BSAD 114

Lars Perner, Instructor

Global Marketing

Fall, 2002

SUMMARY OF NEW MATERIAL FOR FINAL

Product

Product Need Satisfaction. We often take for granted the “obvious” need that products seem to fill in our own culture; however, functions served may be very different in others—for example, while cars have a large transportation role in the U.S., they are impractical to drive in Japan, and thus cars there serve more of a role of being a status symbol or providing for individual indulgence. In the U.S., fast food and instant drinks such as Tang are intended for convenience; elsewhere, they may represent more of a treat. Thus, it is important to examine through marketing research consumers’ true motives, desires, and expectations in buying a product.

Approaches to Product Introduction. Firms face a choice of alternatives in marketing their products across markets. An extreme strategy involves customization, whereby the firm introduces a unique product in each country, usually with the belief tastes differ so much between countries that it is necessary more or less to start from “scratch” in creating a product for each market. On the other extreme, standardization involves making one global product in the belief the same product can be sold across markets without significant modification—e.g., Intel microprocessors are the same regardless of the country in which they are sold. Finally, in most cases firms will resort to some kind of adaptation, whereby a common product is modified to some extent when moved between some markets—e.g., in the United States, where fuel is relatively less expensive, many cars have larger engines than their comparable models in Europe and Asia; however, much of the design is similar or identical, so some economies are achieved. Similarly, while Kentucky Fried Chicken serves much the same chicken with the eleven herbs and spices in Japan, a lesser amount of sugar is used in the potato salad, and fries are substituted for mashed potatoes.

There are certain benefits to standardization. Firms that produce a global product can obtain economies of scale in manufacturing, and higher quantities produced also lead to a faster advancement along the experience curve. Further, it is more feasible to establish a global brand as less confusion will occur when consumers travel across countries and see the same product. On the down side, there may be significant differences in desires between cultures and physical environments—e.g., software sold in the U.S. and Europe will often utter a “beep” to alert the user when a mistake has been made; however, in Asia, where office workers are often seated closely together, this could cause embarrassment.

Adaptations come in several forms. Mandatory adaptations involve changes that have to be made before the product can be used—e.g., appliances made for the U.S. and Europe must run on different voltages, and a major problem was experienced in the European Union when hoses for restaurant frying machines could not simultaneously meet the legal requirements of different countries. “Discretionary” changes are changes that do not have to be made before a product can be introduced (e.g., there is nothing to prevent an American firm from introducing an overly sweet soft drink into the Japanese market), although products may face poor sales if such changes are not made. Discretionary changes may also involve cultural adaptations—e.g., in Sesame Street, the Big Bird became the Big Camel in Saudi Arabia.

Another distinction involves physical product vs. communication adaptations. In order for gasoline to be effective in high altitude regions, its octane must be higher, but it can be promoted much the same way. On the other hand, while the same bicycle might be sold in China and the U.S., it might be positioned as a serious means of transportation in the former and as a recreational tool in the latter. In some cases, products may not need to be adapted in either way (e.g., industrial equipment), while in other cases, it might have to be adapted in both (e.g., greeting cards, where the both occasions, language, and motivations for sending differ). Finally, a market may exist abroad for a product which has no analogue at home—e.g., hand-powered washing machines.

Branding. While Americans seem to be comfortable with category specific brands, this is not the case for Asian consumers. American firms observed that their products would be closely examined by Japanese consumers who could not find a major brand name on the packages, which was required as a sign of quality. Note that Japanese keiretsus span and use their brand name across multiple industries—e.g., Mitsubishi, among other things, sells food, automobiles, electronics, and heavy construction equipment.

The International Product Life Cycle (PLC). Consumers in different countries differ in the speed with which they adopt new products, in part for economic reasons (fewer Malaysian than American consumers can afford to buy VCRs) and in part because of attitudes toward new products (pharmaceuticals upset the power afforded to traditional faith healers, for example). Thus, it may be possible, when one market has been saturated, to continue growth in another market—e.g., while somewhere between one third and one half of American homes now contain a computer, the corresponding figures for even Europe and Japan are much lower and thus, many computer manufacturers see greater growth potential there. Note that expensive capital equipment may also cycle between countries—e.g., airlines in economically developed countries will often buy the newest and most desired aircraft and sell off older ones to their counterparts in developing countries. While in developed countries, “three part” canning machines that solder on the bottom with lead are unacceptable for health reasons, they have found a market in developing countries.

