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Chapter 13

Products and Services for Consumers

Learning Objectives

LO1 The importance of offering a product suitable for the intended market

LO2 The importance of quality and how quality is defined

LO3 Physical, mandatory, and cultural requirements for product adaptation

LO4 The need to view all attributes of a product to overcome resistance to acceptance

LO5 Country-of-origin effects on product image

International Marketers: Opportunities and Challenges

New consumers are springing up in many emerging markets globally; some of these emerging markets have little purchasing power today, but they promise to be huge markets in the future.

In the more mature markets, consumers’ tastes are more sophisticated and complex as increases in purchasing power provide them with the means of satisfying new demands.

The distinction between products and services for some companies means little.

The governmental agencies that keep track of international trade still maintain the questionable product–service distinction.

U.S. exports target consumers, with the totals evenly split among the three major categories.

Product Adaptation

Product adaptation is important for both small and larger global companies.

As competition for world markets intensifies, selling what is produced for the domestic market in the same manner as it is sold at home is less effective.

Some products cannot be sold at all in foreign markets without modification.

Others may be sold as is, but their acceptance is greatly enhanced when tailored specifically to market needs.

Quality

Global competition is placing new emphasis on some basic tenets of business.

Product life cycles are becoming shorter focusing on:

Importance of quality

Competitive prices and

Innovative products

The power is shifting from seller to the buyer.

The customer defines quality in terms of his or her needs and resources.

In most global markets, a product’s cost and quality are among the most important criteria for purchases.

Quality Defined

Quality can be defined on two dimensions:

market-perceived quality and

performance quality

Consumer perceptions of a quality product often have more to do with market-perceived quality than performance quality.

In a competitive marketplace in which the market provides choices, most consumers expect performance quality to be a given.

Customer satisfaction indexes are used to measure customer satisfaction across a wide variety of consumer products and services. Another dimension of quality for imported products is the “fair trade” designation.

Boy preparing for a Jaguar dance

Maintaining Quality

Maintaining performance quality is critical.

A product that leaves the factory with performance quality is damaged as it passes through the distribution chain.

This damage is a special problem for global brands because production is distant from the market and/or control of the product is lost because of the distribution system within the market.

Market-perceived quality was also an issue.

Quality is not just desirable, it is essential for success in today’s competitive global market; the decision to standardize or adapt a product is crucial in delivering quality.

Chocolate brands - Red October, Nestlé and Mars

Red October brand chocolate (on the left) still competes well against foreign rivals Nestlé and Mars on Moscow store shelves. One advertising executive in Moscow reports that Russians are experiencing a renewed nationalism in product preferences as their economy continues to surge along with world oil prices. We have no idea what the “for Men” appeal is all about, but it apparently works in Moscow.

Physical or Mandatory Requirements and Adaptation

Products may change in a number of ways to meet the physical or mandatory requirements of a new market, ranging from simple package changes to total redesign of the physical core product.

Product homologation is used to describe the changes mandated by local product and service standards.

Legal, economic, political, technological, and climatic requirements of the local marketplace often dictate product adaptation

The less economically developed a market is, the greater degree of change a product may need for acceptance.

Laws that vary among countries usually set specific package sizes and safety and quality standards.

Green Marketing and Product Development (1 of 2)

Green marketing is a term used to identify concern with the environmental consequences of a variety of marketing activities.

Two critical issues that affect product development are:

the control of the packaging component of solid waste

consumer demand for environmentally friendly products

The European Commission issued guidelines for ecolabeling that became operational in 1992.

A product is evaluated on all significant environmental effects throughout its life cycle, from manufacturing to disposal.

Green Marketing and Product Development (2 of 2)

No country’s laws yet require products to carry an ecolabel to be sold; it is voluntary; laws that mandate systems to control solid waste carry penalties.

The EU law requires that packaging material through all levels of distribution, from the manufacturer to the consumer, be recycled or reused; Each distribution chain level is responsible for returning all packaging, packing, and other waste materials up the chain.

The growing public and political pressure to control solid waste is a strong incentive for compliance.

The global marketer should not view green marketing as a European problem; concern for the environment is worldwide.

Products and Culture (1 of 2)

A product is more than a physical item: It is a bundle of satisfactions (or utilities) that the buyer receives.

Utilities of products include its form, taste, color, odor, and texture, functions, the package, the label, the warranty, the manufacturer’s and retailer’s servicing, the prestige enjoyed by the brand, the manufacturer’s reputation, the country of origin, and any other symbolic utility received from the possession or use of the goods.

