Khon Kaen University International College International Product
and Pricing Strategy Course number 052 201 - First semester 2013
Monday 9:00 room 822 Lecturer: Michael Cooke office IC room 817
Slide 2 Schedule for Next Two weeks Country study subjects and
teams Review exam results Developing new products (19 August) Quiz
Marketing products and services (26 August) Begin Pricing (26
August) Understand basic cost concepts Fixed cost Variable cost
Cost absorption Read Zhang and Zhou 2 Slide 3 Mid-term Results The
single biggest problem was leaving answers blank Especially
happened on short answer As a general rule, never leave a blank
answer Partial credit is better than no credit Sometimes students
know more than they think Another common problem was not answering
the question as asked Example is the essay about market entry via
licensing or jv A well written answer gets only partial credit if
it does not address the question Many of the essays were well
written and showed insight Some unexpected answers got full credit
In general, essays raised the grades (though few mentioned Brazil
tariffs) 3 Slide 4 Project Presentation Fifteen twenty minutes for
each team Each member will participate in the presentation Develop
presentation material. Slide 5 Country study guidelines Research
and analyze aspects of relevance to marketing a specific product in
a target country Will be 20% of course grade Can discuss a country
and advise that the country is not a suitable target Choose a
product or service you choose to market internationally What is the
target segment? What is your companys risk tolerance? Is your
company aggressive about international expansion? Discuss relevant
aspects of the target country Market (segment size, wealth, other
characteristics) Political and economic stability Relevant social
characteristics Legal protection, barriers to entry, tariffs, etc.
Competitive environment Infrastructure, distribution, available
channels Conclusion Mode of entry, or no entry Magnitude of
investment Presentations due (15-20 minutes) on September 9th 5
Slide 6 Introduction A cornerstone of a global marketing mix
program is the set of product policy decisions that multinational
companies (MNCs) constantly need to formulate. The range of product
policy questions may include: What new products should be developed
for what markets? What products should be added, removed, or
modified for the product line in each of the countries in which the
company operates? What brand names should be used? How should the
product be packaged and serviced? Chapter 10Copyright (c) 2009 John
Wiley & Sons, Inc. 6 Slide 7 Examples of improper product
policy decisions Ikea in the United States Products, prices, and
service not adapted to US market Poor citing of stores Procter
& Gamble in Australia Diapers manufactured outside of Australia
(because of small market) Use of generic Asian packaging in
Australia U.S. Car Makers in Japan Steering on left side American
styling Cars could not get certified for small parking spaces
Kodaks venture into digital photography Digital photography
invented at Kodak Institutional issues (legacy products) in their
response to a disruptive technology 7 Slide 8 Eastman Kodak Company
Background information Founded in 1880s, once an iconic US firm In
1976 Kodak sold between 85-90% of all film and cameras in the USA
Fuji of Japan took market share in 1980s (economy segment) In 1994
Kodak 20 th ranked US company by sales Kodak spins off Eastman
Chemical, now thriving Apple launched a digital camera made by
Kodak Kodak stops selling film cameras in 2004, becomes biggest
retailer of digital cameras in 2005 Falls to 7 th biggest digital
camera retailer by 2010 Declares bankruptcy in 2012 8 Slide 9
Eastman Kodak Company Transition from Film Gross margins in the
film business estimated at 75% Compare with computers and
peripherals at 33% George Eastman wanted rapid succession of
changes and improvements Kodak had technological lead in film
backed by patents Vertical integration and cost leadership Film
sales immensely profitable Digital imaging a disruptive technology
Kodak executives aware of digital camera trend from 1993* CEO
Fisher from Motorola and Bell Labs hired 1993, a technologist
Resistance by customers (film development business) Resistance from
investors (legacy business as cash cow) Company culture resistance
(film business, not imaging) Public image of support for film
business through 1990s CEOs aware of competitive environment, no
barriers to entry in digital, lower margins Collaboration with
Canon in 2000 (professional segment) Collaboration with Fuji, HP,
IBM, others to develop digital image storage By late 1990s Kodak
was leader in digital color management and electronic image sensors
due to huge digital R&D effort
**http://www.blackwellpublishing.com/grant/docs/06Kodak.pdf 9 Slide
10 Eastman Kodak Company What Went Wrong? Conflicts between film
and digital began to ebb around 2005 More collaborative culture Ten
years elapsed since CEO Fisher began determined push to digital
Leader in digital sales in 2005 Losing money on each camera Legacy
labor costs* Vertical integration impossible in digital business
(JVs, alliances instead) Diminished film business (would have been
used to subsidize transition) Tried to buy time by selling film in
developing markets But Asian film sales dropped as rapidly as
elsewhere Falls to seventh rank in digital camera sales in 2010
Capable competitors Canon, Sony, Samsung, and Nikon in Asia and
others Pace of change in digital camera business rapid and
unpredictable, with rapidly declining prices Could Kodaks culture
adapt to digitals pace of change? Did they miss a product cycle in
2007? What happened in their R&D organization? Marketing?
