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DEVELOPING NEW GOODS AND SERVICES FOR INTERNATIONAL

MARKETS

I Learning Objectives:

At the end of this module, learners must be able to:

1. Discuss the forces that affect the appropriate level of customization or standardization
for products marketed internationally

2. Identify international product strategies

3. Explain the nature and process of multinational diffusion

4. Describe the major stages of new product development (NPD) strategies for
international marketing

5. Understand the links between NPD and national culture

II Key Terms

New product development multinational diffusion international product strategies

Standardization customization national culture

III Core Contents

INTRODUCTION

Product strategy in international marketing involves many decisions:

 What new products should be developed for international markets?

 What should be added, removed or modified?

 What brand names should be used?

 Packaging and service decisions

 And others

Factors that Affect International Product Decisions

• Social-Cultural Factors

– Values, beliefs (religions) and customs esp. in food & drink, fashion and tastes

• Usage Factors

– the same product used in different ways or in different quantity

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• Legal Standards

– very country-specific even within the EU e.g. pharmaceutical and chemical

• Product Liability

– litigation can lead to huge financial settlements. May need to adapt product content,
packaging, labelling etc.

• Product Acceptability

– Perceptions of value and satisfaction can vary considerably e.g try selling instant
coffee in France or Italy

• The Big “E”ssues

– Climate change, sustainable development, pollution and waste management

• Stages of PLC

– Product reaches different stages and maintain at varying length of time in different
countries

Standardization versus Adaptation

• Should the company aim for a standardized or country-tailored product strategy?

• Standardization means offering a uniform product globally or regionally

• A uniform product policy capitalizes on commonalities of customer needs across

countries

• The goal is to minimize costs

Environmental factors influencing the balance between standardization and

adaptation

Standardization vs. Adaptation in international markets: strategy rationale

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Analysis of a company’s standardization potential

Global strategy ≠ Standardization

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• Global strategies in marketing means looking for linkages so that better

coordination can be achieved through marketing operations across a cluster of countries

• Coordination will not just involve product development and branding but also
marketing communications, pricing and distribution strategies

What are the common denominators or ―platforms?

•Product

Common technologies/ product platforms

 Branding

• Promotion

Common positioning

Common message theme (but not message)

• Place

 Retail trading formats (hypermarkets)

Factors favoring standardization

There are 5 common forces that favor a more standardized approach:

1.Common customer needs

2.Global customers

3.Economies of scale

4.Time to market

5.Regional market agreements

Taking a more standardized approach due to common customer needs

•Perhaps the functions for which the product is used are similar

 Pepsi Max; many soft drinks have global appeal

 Convergence of needs

But there are limitations:

 Differences in cultures

 Difference in use patterns

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Taking a more standardized approach due to global customers

• Customers (B2B) are pursuing business overseas and the company chooses to
follow them

• Recently Airbus set up manufacturing facility in China to produce Airbus A320 to

be close to large customers (Chinese and other Asian airlines)

Taking a more standardized approach due to economies of scale

• Greater efficiencies throughout the supply chain

 Manufacturing efficiencies

 General Motors sharing products across Asia

 Distribution

 Economies achieved in supply chain

 Research and Development

 Amortization of R&D costs over a larger volume of output

 Advertising and Promotions

 Used standardized advertising concepts (not messages)

Taking a more standardized approach due to time to market

• Achieving faster to market‘ cycles than the competitors

 A competitive advantage

 Fiat car companies utilizes similar platforms for its vehicles

 One platform can support a number of models

Taking a more standardized approach due to regional market agreements

• Free Trade Agreements and Regional Agreements

 Technical standards begin to converge

 Barriers to certain products are removed

Degree of Standardization

• There are essentially two approaches:

 Modular
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 Developing a range of standardized product parts that can be assembled into

different product configurations

 Holden engines used in GM vehicles in the US

 Core Product (Platform)

 Starts with the design of a mostly uniform core product or platform

 Attachments are added to the core product to match local market needs

Balancing standardization versus adaptation

• Risk of over-standardization

 So much standardization that initiative and experimentation are stifled at the local
subsidiary level

 Apple I phone is essentially based on a global standard

 What about countries that use characters ‘in their language (China, Thailand,
Japan)

 Inputting language into the device

• Over-customization

 So much adaptation that the product loses its differentiation from the local brands

 Is there a product or service like this in your market?

• Foreignness

 The characteristic of foreign products that provides cachet and differentiation

from the local brands

 Louis Vuitton counts Japan and China as its two most important markets outside
of Europe
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 The appeal of „French Fashion/Luxury‟ for all markets

Standardization versus Adaptation

FACTORS ENCOURAGING FACTORS ENCOURAGING

STANDARDIZATION ADAPTATION
 Economies of sca le in production  Differing use conditions
 Economies in product R&D  Government a nd regula tory
 Economies in ma rketing
influences
 ―Shrinking‖ of the world  Differing consumer beha vior
ma rketpla ce/ economic pa tterns
integra tion  Loca l competition
 Globa l competitions  True to the ma rketing concept

The Market Environment

• Government Regulations

 Political and social agendas often dictate regulatory requirements.

• Nontariff Barriers

 Product standards, testing, subsidized local products.

• Customer Characteristics, Expectations, and Preferences

 Physical size, local behaviors, tastes, attitudes, and traditions.

 Consumption patterns, psychosocial characteristics, and general cultural criteria.

