CHAPTER FOUR : PRODUCT POLICY DECISION

Business firms and non-profit organizations engage in marketing. Products marketed

included goods as well as services, ideas, people, & places. Marketing activities are
targeted at market consisting of products purchasers and also individuals and groups that
influence the success of an organization.

People satisfy their needs and wants with products. A product is anything that can be
offered to satisfy a need or want. A product can consists of as many as three
components:- Physical goods, service(s), and idea(s). To transform marketing strategy in
to marketing programs, marketing managers must make basic decisions on marketing
expenditures, marketing mix, and marketing allocation.

Marketing mix is one of the key concepts in modern marketing theory. Marketing mix is
the set of marketing tools that the firm uses to pursue its marketing objectives in the
target market. The four-factor classification of marketing mix namely the ‘4 P’s are:-
Product, price, Place & Promotion.

The most basic marketing mix tool is product. The firm’s tangible offer to the market
which includes: the product quality, design, features, branding and packaging. As a part
of product offering, some companies provide various services, such as leasing, delivery,
repair, and training. Such support services can provide a competitive advantage in the
globally competitive market place.

4.1 MEANING OF A PRODUCT

“A product is anything that can be offered to satisfy a need or want.”

A product consists of as many as three components: Physical good(s) service(s) and idea
(s). Products that are marketed include physical goods (automobiles, books etc), service
(concerts, professional advice), persons (Mr A, B, C), places (Langano, Sodere),
organizations (Health association, social clubs) (, and ideas (family planning, safe
driving) etc.

4.2 GLOBAL PRODUCT STRATEGIES

Companies can pursue three global strategies to penetrate foreign markets. Some firms
simply adopt the same product or communication policy used in their home market as an
extension of their homegrown product/communication strategies to their foreign markets.
Other companies prefer to adapt their strategy to the local marketplace.

This strategy of adaptation enables the firm to cater to the needs and wants of its foreign
customers. A third alternative is to adopt an invention strategy by which products are
designed from scratch for the global market place. Using the extension/
adaptation/invention framework for product and communications decision leads to five
strategic options. Let us look at each one of these options in greater detail.

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STRATEGIC OPTION 1: PRODUCT ANDCOMMUNICATION EXTENSION—
DUAL EXTENSION
At one extreme, a company might choose to market a standardized product using a
uniform communications strategy. Early entrants in the global arena often opt for this
approach. Also, small companies with few resources typically prefer this option. For
them, the potential payoffs of customized products and/or advertising campaigns usually
do not justify the incremental costs of adaptation. Dual extension might also work when
the company targets a ‘‘global’’ segment with similar needs.

 STRATEGIC OPTION 2: PRODUCT EXTENSION—COMMUNICATIONS

ADAPTATION
Due to differences in the cultural or competitive environment, the same product oftenz is
used to offer benefits or functions that dramatically differ from those in the home market.
Such gaps between the foreign and home market drive companies to market the same
product using customized advertising campaigns. Although it retains the scale economies
on the manufacturing side, the firm sacrifices potential savings on the advertising front.
Wrigley, the Chicago-based chewing gum company, is a typical practitioner of this
approach. Most of the brands marketed in the United States are also sold in Wrigley’s
overseas markets.
 STRATEGIC OPTION 3: PRODUCT ADAPTATION— COMMUNICATIONS
EXTENSION
Alternatively, firmsmight adapt their product butmarket it using a standardized
communications strategy. Localmarket circumstances often favor the case of product
adaptation. Another reason for product adaptation could be the company’s expansion
strategy.Many companies add brands to their product portfolio via acquisitions of local
companies. To the existing brand equity enjoyed by the acquired brand, the local brand is
often retained. Although these factors lead to product adaptation, similar core values and
buying behaviors among consumers using the product might present an opening for a
harmonized communications strategy.

 STRATEGIC OPTION4: PRODUCT AND COMMUNICATIONS

ADAPTATION— DUAL ADAPTATION
Differences in both the cultural and physical environment across countries call for a dual
adaptation strategy. Under such circumstances, adaptation of the company’s product and
communication strategy is the most viable option for international expansion.
Slim-Fast adapts both product and advertising to comply with varying government
regulations for weight-loss products.When Slim-Fast was first launched in Germany, its
ads used a local celebrity. In Great Britain, testimonials for diet aids were not allowed to
feature celebrities. Instead, the British introduction campaign centered around teachers,
an opera singer, a disc jockey, and others. Also the product was adapted to the local
markets. In the United Kingdom, banana became the most popular flavor but was
not available in many other countries

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 STRATEGIC OPTION 5: PRODUCT INVENTION
Genuinely global marketers try to figure out how to create products with a global scope
rather than just for a single country. Instead of simply adapting existing products or
services to the local market conditions, their mindset is to zero in on global market
opportunities. The product invention strategy consists of developing and launching
products with a global mindset. Black & Decker is a good example of a company that

4.3 STANDARDIZATION VERSUS CUSTOMIZATION

A recurrent theme in global marketing is whether companies should aim for a
standardized or country-tailored product strategy. Standardization means offering a
uniform product on a regional or worldwide basis. Minor alternations are usually made to
meet local regulations or market conditions (for instance, voltage adjustments for
electrical appliances). However, by and large, these changes only lead to minor cost
increases.

A uniform product policy capitalizes on the commonalities in customers’ needs across

countries. The goal is to minimize costs. These cost savings can then be passed through
to the company’s customers via low prices. With customization, on the other hand,
management focuses on cross-border differences in the needs and wants of the firm’s
target customers. Under this regime, appropriate changes are made to match

4.3.1 FORCES THAT FAVOR A GLOBALIZED PRODUCT STRATEGY

INCLUDE:
1. Common customer needs. For many product categories, consumer needs are very
similar in different countries. The functions for which the product is used might be
identical. Likewise, the usage conditions or the benefits sought might be similar. One
example of a product that targets a global segment is Apple’s iPhone. Since Apple
launched iPhone in early 2007, Apple has sold about 13 million by October 2008.

