DEVELOPING NEW PRODUCTS FOR

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CHAPTER 11

• DEVELOPING NEW PRODUCTS FOR
• GLOBAL MARKETS

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CHAPTER OUTLINE

1. Introducing products into foreign markets
2. Developing a global product
3. New product development processes for Global
   markets
4. Introducing new products to global markets

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DEFINITIONS

• PRODUCTS Anything that can be offered to a
  market for attention, acquisition, use or
  consumption that might satisfy a want or need.
  It includes physical objects, services, places,
  organizations, ideas and people.
• GLOBAL MARKETING - A total commitment to
  international marketing, in which a company
  applies its assets, experience and products to
  develop and maintain marketing strategies on a
  global scale.

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What are new products?

• New product line
• Addition to product line
• Repositioning to new market segments
• Improvements/revisions
• Cost reductions
• Source Booz, Allen Hamilton

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• 1. INTRODUCING PRODUCTS INTO
• FOREIGN MARKETS
• STRATEGIC OPTIONS
• EXTENSION STRATEGY
• Same approach as home market
• ADAPTATION STRATEGY -
• Makes changes to fit new market requirements
• INVENTION STRATEGY -
• Entirely new approach is developed for
• the new market

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• STRATEGIC OPTIONS
• 4. STANDARDIZATON
• Same product, all markets
• 5. GLOBAL PRODUCTS -
• Only some aspects of the product is standardized
  

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OPTION 1. PRODUCT EXTENSION COMMUNICATION
EXTENSION

• Product Strategy Communications
  Strategy Highlight
• Extension Extension Standardized product with
  same
• communications strategy across the
• globe.
• - This strategy is Cost effective
• - Allows for greater economies of
• scale
• - Rarely used for consumer type
• products except soft drink and some luxury
  type goods
• -Used mainly for industrial type
• products

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OPTION 2. PRODUCT EXTENSION COMMUNICATION
ADAPTATION

• Product Strategy Communications
  Strategy Highlight
• Extension Adaptation Standardized product with
  different
• communications strategies across the
• globe.
• - Cost effective because communications
  adaptation is
• less expensive than the tailoring
• product to a local market.
• - Can be used for consumer type products
  eg. Bicycles

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OPTION 3. PRODUCT ADAPTATION - COMMUNICATION
EXTENSION

• Product Strategy Communications
  Strategy Highlight
• Adaptation Extension Changes made to the
  product, same communications strategy across
  the globe.
• - Product formulations are changed
• without consumers knowing it. E.g.
• detergents
• - Entails research, development
• expenses and tooling costs.
• - Do not allow for economies of scale
• to the extent possible under an product
  extension strategy
• - savings can be realized from the
  creation of a single communications
  strategy

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OPTION 4. PRODUCT ADAPTATION - COMMUNICATION
ADAPTATION

• Product Strategy Communications
  Strategy Highlight
• Adaptation Adaptation Dual adaptation Cha
  nges made to the product, changes made to
  communications strategy
• - Recognizes the socio-cultural
• differences from country to country
• -To make this option profitable, the
  foreign market or markets need to be of
  sufficient volume
• - Calls for extensive research and
  development expenses and tooling costs

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OPTION 5. PRODUCT INVENTION

• Product Strategy Communications
  Strategy Highlight
• Invention Develop new communications Usually
  redesigning of an original product at a
  lower level of
• complexity.
• - Recognizes the socio-cultural
• and economic differences from country to
  country
• -Leads to more purchases as a result of
  the reinvention of the product

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Global Product Planning
Product Extension, Communications Adaptation (2)
Different
Dual Adaptation (3)
Communications
Product Invention (5)
Product Adaptation, Communication Extension (3)
Same
Dual Extension (1)
Same
Adapt Product
Develop New Product
Product
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STANDARDIZATION VS ADAPTATION

• Factors encouraging product standardization
• Economies of Scale in
• Production
• Marketing/communications
• Research Development
• Stock Holding

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STANDARDIZATION VS ADAPTATION CONTINUED

• Easier management and control i.e. familiarity
• Homogeneity of markets, in other words markets
  available without adaptation e.g. denim jeans
• Cultural insensitivity (except industrial and
  agricultural products)
• Where made in image is important to a
  products perceived value e.g. France for
  perfumes, Sheffield for stainless steel

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STANDARDIZATION VS ADAPTATION CONTINUED

• For a firm selling a small proportion of its
  output overseas, the incremental costs may exceed
  the incremental sales value
• Consumer mobility for travellers/tourists for
  example standardization is expected in certain
  products
• Camera film
• Hotel Chains

