Global Products and Services

1. Global Products and Services

2. Product standardization Although there is increasing demand for local variety as economic growth takes place and as anti-globalization sentiment spreads, global products and brands are usually standardized in some ways. • Global product examples • Gillette razor blades • Sony television sets • Guess jeans • Regional products and brands are unique to a particular trading region • Honda’s European car model “Concerto” • P& G’s Ariel and Vizir in Europe

4. Standardization Pros and Cons ADVANTAGES DISADVANTAGES • Cost Reduction • Improved Quality • Enhanced Customer Preference • Global Customers • Global Segments • Off-Target • Lack of Uniqueness • Vulnerability to Trade Barriers • Strong Local Competitors

5. Localization vs Adaptation • LOCALIZATION: THIS REFERS TO THE CHANGES REQUIRED FOR A PRODUCT OR SERVICE TO FUNCTION IN A NEW COUNTRY (EX: FAX MACHINES FITTED WITH NEW TYPES OF TELEPHONE JACKS FOR USE IN A FOREIGN COUNTRY). LOCALIZATON AVOIDS HAVING POTENTIAL CUSTOMERS REJECT A PRODUCT OUTRIGHT. • ADAPTATION: WHEN PRODUCTS ARE CHANGED TO MATCH CUSTOMER TASTES OR PREFERENCES. ADAPTATION GIVES CUSTOMERS A POSITIVE REASON FOR CHOOSING A GIVEN PRODUCT. • NOTE: A standardized product still needs to be localized to function properly.

6. Uniform vs Adapted Product + PREFER Line shows likelihood of Purchase Uniform Localized Adapted REJECT -

7. What to Standardize? • 100% standardization is rare • Usually starts with a core product as the foundation • Various features are added, these may differ according to the country market • Can also involve modular design, where various features are packaged as modules, different assembly combinations in different markets

8. Pitfalls of Standardization • Insufficient Market Research • Similarities among customers are assumed, not proven • Overstandardization • Standardization compromises the positioning strategy • Poor Follow-Up • Follow ups need to be implemented if a campaign is to succeed • Narrow Vision • Goalsshould not be narrow and inflexible • Rigid Implementation • Some flexibility in implementation needs to be retained by local units

9. Why do Global Product Lines Differ? • History • Different local products were well established before standardization was feasible • M&A (Mergers & Acquisitions) • Complete integration is often difficult in M&A cases • Preferences • Differences in preferences force product line customization • Capacity • Global product lines need large production capacity • Channels • Channel loyalties makes it difficult to drop local products.

10. Honda’s Non-Global Car Models EUROPE Honda Stream ASIA Honda City NORTH AMERICA Honda Element LATIN AMERICA Honda Fit

11. Goodyear’s Globally Uniform Tires EUROPE Goodyear Eagle F1 ASIA Goodyear Eagle F1 NORTH AMERICA Goodyear Eagle F1 LATIN AMERICA Goodyear Eagle F1

12. Developing New Global Products • Five Stages of the New Product Development Process • Idea Generation • Local subsidiaries are likely to have some ideas from their respective markets and new technology is a common source of new product ideas • Preliminary Screening • The most immediate evaluation of an idea is whether it is compatible with the company objectives, strategies, and resources. • Concept Research • Focus Groups offer the development team a chance to hear spontaneous reactions to a new concept and hear suggestions for improvement.

13. Developing New Global Products • Five Stages (cont’d) • Concept Testing • A more formal approach to selecting product attributes is using techniques such as trade-off analysis or conjoint analysis • Sales Forecast • The appropriate sales forecast approach is based on the product life cycle (see Ch.4) • Test Marketing • Once the sales forecast looks promising, the new product is usually placed in production and test marketed.

14. “64 ideas make one successful product” Number of surviving new product ideas Idea generation (leading markets) Preliminary screening Concept research (focus groups, concept testing) Sales forecasting Test marketing

15. Target Positioning • Because new product development is so uncertain, many firms practice “TARGET POSITIONING”. • Step 1: Track which of the competitors’ new products appeal to consumers and find what features are desired. • Step 2: Reverse engineer the competitive success products. • Step 3: Develop own “me-too” version. • Step 4: Add new features to provide differentiation and a superior offering. • Note: Firms cannot let competitors stay unchallenged. Ex. Nokia lost a big chunk of its leading market share in cell-phones when the company decided not to follow the trend into the so-called clamshell phone models with lids.

16. Target Positioning: The Diagonal for “Me-too” Offerings HI END PRODUCT SPECIFICATION TARGET BRAND LO END LO PRICE PRICE POSITION HI PRICE

17. New Products’ Speed of Diffusion Relative advantage – how much better is the new product? Compatibility – can the product be used in terms of local infrastructure & customs? Complexity – is it easy to use? Trialability – is it easy to try the new product? Observability – are the advantages obvious?

