Chapter Objectives
Structure Of The Chapter
Basic concepts
Product design
Production decisions
Branding and trademarks
Chapter Summary
Key Terms
Review Questions
Review Question Answers
References
Bibliography
Decisions regarding the product, price, promotion and distribution channels are decisions on the elements of the "marketing mix". It can be argued that product decisions are probably the most crucial as the product is the very epitome of marketing planning. Errors in product decisions are legion. These can include the imposition of a global standardised product where it is inapplicable, for example large horsepower tractors may be totally unsuitable for areas where small scale farming exists and where incomes are low; devolving decisions to affiliated countries which may let quality slip; and the attempt to sell products into a country without cognisance of cultural adaptation needs. The decision whether to sell globally standardised or adapted products is too simplistic for today's market place. Many product decisions lie between these two extremes. Cognisance has also to be taken of the stage in the international life cycle, the organisation's own product portfolio, its strengths and weaknesses and its global objectives. Unfortunately, most developing countries are in no position to compete on the world stage with many manufactured value-added products. Quality, or lack of it, is often the major letdown. As indicated earlier, most developing countries are likely to be exporting raw materials or basic and high value agricultural produce for some time to come.
The objectives of this chapter are
· To examine the basic concepts of "the product" and the importance of this concept in marketing· To give an understanding of the features of product design and the factors which shape the "standardisation" versus "adaptation" decisions
· To describe the production process and how value can be added in the process
· To describe the major product strategies.
The chapter starts by examining the basic concepts of the "product" including its physical (or objective) features and its image (or subjective) features. Once the product is put into the design stage based on consumer research, then a decision has to be made on its form - either globally standardised or adapted to local conditions. Of course, with many agricultural cash and food crops its form may stay the same (standard), for example an orange, or it may be adapted (frozen orange juice) to meet different market needs and conditions. The chapter concludes by looking at the different types of product strategies, varying from a global approach to a micro-marketing approach at national level.
A product can be defined as a collection of physical, service and symbolic attributes which yield satisfaction or benefits to a user or buyer. A product is a combination of physical attributes say, size and shape; and subjective attributes say image or "quality". A customer purchases on both dimensions. As cited earlier, an avocado pear is similar the world over in terms of physical characteristics, but once the label CARMEL, for example, is put on it, the product's physical properties are enhanced by the image CARMEL creates. In "postmodernisation" it is increasingly important that the product fulfills the image which the producer is wishing to project. This may involve organisations producing symbolic offerings represented by meaning laden products that chase stimulation-loving consumers who seek experience - producing situations. So, for example, selling mineral water may not be enough. It may have to be "Antarctic" in source, and flavoured. This opens up a wealth of new marketing opportunities for producers.
A product's physical properties are characterised the same the world over. They can be convenience or shopping goods or durables and nondurables; however, one can classify products according to their degree of potential for global marketing:
i) local products - seen as only suitable in one single market.ii) international products - seen as having extension potential into other markets.
iii) multinational products - products adapted to the perceived unique characteristics of national markets.
iv) global products - products designed to meet global segments.
Quality, method of operation or use and maintenance (if necessary) are catchwords in international marketing. A failure to maintain these will lead to consumer dissatisfaction. This is typified by agricultural machinery where the lack of spares and/or foreign exchange can lead to lengthy downtimes. It is becoming increasingly important to maintain quality products based on the ISO 9000 standard, as a prerequisite to export marketing.
Consumer beliefs or perceptions also affect the "world brand" concept. World brands are based on the same strategic principles, same positioning and same marketing mix but there may be changes in message or other image. World brands in agriculture are legion. In fertilizers, brands like Norsk Hydro are universal; in tractors, Massey Ferguson; in soups, Heinz; in tobacco, BAT; in chemicals, Bayer. These world brand names have been built up over the years with great investments in marketing and production. Few world brands, however, have originated from developing countries. This is hardly surprising given the lack of resources. In some markets product saturation has been reached, yet surprisingly the same product may not have reached saturation in other similar markets. Whilst France has long been saturated by avocadoes, the UK market is not yet, hence raising the opportunity to enter deeper into this market.