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STANDARDIZATION VS ADAPTATION CONTINUED

• Factors encouraging adaptation/modification
• Mandatory Modification
• Normally involves either adaptation to comply
  with government requirements or
• Unavoidable technical changes
• Example Car manufacturer

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STANDARDIZATION VS ADAPTATION CONTINUED

• Legal requirements can include
• Specified exhaust emission levels (HSE Laws
  strict emission standards)
• Local components (economic law)
• Technical requirements such as
• Modification of heating/cooling systems for
  different climates
• Engine modification to use locally available fuels

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Discretionary Modifications

• This is called for to make the product more
  appealing in different markets. It is as a result
  of differing customer needs, preferences and
  tastes that market research, customer feedback
  among others may reveal.
• Levels of customer purchasing power low incomes
  makes cheaper version of product more appealing
  in some less developed countries
• Levels of education and technical sophistication
  ease of use may be a crucial factor in
  decision-making
• Standards of maintenance/repair facilities
  simpler more robust versions may be needed

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2. DEVELOPING A GLOBAL PRODUCT

• In order to remain competitive, firms often have
  to reduce their costs. Usually the production of
  standardize products provides cost advantage,
  however this strategy is not as common. Many
  firms now employ new strategies
• 1. Global Product Development strategy
• 2. Modularity

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The Global Product Development Strategy

• A portion of the final product is standardized.
  However, the design retains some flexibility so
  that the end product can be tailored to the needs
  of individual markets.
• - This represents a move to standardize as much
  as possible those areas involving common
  components or parts.

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The Global Product Development Strategy

• Modularity
• This process involved the development of
  standard modules that can easily be connected
  with other standard modules to increase the
  variety of products.
• E.g General Motors has established a modular
  product architecture for all its global
  automobile products. Future GM cars will be
  designed using combination of components from 70
  different body modules and about a hundred major
  mechanical components (e.g. Engines, power
  trains, and suspension systems)

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3. NEW PRODUCT DEVELOPMENT PROCESSES FOR GLOBAL
MARKETS

• Developing new products or services for global
  markets poses unique challenges.
• To combat these challenges, the international
  firm can assign development responsibilities to
  any one of its international subsidiaries. The
  success however will depend on how well the firm
  marshals its resources on a global scale to
  develop new products for foreign markets.

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Steps in New Product Development process

• Idea Generation
• Idea Screening
• Concept Development Testing
• Marketing Strategy Development
• Business Analysis
• Small Batch Prototype Development
• Product Development Testing
• Test Marketing
• Commercialization / Launch

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Sources of New Product Development

• 1. Head office
• 2. Lead markets
• 3. Subsidiaries
• 4. Purchasing research and development
• 5. Importing new product technology
• 6. Acquisitions
• 7. Joint ventures
• 8. Alliances
• 9. Consortia

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Sources of New Product Development 1The
organization of Head Office-Sponsored Research
and Development

• Research and development for the introduction of
  new products is originally conducted in
  centralized facilities in the firms domestic
  market.
• The largest portion of research and development
  monies spent by international firms goes to
  support efforts in domestically located
  facilities.
• Initial introduction at home is followed by a
  phase-in introduction to the companys foreign
  markets.

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The organization of Head Office-Sponsored
Research and Development

• Reasons for Head Office-sponsored Approach
• 1. RD is centralized so there is an integrative
  strategy with regards to product development. To
  achieve this there must be frequent contacts and
  interfacing between RD facilities and the
  companys main office.
• 2. To minimize duplication
• 3. For the effective and efficient utilization
  of scarce research funds
• 4. To capitalize on the firms experience in
  their domestic market.

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Sources of New Product Development 2
International Leads Markets and Research and
Development

• The lead market is a market whose level of
  development exceeds that of the market in other
  countries worldwide and whose developments tend
  to set a pattern for other countries.
• Lead markets are not restricted to technological
  developments as embodied in product hardware.
• Lead market advantage based on superior design,
  advanced features, function and quality,
  production processes, patterns in consumer
  demand, methods of marketing. (Any phase of the
  operation is subject to lead market influence)

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Sources of New Product Development 3The Role of
Foreign Subsidiaries in Research Development

• Subsidiaries
• o   Subsidiaries may assume RD function if
  products require some adaptation to a local
  market
• o   Foreign subsidiaries of international firms
  rarely play an active role in the RD unless they
  have manufacturing responsibilities and
  capabilities
• o   Sales subsidiaries provide central
  organization with feedback on product adjustments
  or adaptation, but generally their participation
  does not go beyond the generation of ideas.
• o   A subsidiary located in a lead market is in a
  better position to observe developments and to
  accommodate new demands and can therefore act as
  an effective listening post

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Roles of involvement for the subsidiary

• Strategic leader role
• With responsibility for developing a new range of
  products to be used by the entire company. This
  role will be handled by a highly competent
  subsidiary in a market of strategic importance.
• Contributor
• This role would be assumed by a subsidiary in a
  distinct area and the subsidiary will adapt some
  products in smaller though important markets
• Implementer
• These are smaller subsidiaries located in less
  strategic markets that act as implementers of the
  overall strategy without making a major
  contribution to either technology or strategy

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Sources of New Product Development 4Purchasing
Research and Development from Foreign Countries

• A company may acquire material or information
  from independent outside sources that have
  acquired lead market status.
• How?
• Literature published in lead markets
• Regular visits to foreign countries
• Trade fairs
• Management contact with lead markets
• These are admittedly ad hoc measure though.