18. Global Brands • GLOBAL BRANDS ARE BRANDS ASSOCIATED WITH GLOBAL PRODUCTS WHICH ARE WELL KNOWN IN ALL MAJOR MARKETS OF THE WORLD. • Ex's: SONY, MERCEDES-BENZ, MICROSOFT, COCA-COLA. • THE TYPICAL MULTINATIONAL FIRM HAS A “PORTFOLIO” OF BRANDS, SOME OF WHICH ARE GLOBAL, SOME ARE REGIONAL, AND SOME LOCAL ONLY.

19. Global Brand Equity • Brand Equity is the value of the positive associations that consumers have with a product’s brand name. • These associations often involve emotional attachments, affinity, positive brand image, and brand identity. • They also involve cognitive factors such as familiarity, knowledge and perceived quality, as well as social factors including peer group acceptance. • When these associations turn negative (as in anti-globalization sentiments against global brands) the brand equity can go down very quickly.

20. Global Brand Equity BRAND EQUITY is sometimes measured in terms of the discounted net revenues the brand is expected to generate over time.

21. Advantages of Global Brands • DEMAND SPILLOVER – The name is familiar because of media spillover, satellite communications, word-of-mouth etc. • GLOBAL CUSTOMERS- People travel to many countries and multinational customers operate in many locations, making the global brand a natural choice everywhere. • SCALE ECONOMIES – any spending on product improvements and advertising can be leveraged across more markets.

22. Disadvantages of Global Brands NEGATIVE SPILLOVER –Bad news travel faster across country markets PRODUCT LINE SPILLOVER - Negative spillover affects also other products with the same brand name. BRAND LOYALTY – Local brand loyalties can be strong.

23. Globalizing a Brand Name: Checklist • Does the brand name make sense outside of the source country? • If the name suggests a country association, is the effect positive? • Is the name available legally in many countries? • Does the brand compete with other brands in the portfolio? • Should growth be limited to the creation of a regional brand?

24. Changing a Local to a Global Brand • Changeover strategies: • The fade-in/fade-out gradual option is the most common strategy • The global brand is linked to the local brand for a time, after which the local brand is dropped • A less gradual approach, sometimes called summary axing • Simply drops the local brand name and introduces the new brand • Companies also use extensive forewarning in media announcements to minimize changeover dissonance among loyal customers.

25. Counterfeit Products • COUNTERFEITS OR KNOCKOFFS ARE FAKE PRODUCTS THAT ARE DESIGNED AND LABELED SO AS TO MISLEAD THE CUSTOMER INTO ASSUMING THAT THEY ARE “THE REAL DEAL.” • WORLDWIDE LOSSES DUE TO COUNTERFEITING IS OVER $20 BILLION ANNUALLY • COUNTERFEITERS OPERATE AT ALL LEVELS OF THE ECONOMY, JUST ABOUT ANY PRODUCT OR TECHNOLOGY DEVELOPMENT IS FAIR GAME

26. Actions Against Counterfeits “SEARCH & DESTROY” – firms hire private investigation agencies to track down fakes in stores and locate counterfeit factories CODING DEVICES – firms encode unique signatures to products (e.g. Levi’s micro-weave patterns, Microsoft’s Windows 95 tracking codes)

27. The Service Industries • Accounting • Advertising • Banking • Broadcasting • Computer services • Consulting • Data processing • Design & engineering • Distribution • Education • Entertainment • Health care • Insurance • Investment banking • Leasing • Legal Services • Lodging • Media • Reservation systems • Restaurants • Tourism • Telecommunications • Transportation • Utilities

28. Characteristics of Services • INTANGIBILITY – you cannot easily touch a service • HETEROGENEITY – the service is not exactly the same each time • INSEPARABILITY – services are produced when they are consumed • PERISHABILITY – you cannot store a service

29. The Service “Product” CORE SERVICE:IS WHAT THE BUYER IS REALLY BUYING. FOR EXAMPLE, AN OIL CHANGE AND TUNE-UP FOR YOUR CAR PROVIDES TROUBLE-FREE OPERATION. FORMAL SERVICE PACKAGE:SPECIFIC SERVICES OFFERED TO THE CUSTOMER INCLUDING PRICE, SERVICE FEATURES, THE PACKAGING, GUARANTEES. AUGMENTED SERVICE: THE TOTALITY OF THE BENEFITS A CUSTOMER RECEIVES OR EXPERIENCES THEY HAVE WHEN BUYING THE PRODUCT.