A product is the sum of the physical and psychological satisfactions it provides the user; a product’s physical attributes generally are required to create its primary function.

The meaning and value imputed to the psychological attributes of a product can vary among cultures and are perceived as negative or positive.

Products and Culture (2 of 2)

The adoption of some products by consumers can be affected by how the product concept conforms with norms, values, and behavior patterns.

The greater the cultural differences between the two markets, the greater the extent of adaptation that may be necessary.

When analyzing a product for a second market, the extent of adaptation required depends on cultural differences in product use and perception between the market the product was originally developed for and the new market.

The problems of adapting a product to sell abroad are similar to those associated with the introduction of a new product at home.

Products are not measured solely by their physical specifications.

Cola Turka / Gothic & Lolita

Cola Turka holds a surprisingly large percentage of shelf space vis-à-vis Coke and Pepsi in this supermarket in Istanbul. The 2-liter bottle is priced at 2.00 lira, just under Coke’s 2.05 lira. Cola Turka’s TV ads, initially featuring American actor Chevy Chase speaking Turkish, seem to have worked well.

Japanese women in an ad for Angelic Pretty fashions appearing in the Gothic & Lolita Bible

Innovative Products and Adaptation

An important first step product adaptation is to determine the degree of newness as perceived by the intended market.

Any idea perceived as new by a group of people is an innovation.

Products new to a social system are innovations, and knowledge about the diffusion (i.e., the process by which innovation spreads) of innovation is helpful in developing a successful product strategy.

The goal of a foreign marketer is to gain product acceptance by the largest number of consumers in the market in the shortest span of time.

Diffusion research refers to research on the process by which innovations spread to the members of a social system.

Diffusion of Innovations (1 of 3)

Everett Rogers noted that crucial elements in the diffusion of new ideas are:

an innovation

which is communicated through certain channels

over time,

among the members of a social system

The element of time differentiates diffusion from other types of communications research.

Patterns of diffusion also vary substantially.

Diffusion of Innovations (2 of 3)

Evidence suggests that an understanding of diffusion theory may suggest ways to accelerate the process of diffusion. It helps as follows:

provides the foreign marketer with the ability to assess the time it takes for a product to diffuse—before a financial commitment is necessary.

focuses the marketer’s attention on features of a product that provoke resistance.

provides an opportunity to minimize resistance and hasten product acceptance.

Diffusion of Innovations (3 of 3)

At least three extraneous variables affect the rate of diffusion of an object:

the degree of perceived newness

the perceived attributes of the innovation and

the method used to communicate the idea

The perception of innovation can often be changed if the marketer understands the perceptual framework of the consumer.

Five Characteristics of Innovation (1 of 2)

The five characteristics of an innovation can assist in determining the rate of acceptance or resistance of the market to a product:

the relative advantage (the perceived marginal value of the new product relative to the old)

compatibility (its compatibility with acceptable behavior, norms, values, and so forth)

complexity (the degree of complexity associated with product use)

trialability (the degree of economic and/or social risk associated with product use)

observability (the ease with which the product benefits can be communicated).

Five Characteristics of Innovation (2 of 2)

In general, the rate of diffusion is positively related to relative advantage, compatibility, trialability and observability and negatively related to complexity.

The perception of product characteristics by the potential adopter is crucial to the evaluation.

A market analyst’s self-reference criterion (SRC) may cause a perceptual bias when interpreting the characteristics of a product.

Toilet innovations

Study of Work Team Performance

A study on the long-term impact on work team performance well demonstrates this principal.

36 teams of 4–5 mostly undergraduate business majors were formed to work on a variety of cases over a four-month period.

17 teams were culturally homogeneous and 19 were diverse groups.

In weeks 5, 9, 13, and 17, the groups were “required to:

examine the case from a variety of perspectives

identify the problems that had a bearing on the situation described in the case

generate a list of alternatives that might be employed to deal with the problems they had identified, and

select what they believed was the most effective of the alternatives and provide justification for their recommendation.”

Production of Innovations

Some consideration must be given to the inventiveness of companies and countries.

The Japanese government diagnosed lack of business training as a problem for growth. Many Japanese firms also take advantage of American innovativeness by establishing design centers in the United States.

American automobile firms have established design centers in Europe.

Research is focusing on the related issue of “conversion-ability” or the success firms have when they take inventions to market.

Three factors favor conversion in the global pharmaceutical industry: patience, focus on a few important innovations, and experience.

Exhibit 13.2 U.S. Patents Granted to Invention Teams that Include Both American and Chinese Citizens

Source: http://www.patft.uspto.gov, 2011.

