SORBONNE UNIVERSITY

1

• SORBONNE UNIVERSITY
• PARIS IV
• LECTURE TITLE
• International Product decisions
• GUEST SPEAKER
• Dr L. Boukersi
• April 2005

2

• INTERNATIONAL PRODUCT DECISIONS
• I. Introduction
• II. Product Definition
• III . Product Components
• IV . Product Standardisation Vs. Adaptation
• V. Reasons for Product Adaptation
• VI. Advantages Disadvantages of
  Standardisation
• VII Global Products
• VIII. Modularisation Postponement
  Techniques

3

• I. INTRODUCTION
• Product decisions are among the most crucial
  issues a firm is faced with when operating in
  international markets.
• In many case, firms bear the names of their
  products
• International Marketing strategies are, for most
  of the time, contingent upon product
  standardisation or adaptation decisions.
• Product decisions are at the centre of the
  marketing mix programmes

4

• II. PRODUCT DEFINITIONS
• P. Kotler
• A product is anything that can be offered to a
  market for attention, use, consumption,
  acquisition that might satisfy a need or want.
• Albaum et al
• A product is a combination of physical and
  psychological attributes, services and symbols
  designed to produce customers satisfaction.

5

• III. PRODUCT COMPONENTS

Installation
Augmented Product
Packaging
Actual Product

Physical features
Delivery

Core product or Benefit
Brand name
After-sales services
Styling/ design
Quality
Credit
Warranty
6
Core/ Benefit Medicinal (cure dandruff)

• Actual/Physical
• Packaging/bottle
• Simple design
• Colour White blue
• Symbol of purity
• Label information on
• chemical ingredients
• Brand name
• Head Shoulder
• (Connote where dandruff can
• be seen)
• Augmented
• Warranty (Promise to work after one
  week of use)

Packaging, colour, labelling brand name all
consistent with the core product.
7

• IV. Product Standardisation Vs. Product
  Adaptation
• Product Standardisation
• Product Standardisation occurs when a firm
  offers one version of its product across foreign
  markets. It is also called product extension
  strategy.
• Standardisation capitalises on market
  similarities across markets.

Foreign market 1
homogeneous markets
Foreign market 2
Foreign Market 3
8

• Product Adaptation
• Product adaptation refers to changes and
  accommodation in product to meet specific demand
  conditions, usage and consumption habits in
  foreign markets. It is also called customisation
  strategy
• Adaptation can affect one or few product
  attributes.
• Adaptation capitalises on markets differences
  across markets

Foreign Market 1
Heterogeneous markets
Foreign Market 2
Foreign Market 3
9

• V. Reasons for Product Adaptation
• Cultural Factors
• Customer tastes, eating and buying habits
  (ingredients, design, packaging). Examples Food
  products
• Customer expected benefits (usage, warranty,
  credit, delivery, after-sales services)
  Examples industrial products
• Cultural interpretation of symbols (branding,
  packaging, colour, labelling) Examples Use of
  colours animal symbols
• Usage Conditions
• Due to geographic, climatic and topographic
  conditions (design, ingredients, packaging)
• Examples Cars, washing machines, farming
  equipment

10

• Regulatory Environmental Requirements
• These are product specifications to function in
  foreign markets.
• Technical standard requirements different
  voltages, plug designs and systems (product
  design, content packaging). Examples electric
  electronic products
• Quality safety standard requirements (quality
  and labelling) Examples Chemicals
  pharmaceuticals, cosmetics , tobacco etc
• Firms Strategic Issues
• To secure market penetration through
  customisation
• To acquire a competitive advantage through
  product differentiation
• Product development innovation (Black Decker
  developed cordless driller to secure entry into
  the Japanese market)

11

• VI. Advantages Disadvantages of Standardisation
• Advantages
• Offers Cost Reduction through economies of scale
  in production
• Provides improved quality in terms of
  functioning
• Appeals to global customers through uniform
  quality services
• Fits emerging global segments brought about by
  market integration
• Disadvantages
• Likely to be off-target in any one market with
  different needs.
• Lacks uniqueness in affluent markets where
  uniqueness is one of the major buying
  considerations.
• Is vulnerable to tariffs and non-tariff barriers
• Unable to compete strongly with local
  competitors

