Product AdaptationPesewa

Presentat ions

Three Basic Considerations

• Markets targeted.• Product and its characteristics.• Company resources and policy.

Philip Kotler

Defining a Product

A product is anything that can be offered to a market for attention, acquisition, use or consumption; it includes physical objects, services, personalities, places, organisations and ideas.

CoreProduct

Actual Product

Product Augmented

Warranty

Delivery& Credit Installation

After SalesService

Styling

QualityBrand

Pkg.Features

DesignCapabilities

Customer Service

Personnel

Product Variables• The Core Product

– a product or services that is essentially the same as that of competitors.

• The Tangible Product– a product or service that is differentiated composition,

origin, or tangible features from competing products.• The Augmented Product

– a product or service which is serviced after the sale and carries a warrantee from the producer, producing a continuing relationship with the seller.

Standardisation and Adaptation

• The fundamental international product decision after the decision to internationalize.

• International market approach alternatives to adaptation.– Sell the product as it is internationally.– Modify product for different countries or regions.– Design new products for foreign markets.– Incorporate all differences into one product and introduce

it globally.

Standardisation and AdaptationFACTORS ENCOURAGING STANDARDIZATION

• Economies of scale in production• Economies in product R&D• Economies in marketing• “Shrinking” of the world marketplace/economic integration• Global competitions

FACTORS ENCOURAGING ADAPTATION• Differing use conditions• Government and regulatory influences• Differing consumer behavior patterns• Local competition• True to the marketing concept

Strategic Adaptation to Foreign Markets

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.

Factors Affecting Adaptation

Decision to Alter Domestic Product

SOURCE: Adapted from V.Yorio, Adapting Products for Export (New York; Conference Board, 1983), 7. Reprinted with permission

The Market Environment

• Government Regulations– Political and social agendas often dictate regulatory

requirements.• Nontariff Barriers

– Product standards, testing, subsidized local products.• Customer Characteristics, Expectations, and

Preferences– Physical size, local behaviors, tastes, attitudes, and traditions.– Consumption patterns, psychosocial characteristics, and

general cultural criteria.

The Market Environment

• Economic Development– The stage of economic development affects the

market size and demand characteristics. Backward innovation of the product may be required to meet local requirements.

• Competitive offerings– Monitoring competing local products is critical in

adjusting the product for competitive advantage.• Climate and geography

– Local climatic conditions and terrain features can make products vulnerable to damage.

Product Characteristics

• Product Constituents• Branding• Packaging• Appearance• Method of Operation or Usage• Quality• Service• Country-of-Origin Effects

Product Constituents and Branding

• Product ingredients must not violate local legal regulations and social or religious customs.

• Care must be taken that the brand in name, symbol, sign, or design does not offend the local customer. Trademarks are especially vulnerable to counterfeiters.

• Selecting the global brand name– Translation– Transliteration– Transparency– Transculture

Packaging and Appearance• Packaging serves three major functions:

– Protection• Improper handling and pilferage

– Promotion• Language and symbols

– User convenience• Packaging aesthetics- color and shape, overall size, and purchase quantity

• Adaptations in styling, color, size, and other appearance features play an importance role in how a consumer perceives a product.

Method of Operation and Usage

• The product that is operable in in the domestic market may not be operable in the foreign market.

• Electrical voltages and connectors vary around the world. English and metric standards are not comparable.

• Software may have to be translated into the local language.

Quality and Service

• Quality is essential to marketing products internationally, especially in markets where price is an important competitive factor.

• ISO compliance may be required by buyers.• Servicing products in international markets requires

producers to develop local repair staffs.

Country-of-Origin Effects• The origin of a product may have a strong effect on

consumer perceptions and biases about foreign products.

“Mad Cow”Swiss

France

Company Considerations

• Organizational capabilities?• Is it worth it?• Can we afford not to do it?• Can a specific return-on-investment (ROI) be

attained?• Quality, price, and user perceptions?• Warranties?• Managerial talent?

Product Counterfeiting• Costs U.S. firms over $60 billion a year• In 2001, losses to software piracy were more than 11 billion

dollars.• Counterfeiting is estimated at 2% to 5% of total world trade

annually.• The largest number of counterfeit goods come from:

– China– Brazil– Taiwan– Korea– India

Fighting Product Counterfeiting– Secure valuable intellectual property rights

• patent applications• registration of trademarks• mask works

– Act to enforce• legislative action• bilateral and multilateral negotiations• joint private sector action• individual company measures

Four Product Alternatives for International Markets

• Selling the product “as is”, in the international marketplace.

• Modifying products for different countries and/or regions.

• Designing new products for foreign markets.• Incorporating all the differences into one product

design and introducing a global product.

Four Product Categories:

• Local products: perceived as having potential only in a single national market

• International products:Products having potential for a number of national markets

• Multinational products:Products adapted to the perceived unique characteristics of national markets

• Global products:Products designed to meet the needs of a global market segment

The Role of Brands

A brand is a distinguishing name and/or symbol (such as a logo, trademark or package design) intended to identify the goods or services of either one seller or a group of sellers, and to differentiate those goods or services from those of competitors. A brand thus signals to the customer the source of the product, and protects both the customer and the producer from competitors who would attempt to provide products that appear to be identical.

The International Brand: Four Approaches

• Translation.• Transliteration testing existing brand name for

connotative meaning, e.g., “flic” pen.• Transparency, i.e., meaningless brand name to

minimize complexities.• Transculture. Foreign language name forms a

brand, e.g., vodka or perfume.

