Thesis paper International Marketing: Product standardization strategy and product adaptation strategy

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

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THESIS PAPER

Subject: International Marketing

PRODUCT STANDARDIZATION STRATEGY

AND PRODUCT ADAPTATION STRATEGY

Class: K51CLC1

Advisor: Mr. Le Giang Nam

Group: 6

1. Le Ngoc Thien An

1201016003

2. Vo Tran Ngoc An

1201016006

3. Nguyen Pham Phuong Ai

1201016001

4. Phan Ngoc Chau

1201016050

5. Nguyen Thi Thien An

1201016004

6. Mai Hong Nhung

1201016383

7. Nguyen Thi Thu Thao

1201016493

8. Nguyen Thi Mai Anh1201017016

9. Doan Tat Dat

1201017053

INSTRUCTOR’S COMMENTS

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CHAPTER 1: INTRODUCTION

I. Definition 1. Standardization. Standardization is an international marketing strategy in which the producers set identical feature for their particular goods or services in domestic as well as foreign markets.

2. Adaptation. Product adaptation is the process of modifying an existing product so it is suitable for different customers or markets. An adaptation strategy is particularly important for companies that export their products because it ensures that the product meets local cultural and regulatory requirements.

II. Comparison between Standardization and Adaptation.

Standardization Adaptation

Purposes

The international market’s characteristics: complicated and unstable, meanwhile, standardization offers the administration benefit as it simplifies the firm’s marketing approach considerably. Cultural characteristics of the foreign market: such as language, religion and traditions have major impact on tastes, attitudes and buying habits of a product. Thus, to sell more products, adaptation to the culture of the host country is necessary.

The cost benefit: as all of the same features are applied in its foreign branches and subsidiaries, this strategy help reducing the cost in changing style, equipment, materials, advertising,… in comparison with adaption. Changes in Economic Climate: due to matters that are out of your control. If problems in the economy cause an overall reduction in sales, consider using less expensive materials or modifying the overall design of the product to make it more affordable for consumers.

Enhance the managerial and performance consistency: this is very essential during the current economic recession.

Government regulation: with globalization, the degree of government intervention in trade and economic activities is increasing. The rules can be light or strict on different levels, typified by the national law, specific trade policies, tariff and non- tariff barriers, hygiene, environment ... Thus, foreign products have to adapt to follow these rules.

Advantages Cost saving due to economies of

scale: the rise in cost of production will be increasingly smaller than the rise in output if products are identical. Meet differences at the stage of development, consumer differences in tastes, needs and wants, socio cultural differences, lifestyle, consumer perceptions, beliefs and consumer practices, physical environment, etc.

Psychological meaning and the effect on the consumer: provide decision makers with a diagnostic tool from which strategic marketing choices can be derived. Reduce consumer’s confusion: because the company’s advertising programs are the same in all market, it will definitely eliminate the consumer’s confusion, especially those who travel in different countries.

Improve the control and planning of the firm: don’t have Local competition and competitive practices: Adapting your product to compete with others can stem from

to change the marketing programs significantly, or find new suppliers for changing materials,…

reactive or proactive strategies. For example, if your competitor adds a feature consumers want and starts taking market share from you, you might be left behind not to add that same feature. If your revenues are good enough that you can add a new feature your competitor can’t afford in order to take market share away from your competitor. Create the worldwide uniformity and strengthen the brand image: provide the customers with experience of using new and exotic products that they cannot find from their domestic producers.

Drawbacks

Increase cost production: in manufacturing, development, packaging and gain no benefit from economies of scale due to each product design vary from country to country. Cultural difference: each region has its own perception, valuation, taste  their product may be not accepted, even though they have shown a significant success in home country.

Variation in government policies: this is considered as one of the major obstacles: different nations has different views and regulations, an advertising may be viewed as creative and interesting in one society, but their contents may be viewed as illegal and offensive in others. Stress on Resources: Modifying a single product or offering two versions of the same product can put a stress on your production, marketing and sales departments that doesn’t justify the decision. When you change a product, you might need to modify your marketing materials, production methods, packaging, sales efforts and shipping procedures.