Changes in design are largely dictated by whether they would improve the prospects of greater sales, and this, over the accompanying costs. Changes in design are also subject to cultural pressures. The more culture-bound the product is, for example food, the more adaptation is necessary. Most products fall in between the spectrum of "standardisation" to "adaptation" extremes. The application the product is put to also affects the design. In the UK, railway engines were designed from the outset to be sophisticated because of the degree of competition, but in the US this was not the case. In order to burn the abundant wood and move the prairie debris, large smoke stacks and cowcatchers were necessary. In agricultural implements a mechanised cultivator may be a convenience item in a UK garden, but in India and Africa it may be essential equipment. As stated earlier "perceptions" of the product's benefits may also dictate the design. A refrigerator in Africa is a very necessary and functional item, kept in the kitchen or the bar. In Mexico, the same item is a status symbol and, therefore, kept in the living room.
Factors encouraging standardisation are:
i) economies of scale in production and marketing
ii) consumer mobility - the more consumers travel the more is the demand
iii) technology
iv) image, for example "Japanese", "made in".
The latter can be a factor both to aid or to hinder global marketing development. Nagashima1 (1977) found the "made in USA" image has lost ground to the "made in Japan" image. In some cases "foreign made" gives advantage over domestic products. In Zimbabwe one sees many advertisements for "imported", which gives the product advertised a perceived advantage over domestic products. Often a price premium is charged to reinforce the "imported means quality" image. If the foreign source is negative in effect, attempts are made to disguise or hide the fact through, say, packaging or labelling. Mexicans are loathe to take products from Brazil. By putting a "made in elsewhere" label on the product this can be overcome, provided the products are manufactured elsewhere even though its company maybe Brazilian.
Factors encouraging adaptation are:
i) Differing usage conditions. These may be due to climate, skills, level of literacy, culture or physical conditions. Maize, for example, would never sell in Europe rolled and milled as in Africa. It is only eaten whole, on or off the cob. In Zimbabwe, kapenta fish can be used as a relish, but wilt always be eaten as a "starter" to a meal in the developed countries.ii) General market factors - incomes, tastes etc. Canned asparagus may be very affordable in the developed world, but may not sell well in the developing world.
iii) Government - taxation, import quotas, non tariff barriers, labelling, health requirements. Non tariff barriers are an attempt, despite their supposed impartiality, at restricting or eliminating competition. A good example of this is the Florida tomato growers, cited earlier, who successfully got the US Department of Agriculture to issue regulations establishing a minimum size of tomatoes marketed in the United States. The effect of this was to eliminate the Mexican tomato industry which grew a tomato that fell under the minimum size specified. Some non-tariff barriers may be legitimate attempts to protect the consumer, for example the ever stricter restrictions on horticultural produce insecticides and pesticides use may cause African growers a headache, but they are deemed to be for the public good.
iv) History. Sometimes, as a result of colonialism, production facilities have been established overseas. Eastern and Southern Africa is littered with examples. In Kenya, the tea industry is a colonial legacy, as is the sugar industry of Zimbabwe and the coffee industry of Malawi. These facilities have long been adapted to local conditions.
v) Financial considerations. In order to maximise sales or profits the organisation may have no choice but to adapt its products to local conditions.
vi) Pressure. Sometimes, as in the case of the EU, suppliers are forced to adapt to the rules and regulations imposed on them if they wish to enter into the market.
In decisions on producing or providing products and services in the international market it is essential that the production of the product or service is well planned and coordinated, both within and with other functional area of the firm, particularly marketing. For example, in horticulture, it is essential that any supplier or any of his "outgrower" (sub-contractor) can supply what he says he can. This is especially vital when contracts for supply are finalised, as failure to supply could incur large penalties. The main elements to consider are the production process itself, specifications, culture, the physical product, packaging, labelling, branding, warranty and service.
