CHAPTER 10

PRODUCT ADAPTATION

Chapter Outline

A. Product Variables
1. Standardization versus Adaptation
2. Factors Affecting Adaptation
B. The Market Environment
1. Government Regulations
2. Nontariff Barriers
3. Customer Characteristics, Expectations, and Preferences
4. Economic Development
5. Competitive Offerings
6. Climate and Geography
C. Product Characteristics
1. Product Constituents and content
2. Branding
3. Packaging
4. Appearance
5. Method of Operation or Usage
6. Quality
7. Service
8. Country-of-Origin Effects
D. Company Considerations
E. Product Counterfeiting

Chapter Objectives

Products have to be altered before they are marketed abroad, despite an increasing
discussion of the global market place (discussed in Chapter 3). The key issue to be kept in
mind is the definition of a product as a bundle of benefits both tangible and intangible. The
core product itself (e.g., Maxwell House instant coffee) may be exactly the same everywhere
the product is marketed, but the way the product is perceived, and, therefore, promoted, may
be a luxury product in some countries compared to the staple item that it is perceived as in
the United States. Factors that influence product adaptation are numerous and quite varied.
The chapter uses the division into three categories of influences proposed by the Conference
Board, one of the most respected entities in international business. These categories,
market, product and company-specific variables, provide a framework with which the issue
can be conveniently discussed. Two influences have been added to the Conference Board's
proposal: brand-related influences as well as the effect of the country-of-origin. The
chapter's objective is to go beyond a list of variables to propose what actually can be done in
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 preparation to meet the adaptation challenges posed by both mandatory and voluntary
scenarios. The issue of intellectual property violation has gained increased importance in
today's markets, especially with the importance of technology in trade flows.

Suggestions for Teaching

The best starting point for the product adaptation discussion is to address the issue of what a
product really is ("what is the company selling?). Next, the international dimension can be
brought in by initiating a debate on: standardization vs. adaptation. It is important to bring
up the positive as well as the negative aspects of both these alternatives (as summarized in,
for example, Exhibit 10.2. in the text). While the economies of scale in almost every area of
business certainly argue very heavily for standardization, it may be, judging by the
discussion in the environmental section of the text, far too early "to put a tiger in every
tank" to use the most celebrated examples of marketing standardization used by Exxon in
the 1960s (which had to be adapted itself in a number of countries). At this stage, students
may be reminded of an earlier discussion (Chapter 3) that brand recognition may be what
the companies are striving for and that the product itself may be quite standardized but its
aesthetics slightly different or it’s positioning varied from one market to the next.

Although regimented discussions based on a list may not be the most exciting way to
conduct a class discussion, the instructor may approach this class by using a two-
dimensional matrix in which the factors affecting product-adaptation decisions (from
Exhibit 10.4) are on one of the dimensions and products or product categories are on the
other. Students might suggest products before the class during which this chapter is to be
discussed or they can be assigned by the instructor. Products for discussion can be from the
various product classes; e.g., convenience, shopping, specialty, industrial, services, etc. One
has to be careful, however, since consumer products' classification, especially, are in the eye
of the beholder, and the beholders have their own cultural baggage with them.

Counterfeiting has become a familiar topic through substantial press coverage in the recent
past. The key is to impress on students that the phenomenon is no longer the laughing
matter that it was when counterfeits were only bogus jeans, watches, and luggage. Material
is available from the International Anticounterfeit Coalition or International Intellectual
Property Alliance (both in Washington, D.C.), on cases and how industry groups tackle the
problem (see, for example, www.bsa.org for the software industry’s response, or
www.riaa.com for what the recording industry is focusing on).

Key Terms

Core product: Product or service in its simplest, generic state; other tangible and augmented
features may be added to distinguish a core product or service from its competitors.
Augmented features: Elements added to a core product or service that serve to distinguish it
from competing products of services.

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Mandatory/discretionary product adaptation: Conforming a product or service to meet
prevailing environmental conditions related to legal, economic, and climatic conditions in the
market.
Positioning: The presentation of a product or service to evoke a positive and differentiated
mental image in the consumers’ perception of a brand; positioning should change to reflect the
differing lifestyles of the target markets.
Backward innovation: Simplifying a product or service to make it capable of operating in harsh
environments; required in markets which lack purchasing power or usage conditions.
Brand: Name, term, symbol, sign, or design used by a firm to differentiate its offerings from
those of its competitors.
Generalized System of Preferences (GSP): A program designed by many developed countries
to foster economic growth in developing nations by providing for the duty-free importation of a
wide range of products.