Difference in living standard among markets: applying the same product for all markets, including advanced countries and less developed countries may not be appropriate, because if the firm charge the same price, citizens in poor regions cannot afford to them, whereas lowering price while the cost of production remain unchanged, the firm may run a budget deficit.

Brand: Changing your product can alter your brand or your image in the marketplace. If you decrease the quality of your materials to save on production costs and make it possible to sell at a lower price, your strategy might backfire if your customers buy from you because they want quality or status. If a competitor lowers prices, you might adapt by improving your product -- even if it requires you to raise prices -- consumers will come to you for superior quality and the better warranty you can offer.

It is noticeable that the two strategies above are opposite to each other, but they are

all efficient methods in international marketing that worth considering. It is important to make a profound and careful decision about which tool to apply. As for our group’s task, we

will present an emphasis on the adaption strategy, which give you a clearer and more comprehensive knowledge of this marketing tools.

CHAPTER 2: THE IMPORTANCE OF PRODUCT ADAPTATION STRATEGY- The failure to adapt of Kellogg and its lessons. I. Introduction about Kellogg:

Kellogg’s was in fact known as the company that introduced the concept of Corn flakes as a breakfast throughout the world. It even introduced its products in the market where corn flakes has never been very popular as breakfast and converted them into a corn flake eating nations over a long period of time. Kellogg’s had proven that with right kind of marketing strategies and approach, markets could be tamed and molded the way corporations wanted.

The story of Kellogg in India:

In the late 80’s, Kellogg’s was riding on the success and was commanding a staggering 40 per cent of the US ready-to-eat market from its cereal products alone and with a yearly sales of $ 6 billion with 20 plants in 18 countries. II. In September 1994, Kellogg decided to penetrate the India Market. Kellogg Company had set up its 30th manufacturing facility in India, with a total investment of $ 30 million. The Indian market held great significance for the Kellogg Company because its US sales were stagnating and only regular price increases had helped boost the revenues in the 1990s.

Kellogg's initial offerings in India included corn flakes, wheat flakes and Basmati rice flakes. Despite offering good quality products and being supported by the technical, managerial and financial resources of its parent, Kellogg's products failed in the Indian market. Even a high-profile launch backed by hectic media activity failed to make an impact in the marketplace.

Meanwhile, negative media coverage regarding the products increased, as more and more consumers were reportedly rejecting the taste. According to analysts, out of every 100 packets sold, only two were being bought by regular customers; with the rest 98 being first- time buyers. Converting these experimenters into regular buyers had become a major problem for the company.

In April 1995, Kellogg India Ltd. (Kellogg) received unsettling reports of a gradual drop in sales from its distributors in Mumbai. There was a 25% decline in countrywide sales since March 1995, the month Kellogg products had been made available nationally. By September 1995, sales had virtually stagnated. Marketing experts pointed out various mistakes that Kellogg had committed and it was being increasingly felt that the company would find it extremely difficult to sustain itself in the Indian market.

III. Reason for failure: At the 1990s, the Indian sub-continent is a believer of home-eating breakfast and the whole concept of ready-to-eat-creal market is a new idea. Indeed, the most common way to start the day in India was with a traditional regional breakfast. While this meant that Kellogg’s had few direct competitors it also meant that the company had to promote not only its product, but also the very idea of eating breakfast cereal in the first place. And the Indian market has posed numbers of challenges to Kellogg.

• Cultural factors and eating habits – population not used to processed foods

Kellogg posed itself as an alternative to the regularly consumed breakfast. The Indian breakfast is heavy and there is a feeling of fullness at the end of an Indian breakfast. Kellogg’s Corn flake breakfast does not give that feeling of fullness and that went against the grain of having a full breakfast. In short after having a corn flake based breakfast the Indian consumers were still hungry. Also Indians have spicy and hot food for breakfast. To ask them to eat the sweet tasting and cold corn flake breakfast was too much of a sweet breakfast for the Indians to digest. • Challenges of the different between Indian consumer and the original product

Indians always boiled their milk unlike in the West and consumed it warm or lukewarm and they also liked to add sugar to their milk. When Kellogg flakes were put in hot milk, they became soggy and did not taste good. If one tried having it with cold milk, it was not sweet enough because the sugar did not dissolve easily in cold milk. • Availability of various low-priced traditional breakfast Indian breakfast is known for its variety. There can be 30 types of Dosas (there is a restaurant in Hyderabad that offers 99 types of Dosas!) or Idlis, Parantas or other types of native Indian breakfast items. Indians are used to a variety and one item that is eaten will not be on offer for the next two or three weeks. Asking Indians to have the same type of corn flake based breakfast was too much of a cultural change for the Indians to accept.

