Im CH-4

INTERNATIONAL MARKETING
4
CHAPTER FOUR
INTERNATIONAL PRODUCT POLICY
By: Zinabu Girma (MA)
By: Zinabu Girma (MA)

07/03/2023 1
Chapter Outline
• Theory of International Product Life Cycle (IPLC)
• Standardization versus Adaptation of the Product
• International Product Strategies
Product Attributes In International Markets (branding
and packaging).
07/03/2023 By: Zinabu Girma (MA) 2

Introduction
Product policy is a strategic rule or rules covering how a
good or service is promoted to potential consumers.

So the decisions taken on the product policy has considerable
impact on the success of the product in the market.

This chapter analyses the Theory of International Product Life
Cycle (IPLC), the policy of a business on product

standardization, product modification, branding and
packaging.

4.1 Theory of International Product Life
Cycle (IPLC
 The international product life cycle (IPLC) theory,
developed and verified by economists to explain trade in a
context of comparative advantage, describes the diffusion
process of innovation across national boundaries.
 There are five distinct stages (stage 0 through stage 4).
 There are five distinct stages (Stage 0 through Stage
4) in the IPLC.
 Figure 4.1 below shows three life cycle curves for the same
innovation.
 Table 4.1 below also shows the major characteristics of the
IPLC stages, with the USA as the developer of innovation in
question.
Cont’d
Figure 4.1 IPLC Curves

Cont’d
Table 4.1 IPLC Stages and characteristics ( for the
initiating country)

Cont’d
Stage 0-Local Innovation
• Stage 0, depicted as time 0 on the left of the vertical
importing/ exporting axis, represents a regular and
highly familiar product life cycle in operation
within its original market.
• Innovations are most likely to occur in highly
developed countries because consumers in such
countries are efficient and have relatively unlimited
wants.
• From the supply side, firms in advanced nations
have both the technological knowhow and
abundant capital to By:develop
07/03/2023
new products.
Zinabu Girma (MA) 7
Cont’d
Stage 1- Overseas Innovation:
 As soon as the new product is well developed, its original
market well cultivated, and local demands adequately
supplied, the innovating firm will look to overseas markets
in order to expand its sales and profit.
 Thus, this stage is known as a “pioneering “or
“international introduction “stage.
 The technological gap is first noticed in other advanced
nations because of their similar needs and high income
levels.
 Countries with similar cultures and economic conditions are
often perceived by exporters as posing less risk and thus are
approached first before proceeding
07/03/2023 By: Zinabu Girma (MA)
to less familiar territories.8
Cont’d
Stage 2- Maturity:
 Growing demand in advanced nations provides an
impetus for firms there to commit themselves to
starting local production, often with the help of their
government’s protective measures to preserve infant
industries.
 Thus, these firms can survive and thrive in spite of
relative inefficiency.
 Development of competition does not mean that the
initiating country’s export level will immediately
suffer.
Cont’d
Stage 3- Worldwide Imitation:

 This stage means tough times for the innovating nation
because of its continuous decline in exports.
 There is no more new demand anywhere to cultivate.
 The decline in the innovating firm’s economies scale, and
its production costs thus begin to rise again.
 Consequently, firms in other advanced nations use their
lower prices to gain more consumer acceptance abroad at
the expense of the innovating firm.
Cont’d
Stage 4- Reversal:
 Not only must all good things end, but misfortunes frequently
accompany the end of a favorable situation.
 The major functional characteristics of this stage are product
standardization and comparative disadvantage.
 The innovating country’s comparative advantage has disappeared,
and what is left is comparative disadvantage.
 This disadvantage is brought about because the product is no longer
capital-intensive or technology-intensive but instead has become
labor-intensive –a strong advantage possessed by LDC’s.
4.2 Standardization versus Adaptation of the
Product
A central issue in approaching global markets is whether
products sold in the home market should be adapted or

standardized for international markets.
This raises the question of whether a company can
successfully design and market a global product.

Other issues have to do with standardizing or adopting
product features, such as packaging, and labeling, brands

and trademarks, and warranty
07/03/2023
and service policies.
By: Zinabu Girma (MA) 12
Cont’d
Product standardization: is the process of setting generally
uniform characteristics for a particular good or service.

Standardization- developing same product for multiple
countries
 Premise-- consumes share some common values, beliefs,
and consumption patterns
 Advantages: economies of scale and scope, price
competitiveness, uniform image
Cont’d
• Cost reduction - e.g. economies of scale

• Improved quality - resources can be focussed
• Enhanced customer preference - positive experiences
lead to global brand loyalty
• Global customers - uniform quality and services
• Global segments - e.g. software, cameras.