Questions for Discussion

1. Comment on the statement, "It is our policy not to adapt products for export."

The Conference Board study quoted in the text, Adapting Products for Export, reports on a
number of companies that have this type of attitude to varying degrees. Some, of course,
are in a position to market a standardized product worldwide, especially as far as the core
product is concerned, but, even with industrial products this is rare. Consider the other
dimensions of a product, and the decision not to adapt will constrain a product to the
domestic market. In today's internationalized market place, a statement like this is myopic.
Whether a company likes it or not, it is competing in the international market place since
there are very few sectors not affected by imports or foreign participation. Adaptation needs
in the industrial sector may exist even though they may not be overt.

Consumer goods generally require product adaptation because of their higher degree of
cultural grounding. Industrial products such as steel, chemicals, and agricultural equipment
tend to be less culturally grounded and warrant less adjustment than consumer goods.
Similarly, marketers in technology-intensive industries such as scientific instruments or
medical equipment find universal acceptability for their products. The amount of change
introduced in consumer goods depends not only on cultural differences but also on
economic conditions in the target market. There can be a pressure to simplify the product to
make it affordable in the markets with low income levels. The adaptation decision should be
assessed as a function of time and market involvement. Knowledge about local market
characteristics will help exporters to establish similarities which in turn will help them to
standardize their approach. It will also allow them to develop a common understanding of
the degree of standardization versus adaptation.

A firm's export success depends on the quality of its product and on its ability to
differentiate itself from competitors in the international market place. Although the benefits
of selling the same product worldwide as in the domestic markets are cost savings due to

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 economies, the potential costs of this type of marketing strategy may require investigative
research into adaptation requirements.

The effectiveness of this decision depends upon the type of product being exported. Some
industries, where customers are multinational in nature, standardized products may be
required. In addition, international trade and professional associations may force firms to
market a standardized product worldwide. When faced with situations in which it is to the
firm's advantage to manufacture a physically standardized product, it often is also
advantageous to use the same advertising, pricing and distribution approach in different
national markets.

Firms that advertise in international media, such as magazines with international circulations
or European television commercials, may find it to their advantage to market a product that
is perceived to be standardized. Brand recognition is one the factors companies are striving
to achieve in today's "smaller" world.

2. What are the major problems facing companies, especially smaller ones, in resolving
product-adaptation issues?

Major problems facing smaller companies in resolving the product-adaptation issue is

determining whether the effort is worth the cost involved and whether the costs of
adaptation and investigative research will be more than offset by increased sales and cost
savings. Furthermore, the additional costs are not direct costs, but may have effects on the
domestic efforts as well.

Smaller firms do not have the local expertise to engage in investigative research and as such
must rely upon consultants. The question is whether the scarce resources spent on
consultant fees can be justified in terms of increased sales.

3. How do governments affect product adaptation decisions of firms?

Products for export must meet foreign government regulations in terms of product design,
contents, and testing. In addition, firms must be aware of future developments in
government regulations and take them into account in the product development stage. Other
regulations, such as the repatriation of profits, currency restrictions and financing
requirements also affect the revenues to be expected from certain countries. Thus, low cost
products with relatively high margins to compensate for the risk may be needed.

Major programs and policies of governments also affect the product-design decisions. If
governments are major customers, the reliability of their economic and industry expansion
programs, such as the East European five-year plans, must be determined. Products which
are dependent upon a certain level of infrastructure for example, may not be marketable in
developing countries until the plans for a better infrastructure have been implemented.

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 The international marketer also has to keep in mind the supranational influences on product
design which may come from entities such as the European Union.

4. Are standards like those promoted by the International Organization for Standardization (see
www.iso.ch) a hindrance or an opportunity for exporters?

The International Organization for Standardization issued the first standards on

environmental management, the ISO 14000 series in 1996. As per these standards, firms are
required to design an environment management system. They benefit the adopters by
providing substantial efficiencies in pollution control (e.g., packaging) and also help them to
put up a better public image.

Since the EU used ISO 9000 as a basis to harmonize varying technical norms of its member
states, some of its trading partners accused it of erecting a new trade barrier against
outsiders.