IV. The lessons from Kellogg:

•

Do your market research carefully

When Kellogg decided to introduced into India, due to the clumsy market research, it took for granted the fact the whole idea of easy-to-make cereal breakfast is completely new to the Indians consumer. The information of Indian as a potential market with a large population, which means a huge numbers of potential consumers of their product, combined with the fact that there are no competitors in the cereal breakfast fields has made them chose the wrong approach and lead them to the failure.

Remember that square pegs don’t fit into round holes

• Globalization may be an increasing trend, but regional identities, customs and tastes are as distinct as ever. It may be easy for brand managers of global brands to view the world as homogenous, where consumer demands are all the same, but the reality is rather different. According to analysts, a major reason for Kellogg's failure was the fact that the taste of its products did not suit Indian breakfast habits.

CHAPTER 3: SUCCESSFUL EXAMPLE OF PRODUCT ADAPTATION STRATEGY: OREO in China

I. Introduction of the OREO

Oreo is a sandwich cookie consisting of two chocolate disks with a sweet cream filling in between. The version currently sold in the United States is made by the Nabisco division of Mondelēz International. Oreo has become the best-selling cookie in the United States since its introduction in 1912.

The story of Oreo in China

II.

In 1996, Kraft food flagship Oreo brand launched the product in China. However, apart from a small rise in 2003, Oreo sales had been sluggish from the outset, and shipments into China were projected to drop by more than 10 per cent in 2005 and even a near 40 per cent rise in marketing spend yielded no boost in sales. In 2005, it controlled a mere 3% of the Chinese cookie market.

Before cookie was considered to be pulled out China market, Kraft decided to research the Chinese market to understand why the Oreo cookie that was so successful in most countries had failed to resonate with the Chinese. Research revealed that Kraft’s positioning of the brand had missed the mark: Kraft had paid too little attention to what Chinese consumers prefer. Chinese were not historically big cookie eaters; they said it is a little bit too sweet and too bitter. In addition, 72 cents for a pack of 14 Oreos was too expensive for the value-conscious Chinese...

Mr. Warren and his team needed to challenge decisions that had been made at Kraft’s Illinois head office and convince it to make Oreos more suited to Chinese consumers.

III. The strategy

The Oreo China team adopted a multi-pronged approach:

1. The taste

Kraft introduced a less sweet version called Light Sweet Oreo. It changed the recipe and made the cookie more chocolate, the cream less cloying and developed 20 prototypes of reduced-sugar Oreos and tested them with Chinese consumers before arriving at a formula that tasted right.

The team also convinced headquarters to reformulate the original Oreo – for the first time in its 93-year history – to adapt biscuits on sale in China to local tastes.

2. The packaging

Kraft also found that its traditional package size was too big and expensive for the average Chinese consumers, who have less disposable income than North Americans. So the size of the packet was reduced for just 29 cents to cater to Chinese buying habits while the team also introduced another, smaller packet so consumers could get a first taste of Oreo biscuits at a lower cost. The smaller packets required changes in the manufacturing plant. Similarly, marketing promotions that relied on bonus packs (extra biscuits for the same price in a bigger pack) were replaced with more economical in-store samples.

3. The flavor:

a. Green-tea ice –cream- flavored cookies

In China, sales of cookies and other chocolate products tend to slow down in the summer. Warren says the Chinese have what they call “heaty” foods and cooling foods, the former for colder months and the latter for warmer times of the year. Cookies were traditionally a heaty food.