Brand Name Selection Criteria

• Easy to learn and memorize.• Suggest a product class.• Support a symbol or logo.• Suggest associations.• Be credible.• Be distinctive.• Be available and legally protectable.

What Is Brand Equity?

The set of brand assets and liabilities linked to the brand - its name and symbols - that add value to, or subtract value from, a product or service. These assets include brand loyalty, name awareness, perceived quality and associations.

Brand Equity Assets

• Brand Loyalty.• Awareness of Brand Name and Symbols.• Perceived Quality.• Associations.• Others, e.g., patents, trademarks, channel

relationships.

Export Pricing

Export Pricing

• Price Dynamics– Pricing is the only revenue generating element of

the marketing mix.– Pricing is a means of attracting and

communicating an offer to a potential buyer.– Pricing is a competitive tool.– Pricing can be used to position the product or

service in the marketplace.

Price Dynamics• Skimming

– Using high-priced unique products to achieve the highest possible contribution in a short initial time period, then gradually lowering the price as the market.

• Market Pricing– Following competitive pricing in the target market; adjusting

production and marketing mix to competitive conditions.• Penetration Pricing

– Offering low pricing to generate volume sales which hopefully will compensate for low margins

The Setting of Export Prices

EXTERNAL1 Market-related factors

• Nature of demand/target audience characteristics

• Government regulations (e.g., duties)• Exchange rate stability

2 Industry-related factors• Competition intensity• Nature of competition

INTERNAL1 Marketing Mix

• Product (e.g., old/new; standardized/differentiated• Distribution system (e.g., length)• Promotion needs (e.g., sales efforts)

2 Company characteristics• Extent of internationalization• Countries exported to

3 Management attitudes• Importance of exports• Overall price position of firm

ASSESSMENT OF PRICING ENVIRONMENTS

Pricing Policy Selection

Pricing Strategy Determination

Setting of Specific Price

The Setting of Export PricesCustomer Purchase Factors

• ability to pay• price-quality relationship• reaction to marketing mix• market support

Pricing Policies Factors

• profit maximization• market share• survival• return on investment• competitive policies

– copy competitive pricing– follow competitive pricing– price to discourage competitive entry

Export Pricing Strategy• Cost-oriented pricing

– Standard worldwide price- regardless of buyer’s location in the market(s)

– Dual pricing differentiates between domestic and export prices• Cost-plus method allocates domestic and foreign costs to the product.• Marginal cost method considers direct costs of producing and selling

exports as floor (lowest) price.

• Market-differentiated pricing– based on the dynamics of the marketplace

• changes in competition, exchange rates, etc.

Export-Related Costs• Export-related costs

– Cost of modifying a product for a foreign market– Operational costs of exporting– Cost incurred in entering the foreign market

• Price escalation for exports results from– Clear-cut and hidden costs

• Methods for combating price escalation– Reorganize the channel of distribution– Product adaptation– Change tariff or tax classifications– Overseas assembly or production

Terms of Sale• Incoterms are the internationally accepted standard

definitions for terms of sale set by the International Chamber of Commerce (ICC) since 1936.

• Incoterms– exworks (EXW)– free carrier (FCA)– free alongside ship (FAS)– free on board (FOB)– cost and freight (CFR)– delivered duty paid (DDP)– delivered duty unpaid (DDU)

Negotiating Terms of Payment

• Considerations– The amount of payment and the need for

protection.– Terms offered by competitors.– Practices in the industry.– Capacity for financing

international transactions.– Relative strength of the

parties involved.

The Risk Triangle

BUYER’S PERSPECTIVE SELLER’S PERSPECTIVE

Source: Adapted from Chase Manhattan Bank, Dynamics of Trade Finance (New York: Chase Manhattan Bank, 1984),5

Terms of PaymentTypes of Payment

– Cash in Advance• Not widely used except for first time transactions

– Letter of Credit• Promise to pay• Irrevocable, confirmed, revolving

– Drafts• Similar to personal check• Must obtain shipping documents prior to delivery

– Documentary collection• Bank acts as collection agent• Draft may be sold at discounted rate for immediate cash

Managing Foreign Exchange Risk

• Forward rate exchange market– “the exchange of currencies on a future date at an agreed upon

exchange rate”• Spot rate transaction

– “the exchange of currencies for immediate delivery”• Possible price manipulation responses to currency

movements– Make no change in the dollar price (pass-through).– Decrease the export price (absorption).– Pass-through only a portion of the increase.

Exporter Strategies Under Varying Currency ConditionsWEAK POSITION• Stress price benefits• Expand product line• Shift sourcing to domestic market• Cash-for-goods trade• Full costing• Speed repatriation• Minimize expenditure in local currency

STRONG POSITION• Non-price competition• Improve productivity/ cost reduction• Sourcing overseas• Prioritize exports• Countertrade with weak currency countries• Marginal-cost pricing• Slow collections• Buy needed services abroad

Price Negotiations• Be aware that price is only one part of a

comprehensive package. Avoid early price concessions.

• Carefully consider concessions that reduce price or profitability.– discounts, payment terms, product features

• Know conditions in importer’s market.• Focus negotiations first on substantive issues (quality

and delivery), then on price.

Dumping• Ranges of dumping

– Predatory dumping• is intentional selling at a loss to increase market share

– Unintentional dumping• occurs when market factors cause the import’s selling price to fall below

prices in the exporter’s home market

• Remedies for dumping– Antidumping duty

• are levied on imported goods sold at less than fair market value

– Countervailing duties• are imposed on imports which are subsidized in the exporter’s home

country