Apart from offering the features and benefits that competing smart phones offer, the
iPhone’s emotional benefit of ‘‘coolness’’ is also a major reason for its popularity

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worldwide, especially among young audiences. Many product categories also show a
gradual but steady convergence in consumer preferences.
2. Global Customers. In business-to-business marketing, the shift toward globalization
means that a significant part of the business of many companies comes from MNCs that
are essentially global customers. Buying and sourcing decisions are commonly
centralized or at the least regionalized. As a result, such customers typically demand
services or products that are harmonized worldwide.
3. Scale Economies. Cost savings from scale economies in the manufacturing and
distribution of globalized products is inmany cases the key driver behind standardization
moves. Savings are also often realized because of sourcing efficiencies or lowered R&D
expenditures. These savings can be passed through to the company’s end customers via
lower prices. Scale economies offer global competitors a tremendous competitive
advantage over local or regional competitors.

4. Time-to-Market. In scores of industries, being innovative is not enough to be

competitive. Companies must also seek ways to shorten the time to bring new
product projects to the market. This is especially true for categories with shortening
product life cycles. By centralizing research and consolidating new product development
efforts on fewer projects, companies are often able to reduce the time-to market cycle.
5. Regional market agreements. The formation of regional market agreements such as
the Single European Market encourages companies to launch regional (e.g., pan-
European) products or redesign existing products as pan-regional brands. The legislation
leading to the creation of the Single European Market in January 1993 sought to remove
most barriers to trade within the European Union. It also provided for the harmonization
of technical standards in many industries. These moves favor pan-European product
strategies.

4.5 MULTINATIONAL DIFFUSION

differences, personal influences, and product characteristics. Individuals differ in terms of
their willingness to try out new products. Early adopters are eager to experiment with
new ideas or products. Late adopters take a wait-and-see attitude. Early adopters differ
from laggards in terms of socioeconomic traits (income, education, social status),
personality, and communication behavior.

A prominent role is also played by the influence of prior adopters. Word-of-mouth spread
by previous adopters often has a much more significant impact on the adoption decision
than non-personal factors such as media advertising. For many product categories, peer
pressure will often determine whether (and when) a person will adopt the innovation. The
third set of factors relates to the nature of the product itself. Five product characteristics
are key:
1. Relative Advantage. To what extent does the new product offer more perceived value
to potential adopters than existing alternatives?
2. Compatibility. Is the product consistent with existing values and attitudes of the
individuals in the social system? Are there any switching costs that people might incur if
they decide to adopt the innovation?

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3. Complexity. Is the product easy to understand? Easy to use?
4. Triability. Are prospects able to try out the product on a limited basis?
5. Observability. How easy is it for possible adopters to observe the results or benefits of
the innovation? Can these benefits easily be communicated?

4.6 DEVELOPING NEW PRODUCTS FORGLOBALMARKETS

For most companies, new products are the bread-and-butter of their growth strategy.
Unfortunately, developing new products is a time-consuming and costly endeavor, with
tremendous challenges. The new product development process becomes especially a
major headache for multinational organizations that try to coordinate the process on a
regional or sometimes even worldwide basis.

The steps to be followed in the global new product development (NPD) process are by-
and-large very similar to domestic marketing situations. Every new product starts with
an idea. Sources for new product ideas are manifold. Companies can tap into any of the
so-called 4 C’s—company, customers, competition and collaborators (e.g., distribution
channels, suppliers)—for creative new product ideas. Obviously, many successful new
products originally started at the R&D labs.

Other internal sources include salespeople, employees, and market researchers.

Multinational companies often capitalize on their global know-how by transplanting new
product ideas that were successful in one country to other markets.

Guided by a company's new-product strategy, a new product is best developed through a

series of six stages. Major steps in development process include the followings:

1. Generating new product ideas

New product development starts with an idea. A system must be designed for stimulating
new ideas within an organization and then acknowledging and reviewing them promptly.
Customers should also be encouraged to propose innovations.

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2. Screening ideas
Clearly not all new product ideas are winners. Once new product ideas have been
identified, they need to be screened. The goal here is to weed out ideas with little
potential. This filtering process can take the form of a formal scoring model. One
example of a scoring model is NewProd, which was based on almost two hundred
projects from a hundred companies.

According to the NewProd model the most important success factor is product advantage
(superiority to competing products, higher quality, and unique features), followed by a
good fit between the project requirements and the company’s resources/skills, and
customer needs.
At this stage, new product ideas are evaluated to determine which one warrant further
study. Typically, a management team screens the pool of ideas.

3. Business Analysis
A surviving idea is expanded in to a concrete business proposal. This means
management (a) identifies product features (b) estimates a market demand, competition,
and the products profitability (c) establishes a program to develop the product, and (d)
assigns responsibility for further study of the products feasibility

4. Prototype development
If the result of the business analysis is feasible, then a prototype (or trail model) of the
product is developed. In the cases of goods, a small quantity of the trail model is
manufactured to designated specifications.

5. Market tests
Unlike the internal tests conducted during prototype development, this test involves
actual customers. A new tangible product may be given to a sample of people for use in
their households (in the case of consumer good) or their organization (a business good).
Following this trail, consumers are asked to evaluate the product. Consumers use tests
are less practical for services due to their intangible nature.

This stage in new product development often entails test marketing, in which the product
is placed on sale in a limited geographic area. Results, including sales and repeat
purchases, are monitored by the company that developed the product and perhaps by
competitors as well.

