International distribution

Distribution decisions

Distribution decisions are crucial part of an internationalization of a product. The 11C's need to be considered when deciding the distribution channel:

1. Customer characteristics
2. Culture
3. Company objectives
4. Competition
5. Character of the product
6. Capital required
7. Costs
8. Coverage
9. Continuity
10. Communication
11. Control

These all have a great effect on the decision of choosing the right distribution channel for the particular product. You need to know where people would normally buy such a product, how they buy it and when they buy it. Customer characteristics can be found through demographics, geographics, psychographics, behavioristics and linguistics. You also need to know the company objectives and how much money is allocated for the internationalization of that product to see which channels are fitting. The selection of a distribution channel is so very important because it is a long-term commitment and if selection fails, it can damage the image of that product severely.  

For example in Finland make up can be found through several different distribution channels, such as supermarkets (K-Citymarket, Prisma), department stores (Sokos, Stockmann), specialist shops (Kicks) and natural product boutiques. Each of these are very different in the selection of make up they provide. Supermarkets have the cheaper, daily cosmetics such as L'Oreal, Max factor, Isadora, Lumene, etc. in their range. Department stores often have the widest range with high end make up such as Dior, L'ancome, Chanel, etc. as well as the daily cosmetics mentioned earlier. The specialist shops often focus on the high end luxury cosmetics, but also carry some daily cosmetics in their range as well as natural cosmetics. The natural product boutiques usually carry one or two different natural cosmetics lines in their product range. So you can see that going into a supermarket to sell luxury or natural make up could be a huge mistake. People perceive these places as cheaper places to buy cosmetics and the value of your brand could be totally diminished by going into such a distribution channel with a high end product.  
Just a little fun picture question. Can you spot the difference. Which of these is a high end make up brands photo and which is a daily cosmetics brands photo?     

Pricing of an international product

Standard world-wide pricing or dual pricing?

There are many things to consider when setting a price on an international product. First the pricing environment should be assessed. The internal issues affecting the pricing include: marketing mix, company characteristics and management attitudes. The external issues can be divided in to two: market related factors such as demand and government regulations and industry related factors such as competition intensity. Secondly the pricing policy should be selected on the basis of objectives, competitive posture, decision control and flexibility. Thirdly the pricing strategy should be determined. There are several pricing strategies, but here are a few: standard world-wide price, cost-based pricing, market-based pricing, skimming, dumping, penetration pricing etc. The fourth stage is to set the final price.

With world-wide pricing the image of the product can be seen as commonly acknowledged the same all over the world. It also diminishes grey markets and the people who travel a lot can rely on the product to be of the same quality when it costs the same everywhere. There are only few companies who use this sort of pricing, one of them being Louis Vuitton. 

Differentiated pricing also has its advantages. The biggest being that you can set a competitive price on the market and not worry if the world-wide price is too high or too low in the eyes of the consumers in that particular market. This is called market-differentiated pricing and it is mostly affected by competitors prices, exchange rates and the environment over all. The other option is to use cost-oriented pricing. This has two methods: cost-plus method which allocates domestic and export costs to the product and marginal cost method which considers direct costs of producing and selling exports as floor price. Cost-oriented pricing can be tricky as it may lead to price escalation if the costs of all exporting costs are high and mark-ups will be piled on top.   

New global products

Strategic alternatives

When taking a product global you need to think about whether you change or keep the product or communication same or maybe both of them:

When you keep the product and the communication the same it is called straight extension. For example Ben & Jerry's ice cream has kept the product and the communication the same even in Finland. It is true that not all of the flavors of Ben & Jerry's re available here, but all that are have the same packaging with the English names on them. Of course the ingredients are mentioned in Finnish and Swedish as the Finnish law so requires.

When you change the product but keep the communication, it is called product adaption. Examples of these have been discussed in my earlier posts.

When you change the communication, but keep the product the same, it is called communication adaptation. For example Rexona as we Finns know it is owned by Unilever and it has different names in different countries(Rexona in most of Europe and Asia, Sure in UK and Ireland, Rexena in Japan and Korea, and Degree in USA and Canada. source: http://www.rexona.com.au/en/about/our-history.aspx) A fun fact: In 960's Rexona antiperspirant was first launched in Finland before it was launched to the global markets.

When both the product and communication are changed, it is called dual adaptation. McDonalds has several examples of dual adaptation. For example in France you can buy wine in there, where s in Germany you can buy beer. In Finland this is unheard of. They also have different burgers to accommodate different cultural tastes: Samurai Pork burger in Thailand, Maharaja Mac in India and Teriyaki McBurger in Japan.

Global product development

Global product development has several options on where and how it is going to happen. The main goal of this is to create new products that are widely adaptable for global markets with few if none changes. The new products can be developed in one country, centralized,  and then tested in several test markets to see whether it will work s it is in these culturally different countries. The other option is to create new products locally in several locations and then bring together the knowledge and develop it further. There is  lot of money put into new product development and generally in R&D, but only a few of these new inventions can be launched successfully to the global market and not fail in one of the many steps in NPD. There re some funny and some just simply chaotic examples of product failure through the following link:  http://saleshq.monster.com/news/articles/2655-the-20-worst-product-failures One of my favorites is the Pepsi Chrystal, which was supposed to be a healthy option as it was caffeine free and clear in color. This didn't go down well, customers couldn't perceive a cola as clear substance and they didn't think it even tasted like cola, or anything nice for that matter. Another is a frozen stir fry by Colgate (yes the toothpaste brand). This marriage of food and toothpaste did not succeed to win people's hearts.    

The most common reasons on why new products fail are:

1. Relying on instincts and hunch rather than research and testing (Colgate and Pepsi Crystal)
2. Lack of product distinctiveness
3. Unexpected technical problems
4. Mismatch between functions

The Harward Business Review states the following as why most product launches fail:

• The company can't support fast growth
• The product falls short of claims and gets bashed
• The new item exits in "product limbo"
• The product creates  a new product category that needs customer education, but doesn't get it
• the product is revolutionary, but there is no market (http://hbr.org/2011/04/why-most-product-launches-fail/ar/1)

These are rather similar to the ones  that were discussed during our class. The biggest difference in my opinion is that thee are thought from the point of view of the consumers and their needs.