Analyzing Product Components for Adaptation

A product is multidimensional, and the sum of all its features determines the bundle of satisfactions (utilities) received by the consumer.

Exhibit 13.3 illustrates the Product Component Model.

By using this model, the impact of the cultural, physical, and mandatory factors that affect a market’s acceptance of a product can be focused on the core component, packaging component, and support services component.

Exhibit 13.3 Product Component Model

back

Core Component

The core component consists of the physical product and all its design and functional features.

Product variations can be added or deleted to satisfy local differences on the product platform; a change in the platform can affect product processes and requires additional capital investment.

Alterations in design, functional features, flavors, color, and other aspects can be made to adapt the product to cultural variations.

Functional features can be added or eliminated depending on the market.

Additional changes may be necessary to meet safety and electrical standards or other mandatory (homologation) requirements.

Packaging Component (1 of 2)

The packaging component includes style features, packaging, labeling, trademarks, brand name, quality, price, and all other aspects of a product’s package.

Packaging components frequently require both discretionary and mandatory changes.

Several countries are now requiring country-of-origin labeling for food products.

Elements in the packaging component may incorporate symbols that convey an unintended meaning and thus must be changed.

Corporate trademarks and other parts of the packaging component should not have unacceptable symbolic meanings.

Attention should be paid to translations of brand names and colors used in packaging.

Packaging Component (2 of 2)

A company might have to adapt a product’s package for many reasons.

In some countries, laws stipulate specific bottle, can, and package sizes and measurement units.

It is important to determine if the packaging has other uses in the market.

Labeling laws vary from country to country and do not seem to follow any predictable pattern.

Labeling laws create a special problem for companies selling products in various markets with different labeling laws and small initial demand in each.

Support Services Component (1 of 2)

The support services component includes repair and maintenance, instructions, installation, warranties, deliveries, and the availability of spare parts.

Repair and maintenance are especially difficult problems in developing countries.

Consumers in a developing country and in many developed countries may not have even one of the possibilities for repair and maintenance available in the United States, and independent service providers can be used to enhance brand and product quality.

In some countries, the concept of routine maintenance or preventive maintenance is not a part of the culture.

Support Services Component (2 of 2)

So, products may have to be adjusted to require less frequent maintenance, and special attention must be given to features that may be taken for granted in the United States.

The literacy rates and educational levels of a country may require a firm to change a product’s instructions.

The Product Component Model is a useful guide for examining the adaptation requirements of products destined for foreign markets.

A product should be carefully evaluated on each of the three components to determine any mandatory and discretionary changes that may be needed.

Marketing Consumer Services Globally

Advice regarding adapting products for international consumer markets also applies to adapting services or intangible products.

However, many consumer services are distinguished by four unique characteristics: Intangibility, Inseparability, Heterogeneity, and Perishability

Products are often classified as tangible, whereas services are intangible.

The intangibility of services results in characteristics unique to a service:

It is inseparable in that its creation cannot be separated from its consumption.

It is heterogeneous in that it is individually produced and is thus unique.

It is perishable in that once created it cannot be stored but must be consumed simultaneously with its creation.

Services Opportunities in Global Markets

Tourism

Transportation

Financial Services

Education

Telecommunications

Entertainment

Information

Health Care

Tahiti and Professional Association of Diving Instructors (PADI)

Two of the best vistas in the world are Tahiti above the water (Bora Bora is silhouetted in the background) and the coral reefs off Belize under the water. Tourists flock to both from around the world. Services companies follow the tourists, including the Professional Association of Diving Instructors (PADI), which certifies scuba divers and instructors from its headquarters in Costa Mesa, California.

Barriers to Entering Global Markets for Consumer Services

Most services are inseparable and require production and consumption to occur almost simultaneously; thus, exporting is not a viable entry method for them.

Four kinds of barriers face consumer services marketers in this growing sector of the global marketplace:

protectionism

controls on transborder data flows

protection of intellectual property

cultural requirements for adaptation

Protectionism

The European Union is making modest progress toward establishing a single market for services.

Reciprocity and harmonization, key concepts in the Single European Act, possibly will be used to curtail the entrance of some service industries into Europe.

A directive insisted that EU member states should devote at least 50 percent of entertainment air time to “European works.”

The European Union argues that this will preserve Europe’s cultural identity.

Restrictions on Transborder Data Flows

The European Commission is concerned that data about individuals are being collected, manipulated, and transferred between companies with little regard for the privacy of the affected individuals.

A proposed directive by the Commission would require the consent of the individual before data are collected or processed; it would have broad effects on data processing and data analysis firms.