6. Commercialization
In this stage, full-scale production and marketing programs are planned and finally,
implemented, up to this point in development, management has virtually complete
control over the product.
4.7 TIMING OF ENTRY: WATERFALL VERSUS SPRINKLER STRATEGIES
Akey element of a global or regional product launch strategy is the entry timing decision:

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When should you launch the new product in the target markets? Roughly speaking, there
are two broad strategic options: the waterfall and the sprinklermodel

The first option is the global phased rollout or waterfall model, where the company
releases the new product stage-wise in its different country markets. The typical pattern is
to introduce the new product first in the company’s home market. Next, the innovation is
launched in other advanced markets.

In the final phase, the multinational firmmarkets the product in less advanced countries.
This whole process of geographic expansion may last several decades.The time span
between theU.S. launch and the foreign launch was 22 years for McDonald’s, 29 years
for Wal-Mart, 25 years for Starbucks (outside North America), 20 years for Coca-Cola,
and 35 years for Marlboro.57 For other products, especially high-tech goods with short a
product life cycle, the sequence happens over a much shorter time span.

The second timing decision option is the sprinkler strategy of simultaneous

worldwide entry. Under this scenario, the global rollout takes place within a very
narrow time-window. The growing prominence of universal segments and concerns about
competitive pre-emption in the foreign markets are the two major factors behind this
expansion approach. The waterfall strategy of sequential entry is preferable over the
sprinkler model when:
1. The lifecycle of the product is relatively long.
2. Nonfavorable conditions govern the foreign market, such as:
– Small market size (compared to the home market).
– Slow growth.
– High fixed costs of entry.
3. The host country market has a weak competitive climate because of such things as:
– Very weak local competitors.
– Competitors willing to cooperate.
– No competitors.
If a waterfall strategy is chosen, one important question is the sequence of countries to be
entered: in which markets should the firm launch the product first and which ones later?
Chandrasekaran and Tellis suggest the following two options:
_ If a company wishes to launch the product in an innovative and large market, the best
countries would be Japan or the United States.
_ However, if a company wishes to test market the product in a small, highly innovative
country, the best choices would be one of the Scandinavian countries, Switzerland or the
Netherlands in Europe and South Korea in Asia

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4.2 PRODUCT IDENTIFICATION
Branding, packaging and labeling are integrated activities. The seller attempts to identify
its product offer through brand. Even after a product is developed and branded, strategies
must still be developed for other product related aspects of the marketing mix. One such
product feature, and a critical one for some products, is packaging, which consists of all
activities of designing and producing the container or wrapper. The other may include a
label. A label may be part of the package, or it may be a tag attached to the product.
Obviously there is a close relationship among labeling, packaging, and branding.

4.2.1 BRAND
In developing a marketing strategy for individual products, the seller has to confront the
branding decision, branding is a major issue in product strategy. On the one hand,
developing a branded product requires a great deal of long-term investment spending,
especially from advertising, promotion, and packaging.

Perhaps the most distinctive skill of professional marketers is their ability to create,
maintain, protect, and enhance brands; marketers say that "Branding is the art and
cornerstone of marketing." The American marketing association defines a brand as
follows: -
"A Brand is a name, term, sign, symbol, or design, or a combination of them, intended
to identify the goods or services of one seller or group of sellers and to differentiate
them from those of competitors".

A brand is essentially a seller's promise to consistently deliver a specific set of features,

benefits, and services to the buyers.
A brand name is the part of brand consisting of words, letters, and/or numbers that can
be vocalized. A trademark is defined as a brand that is given legal protection.

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Therefore, trademark is a legal term meaning the words, names, or symbols that the law
designates as trademarks.

A brand name needs to be carefully managed so that its brand equity doesn't depreciate.
Thus requires maintaining or improving over time brand awareness, brand perceived
quality and functionality, positive brand associates, and so on.

A good name can add greatly to a products' success. However, finding the best brand
name is a difficult task. It begins with a careful review of the product and its benefits, the
target market and proposed marketing strategies. Desirable qualities for a brand name
includes:-
 It should suggest something about the product's benefits & qualities
 It should be easy to pronounce, recognize, and remember. The brand name should be
distinctive
 It should be capable of registration and legal protection
Once, chosen, the brand name must be protected. Many times try to build a brand name
that will eventually become identified with the product category.

A) BRANDING DECISIONS
To understand the role of trademark in strategic planning, one must understand what a
trademark is from a legal standpoint. In many countries, branding may be nothing more
than the simple process of putting a manufacturer’s name, signature or picture on a
product or its package. The basic purpose of branding is the same everywhere in the
world. In general the functions of a brand are: -
 Create identification and brand awareness
 Guarantee a certain level of quality, quantity and satisfaction and
 Used as a promotional tool etc.
There are four levels of branding decisions: No brand Vs brand ;Private brand Vs
manufacture’s brand ;Single brand Vs multiple brands and ; Local brands Vs worldwide
brand

1. Branding Vs No Brand
Branding is not a cost free preposition because of the added cost associated with marking,
labeling, packaging and legal procedures. Branding is then probably undesirable because
brand promotion is ineffective in a practical sense and adds unnecessary expenses to
operations costs. On the positive side, branded products allow flexibility in quality and
quantity control, resulting in lower production costs along with lower marketing and legal
costs. Branding makes pricing possible because of better identification, awareness,
promotion, differentiation, consumer confidence, brand loyalty, and repeats sales.

2. Private Brand Vs manufacturer’s Brand

Branding to promote sales and move products require a further branding decision:
whether the manufacturers should use its own brand or a distributor’s brand on its

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product. Distributors in the world of international business include trading companies,
importers, and retailers, among others; their brands are called private brands.

Clearly, the manufacturer has two basic alternatives: 1) its brand or 2) private brand.
Its choice depends in part on its bargaining power. If the distributor is prominent and the
manufacturer itself is unknown and anxious to penetrate a market, then the latter may
have to use the formers brand on the product. But, if the manufacturer has superior
strength, it can afford to put its own brand on the product and can insist that the
distributor accept that brand as part of the product.

