Miiltinational Product Planning::

Strategic Alternatives

WARREN J. KEEGAN

Formulafing an explicitproduct strategy for inter-national expansion is one ofthe major untapped oppor-tunities facing headquartersexecutives of multinationalcompanies. This article iden-tifies strategic alternativesand shows how to select themost ef fect ive strategygiven any particular prod-uct-company-market mix.

Journal of Marketing. Vol. 33 (January.1969), pp. 68-62.

I NADEQUATE product planning is a major factor inhibitinggrowth and profitability in international business operations

today. The purpose of this article is to identify five strategic al-ternatives available to international marketers, and to identify thefactors which determine the strategy which a company should use.Table 1 summarizes the proposed strategic alternatives.

Strategy One: One Product, One Message, Worldwide

When PepsiCo extends its operations internationally, it employsthe easiest and in many cases the most profitable marketing strategy—that of product extension. In every country in which it operates,PepsiCo sells exactly the same product, and does it with the sameadvertising and promotional themes and appeals that it uses in theUnited States. PepsiCo's outstanding international performance isperhaps the most eloquent and persuasive justification of thispractice.

Unfortunately, PepsiCo's approach does not work for all products.When Campbell soup tried to sell its U.S. tomato soup formulation tothe British, it discovered, after considerable losses, that the Englishprefer a more bitter taste. Another U.S. company spent severalmillion dollars in an unsuccessful effort to capture the British cakemix market with U.S.-style fancy frosting and cake mixes only todiscover that Britcns consume their cake at tea time, and that thecake they prefer is dry, spongy, and suitable to being picked up withthe left hand while the right manages a cup of tea. Another U.S.company that asked a panel of British housewives to bake theirfavorite cakes discovered this important fact and has since acquireda major share of the British cake mix market with a dry, spongycake mix.

Closer to home, Philip Morris attempted to take advantage ofU. S. television advertising campaigns which have a sizable Canadianaudience in border areas. The Canadian cigarette market is aVirginia or straight tobacco market in contrast to the U.S. market.which is a blended tobacco market. Philip Morris officials decided toignore market research evidence which indicated that CanadiansW( uld not accept a blended cigarette, and went ahead with programswhich achieved retail distribution of U.S.-blended brands in theCanadian border areas served by U.S. television. Unfortunately, theCanadian preference for the straight cigarette remained unchanged.American-style cigarettes sold right up to the border but no further.Philip Morris had to withdraw its U.S. brands.

The unfortunate experience of discovering consumer preferencesthat do not favor a product is not confined to U.S. products inforeign markets. Corn Products Company discovered this in an

58

Multinational Product Planning: Strategic Alternatires 59

Strat-egy

12

3

4

5

TABLE 1MULTINATIONAL PRODUCT-COMMUNICATIONS MIX: STRATEGIC

ProductFunctionor NeedSatisfiedSameDifferent

Same

Different

Same

Conditionsof

ProductUse

Same.Same

Different

Different

Abilityto BuyProdtict

YesYes

Yes

Yes

No

Recom-mendedProductStrategy

ExtensionExtension

Adaptation

Adaptation

Invention

RecommendedCommunications

StrategyExtensionAdaptation

Extension

Adaptation

Develop NewCommuni-cations

ALTERNATIVES

RelativeCost ofAdjust-ments

12

3

4

5

ProductExamples

Soft drinksBicycles,Motor-scootersGasoline,DetergentsClothing,GreetingCardsHand-poweredWashingMachine

abortive attempt to popularize Knorr dry soups inthe United States. Dry soups dominate the soupmarket in Europe, and Com Products tried to trans-fer some of this success to the United States. CornProducts based its decision to push ahead with Knorron reports of taste panel comparisons of Knorr drysoups with popular liquid soups. The results ofthese panel tests strongly favored the Knorr product.Unfortunately these taste panel tests did not simu-late the actual market environment for soup whichincludes not only eating but also preparation. Drysoups require 15 to 20 minutes cooking, whereasliquid soups are ready to serve as soon as heated.This difference is apparently a critical factor in the8oup buyer's choice, and it was the reason foranother failure of the extension strategy.

