CHAPTER 11

DEVELOPING NEW PRODUCTS FOR GLOBAL MARKETS

Group members: Denise Caesar

Debbie Goodman
Delicia John Roxanne Risbrooke

CHAPTER OUTLINE
1.

2.

3.

4.

Introducing products into foreign markets Developing a global product New product development processes for Global markets Introducing new products to global markets

DEFINITIONS
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.

What are new products?

New product line Addition to product line Repositioning to new market segments Improvements/revisions Cost reductions

Source: Booz, Allen & Hamilton

1. INTRODUCING PRODUCTS INTO FOREIGN MARKETS

STRATEGIC OPTIONS
1.

EXTENSION STRATEGY Same approach as home market ADAPTATION STRATEGY Makes changes to fit new market requirements INVENTION STRATEGY Entirely new approach is developed for the new market

2.

3.

STRATEGIC OPTIONS
4.

STANDARDIZATON Same product, all markets GLOBAL PRODUCTS Only some aspects of the product is standardized

5.

OPTION 1.
PRODUCT EXTENSION COMMUNICATION EXTENSION

Product Strategy
1. Extension

Communications Strategy
Extension

Highlight
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 ADAPTATION

Product Strategy
1. Extension

Communications Strategy
Adaptation

Highlight
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 EXTENSION

Product Strategy 1. Adaptation

Communications Strategy Extension

Highlight 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 ADAPTATION

Product Strategy
1. Adaptation

Communications Strategy
Adaptation

Highlight
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 INVENTION

Product Strategy
1. Invention

Communications Strategy
Develop new communications

Highlight
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

STANDARDIZATION VS ADAPTATION

Factors encouraging product standardization: Economies of Scale in: Production Marketing/communications Research & Development Stock Holding

STANDARDIZATION VS ADAPTATION CONTINUED

Easier management and control i.e. familiarity 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 products perceived value e.g. France for perfumes, Sheffield for stainless steel

STANDARDIZATION VS ADAPTATION CONTINUED

For a firm selling a small proportion of its output overseas, the incremental costs may exceed the incremental sales value Consumer mobility for travellers/tourists for example standardization is expected in certain products: Camera film Hotel Chains

STANDARDIZATION VS ADAPTATION CONTINUED

Factors encouraging adaptation/modification Mandatory Modification: Normally involves either adaptation to comply with government requirements or Unavoidable technical changes Example: Car manufacturer

STANDARDIZATION VS ADAPTATION CONTINUED

Legal requirements can include: Specified exhaust 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

Discretionary Modifications:

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 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 2. Modularity

The 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

Modularity
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)

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

Idea Generation Idea Screening Concept Development & Testing Marketing Strategy Development Business Analysis Small Batch Prototype Development Product Development & Testing Test Marketing Commercialization / Launch

Sources of New Product Development

1. Head office 2. Lead markets 3. Subsidiaries 4. Purchasing research and development 5. Importing new product technology 6. Acquisitions 7. Joint ventures 8. Alliances 9. Consortia

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 firms 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 companys foreign markets.

The organization of Head Office-Sponsored Research and Development

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 companys main office. 2. To minimize duplication 3. For the effective and efficient utilization of scarce research funds 4. To capitalize on the firms experience in their domestic market.

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 o

Subsidiaries Subsidiaries may assume R&D function if products require some adaptation to a local market Foreign subsidiaries of international firms rarely play an active role in the R&D unless they have manufacturing responsibilities and capabilities Sales subsidiaries provide central organization with feedback on product adjustments or adaptation, but generally their participation does not go beyond the generation of ideas. 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

Roles of involvement for the subsidiary:

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 markets Implementer: 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

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. How?

Literature published in lead markets Regular visits to foreign countries Trade fairs 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 firms business and technology, and is used to extend the product offering.

Sources of New Product Development #6

Acquisition as a Route to 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 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

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.

Test Marketing
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 and questioning them about brand familiarity and preference in a specific product category.

Test Marketing
-

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.

Timing of New Product Introduction 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: First entry Parallel entry Late entry

Timing of New Product Introduction continued

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 competitors 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 competitors product may review faults the late entrant can avoid.

Timing of New Product Introduction continued

Timing decisions involves additional considerations

If the new product replaces an older product, the company might delay the introduction until the old products stock is drawn down. If the product is highly seasonal, it might be delayed until the right season arrives.