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Standardization and customization
- 1. Standardization and Customization- A Global Debate Dr. Jyotsna Hirmukhe XMBA Batch 4
- 2. Introduction Global versus “regular” marketing Scope of activities are outside the homecountry market Product/market growth matrix 1-2
- 3. Standardization Standardization: Achieving maximum productivity through standardization of service product and service design and delivery achieving global economy of scale and lowest unit cost which is an import tenet of economics (product or production orientation) standardization means "one size fits all”. 1-3
- 4. Customization Customization on the other hand refers to the tailoring of the campaign according to the needs of an individual or groups of individuals. These are high margin products where the volumes are low and the buyers are few. E.g. McDonalds in Gujrat, Custom made models of cars 1-4
- 5. Factors that promote standardization: * Globalization and the enhancement of technology - lead to international trade, easy access to communicate and travel. (Standardization is assumed to be the best method as it could give a maximum profit) * Westernization and Americanization – domination of global favourite brands or products; McD, Starbucks, KFC. (It is assumed that public will accept global 1-5 products)
- 6. Globalization Globalization is the inexorable integration of markets, nation-states and technologies to a degree never witnessed before—in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than every before, and in a way that is enabling the world to reach into individuals, corporations and nation-states father, faster, deeper and cheaper than ever before. Thomas L. Friedman 1-6
- 7. Global Marketing Create value for customers by improving benefits or reducing price Improve the product Find new distribution channels Create better communications Cut monetary and non-monetary costs and prices Value = Benefits/Price 1-7
- 8. Global Marketing: What It Is and What It Isn’t Single Country Marketing Strategy Target market strategy Marketing mix Product Price Promotion Place Global Marketing Strategy Global market participation Marketing mix development 4 P’s: adapt or standardize? Concentration of marketing activities Coordination of marketing activities Integration of competitive moves 1-8
- 9. Global competitive strategies Home, supplier, partner, and customer countries of competitors – differences as sources of competitive advantage Differences in global value connection Differences in products, brand, technology Differences in impacts of political, legal and regulatory climate – trade agreements, home country policies Design global competitive strategies for competitive advantage 1-9
- 10. StandardizationStandardization of marketing practices across markets is tempting because of potential economies of scale in production, promotion, distribution and research and development. Standardization can also contribute to a coherent and consistent global image of the firm and its products. However, there are many obstacles to the application of uniform marketing policies. Variations across markets in consumer attitudes, competitive environments, and marketing management related variables must be adequately assessed to insure the success of the product in a particular market. 1-10
- 11. The global challenge Global market size: standardization Local differentiation: customization Strategy: Determine best combination of global and local activities for competitive advantage 1-11
- 12. Standarization versus Adaptation Globalization (standardization) Developing standardized products marketed worldwide with a standardized marketing mix Essence of mass marketing Global localization (adaptation) Mixing standardization and customization in a way that minimizes costs while maximizing satisfaction Essence of segmentation Think globally, act locally 1-12
- 13. Standarization versus Adaptation Arabic read right to left Chinese “delicious/happiness” The faces of Coca-Cola around the world 1-13
- 14. McDonald’s Global Marketing Marketing Mix Element Standardization Product Big Mac Localized McAloo Tikka potato burger (India) Promotion Brand name Slang ’Macca’s (Australia) MakDo (Philippines) Advertising slogan “I’m Loving It” Place McJoy magazine, “Hawaii Surfing Hula” promotion (Japan) Free-standing Home delivery (India) Swiss rail system dining cars Price Big Mac is $3.10 in U.S. and Turkey $5.21 (Switzerland) $1.31(China) 1-14
- 15. The Importance of Going Global For U.S. companies, 70% of total world market for goods and services is outside the country Coca-Cola earns 75% of operating income and two-thirds of profit outside of North America For Japanese companies, 90% of world market is outside the country 94% of market potential is outside of Germany for its companies 1-15
- 16. Global platform strategy Forces calling for global products (standardization): Convergence in customer preferences and income across target countries with economic development and trade Competition from successful global products International brand awareness Cost benefits from standardization Falling costs of trade with greater globalization 1-16