Production process
The key question is, can we ensure continuity of supply? In manufactured products this may include decisions on the type of manufacturing process - artisanal, job, batch, flow line or group technology. However in many agricultural commodities factors like seasonality, perishability and supply and demand have to be taken into consideration. Table 8.1 gives a checklist of questions on product requirements for horticultural products as an example6
Table 8.1 Checklist of questions on product requirements by market
|
Existing sources of supply |
Recommendations for new suppliers, or increased supply |
|
Current important suppliers? |
Best period of supply? Grading and quality standards: *acceptable size ranges? Budget gross and net prices? |
Quantity and quality of horticultural crops are affected by a number of things. These include input supplies (or lack of them), finance and credit availability, variety (choice), sowing dates, product range and investment advice. Many of these items will be catered for in the contract of supply.
Specification
Specification is very important in agricultural products. Some markets will not take produce unless it is within their specification. Specifications are often set by the customer, but agents, standard authorities (like the EU or ITC Geneva) and trade associations can be useful sources. Quality requirements often vary considerably. In the Middle East, red apples are preferred over green apples. In one example French red apples, well boxed, are sold at 55 dinars per box, whilst not so attractive Iranian greens are sold for 28 dinars per box. In export the quality standards are set by the importer. In Africa, Maritim (1991)2, found, generally, that there are no consistent standards for product quality and grading, making it difficult to do international trade regionally.
Culture
Product packaging, labeling, physical characteristics and marketing have to adapt to the cultural requirements when necessary. Religion, values, aesthetics, language and material culture all affect production decisions. Effects of culture on production decisions have been dealt with already in chapter three.
Physical product
The physical product is made up of a variety of elements. These elements include the physical product and the subjective image of the product. Consumers are looking for benefits and these must be conveyed in the total product package. Physical characteristics include range, shape, size, color, quality, quantity and compatibility. Subjective attributes are determined by advertising, self image, labelling and packaging. In manufacturing or selling produce, cognisance has to be taken of cost and country legal requirements.
Again a number of these characteristics is governed by the customer or agent. For example, in beef products sold to the EU there are very strict quality requirements to be observed. In fish products, the Japanese demand more "exotic" types than, say, would be sold in the UK. None of the dried fish products produced by the Zambians on Lake Kariba, and sold into the Lusaka market, would ever pass the hygiene laws if sold internationally. In sophisticated markets like seeds, the variety and range is so large that constant watch has to be kept on the new strains and varieties in order to be competitive.
Packaging
Packaging serves many purposes. It protects the product from damage which could be incurred in handling and transportation and also has a promotional aspect. It can be very expensive. Size, unit type, weight and volume are very important in packaging. For aircraft cargo the package needs to be light but strong, for sea cargo containers are often the best form. The customer may also decide the best form of packaging. In horticultural produce, the developed countries often demand blister packs for mangetouts, beans, strawberries and so on, whilst for products like pineapples a sea container may suffice. Costs of packaging have always to be weighed against the advantage gained by it.
Increasingly, environmental aspects are coming into play. Packaging which is non-degradable - plastic, for example - is less in demanded. Bio-degradable, recyclable, reusable packaging is now the order of the day. This can be both expensive and demanding for many developing countries.
Labelling
Labelling not only serves to express the contents of the product, but may be promotional (symbols for example Cashel Valley Zimbabwe; HJ Heinz, Africafe, Tanzania). The EU is now putting very stringent regulations in force on labelling, even to the degree that the pesticides and insecticides used on horticultural produce have to be listed. This could be very demanding for producers, especially small scale, ones where production techniques may not be standardised. Government labelling regulations vary from country to country. Bar codes are not widespread in Africa, but do assist in stock control. Labels may have to be multilingual, especially if the product is a world brand. Translation could be a problem with many words being translated with difficulty. Again labelling is expensive, and in promotion terms non-standard labels are more expensive than standard ones. Requirements for crate labelling, etc. for international transportation will be dealt with later under documentation.
As mentioned in chapter four, it is difficult to protect a trademark or brand, unless all countries are members of a convention. Brand "piracy" is widespread in many developing countries.