Single Brand Vs Multiple Brand

When a single brand is marketed by the manufacturer, the brand is assured of receiving
full attention for maximum impact. But a company may choose to make several brands
within a single market based on the assumption that the market is heterogeneous and,
thus, be segmented.

Multiple brands are suitable when a company wants to trade either up or down because
both moves have a tendency to hurt the firm’s main business. If a company has the
reputation of quality, trading down without creating a new brand will hurt the prestige of
the existing brand. By the same rationale, if a company is known for its low. Priced, mass
produced products, trading up without creating a new brand is hampered by the image of
the existing products.

Local Brands Vs Worldwide Brand

When the manufacture decides to put its own brand name on the product, the problem
does not end there if the manufacture is an international marketer. The possibility of
having to modify trademark cannot be dismissed. The international marketer must then
consider whether to use just one brand name worldwide or different brands for different
markets or countries.

B) BRANDING APPROACHES
For many firms the brands they own are their most valuable assets. A brand can be
defined as ‘‘a name, term, sign, symbol, or combination of them which is intended to
identify the goods and services of one seller or group of sellers and to differentiate them
from those of competitors.’’3 Linked to a brand name is a collection of assets and
liabilities—the brand equity tied to the brand name.

These include brand-name awareness, perceived quality, and any other associations
invoked by the brand name in the customer’s mind. The concerns that are to be addressed
when building up and managing brand equity in a multinational setting include:

 How do we strike the balance between a global brand that shuns cultural barriers
and one that allows for local requirements?

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  What aspects of the brand policy can be adapted to global use? Which ones should
remain flexible?
 Which brands are destined to become ‘‘global’’ mega-brands?Which ones should
be kept as ‘‘local’’ brands?
 How do you condense a multitude of local brands (like in the case of Sara Lee)
into a smaller, more manageable number of global (or regional) brands?
 How do you execute the changeover from a local to a global brand?
 How do you build up a portfolio of global mega-brands?

Suffice it to say, there are no simple answers to these questions. In what follows, we will
touch on the major issues regarding international branding.

A key strategic issue that appears on international marketers’ agenda is whether or not
there should be a global brand. What conditions favor launching a product with a single
brand nameworldwide?The samelogo?And perhaps even the sameslogan?When is itmore
appropriate to keep brand names local?Between these two extremes are several other
options. For instance, some companies use local brand names but at the same time
put a corporate banner brand name on their products (e.g., ‘‘Findus by Nestl_e’’).

A truly global brand is one that has a consistent identity with consumers across theworld.
This means the same product formulation, the same core benefits and value. Even a
global marketing juggernaut like Procter&Gambler has only a few brands in its portfolio
that can be described as truly global (e.g., Pringles, Pantene, Duracell, Gillette). Legal
constraints What is the case for global branding? One advantage of having a global brand
name is obvious: economies of scale.

First and foremost, the development costs for products launched under the global brand
name can be spread over large volumes. This is especially a bonus in high-tech industries
(e.g.,pharmaceuticals, computing, chemicals, automobiles)where multi-billion dollar
R&D projects are the norm. Scale economies also arise in manufacturing, distribution
(warehousing and shipping), and, possibly, promotion of a single-brand product.often
force the company to market a particular product under two or even more brand names.
Prospective customers who travel around maybe exposed to the brand both in their home
country and inmany of the countries they visit. Therefore, it is typically far easier to build
up brand awareness for a global brand than for a local brand.Aglobal brand can also
capitalize on the extensive media overlap that exists in many regions.

A further benefit is the prestige factor. Simply stated, the fact of being global adds to the
allure of a brand: It signals that you have the resources to compete globally and the
willpower and commitment to support the brand worldwide.9 The prestige image of
being global was also one of the motivations behind Lenovo’s decision to develop a
global brand: recognition as a global brand would boost the PC maker’s image in China,

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its home market, and thereby create positive spillovers. Those global brands that can
claim worldwide leadership in their product category have even more clout:
Colgate,Intel, Marlboro, Coca-Cola, and Nike, to mention just a few.
C) GLOBAL OR LOCAL BRANDING?
By now you probably realize that there are no simple answers to the global-versus-local
brand dilemma. The brand structure or brand portfolio of a global marketer is the firm’s
current set of brands across countries, businesses, and product-markets. There are
basically four main types of branding approaches:
 Solo branding. Each brand stands on its own, with a product or brand manager
running it (e.g., Unilever, Procter & Gambler).

 Hallmark branding. The firm tags one brand, usually the corporate one, to all
products and services, and does not use any sub-brands (e.g., most banks).

 Family (umbrella) branding. This is a hierarchy of brands that uses the corporate
brand as an authority symbol and then has a number of sub-brands under the corporate
badge (e.g., Sony PlayStation).

 Extension branding. The idea is to start with one product and then stretch the brand to
other categories, as far as possible (e.g., luxury and fashion industries).

A firm’s global brand structure is shaped by three types of factors: firm-based

drivers, product-market drivers, and market dynamics.31 Firm-Based drivers. The firm’s
administrative heritage, in particular its organizational structure is one key factor.

Centralized firms are more likely to have global brands. Decentralized companies where
country managers have a large degree of autonomy will have a mish-mash of local and
global brands. Another important driver is the company’s expansion strategy: does the
firm mainly expand via acquisitions or via organic (that is, internal) growth?

This local branding strategy is driven by the belief that all retailing is local as shoppers
develop a store loyalty to brands they have known for decades. Obviously, the
importance of the firm’s corporate identity also plays a major role. Lastly, product
diversity is another important factor. For instance, Unilever’s
product range is far more diverse than Nokia’s.