4.2.1 Factors Encouraging Standardization
High Costs of Adaptation

Industrial Products
Products in which technical specifications are
critical tend to be uniform internationally.

Differences significant in international business are
“people differences,” that is, cultural differences. In

general, then, industrial goods are more
standardized than consumer goods.
Cont’d
Convergence and Similar Tastes in Diverse Country
Markets
 As countries obtain similar income levels and develop
economically at the same place, their consumption

patterns are likely to converge.
Centralized Management and Operating via Exports
If a firm markets overseas principally through exports,
it is likely to sell standardized products.

Cont’d
Economies of Scale in Production
Standardizing a product at a production site allows
the firm to gain scale economies in manufacturing.
Economies in Research and Development
If the firm offers the identical product around the
world, it gets more mileage out of its R&D efforts.
Economies in Marketing
Even when marketing is done on a national basis,
economies of scale are possible with standardized
products.
Cont’d
 Product Adaptation- modifying product to

reflect characteristics of a market
 Premise-- consumers are not the same
 Advantages: improved fit between product
and consumer, expanded penetration

4.2.2 Factors Encouraging Adaptation
The greatest argument for adapting products is that by
doing so the firm can realize higher profits.

Specific factors encouraging product adaptation
include:
1. Differences in Technical Standards

Firms must meet technical standards in order to sell in
different national markets.

Cont’d
 For example, agricultural products sold into the U.S. must
meet guidelines for maximum levels of chemical additives

and fertilizers used in growing such products.
 In Europe, there are restrictions on the sale of beef from
cows treated with growth hormones.
2. Consumer and Personal Use Products

 Products sold to consumers and for personal use are likely
to meet with market success when adapted to local markets.

Cont’d
3. Variation in Consumer Needs and Differing Use

Conditions
Although a given product fulfills a similar functional
need in various countries, the conditions under which

the product is used may vary greatly from country to
country.
Climate, for instance, has an effect on products sensitive
to temperature or humidity, making it necessary to

07/03/2023 modify these products forGirma
By: Zinabu tropical
(MA) or arctic markets. 21
Cont’d
4. Variation in Ability to Buy Differing Income Levels

 Product features may have to be adapted to make the
product affordable at lower income levels.
5. The Impact of Cultural Differences

 Cultural differences affect the tastes, the acceptance of
products, and consumption habits.

 Food is an area in which cultural differences dominate.

Cont’d
6. Environmentally Induced Adaptation: The Influence of

Governments
 Nations may forbid certain goods to be imported to their
country.
 Conversely, they may require that the product be
manufactured locally, not imported.
 Demands for local production or a high degree of “local
content” in the product often lead the international firm to

modify it.
Considerations in adapting products

International Product Strategies
• Standardized Product
- Domestic product introduced internationally, with minor or no
modification
• Localized Product
- Domestic product adapted for foreign markets
- Product designed specifically for foreign markets
• Global Product
- Product designed with international (not national) markets in
mind
- Product having universal features
- Product being adaptation-ready, when necessary
4.3 Product Attributes in International Markets
• Product policy goes beyond the product itself attributes

such as brands and trademarks, country of origin,
packaging and labeling, and warranty and service
polices represent key decision areas.
4.2.1 Brands and Trademarks
• A major focus in international marketing is

protecting the company’s brands and trademarks.
What are Brands and Branding?
• The term brand is derived from the Old Norse word

“brandr,” which means “to burn,” as brands were and still
are the means by which owners of livestock mark their
animals to identify them.
• According to the American Marketing Association, a
brand is a “name, term, sign, symbol, or design, or a
combination of them, intended to identify the goods and
services of one seller or group of sellers and to
differentiate them from those of competitions.”
Cont’d
• But branding is more than just selecting a name or

symbol to identify a product; it should be defined in
terms of having actually created a certain amount of
awareness, reputation, prominence, and so on in the
market place
• Branding is the process of building a positive
collection of perceptions in your customers’ minds.

Cont’d
• A brand once developed and recognized. A big

question then is how to build up brand recognition in
international markets. Brands can be built up through
advertising, but advertising merely builds on the
brand’s foundation, which rests on(a) quality, (b)
innovation, (c) superior service, (d) customer
satisfaction, and (e) value.