• Economic Development

 The stage of economic development affects the market size and demand
characteristics. Backward innovation of the product may be required to meet local
requirements.
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• Competitive offerings

 Monitoring competing local products is critical in adjusting the product for

competitive advantage.

• Climate and geography

 Local climatic conditions and terrain features can make products vulnerable to
damage.

International Product Strategies

• There are essentially 3 strategies open to the international marketer:

1. Extension

 Using the same product or communication strategy that the home market uses

2. Adaptation

 Making changes to the product or communication strategy to suit the local

marketplace

3. Invention

 Designing new products from scratch

5 Strategic Options for international product strategies

Summary of the different options for Generic International Product Strategies

Option 1: Product and Communication Extension „Dual Extension‟

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• Market a standardized product using a uniform communication strategy

Examples:

 the Big Mac from McDonald‘s

 Japanese cosmetic organisation, Shisedo: markets in Europe, North and South

America, and across the Asia-Pacific region

 Some small variations at a local level but essentially the same product globally

• This strategy offers substantial economies of scale

• Using this strategy might be possible if the company wants to leverage on its
“country-of-origin” strengths (made in Australia)

• Negative aspect: alienates foreign customers who may switch to local substitutes

When USED?

 Mostly by small firms who have limited resources

 Benefits of adaptation may not be worthwhile

 Where companies target at ―global customer segments‖ with similar needs

Negative aspect: alienates foreign customers who may switch to local substitutes

Option 2: Product Extension Communications Adaptation

• The same product is chosen but a different communications strategy applies

• Due to cultural and language differences- communications needs to be adapted

• Global product positioning but local advertising execution

• Dove localised its ‗Campaign for Real Beauty‘

 Feminist and advertising groups praised the brand in Europe & the United States

 BUT in China, the notion of ‗real beauty‘ flopped

Option 3: Product Adaptation Communications Extension

• Organizations may adapt their product but maintain the same communications
globally

• Local tastes or local market conditions may require product adaptations

• In some cases, the international firm buys over local brands to add to its global
product portfolio
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 BP adapts the energy product in 100 countries to suit the local market, however,
it maintains a core global message in its communications

Option 4: Product and Communication Adoption „Dual Adaptation‟

• Differences in both the cultural and physical environments across countries call
for a dual adaptation approach

 Pizza Hut change many aspects of their menu and restaurants to suit different
markets throughout Asia

 Sony launched a version of its Walkman flash-memory portable digital music

player developed in China for the Chinese market by Chinese engineers

 it displays the lyrics of Chinese songs and is only sold in China

Adaptation for Product based strategies

Adaptations by global and local brands

Option 5: Product Invention

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• Inventing a whole new product for a foreign market; adaptation is not good
enough

 Microsoft invests in Research and Development facilities in Beijing for the

express purpose of building a China specific range of products

 Samsung has six design centres – London, Rome, Los Angeles, San Francisco,
Shanghai and Seoul

 Aim is to bring out new designs and technologies that match specifically the local
market needs

Global Product Invention

• Black and Decker – Snake Light Flexible Flashlight

• Adapting sewing machines for poorer, less tech-savvy customers

• Adapting harvesters for rural/ agricultural markets where labor is plentiful

Multinational Diffusion

• Not all markets are ready for new products at the same rate

 Speed and pattern of market penetration can vary

 Asahi breaks into the market successfully in Thailand

 Fosters fails twice to break into the Chinese market

Essentially driven by 3 factors

1. Individual differences 2. Personal influences 3. Product characteristics

Diffusion curves could vary by country

The International Product Life Cycles

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• A PLC is useful in depicting the life of a product or group charting its infancy to
maturity

• Many firms are multi-product, serving multi-markets – a combinations of stages

of life cycles

• Resources implications: which products to promote and in which countries? Not

all products perform equally well in every country

Applying the Product Life Cycle concept in International Marketing

Lead and lag countries

• Countries are different stages of the PLC

• Different rates of penetration depending on the stage of economic development

The BCG Matrix: using Portfolio Analysis for International Product Strategies
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Developing New Products

• New products vital for growth and survival

• The NPD process is similar for domestic and international markets

• But the challenge is how to coordinate product development across country

markets

 What criteria to use for screening new products for launch in different markets?

 Timing of launches

The Location of R&D Activities

• Past tendency was to keep activities centrally located with parent corporation
headquarters. But today many R&D activities are geographically spread

•Using foreign-based resources improves ability to compete successfully

internationally.

•A good example is software development

– this is not geographically-bound

• In some cases, outsourcing shortens product development cycle time.

Developing new products for international markets

•The idea •Screening •Test Marketing •Timing of Entry

Test Marketing
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• Advantages:

 Form of field experimentation; do a marketing simulation before full scale

commercialization

 Help make market projections and forecasts

 Companies can contrast different marketing mix strategies to decide which one
fits

•Shortcomings:

 Time consuming and costly

 Competitors have advanced knowledge

 Test markets or cities may not be suitable in terms of lack of research

infrastructure or the market lacks representativeness

The Global Product Launch

• Introducing the product into countries in three or more regions within a narrow
timeframe.

• Successful launches require:

– Involvement of country managers

– Pre-launch attention to localization and translation requirements

– Increased education and support of the sales channel

• Benefits of a global launch

– Showcases the product

– Removes old models at once

– Captures new product’s higher margins