Product-Market Drivers. The second set of brand portfolio drivers relate to

product-market characteristics. Three drivers can be singled out here. The first driver is
the nature and scope of the target market: how homogeneous are the segments? Are
segments global, regional, or localized? The second factor is the degree of cultural
embeddedness. Products with strong local preferences (e.g., many foods and beverages)

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are more likely to succeed as local brands. A final factor is the competitive market
structure: Are the key players local, regional, or global competitors?

Market Dynamics. The firm’s brand structure is also shaped by the underlying
market dynamics. The level of economic integration is the first important driver here.
Economic integration typically leads to harmonization of regulations. It also often
entails fewer barriers to trade and business transactions within the region.

The second factor is the market infrastructure in terms of media and distribution channels
(e.g., retailing). Finally, consumer mobility (e.g., travel) also plays an important role.
With increased mobility, global brands stand to benefit from enhanced visibility. Apart
from the brand structure, the brand architecture is another important cornerstone of the
firm’s international branding strategy.

The brand architecture guides the dynamics of the firm’s brand portfolio. It spells out
how brand names ought to be used at each level of the organization. In particular, the
brand architecture establishes how new brands will be treated; to what extent umbrella
brands are used to endorse product-level brands; to what degree strong brands will be
extended to other product categories (brand extensions) and across country borders.

D) BRANDING STRATEGY
A company has four choices when it comes to brand strategies, which are explained as
follows:-
i) Line extension:
Line extension occur when a company introduces additional items in the same product
category under the same brand name, usually with features, such as new flavors, forms,
colors, added ingredients, package sizes, and so on.

ii)Brand Extension
A company may decide to use an existing brand name to launch a product in a new
category. Brand extension strategy offers a number of advantages. A well-regarded
brand name gives the new product instant recognition and earlier acceptance. It enables
the company to enter new product categories more easily. For example, Sony puts its
name on most of its electronic products and instantly establishes a connection of the new
products high quality.

iii) Multi brands

A company will often introduce additional brands in the same product category. There
are various motives for doing this. Sometimes the company is trying to establish
different features and/or appeal to different buying motives. A multi branding strategy
also enables the company to lock up more distributors’ shelf space and to protect its
major brand by setting up flanker brands. For example, Seiko establishes different brand
names for its higher priced (Seiko LaSalle) and lower-priced watch (pulsar) to protect its
inferior quality.

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iv) New brand
When a company launches products in a new category, it may find that none of its current
brand names are appropriate. In such instances, company has no choices other than
pursuing a new brand.
v) Co-brands
A rising phenomenon is the appearance of co-branding (also called dual branding), is
which two or more well-known brands are combined in an offer. Each brand sponsor
expects that the other brand name will strengthen brand preference or purchase intention.
In the case of co-packaged products, each brand hopes it might be reaching a new
audience by associating with the other brand.

E) PRODUCT PIRACY
Product piracy is one of the downsides that marketers with popular global brand names
face. The World Customs Organization estimated that 7 percent of world merchandise
trade (or $512 billion) in 2004 might have been bogus products.58Anyaspect of the
product is vulnerable to piracy, including: the brand name, the logo, the design, and the
packaging. The impact on the victimized company’s profits is twofold. Obviously, there
are the losses stemming from lost sales revenues. The monetary losses due to piracy can
be staggering. In China, Procter & Gamble estimates that 15 percent of the soaps and
detergent goods carrying P&G brand names are fake, costing $150 million a year in
foregone sales.

Yamaha estimates that five out of sixmotorbikes and scooters in China bearing its brand
name are fake.59Rampant piracy in countries such as China is formanycompanies also a
reason not to enter these markets. Blockbuster, the world’s largest video rental chain,
scrapped plans to expand into China due to piracy issues.60 A newly worrying trend is
the increased export of fake products made in China. Counterfeiters also depress the
MNC’s profits indirectly. In many markets, MNCs often are forced to lower their prices
in order to defend their market share against their counterfeit competitors.

Several factors lie behind the rise of piracy in countries such as China. The spread of
advanced technology (e.g., color copying machines, know-how stolen from
multinationals y local partners) is one catalyst. Global supply chains also play a key role.
Traders often use the web and unauthorized distributors to sell fakes around the world.
China’s weak rule of law and poor enforcement of existing legislation also contributes to
the piracy spread. Finally, profits that can be made from piracy are huge. For instance,
profit margins on fake Chinese-made car parts such as shock absorbers can reach 80
percent versus 15 percent for the genuine thing

F) STRATEGIC OPTIONS AGAINST PRODUCT PIRACY

MNCs have several strategic options at their disposal to combat counterfeiters.
Lobbying Activities. Lobbying governments is one of the most common courses of
action that firms use to protect themselves against counterfeiting. Lobbyists pursue
different types of objectives. One goal is to toughen legislation and enforce existing laws

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in the foreign market. However, improved intellectual property rights (IPR) protection is
more likely to become reality if one can draw support from local stakeholders. For
instance, Chinese technology developers increasingly favor a tighter IPR system.

Another route is to lobby the home government to impose sanctions against countries
that tolerate product piracy. Lastly, MNCs might also lobby their government to negotiate
for better trademark protection in international treaties such as the WTO or bilateral trade
agreements. Legal Action. Prosecuting counterfeiters is another alternative that
companies canemploy to fight product piracy.

F) STRATEGIC OPTIONS AGAINST PRODUCT PIRACY

MNCs have several strategic options at their disposal to combat counterfeiters.
Lobbying Activities. Lobbying governments is one of the most common courses of
action that firms use to protect themselves against counterfeiting. Lobbyists pursue
different types of objectives. One goal is to toughen legislation and enforce existing laws
in the foreign market. However, improved intellectual property rights (IPR) protection is
more likely to become reality if one can draw support from local stakeholders. For
instance, Chinese technology developers increasingly favor a tighter IPR system.

