Product is probably the most crucial element of a marketing program. To a very important degree a company’s products define its business. Pricing, communication, and distribution policies must fit the product. Its research and development requirements will depend upon the technologies of its products. Indeed, every aspect of the enterprise is heavily influenced by the firm’s product offering.
In the past, managers have been prone to committing (often simultaneously) two types of errors regarding product decisions in global marketing. One error has been to fall victim to the “Not Invented Here” (NIH) syndrome, ignoring product decisions made by subsidiary or affiliate managers. Managers who behave in this way are essentially abandoning any effort to influence or control product policy outside the home-country market. The other error has been to impose product decisions policy upon all affiliate companies on the assumption that what is right for customers in the home market must also be right for customers everywhere.
The challenge facing a company with global horizons is to develop product policies and strategies that are sensitive to market needs, competition, and company resources on a global scale.
Product design is a key factor determining success in global marketing. Should a company adapt product design for various national markets or offer a single design to the global market? In some instances, making a design change may increase sales. However, the benefits of such potential sales increases must be weighed against the cost of changing a product’s design and testing it in the market. Global marketers need to consider four factors when making product design decisions: preferences, cost, laws and regulations, and compatibility.
There are marked and important differences in preferences around the world for factors such as colour and taste. Marketers who ignore preferences do so at their own peril.
In approaching the issue of product design, company managers must consider cost factors broadly. Of course, the actual cost of producing the product will create a cost floor. Other design-related costs whether incurred by the manufacturer or the end user must also be considered.
The last product design issue that must be addressed by company managers is product compatibility with the environment in which it is used. A simple thing like failing to translate the user’s manual into various languages can hurt sales of home appliances built in America. Also, electrical systems range from 50 to 230 volts and from 50 to 60 cycles. This means that the design of any product powered by electricity must be compatible with the power system in the country of use.
Climate is another environmental characteristic that often demands compatibility. Many products require tropicalization to withstand humidity, whereas other products must withstand extreme cold. Many European automobiles are not suited to the extreme cold winter conditions found in parts of North America. This is particularly true of cars coming from Britain and Italy, two countries that do not have extreme winters.
Measuring systems do not demand compatibility, but the absence of compatibility in measuring systems can create product resistance. The lack of compatibility is a particular danger for the United States, which is the only non-metric country in the world. Products calibrated in inches and pounds are at a competitive disadvantage in metric markets. When companies integrate their worldwide manufacturing and design activity, the metric-English measuring system conflict requires expensive conversion and harmonization efforts.
Strategy 1: Product-Communications Extension (Dual Extension)
Many companies employ product-communications extension as a strategy for pursuing opportunities outside the home market. Under the right conditions, this is the easiest product marketing strategy and, in many instances, the most profitable one as well. American companies pursuing this strategy sell exactly the same product, with the same advertising and promotional appeals used in the United States, in some or all world market countries or segments.
Note that this strategy is utilized by companies in stages two, four, and five. The critical difference is one of execution and mindset. In the stage-two company, the dual extension strategy grows out of an ethnocentric orientation; the stage-two company is making the assumption that all markets are alike. The company in the fourth or fifth stage does not fall victim to such assumptions; geocentric orientation allows the company in stage four or five to thoroughly understand its markets and consciously take advantage of similarities in world markets.
One of the leading practitioners of this approach is PepsiCo, whose outstanding robust global performance is a persuasive justification of this practice. Gillette also recently used this strategy in the worldwide launch of its Sensor razor, using the advertising theme “The best a man can get.”
The product-communications extension strategy has an enormous appeal to global companies because of the cost savings that are associated with this approach. The two most obvious sources of savings are manufacturing economies of scale and elimination of duplicate product R&D costs. Less well known but still important are the substantial economies associated with standardization of marketing communications. For a company with worldwide operations, the cost of preparing separate print and television ads for each market is a significant marketing expense. Although these cost savings are important, they should not distract executives from the more important objective of maximum profit performance, which may require the use of an adaptation or invention strategy. As we have seen, in spite of its immediate cost savings, product extension may in fact result in market failure.
