ways ○ One brand may be used to introduce the other - Endorsement Branding ○ Both brands may be presented side by side during the transition period - Double Branding Summary Axing - less graduate approach - here the firm simply drips the cloak brand name and introduced the new brand Forewaring - extensive notice or warning about something that is going to happen, helping people prepare for it Can use tv commercials Global Product Development New products should be developed or old ones modified to cater to new or changing customer needs on a global or regional basis At the same time, corporate objectives of technical feasibility and financial profitability must be satisfied Conceptualized as a series of steps - Stage Gate Process Stage Gate Process  Global Product Development - Stage Gate Process Idea Generation R&D staff, intermediaires, customers , competitors Idea Screening Criteria Used : Market - what is the size of the addressable market? Technical - can the product be made? Does the firm possess the knowledge or does it need a partener? Financial - can the product be manufactured and marketed at a profit Concept Research Focus Groups offer the development team a chance to hear spontaneous reactions to a new concept and hear suggestions for improvements from consumers in the international markets of interest Firms may need to produce a prototype that consumers can see and touch Only fone for product ideas that have passed stage 2 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 in select countries around the world Product Launch If the marketing is positive global product launch follows NOTE - the product development process may be initiated by : The parent company or an overseas subsidiary Counterfeit Products Counterfeit Products bearing an unauthorized representation of a trademark, patented investigation or copyrighted work that is legally protected in the country where it is marketed Excessed the market for weapons smuggling  Exceeded the market for human trafficking On par with the market for illegal drugs Why so Large? Penalties for counterfeiting are much less severe than drug smuggling Profit margins from counterfeiting are much higher than drug smuggling New career? Transshipment Canada is also a problem because it is a major transshipment point into other markets In 2016 and 2017 the Canada Border Services Agency detained just 36 counterfeit shipments. The U.S. seized 34,000 counterfeit shipments in 2017 Canada border security really only detained counterfeit products destined for the canadian market or exported from canada. Fakes transshipped into the US market were exempt Under the new USMNCA this has changed. The new trade deal has been ratified and this exemption has been removed What is Counterfeited? Especially vulnerable are consumer products with high visibility and strong brand names. ○ Common to see fakes in brand name consumer products such as Rolex watches, Louis Vuitton handbags and Nike running shoes Raw materials and components also a concern Concerns about the counterfeit production of the landing gear and cockpit displays used in military aircraft deployed in Afghanistan. Displays provide pilots with diagnostic data including engine status, fuel usage, geographic location and warning messages.  Defective parts were eventually traced to Hong Dark Electronic Trade in Shenzhen, China Pharmaceutical drugs and pesticides are also being counterfeited. Counterfeit teething powder in Nigeria, fake cough syrup in Panama, and counterfeit baby formula in China have all led to the deaths of children. ○ Counterifted drugs kill more than 100 000 people every year Why are Counterfeit Products Problematic for the Firm? Leads to lost sales as authentic products are crowded out of the market by fake products Results in lost goodwill for the owner of the intellectual property. If a product does not perform well consumers may blame the manufacturer of the genuine product. Also, too many fakes may reduce the desirability of the genuine product Increases the firm’s cost of operation as resources must be allocated to monitoring and policing the market for pirated products Dampens the incentive for innovation What can the Company Do? Educate the consumer Take legal action International Marketing Chapter 8 : Distribution Channels Distribution Channels Distribution Channels sequences of firms/individuals involved in making a product available to final consumers or industrial buyers Don't just consider product flows also consider flow of information and titles Types of Distribution Channels Distribution channels may be simple or complex Depends to some extent on the nature of the product The channel used for initial market entry often changes as the firm builds market share in the target market Simple Distribution Channel Complex Distribution Channel Options for Global Distribution 1. The frim sells directly to to customers through its own field sales force ○ Foreign sales subsidiary ongoing physical presence in target market but costly 2. The company operates through independent intermediaries ○ Distributors in the foreign country 3. Company outsources distribution to a third party company in the foreign market 4. Electronic distribution ○ Depends on the nature of the product Channel Design Channel Design refers to the length and the width of the channel Length the number of levels or different types of intermediaries in the channel Width the number of institutions of each type in the channel Long Vs Short Distribution Channel Wide Vs Narrow Distribution Channel 11 Cs Framework 11 Cs Framework is the eleven factors involved in the design of an international distribution channel First three are exogenous Last eight are controllable 11 Cs Framework - Chanel Design Customer Characteristics Demographics and psychographics Where do they shop , upscale malls or discount outlets? Distribution Culture The culture of the area company is distributing to Japanese Keiretsu system Competition Channels in the country may be blocked by domestic competitors Company Objectives Must meet objectives for profitability/ market share Does the channel allow the firm to reach its preferred customers? Does it use retailers that are consistent with its brand image? Character Nature of the product Capital Financial requirements to set up the channel Resources determine degree of channel ownership Cost Costs involved in maintaining the channel once established Training of sales personnel, slotting fees Coverage Number of areas where product is represented and quality of representation Intensive - widespread  Slectived - limited Exclusive - one Control Use of intermediaries is associated with loss of control Continuity Distributions relationship need to be nurtured for the long term Communication Distance complicates communication in international channels Need to consider differences in national culture (verbal and non verbal language) The implications for effective communication but also technological and geographic distance Parties may also have major differences in how business is conducted Intermediary Selection Intermediary selection begins with a set of clear objectives for what the firm hopes to accomplish in the target market Firm also needs an understanding of market conditions and what a distributor can realistically be expected to accomplish Firms should also understand what type of distributor is required in the target market and establish formal selection criteria Criteria - Intermediary Selection Distributor Contracts Contracts should initially be short term (less than 2 years) and constrain a termination clause Contracts should also be clear in terms of how distributors are to be paid (commision rates, currency etc) Products covered by the agreement must be spelled out Distributors responsibilities should be in writing Territory assigned to the distributor should also be specified The Gray Trade The Gray Trade the gray trade or parallel distribution refers to the sale of authentic and legitimately manufactured trademarked items by intermediaries other than authorized channel members Range of products affected Inexpensive Consumers Items - watches Expensive Capital Equipment - earth moving machinery Conditions for Gray Trade to Develops Wide price discrepancies between national markets Limited availability of certain models or versions in one market Inexpensive logistics transportation and imporations can be accomplished with relative easy Effects of the Gray Trade Erosion of Brand Equity - the can happen if the gray goods do not perform to the level expected Strained Relationships with Authorized Channel Members - this arises when channel members face intra brand competition  Legal Liabilities - this usually involves warranties that can't be honored Complication of Global Marketing Strategies - forecasted sales in a market may it be realized when there is a sudden influx of gray goods Proponents of Gray Trade Aruge Parallel distribution drives down prices for consumers (but at the expense of customer service) serves to expand the overall size of the market Effective way of segmenting the market with authorized dealers providing a high price high service option and gray traders a low price low service option Creates employment and promotes free enterprise Channels Actions Against Gray Trade Supply Interference engaging in relationship building with distributors and requesting the careful screening of orders and careful disposal of surplus inventory Dealer Interference searching for gray imports at the gray traders outlets in the importing country then asking the dealer to help dispose of the inventory Demand Interference using advertising to educate customers about the drawbacks of gray goods (Nikon example) Strategic Attack creating stronger reason for customers to patronize authorized dealers