Product and service adaptation

1
Product and service adaptation
2
Marketing Policies

• Same products sold everywhere the same way
  (full) standardization global strategy
• Adapt to local conditions adaptation
  multidomestic strategy

3
Benefits from Standardization

• lower costs
• improved quality
• enhanced customer preference
• increased competitive leverage
• global customers and suppliers

4
Lower Costs

• Experience curve
• Bargaining power
• Economies of scale

5
Economies of Scale

• in manufacturing
• in research and development
• in advertising
• scale economies in advertising
• media overlaps
• pan-European events

6
Price/fit Tradeoff

• Customers are willing to sacrifice perfect fit
  for price (Levitt 1983)
• Italian washing machines
• Japanese cars in US
• but Whirlpool and Maytag in Europe

7

• Improved quality
• Enhanced customer preference
• better service to global customers
• greater recognition, authority, and credibility
  of the product/brand
• increasingly the case as customers travel
• Increased competitive leverage
• prevents imitation
• Greater bargaining power
• Global customers and suppliers

8
Benefits of standardization are reduced by

• Transportation costs
• Government barriers
• Currency risk
• Management costs
• Intercountry taste differences

9
Benefits of standardization are reduced by
government barriers

• Tax discrimination
• Foreign exchange risk
• Trade barriers
• Standards and regulations

10
Benefits of standardization are reduced by
management costs

• Increased coordination costs
• Information loss
• Loss of local motivation

11
Benefits of standardization are reduced by
differences in consumer tastes

• Consumer taste homogeneity
• Uniformity (same consumption patterns across
  countries)
• Vs. Interpenetration (more common segments across
  countries)

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Interpenetration
13
Uniformity?

• Emergence of global products
• But still major differences across Europe for
  some products
• cigarettes
• Alcohol

14
Annual per-capita cigarette consumption 2004 (000)
15
Adult alcohol intake per year(litres of pure
alcohol)
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Consumption of beer outside the home( of total)
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Drinking occasions for beer
18
Convergence?

• Yes for some products, no for others

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Annual per-capita cigarette consumption
Country 1994
2004 Percentage Change
Greece 2,719 3,131
Bulgaria 2,371 2,693
Japan 2,668 2,354
Spain 2,019 2,274
South Korea 2,150 2,209
Czech Republic 1,890 2,068
Russia 1,177 2,058
China 1,397 1,446
Germany 1,646 1,373
U.S. 1,858 1,230
France 1,556 905
U.K. 1,448 866
Note Consumption defined by duty-paid sales
actual consumption can be higher. Source ERC
Group
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Evolution of Yogurt Consumption(Kg per capita)
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• Less adaptation needed for producer than for
  consumer goods, yet still differences
• (earth moving equipment)
• In general, any product/service transferred to a
  foreign country will be reconstructed locally
• wine and cheese parties
• melons in Japan

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Whyat needs to be adapted? Marketing Adaptation
Checklist

• 1. product/service
• 2. price
• 3. promotion
• 4. distribution

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1. Why Product/Service adaptation?

• Conditions of use (size, features)
• population density, weather
• Preferences (taste, smell)
• Habits and values
• social class, religion

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Why product/service adaptation? (2)

• Economic conditions
• stage of development
• degree of competition
• Standards and regulations
• admissible ingredients and techniques

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2. Price Adaptations

• product positioning (elasticity of demand)
• competition
• government regulation

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Automobile Price Differences in the EU
Source European Commission
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3. Promotion adaptations

• Brand
• Advertising

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Global or Local Brand?

• Cost of creating and maintaining global brand?
• Scale economies in global brand?
• Value association with global vs. local brand?
• Cultural and legal hindrances with global brand?

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Some Brands do not Transfer

• Pschitt
• Sissy
• Toyota MR2
• Chevrolet Nova
• American Motors Matador
• Mitsubishi Pajero
• Air
• Mymorning Water
• Creap
• Clairol Mist Stick

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Brands of 6 MNCs in 67 countries
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European Firms Are Integrating Across the
Continent
Key 7Agree strongly
1Disagree strongly
3.5
3.4
2.8
2.6
2.6
1.9
European-based firms
Subsidiaries of U.S.-based firms
All firms
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Country of Origin Effects

• Apparent country of origin affects reputation
• Germany Robust
• France Luxury
• Italy Design
• Finland Pure

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Advertising

• Response to advertising
• Response to message
• Media availability
• Advertising restrictions

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Response to Message

• Silent language
• color
• numbers
• symbols
• Spoken language
• perceptual gaps
• encoding/decoding gaps

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Seller in country A
Buyer in country B
Sellers field of experience
Encoder
Sender
Receiver
Decoder
Message
Medium
Culture
Culture
Choice of words Choice of symbols Meaning
Choice of words Choice of symbols Understanding
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(No Transcript)
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Share of advertising revenue by support, 2003
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Distribution

• Channels
• availability
• cost
• regulations

39
Store Density per 1000 inhabitants
40
Top 5 Chains Share in Supermarkets 2004
Canada
88
UK
74,30
62
France
US
45
Brazil
41,40
Russia
9
China
2
India
2
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Vending machines

• Japan 1 for every 25 persons
• US 1 for every 40 persons
• China 1 for every 26,000 people

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Three points to keep in mind

• Price-Fit tradeoff
• Core vs. peripheral standardization
• Selective standardization

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1. Price/fit Tradeoff

• Customers are willing to sacrifice perfect fit
  for price (Levitt 1983)
• Italian washing machines
• Japanese cars in US
• but Whirlpool and Maytag in Europe

44
2. Product/service Core and Peripheral Elements

• McDonalds
• core clean, family, fast
• non-core menus

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McDonalds Menu Adaptation

• Norway McLaks, grilled salmon sandwich with dill
  sauce on a whole-grain bun
• Canada Cheese vegetable, pepperoni and deluxe
  pizza
• France Wine
• Uruguay McHuevo, a hamburger with a poached egg
  on top, and McQueso, a toasted cheese sandwich
• Netherlands Groenteburger, vegetable burger
• Germany Frankfurters, tortellini and a cold
  four-course meal
• Greece and Italy Salad bar
• Thailand Samurai Pork Burger, marinated with
  teriyaki sauce, and palm-fruit sundae
• Singapore Vanilla ice cream swirled with
  chocolate and strawberry and spiced for
  Singaporean tastes
• Philipines McSpaghetti, a sweet tomato and meat
  sauce with frankfurter bits
• Japan Chicken Tatsuta sandwich, fried chicken
  spiced with soy sauce and ginger served with
  cabbage and mustard mayonaise

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3. Optimal standardization almost never full
standardization and varies...

• across products
• across elements of the marketing mix
• across areas
• across time

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Standardization of the Marketing mix
48
Core Standardization
49
Conclusion

• One must search for the proper balance between
  full adaptation and full standardization
• Decision must be on a case-by-case basis
• Implementation difficulties should be taken into
  account