Another route is to lobby the home government to impose sanctions against countries
that tolerate product piracy. Lastly, MNCs might also lobby their government to negotiate
for better trademark protection in international treaties such as the WTO or bilateral trade
agreements. Legal Action. Prosecuting counterfeiters is another alternative that
companies canemploy to fight product piracy.

In China, two big foreign brands, Starbucks and Ferrero Rocher—recently won highly
publicized IPR court cases. In the case of Starbucks, Shanghai company Xingbake Caf_e
was using a logo and a name that when translated was similar to that of the global coffee
giant. The court ordered Xingbake to payRmb500,000 (about $62,000) in damages to
Starbucks. Similarly, the British drinks group Diageo successfully sued a local Chinese
company that had copied the bottle design and packaging of Johnnie Walker Black Label
whiskey.64 In order to sue infringers, companies need to track them down first. In
countries like China foreign firms can hire private agencies to help them with
investigations of suspected infringers. Legal action has numerous downsides, though. A
positive outcome in court is seldom guaranteed.

Customs. Firms can also ask customs for assistance by conducting seizures of infringing
goods. In countries with huge trade flows like China, customs can only monitor a small
proportion of traded goods for IP compliance. Customs officers will most likely attach
low priority to items such as Beanie Babies or Hello Kitty dolls. However, courtesy calls
can be very effective. IP owners could also pinpoint broader concerns to the customs
officials such as risks to consumers of fake goods or to the reputation of the host country.

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Product Policy Options. The third set of measures to cope with product piracy
covers product policy actions. For instance, software manufacturers often protect their
products by putting holograms on the product to discourage counterfeiters. Holograms
are only effective when they are hard to copy. Microsoft learned that lesson the hard way
when it found out that counterfeiters simply sold MS-DOS 5.0 knockoffs using
counterfeit holograms. In 2008 Microsoft initiated a highly controversial initiative to
combat software piracy in markets such as China.

The firm sent out a security measure through a software update to millions of users of the
Windows XP operating system. The update could turn the users’ desktop wallpaper black
if they were using pirated software.

Distribution. Changes in the distribution strategy can offer partial solutions to

piracy. When launching Windows XP in China, Microsoft struck a deal with four of
China’s leading PC makers to bundle the operating system into their computers.\ Pirated
versions of Windows XP were on sale in China for less than $5 shortly after the product
was launched in the United States

Pricing. Marketers can also fight counterfeiters on the price front. Microsoft China, for
example, cut the price for its software drastically in October 2008 partly to outmaneuver
software piracy competitors: the price for the home and student version of Microsoft
Office was lowered from $102 to $30.74

Communication Options. Companies also use their communication strategy to

counter rip-offs. Through advertising or public relations campaigns, companies warn
their target audience about the consequences of accepting counterfeit merchandise. Anti-
counterfeiting advertising campaigns that target end-consumers could also try to appeal
to people’s ethical judgments: a ‘‘good citizen’’ does not buy counterfeit goods.

4.2.2 PACKAGING
Even after a product is developed and branded, strategies must still be developed for
other product related aspects of the marketing mix. One such product feature, and a
critical one for some products, is packaging, which consists of all activities of designing
and producing the container or wrapper. Thus packaging is a business function and a
package is an item. Packaging can be defined as follows:-

"Packaging includes the activities of designing and producing the container or

wrapper for a product."
The container or wrapper is called the package. Well-designed packages can create
convenience value for the consumer and promotional value for the producer. Packaging
and the resulting package are intended to serve several vital purposes. Some of these
include the following:

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i) Protect the product on its way to the consumer
A package protects products during shipment. Furthermore, it can prevent tampering with
products, notably medications and food products, in the warehouse or the retail store.

ii)Provide protection after the product is purchased Compared with bulk (that is
unpackaged) items, packaged goods generally are more convenient, cleaner, and less
susceptible to losses form evaporation, spilling and spoilage.

iii) Be part of a company's trade marketing program:-

A product must be packaged to meet the needs of wholesaling and retailing middlemen.
For instance, a packages size and shape must be suitable for displaying and stacking the
product in the store.

iv) Be part of a company's consumer marketing program

Packaging helps identify a product and thus may prevent substitution of competitive
product. At the point of purchase such as supermarket aisle - the package can serve as a
'silent sales person'. Ultimately, a package may become a product's differential
advantage, or at least a significant part of it. In the case of convenience goods and
operating suppliers buyers feel that are well-known brand is about as good as another.

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4.2.3 LABELING
Labeling which is closely related to packaging is another product feature that requires
managerial attention. A label is a part of a product that carries information about the
product and the seller. A label may be part of the package, or it may be a tag attached to
the product. Obviously there is a close relationship among labeling, packaging, and
branding. Labels fall into three primary kinds:-

i) A brand label:-It is simply the brand name applied to the product or package.
ii)A descriptive label :- It gives objectives information about the products' use
construction, care, performance, and/or other pertinent features ingredients and
nutritional contents.
iii) A grade label: - It identifies the products judged quality with a letter, number, or
word. Canned peaches are grade labeled A, B, C, corn and wheat are grade labeled 1 & 2.
Brand labeling is an acceptable form of labeling, but it does not supply sufficient
information to a buyer. Descriptive labels provide more product information but not
necessarily all that is needed or desired by a consumer in making a purchase decision.
Labeling performs several functions. Some of which are illustrated below:-
 The label identifies the product or brand
 The label might also describe several things about the product, which made it, where
it was made, when it was made, its contents, how it is to be used, and how to use it
safely.
 The label might promote the product through attractive graphics

4.5 PRODUCT LIFE CYCLE

Introducing a new product at the proper time will help maintain a company's desired level
of profit. Striving to maintain its dominant position in the market, the company has to
face that challenge often. Though designing a new product takes its own course, even a
well-made product may not sustain in the market as expected. There are certain reasons
why new product fails. Some of which are as follows: inadequate market analysis and
market appraisal. Insufficient marketing support, bad timing, technical or production
problems, new entrants, failure to estimate strength of competition, e.t.c

i) Domestic Product Life Cycle

Any product moves though identifiable stages, each of which is related to the passage of
time and each of which has different characteristics. The Life cycle of a domestic product
consists of four stages: Introduction, Growth, Maturity and Decline.
A product life cycle consists of the aggregate demand over an extended period of time for
all brands comprising a generic product category.