*Http://www.consultingcase101.com/kodak-to-improve-profit-margin-for-digital-cameras/
10 Slide 11 Booz & Co. R&D Survey 2011
http://www.booz.com/global/home/press/article/49852237
http://www.booz.com/global/home/press/article/49852237 Study of
1,000 public companies that spent the most on research and
development in 2010 Total for the 1,000 $550 bb Computing and
electronics 28% of all R&D expenditure Health care
(pharmaceuticals) 22% Automotive 15% of all R&D expenditures
China and India HQ companies = 2% of total R & D Spending
doesnt correlate successful innovation There is no statistically
significant relationship between financial performance and
innovation spending, in terms of either total R&D dollars or
R&D as a percentage of revenues. according to Booz & Co
Most innovative firms were Apple, Google, and 3M Samsung and Toyota
were big spenders and innovative The key finding: culture is key to
innovation success According to 3M: Our goal is to get the voice of
the customer all the way back to the basic research level and the
product development level, to make sure our technical people see
how their technologies work in various market conditions. 11 Slide
12 Booz & Co. R&D Survey 2011
http://www.booz.com/global/home/press/article/49852237
http://www.booz.com/global/home/press/article/49852237 Need
Seekers, Market Readers and Technology Drivers Need Seekers
consistently strive to be first movers and proactively engage
customers to shape new innovations, and align innovation and
business strategies (3M) Market Readers adopt a second mover
strategy and emphasize incremental change (Samsung) Technology
Drivers stress technology achievement and both incremental and
breakthrough change (Google) If you align innovation strategy and
culture to your business model, build the right capabilities, and
execute, you can prevail no matter which strategy you follow There
may be no more critical source of business success or failure than
a companys culture. It is more important than strategy and
leadership. According to Booz & Co.: Companies whose strategic
goals are clear, and whose cultures strongly support those goals,
possess a huge advantage Connect with the customer, find out their
articulated and unarticulated needs, and then determine the
capability at 3M that can be developed across the company that
could solve that customers problem in a unique, proprietary, and
sustainable way. Our businesses are all interdependent and
collaborative. Slide 13 Booz & Co. R&D Survey 2011* Most
often cited strategic goals of innovation are: Superior product
performance Superior product quality Cultural attributes: Strong
identification with the customer Pride in products Need seekers:
Gaining insights on customers needs is the responsibility of all
customer-facing employees. Silicon Valley companies are almost
twice as likely as average companies to have capabilities that
provide a superior understanding of the stated and unstated needs
of their end customers Technological advances that lead to products
and services that gain traction in the marketplace come through
superior insight into customers, as well as the development of
practical value propositions that will win those customers business
6/10 of the most innovative were need seekers 2/10 of the biggest
spenders were need seekers
*http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf
13 Slide 14 Booz & Co. R&D Survey Top 12 R&D in 2010
Excluding Health Rank listRank allCompanyR&D $BB% salesRegion
14Microsoft8.714US 26Toyota8.54Asia 37Samsung7.96Asia
48Nokia7.814Europe 59General Motors 7.05US 611Intel6.615US
712Panasonic6.16Asia 814VW6.14Europe 915IBM6.06US 1017Honda5.76Asia
1119Cisco5.313US 1220Siemens5.25Europe
http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf
14 Slide 15 Booz & Co. R&D Survey 2011 Innovation As part
of this years study, Booz & Co. surveyed almost 600 innovation
leaders in companies around the world, large and small, in every
major industry sector. As noted, almost half of the companies
reported inadequate strategic alignment and poor cultural support
for their innovation strategies. Possibly even more surprising,
nearly 20 percent of companies said they didnt have a well defined
innovation strategy at all.
