Product standardization

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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
• Benetton sweaters
• Regional products and brands are unique to a
  particular trading region
• Hondas European car model Concerto
• P Gs Ariel and Vizir in Europe

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The Pros and Cons of Standardization

• The Advantages of Standardization
• Cost Reduction
• Scale economies (input and process)
• Scope economies (synergy, brand equity)
• Improved Quality (reliability)
• Better equipment, more experience
• Enhanced Customer Preference (no surprises)
• Global Customers (mobility)
• Global Segments (convergence)
• Time to Market
• Centralized R D

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The Pros and Cons of Standardization

• The Drawbacks of Standardization
• Off-Target (requires homogeneity)

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OUR PRODUCT
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The Pros and Cons of Standardization

• The Drawbacks of Standardization
• Off-Target (requires homogeneity)

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Prod A
Prod B
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OUR PRODUCT
Prod C
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The Pros and Cons of Standardization

• The Drawbacks of Standardization
• Lack of Uniqueness
• Is uniqueness an important attribute?
• Vulnerability to Trade Barriers
• More barriers, less standardization
• Strong Local Competitors
• Can we afford the handicap of standardization?

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Localization versus Adaptation

• Localization is a hygiene factor (price of
  admission)
• Adaptation is a motivator (add value and
  attractiveness)
• Basic Requirements
• Localization
• Generally speaking, localization avoids having
  potential customers reject the product out of
  hand
• Compatibility Requirements
• Localization represents the adjustments in the
  product specifications necessary for it to
  function in the foreign environment
• Multisystem Compatibility
• In many products today, localization is
  accomplished by building in compatibility with
  multiple systems at the outset

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Uniform vs Adapted Product

PREFER
Line shows likelihood of Purchase
Uniform
Localized
Adapted
REJECT
-
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Optimal Level of Standardization
Incremental manufacturing cost
Combined costs
Cost of lost sales
Fully standardized
Fully adapted
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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

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How standard is standard?

• Modular Approach
• Mix and match common components (Ford)
• Core-Product (Platform) Approach
• Uniform base
• Attachments added to localize
• John Deere 6 families (platforms)
• Electrolux 15,000 products

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How standard is standard?

• Philadelphia Cream Cheese 14 fewer calories in
  Italy
• Hellmanns Mayo ½ the saturated fat in London
• Kelloggs All-Bran bar 1/3 the sodium in Mexico
• Krafts Lunchables 56 more fat in US
• US brands tend to be higher in fat, calories,
  sugar and genetically engineered substances

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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
• Goals should not be narrow and inflexible
• Rigid Implementation
• Some flexibility in implementation needs to be
  retained by local units

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Strategic Alternatives

• Same Product, Same Communication (dual extension)
• Lip balm, cameras
• Same Product, Different Communication
• Wrigley same gum but
• US smoking substitute
• Europe dental benefits
• Far East facial fitness
• Different Product, Same Communication
• Often, acquired brands
• Different Product, Different Communication
• Different culture and physical environment
  Slim-Fast

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Why do Global Product Lines Differ?
History Different local products were well
established before standardization was
feasible MA (Mergers Acquisitions) Complete
integration is often difficult in MA
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.
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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.

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Developing New Global Products

• Five Stages (contd)
• 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.

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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
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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.

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Target Positioning The Diagonal for Me-too
Offerings
HI END
PRODUCT SPECIFICATION
TARGET BRAND
LO END
LO PRICE
PRICE POSITION
HI PRICE
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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?
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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.

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Typical Global Brand Portfolios
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Global Brand Equity

• Brand Equity is the value of the positive
  associations that consumers have with a products
  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.

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

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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.
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Globalizing a Brand Name Checklist

1. Does the brand name make sense outside of the
   source country?
2. If the name suggests a country association, is
   the effect positive?
3. Is the name available legally in many countries?
4. Does the brand compete with other brands in the
   portfolio?
5. Should growth be limited to the creation of a
   regional brand?

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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.

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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

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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. Levis micro-weave patterns,
Microsofts Windows 95 tracking codes)