30. The service as a “product” Provider’s behavior Augmentedservice Features Price Packaging Physicalsurroundings Provider’s appearance Generic benefits After-salessupport Warranty Quality Formalservice package Brand image Core service

31. Service Globalization Potential Three factors that influence the globalization potential of services • Stage in the Life Cycle – potential is highest during the maturity stage because then the service is fully developed and can be blueprinted. • Infrastructure barriers – service applicability depends on availability of infrastructure, as when, for example, warehouse stores require customers to take home large items in their own cars. • Idiosyncratic Home Markets – special regulations induce domestic service providers to develop practices that are not applicable elsewhere, as when, for example, advertising agencies in Japan produce television programs whose sponsorship the agency controls.

32. Keys to Successful Service Globalization Distilling exactly what the key features of the product/service concept are 1 2 Reasonable similarity to the home country situation Localization of the key features to another environment while still maintaining the FSA's of the firm 3

33. The Four Service Entry Modes • EXPORTING – where services can be transferred via communications media or personal travel to countries • LICENSING – when local involvement is important, where the service can be standardized (e.g. franchising) • STRATEGIC ALLIANCES – when a local presence is necessary but where government regulations are restrictive to foreigners • FOREIGN DIRECT INVESTMENT – when a local presence is feasible, where foreign ownership is permitted

34. Foreign Entry of Services • Tourism exports provide an illustration of foreign trade in services, as when Americans visit France. • A franchising expansion by McDonalds provides an illustration of a licensing mode of service entry. • In marketing research, it is common to strike up alliances with research firms in other countries to be able to provide global coverage to clients. • In consulting services, foreign direct investment is sometimes necessary, as when Price-Waterhouse opens an office in Brussels.

35. The Local Marketing of a Service • MARKET SEGMENTATION – typically new services from abroad target very specific segments or audiences • POSITIONING – the customer benefit of the service needs to be identified clearly to position the service accordingly • PRODUCT LINE – a service provider that fits the local infrastructure • BRANDING – is always important given the intangibility of services.

36. The Local Marketing of a Service (cont’d) 5. PRICING – competitive parity, costs, demand, and the value of time spent by customers must be factored in 6. PROMOTION – many professional services have restrictions on promotional activities that differ across countries 7. DISTRIBUTION – since a service is produced & consumed at the same time, service delivery is identical to service production; consequently, distribution becomes the “critical incident” or “moment of truth.”

37. Service Quality CRITICAL INCIDENTS/MOMENTS OF TRUTH – the period of time during which an individual consumes the service Desired Service – highest or ideal quality Predicted or Expected Service – lies somewhere between the desired & the adequate service Adequate Service – forms the lower limit below which the service quality is unacceptable Perceived Service –must lie between the desired & the adequate service levels to make sure customer is satisfied

38. Service Quality: The Gap and the Zone of Tolerance Desired Service Surprise (Perceived Service high) Predicted/Expected Service Zone of tolerance Acceptable Adequate Service Performance Gap Dissatisfaction (Perceived Service low) Inadequate Service

39. Culture and Service Quality • Since services are intangible, service quality is more difficult to quantify, allowing for a more subjective view • Different cultures have different habits and preferences and therefore different definitions of service quality • So culture affects perceived service quality & customer satisfaction strongly • And what is considered high service quality in one country is not necessarily high in another country.

40. Personal Service Quality: Differences in Complaint Handling Americans Japanese • Asking • Listening • Expressing doubt • Expressing sympathy • Explain what cannot be done • Explain what can be done • Defending company policy • Apologize for company policy • Responsibility of the buyer • Responsibility of the seller • “We’ll fix it, but…” • “I’m very sorry” • Low customer satisfaction • High customer satisfaction

41. Close-up: Fast Food Franchising E.g. McDonalds, KFC, Wendy’s, Dunkin Donuts, Pizza Hut • Has been growing in the last two decades • Mitigates risk of financial exposure in other country markets • Common method of penetrating new markets, leveraging existing brand names • Firms provide pre-planning tools to entice local investors ADVANTAGES – allows franchisee to start a business with limited capital, benefiting from local experience of franchiser DISADVANTAGES – franchiser’s ability to dictate many facets of the business may seem overly intrusive

42. Close-up: Professional Services E.g. lawyers, doctors, accounting firms • Professional services are expanding globally despite idiosyncratic local regulations • A gradual move toward making regulations more homogeneous benefits this expansion (e.g. EU certification of lawyers & doctors) • Accounting standards are converging, allowing accounting firms to go global, with clients outside their home countries • Increased sophistication in creating strategic alliances aid global service expansion