http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf
15 Slide 16 Booz & Co. R&D Survey Top 10 Innovative
Companies in 2010 RankCompanyR&D $BB% salesSpend rank 1 Apple
$1.8 2.770 2 Google $3.812.834 3 3M $1.4 5.486 4 GE $3.9 2.632 5
Microsoft$14.014.0 4 6 IBM $6.0 6.015 7 Samsung $5.9 5.9 7 8
P&G $2.5 2.561 9 Toyota $3.9 3.9 6 10 Facebook na
http://www.booz.com/media/uploads/BoozCo-Global-Innovation-1000-2011-Culture-Key.pdf
16 Slide 17 Developing New Products for Global Markets The Role of
Corporate R&D Very few companies do early stage research In the
past Bell Labs, Xerox (PARC) and IBM had renowned research What
used to be spent on an in-house division is now spent on
sponsorship of university research and the acquisition of
intellectual property from smaller companies. The few exceptions to
this rule (Google labs?) seem to be for companies that have trade
secret protection as a viable alternative to patenting (1) Enormous
expense of basic research often shared IBM, Samsung, Intel, Global
Foundries, and TMSC share cost of $4.4BB R&D center and
collaborate with SUNY on cost technology SEMATECH launched with US
government assistance in 1987 Common model is to focus R&D
effort on identifying available technologies or to reducing costs
License from other companies, or buy smaller companies with
promising technology as Kodak did in the late 90s and early 2000s
Open source and creative commons movements Free copying of computer
source code or copyrighted material under conditions Value of
expanding the product category (more on this in branding) (1)
http://www.patenthawk.com/blog/2008/03/did_bayhdole_end_corporate_rd.html
17 Slide 18 R&D as % of GDP - selected EU and non-EU countries,
2006* * http://www.voxeu.org/article/rd-missing-wrong-targets Slide
19 Country Variation in R&D Intensity (1) Technological
specialization explains the variation in R&D intensity better
than any other country characteristics. When industrial
specialization is taken into account, only Sweden and the US still
outperform other countries. Neither Japan nor Finland has an
R&D intensity that is particularly high in relation to what
their industrial structures would suggest. A country specialized in
the finance industry (e.g., Luxemburg) would not need a high level
of R&D expenditure in order to ensure growth. Similarly, a
country specialized in the tourism, fashion, services or food
industries would have a lower R&D intensity than a country
specialized in the pharmaceutical, engineering or biotech
industries. The four European countries with the highest academic
R&D intensities are also the four countries with the highest
business R&D intensities. With effective technology transfer
systems in place, academic research is probably the most effective
source of new ideas, which in turn induce further research in the
business sector.
http://www.voxeu.org/article/rd-missing-wrong-targets 19 Slide 20
Developing New Products for Global Markets The Role of Universities
Corporate collaboration with universities Research oriented
universities have technology transfer offices and typically license
intellectual property Companies might have a need to fill a hole in
product line Corporate R&Ds role is to find and evaluate the
technology IBM has research centers in nine countries * Close links
to universities in India, for example Seeks collaboration as well
as a role in developing future staff University faculty or graduate
students may form companies Develop products from early stage
university lab ideas Small companies often sold to large
organizations or do licensing Some go on to become highly
successful industry pioneers Genentech (University of CA) in
biotech Google (Stanford) internet technology Sun Microsystems (UC
and Stanford) computers and software SAS (NCSU led consortium)
statistical analysis software *
http://www-07.ibm.com/in/research/univrelations.html 20 Slide 21
Global Product Development Overview 1.Global Product Strategies
2.Standardization Versus Customization 3.Multinational Diffusion
4.Developing New Products for Global Markets 5.Truly Global Product
Development Chapter 10Copyright (c) 2009 John Wiley & Sons,
Inc. 21 Slide 22 Global Product Strategies Three global strategies
to penetrate foreign markets Extension strategy Product or
communication same as home country Adaptation strategy - Product or
communication adapted to host country market Invention strategy
Products designed for a global market Chapter 10 22 Slide 23 Global
Product Strategies Five strategic options for the global
marketplace Strategic Option 1: Product and Communication Extension
-- Dual Extension Scale economies in both product and advertising
Global segments or companies with resource limitations Strategic
Option 2: Product Extension -- Communications Adaptation Wrigley
example: Same product advertised as having differing benefits
across cultures Retains advantages of manufacturing scale Strategic
Option 3: Product Adaptation -- Communications Extension Typical
when companies add brands via purchase of local companies Similar
consumer values favor communication extension Strategic Option 4:
Product and Communications Adaptation -- Dual Adaptation Strategic
Option 5: Product Invention 23 Slide 24 Exhibit 10-1: Global
Expansion Strategies Chapter 10Copyright (c) 2009 John Wiley &
Sons, Inc. 24 Slide 25 Standardization versus Customization Five
forces favoring a globalized product strategy 1. Common customer
preferences (Exhibit 10-2) Similar use functions across cultures
Similar use conditions or benefits (example: stylishness) 2. Global
customers (business to business) Global companies may have
centralized sourcing Global customers often prefer identical
products/services 3. Scale economies Sourcing efficiencies or