Management must be able to recognize what part of the life cycle its product is in at any
given time. The competitive environment and marketing strategies that should be used
ordinarily depend on the particular stage.

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A) Introduction: - During the introduction stage, a product is launched into the market
in a full-scale marketing program. It has gone through product development, including
idea screening prototype and market tests. It is the most risky and expensive one, because
substantial amount of money spent in seeking consumer's acceptance of the product.
B) Growth: - In the growth stage, or market acceptance stage, sales and profit rises,
often at a rapid rate. Competitors inter the market, often in a large numbers if the profit
outlook is particularly attractive. Mostly as a result of competition, profits start to decline
near the end of the growth stage.
C) Maturity: - During the first part of the maturity stage, sales continue to increase, but
at a decreasing rate. When sales level of profits of producers and middlemen decline, the
primary reason: Intense price competition. During the latter part of this stage, marginal
producers, those with high costs or with out a deferential advantages are forced to drop
out of the market. They do so because they lack sufficient customers and /or profits.
D) Decline: - For most products, a decline stage as gauged by sales volume for the total
category is inevitable for one of the following reasons:
 The need for the product disappears;
 Better or less expensive product is developed to fill the same need;
 People simply tired of a product;
 So it disappears from the market.

II) INTERNATIONAL PRODUCT LIFE CYCLE

Product life cycle is a well – known theory in marketing. International Product Life Cycle
(IPLC), is relatively unknown. The theory developed and verified by economists to
explain international trade in a context of comparative advantage, has been covered rather
briefly in some international economics and international marketing texts and in a few
marketing articles.

The IPLC theory describes the diffusion process of an innovation across national
boundaries. The life cycle begins when a developed country, having a new product to
satisfy consumer needs, wants to exploit its technological breakthrough by selling abroad.
Other advanced nations soon start up their own production facilities and before long
Least Developed Countries (LDCs) do the same? Efficiency/comparative advantage
shifts from developed countries to developing nations. Finally, advanced nations, no
longer cost – effective, import products from their former customers.

The moral of this process could be that an advanced nation becomes a victim of its own
creation. One reason that IPLC theory has not made a significant impact is that its
marketing implications are somewhat obscure, even though it has the potential to be a
valuable framework for marketing planning on a multinational basis. In this section, the
IPLC is examined from the marketing perspective, and marketing implications for both
innovators and imitators are discussed.

Stages and characteristics of IPLC

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 There are five distinct stages (stage 0 through Stage 4) in the IPLC. Table 9-1 shows the
major characteristics of the IPLC stages, with the United States as the developer of the
innovation in question. Figure 9-1 shows three life cycle curves for the same innovation:
one for the initiating country (i.e., the United States in this instance), one for other
advanced nations, and one for LDCs. For each curve, net export results when the curve is
above the horizontal line; if under the horizontal line, net import results for that particular
country. As the innovation moves through time, directions of all three curves change.
Time is relative, because the time needed for a cycle to be completed varies from one
kind of product to another. In addition, the time interval also varies from one stage to the
next.
Table 9-1 IPLC stages and characteristics (for the initiating country)
Stage Import/Expor Target Market Competitors Production Costs
t
0 Local None USA Few: Local Initially High
Innovati Firms
on
1 Overseas Increasing USA & Advanced Few: Local Decline Owing to
Innovati Export Nations Firms Economies of Scale
on
2 Maturity Stable Export Advanced Nations & Advanced Stable
LDCs Nations
3 Worldwi Declining LDCs Advanced Increase Owing to
de Export Nations Lower Economics of
Imitation Scale
4 Reversal Increasing USA Advanced Increase Owing to
Import Nations & Comparative
LDCs Disadvantage

Exporting Other Advanced

Nations
LDC’s
1 2 3 4
0 Time

USA (Initiating Country)

Importing
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 Figure9-1 IPLC curves

1. 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 affluent and have relatively unlimited wants. From the supply side,
firms in advanced nations have both the technological know-how and abundant capital to
develop new products.

Developed countries, in addition to being the original case where innovation takes place,
in all likely hoods will be the place where such new products are first introduced to the
public. Introduction occurs there because marketers are familiar with local desires and
marketing conditions, making them believe that the risks in introducing any product at
home, rather than some where else, are smaller.

Furthermore, it is common for a new product to have technical problems even after
market introduction and acceptance, perhaps necessitating significant modifications.
Products sold overseas may have to be adjusted to be suitable for their intended markets.
All of these considerations together may be too complicated for innovative firms to deal
with at the beginning. Thus, it is easier and more logical for a firm to concentrate its
effort in its home market before looking to overseas markets.

Many of the products found in the world’s market where originally created in the United
States before being introduced and refined to other countries. In most instances,
regardless of whether a product is intended for later export or not, an innovation is
initially designed with an eye to capture the U.S. market, the largest consumer nation.

2. 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. Not surprisingly,
English – Speaking countries such as the United Kingdom, Canada, and Austria account
for about half of the sales of US innovations when such products are first introduced
overseas. Countries with similar cultures and economic conditions are often perceived by
exporters as posing less risk and thus are approached first before proceeding to less
familiar territories.