To boost summer sales, in 2009 Oreo developed a crème that had a cooling sensation when licked to create both a vanilla and green-tea ice-cream-flavored cookie. It’s green-tea ice cream. It’s now the second-most-popular flavor after original Oreo.

b. Double fruits cookies

The success of the ice-cream-flavoured cookies led them to try more cooling variations. In 2011, after researching what fruit flavours Chinese consumers would like best, they launched Oreo double fruits that put combinations between the familiar biscuits like blueberry-raspberry, the blueberry had a slight sourness to it that overwhelmed the tanginess of the raspberry. The cookie also clashed with milk. And The Mango-Orange combination smells and tastes like Trident Tropical Twist gum. Or Grape -Peach with a slight aftertaste of grape at the end of each bite and the peach flavor is completely absent

4. New product

a. Wafers

Recognizing the Chinese love wafer cookies, which make up a sizable proportion of the overall cookie market, in 2006, Kraft launched the Oreo wafer stick with white crème of Oreo but in the form of a rectangle wafer, consisted of four layers of crispy wafer filled with vanilla and chocolate cream, coated in chocolate. It was a home run, putting Oreo into the popular wafer category, extending its reach to consumers who before never gave

it a glance.

b. Cookie Straws

This means making cookies that look like straws so that consumers can eat cookies while drinking milk. It did well State-stride as cereal straws.

c. Sandwich biscuits

In 2005, Oreo was competing solely in the sandwich biscuit category. Its 19% share in that segment translated into just 3.5% of the overall biscuit market. Since then, the brand has increased its sandwich biscuit take to 46% and launched an Oreo wafer cookie that’s

nabbed 30% of the wafer market, to boost its overall share to almost 15%. That’s the highest market share for Oreo anywhere in the world, including the U.S. or Canada.

IV. The results

These strategies helped Oreo grow its market share by 10 times over the past five years, the Chinese market and sales soared from $20m in 2005 to more than $400m in 2012. But the shift in mindset from rigidly relying on orders from the US to harnessing the local team’s sense of consumers’ tastes was also a significant outcome.

V. The lessons Oreo’s experience illustrates the problems faced by a multinational brand entering a new market. There are different consumer tastes and local sensibilities but international brands often rely on the parent product’s strategies because they have worked well over long periods in familiar markets.

By launching new products in China that were recognizably Oreos but were sensitive to local preferences, the brand ensured sustainable growth by balancing traits that made the global Oreo brand successful while adapting to the local market.

But perhaps the most important lesson here is that Oreo maintained its brand, its Oreo experience, its phenomenon spirit: "Twist, Lick, Dunk." - “What the Chinese team at Kraft figured out is that an Oreo is an experience. You pry it apart, scrape out the filling with your teeth and plop it into a glass of milk. All the wild new shapes and flavors of Oreo wouldn't work in China, unless they could somehow share that same experience. Therefore, despite the different shapes, colours and flavours that have catapulted Oreo to the top of the cookie heap in China, some things remain universal. “We do it in different ways around the world,” says Warren. “But it’s still the ritual of twist, lick and dunk.”

CHAPTER 4: UNSUCCESSFUL EXAPMLE OF PRODUCT ADAPTATION STRATEGY – Mc Donald’s Hula Burger in Catholic Market

I. Introduction about MC DONALD:

McDonald's growth.

The McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving around 68 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by Richard and Maurice McDonald; in 1948 they reorganized their business as a hamburger stand using production line principles. Businessman Ray Kroc joined the company as a franchise agent in 1955. He subsequently purchased the chain from the McDonald brothers and oversaw its primarily worldwide sells hamburgers, cheeseburgers, chicken, fries, breakfast items, soft drinks, milkshakes, and desserts. In response to changing consumer tastes, the company has expanded its menu to include salads, fish, wraps, smoothies, and fruit.

The story in the Catholic Market:

II. McDonald's has hundreds of different products that are offered in locations worldwide, but for every tremendously successful one like the iconic Big Mac, there's a spectacular failure.

McDonald's founder, Ray Kroc, was a brilliant businessman -- when he kept out of the kitchen. After buying the business's rights from the McDonald brothers, he expanded into new geographic markets but soon discovered a problem with the sales in regions with large Catholic populations.