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Sources of New Product Development 5Importing
as a Source of New Products

• Some companies import finished products directly
  from a foreign firm to supplement their product
  lines.
• This is usually done in areas that do not
  represent the core of the firms business and
  technology, and is used to extend the product
  offering.

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Sources of New Product Development 6Acquisition
as a Route to New Products

• Advantages
• Efficient, cost-effective way to create a new
  product instead of trying to conceptualize, RD
  and launch new products from the ground up.
• Overcomes the process of acquiring technological
  experience
• Establish supplier relationships
• Circumvents need for large Advertising
  Promotional Budgets to gain visibility brand
  recognition

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Sources of New Product Development 7Joint
Ventures for New Product Development

• Usually pursued with technologically advanced
  foreign company usually at lower costs
• Good way to pursue an opportunity that is too
  complex, uneconomical or risky for a single
  organization to pursue alone
• Provide entry into desirable foreign markets when
  access is restricted by government
• Used when opportunities in new industry require
  broader range of competencies that any one
  company can marshal

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Sources of New Product Development 8Alliances
for New Product Development

• Companies are using alliances or the Consortium
  Approach to share technology and RD to gain
  competitive advantage
• Consortium Approach member firms join in
  working relationship without forming a new
  entity. On completion of assigned task, member
  firms are free to seek other relationships with
  different firms.

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4. INTRODUCING NEW PRODUCTS TO GLOBAL MARKETS

• Once a product has been developed for commercial
  introduction, the following decisions need to be
  made
• - Test Marketing procedure
• - The target country
• - The timing or sequence of introduction into
  foreign market
• These decisions are influenced by sales
  potential. Following careful analysis, a list of
  target countries is developed, then the company
  will choose from among several paths to the
  actual introduction in the target
  country/countries.

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Determining Introduction in target countries

• Concept Test
• This involves presenting the product concept to
  appropriate target consumers and getting their
  reactions. The concepts can be presented
  symbolically or physically. However the more the
  tested concepts resembles the final product or
  experience, the more dependable concept testing
  is.
• In recent times, companies are also using
  virtual reality to test product concepts. This
  entails the use of sensory devices to stimulate
  reality.

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Test Marketing

• Test Market
• The ultimate way to test a new consumer product
  is to put it into full-blown test markets. The
  company chooses a few representative cities, and
  the sales force tries to sell the trade on
  carrying the product and giving it good shelf
  exposure, full advertising and promotional
  strategy, similar to the one use in the home
  market.
• Simulated Test Marketing
• This entails finding 30 to 40 qualified shoppers
  and questioning them about brand familiarity and
  preference in a specific product category.

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Test Marketing

• Controlled Test Marketing
• In this method, the number of geographic
  locations are tested. The product is delivered
  to the participating stores and the product is
  placed in a strategic position. Sales results
  will be measured electronically through scanners
  at the checkout.

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Timing of New Product Introduction

• Market-entry timing is critical. A company may
  be faced with the challenge of trying to enter a
  market with a new product and learns that a
  competitor is nearing the end of its development
  work. The company faces three choices
• First entry
• Parallel entry
• Late entry

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Timing of New Product Introduction continued

• First Entry
• The first firm entering a market usually enjoys
  first mover advantages of locking up key
  distributors and customers while gaining the
  reputation of product leader. If the product is
  rushed before to market before it is thoroughly
  debugged, the product can acquire a flawed image.

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Timing of New Product Introduction Continued

• Parallel Entry
• The firm might time its entry to coincide with
  the competitors entry. The market may pay more
  attention when two companies are advertising the
  new product.
• Late Entry
• The firm might delay its launch until after the
  competitor has entered. The competitor will have
  borne the cost of educating the market. The
  competitors product may review faults the late
  entrant can avoid.

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Timing of New Product Introduction continued

• Timing decisions involves additional
  considerations
• - If the new product replaces an older product,
  the company might delay the introduction until
  the old products stock is drawn down.
• - If the product is highly seasonal, it might be
  delayed until the right season arrives.

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