CHAPTER 11 DEVELOPING NEW PRODUCTS FOR GLOBAL MARKETS Group members: Denise Caesar Debbie Goodman Delicia John Roxanne Risbrooke
Introducing products into foreign markets
Developing a global product
New product development processes for Global markets
Introducing new products to global markets
PRODUCTS – Anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. It includes physical objects, services, places, organizations, ideas and people.
GLOBAL MARKETING - A total commitment to international marketing, in which a company applies its assets, experience and products to develop and maintain marketing strategies on a global scale.
Modification of heating/cooling systems for different climates
Engine modification to use locally available fuels
This is called for to make the product more appealing in different markets. It is as a result of differing customer needs, preferences and tastes that market research, customer feedback among others may reveal.
Levels of customer purchasing power – low incomes makes cheaper version of product more appealing in some less developed countries
L evels of education and technical sophistication – ease of use may be a crucial factor in decision-making
Standards of maintenance/repair facilities – simpler more robust versions may be needed
2. DEVELOPING A GLOBAL PRODUCT
In order to remain competitive, firms often have to reduce their costs. Usually the production of standardize products provides cost advantage, however this strategy is not as common. Many firms now employ new strategies:
1. Global Product Development strategy
A portion of the final product is standardized. However, the design retains some flexibility so that the end product can be tailored to the needs of individual markets.
- This represents a move to standardize as much as possible those areas involving common components or parts.
The Global Product Development Strategy
This process involved the development of standard modules that can easily be connected with other standard modules to increase the variety of products.
E.g General Motors has established a modular product architecture for all its global automobile products. Future GM cars will be designed using combination of components from 70 different body modules and about a hundred major mechanical components (e.g. Engines, power trains, and suspension systems)
The Global Product Development Strategy
3. NEW PRODUCT DEVELOPMENT PROCESSES FOR GLOBAL MARKETS
Developing new products or services for global markets poses unique challenges.
To combat these challenges, the international firm can assign development responsibilities to any one of its international subsidiaries. The success however will depend on how well the firm marshals its resources on a global scale to develop new products for foreign markets.
Steps in New Product Development process
Concept Development & Testing
Marketing Strategy Development
Small Batch Prototype Development
Product Development & Testing
Commercialization / Launch
Sources of New Product Development
1. Head office
2. Lead markets
4. Purchasing research and development
5. Importing new product technology
7. Joint ventures
Sources of New Product Development #1 The organization of Head Office-Sponsored Research and Development
Research and development for the introduction of new products is originally conducted in centralized facilities in the firm’s domestic market.
The largest portion of research and development monies spent by international firms goes to support efforts in domestically located facilities.
Initial introduction at home is followed by a phase-in introduction to the company’s foreign markets.
Reasons for Head Office-sponsored Approach:
1. R&D is centralized so there is an integrative strategy with regards to product development. To achieve this there must be frequent contacts and interfacing between R&D facilities and the company’s main office.
2. To minimize duplication
3. For the effective and efficient utilization of scarce research funds
4. To capitalize on the firm’s experience in their domestic market.
The organization of Head Office-Sponsored Research and Development
Sources of New Product Development #2 International Leads Markets and Research and Development
The lead market is a market whose level of development exceeds that of the market in other countries worldwide and whose developments tend to set a pattern for other countries.
Lead markets are not restricted to technological developments as embodied in product hardware.
Lead market advantage based on superior design, advanced features, function and quality, production processes, patterns in consumer demand, methods of marketing. (Any phase of the operation is subject to lead market influence)
Sources of New Product Development #3 The Role of Foreign Subsidiaries in Research Development
o Subsidiaries may assume R&D function if products require some adaptation to a local market
o Foreign subsidiaries of international firms rarely play an active role in the R&D unless they have manufacturing responsibilities and capabilities
o Sales subsidiaries provide central organization with feedback on product adjustments or adaptation, but generally their participation does not go beyond the generation of ideas.
o A subsidiary located in a lead market is in a better position to observe developments and to accommodate new demands and can therefore act as an effective “listening post”
Strategic leader role:
With responsibility for developing a new range of products to be used by the entire company. This role will be handled by a highly competent subsidiary in a market of strategic importance.
