Presentation on theme: "Monday 9:00 room 822 Lecturer: Michael Cooke office IC room 817"— Presentation transcript:
1 Monday 9:00 room 822 Lecturer: Michael Cooke office IC room 817 Khon Kaen University International College International Product and Pricing Strategy Course number First semester 2013Monday 9:00 room 822 Lecturer: Michael Cooke office IC room 817
2 Schedule for Next Two weeks Country study subjects and teamsReview exam resultsDeveloping new products (19 August)QuizMarketing products and services (26 August)Begin Pricing (26 August)Understand basic cost conceptsFixed costVariable costCost absorptionRead Zhang and Zhou
3 Mid-term Results The single biggest problem was leaving answers blank Especially happened on short answerAs a general rule, never leave a blank answerPartial credit is better than no creditSometimes students know more than they thinkAnother common problem was not answering the question as askedExample is the essay about market entry via licensing or jvA well written answer gets only partial credit if it does not address the questionMany of the essays were well written and showed insightSome unexpected answers got full creditIn general, essays raised the grades (though few mentioned Brazil tariffs)
4 Project Presentation . Fifteen – twenty minutes for each team Each member will participate in the presentationDevelop presentation material.
5 Country study guidelines Research and analyze aspects of relevance to marketing a specific product in a target countryWill be 20% of course gradeCan discuss a country and advise that the country is not a suitable targetChoose a product or service you choose to market internationallyWhat is the target segment?What is your company’s risk tolerance?Is your company aggressive about international expansion?Discuss relevant aspects of the target countryMarket (segment size, wealth, other characteristics)Political and economic stabilityRelevant social characteristicsLegal protection, barriers to entry, tariffs, etc.Competitive environmentInfrastructure, distribution, available channelsConclusionMode of entry, or no entryMagnitude of investmentPresentations due (15-20 minutes) on September 9th
6 IntroductionA cornerstone of a global marketing mix program is the set of product policy decisions that multinational companies (MNCs) constantly need to formulate.The range of product policy questions may include:What new products should be developed for what markets?What products should be added, removed, or modified for the product line in each of the countries in which the company operates?What brand names should be used?How should the product be packaged and serviced?Chapter 10Copyright (c) 2009 John Wiley & Sons, Inc.
7 Examples of improper product policy decisions Ikea in the United StatesProducts, prices, and service not adapted to US marketPoor citing of storesProcter & Gamble in AustraliaDiapers manufactured outside of Australia (because of small market)Use of generic Asian packaging in AustraliaU.S. Car Makers in JapanSteering on left sideAmerican stylingCars could not get certified for small parking spacesKodak’s venture into digital photographyDigital photography invented at KodakInstitutional issues (legacy products) in their response to a disruptive technology
8 Eastman Kodak Company Background information Founded in 1880s, once an iconic US firmIn 1976 Kodak sold between 85-90% of all film and cameras in the USAFuji of Japan took market share in 1980s (economy segment)In 1994 Kodak 20th ranked US company by salesKodak spins off Eastman Chemical, now thrivingApple launched a digital camera made by KodakKodak stops selling film cameras in 2004, becomes biggest retailer of digital cameras in 2005Falls to 7th biggest digital camera retailer by 2010Declares bankruptcy in 2012
9 Eastman Kodak Company Transition from Film Gross margins in the film business estimated at 75%Compare with computers and peripherals at 33%George Eastman wanted ‘rapid succession of changes and improvements’Kodak had technological lead in film backed by patentsVertical integration and cost leadershipFilm sales immensely profitableDigital imaging a disruptive technologyKodak executives aware of digital camera trend from 1993*CEO Fisher from Motorola and Bell Labs hired 1993, a technologistResistance by customers (film development business)Resistance from investors (legacy business as ‘cash cow’)Company culture resistance (film business, not imaging)Public image of support for film business through 1990sCEOs aware of competitive environment, no barriers to entry in digital, lower marginsCollaboration with Canon in 2000 (professional segment)Collaboration with Fuji, HP, IBM, others to develop digital image storageBy late 1990s Kodak was leader in digital color management and electronic image sensors due to huge digital R&D effort**http://www.blackwellpublishing.com/grant/docs/06Kodak.pdf
