5 Strategies To Make Product Decisions For Foreign Markets
When a company reaches the international stage, a whole new world opens up.
Companies are met with endless opportunities from other cultures. The customer base becomes highly diversified. The new connections gained from international expansion are also much more valuable.
However, international expansion is not without its challenges.
Making product decisions in the International Business environment is particularly difficult. The International Business environment is extremely complex with lots of variables to take into consideration. There is usually only one chance to get it right. If done improperly, the brand’s reputation can be severely damaged in that country.
Just because a product is successful in the domestic market doesn’t mean that it will be successful when exported to a foreign market. These international market errors occur because of differences that exist between countries. Some products have “universal appeal”, or, in other words, everyone needs them and likes them, while other products need to go through some slight adjustments before being introduced into the market. There is absolutely no definite playbook for international expansion and international marketing. We must make product decisions in a way that reflects the dynamics of the foreign market.
So, how do we know the “dynamics” of the foreign market? The best way is to establish the local needs of the product and take them into account when doing international expansion.
In this article, we will explore the ways to make product decisions based on the cultural dynamics and values of the country it’s intended for.
1. What Are Product Decisions?
Product decisions are simply decisions made by a company for a product.
There are so many types of product decisions. Simply making a slight change to the color of the product packaging is already a big product decision to make. Product decisions can also be about developing an entirely new line of products, either through internal R&D or M&A.
2. How do companies make product decisions
Companies make product decisions based on:
- Physical attributes: materials, size, weight, design, packaging, performance, comfort
- Intangible attributes: brand image, styling, installation, delivery, credit, warranty, after-sales service, return policy
All of these seemingly insignificant factors can be the make or break of your products in foreign markets. Due to the vast differences in taste and preferences, product managers need to make appropriate product decisions to ensure that customers love the products.
Should we just sell the original product?
Should we make small changes to products? If so, WHAT should we change? And to WHAT degree?
Should we incorporate all cultural differences of countries around the world into the product from the get-go and introduce it globally?
Should we design an entirely new product that fits the new market?
All of these questions require careful consideration and assessment to answer.
3. Product Decision Strategies That International Businesses Should Make
Companies can pursue 5 major product strategies to bring their products to foreign markets:
- Straight Product Extension
- Product Adaptation
- Production Innovation
- Global Product Development
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3.1. Straight Product Extension
Straight Product Extension is when the firm adopts the same product policy used in its home market.
All they have to do is expand their marketing and allocate most of their resources to communications instead of R&D. With a higher budget for marketing, the market entry process can take place significantly faster and more effectively.
Straight Product Extension is suitable for products that are relatively universal in appeal, meaning that it is received in the same way wherever it goes. This strategy is not suitable for consumer products due to the incredibly varying tastes and preferences of its user demographic.
3.2. Product Adaptation
This strategy involves modifying the products in certain aspects to make it a better fit for the foreign market. The modified features can cater to the needs and wants of the consumers in that particular market. Usually, these changes usually impact the product design, functions, materials, or packaging (to response to the differences in climate).
Product Adaptation is one of the most viable product strategies that companies use to penetrate foreign markets. It is not as cost-effective as straight product extension strategy, but it excels in terms of providing customer satisfaction and building loyalty as well as brand reputation.
Sometimes, product adaptation is mandatory, or else the products can’t be sold in the market. In other cases, product adaptation is optional, but it can bring great benefits if adapted. In this scenario, companies have to consider if they want to allocate less budget to marketing and more budget to R&D for product adaptation.
For example, when car manufacturers export their products to the UK, they must follow the UK’s legal requirement of driving on the left. This is mandatory adaptation.
In other cases, companies voluntarily adapt their products to fit the country’s conditions and maintain a competitive advantage.
The following factors should be taken into consideration:
- Climate: necessary changes to packaging should be made when exporting products to a region whose climate is considerably different from the home country
- Level of literacy: if the products are exported to countries with a low level of literacy, or the consumers themselves belong to a low-literacy group, then the packaging should include simple images as instructions instead of words
- Culture: there are a lot of dimensions to a country’s culture. Color, for instance, have different interpretations in different regions. Beliefs and cultural values can also impact a product’s performance. Language is another factor to consider, as words that seem innocent and normal in one language can end up becoming profanities or offensive ones in the target language if not localized properly
- Income: income differs from country to country. Take into consideration the income levels of your target demographic in that country to make appropriate changes to the pricing
- Government Influence: Taxation, import quotas, tariffs, labeling, and health requirements are all government influences that may encourage or discourage the sales of your products in the country. For example, agricultural exports to EU countries must not exceed the pesticide and insecticide use standards. These ever-stricter restrictions may pose a lot of challenges to the farmers in foreign countries who want to export to EU countries, but it is all for the public good.
- Pressure: sometimes adaptation is the only choice there is if you want to enter a market. EU market is incredibly strict, and only the best of the best get approved.
- History: history is an interesting but complex variable in product adaptation. Countries have been interacting with each other for thousands of years, and there have always been conflicts between them. If you want to enter a country whose perception of your home country is not entirely positive, it is better to change the product so that the consumers view it in a more positively light.
3.3. Product Invention
As the name suggests, product invention involves designing, creating, and inventing an entirely new product for the market. Of course, the essence of the original product is still there. However, everything about its design (external and internal) will change to fit the expectations and needs of the market.
3.4. Product Standardization
Product Standardization is when the company applies a policy of standardization to its products. Companies that take the standardization approach view the world as one entity, not as a collection of markets with differences in cultures and behaviors. It’s also worth mentioning that products that get standardized are usually ones with universal appeal.
However, in today’s highly globalized world, more and more firms are adopting the standardization approach. They acknowledge the differences between the countries and account them into their packaging and labeling, but other than that, everything is pretty much the same. You see the same Coca-Cola and Apple iPhone in almost every single country, and this has a number of benefits to it:
- Economies of scale in R&D, production and marketing
- Leveraging the power of technology to bring the same products to people around the world
- Country-of-origin effect: products from some country is perceived as high-value, such as Japanese electronic goods or German cars
- Centralized management of international operations, as the approach is mainly exporting
- Higher budget is allocated to other areas instead of R&D. R&D cost is particularly high in high-tech and industrial fields.
- Laser-targeted focus on one single product
- Enhance the global image of the brand through uniformity of quality and service
- Same brand, logo, and positioning everywhere around the world
- In some developing countries, foreign products may carry the connotation of “high-quality”
However, product standardization ignores the uniqueness of each market, which may lead to the company not maximizing its sales and profit. A lack of adaptation may bring the company’s competitive advantage down when there are tons of other local competitors who understand the locals’ wants and needs more deeply.
3.5. Global Product Development
It is also possible to integrate all of the differences between the targeted markets into one single product. When pursuing this strategy, a lot of product features need to remain relatively unchanged when exported. Therefore, a thorough process of preliminary market research has to be conducted.
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Making product decisions in an incredibly complex and uncertain environment with a lot of uncontrolled variables like the international business environment is not easy. There are a lot of factors to take into consideration. Modifications of products are sometimes necessary for the product to “fit in” with the market. In other cases, it is better to keep the product as it is. Deciding which approach to take is challenging, because the product manager needs to possess great cultural competency and a deep understanding of how their product works.
What are your experience with making product decisions? Feel free to share your thoughts with us in the comment section below!
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