The ISO norms are not, as some would see them, a nontariff barrier. Most nontariff barriers
are usually designed to protect domestic producers and/or keep out foreign products. In this
case, most countries are on the metric system, unless the regulation is aimed at a specific
country where the metric system is not standard. The exporter’s responsibility is to comply
with the wishes of the customer (these are not government imposed) to close deals.

Although elements which are construed as nontariff barriers abound (the WTO has a book
nearly 300 pages long listing different types of nontariff barriers), many of them are not
intentional barriers to trade although their effect may be no different. Some, for example,
date to ages when trade barriers were not even discussed (e.g., the former beer purity
mandate in Germany).

5. Is any product ever the same everywhere it is sold?

Product or service can be defined as the complex combination of tangible and intangible
elements that distinguishes it from the other entities in the marketplace. Products can be
differentiated by their composition, by their country of origin, by their tangible features
such as packaging or quality, or by their augmented features such as warranty. The more
broad the definition, the more certainly the answer has to be negative.

Products are not the same everywhere they are sold. Even if the physical product is the
same, the differences in customer perceptions change the positioning of the product as a
complete cluster of value perceptions. Differences in perception occur as a result of cultural
factors (such as the impact of colors of the packaging and country-of-origin effects), and
differences in promotion, advertising and distribution. The availability of service and
warranties also make products different.

General Electric's marketing strategy for its numerical controls for machine tools is an
example of a product that is physically the same, but the total product is different because of
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 its marketing strategy. In industrialized countries, the product is sold on the basis of labor
cost savings. In developing countries with low wages, labor substitution is not a suitable
marketing tool for the numerical controls and the ease of handling the product as marketed.

There is also the problem of products that may look the same but are actually different;
namely gray market products (which may be the same core product but not include a
warranty) and counterfeits (which usually only look the same from afar but are dangerously
different when it comes to providing the product benefits consumers are looking for).

6. Propose ways in which intellectual property piracy could be stopped permanently.

Four types of action against violation of intellectual property rights are legislative action,
bilateral and multilateral negotiations, joint private sector action, and measures taken by
individual companies. The first two are governmental; the latter two are
firm-specific. At the governmental level, the international
marketer can lobby for more stringent legislation against such
activity, or ask the government to bring this up in bilateral or
multilateral trade negotiations (e.g., WTO and membership in
WIPO). At the individual firm level, the international marketer can
join industry-wide action or conduct its own actions against
violators. Naturally, the best way would be to achieve educational
objectives whereby consumers would not purchase and/or use
products that do not meet proprietary guidelines.

A number of private-sector joint efforts have emerged in the battle against counterfeit
goods. These include the International Anti-Counterfeiting Coalition and the Counterfeit
Intelligence and Investigating Bureau in London established by the International Chamber
of Commerce. In addition to the normal measures of registering trademarks and copyrights,
companies are taking steps in product development to prevent knockoff s of trademarked
goods.

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Internet Exercises

1. How can marketers satisfy the 4Rs of environmentally correct practice? See, for example,
the approaches proposed by the Duales System Deutschland (www.gruener-punkt.de).

The 4Rs of redesign, reduce, recycle, and reuse are very much as part of marketers’ activities.
For example, most carmakers in year 2000 auto shows had concept cars that were for the
most part recyclable. The Duales System Deutschland is a prime example of tackling one of
the biggest problems marketers face in environmental protection: packaging waste. DSD’s
Facility Waste Disposal Service manages production waste, organic waste, hazardous or
packaging waste regardless of the sector, company size, the trading stage or the geographical

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 location involved. The German regulations are largely followed by the EU at large and any
marketer outside of the EU (and naturally within) has to satisfy the rules.

2. The software industry is the hardest hit by piracy. Using the Web site of the Business
Software Alliance (www.bsa.org), assess how this problem is being tackled.

Software piracy is the unauthorized copying or distribution of copyrighted software. This can
be done by copying, downloading, sharing, selling, or installing multiple copies onto
personal or work computers. The BSA is part of all of the major ways of dealing with this
problem: legislation (through lobbying worldwide), liaison and cooperation (not only within
the industry but with other industry organizations), enforcement (e.g., by advertising hotlines
where complaints about illegal use can be reported), and prevention (which includes
education and technological development to make abuse more difficult).

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