According to church canon, Catholics over the age of 14 are required to abstain from meat on Fridays. Therefore, in 1963, Mc Donald introduced a new burger for this potential market. Kroc had high hopes for his non-meat option called "The Hula Burger" -- grilled pineapple with cheese on a bun.

III. The result: McDonald's founder Ray Kroc had countless successes with his items, but this was not

one of them.

Its taste was definitely unusual. The pineapple took on a bit of a smokey flavor that drowned out the cheese, and it was surprising to bite through a toasted bun and into a juicy pineapple. Most people did not like this burger and McDonald's killed the Hula Burger early on, as it became quickly evident that its alternative, the Filet-o-Fish, was getting much better traction.

IV. The reason: There are many reasons for the failure of a new product: ineffective marketing, bad product launches and consumer reluctance for change are common. But when dealing with the Hula Burger, there is always the simplest of reasons: people just don't like the taste.

V. The lesson: Firstly, new product development always has a level of risk attached to it, and for fast food companies like McDonald's, the pace of the business requires the constant creation of new menu items. However, the creativeness has to meet people’s demand and taste. Mc Donald’s did not do research on consumers’ taste carefully and at large before launching the Hula Burger, they just relied on the fact that people in Catholic need a meatless meal on Friday.

Secondly, the product that is more adaptable will be accepted more widely and developed, as the Filet-o-Fish sandwich-another meatless option. On the other hand, if it cannot meet the customers’ demand as well as match their taste, it will be extinct soon. Therefore, it is essential that marketers should learn the local culture and resident’s taste carefully.

CHAPTER 5: CONCLUSION

Adaptation is considered as the most important key for local company to be successful in international market. Culture, demographic, economic, politic are those crucial factors need to be rigorously researched. As Vietnam becomes the market economy, there are many opportunities for Vietnamese products to get access to the foreign market. As a skeptical producer, one should make a careful survey about the new market, customer insight, habit of customer, the customer’s income, taste that is suitable for the new environment as well as the promotion program to launch the new product. Based on the examples from the study above, we offer some recommendations for Vietnamese company to consider when doing launching their products abroad and performing International Marketing: • Do Customer Research thoroughly:

Adaptation strategy must be based on research into customer needs. By comparing the features that customers consider important with current product specification, company can identify gaps and opportunities to improve the product’s appeal. Comments on product review sites or through social media interaction can help identify customer preferences. Companies’ sales representatives also may be able to recommend changes that customers have requested.

• Do Market Research extensively:

Adapting products for export can be an important strategy for expanding business. It gives the opportunity to increase revenue by entering new markets for current existing products. However, to be successful, company must carry out thorough research into the markets that are considered and the potential impact on business in terms of the time and cost to adapt products. Adaptation strategies for export territories must take account of a number of factors, including cultural preferences, price, quality standards, measurement systems, service and support. Export organizations, such as Trade Map, or local distributors can provide you with research information to plan your adaptation.

• Be prudent and careful:

Full adaptation strategies often prove cost prohibitive, as they often require building new marketing campaigns from the ground. Repositioning can result in substantial short- or long-term loss of market share if the strategy drives off existing customers without replacing them with new customers. Adaptation marketing strategies can also fail to overcome customer loyalty to established local brands. A business should weigh the financial costs against the probability of success before embarking on an adaptation marketing strategy.

REFERENCES:

http://chatbhandaar.brainmaalish.com/marketing-mishap-kelloggs-a-failure-of-a-brand/

http://www.authorstream.com/Presentation/aSGuest132938-1396883-kelloggs-india-case- study/ http://chatbhandaar.brainmaalish.com/marketing-mishap-kelloggs-a-failure-of-a-brand/ http://www.icmrindia.org/free%20resources/casestudies/Marketing %20freecasestudyp1.htm) http://badassdigest.com/2012/05/24/wheres-your-god-now-when-mcdonalds-made-a- hamburger-for-catholics/ http://ducttapeweddingring.com/2011/07/05/meatless-tuesdays-the-hula-burger/ http://www.businessinsider.com/failed-mcdonalds-items-2011-8?op=1#ixzz2xkHIDSyD

Thesis paper International Marketing: Product standardization strategy and product adaptation strategy