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Product standardization

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

JasminFlorian
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Product standardization

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  1. 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

  2. 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

  3. The Pros and Cons of Standardization • The Drawbacks of Standardization • Off-Target (requires homogeneity) S6 S5 S1 S2 OUR PRODUCT S4 S3

  4. The Pros and Cons of Standardization • The Drawbacks of Standardization • Off-Target (requires homogeneity) S6 S5 S1 Prod A Prod B S2 OUR PRODUCT Prod C S4 S3

  5. 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?

  6. 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

  7. Uniform vs Adapted Product + PREFER Line shows likelihood of Purchase Uniform Localized Adapted REJECT -

  8. Optimal Level of Standardization Incremental manufacturing cost Combined costs Cost of lost sales Fully adapted Fully standardized

  9. 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

  10. 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

  11. How standard is standard? • Philadelphia Cream Cheese: 14% fewer calories in Italy • Hellmann’s Mayo: ½ the saturated fat in London • Kellogg’s All-Bran bar: 1/3 the sodium in Mexico • Kraft’s Lunchables: 56% more fat in US • US brands tend to be higher in fat, calories, sugar and genetically engineered substances

  12. 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 • Goalsshould not be narrow and inflexible • Rigid Implementation • Some flexibility in implementation needs to be retained by local units

  13. 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

  14. 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.

  15. 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.

  16. 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.

  17. “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

  18. 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.

  19. Target Positioning: The Diagonal for “Me-too” Offerings HI END PRODUCT SPECIFICATION TARGET BRAND LO END LO PRICE PRICE POSITION HI PRICE

  20. 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?

  21. 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.

  22. Typical Global Brand Portfolios

  23. 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.

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

  25. 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.

  26. 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.

  27. Globalizing a Brand Name: Checklist • Does the brand name make sense outside of the source country? • If the name suggests a country association, is the effect positive? • Is the name available legally in many countries? • Does the brand compete with other brands in the portfolio? • Should growth be limited to the creation of a regional brand?

  28. 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.

  29. 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

  30. 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)

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