Other aspects of branding include the promotional aspects. A family brand of products under the Zeneca (ex ICI) label or Sterling Health are likely to be recognised worldwide, and hence enhance the "subjective" product characteristics.
Warranty
Many large value agricultural products like machinery require warranties. Unfortunately not everyone upholds them. It is common practice in Africa that if the original equipment has not been bought through an authorised dealer in the country, that dealer refuses to honour the warranty. This is unfortunate, because not only may the equipment have been legitimately bought overseas, it also actually builds up consumer resistance to the dealer. When the consumer is eventually offered a choice, the reticent. dealer will suffer. For example when new dealers spring up.
|
Case 8.1 Cotton Production/Marketing Interface Spinners Machines are highly flexible, that is they can usually switch to a variety of yarn requirements. The machines are geared to high production, are automated and are of a precision for constant quality provision. There are strict process controls and built - in quality control. Poor raw material, especially when contaminated with metal particles, damages opening mills, grid knives, fans and card clothing. Previous devices employed to remove these (magnets) are becoming less effective. The consequences are damage in the blowroom and carding and danger of fire. Quality is therefore defined as properties of the end use (clothing etc.), efficiency of weaving and knitting and the efficient running of the spinning plant. Spinners require raw cotton which is free of trash, dust, sugar and honey dew contamination, seed coats, bark and foreign fibres and, will not nep the cloth. Further requirements are a certain length (could be short, medium or long), uniformity of length, strength, fineness, maturity and a certain elongation and colour. Suppliers In order to meet these high quality demands, the growers have to ensure that the production, picking and ginning is of a very high standard. Cotton grading The Liverpool Cotton exchange, for one, relied on the skills of its experts to manually classify raw fibre purchases for its clients. It still holds the "standards" for length, colour and trash content. As well as the demands of modem machinery, the lack of standardised measuring and cotton classification procedures has resulted in commercial conflict and legal disputes about the true nature of traded cotton. Now, computer based high volume instrument listing systems of raw cotton (HVI systems) are available. The system can handle large numbers of bales, reduce variation in classification and the need for highly trained bate classifiers. For cotton exporters the system offers the following advantages: · enhanced objectivity in classification The system can process 2000 bales per day and give a printout on the seven parameters of grading. These include length and length uniformity, strength and elongation, micronaire or fineness, leaf and colour. Manufacturers include SPINLAR INC. of Knoxville, USA. |
Service
In agricultural machinery, processing equipment and other items which are of substantial value and technology, service is a prerequisite. In selling to many developing countries, manufacturers have found their negotiations at stake due to the poor back-up service. Often, this is no fault of the agent, distributor or dealer in the foreign country, but due to exchange regulations, which make obtaining spare parts difficult. Many organisations attempt to get around this by insisting that a Third World buyer purchases a percentage of parts on order with the original items. Allied to this problem is the poor quality of service due to insufficient training. Good original equipment manufacturers will insist on training and updating as part of the agency agreement. In order to illustrate the above points, cotton can be used as an example. Cotton is a major foreign exchange earner for Zimbabwe. In 1990/91, 52,000 tonnes were sold overseas at a value of Zim$ 238 million. As the spinners, particularly those in the export market, are in a highly competitive industry, it is essential that the raw material is as clean as possible. Also today's spinning equipment is highly technical and the spinner wishes to avoid costly breakdowns by all means.
Product strategies
There are five major product strategies in international marketing.
Product communications extension
This strategy is very low cost and merely takes the same product and communication strategy into other markets. However it can be risky if misjudgments are made. For example CPC International believed the US consumer would take to dry soups, which dominate the European market. It did not work.
Extended product - communications adaptation
If the product basically fits the different needs or segments of a market it may need an adjustment in marketing communications only. Again this is a low cost strategy, but different product functions have to be identified and a suitable communications mix developed.
Product adaptation - communications extension
The product is adapted to fit usage conditions but the communication stays the same. The assumption is that the product will serve the same function in foreign markets under different usage conditions.
Product adaptation - communications adaptation
Both product and communication strategies need attention to fit the peculiar need of the market.