The product-communications extension strategyhas an enormous appeal to most multinational com-panies because of the cost savings associated withthis approach. Two sources of savings, manufactur-ing economies of scale and elimination of product Rand D costs, are well known and understood. Lesswell known, but still important, are the substantialeconomies associated with the standardization ofmarketing communications. For a company withworldwide operations, the cost of preparing separateprint and TV-cinema films for each market would beenormous. PepsiCo international marketers haveestimated, for example, that production costs forspecially prepared advertising for foreign marketswould cost them $8 million per annum, which is con-siderably more than the amounts now spent byPepsiCo International for advertising production inthese markets. Although these cost savings are im-portant, they should not distract executives from themore important objective of maximum profit per-formance, which may require the use of an adjust-ment or invention strategy. As shown above, productextension in spite of its immediate cost savings mayin fact prove to be a financially disastrous under-taking.

Strategy' Two: Product Extension—Communications Adaptation

When a product fills a difTerent need or serves adifTerent function under use conditions identical orsimilar to those in the domestic market, the onlyadjustment required is in marketing communications.Bicycles and motorscooters are illustrations of prod-ucts in this category. They satisfy needs mainly forrecreation in the United States but provide basictransportation in many foreign countries. Outboardmotors are sold primarily to a recreation market inthe United States, while the same motors in manyforeign countries are sold mainly to fishing andtransportation fleets.

In effect, when this approach is pursued (or, as isoften the case, when it is stumbled upon quite byaccident), a product transformation occurs. Thesame physicial product ends up serving a difTerentfunction or use than that for which it was originallydesigned. An actual example of a very successfultransformation is provided by a U.S. farm ma-chinery company which decided to market its U.S.line of suburban lawn and garden power equipmentas agricultural implements in less-developed coun-tries. The company's line of garden equipment wasideally suited to the farming task in many less-developed countries, and, most importantly, it waspriced at almost a third less than competing equip-ment especially designed for small acreage farmingoffered by various foreign manufacturers.

• ABOUT THE AUTHOR. Warren J.Keegan is Assistant Professor oi Busi-ness Administration of the ColumbiaUniversity Graduate School of Business.He received his Master's and Doctoratein Business Administration from Har-vard University. Dr. Keegan is currentlyengaged in research on opportunitiesand issues in marketing facing head-quarters' managers of multinationalcompanies

60 Journal of Marketing, January, 1969

There are many examples of food product trans-formation. Many dry soup powders, for example,are sold mainly as soups in Europe but as sauces orcocktail dips in the United States. The products areidentical; the only change is in marketing commu-nications. In this case, the main communicationsadjustment is in the labeling of the powder. InEurope, the label illustrates and describes how tomake soup out of the powder. In the United States,the label illustrates and describes how to make sauceand dip as well as soup.

The appeal of the product extension communica-tion.s adaptation strateg>' is its relatively low cost ofimplementation. Since the product in this strategyis unchanged, R and D, tooling, manufacturing set-up, and inventory costs associated with additionsto the product line are avoided. The only costs of thisapproach are in identifying different product func-tions and reformulating marketing communications(advertising, sales promotion, point-of-.sale material,and so on» around the newly identified function.

Strategy Three: Product Adaptation—Communications Extension

A third approach to international product planningis to extend without change the basic communica-tions strategy developed for the U.S. or home market,but to adapt the U.S. or home product to local useconditions. The product adaptation-communicationsextension strategy assumes that the product willserve the same function in foreign markets underdifferent use conditions.

Esso followed this approach when it adapted itsgasoline formulations to meet the weather conditionsprevailing in foreign market areas, but employedwithout change its basic communications appeal,"Put a Tiger in Your Tank." There are many otherexamples of products that have been adjusted to per-form the same function internationally under differ-ent environmental conditions. International soap anddetergent manufacturers have adjusted their productformulations to meet local water conditions and thecharacteristics of washing equipment with no changein their basic communications approach. Agricul-tural chemicals have been adjusted to meet differentsoil conditions as well as different types and levels ofinsect resistance. Household appliances have beenscaled to sizes appropriate to different use environ-ments, and clothing has been adapted to meet fashioncriteria.

Strategy Four: Dual Adaptation

Market conditions indicate a strategy of adapta-tion of both the product and communications whendifferences exist in environmental conditions of useand in the function which a product serves. In es-sence, this is a combination of the market conditionsof strategies two and three. U.S. greeting cardmanufacturers have faced these circumstances in

Europe where the conditions under which greetingcards are purchased are different than in the UnitedStates. In Europe, the function of a greeting cardis to provide a space for the sender to write his ownmessage in contrast to the U.S. card which containsa prepared message or what is known in the greetingcard industry as "sentiment." European greetingcards are cellophane wrapped, necessitating a productalteration by American greeting card manufacturersselling in the European market. American manu-facturers pursuing an adjustment strategy havechanged both their product and their marketing com-munications in response to this set of environmentaldifferences.