Diffusion of innovation. Good new innovations often do not spread as quickly as one might expect—e.g., although the technology for microwave ovens has existed since the 1950s, they really did not take off in the United States until the late seventies or early eighties, and their penetration is much lower in most other countries. The typewriter, telephone answering machines, and cellular phones also existed for a long time before they were widely adopted.

Certain characteristics of products make them more or less likely to spread. One factor is relative advantage. While a computer offers a huge advantage over a typewriter, for example, the added gain from having an electric typewriter over a manual one was much smaller. Another issue is compatibility, both in the social and physical sense. A major problem with the personal computer was that it could not read the manual files that firms had maintained, and birth control programs are resisted in many countries due to conflicts with religious values. Complexity refers to how difficult a new product is to use—e.g., some people have resisted getting computers because learning to use them takes time. Trialability refers to the extent to which one can examine the merits of a new product without having to commit a huge financial or personal investment—e.g., it is relatively easy to try a restaurant with a new ethnic cuisine, but investing in a global positioning navigation system is riskier since this has to be bought and installed in one’s car before the consumer can determine whether it is worthwhile in practice. Finally, observability refers to the extent to which consumers can readily see others using the product—e.g., people who do not have ATM cards or cellular phones can easily see the convenience that other people experience using them; on the other hand, VCRs are mostly used in people’s homes, and thus only an owner’s close friends would be likely to see it.

At the societal level, several factors influence the spread of an innovation. Not surprisingly, cosmopolitanism, the extent to which a country is connected to other cultures, is useful. Innovations are more likely to spread where there is a higher percentage of women in the work force; these women both have more economic power and are able to see other people use the products and/or discuss them. Modernity refers to the extent to which a culture values “progress.” In the U.S., “new and improved” is considered highly attractive; in more traditional countries, their potential for disruption cause new products to be seen with more skepticism. Although U.S. consumers appear to adopt new products more quickly than those of other countries, we actually score lower on homiphily, the extent to which consumers are relatively similar to each other, and physical distance, where consumers who are more spread out are less likely to interact with other users of the product. Japan, which ranks second only to the U.S., on the other hand, scores very well on these latter two factors.

Promotion

Promotional tools. Numerous tools can be used to influence consumer purchases:

· Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or the Internet.

· Price promotions—products are being made available temporarily as at a lower price, or some premium (e.g., toothbrush with a package of toothpaste) is being offered for free.

· Sponsorships

· Point-of-purchase—the manufacturer pays for extra display space in the store or puts a coupon right by the product

· Other method of getting the consumer’s attention—all the Gap stores in France may benefit from the prominence of the new store located on the Champs-Elysees

Promotional objectives. Promotional objectives involve the question of what the firm hopes to achieve with a campaign—“increasing profits” is too vague an objective, since this has to be achieved through some intermediate outcome (such as increasing market share, which in turn is achieved by some change in consumers which cause them to buy more). Some common objectives that firms may hold:

· Awareness. Many French consumers do not know that the Gap even exists, so they cannot decide to go shopping there. This objective is often achieved through advertising, but could also be achieved through favorable point-of-purchase displays. Note that since advertising and promotional stimuli are often afforded very little attention by consumers, potential buyers may have to be exposed to the promotional stimulus numerous times before it “registers.”

· Trial. Even when consumers know that a product exists and could possibly satisfy some of their desires, it may take a while before they get around to trying the product—especially when there are so many other products that compete for their attention and wallets. Thus, the next step is often to try get consumer to try the product at least once, with the hope that they will make repeat purchases. Coupons are often an effective way of achieving trial, but these are illegal in some countries and in some others, the infrastructure to readily accept coupons (e.g., clearing houses) does not exist. Continued advertising and point-of-purchase displays may be effective. Although Coca Cola is widely known in China, a large part of the population has not yet tried the product.