10 Eastman Kodak Company What Went Wrong? Conflicts between film and digital began to ebb around 2005More collaborative cultureTen years elapsed since CEO Fisher began determined push to digitalLeader in digital sales in 2005Losing money on each cameraLegacy labor costs*Vertical integration impossible in digital business (JVs, alliances instead)Diminished film business (would have been used to subsidize transition)Tried to buy time by selling film in developing marketsBut Asian film sales dropped as rapidly as elsewhereFalls to seventh rank in digital camera sales in 2010Capable competitors Canon, Sony, Samsung, and Nikon in Asia and othersPace of change in digital camera business rapid and unpredictable, with rapidly declining pricesCould Kodak’s culture adapt to digital’s pace of change?Did they miss a product cycle in 2007?What happened in their R&D organization? Marketing?*Http://www.consultingcase101.com/kodak-to-improve-profit-margin-for-digital-cameras/
11 Booz & Co. R&D Survey 2011 http://www. booz Study of 1,000 public companies that spent the most on research and development in 2010Total for the 1,000 $550 bbComputing and electronics 28% of all R&D expenditureHealth care (pharmaceuticals) 22%Automotive 15% of all R&D expendituresChina and India HQ companies = 2% of total R & DSpending doesn’t correlate successful innovation“There is no statistically significant relationship between financial performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues.” according to Booz & CoMost innovative firms were Apple, Google, and 3MSamsung and Toyota were big spenders and innovativeThe key finding: culture is key to innovation successAccording to 3M: “Our goal is to get the voice of the customer all the way back to the basic research level and the product development level, to make sure our technical people see how their technologies work in various market conditions.”
12 Booz & Co. R&D Survey 2011 http://www. booz Need Seekers, Market Readers and Technology DriversNeed Seekers consistently strive to be first movers and proactively engage customers to shape new innovations, and align innovation and business strategies (3M)Market Readers adopt a second mover strategy and emphasize incremental change (Samsung)Technology Drivers stress technology achievement and both incremental and breakthrough change (Google)If you align innovation strategy and culture to your business model, build the right capabilities, and execute, you can prevail no matter which strategy you followThere may be no more critical source of business success or failure than a company’s culture. It is more important than strategy and leadership. According to Booz & Co.:Companies whose strategic goals are clear, and whose cultures strongly support those goals, possess a huge advantage“Connect with the customer, find out their articulated and unarticulated needs, and then determine the capability at 3M that can be developed across the company that could solve that customer’s problem in a unique, proprietary, and sustainable way. Our businesses are all interdependent and collaborative.”
13 Booz & Co. R&D Survey – 2011*Most often cited strategic goals of innovation are:Superior product performanceSuperior product qualityCultural attributes:Strong identification with the customerPride in productsNeed seekers: Gaining insights on customers needs is the responsibility of all customer-facing employees.Silicon Valley companies are almost twice as likely as average companies to have capabilities that provide a superior understanding of the stated and unstated needs of their end customersTechnological advances that lead to products and services that gain traction in the marketplace come through superior insight into customers, as well as the development of practical value propositions that will win those customers business6/10 of the most innovative were need seekers2/10 of the biggest spenders were need seekers*http://www.booz.com/media/uploads/BoozCo-Global-Innovation Culture-Key.pdf
14 Booz & Co. R&D Survey Top 12 R&D in 2010 Excluding Health Rank listRank allCompanyR&D $BB% salesRegion14Microsoft8.714US26Toyota8.5Asia37Samsung7.98Nokia7.8Europe59General Motors7.011Intel6.61512Panasonic6.1VWIBM6.01017Honda5.719Cisco5.31320Siemens5.2
15 Booz & Co. R&D Survey 2011 Innovation As part of this year’s study, Booz & Co. surveyed almost 600 innovation leaders in companies around the world, large and small, in every major industry sector.As noted, almost half of the companies reported inadequate strategic alignment and poor cultural support for their innovation strategies.Possibly even more surprising, nearly 20 percent of companies said they didn’t have a well defined innovation strategy at all.
