counterfeit product

Chapter 11: Product Management & Global Brands

Overview: The product is the most important element of a company’s marketing program.  This chapter examines how global marketers face the challenge of formulating coherent product and brand strategies on a worldwide basis.

Learning outcomes:

1. Define product.
2. Describe the complex combination of tangible and intangible elements that distinguish goods from other products and services.
3. Understand the trade-offs between standardized versus customized products.
4. Describe a global approach that will increase growth and profitability to reach the world’s mega-markets.
5. Recognize unauthorized uses of a trademark, patent, or copyright good.

Definition of a product:

A product can viewed as a collection of tangible and intangible attributes that collectively provide benefits to a buyer or user.   A brand is a complex bundle of images and experiences in the mind of the customer.  In most countries, local brands compete with international brands and global brands.  A local product is available in a single country; a global product meets the wants and needs of a global market.

Product Variables

The core of a firm’s international operations is a product or service. This product or service can be defined as the complex combination of tangible and intangible elements that distinguishes it from the other entities in the marketplace.

Below is an image that displays the three levels:  The actual physical product, the core benefit, and the augmented product (often related to some services).

One of the most fruitful exercises is to focus on determining the core benefit.  You will come to understand that customers have a problem to solve…be it a need for transportation or a need for deck chair.  Getting to the core benefit will support developing a marketing strategy based on value.

Standardization versus customized products:

Straight Product Extension (referred often as standardization)

Companies deciding to market their products in different countries typically have a choice of three common strategies to pursue.

• The firstis the straight product extension. This means taking the company’s current products and selling them in other countries without making changes to the product. The advantages of this strategy are that the company doesn’t need to invest in new research, development, or manufacturing. Changes may be made in packaging and labeling, but these are driven by local regulatory requirements. The disadvantages, however, are that its products may not be well suited to local needs and that the products may be more costly due to higher manufacturing and labor costs in the United States.
• The secondstrategy is product adaptation and refers to modifying the company’s existing product in a way that makes it fit better with local needs. For example, when Procter & Gamble (P&G) introduced Tide laundry detergent in emerging markets like India, it changed the formulation to remove softeners. The reformulated Tide cost less than the original Tide. This change was important because price was an important factor in India where income levels were lower. Indian consumers were more able to afford the reformulated Tide.
  • Another way to localize a product is through packaging. Locally appropriate packaging doesn’t just mean using the country’s language. It also means creating packaging sizes that suit the country. For example, a company wanting to make its products more economical to less-wealthy countries may be tempted to sell larger, economy-sized packaging. But emerging-market consumers often prefer smaller package sizes, even if that increases the cost-per-use. They tend to buy sachets of shampoo rather than economy-size bottles. These smaller sizes are also easier to transport to local villages or to store in smaller-sized homes.
  • Mobile-phone maker Nokia went a step further in localizing its phones to different markets. The company uses local designers to create mobile-phone handset models that are specifically appropriate for each country. For example, the handsets designed in India are dust resistant and have a built-in flashlight. The models designed in China have a touchscreen, stylus, and Chinese character recognition.
  • Local designers are more likely to understand the needs of the local population than headquarters-located designers do.
  • The examples of Tide and Nokia show how companies can create a version of their existing product tailored to specific countries.
• The third strategy, product invention, is creating an entirely new product for the target market. In this strategy, companies go back to the drawing board and rethink how best to design a product for that country.
  • The first step in inventing a product for a new country market is to understand the key product characteristics needed to succeed in that market. For example, when P&G wanted to sell diapers in BRIC countries (i.e., Brazil, Russia, India, and China), it started from square one. Rather than merely modifying the existing design, P&G engaged local knowledge and reconsidered all the key features of the design in the context of the needs of the emerging markets.
  • A major issue was price. To make the diaper affordable, P&G settled on an aggressive price target—each diaper should cost as much as one egg. But the company also wanted a diaper that could uphold the P&G brand name. At first, the designers thought that the lower-cost product needed to do everything that the current developed-world product did. But further discussions refined and narrowed the definition so that P&G could meet the cost target without damaging the brand.
  • P&G designers debated features such as absorbency, color, fit, and packaging to find a design that was acceptable on cost targets, acceptable to emerging-market consumers, and acceptable as a P&G-branded product. The designers considered materials and how they could avoid using high-paid, specialized suppliers. Some characteristics, such as packaging, could be adjusted to meet local cost standards. In other cases, a characteristic was nonnegotiable—such as corporate social-responsibility issues. For example, P&G wanted to ensure that none of the suppliers to its diaper business used child labor. In the end, P&G succeeded by understanding both the critical elements of the brand and the emerging-market customers’ expectations.

Nuances of Product Extension, Adaptation, and Invention:

The product-adaptation strategy is easier for firms to execute than product invention. Nonetheless, even product adaptation requires understanding the local market well.

Consider Ford Motor Company’s missteps in adapting its mid-priced car model to the Indian market. Ford realized that it needed to lower the cost of its car to make it more affordable to Indian consumers. Ford brought a team of designers together in Detroit and tasked them with figuring out how to reduce the cost of the car. The designers looked at removing nonessential elements.

The first feature to go was air conditioning. Next, the team decided to remove power windows in the back, keeping them only in the front. These and other such tweaks brought the total cost of the car down from $20,000 to $15,000. Reducing the cost by 25 percent is notable, but unfortunately the design team lacked vital local knowledge about India. First, even though the price of the car was lower, the $15,000 price point in India is still way above what the middle class can afford. The Indians who can afford a $15,000 car are the very rich. Second, the very rich in India who can afford to pay $15,000 for a car can also afford (and will have) a chauffeur.