R&D efficiencies Economies of scale have limits in some
industries (timeliness factor) 4. Time to market need for speed
Short product life cycles Focus R&D and product development
efforts on a few projects 5. Regional market agreements (such as
single European market) facilitate standardization 25 Slide 26
Exhibit 10-2: 2008 Automotive Color Popularity Chapter 10 Copyright
(c) 2007 John Wiley & Sons, Inc. 26 Slide 27 Exhibit 10-2
(cont): 2008 Automotive Color Popularity Chapter 10Copyright (c)
2007 John Wiley & Sons, Inc. 27 Slide 28 Exhibit 10-2 (cont):
2008 Automotive Color Popularity Chapter 10Copyright (c) 2007 John
Wiley & Sons, Inc. 28 Slide 29 Degrees of Global Customization
Modular Approach Mass produce standard components (engines, gears,
etc) Assemble to local requirements or tastes(Deere example)
Core-Product (Common Platform) Approach Mass produce core product
Add attachments for local needs or tastes (auto heaters)
Standardization versus adaptation Too much standardization stifles
local initiative Over-customization = competition with local
products Costs of tailoring to local markets (break-even analysis)
29 Slide 30 Multinational Diffusion Product Acceptance Individual
differences (willingness to try new products) Early adopters like
to experiment with new products Late adopters wait, learn from
prior adopters Social influences (peer influence) Product
characteristics 1. Relative advantage or perceived value over
alternatives 2. Compatibility with existing social norms Switching
costs? Consistent with existing social values? 3. Complexity or
ease of use 4. Ability to test or try on limited basis 5. Are
benefits easy to observe or communicate? Chapter 10 30 Slide 31
Multinational Diffusion Market penetration rate of a product
differs among countries Country characteristics used to predict new
product penetration patterns include: Homogeneous populations adopt
products faster Lead countries are where product is first
introduced Lag countries have higher adoption rates (time to study)
Cosmopolitanism is degree to which people look beyond local
environment. Cosmopolitans adopt more quickly. Mobility and ability
to interact helps penetration Labor force profile women in
workforce tend to facilitate certain types of innovations Speed of
penetration varies among products and countries Decreases with time
(more recent = faster penetration) Small consumer electronics take
off faster than appliances Newly developed countries-take off
faster than Europe Take-off is time from introduction to growth
stage in product life cycle Exhibit 10-3 dated 2008 31 Slide 32
Exhibit 10-3: Mean Time to Take Off Across Product Categories
within a Country Chapter 11Copyright (c) 2007 John Wiley &
Sons, Inc. 32 Slide 33 Developing New Products for Global Markets
Identifying New Product Ideas 4 Cs: Company (internal sources)
Transplant ideas from one region to another R&D, sales, market
research, other employees Customers The most difficult customers
are often the best In most cases initial marketing is to mid-level
analysts Analysts review product, make recommendations to
executives Difficult customers may become beta sites Suggest
improvements, additional features, new approach Competition
Collaborators suppliers, distributors, etc. Innovation Centers
teams to develop new products Institutional barriers to innovation
among companies with dominant products Kodak in the 1990s Microsoft
after 2000 Role of bureaucracy Threat to profits of legacy products
33 Slide 34 Developing New Products for Global Markets New Product
Development New Product Development Nearly of the 30 biggest
selling products worldwide had origins in marketing or
manufacturing * Use of global reach to move ideas from one part of
the world to another Alpha and beta test feedback may suggest
changes Some companies set up small incubator units or innovation
centers Working with distributors or producers of complementary
products Watching competitors Screening Product ideas from
marketplace most likely to succeed Product advantage (superiority
to competitors, unique features) a major success factor Powerful
brand associations generate acceptance (trust feature?) Consumer
characteristics younger consumers are more likely to try new
products Concept Testing detailed description of the product Focus
groups small groups of prospective customers Red Bull concept
rejected all around concept testing is imperfect Test marketing May
be skipped to save money Lead markets can be used as projections
(Exhibit 10-4) Timing of Entry (Exhibit 10-5) Waterfallstaged
rollout beginning with home country favored if: Long product life
cycle Unfavorable host market conditions Sprinklerglobal rollout
simultaneously motivated by: Competitor concerns Universal segments
* Czinkota and Ronkainan International Marketing 8E US, Thomson,
2007 p476 34 Slide 35 Exhibit 10-4: Examples of Test Market
Countries Chapter 11 Copyright (c) 2007 John Wiley & Sons, Inc.
35 Slide 36 Exhibit 10-5: Waterfall versus Sprinkler Models Chapter
10Copyright (c) 2009 John Wiley & Sons, Inc. 36 Slide 37
Exhibit 10-6: Roll-Out of Xbox 360 and Sony Playstation 3 Chapter
11Copyright (c) 2007 John Wiley & Sons, Inc. 37 Slide 38 Truly
Global Product Development Companies have research centers across
the world. Few have set up a global product development process
Lack access to regional talent Establish a global innovation
process across regions (Nokia uses ideas from UK, USA, Japan, and
Italy) To harvest the benefits of multi-region innovation:
Prospecting- Find valuable new pockets of knowledge around the
world. Assessing- Decide on the right number of sources Mobilize
Link knowledge clusters (Exhibit 10-7) 38 Slide 39 Exhibit 10-7:
Mobilizing Knowledge Chapter 10Copyright (c) 2009 John Wiley &
Sons, Inc. 39