Product invention
This needs a totally new idea to fit the exclusive conditions of the market. This is very much a strategy which could be ideal in a Third World situation. The development costs may be high, but the advantages are also very high.
Table 8.2 summarises the strategic alternatives with examples4.
The choice of strategy will depend on the most appropriate product/market analysis and is a function of the product itself defined in terms of the function or need it serves, the market defined in terms of the conditions under which the product is used, the preferences of the potential customers and the ability to buy the product in question, and the costs of adaptation and manufacture to the company considering these product - communications approaches.
Table 8.2 International strategic alternatives
|
Product strategy |
Communications strategy |
Product/functions Met |
Conditions of product use |
Examples |
|
1 Extension |
Extension |
Same |
Same |
Pepsi |
|
2 Extension |
Adaptation |
Different |
Same |
Soups |
|
3 Adaptation |
Extension |
Same |
Different |
Agriculture chemicals |
|
4 Adaptation |
Adaptation |
Different |
Different |
Farm implements |
|
5 Invention |
New |
Same |
- |
Tyson turbine water pump |
|
|
|
|
|
Thailand tuna |
|
CASE 8.2. Thailand Tuna The case of Thai Tuna is a good example of the fifth product strategy alternative. In 1980 world canned tuna imports stood at some 110,000 tons, world consumption was stagnant, prices depressed and rising operating costs were leading to the closure of the tuna processing facilities in the US, Japan and Europe. However, up to 1990, world tuna imports quadrupled to 437,000 tons with large scale canning operations shifting to several lower cost developing countries. No country experienced the dramatic development more than Thailand. In 1980 it did not export one single can. In 1990, Thailand exported 225,000 tons (51% of world market share) with a gross value in 1989 of US$ 537 million. The Thai industry development was rapid and interesting because it was based on imported raw materials. Tuna landings by Thai vessels rarely exceeded 30,000 tons, whilst its imports of foreign tuna (mostly skipjack) has increased past the 250,000 ton mark. The reason for this was the shift in fishing patterns. Historically the eastern Atlantic and Pacific were the most important areas but in the 1970s, US vessels began to exploit the tuna shoals of the Western Pacific and European vessels the Indian Ocean. The result was the increase of landings from 1,7 million tons in 1980 to 2,5 million tons in 1988, but a significant drop in prices accompanied this increase. Thailand was in a position to capitalise on these new low cost suppliers and in the early to mid 1980s several fruit and vegetable canners and other entrepreneurs invested in large modern processing facilities specially for fish. Their operating costs were kept low by efficient management, low cost labour, backward integration into production and the efficient use of by products from processing. This was basically an "invention" product strategy. In order to gain access to and capitalise on the expanding markets in the US and Europe (except France which favoured Francophone African suppliers) Thai canners entered into packaging arrangements with American and European firms. Latter, Thailand's largest processor look over the third largest tuna canner in the US, enabling it to take advantage of the llatter's exclusive distribution network and well-established brand names. |
As well as the above, organisations have also to consider the international product life cycle (described in section one) and the "fit" of the strategy into the company's portfolio, strengths and weaknesses. In launching new products into international markets, the international product life cycle concept is crucial. Comparative analysis is a very useful technique also for new product introduction. The idea behind this concept is that if underlying conditions existing in one country are similar to those in another then there is a likelihood of a product being successfully introduced. On the other hand, again as indicated in chapter one, the international life cycle can work against domestic producers. The introduction of a second country product into a first country which has had a "closed economy" can sometimes kill off local production if that local producer cannot respond to the imported product's competitiveness. The case of Sunsplash Zimbabwe is an example.
