Future trend: International companies will make better use of the talents of local subsidiaries in the development of new products. Instead of simply the selling or production arm of the company, subsidiaries will become more involved in the innovation and product development process.
These people are then invited to a brief screening of both well-known and new commercials or print ads. One ad advertises the new product but is not singled out for attention. The company notes how many consumers buy the new brand and competing brands. This provides a measure of the ad’s effective against competing ads in stimulating trial
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CHAPTER 11DEVELOPING NEW PRODUCTS FORGLOBAL MARKETS Group members: Denise Caesar Debbie Goodman Delicia John Roxanne Risbrooke
1.Introducing products into foreign markets 2. Developing a global product 3. New product development processes for Global markets 4. Introducing new products to globalCHAPTER OUTLINE markets
DEFINITIONSPRODUCTS – Anything that can be offered toa market for attention, acquisition, use orconsumption that might satisfy a want orneed. It includes physical objects, services,places, organizations, ideas and people. GLOBAL MARKETING - A total commitment to internationalmarketing, in which a company appliesits assets, experience and products todevelop and maintainmarketing strategies on a global scale.
New product lineAddition to product lineRepositioning to new market segmentsImprovements/revisionsCost reductionsSource: Booz, Allen & HamiltonWhat are new products?
1. INTRODUCING PRODUCTS INTO FOREIGN MARKETS STRATEGIC OPTIONS1. EXTENSION STRATEGY – Same approach as home market2. ADAPTATION STRATEGY - Makes changes to fit new market requirements3. INVENTION STRATEGY - Entirely new approach is developed for the new market
STRATEGIC OPTIONS4. STANDARDIZATON – Same product, all markets5. GLOBAL PRODUCTS - Only some aspects of the product is standardized
OPTION 1. PRODUCT EXTENSION – COMMUNICATION EXTENSIONProduct Strategy Communications Strategy Highlight1. Extension Extension Standardized product with same communications strategy across the globe. - This strategy is Cost effective - Allows for greater economies of scale - Rarely used for consumer type products except soft drink and some luxury type goods -Used mainly for industrial type products
OPTION 2. PRODUCT EXTENSION – COMMUNICATION ADAPTATIONProduct Strategy Communications Strategy Highlight1. Extension Adaptation Standardized product with different communications strategies across the globe. - Cost effective because communications adaptation is less expensive than the tailoring product to a local market. - Can be used for consumer type products eg. Bicycles
OPTION 3. PRODUCT ADAPTATION - COMMUNICATION EXTENSIONProduct Strategy Communications Strategy Highlight1. Adaptation Extension Changes made to the product, same communications strategy across the globe. - Product formulations are changed without consumers knowing it. E.g. detergents - Entails research, development expenses and tooling costs. - Do not allow for economies of scale to the extent possible under an product extension strategy - savings can be realized from the creation of a single communications strategy
OPTION 4. PRODUCT ADAPTATION - COMMUNICATION ADAPTATIONProduct Strategy Communications Strategy Highlight1. Adaptation Adaptation Dual adaptation: Changes made to the product, changes made to communications strategy - Recognizes the socio-cultural differences from country to country -To make this option profitable, the foreign market or markets need to be of sufficient volume - Calls for extensive research and development expenses and tooling costs
OPTION 5. PRODUCT INVENTIONProduct Strategy Communications Strategy Highlight1. Invention Develop new communications Usually redesigning of an original product at a lower level of complexity. - Recognizes the socio-cultural and economic differences from country to country -Leads to more purchases as a result of the reinvention of the product
Factors encouraging product standardization: Economies of Scale in: STANDARDIZATION VS ADAPTATION Production Marketing/communications Research & Development Stock Holding
Easier management and control i.e. familiarity STANDARDIZATION VS ADAPTATION CONTINUED Homogeneity of markets, in other words markets available without adaptation e.g. denim jeans Cultural insensitivity (except industrial and agricultural products) Where “made in” image is important to a product’s perceived value e.g. France for perfumes, Sheffield for stainless steel
For a firm selling a small proportion of its output overseas, the incremental costs may exceed the STANDARDIZATION VS ADAPTATION CONTINUED incremental sales value Consumer mobility for travellers/tourists for example standardization is expected in certain products: Camera film Hotel Chains
Factors encouraging adaptation/modification STANDARDIZATION VS ADAPTATION CONTINUEDMandatory Modification: Normally involves either adaptation to comply with government requirements or Unavoidable technical changes Example: Car manufacturer
Legal requirements can include: Specified exhaust VS ADAPTATION CONTINUED STANDARDIZATION emission levels (HSE Laws & strict emission standards) Local components (economic law) Technical requirements such as: 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 Levels 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 neededDiscretionary Modifications:
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 2. Modularity2. DEVELOPING A GLOBALPRODUCT
A portion of the final product isstandardized. However, the design retains The Global Product Development Strategysome flexibility so that the end productcan be tailored to the needs of individualmarkets.- This represents a move to standardize asmuch as possible those areas involvingcommon components or parts.
Modularity This process involved the development of The Global Product Development standard modules that can easily be connected Strategy 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)
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.3. NEW PRODUCT DEVELOPMENTPROCESSES FOR GLOBAL MARKETS
Idea Generation Idea Screening Concept Development & Testing Marketing Strategy Development Business Analysis Small Batch Prototype Development Product Development & Testing Test Marketing Commercialization / LaunchSteps in New ProductDevelopment process
1. Head office2. Lead markets3. Subsidiaries4. Purchasing research and development5. Importing new product technology6. Acquisitions7. Joint ventures8. Alliances9. ConsortiaSources of New ProductDevelopment
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.Sources of New Product Development #1The organization of Head Office-SponsoredResearch and Development
Reasons organization of Head Office- The for Head Office-sponsored Approach: 1. Sponsored Research and Development 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.
Sources of New Product Development #2International Leads Markets and Research andDevelopment 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)
Subsidiaries 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.Sources of New Product Development #3 in a better position to o A subsidiary located in a lead market isThe Role ofdevelopmentsSubsidiaries in new demands and observe Foreign and to accommodate ResearchDevelopment act as an effective “listening post” can therefore
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.Contributor: This role would be assumed by a subsidiary in a distinct area and the subsidiary will adapt some products in smaller though important marketsImplementer: 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 strategyRoles of involvement for the subsidiary:
A company may acquire material or information from independent outside sources that have acquired lead market status.How? Literature published in lead markets Regular visits to foreign countries Trade fairs Management contact with lead marketsThese are admittedly ad hoc measure though.Sources of New Product Development #4Purchasing Research and Development fromForeign Countries
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 #5Importing as a Source of New Products
Advantages: 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 recognitionSources of New Product Development #6Acquisition as a Route to New Products
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 marshalSources of New Product Development #7Joint Ventures 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.Sources of New Product Development #8Alliances for New Product Development
Oncea 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.4. INTRODUCING NEW PRODUCTS TO GLOBALMARKETS
Concept Test 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.Determining Introduction in target countries
Test Market 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 andTest Marketing 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.Test Marketing
Market-entry timing is critical. A company maybe faced with the challenge of trying to enter amarket with a newProduct Introduction Timing of New product and learns that acompetitor is nearing the end of its developmentwork. The company faces three choices: First entry Parallel entry Late entry
First Entry 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
Parallel Entry 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.Late Entry 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.Timing of New Product IntroductionContinued
Timing decisions involves additional considerations - If the new product replaces an older product, the company might delay the introduction until the old product’s stock is drawn down. - If the product is highly seasonal, it might be delayed until the right season arrives.Timing of New Product Introduction continued