Chapter

12
Global Products

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved

 Outline
The pros and cons of global product standardization
Localization vs Adaptation
Global product lines
Developing global new products
Global brands and brand equity
The pros and cons of global branding
Counterfeit products
Takeaways.
 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
Honda’s European car model “Concerto”
P& G’s Ariel and Vizir in Europe
 Standardization Pros and Cons

ADVANTAGES DISADVANTAGES
• Cost Reduction • Off-Target
• Improved Quality • Lack of Uniqueness
•Enhanced Customer •Vulnerability to Trade
Preference Barriers
• Global Customers • Strong Local Competitors
• Global Segments
 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.
 Uniform vs Adapted Product
+

PREFER

Line shows
likelihood of
Purchase

Uniform Localized Adapted

REJECT

-
Optimal Level of Standardization

Incremental
manufacturing
cost
Combined
costs Cost of
lost sales

Fully adapted Fully standardized

 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
 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
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.
Honda’s Non-Global Car Models

EUROPE Honda Stream

ASIA Honda City

NORTH AMERICA Honda Element

LATIN AMERICA Honda Fit

Goodyear’s Globally Uniform Tires

EUROPE Goodyear Eagle F1

ASIA Goodyear Eagle F1

NORTH AMERICA Goodyear Eagle F1

LATIN AMERICA Goodyear Eagle F1

 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.
 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.
64 ideas make one successful product

Number of
surviving
new
product
ideas

Idea Preliminary Concept Sales Test

generation screening research forecasting marketing
(leading markets) (focus groups,
concept testing)
 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.
 Target Positioning:
The Diagonal for “Me-too” Offerings
HI END

PRODUCT
SPECIFICATION
TARGET
BRAND

LO END

LO PRICE PRICE POSITION HI PRICE

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?

 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.
 Typical Global Brand Portfolios

company total number brands found in brands marketed

of brands 50% or more countries (%) in only one country (%)
Colgate 163 6 (4%) 59 (36%)
Kraft GF 238 6 (3%) 104 (44%)
Nestle 560 19 (4%) 250 (45%)
P&G 217 18 (8%) 80 (37%)
Quaker 143 2 (1%) 55 (38%)
Unilever 471 17 (4%) 236 (50%)
total 17921

Source: Journal of Consumer Marketing 12 no. 4 (1995)

 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.
 Global Brand Equity
BRAND EQUITY is sometimes measured in terms of the
discounted net revenues the brand is expected to
generate over time.
Brand Name 2001 Brand Value ($ billions)
1 Coca-cola 68.9
2 Microsoft 65.1
3 IBM 52.8
4 GE 42.4
5 Nokia 35
6 Intel 34.7
7 Disney 32.6
8 Ford 30.1
9 McDonald's 25.3
10 AT&T 22.8

Source: Business Week 8/6/2001

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.
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.
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?

 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.
 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
 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)
 Takeaway

LOCALIZATION – fitting a product/service to local regulations

and usage requirements

ADAPTATION – fitting the product to buyer preferences

A STANDARDIZED GLOBAL PRODUCT might not be

adapted to consumer preferences but must still be localized.
 Takeaway

Product standardization is never 100%, but management

must select which features to keep uniform and which to
adapt to local markets.
When preferences show wide variance across countries & the
feature is important, adaptation will be necessary.
 Takeaway

Developing a globally standardized product requires data

analysis, input from local subsidiaries, & a great deal of
managerial judgment.
New product ideas often come from leading markets; their
diffusion rate is a function of fit with local infrastructure &
preferences.
 Takeaway

Global brands are often the most valuable assets

of a global firm.
Most companies have a portfolio of brands, &
management must decide which should be
promoted as global.
 Takeaway

Counterfeit products are damaging to the brand’s equity &

must be controlled, often by direct intervention.