Strategy 2: Product Extension-Communications Adaptation
When a product fills a different need, appeals to a different segment, or serves a different function under use conditions that are the same or similar to those in the domestic market, the only adjustment that may be required is in marketing communications. Bicycles and motor scooters are examples of products that have been marketed with this approach. They satisfy recreation needs in the United States but serve as basic transportation in many other countries. Similarly, outboard marine motors are usually sold to a recreation market in the United States, whereas the same motors in many foreign countries are often sold to fishing and transportation fleets. As these examples show, the product extension-communications adaptation strategy whether by design or by accident results in product transformation. The same physical product ends up serving a different function or use than that for which it was originally designed or created. The appeal of the product extension-communications adaptation strategy is it’s relatively low cost of implementation. Since the product in this strategy is unchanged, R&D, tooling, manufacturing setup, and inventory costs associated with additions to the product line are avoided. The only costs of this approach are in identifying different product functions and revising marketing communications (including advertising, sales promotion, and point-of-sale material) around the newly identified function.
Strategy 3: Product Adaptation-Communications Extension
A third approach to global product planning is to extend, without change, the basic home-market communications strategy while adapting the product to local use or preference conditions. Note that this strategy (and the one that follows) may be utilized by companies in stages three, four, and five. The critical difference, as noted earlier, is one of execution and mindset. In the stage-three company, the product adaptation strategy grows out of a polycentric orientation; the stage-three company assumes that all markets are different. By contrast, the geocentric orientation of managers and executives in a company in stage four or five has sensitized them to actual rather than assumed differences between markets.
Strategy 4: Dual Adaptation
When comparing a new geographic market to the home marker marketers sometimes discover that environmental conditions of use or consumer preferences differ; the same may be true of the function a product serves or consumer receptivity to advertising appeals. In essence, this is a combination of the market conditions of strategies 2 and 3. In such a situation, a company in stage four or five will utilize the strategy of product and communications adaptation. As was true about strategy 3, stage-three companies will also use dual adaptation regardless of whether the strategy is warranted by market conditions, preferences, function, or receptivity.
Unilever’s experience with fabric softener in Europe exemplifies the classic multinational road to adaptation. For years, the product was sold in ten countries under seven different brand names with different bottles and marketing strategies. Unilever’s decentralized structure meant that product and marketing decisions were left to country managers. They chose names that had local-language appeal and selected package designs to fit local tastes. Today, rival Procter & Gamble is introducing competitive products with a pan-European strategy of standardized products with single names, suggesting the European market is more similar than Unilever assumed. In response, Unilever’s European brand managers are attempting to move gradually toward standardization.
Strategy 5: Product Invention
Adaptation and adjustment strategies are effective approaches to international (stage-two) and multinational (stage-three) marketing, but they may not respond to global market opportunities. Nor do they respond to the situation in markets where customers do not have the purchasing power to buy either the existing or adapted product. This latter situation applies to the less developed part of the world, which includes roughly three-quarters of the world’s population.
Rather than extend or adapt an existing product, it is often necessary to plan and design for the global market. An example is the rechargeable battery market, whose voltage and cycles vary around the world. Anton/Bauer, a small Connecticut company, offers a portable power system (batteries and chargers) that will operate anywhere in the world without adjustments by the user. The charger “knows” or reads the type of power that it is plugged into and adjusts accordingly. The products portability creates added value for customers. The Anton/Bauer approach is to design for the global market: The company manufactures one product instead of many and thereby keeps costs down. This design feature enables Anton/Bauer to manufacture one chassis instead of several, which in turn enables the company to achieve greater economies of scale and greater experience. Scale and experience mean lower costs, and lower costs and higher quality are essential in serving global markets in the 1990s. The winners in global competition are the companies that can develop product designs offering the most benefits, which in turn create the greatest value for buyers. The product invention strategy frequently means higher levels of product performance and lower prices, which translate into greater customer value.
In some instances, value is not defined in terms of performance, but rather in terms of customer perception. Customer perception is as important for an expensive perfume or champagne as it is for an inexpensive soft drink. Product quality is essential—indeed, it is frequently a given—but it is also necessary to support the product quality with imaginative, value-creating advertising and marketing communications. This can be done with a global advertising campaign. Most industry experts believe that a global appeal and a global campaign are more effective in creating the perception of value than is a series of separate national campaigns.
When potential customers cannot afford a product, the strategy Indicated is invention. In other words, a company may need to develop an entirely new product designed to satisfy the need or want at a price that is within the reach of the potential customer. This is demanding, but if product development costs are not excessive, it is potentially a rewarding product strategy for the mass markets in the less developed countries of the world.
Although there are ample opportunities for the application of the invention strategy in global marketing, it is a strategy that is unfortunately under appreciated and under utilized. For example, an estimated 600 million women in the world still scrub their clothes by hand. Soap and detergent companies have served these women for decades, yet until recently not one of these companies had attempted to develop an inexpensive manual-washing device.