16 Booz & Co. R&D Survey Top 10 Innovative Companies in 2010 RankCompanyR&D $BB% salesSpend rank1Apple$1.82.7702Google$3.812.83433M$1.45.4864GE$3.92.6325Microsoft$14.014.06IBM$6.06.0157Samsung$5.95.98P&G$2.52.5619Toyota3.910Facebookna
17 Developing New Products for Global Markets The Role of Corporate R&D Very few companies do early stage researchIn the past Bell Labs, Xerox (PARC) and IBM had renowned research“What used to be spent on an in-house division is now spent on sponsorship of university research and the acquisition of intellectual property from smaller companies. The few exceptions to this rule (Google labs?) seem to be for companies that have trade secret protection as a viable alternative to patenting” (1)Enormous expense of basic research often sharedIBM, Samsung, Intel, Global Foundries, and TMSC share cost of $4.4BB R&D center and collaborate with SUNY on cost technologySEMATECH launched with US government assistance in 1987Common model is to focus R&D effort on identifying available technologies or to reducing costsLicense from other companies, or buy smaller companies with promising technology as Kodak did in the late 90s and early 2000sOpen source and creative commons movementsFree copying of computer source code or copyrighted material under conditionsValue of expanding the product category (more on this in branding)(1)http://www.patenthawk.com/blog/2008/03/did_bayhdole_end_corporate_rd.html
18 R&D as % of GDP - selected EU and non-EU countries, 2006*
19 Country Variation in R&D Intensity (1) Technological specialization explains the variation in R&D intensity better than any other country characteristics.When industrial specialization is taken into account, only Sweden and the US still outperform other countries. Neither Japan nor Finland has an R&D intensity that is particularly high in relation to what their industrial structures would suggest.A country specialized in the finance industry (e.g., Luxemburg) would not need a high level of R&D expenditure in order to ensure growth. Similarly, a country specialized in the tourism, fashion, services or food industries would have a lower R&D intensity than a country specialized in the pharmaceutical, engineering or biotech industries.The four European countries with the highest academic R&D intensities are also the four countries with the highest business R&D intensities. With effective technology transfer systems in place, academic research is probably the most effective source of new ideas, which in turn induce further research in the business sector.
20 Developing New Products for Global Markets The Role of Universities Corporate collaboration with universitiesResearch oriented universities have technology transfer offices – and typically license intellectual propertyCompanies might have a need to fill a hole in product lineCorporate R&D’s role is to find and evaluate the technologyIBM has research centers in nine countries *Close links to universities in India, for exampleSeeks collaboration as well as a role in developing future staffUniversity faculty or graduate students may form companiesDevelop products from early stage university lab ideasSmall companies often sold to large organizations or do licensingSome go on to become highly successful industry pioneersGenentech (University of CA) in biotechGoogle (Stanford) internet technologySun Microsystems (UC and Stanford) computers and softwareSAS (NCSU led consortium) statistical analysis software*
21 Global Product Development Overview 1.Global Product Strategies 2.Standardization Versus Customization 3.Multinational Diffusion 4.Developing New Products for Global Markets 5.Truly Global Product DevelopmentChapter 10Copyright (c) 2009 John Wiley & Sons, Inc.
22 Global Product Strategies Three global strategies to penetrate foreign markets Extension strategy – Product or communication same as home countryAdaptation strategy - Product or communication adapted to host country marketInvention strategy – Products designed for a global marketChapter 10
23 Global Product Strategies Five strategic options for the global marketplace Strategic Option 1: Product and Communication Extension -- Dual ExtensionScale economies in both product and advertisingGlobal segments or companies with resource limitationsStrategic Option 2: Product Extension -- Communications AdaptationWrigley example: Same product advertised as having differing benefits across culturesRetains advantages of manufacturing scaleStrategic Option 3: Product Adaptation -- Communications ExtensionTypical when companies add brands via purchase of local companiesSimilar consumer values favor communication extensionStrategic Option 4: Product and Communications Adaptation -- Dual AdaptationStrategic Option 5: Product Invention
24 Exhibit 10-1: Global Expansion Strategies Chapter 10Copyright (c) 2009 John Wiley & Sons, Inc.
25 Standardization versus Customization Five forces favoring a globalized product strategy Common customer preferences (Exhibit 10-2)Similar use functions across culturesSimilar use conditions or benefits (example: stylishness)Global customers (business to business)Global companies may have centralized sourcingGlobal customers often prefer identical products/servicesScale economiesSourcing efficiencies or R&D efficienciesEconomies of scale have limits in some industries (timeliness factor)Time to market – need for speedShort product life cyclesFocus R&D and product development efforts on a few projectsRegional market agreements (such as single European market) facilitate standardization