· Attitude toward the product. A high percentage of people in the U.S. and Europe has tried Coca Cola, so a more reasonable objective is to get people to believe positive things about the product—e.g., that it has a superior taste and is better than generics or store brands. This is often achieved through advertising.

· Temporary sales increases. For mature products and categories, attitudes may be fairly well established and not subject to cost-effective change. Thus, it may be more useful to work on getting temporary increases in sales (which are likely to go away the incentives are removed). In the U.S. and Japan, for example, fast food restaurants may run temporary price promotions to get people to eat out more or switch from competitors, but when these promotions end, sales are likely to move back down again (in developing countries, in contrast, trial may be a more appropriate objective in this category).

Note that in new or emerging markets, the first objectives are more likely to be useful while, for established products, the latter objectives may be more useful in mature markets such as Japan, the U.S., and Western Europe.

Constraints on Global Communications Strategies. Although firms that seek standardized positions may seek globally unified campaigns, there are several constraints:

· Language barriers: The advertising will have to be translated, not just into the generic language category (e.g., Portuguese) but also into the specific version spoken in the region (e.g., Brazilian Portuguese). (Occasionally, foreign language ads are deliberately run to add mystique to a product, but this is the exception rather than the rule).

· Cultural barriers. Subtle cultural differences may make an ad that tested well in one country unsuitable in another—e.g., an ad that featured a man walking in to join his wife in the bathroom was considered an inappropriate invasion in Japan. Symbolism often differs between cultures, and humor, which is based on the contrast to people’s experiences, tends not to travel well. Values also tend to differ between cultures—in the U.S. and Australia, excelling above the group is often desirable, while in Japan, “The nail that sticks out gets hammered down.” In the U.S., “The early bird gets the worm” while in China “The first bird in the flock gets shot down.”

· Local attitudes toward advertising. People in some countries are more receptive to advertising than others. While advertising is accepted as a fact of life in the U.S., some Europeans find it too crass and commercial.

· Media infrastructure. Cable TV is not well developed in some countries and regions, and not all media in all countries accept advertising. Consumer media habits also differ dramatically; newspapers appear to have a higher reach than television and radio in parts of Latin America.

· Advertising regulations. Countries often have arbitrary rules on what can be advertised and what can be claimed. Comparative advertising is banned almost everywhere outside the U.S. Holland requires that a toothbrush be displayed in advertisements for sweets, and some countries require that advertising to be shown there be produced in the country.

Some cultural dimensions:

· Directness vs. indirectness: U.S. advertising tends to emphasize directly why someone would benefit from buying the product. This, however, is considered too pushy for Japanese consumers, where it is felt to be arrogant of the seller to presume to know what the consumer would like.

· Comparison: Comparative advertising is banned in most countries and would probably be very counterproductive, as an insulting instance of confrontation and bragging, in Asia even if it were allowed. In the U.S., comparison advertising has proven somewhat effective (although its implementation is tricky) as a way to persuade consumers what to buy.

· Humor. Although humor is a relatively universal phenomenon, what is considered funny between countries differs greatly, so pre-testing is essential.

· Gender roles. A study found that women in U.S. advertising tended to be shown in more traditional roles in the U.S. than in Europe or Australia. On the other hand, some countries are even more traditional—e.g., a Japanese ad that claimed a camera to be “so simple that even a woman can use it” was not found to be unusually insulting.

· Explicitness. Europeans tend to allow for considerably more explicit advertisements, often with sexual overtones, than Americans.

· Sophistication. Europeans, particularly the French, demand considerably more sophistication than Americans who may react more favorably to emotional appeals—e.g., an ad showing a mentally retarded young man succeeding in a job at McDonald’s was very favorably received in the U.S. but was booed at the Cannes film festival in France.

· Popular vs. traditional culture. U.S. ads tend to employ contemporary, popular culture, often including current music while those in more traditional cultures tend to refer more to classical culture.

· Information content vs. fluff. American ads contain a great deal of “puffery,” which was found to be very ineffective in Eastern European countries because it resembled communist propaganda too much. The Eastern European consumers instead wanted hard, cold facts.