Strategy Five: Product InventionThe adaptation and adjustment strategies are ef-

fective approaches to international marketing whenpotential customers have the ability, or purchasingpower, to buy the product. When potential custo-mers cannot afford a product, the strategy indicatedis invention or the development of an entirely newproduct designed to satisfy the identified need orfunction at a price within reach of the potentialcustomer. This is a demanding but, if product de-velopment costs are not excessive, a potentially re-warding product strategy for the mass markets inthe middle and less-developed countries of the world.

Although potential opportunities for the utiliza-tion of the invention strategy in internationalmarketing are legion, the number of instances wherecompanies have responded is disappointingly small.For example, there are an estimated 600 millionwomen in the world who still scrub their clothes byhand. These women have been served by multina-tional soap and detergent companies for decades, yetuntil this year not one of these companies had at-tempted to develop an inexpensive manual washingdevice.

Robert Young, Vice President of Marketing-Worldwide of Colgate-Palmolive, has shown whatcan be done when product development efforts arefocused upon market needs. He asked the leadinginventor of modern mechanical washing processesto consider "inventing backwards"—to apply hisknowledge not to a better mechanical washing device,but to a much better manual device. The devicedeveloped by the inventor is an inexpensive (under$10), all-plastic, hand-powered washer that has thetumbling action of a modem automatic machine. Theresponse to this washer in a Mexican test market isreported to be enthusiastic.

How to Choose a Strategy

The best product strategy is one which optimizescompany profits over the long term, or, stated moreprecisely, it is one which maximizes the present valueof cash flows associated with business operations.Which strategy for international markets best

Multinational Product Planning: Strategic Alternatires 61

achieves this goal? There is, unfortunately, no gen-eral answer to this question. Rather, the answer de-pends upon the specific product-market-company mix.

Some -products demand adaptation, others lendthemselves to adaptation, and others are best leftunchanged. The same is true of markets. Some areso similar to the U. S. markets as to require littleadaptation. No country's markets, however, areexactly like the U.S., Canada's included. Indeed,even within the United States, for some productsregional and ethnic differences are sufficiently im-portant to require product adaptation. Other mar-kets are moderately difTerent and lend themselves toadaptation, and still others are so difTerent as to re-quire adaptation of the majority of products. Finally,companies differ not only in their manufacturingcosts, but also in their capability to identify andproduce profitable product adaptations.

Product-Market Analysis

The first step in formulating international productpolicy is to apply the systems analysis technique toeach product in question. How is the product used?Does it require power sources, linkage to other sys-tems, maintenance, preparation, style matching, andso on? Examples of almost mandatory adaptationsituations are products designed for 60-cycle powergoing into 50-cycle markets, products calibrated ininches going to metric markets, products whichrequire maintenance going into markets where main-tenance standards and practices differ from the origi-nal design market, and products which might beused under different conditions than those for whichthey were originally designed. Renault discoveredthis latter factor too late with the ill-fated Dauphinewhich acquired a notorious reputation for breakdownfrequency in the United States. Renault executivesattribute the frequent mechanical failure of theDauphine in the United States to the high-speedturnpike driving and relatively infrequent U. S.maintenance. These turned out to be critical dif-ferences for the product, which was designed forthe roads of France and the almost daily mainte-nance which a Frenchman lavishes upon his car.

Even more difficult are the product adaptationswhich are clearly not mandatory, but which are ofcritical importance in determining whether theproduct will appeal to a narrow market segmentrather than a broad mass market. The most fre-quent offender in this category is price. Too often.U. S. companies believe they have adequately adaptedtheir intemational product offering by makingadaptations to the physical features of products (forexample, converting 120 volts to 220 volts) but theyextend U. S. prices. The effect of such practice inmost markets of the world where average incomesare lower than those in the United States is to putthe U. S. product in a specialty market for the rela-

tively wealthy consumers rather than in the massmarket. An extreme case of this occurs when theproduct for the foreign market is exported from theUnited States and undergoes the often substantialprice escalation that occurs when products are soldvia multi-layer export channels and exposed to im-port duties. When price constraints are consideredin international marketing, the result can rangefrom margin reduction and feature elimination tothe "inventing backwards" approach used byColgate.

