Product Strategy for Interntional Markets-01.02.2011

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Product Strategy for International Markets

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Developing Products for International Markets Ethnocentric Approach Polycentric Approach Regiocentric Approach Geocentric Approach

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Ethnocentric Approach This Approach is based on the assumption that consumer needs and market conditions are more or less homogeneous in international markets as a result of globalization A firm markets its products developed for the home market with little adaptation.

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Polycentric Approach An international firm is aware of the fact that each country market is significantly different from the other It therefore adopts separate approaches for different markets In a polycentric approach products are developed separately for different markets to suit local marketing conditions.

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Regeocentric Approach Once an international firm establishes itself in various markets the world over, it attempts to consolidate its gains and tries to ascertain product similarity within market clusters Generally, such market clusters are based on geographical and psychic proximity.

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Geocentric Approach Instead of extending the domestic products into international markets, a firm tries to identify similarities in consumption patterns that can be targeted with a standard product around the world.

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Standardization vs Adaptation in International Markets A firm operating in international markets has to make a crucial decision, whether to sell a uniform product across countries or customize the product to meet different market requirements Although no readymade solution can be suggested for the decision to standardize or adapt the product in international markets, firms are required to carry out a careful cost- benefit analysis before arriving at a decision

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It has been observed that most firms attempt to project a uniform product image across global markets but often customize the perceived value of the product to suit customers in the target market While retaining its brand name, the firm attempts to customize the augmented product components such as features, packaging, and labelling The support service components including warrantees, guarantees, delivery schedule, installation, and payment terms are most often adapted to suit the needs of the target market

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Generally, industrial products and services are insensitive to cross-country preferences and may be marketed as standardized products, whereas foods, fads, fashions, and styles are highly sensitive and customer preferences for these items vary widely among markets Such products often require a much higher level of customization The leading fast food giant McDonald’s serves a variety of customized products in different markets to satisfy customers’ needs and expectations It serves Hamburgers in the US, Chicken tatsuta , teriyaki chicken, and teriyaki McBurger in Japan, and has replaced its traditional Big Mac with the Maharaja Mac in India

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Despite its image of a family restaurant, McDonald’s serves beer as well as McCroissants in Germany In New Zealand, McDonald’s serves its Kiwiburger with beetroot sauce and an optional apricot pie In Singapore, it serves fries with chilli sauce besides chicken rice It also uses vegetable oil in food preparation in the Singapore market The Dutch veggie burger, made of spiced potatoes, peas, carrots, and onions is served in the Dutch market McPalta , made from avocados in Chile, currey potato pie, shake fries, red bean sundae in Hong Kong, and a variety of salads featuring

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Mediterranean flavours in Italy, reflect careful product adaptation by McDonald’s to address the varied needs of international customers. 1 . Product Standardization 2 . Product Adaptation

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Product Standardization Product standardization refers to the process of marketing a product in overseas markets with little change except for some cosmetic changes, such as modified packaging and lebelling The benefits associated with using standardized products in international markets include the following: Projecting a global product image Catering to customers globally Cost savings in terms of economies of scale in production Designing & monitoring various components of marketing mix economically.

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The major factors that favour product standardization for international markets include: 1a . High Level of Technology Intensity 1b . Formidable Adaptation Costs 1c . Convergence of Customer Needs Worldwide 1d . The country of Origin Impact.

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Product Adaptation Making changes in a product in response to the needs of the target market is termed product adaptation or customization In view of local consumption requirements, a product for the international markets is often customized Adaptation of a product may vary from major modification sin the product itself to its packaging, logo, or brand name A thorough market research needs to be conducted so as to identify the customers’ requirements in the target market

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Customizing products for international markets offers a number of benefits including the following: It enables a firm to tap markets, which are not accessible due to mandatory requirements It fulfils the needs and expectations of customers in varied cultures and environments It helps in gaining market share It increases sales leading to economies of scale.