This would prevent a firm from electronically transferring information of individual European consumers to the United States for computer processing.

Cultural Barriers and Adaptation

Culture plays a much bigger role in services than in merchandise trade.

Classroom interactions vary substantially around the world.

Managing a global services workforce is certainly no simple task.

Clearly, opportunities for the marketing of consumer services will continue to grow in the 21st century.

International marketers will have to be quite creative in responding to the legal and cultural challenges of delivering high-quality services in foreign markets and to foreign customers at domestic locales.

Brands in International Markets

A global brand is defined as the worldwide use of a name, term, sign, symbol (visual and/or auditory), design, or combination thereof intended to identify goods or services of one seller and to differentiate them from those of competitors.

A successful brand is the most valuable resource a company has.

The brand name encompasses the years of advertising, goodwill, quality evaluations, product experience, and other beneficial attributes the market associates with the product.

Brand image is at the very core of business identity and strategy.

Research shows that the importance and impact of brands (and the success of their extensions) vary with cultural values around the world.

Exhibit 13.4 Top Twenty Brands

Source: Interbrand.com, accessed 2012, http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/best-global-brands-2011.aspx. Reprinted with permission. Also see WPP’s ranking, which is much different: http://c3232792.r92.cf0.rackcdn.com/WPP_BrandZ_2011.pdf.

Exhibit 13.4 illustrates lists the estimated worth (equity) of the 20 top global brands.

Global Brands

Companies with strong brands strive to use those brands globally.

The Internet and other technologies accelerate the pace of the globalization of brands.

Ideally a global brand gives a company uniformly positive worldwide brand associations that enhance efficiency and cost savings when introducing other products with the brand name, but not all companies believe a single global approach is the best.

Companies that already have successful country-specific brand names must balance the benefits of a global brand against the risk of losing the benefits of an established brand.

Researchers are beginning to address the sometimes difficult problem of brand extensions in global markets.

National Brands

A different strategy is followed by some companies like Nestlé. In some markets, it acquires well-established national brands for strength. In other markets where there are no strong brands it can acquire, it uses global brand names.

Unilever also follows a strategy of a mix of national and global brands.

Multinationals must also consider increases in nationalistic pride that occur in some countries and their impact on brands.

Copying: car models

Copying is the highest form of flattery? Not so in the car business. The new QQ model from Chinese company Chery (left) resembles the Matiz or Spark from GM’s Daewoo (right)—perhaps a bit too much.

Country-of-Origin Effect and Global Brands (1 of 3)

The country-of-origin effect on the market’s perception of the product is a great concern to multinational companies that manufacture worldwide.

Country-of-origin effect (COE) can be defined as any influence that the country of manufacture, assembly, or design has on a consumer’s positive or negative perception of a product.

When the customer becomes aware of the country of origin, there is the possibility that the place of manufacture will affect product or brand image.

The country, the type of product, and the image of the company and its brands all influence whether the country of origin will engender a positive or negative reaction.

Country-of-Origin Effect and Global Brands (2 of 3)

Ethnocentrism can also have country-of-origin effects; feelings of national pride can influence attitudes toward foreign products.

Countries are also stereotyped on the basis of whether they are industrialized, in the process of industrializing, or developing.

The more technical the product, the less positive is the perception of something manufactured in a less developed or newly industrializing country.

Foreign products fare not as well in developing countries because consumers have stereotypes about the quality of foreign-made products, even from industrialized countries.

Country-of-Origin Effect and Global Brands (3 of 3)

Fads that often surround products from particular countries or regions in the world.

Fads are most often product specific and generally involve goods that are themselves faddish in nature.

Once the market gains experience with a product, negative stereotypes can be overcome.

Country stereotyping can be overcome by good marketing.

Brands effectively advertised and products properly positioned can help ameliorate a less-than-positive country stereotype.

Flags on the radar mast of the Endeavor

Private Brands

Private brands owned by retailers are growing as challengers to manufacturers’ brands.

Private labels are formidable competitors, particularly during recessions in the target markets.

Buyers prefer to buy less expensive, “more local” private brands; it also allows retailers to outsource production while still appreciating the advantages of a local brand.

Private brands provide the retailer with high margins.

They receive preferential shelf space and strong in-store promotions.

To maintain market share, global brands will have to be priced competitively and provide real consumer value.

Summary

The growing globalization of markets must be balanced with the continuing need to assess all markets for those differences and adaptation.

Consumers see the world of global symbols, company images, and product choice through the lens of their own local culture and its development stage and market sophistication.

Analyzing a product as an innovation and using the Product Component Model may provide the marketer with important leads for adaptation.