- 17. Global platform strategy Forces calling for local products (customization): Differences in customer preferences and income across target countries Build local brand recognition Competition from successful domestic products Regulatory requirements (quality, safety, technical specifications, domestic content) -- EU product standards High costs of trade create separate markets 1-17
- 18. Global platform strategy Product variety versus economies of scale Business sells 10 units each in Country A and in Country F Unit costs – economies of scale Two local products at 10 units each $ 30/unit Global product at 20 units $ 20/unit Price company can charge per unit: Global product: $80/unit in each country Two local products : $95/unit in each country Global versus regional product: Tailoring brings $ 15 more earnings per unit Profit greater by $ 100 Improve tradeoff with platforms and flexible factories to realize economies of scope (mass customization) 1-18
- 19. Global platform strategy International business managers make decisions about what should be global versus local: Products Technology and inputs Manufacturing Brands Marketing Distribution Example: Wal-Mart must compete with both international players such as Carrefour and local retailers 1-19
- 20. Global platform strategy Most products are local and not branded. For example: in food sector Nestle estimates that only 1 % of all goods in food markets are branded Increasing number of international brands, Corona, Nestlé, Sony Increasing brand variations: BMW 3-series (1990s): More than 1 million varieties can be ordered Local distribution and marketing Example: McDonald’s, Coca-Cola: Global brand, some local product tailoring, reliance on local distribution Local technology, production, customer service Acer computer company 1-20
- 21. Global Auto Industry Thousands of auto companies globally in the early twentieth century More than 500 of those producers were in the United States Today there are fewer than 20 in the world Toyota is the world’s most valuable car company and is eighth largest in revenue globally 1-21
- 22. Management Orientations Ethnocentric orientation Home country is superior to others Sees only similarities in other countries Assumes products and practices that succeed at home will be successful everywhere Leads to a standardized or extension approach 1-22
- 23. Management Orientations Polycentric orientation Each country is unique Each subsidiary develops its own unique business and marketing strategies Often referred to as multinational Leads to a localized or adaptation approach that assumes products must be adapted to local market conditions 1-23
- 24. Management Orientations Regiocentric orientation A region is the relevant geographic unit • Ex: The NAFTA or European Union market Some companies serve markets throughout the world but on a regional basis • Ex: General Motors had four regions for decades 1-24
- 25. Management Orientations Geocentric orientation Entire world is a potential market Strives for integrated global strategies Also known as a global or transnational company Retains an association with the headquarters country Pursues serving world markets from a single country or sources globally to focus on select country markets Leads to a combination of extension and adaptation elements 1-25
- 26. Global network strategy Physical networks: Communications: Wired and mobile telephone systems Internet Transportation: Railroads, Airlines, Shipping, Intermodal systems Energy: Oil and natural gas pipelines, Electric power transmission and distribution Logistics: Postal systems, Wholesale and retail distribution Business networks: Manufacturing, services, distribution, technology, social networks (trust and information sharing) 1-26
- 27. The right choice Following a standardized marketing approach in all foreign markets might be tempting given the cost advantages it carries through the various economies of scale, and the consistent global image it grants the product. However, variations across markets indicate that a fully standardized marketing approach may not be appropriate. Adjusting the marketing strategy such that it takes into account these variations enhances the product's chance of success. 1-27
- 28. The right choice Thus the nature of a product to be marketed internationally has significant implications for the particular variables that a manager must consider in deciding on the extent of standardization. Adjusting the marketing strategy such that it takes into account these variations enhances the product's chance of success. 1-28
- 29. The right choice Such factors could also be considered in segmenting a firm's global market. The resulting segments would then reflect a high degree of internal homogeneity, prompting the use of a highly standardized marketing approach in markets that belong to a single segment. Segmentation + Customization + Standardization within the segment 1-29
Editor's Notes
- The matrix shows that market development is defined as taking existing products into new markets. Wal-Mart’s expansion into Guatemala and other Central American countries is an example of this strategy. Diversification is developing new products for new markets. South Korea’s LG Electronics has created new products for the American home appliance market. Innovations such as a $3,000 refrigerator with a built-in flat panel LVD TV have been instrumental in Home Depot’s decision to carry the appliance product line.