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2.1 Mandatory Factors Influencing Product Adaptation in International Markets Customizing products includes product modifications that a firm has to carry out in international markets not as a matter of choice but as a compulsion The major factors influencing product modification are as follows: 2.1a Government Regulations 2.1b Standards for Electric Current 2.1c Operating Systems 2.1d Measurement Systems 2.1e Packaging & labeling Regulations.

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2.1a Government Regulations A firm may have to adapt its products in various markets due to government regulations Approval by the FDA (Food and Drug Administration) is needed for marketing a food or pharmaceutical product in the US The anti-smoking warnings on cigarette packets in India and other developing countries are very subtle While the regulations in Canada and Brazil require the use of shock graphic warnings on cigarette packs

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Singapore law requires that gruesome pictures of death and decay on cigarette packs greet smokers from 1 August 2004 The European Union has unveiled a library of 42n shocking pictures of blackened lungs, rotten teeth, throat tumours , and corpses in hospital morgues to be used on cigarette packs from 2005 by each member country.

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2.1b Standards for Electric Current The electrical current standards also vary from country to country In India, electric current of 220 volts at a frequency of 50Hz is used, while in the US it is 110-120 volts at a frequency of 60Hz Therefore, electric equipment should be modified for use in the target market depending on the country’s electricity standards.

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2.1c Operating Systems Differences in operating systems affect product design, which needs to be adapted to suit the target market In India, China, the UK, Singapore, Pakistan, UAE, and Tanzania televisions operate on phone alternating lines (PAL) while in the United States, Japan, Philippines, and South Korea they work on national television systems committee (NTSC) standards However, in France, Vietnam, Russia, and Mauritius televisions operate on system electrique pour couleur avec memoire (SECAM).

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2.1d Measurement Systems Different systems of measurement also affect product design India follows the metric system with kilogram, metre , and litre as measurement units However, the US follows the imperial system of measurement using pound, feet, and gallon Therefore, the packaging size, weights, and measures of products need to be modified depending upon the measurement system followed in the target market.

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2.1e Packaging and Labeling Regulations Each country prescribes separate regulations for packaging and labeling, which have to be adhered to by an international marketing firm Most countries in the Middle East emphasize the use of Arabic Similar linguistic regulations are also required in a number of European countries In India, food products generally bear the duration for use of a product In most developed countries, the date of expiry is also mentioned explicitly

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Even regulations requiring magazines to display the date after which they should not remain on bookstands are not uncommon in a number of high-income countries Due to the sensitive vegetarianism issue, regulations in India require food packages to exhibit a mark, i.e. veg. or non-veg., so as to explicitly inform the consumers about their contents.

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Voluntary Factors Influencing Product Adaptation in International Markets Consumer Demographics Culture Local Customs and Traditions Conditions of Use Price

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A. Consumer Demographics Mattel has adapted its Barbie dolls for different countries The Egyptian Barbie wears a serpent ornament with a stunning golden crown inspired by the royalty of ancient Egypt royalty Mattel has customized the Barbie doll for India as well by cladding her in a conventional saree and traditional jewellery .

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Culture Culture factors affect products decisions for international markets In India and other South Asian countries, ghee clarified butter) is the most important milk product and sells at a premium price Besides, ghee is used in the preparation of variety of Indian sweets and other dishes However, in a majority of developed countries toned milk is preferred and costs more than full cream In India, the cow is considered to be the holiest of all living creatures and eating beef is taboo for the Hindus

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Islam prohibits the consumption of pork Therefore, in Islamic countries no pork is sold.

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Local Customs and Traditions Kellogg’s concept of having cornflakes with cold milk did not succeed as people in India like steaming hot food It was only after several years of operation in the country that Kellogg’s realized its mistake and took the corrective steps It took the company some time to understand the strength and the deep-rooted traditions of Indian food, which were difficult to replace with cornflakes Later, as a part of a strategic decision, Kellogg’s repositioned its cornflakes as complementary to traditional breakfast rather than as a replacement and strived for market creation in the long term

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In India and other Asian countries, the fairness of the skin is the most important parameter for women’s beauty On the contrary, Africans are surprised at fairness being considered the key parameter of beauty In African markets, personal care products like the brand Dark and Lovely are highly popular.