Remember the clever idea of removing the air conditioning and the power windows in the back? The consequence is that the chauffeur is the only one who gets a breeze. Given the sweltering summer temperatures and traffic congestion in Indian cities, you can guess that the Ford car didn’t sell well.

In deciding the form in which the product is to be marketed abroad, the firm should consider three sets of factors:

• the market(s) that have been targeted
• the product and its characteristics
• company characteristics, such as resources and policy.

The Market Environment

Government regulations often present the most stringent requirements. They are probably the single most important factor contributing to product adaptation and, because of bureaucratic red tape, often the most cumbersome and frustrating factor to deal with. In some cases, government regulations have been passed and are enforced to protect local industry from competition from abroad.

Non-tariff barriers include product standards, testing or approval procedures, subsidies for local products, and bureaucratic red tape. The non-tariff barriers affecting product adjustments usually concern elements outside the core product.

The characteristics and behavior of intended customer groups are an important factor influencing the product adaptation decision. Product decisions of consumer-product marketers are especially affected by local behavior, tastes, attitudes, and traditions.

Three groups of factors determine cultural and psychological specificity in relation to products and services:

• Consumption patterns
• Psycho-social characteristics
• General cultural criteria

In the textbook, Exhibit 11.4 provides a set of questions useful for gauging the effect of cultural and psychological factors on the product adaptation decision.

Climate and geography will usually have an effect on the total product offering.  Many products must be adapted to local geographic and climatic conditions.

The inherent characteristics of products and the benefits they provide to consumers in the various markets make certain products good candidates for standardization, others not.

The international marketer must make sure products do not contain ingredients that might be in violation of legal requirements or religious or social customs.

Weighing Product Adaptation Decisions: 

Value proposition adaptation deals with a whole range of issues, ranging from the quality and appearance of products to materials, processing, production equipment, packaging, and style. A product may have to be adapted to meet the physical, social, or mandatory requirements of a new market. It may have to be modified to conform to government regulations or to operate effectively in country-specific geographic and climatic conditions. Or it may be redesigned or repackaged to meet the diverse buyer preferences or standard-of-living conditions. A product’s size and packaging may also have to be modified to facilitate shipment or to conform to possible differences in engineering or design standards in a country or in regional markets. Other dimensions of value proposition adaptation include changes in brand name, color, size, taste, design, style, features, materials, warranties, after-sale service, technological sophistication, and performance.

Brand names convey the image of the product or service. Brands are one of the most easily standardized items in the product offering. The brand name is the vocalizable part of the brand, the brand mark the non-vocalizable part. The term trademark refers to the legally protected part of the brand, indicated by the symbol ®.

A global or regional brand may well have local features, or a highly standardized product may have local brand names. Standardizing names to reap promotional benefits can run into problems if not done properly. To avoid such problems, NameLab, a California-based laboratory for name development and testing.

Here’s a link for NameLab…to their naming process.  Click here (Links to an external site.).

Packaging: As a general rule, packaging design should be based on customer needs.

Three major functions – protection, promotion, and user convenience –

• Protection: Because of the longer time that products spend in channels of distribution, firms in the international marketplace have had to use more expensive packaging materials or more expensive transportation modes. An international marketer should also be aware of other problems like pilferage and inadequate or careless loading methods.
• Promotion: The promotional aspect of packaging relates mostly to labeling. The major adjustments concern bilingual legal requirements. Package aesthetics must also be a consideration in terms of the promotional role of packaging. This mainly involves the prudent choice of colors and package shapes.
• User convenience: Package size varies according to purchasing patterns and market conditions.

Private Brand Policies:

The emergence of strong intermediaries has led to the significant increase in private-brand goods, that is, the intermediaries’ own branded products or “store brands.” Two general approaches have been used:

• Umbrella branding, where a number of products are covered using the same brand
• Separate brand names for individual products or product lines.

While private-brand success has been shown to be affected strongly by economic conditions and the self-interest of retailers who want to improve their bottom lines through the contribution of private-label goods, new factors have emerged to make the phenomenon more long-lived and significant in changing product choices worldwide. These factors include the improved quality of private-brand products, the development of segmented private-brand products, and change in consumer mindsets.

Beyond just offering products, many retailers are focusing on a broader approach. Some are focusing on the design of their private-brand products to provide a uniform image, while others are providing premium private-brand products.

With the increasing opportunities in the private-brand categories, the marketing manager will have to make critical strategic choices, which are summarized in Exhibit 11.9. In heavily branded markets, companies that own brands with high distinctiveness and technological advantage may decide not to participate in the private-brand category. Reasons for participation may include capacity filling, economies of scale, improved relationships with trade, and valuable information about consumer behavior and costs.

Counterfeit Goods:

Definition:  Any 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 practice of product counterfeiting has spread to high-technology products and services from the traditionally counterfeited products: high-visibility, strong-brand-name consumer goods.

The first task in fighting intellectual property violation is to use patent applications or registration of trademarks or mask works (for semiconductors). However, rights granted by a patent, trademark, copyright, or mask work registration in the United States confer no protection in a foreign country.

After securing valuable intellectual property rights, the international marketer must act to enforce, and have enforced, these rights. Four types of action against counterfeiting are legislative action, bilateral and multilateral negotiations, joint private-sector action, and measures taken by individual companies.

The U.S. government is seeking to limit counterfeiting practices through bilateral and multilateral negotiations as well as education. A number of private-sector joint efforts have also emerged in the battle against counterfeit goods. Many companies maintain close contact with the government and the various agencies charged with helping them.