Advertising standardization. Issues surrounding advertising standardization tend to parallel issues surrounding product and positioning standardization. On the plus side, economies of scale are achieved, a consistent image can be established across markets, creative talent can be utilized across markets, and good ideas can be transplanted from one market to others. On the down side, cultural differences, peculiar country regulations, and differences in product life cycle stages make this approach difficult. Further, local advertising professionals may resist campaigns imposed from the outside—sometimes with good reasons and sometimes merely to preserve their own creative autonomy.

Legal issues. Countries differ in their regulations of advertising, and some products are banned from advertising on certain media (large supermarket chains are not allowed to advertise on TV in France, for example). Other forms of promotion may also be banned or regulated. In some European countries, for example, it is illegal to price discriminate between consumers, and thus coupons are banned and in some, it is illegal to offer products on sale outside a very narrow seasonal and percentage range.

Distribution

The impact of geography. Geography has a surprisingly large impact on distribution in many areas. While in the U.S., most communities are readily accessible through the Interstate freeway system (or at least from navigable roads that connect the freeways), many foreign areas are more difficult to reach. A large proportion of the population of Latin America, for example, is concentrated at coastal areas due to the inhospitable terrain that predominates the continent. In Europe, connections across mountains were achieved through aggressive tunneling, but this has not yet been affordable in most developing countries. In some areas, the only way to bring most materials in may be air cargo, which is expensive. Goods may be trucked to one relatively accessible retailer, which will then “re-wholesale” to one that can only be reached by jeep, which in turn will resell to a store that may only be reachable through pack animals. Note that, in addition to physical transportation, reliable communication (e.g., mail, phone, fax, Internet) is also essential to allow for the flow of goods.

Evaluating modes of transportation. Two main criteria in evaluating modes of transportation are cost and speed. Air travel does very poorly on the first and very well the second, in contrast to ocean shipping, where the performance is reversed. In general, with slower means of transportation, larger “buffer” stocks are required, and a greater risk of exchange rate fluctuations between the time of shipping and delivery is incurred. In some cases, different transportation venues are combined (intermodal), in which case cost is incurred and time spent in transferring the cargo.

Channel formats: Wholesalers differ significantly in the amount and quality of services they perform, and it should be noted that it is essential for the wholesaler to be able to appeal to the retailers targeted by, for example, allowing for some time to pay for the merchandise. Retail formats tend to differ somewhat between countries, sometimes because of legal constraints (e.g., until recently, only bookstores were allowed to sell hardcover books in Denmark). Some countries have laws that favor small businesses (e.g., by restricting operating hours or advertising of larger ones).

Parallel distribution. As we discussed in the pricing section, there is something a strong incentive to move a product from a market in which it is cheaper to one where it can be sold at a higher price. This may compromise brand equity, draw strong pressure from authorized retailers who now have to compete with the lower priced channels, and raise questions on warranty service eligibility. Manufacturers can attempt to limit this practice by steps such as (a) creating visible differences between products and packaging between countries, (b) limiting the amount of merchandise that distributors in low price markets can buy, or (c) raising prices in the lower priced markets, even though this will likely result in a severely diminished market share or size. Note that, in general, diversion is a fact of life where solutions (other than differentiating products between markets) tend to be worse than the problem. (In some cases, where products contain serial numbers, distributors that sell to unauthorized channels can be cut off, but this is feasible only for products valuable enough to warrant the cost of associating a serial number).

Direct marketing. Most of the World runs behind the U.S. in the area of direct marketing for several reasons. First, U.S. firms have been quicker to adopt the information technology necessary to compile effective lists. Secondly, stringent privacy laws in many countries inhibit compilations—for example, in some European countries, individuals must consent before they can be put even on a mailing list; collecting this consent is prohibitively expensive. Further, although some of the sources of names, such as vehicle registrations and magazine subscriptions might be available in principle, there is a bit of a “chicken-and-egg” paradox in that successful mailing lists are typically based on what people have bought through the mail before—since mail order purchases have been fewer, people have less of a purchase history and thus, prospects are more difficult to identify.