- Companies that use price as a competitive weapon may use global sourcing to access cheap raw materials or low-wage labor. Companies can seek to improve process efficiencies or gain economies of scale with high production volumes. Marketers may be able to reduce non-monetary costs by decreasing the time and effort customers expend to learn about or seek out the product. A market is defined as people and organizations that are both able and willing to buy. A successful product or brand must be of acceptable quality and consistent with buyer behavior, expectations, and preferences. If a company is able to offer a combination of superior product, distribution, promotion benefits and lower price than competitors, it should enjoy a competitive advantage. Japanese automakers made significant gains in the American market in the 1980s by creating a superior value proposition. They offered cars with higher quality and lower prices than those made by American car companies.
- Because countries and people are different, marketing practices that work in one country will not necessarily work in another. Customer preferences, competitors, channels of distribution, and communication may differ. Global marketers must realize the extent to which plans and programs may be extended or need adaptation. The way a company addresses this task is a reflection of its global marketing strategy (GMS). Standardization versus adaptation is the extent to which each marketing mix element can be executed in the same or different ways in various country markets. Concentration of marketing activities is the extent to which marketing mix activities are performed in one or a few country locations. Coordination of marketing activities refers to the extent to which marketing mix activities are planned and executed interdependently around the globe. Integration of competitive moves is the extent to which a firm’s competitive marketing tactics are interdependent in different parts of the world.
- The design is basically the same but the name is frequently transliterated into local languages. The Arabic label is read right to left; the Chinese label translates “delicious/happiness.”
- Ethnocentric orientation leads to a standardized or extension approach. Foreign operations are typically viewed as being secondary or subordinate to the country in which the company is headquartered. Sometimes valuable managerial knowledge and experience in local markets may go unnoticed. Manufacturing firms may view foreign markets as dumping grounds with little or no marketing research conducted, manufacturing modifications made or attention paid to customer needs and wants. Example: In Nissan’s early days of exporting to the United States, the company shipped cars for the mild Japanese winters. Executives assumed that when the weather turned cold, Americans would put a blanket over their cars just like Japanese would. Nissan’s spokesperson said, “We tried for a long time to design cars in Japan and shove them down the American consumer’s throat. That didn’t work very well.” Michael Mondavi, former CEO of the wine company said, “Robert Mondavi was a local winery that thought locally, grew locally, produced locally, and sold globally. . . . To be a truly global company, I believe it’s imperative to grow and produce great wines in the world in the best wine-growing regions, regardless of the country or the borders.”
- For example, Citicorp used this approach until the mid-1990s when John Reed instilled a geocentric approach. He sought to instill a higher degree of integration among operating units. James Bailey, Citicorp executive, said, “We were like a medieval state. There was the king and his court and they were in charge, right? No. It was the land barons who were in charge. The king and his court might declare this or that, but the land barons went and did their thing.” Jack Welch at GE also sought to instill a geocentric approach.
- At GM, executives were given considerable autonomy in designing autos for their regions. One result was the use of 270 different radios being installed around the world.
- EX: GM now assigns engineering jobs worldwide. A Detroit global council determines $7 billion annual budget allocation for new product development. One goal is to save 40 percent on the cost of radios by using only 50 instead of 270 different ones. Basil Drossos, president of GM Argentina, said, “We are talking about becoming a global corporation as opposed to a multinational company; that implies that the centers of expertise may reside anywhere that best reside.” Other examples: Harley-Davidson (U.S.), Waterford (Ireland), Gap (U.S.)