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Product and service adaptation

Product and service adaptation. Marketing Policies. Same products sold everywhere the same way = (full) standardization = global strategy Adapt to local conditions = adaptation = multidomestic strategy. Benefits from Standardization. lower costs improved quality enhanced customer preference

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Product and service adaptation

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  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)

  12. 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)

  16. Consumption of beer outside the home(% of total)

  17. Drinking occasions for beer

  18. Convergence? • Yes for some products, no for others

  19. Annual per-capita cigarette consumption Country 1994 2004 Percentage Change Note: Consumption defined by duty-paid sales; actual consumption can be higher. Source: ERC Group

  20. Evolution of Yogurt Consumption(Kg per capita)

  21. 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

  22. Whyat needs to be adapted? Marketing Adaptation Checklist 1. product/service 2. price 3. promotion 4. distribution

  23. 1. Why Product/Service adaptation? • Conditions of use (size, features) • population density, weather • Preferences (taste, smell) • Habits and values • social class, religion

  24. Why product/service adaptation? (2) • Economic conditions • stage of development • degree of competition • Standards and regulations • admissible ingredients and techniques

  25. 2. Price Adaptations • product positioning (elasticity of demand) • competition • government regulation

  26. Automobile Price Differences in the EU Source: European Commission

  27. 3. Promotion adaptations • Brand • Advertising

  28. 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?

  29. Some Brands do not Transfer • Pschitt • Sissy • Toyota MR2 • Chevrolet Nova • American Motors Matador • Mitsubishi Pajero • Air • Mymorning Water • Creap • Clairol Mist Stick

  30. Brands of 6 MNCs in 67 countries

  31. European Firms Are Integrating Across the Continent Key: 7…Agree strongly … … … … … 1…Disagree strongly 3.5 3.4 2.8 2.6 2.6 1.9 European-based firms Subsidiaries of U.S.-based firms All firms

  32. Country of Origin Effects Apparent country of origin affects reputation Germany = Robust France = Luxury Italy = Design Finland = Pure

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

  34. Response to Message • Silent language • color • numbers • symbols • Spoken language • perceptual gaps • encoding/decoding gaps

  35. Seller in country A Buyer in country B Seller’s field of experience Sender Encoder Receiver Decoder Message Medium Culture Culture Choice of words Choice of symbols Meaning Choice of words Choice of symbols Understanding

  36. Share of advertising revenue by support, 2003

  37. Distribution • Channels • availability • cost • regulations

  38. 11,48 11,11 8,94 6,49 5,61 5,30 2,21 Russia UK France Brazil US India China Store Density per 1000 inhabitants

  39. 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%

  40. Vending machines Japan: 1 for every 25 persons US: 1 for every 40 persons China: 1 for every 26,000 people

  41. Three points to keep in mind • Price-Fit tradeoff • Core vs. peripheral standardization • Selective standardization

  42. 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

  43. 2. Product/service Core and Peripheral Elements McDonald’s • core: clean, family, fast • non-core: menus

  44. McDonald’s 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

  45. 3. Optimal standardization almost never full standardization and varies... • across products • across elements of the marketing mix • across areas • across time

  46. Standardized concept and execution No standardization 1 2 3 4 5 Standardization of the Marketing mix

  47. Core Standardization

  48. 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

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