Product decisions epitomise marketing planning and are the manifestation of marketing strategy. These decisions are not to be taken lightly. The end consumer and channel considerations have to be taken into account and the product extended or adapted accordingly.
|
Case 8.3 Imported Juice Helps To Kill Off Sunsplash A fruit juice processor, Sunsplash, has stopped production of juices following declining business, leaving 15 people without employment. Company director Mr. Michael Willmore said production ceased at the end of last month, adding that the Sunsplash range of fruit juices would be available over the next four months until remaining stocks had been exhausted. The factory had, since its establishment in 1984, processed a variety of fruit juices for the Zimbabwean market. Mr. Willmore said high transport costs as well as competition from imported products had affected the viability of the company, which had been established in Masvingo in response to Government calls for industry to decentralise. "The introduction of (imported) products into the Zimbabwean market rapidly eroded our market share from over 1 million litres to a mere 450 000 litres annually. By simple statement of fact, Sunsplash was not viable on the reduced volume." He also criticised the lack of incentives in Masvingo, particularly for new investors. *In my opinion, both central government and local municipal authorities will have to offer industries more attractive incentives to invest En Masvingo", he said. He said incentives such as lax exemptions offered at growth points and Export Processing Zones (EPZ) would he more ideal for Masvingo because it was well located from the Mozambican port of Beira as well as South Africa. This made the town an ideal location for EPZs. Mr. Willmore, however, added that the demise of Sunsplash was more complicated than more proximity to major markets. "The company desperately needed to make me transition to aseptic packaging, a technology which enables fruit juices to be processed without the use of chemical preservatives white providing an unrefrigerated shell life of six months, The innovation would have greatly enhanced the product and provided export potential, but regrettably, cashflow constraints within our holding company (Afdis), combined with high interest rates, made the $5,8 million investment unviable". |
The marketing mix, which is the means by which an organisation reaches its target market, is made up of product, pricing, distribution, promotion and people decisions. These are usually shortened to the anacronym "5P's". Product decisions revolve around decisions regarding the physical product (size, style, specification, etc.) and product line management.
Product decisions are based on how much the organisation has to adjust the product on the standardisation - adaptation continuum to differing market conditions. This results in the evolution of five basic strategic alternatives - extension; extension, adaptation; adaptation, extension; adaptation and invention. Extension is the nearest to a standardised product, communications strategy and Invention at the other end of the continuum, that is, an adaptation strategy. The more adaptive the policy the more costly it will be for the organisation.
|
Adaptation |
Local products |
Product strategies |
|
Global products |
Multinational products |
Standardisation |
|
International products |
Product |
- |
1. What factors are important in the standardisation versus adaptation product decision process?
2. Describe the principle elements of "the product". Give examples.
3. Describe, with examples, the five major product strategies available to global marketers.
1. Factors
a) Standardisation- Economies of scale
- Production and Marketing
- Consumer mobility
- Technology
- Image, e.g. "Made in Japan"b) Adaptation
- Differing usage conditions
- Market factors
- Government - taxation, quotas etc.
- History e.g. colonialism
- Financial considerations
- Pressure, e.g. regulations
2. Product
Specification, e.g. quality standards, style, colour, shape. Image, e.g. advertising
- Advertising
- Labelling
- Branding
- Trademark
- Warranty
- Service
3. Product strategies
· Product communications extension e.g. Pepsi
· Extended product, communications adaptation, e.g. soups
· Product adaptation, communications extension, e.g. agrochemicals
· Product adaptation, communications adaptation, e.g. farm implements
· Product invention, e.g. Thai tuna
1. Nagashima A., A comparative "Made - In Product Image Survey Among Japanese Dimension Sound of Marketing", July 1977 pp. 95-100.
2. Maritim H., "Post Harvest Handling Produce in Eastern and Southern Africa" in S. Carter (Ed) "Horticultural Marketing. Proceedings of the Sound Regional Workshop on Horticultural Marketing" 1991, pp. 187-127.
3. Bischofberger, J., "What Spinners Want. In Training Manual on Cotton Trading Operations", International Trade Centre UNCTAD/GATT, Geneva, 1989, pp 31-53.
4. Jaffee S. (1993) "Exporting High Value Added Commodities". "World Bank Discussion Paper" 198, the World Bank, Washington
5. Sunsplash. "Business Herald", Thursdays, January 19 1995
6. Dixie, G.B.R., "Horticultural Marketing", FAO Agricultural Services Bulletin 76,1989.
7. Keegan, W.J.," Global Marketing Management", Prentice Hall, 1989.