Cont’d
• The return of good branding to the firm is

brand loyalty and repeat purchases and a
loyal customer; since acquiring customers is
costly, loyal customers who buy regularly are
valuable to a firm.
• brands provide customers with a guarantee of
value and quality, making the customer’s choice
easier; it frees them from the confusion and
message fatigue endemic to a consumption,
Cont’d
• allowing the customer to make safe choices, secure that

satisfaction and value will result if the brand is
purchased.
• Brands allow a firm to charge premium prices, and the
profits from premium pricing, coupled with steady
market share and repeat purchases, result in
measureable cash flow, which is at the heart of brand
equity calculations.
Branding Terminology
• Brand: A promise about who you are and what benefits
you deliver that gets reinforced every time people come
in contact with any facet of you or your business
• Brand Identity (Brand Elements): The marks that
visually and verbally present your brand, usually in the
form of a name, logo, symbol, or a unique typestyle
• Brand Image: The set of beliefs about what your brand
is and what it stands for that exists in the customer’s
mind as a result of associations with you and your name
• Branding: The process of building a positive collection
of perceptions in your customer’s mind

Cont’d
• Brand Position: How your brand fits in with and relates
to various other brands within your competitive market
• Brand Management: Controlling the presentation of
your brand identity and brand message across your entire
organization and through all media and communication
outlets
• Brand Equity: The value of your brand as an asset,
based on its qualities, reputation, and recognition as well
as the commitment and demand it generates. A valuable
brand results in customer relationships that secure future
earnings by developing brand passion and loyalty.

Strategic Brand Management Process
Strategic Brand Management Process.pptx

Cont’d
 Functions of Brand
 Create identification and brand awareness
 Guarantee a certain level of quality, quantity, and
satisfaction
 Help with promotion
 Branding Decisions (Branding vs. No
Brand ,Private Brand vs. Manufacturer's Brand,
Single Brand versus Multiple Brands (in one
country), Local Brands vs. Worldwide Brand )
Cont’d
Branding vs. No Brand

 Commodity
- unbranded or undifferentiated product
- sold by grade, not by brands
- flexibility in quality and quantity control
- lower production costs along with lower marketing and
legal costs.
- demand being strictlyBy:aZinabu
07/03/2023
function
Girma (MA)
of price 36
Cont’d
 Product
- value-added commodity
- better identification and awareness
- promotion and differentiation
- consumer confidence, brand loyalty, and repeat sales
- possible to use premium pricing
- allowing effective branding
Cont’d
Private Brand vs. Manufacturer’s Brand

 Distributor's (Private) Brand
– lower retail price for price-sensitive consumers
– higher profit margin for distributor
 Manufacturer's Brand
– better image and market acceptance
– no promotion hassles
07/03/2023
for distributor
Cont’d
Single Brand vs. Multiple Brands (in one
country)
 Single Brand
- full attention for maximum impact

- based on assumption of market homogeneity
 Multiple Brands
- market segmentation
- based on assumption of market heterogeneity

Cont’d
Local Brands vs. Worldwide Brand
 Worldwide Brand
- based on assumption of market homogeneity
- uniform brand image
- convenient identification
- status and prestige
- maximum market impact
- lower production costs
- lower advertising costs
Cont’d
 Local Brands
- allowing quality variations
- easier pronunciation by local consumers
- avoiding negative connotation.
- avoiding legal complications
- circumventing price control
- discouraging gray marketing
Cont’d
 Brand extensions
• Brand extension allows a firm with an existing

presence in overseas markets to quickly establish its
new products. Using a well–known brand name with a
reputation for quality can extend an aura of high quality
to the new product.
• Brand extension can allow the new product to be
introduced with lower advertising expenditures.
Cont’d
• Brand extensions can include launching the same
product in a different form, adding the brand name to
related products often used together(“companion”
products) and building on the company image and
expertise. However there are dangers: The original
brand and product can be damaged by extending the
brand image to undesirable products and settings.

Cont’d
Brand protection
• Protecting a brand in international markets can begin with
registering them in the countries of interest with the
appropriate authorities. Blanket registration in all countries
might be wise if the costs of registration, which may amount
to a significant sum are within the budgetary capabilities of
the firm. Smaller firms may wish to be more selective.
• A problem in brand protection is imitation brands: local
brands are introduced that are reasonably close facsimiles of
the international brand such as a “Coalgate” brand
competing with the better known international brand
Colgate.
Global Brand Equity
• Brand Equity is the value of the positive associations

that consumers have with a product’s brand name.
• These associations often involve emotional
attachments, affinity, positive brand image, and brand
identity.
• They also involve cognitive factors such as familiarity,
knowledge and perceived quality, as well as social
factors including peer group acceptance.
Cont’d
• When these associations turn negative (as in anti-

globalization sentiments against global brands) the brand
equity can go down very quickly.
• Global brands are often the most valuable assets of a

global firm.
• Most companies have a portfolio of brands, &

management must decide which should be promoted as
global.
Cont’d
Brand piracy
Brand piracy occurs when a product is named similarly
to a well -known brand so that consumers may mistake
it for the actual brand-name.
 Brand piracy is common among products that can
easily be replicated.
 The copies often have logos that resemble the design of
the genuine product, be it layout, symbols, color or font.
Oftentimes, this is done on purpose by a company to
mislead consumers and
07/03/2023
gain some market share.
Cont’d
Brand piracy is the act of naming a product in a manner which
can result in confusion with other better known brands.