26 Exhibit 10-2: 2008 Automotive Color Popularity Chapter 10Copyright (c) 2007 John Wiley & Sons, Inc.
27 Exhibit 10-2 (cont): 2008 Automotive Color Popularity Chapter 10Copyright (c) 2007 John Wiley & Sons, Inc.
28 Exhibit 10-2 (cont): 2008 Automotive Color Popularity Chapter 10Copyright (c) 2007 John Wiley & Sons, Inc.
29 Degrees of Global Customization Modular ApproachMass produce standard components (engines, gears, etc)Assemble to local requirements or tastes(Deere example)Core-Product (Common Platform) ApproachMass produce core productAdd attachments for local needs or tastes (auto heaters)Standardization versus adaptationToo much standardization stifles local initiativeOver-customization = competition with local productsCosts of tailoring to local markets (break-even analysis)
30 Multinational Diffusion – Product Acceptance Individual differences (willingness to try new products)Early adopters like to experiment with new productsLate adopters wait, learn from prior adoptersSocial influences (peer influence)Product characteristics1. Relative advantage or perceived value over alternatives2. Compatibility with existing social normsSwitching costs?Consistent with existing social values?3. Complexity or ease of use4. Ability to test or try on limited basis5. Are benefits easy to observe or communicate?Chapter 10
31 Multinational Diffusion Market penetration rate of a product differs among countriesCountry characteristics used to predict new product penetration patterns include:Homogeneous populations adopt products fasterLead countries are where product is first introducedLag countries have higher adoption rates (time to study)Cosmopolitanism is degree to which people look beyond local environment. Cosmopolitans adopt more quickly.Mobility and ability to interact helps penetrationLabor force profile – women in workforce tend to facilitate certain types of innovationsSpeed of penetration varies among products and countriesDecreases with time (more recent = faster penetration)Small consumer electronics take off faster than appliancesNewly developed countries-take off faster than EuropeTake-off is time from introduction to growth stage in product life cycleExhibit 10-3 dated 2008
32 Exhibit 10-3: Mean Time to Take Off Across Product Categories within a Country Chapter 11Copyright (c) 2007 John Wiley & Sons, Inc.
33 Developing New Products for Global Markets Identifying New Product Ideas 4 C’s:Company (internal sources)Transplant ideas from one region to anotherR&D, sales, market research, other employeesCustomersThe most difficult customers are often the bestIn most cases initial marketing is to mid-level analystsAnalysts review product, make recommendations to executivesDifficult customers may become beta sitesSuggest improvements, additional features, new approachCompetitionCollaborators – suppliers, distributors, etc.Innovation Centers – teams to develop new productsInstitutional barriers to innovation among companies with dominant productsKodak in the 1990sMicrosoft after 2000Role of bureaucracyThreat to profits of legacy products
34 Developing New Products for Global Markets New Product Development Nearly ¾ of the 30 biggest selling products worldwide had origins in marketing or manufacturing *Use of global reach to move ideas from one part of the world to anotherAlpha and beta test feedback may suggest changesSome companies set up small incubator units or innovation centersWorking with distributors or producers of complementary productsWatching competitorsScreeningProduct ideas from marketplace most likely to succeedProduct advantage (superiority to competitors, unique features) a major success factorPowerful brand associations generate acceptance (trust feature?)Consumer characteristics – younger consumers are more likely to try new productsConcept Testing – detailed description of the productFocus groups – small groups of prospective customers“Red Bull” concept rejected all around – concept testing is imperfectTest marketingMay be skipped to save moneyLead markets can be used as projections (Exhibit 10-4)Timing of Entry (Exhibit 10-5)Waterfall—staged rollout beginning with home country favored if:Long product life cycleUnfavorable host market conditionsSprinkler—global rollout simultaneously motivated by:Competitor concernsUniversal segments*Czinkota and Ronkainan “International Marketing 8E” US, Thomson, p476
35 Exhibit 10-4: Examples of Test Market Countries Chapter 11Copyright (c) 2007 John Wiley & Sons, Inc.
36 Exhibit 10-5: Waterfall versus Sprinkler Models Chapter 10Copyright (c) 2009 John Wiley & Sons, Inc.
37 Exhibit 10-6: Roll-Out of Xbox 360 and Sony Playstation 3 Chapter 11Copyright (c) 2007 John Wiley & Sons, Inc.
38 Truly Global Product Development Companies have research centers across the world.Few have set up a global product development processLack access to regional talentEstablish a global innovation process across regions (Nokia uses ideas from UK, USA, Japan, and Italy)To harvest the benefits of multi-region innovation:Prospecting- Find valuable new pockets of knowledge around the world.Assessing- Decide on the right number of sourcesMobilize – Link knowledge clusters (Exhibit 10-7)
39 Exhibit 10-7: Mobilizing Knowledge Chapter 10Copyright (c) 2009 John Wiley & Sons, Inc.