12

• VII. Global Product
• In reality, international markets entails both
  some similarities and some differences. Hence,
  there is no such a thing as full standardisation
  or complete adaptation. Even Coca-Cola and
  McDonalds, known for their global approach, have
  to modify their products to some degree.
• Many multinational firms have developed
  multisystem compatibility to satisfy several
  market requirements (VCRs, TV sets, word
  processing software, PCs with adapter etc)
• By means of some production techniques, other
  multinationals have adopted a so-called
  Glocalisation approach (think globally and act
  locally) to capitalise on both the benefits of
  standardisation and those of adaptation. In other
  words to exploit both similarities and
  differences in foreign markets
• Such techniques are called Modularisation
  Postponement

13

• VIII. Modularisation Postponement
• Modularisation related to product design
• Postponement related to process design
• These two concepts combine the benefits of both
  economies of scale (cost savings derived from
  making standardised products) and economies of
  scope ( cost savings derived from making a
  variety of products)
• The major advantage that accrue to firms
  implementing the combined principles is the fact
  that the combination limits the complexities of
  demand fluctuations and product customisation,
  especially in international markets

14

• Modularisation
• It is a product design approach in which a
  product is assembled from a set of standardised
  components or modules. Different assembly
  combinations, from a given set of standardised
  units, produce different end-product models and
  variations.
• The purpose is to design for efficient linkages
  of constituent units so that any required
  combination can be conveniently assembled.
• Many firms generally rely on outsourcing for the
  production of required components.

15

• Postponement
• Postponement is to avoid shipping goods in
  anticipation of demand occurrence (time
  postponement) and to avoid creating the form of
  the final product until customer requirement are
  received ( form postponement such as assembly,
  labelling, packaging, etc.)
• It is a value-added process for a set of end
  products that maximises the common processing
  requirements shared by those products. The time
  of shipment and the value-added process are
  delayed (postponed) until customer order is
  received.
• Modularisation postponement techniques are
  used across many industries such as electronics,
  automobile, furniture, clothing, construction etc.

16

• Making of standardised components
• 90

Customisation 10
G L O B A L
LOCAL
M
P1
M
P2
W
M
P3
P4
M
T1
T2
T3
T4
T5

Receipt Of orders
Warehousing
Assembling Packaging Labelling
Distribution
Modularisation
17

• Texas Instruments

Texas Instruments (TI) makes two broad
semiconductor categories for the
international markets - Low-cost DRAM memory
chips - Expensive customised microprocessors. A
specialised product design (modularisation) makes
90 of the production process identical for two
product categories. Customisation through
expensive refinement is postponed until the end
of the process. As a result, TI operates its
plant at full capacity by using production of
memory chips as buffer. The company has actually
increased its customised chips from 10 to 60
of the capacity
18

• Ikea

Ikea assembles approximately 30 000 complete
wardrobe Combinations based on a few hundred
manually designed base modules
19

• In the car industry, the word platforms is
  used rather than modules
• The VW Golf platform is shared between the Audi
  TT, Skoda Octavia, VW Beetle. Audi A3, Seat Leon,
  Seat Toledo and VW Bora.
• The Saab 9-2 designed for the US market is based
  on a Suburu Impreza Turbo platform and the Smart
  ForFour (Mercedes) is based on a Mitsubishi Colt
  platform.

20

• Multiple Purpose Vehicles (MPVs)

Platform sharing is specially prominent in the
MPVs segment where VW Sharan and Seat Alhambra,
Fiat Ulysse and Lancia Phedra, Peugeot 806 and
Citroen C8 all share over 95 of their
platforms.
VW Sharan
Seat Alhambra
Lancia Phedra
Fiat Ulysse
Peugeot 806
Citroen C8