 Examples of Coalgate, as against Colgate
 Counterfeit Products
• Counterfeits are fake products that are designed and labeled

so as to mislead the customer into assuming that they are “the
real deal.”
• Worldwide losses due to counterfeiting is over $20 billion

annually
Cont’d
• Counterfeiters operate at all levels of the economy,

just about any product or technology development is
fair game
• Counterfeit products are damaging to the brand’s
equity & must be controlled, often by direct
intervention.

4.2.3. Country – Of – Origin Effect
Country –of–origin effect can be defined as any

influence that the country of manufacture has on a
consumer’s positive or negative perception of a
product. consumers evaluate a product not only by its
appearance and physical characteristics but also by
the country in which it was produced. This is the
country–of–origin effect.
Cont’d
Certain countries have a good image for certain kinds of

products- Germany for cars, France for women's
fashion, and Japan for electronic products and cameras.
If a firm is producing a product in a country that does
not have a favorable image for that product, it may have
a hard task marketing it.

Cont’d
4.3 Packaging and Labeling
4.3.1 Packaging
Factors that require packaging adaptation:
 Changes in climate across countries, requiring more protective
packaging against extremes of cold and heat.
 Lengthy and difficult transportation and logistics networks,
requiring that packaging protect goods against breakage and
damage.
 Lengthy periods on shelves at retailers before final sale, again
requiring that packaging be protective and maintain freshness.

Cont’d
4.3.2. Labeling
Primary considerations in labeling are providing

information to the consumers and the use of multiple
languages.
Regulations in many countries require that detailed
product compositions and nutritional information be

provided as well as warning messages in the case of products
that may be harmful or hazardous.

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INTERNATIONAL MARKETING

INTERNATIONAL PRODUCT POLICY

By: Zinabu Girma (MA)

By: Zinabu Girma (MA)

• Theory of International Product Life Cycle (IPLC)

• Standardization versus Adaptation of the Product

• International Product Strategies

Product Attributes In International Markets (branding

07/03/2023 By: Zinabu Girma (MA) 2

Product policy is a strategic rule or rules covering how a

good or service is promoted to potential consumers.

impact on the success of the product in the market.

Cycle (IPLC), the policy of a business on product

07/03/2023 By: Zinabu Girma (MA) 3

Figure 4.1 IPLC Curves

07/03/2023 By: Zinabu Girma (MA) 6

Stage 3- Worldwide Imitation:

products sold in the home market should be adapted or

successfully design and market a global product.

product features, such as packaging, and labeling, brands

uniform characteristics for a particular good or service.

• Cost reduction - e.g. economies of scale

07/03/2023 By: Zinabu Girma (MA) 14

High Costs of Adaptation

Products in which technical specifications are

critical tend to be uniform internationally.

“people differences,” that is, cultural differences. In

economically at the same place, their consumption

If a firm markets overseas principally through exports,

it is likely to sell standardized products.

 Product Adaptation- modifying product to

07/03/2023 By: Zinabu Girma (MA) 18

The greatest argument for adapting products is that by

doing so the firm can realize higher profits.

1. Differences in Technical Standards

different national markets.

meet guidelines for maximum levels of chemical additives

cows treated with growth hormones.

2. Consumer and Personal Use Products

to meet with market success when adapted to local markets.

3. Variation in Consumer Needs and Differing Use

need in various countries, the conditions under which

to temperature or humidity, making it necessary to

4. Variation in Ability to Buy Differing Income Levels

product affordable at lower income levels.

5. The Impact of Cultural Differences

products, and consumption habits.

07/03/2023 By: Zinabu Girma (MA) 22

6. Environmentally Induced Adaptation: The Influence of

content” in the product often lead the international firm to

07/03/2023 By: Zinabu Girma (MA) 24

• Product policy goes beyond the product itself attributes

4.2.1 Brands and Trademarks

• A major focus in international marketing is

• The term brand is derived from the Old Norse word

• But branding is more than just selecting a name or

07/03/2023 By: Zinabu Girma (MA) 28

• A brand once developed and recognized. A big

07/03/2023 By: Zinabu Girma (MA) 29

• The return of good branding to the firm is

• allowing the customer to make safe choices, secure that

07/03/2023 By: Zinabu Girma (MA) 32

07/03/2023 By: Zinabu Girma (MA) 33