Competition in this stage usually comes from US firms, since firms in other countries
may not have much knowledge about the innovation. Production cost tends to be
decreasing at this stage because by this time the innovating firm will normally have
improved the production process. Supported by overseas sales, aggregate production
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costs tend to decline further because of increase economies of scale. A low introductory
price overseas is usually not necessary because of the technological breakthrough; a low
price is not desirable because of the heavy and costly marketing effort needed in order to
educate consumers in other countries about the new product. In any case, as the product
penetrates the market during this stage, there will be more export from the United States
and, correspondingly, an increase in imports by other developed countries.
3. Stage 2 – Maturity
Growing demand in advanced nations provides an impetus for firms to commit
themselves to starting local production, often with the help of their governments’
protective measures to preserve infant industries. Thus, these firms can survive and thrive
in spite of relative inefficiency. This process may explain the changing national
concentrations of high – technology exports and the laws of the US share to Japan,
France, and perhaps the United Kingdom.
Development of competition does not mean that the initiating country’s export level will
immediately suffer. The innovating firm’s sales and export volumes are kept stable
because LDCs are now beginning to generate a need the product. Introduction of the
product in LDCs helps offset any reduction in export sales to advanced countries.

4. Stage 3 – World Wide Imitation

This stage means tough times for the innovating nation because of its continuous decline
in export. There is no more new demand anywhere to cultivate. The decline will
inevitably affect the US innovating firm’s economies of scale and its production costs,
thus, begin to rise again.

Consequently, firms in other advanced nations use their lower prices (coupled with
product - differentiation techniques) to gain more consumer acceptance abroad at the
expense of the US firm. As the product becomes more and more widely disseminated,
imitation picks up at a faster pace. Toward the end of this stage, US export dwindles
almost to nothing, and any US production still remaining is basically for local
consumption.

Stage 4 – Reversal
Not only must all good things end, but also misfortune frequently accompanies the end of
a favorable situation. The major functional characteristics of this stage are product
standardization and comparative disadvantage. The innovative 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 LDCs.

Thus, LDCs – the last imitators – establish sufficient productive facilities to satisfy their
own domestic needs as well as to produce for the biggest market in the world, the United
States. US firms are now undersold in their own country. Black – and – white television
sets, for example, are no longer manufactured in the United States because many Asian

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firms can produce them much less expensively than any US firm. Consumers’ price
sensitivity makes worse the problem for the initiating country.

The IPLC is probably more applicable for products related through an emerging
technology. These newly emerging products are likely to provide functional utility rather
than aesthetic values. Furthermore, these products likely satisfy basic needs that are
universally common in most parts of the world.

MARKETING STRATEGIES
For those U.S. industries in the worldwide imitation stage or the maturity stage, things
are likely to get worse rather than better. The prospect, though uninviting, can be
favorably influenced. What is critical is for a U.S. firm is to understand the implications
of the IPLC so that they can adjust marketing strategies accordingly.

i)Product Policy
The IPLC emphasizes the importance of cost advantage. The innovative firm must keep
its product cost competitive. To reduce production cost, it is important

 Cut labor costs through automation and robotics

 Eliminate unnecessary options, since such options increase inefficiency and complexity.
This strategy may be critical for simple products or those at the low end of the price
scale. In such cases, it is desirable to offer standardized products with standard package
of features or options included.

 A firm may use local manufacturing in other countries as an entry strategy. The
company not only can minimize transportation costs and entry barriers but also can
indirectly slow down potential local competition firm starting up manufacturing facilities.

 Manufacturers should examine the traditional vertical structure in which they make all
or most components and parts themselves, because in many instances outsourcing may
prove to be more cost – effective. Out sourcing is the practice of buying parts or whole
products forms other manufacturers while allowing a buyer to maintain its own brand
name.

 A modification of outsourcing involves producing various components or having them

produced under contract in different countries. That is, the production of parts in each
country before assembling components into final products form worldwide distribution.

Once in the maturity stage, the innovator’s comparative advantage is gone, and the firm
should switch from producing simple versions to producing sophisticated models or new
technologies in order to remove itself from cut – throat competition.
ii) Pricing Strategy
Initially, an innovating firm can afford to behave as a monopolist, changing a premium
price for its innovation. But this price must be adjusted down - ward in the second and
third stages of IPLC to discourage potential newcomers and to maintain market share.
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In the last stage of the IPLC, it is not practical for the innovating firm to maintain low
price because of competitors cost advantage. But the firm’s above – the – market price is
feasible only if it is accompanied by top – quality or sophisticated products. A high
standard of excellence should partially insulate the firm’s product from direct price
competition.

iii) Promotion Strategy

Promotion and pricing in the IPLC are highly related. The innovative firm’s initial
competitive edge is its unique product, which allows it to make a premium price. To
maintain this price in the face of subsequent challenges from imitators, uniqueness can
only be retained in the form of superior quality, style, or service. The innovating marketer
must plan for a non price promotional policy at the outset of product diffusion.

One implication that can be drawn is that a new product should be promoted as a
premium product with a high-quality image. In this case promotional goal is to sell image
rather than a specific product. By starting out with a high- quality reputation, the
innovating company can trade down later with a simpler version of the product while still
holding on to the high price, most profitable segment of the market. One thing the
company must never do is to allow its product to become a commodity item with prices
as the only buying motive, since such a product can be easily duplicated by other firms.
Product differentiation, not price, is most important for insulating a company from the
crowded, low profit market segment. A product can be so standardized that it can be
easily duplicated, but image is a much different proposition.

iv) Place (Distribution) Policy

A strong dealer network can provide the U.S. innovating firm with a good defensive
strategy. Because of its near-monopoly situation at the beginning, the firm is in a good
position to be able to select only the most qualified agents/distributors and the
distribution network should be expanded further as the product becomes more diffused.
A firm must also watch closely for the development of any new alternative channel that
may threaten the existing channel.

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