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Conditions of Use Nokia has introduced its brand ‘Nokia 1100’ with emphasis on its ‘Made for India’ features, such as anti-slip grip, built-in torchlight, dust resistant cover, and, of course, the price.

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Price Low-income countries are highly sensitive to price, which constitutes the most significant determinant of a purchase decision The level of sophistication of buyers in adopting new products and processes also varies among countries On a seven point scale, buyers in developed markets, such as Iceland (6.2%), the US (6.1%), Hong Kong (6.1%), and the UK (5.9%), actively seek the latest products, technologies, and processes as compared to buyers in Angola (2.7%), Mozambique (2.8%), and Bangladesh (3.7%), who are slow to adopt new products and processes

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Indian buyers are rated at 4.7% on the scale of sophistication with respect to products and processes The proton dot matrix printer, the least expensive dot matrix printer in the world, from TVS Electronics has revolutionalized the rural retailing of IT hardware.

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New Product Launch ‘Waterfall’ Approach ‘Sprinkler’ Approach

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‘Waterfall’ Approach ‘Waterfall’ approach is generally more suitable for firms that have limited resources and find it difficult to manage multiple markets simultaneously This strategy had long been followed in international marketing It took a long time for a number of firms, which are now global, to launch their products in international markets For instance, it took almost 22 years for McDonald’s to market outside the US whereas Coca Cola took about 20 years and Marlboro about 35 years to market overseas.

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‘ Sprinkler’ Approach Under this approach a product is simultaneously launched in various countries The sprinkler approach of simultaneous market entry is preferred under the following circumstances: If the competitive intensity of the market is very high with strong and fierce competitors If the life cycle of the product is relatively short If the markets have high potential, such as Large market size Rapid growth Cost of entry is relatively less If a firm has large resources to manage simultaneous product launches in multiple markets.

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International Product Strategy A. International Competitive Posture Matrix

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International Competitive Posture Matrix The resources available with a firm for expansion of international markets and strengthening the product features are limited Product strengthening is necessary to create and maintain a product’s competitive position in the markets At the same time, a firm has to peruse its geographical expansion so as to grab global opportunities and respond to competitors in international markets

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Figure 1, depicts the international competitive posture matrix developed by Gogel and Larrenche (1989) and offers the following strategic options: 1. Kings 2. Barons 3. Crusaders 4. Commoners

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Barons Kings Crusaders Commoners High Low Product strength Low High Geographical Coverage (Figure 1)The International Competitive Posture Matrix

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Kings Firms with a strong product portfolio and wide geographic coverage are termed kings These firms have strong products and expanded geographic coverage For an effective global strategy, such firms are in the best position Global firms like Coke, Pepsi, McDonald, Sony, etc. fall under this category.

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Barons Such companies operate in a limited number of countries Due to their high product strength, geographical expansion becomes attractive Firms with weak product portfolios in foreign markets tend to be their takeover targets Alternatively, they may enter into some sort of strategic alliance with such firms in foreign markets The Indian firm, Tata Motors with high product strength in motor vehicles acquired the Rs 400 crore Daewoo Commercial Vehicle Company in April 2004

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In August, 2004, Tata Steel acquired Netsteel of Singapore for US $ 289.5 million, which not only made Tata Steel the 10 th largest steel producer in the world in terms of capacity but also gave it ready access to Netsteels ’ customers in South East Asia, a region that consumes a third of the world’s steel production.

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Crusaders Despite a weak product base, these are the firms that expand globally Such firms are highly prone to global competitors Outsourcing, acquisition, or international product development is required by firms to consolidate their product portfolio in international markets.

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Commoners Firms with low product strength and limited geographical coverage are termed commoners Such firms sustain themselves in the domestic market or to a limited extent in the overseas markets due to protectionist regulations that act as barriers to free markets competition Generally, their expansion in overseas markets is opportunistic in nature These firms need to strengthen their portfolios before expanding into international markets.

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