1. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 10 Product Adaptation

2. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Variables 2 A product or service is a complex combination of tangible and intangible elements that distinguishes it from other entities in the marketplace. Products can be differentiated by their composition, country of origin, tangible features such as packaging or quality, or augmented features such as warranty.

3. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 10.1 - Elements of a Product 3

4. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Variables 4 Standardization versus adaptation –Basic alternatives for approaching international markets are: Sell the product as it is internationally. Modify the product for different countries or regions. Design new products for foreign markets. Incorporate all differences into one flexible product design and introduce it globally.

5. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 10.2 - Standardization versus Adaptation 5 Factors encouraging standardization –Economies of scale in production –Economies in product R&D –Economies in marketing –“Shrinking” of the world marketplace/economic integration –Global competition Factors encouraging adaptation –Differing use conditions –Government and regulatory influences –Differing consumer behavior patterns –Local competition –True to the marketing concept

6. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 10.3 - Strategic Adaptation to Foreign Markets 6 Low High Industrial/ Technology Intensive Consumer Need for Adaptation Degree of Cultural Grounding Nature of Product Source: Adapted from W. Chan Kim and R. A. Mauborgne, “Cross-Cultural Strategies,” Journal of Business Strategy 7 (Spring 1987): 31; and John A. Quelch and Edward J. Hoff, “Customizing Global Marketing,” Harvard Business Review 64 (May-June 1986): 92-101.

7. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Variables 7 Factors affecting adaptation –Firms consider three factors in deciding the form in which the product is to be marketed abroad: The market(s) that have been targeted. The product and its characteristics. Company characteristics, such as resources and policy.

8. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 10.4 - Factors Affecting Product Adaptation 8

9. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Market Environment 9 Government regulations –Political agendas often dictate government regulatory requirements. –Firms can influence these regulations by lobbying directly or through industry associations. –Economic integration reduces discretionary governmental regulations to some extent. Nontariff barriers –Include product standards, testing or approval procedures, subsidies for local products, and bureaucratic red tape.

10. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Market Environment 10 Customer characteristics, expectations, and preferences –Physical size, local behaviors, tastes, attitudes, and traditions influence product adaptation decisions. –Consumption patterns, psychosocial characteristics, and general cultural criteria determine cultural and psychological specificity in relation to products and services. –Product positioning - Consumers’ perception of a brand as compared with that of competitors’ brands.

11. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Market Environment 11 Economic development –Affects demand characteristics and helps determine potentials for selling certain kinds of products and services. –Backward innovation of the product may be required to meet local requirements. –(See also Chpt. 4)

12. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Market Environment 12 Competitive offerings - Monitoring competitors’ product features is critical in adjusting the product for competitive advantage. Climate and geography - Have an effect on the total product offering— the core product; tangible elements, mainly packaging; and the augmented features.

13. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics 13 The inherent features of the product offering, whether actual or perceived. –Product constituents and content –Branding –Packaging –Appearance –Method of operation or usage –Quality –Service –Country-of-origin effects

14. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics 14 Product constituents and content –Product ingredients must not violate local legal regulations and social or religious customs. Appearance –Adaptations in styling, color, size, and other appearance features play an importance role in how a consumer perceives a product.

15. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics 15 Branding –Brand - Name, term, symbol, sign, or design used by a firm to differentiate its offerings from those of its competitors. –Allows further standardization of other marketing elements such as promotional items. –Trademark - The legally protected part of the brand, indicated by the symbol ®; are quite vulnerable to counterfeiters. –Brand loyalty translates into profits even though favored brands may not be superior by any tangible measure.

16. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics 16 Biggest problem: Brand doesn’t travel well The following approach has been suggested for avoiding problems with brand names in foreign markets: –Translation –Transliteration –Transparency –Transculture

17. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics 17 Packaging –Serves three major functions—protection, promotion, and user convenience. –Varies as a function of transportation mode, transit conditions, and length of time in transit. –The promotional aspect of packaging relates mostly to labeling.

18. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics 18 Packaging –User convenience is a priority in packaging decisions; Containers must withstand logistics challenge, and yet must be easy for customers to open. –Package aesthetics mainly involves the prudent choice of colors and package shapes. –Package size varies according to purchasing patterns and market conditions.

19. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics 19 Method of operation or usage –The product that is operable in the domestic market may not be operable in the foreign market. –Exporters should determine the required product adjustments by observing competitive products or having their product tested by a local entity. –Products that rely heavily on written or spoken language have to be adapted for better penetration of the market. –Marketers may also have to adapt the product to different uses and be open to ideas for new uses for the product being offered.

20. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics 20 Quality –Quality is essential to marketing products internationally, especially in markets where price is not the sole competitive factor. –Firms invest in research and development for new products as well as manufacturing methods. –Marketers seek endorsement of their efforts from governmental or consumer organizations. –Markets must meet international quality standards to compete for business and win contracts; for example compliance with ISO standards.

21. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics Service –Repair arrangements must be up to standards to handle product breakdowns. –Product warranties provide instructions to customers about what to do if the product fails within a specified period of time.

22. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Characteristics Country-of-Origin effects –The origin of a product may have a strong effect on consumer perceptions and biases about foreign products. –This effect reduces as: Customers become more informed. Countries develop the necessary bases to manufacture products.

23. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Company Considerations Product adaption depends on: –The firm’s ability to control costs, correctly estimate market potential, and secure profitability in the long term. –Thorough analysis of the market. –The firm’s ability to maintain consistency in their marketing efforts. –Availability of managerial expertise to decide between standardization and adaptation.

24. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Counterfeiting Counterfeit goods – Goods bearing an unauthorized representation of a trademark, patented invention, or copyrighted work that is legally protected in the country where it is marketed. The European Union estimates that trade in counterfeit goods accounts for 2 percent of total world trade. The largest number of counterfeit goods are sourced from China, Brazil, Taiwan, Korea, and India.

25. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Counterfeiting Counterfeiting is a pervasive problem not only in terms of geographic reach but also the ability of counterfeiters to deliver products, and the market’s willingness to buy them. The first task in fighting intellectual property violation is to use patent application or registration of trademarks or mask works. After securing valuable intellectual property rights, the international marketer must act to enforce these rights.

26. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 10.8: Measures to Combat Counterfeiting

27. © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Product Counterfeiting Few acts, agreements, and alliances that help combat counterfeiting include: –The Omnibus Tariff and Trade Act of 1984 –The Trademark Counterfeiting Act of 1984 –The Intellectual Property Rights Improvement Act –The Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement –The International Anti-Counterfeiting Coalition (1978) –Counterfeit Intelligence and Investigating Bureau