This role would be assumed by a subsidiary in a distinct area and the subsidiary will adapt some products in smaller though important markets
These are smaller subsidiaries located in less strategic markets that act as implementers of the overall strategy without making a major contribution to either technology or strategy
Roles of involvement for the subsidiary:
Sources of New Product Development #4 Purchasing Research and Development from Foreign Countries
A company may acquire material or information from independent outside sources that have acquired lead market status.
Literature published in lead markets
Regular visits to foreign countries
Management contact with lead markets
These are admittedly ad hoc measure though.
Sources of New Product Development #5 Importing as a Source of New Products
Some companies import finished products directly from a foreign firm to supplement their product lines.
This is usually done in areas that do not represent the core of the firm’s business and technology, and is used to extend the product offering.
Sources of New Product Development #6 Acquisition as a Route to New Products
Efficient, cost-effective way to create a new product instead of trying to conceptualize, R&D and launch new products from the ground up.
Overcomes the process of acquiring technological experience
Establish supplier relationships
Circumvents need for large Advertising & Promotional Budgets to gain visibility & brand recognition
Sources of New Product Development #7 Joint Ventures for New Product Development
Usually pursued with technologically advanced foreign company usually at lower costs
Good way to pursue an opportunity that is too complex, uneconomical or risky for a single organization to pursue alone
Provide entry into desirable foreign markets when access is restricted by government
Used when opportunities in new industry require broader range of competencies that any one company can marshal
Sources of New Product Development #8 Alliances for New Product Development
Companies are using alliances or the Consortium Approach to share technology and R&D to gain competitive advantage
Consortium Approach – member firms join in working relationship without forming a new entity. On completion of assigned task, member firms are free to seek other relationships with different firms.
4. INTRODUCING NEW PRODUCTS TO GLOBAL MARKETS
Once a product has been developed for commercial introduction, the following decisions need to be made:
- Test Marketing procedure
- The target country
- The timing or sequence of introduction into foreign market
These decisions are influenced by sales potential. Following careful analysis, a list of target countries is developed, then the company will choose from among several paths to the actual introduction in the target country/countries.
Determining Introduction in target countries
This involves presenting the product concept to appropriate target consumers and getting their reactions. The concepts can be presented symbolically or physically. However the more the tested concepts resembles the final product or experience, the more dependable concept testing is.
In recent times, companies are also using virtual reality to test product concepts. This entails the use of sensory devices to stimulate reality.
The ultimate way to test a new consumer product is to put it into full-blown test markets. The company chooses a few representative cities, and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure, full advertising and promotional strategy, similar to the one use in the home market.
Simulated Test Marketing
This entails finding 30 to 40 qualified shoppers and questioning them about brand familiarity and preference in a specific product category.
Controlled Test Marketing
In this method, the number of geographic locations are tested. The product is delivered to the participating stores and the product is placed in a strategic position. Sales results will be measured electronically through scanners at the checkout.
Market-entry timing is critical. A company may be faced with the challenge of trying to enter a market with a new product and learns that a competitor is nearing the end of its development work. The company faces three choices:
Timing of New Product Introduction
Timing of New Product Introduction continued
The first firm entering a market usually enjoys first mover advantages of locking up key distributors and customers while gaining the reputation of product leader. If the product is rushed before to market before it is thoroughly debugged, the product can acquire a flawed image.
Timing of New Product Introduction Continued
The firm might time its entry to coincide with the competitor’s entry. The market may pay more attention when two companies are advertising the new product.
The firm might delay its launch until after the competitor has entered. The competitor will have borne the cost of educating the market. The competitor’s product may review faults the late entrant can avoid.