Company AnalysisEven if product-market analysis indicates an

adaptation opportunity, each company must examineits own product communication development andmanufacturing costs. Clearly, any product or com-munication adaptation strategj' must survive the testof profit effectiveness. The often-repeated exhorta-tion that in international marketing a companyshould always adapt its products' advertising andpromotion is clearly superficial, for it does not takeinto account the cost of adjusting or adapting prod-ucts and communications programs.

What Are Adaptation Costs?They fall under two broad categories—development

and production. Development costs will vary depend-ing on the cost effectiveness of product communica-tions development groups within the company. Therange in costs from company to company and productto product is great. Often, the company with inter-national product development facilities has a stra-tegic cost advantage. The vice-president of a leadingU.S. machinery company told recently of an exampleof this kind of advantage:

We have a machinery development group bothhere in the States and also in Europe. I triedto get our U.S. group to develop a machine formaking the elliptical cigars that dominate theEuropean market. At first they said "who wouldwant an elliptical cigar machine?" Then theygradually admitted that they could produce sucha machine for $500,000. I went to our Italianproduct development group with the same pro-posal, and they developed the machine I wantedfor $50,000. The differences were partly rela-tive wage costs but very importantly they werepsychological. The Europeans see ellipticalcigars every day, and they do not find the ellipti-cal cigar unusual. Our American engineerswere negative on elliptical cigars at the outsetand I think this affected their overall response.

Analysis of a company's manufacturing costs isessentially a matter of identifying potential oppor-tunity losses. If a company is reaping economies ofscale from large-scale production of a single product,then any shift to variations of the single product

62 Journal of Marketing, January, 1969

will raise manufacturing costs. In general, the moredecentralized a company's manufacturing setup, thesmaller the manufacturing cost of producing differ-ent versions of the basic product. Indeed, in thecompany with local manufacturing facilities for eachinternational market, the additional manufacturingcost of producing an adapted product for each marketis zero.

A more fundamental form of company analysisoccurs when a firm is considering in general whetheror not to pursue explicitly a strategy of productadaptation. At this level, analysis must focus notonly on the manufacturing cost structure of the firm,but also on the basic capability of the firm to identifyproduct adaptation opportunities and to convert theseperceptions into profitable products. The ability toidentify preferences will depend to an important de-gree on the creativity of people in the organizationand the effectiveness of information systems in thisorganization. The latter capability is as importantas the former. For example, the existence of sales-men who are creative in identifying profitable prod-uct adaptation opportunities is no assurance thattheir ideas will be translated into reality by theorganization. Information, in the form of their

ideas and perceptions, must move through the or-ganization to those who are involved in the productdevelopment decision-making process; and this move-ment, as any student of information systems in or-ganizations will attest, is not automatic. Companieswhich lack perceptual and information system capa-bilities are not well equipped to pursue a productadaptation strategy, and should either concentrate onproducts which can be extended or should developthese capabilities before turning to a product adapta-tion strategy.

SummaryThe choice of product and communications strat-

egy in international marketing is a function ofthree key factors: (1) the product itself defined interms of the function or need it serves; (2) themarket defined in terms of the conditions underwhich the product is used, including the preferencesof potential customers and the ability to buy theproducts in question; and (3) the costs of adapta-tion and manufacture to the company consideringthese product-communications approaches. Onlyafter analysis of the product-market fit and ofcompany capabilities and costs can executives choosethe most profitable international strategy.

•MARKETING MEMO

Product Choices in an Age of Technology . . .

Technology has brought unparalleled abundance and opportunity to the consumer.It has also exposed him to new complexities and hazards. It has made his choicesmore difficult. He cannot be chemist, mechanic, electrician, nutritionist, and a walkingcomputer (very necessary when shopping for fractionated-ounce food packages) !Faced with almost infinite product differentiation (plus contrived product virtuesthat are purely semantic), considerable price differentiation, the added complexitiesof trading stamps, the subtleties of cents-off deals, and other complications, theshopper is expected to choose wisely under circumstances that bafifle professionalbuyers. His job is not made easier by the fact that prices tend not to be uniformin different stores even of the same food chain, and may vary daily. Moreover, ifhe is like most of us, he has to decide in a hurry.

—E. B. Weiss, "Marketers Fiddle WhileConsumers Burn." Harvard BusinessReview, Vol. 46 I July-August, 1968),pages 45-53, at page 48.