Monday, July 21, 2008

Global Corporations & Product Positioning

Last week, there were two news articles which caught my eye.

One was in Wall Street Journal on Levi Strauss: “Levi Strauss is retooling its signature button-fly 501 jeans so that they will have the same fit in each of the 110 countries in which the company says they are sold.”

The other was on Business Week on McDonalds: "The brand position is different in different parts of the world," he says. In the U.S., customers tend to eat on the go, and around 70% U.S. sales come from drive-throughs. Europeans prefer to linger. "In Europe it's more about the experience," he says. "It's convenient and a destination place at the same time."

To make the Golden Arches a place where Europeans want to hang out necessitated a major design overhaul. Hennequin, as French country head, refurbished the chain's outlets there, and he was tapped to do the same across the 40-country-strong European operation. He created a McDonald's design studio outside Paris to come up with a range of eight design packages from which franchisees, who account for 68% of European outlets, can choose.

Both companies are global leaders in their fields; both companies cater the general public – with lifestyle products and now both companies are moving in different directions of globalization with their products. McDonalds is becoming more local in Europe – by differentiating from the US operations and localizing the offerings to meet European tastes. While Levi Strauss is moving in the opposite direction – by developing a standardized product across the globe.

Interestingly, the financial results of these two companies are also moving in opposite directions. Levi Strauss is seeing a steady decline in income – from a peak of $7.1 billion in 1997 to $4.4 billion in 2007, while McDonalds is showing a steady increase in revenue in Europe.

This article is not a debate of localization of products Vs Globalization of products. Instead, I will concentrate on the fundamental principles of product positioning in a global economy and talk about the choices product managers have when positioning products for different markets.

Product Positioning

Product Managers have several choices in positioning a product in a global market – by varying two levers: Price & product localization (or product customization), which is illustrated below.

Products can be positioned anywhere in this two by two matrix, but in each market (or geography), there can be only one price-localization point for a particular product. The same product can be positioned differently in different markets. For example, Levi Strauss can position its signature button-fly 501 jeans at different price points in different markets or it can choose to have a standard global price.

Note that Levi Strauss has the option of placing its 501 fly button jeans at different price points – and that translates to different value points in different markets. For example if the Jeans is sold at (say) $40 in the US – it is perceived as Value-for-money, while in Malaysia, the same product may be priced at $30 and be perceived as a premium product.

If one were to opt for a global product, then the product pricing & positioning in different markets will have to be carefully planned – in view of the perceived value the product offers to customers. If the value positioning is wrong in one geographic market, then it has serious implication to other markets – in terms of brand reputation. Similarly, for a global product, if the pricing difference varies greatly between two geographic markets, then customers will choose the bypass the organized supply chain & procure the product from the lowest priced geography; which disturbs channel relationships. To illustrate this, if Levis Strauss prices 501 jeans in the US at $24, and prices the same in India at $2100 ($ 50), then customers in India and/or retailers can choose to buy it from the US rather than in India.

Localization also has its pitfalls

McDonalds for a long time followed a global standardization policy: All its restaurants serve similar food – fast, clean and good food. All the restaurants have a standard ambiance and is value positioned in the value of money segment. McDonald’s also establishes its global standard for developing its supply chain – from procuring raw materials to distribution.

However, in the recent times, McDonalds is becoming more open to experimentations and is localizing its product offerings – not just the menu, but also the ambiance and supply chain.

Successful localization for a global company is often difficult as it runs against the standard established practices, also the knowledge gained in one market cannot be used in other markets, and lastly the success of the local operation becomes tightly tied to the local people who run the local operation.

Implications for Technology Products & Companies

High tech products or engineering products such as Aircrafts, Computers, software, Medical equipment, chemicals etc are often positioned as a global product. The product is sold in only one format all over the world and at a same price.

However, the differences in taxes in various markets cause a price difference – which in turn result in “Grey” markets. Intel microprocessors for example is available at a lower price in the grey market, while the same product is available at a higher price through authorized dealers.

Similarly, Dell Laptop Dell XPS M1350 is available at:

US$999 in the US
US$1234 in UK
US$1140 in India

NOTE: Pricing is for an identical configuration in each of the three countries

This price differential makes people buy the Laptop in the US – and for use in India.

The same story is true for HP laptops as well.

Another downside of having a global standard pricing is that it results in diminished demand in other markets. For example most of the enterprise software – like Oracle 11i, SAP etc are sold at a uniform price – a price based on the US costs and demands. This leads to reduced sales in Asia, where customers prefer to use a lower cost alternative such as MYSQL or RAMSOFT ERP etc. In case there are no alternatives, businesses in Asia will prefer not to use such expensive systems – and may use increased labor instead or use it more judiciously. (or may simply choose to use a pirated version)

The trend is however changing. Asian companies have learnt to bargain harder and thus procure the same product at a huge discount. (See Reliance telecom story). Software companies have started the practice of discounting on the price when selling to Asian/African markets. This results in having a global product priced differently in multiple markets. (Discounting is mainly done in-order to maximize marginal revenues)

Many companies have started (albeit slowly – and half heartedly) to localize their products. Microsoft Vista & Microsoft XP is a good example of localization. Product positioning of Microsoft Vista will approximately look like:

Similarly, product positioning for EMC2 SMARTS will be like:

Closing Thoughts

Product positioning in multiple markets is a challenging task. In the initial phase of globalization, companies typically tend to follow a “global product” strategy. In the next phase, companies try out various localizations to increase sales and market share. As the companies evolve – they develop new set of global products from local products – “Glocal products” which is a mix of localization for the global markets.

Consumer product manufacturers such as Unilever, P&G, Toyota are good examples of such companies – they have few global brand names – but all of them have a localization content.

Product managers can use the two-by-two matrix to plan their product mix and then position their products in multiple markets.

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