Value Proposition Adaptations

An important element in the implementation of a Global Marketing Strategy is the degree of

adaptation that the original, non-global, marketing strategy requires. In this document we
contemplate the essential adaptation considerations in three aspects: Product or Service
Modifications, Channels or Go-To-Market Strategies and Prices.

1. Global Product / Service Adaptations.

The Adaptation Strategy Matrix

Warren Keegan (in Kotler and Keller’s book “Marketing Management” from 2012) suggests
adaptation strategies when entering international markets that include ways to extend, adapt
or create (see table below). The simplest of these strategies requires no change to either the
product or the supporting communications. In most cases however, some product
modification is necessary, and in other companies can elect the more expensive option of truly
innovating.

Same product Product adaptation New product

development
Same
communication / Straight extension Product adaptation Product Invention
positioning
Different positioning Communication Dual adaptation
/ communication adaptation

Global Product Platforms

When developing new products that will need to be adapted to different markets, large
multinational companies use “product platforms” which have a similar technological and
manufacturing basis, which allows for customization (adaptation) of the final product, in
appearance, non-essential features and branding. This strategy is a compromise between
extensions and adaptations. One example of this strategy can be found in the large
automobile manufacturers, such as Audi – VW which use the same engines and car designs
for the different brands they market, with small modifications.

Packaging Adaptations

While the packaging of a product is often an integral part of its branding, it serves a dual
purpose since it is both functional and promotional. When considering global markets, several
factors come into play:

Global Marketing Strategies – Jaime Castelló – MIM 23-24 1

 • Shipping: If a product is not manufactured locally, companies must consider time,
distance and environmental factors that could affect the product and the condition of
its packaging.

• Functionality: consumers in different countries can be concerned with functional

(useful) packaging and are sensitive to waste, recycling, and re-use of the packaging.
Package recycling costs can be an added element to the overall cost of the product.

• Aesthetics: the look of the packaging can be perceived differently across borders,
beauty and colours have different meanings in different places (white is the colour of
mourning in India and of purity in the global west, green means ecology in many
countries but has disease connotations in Malaysia).

• Labelling modifications: many countries have specific labelling regulations that need
to be addressed, not only on the information that needs to appear on the labels
(specially for security reasons) but also in the languages in which it has to be expressed
(in Canada, for example, labels need to be both in English and French).

• Local customs: over time, certain countries become accustomed to seeing products
packaged in a certain way, such as multi or single serve packs, plastic, cardboard or
glass, sizes in ounces, gallons or litres.

International Product Quality Standards

Consumers all over the world expect that the products they buy will be safe and healthy and
conform to the claims of the manufacturer. In order to ensure these expectations, product
and promotion regulations have often been necessary. The impact of worldwide legislation
and regulations is a primary concern for manufacturers of both consumer and industrial
products. The concern is owing to the possibility of different product regulations and
standards on a global, regional and national level. These differences mean that multinational
brands must plan product strategy on a global or regional basis, adapting products whenever
necessary to fulfil required standards. Product planning poses three major challenges:

• First, end products must meet standards in each target country. The more countries a
company is present in, the more complexity and risk this challenge generates.
• Second, a company must efficiently and cost-effectively comply with all the standards
in all different countries.
• Third, a company must adapt to ongoing changes in legislation and standards.

While nearly all products are subject to some sort of regulation, industries such as
pharmaceutics, cosmetics, food, and electronics are more closely supervised.

Global Marketing Strategies – Jaime Castelló – MIM 23-24 2

The ISO (International Organization for Standardization)

The ISO is a nongovernmental organization headquartered in Geneva (Switzerland) consisting

of a network of national standards institutes from 160 countries. Its primary task is to develop
international product standards based on consensus within its members. Compliance with ISO
standards is voluntary, member organizations may apply for certification of ISO’s Quality
Management System (QMS) which entails commitment to quality form the top management
down to the employees’ competencies, and the processes of the company.

International IP Protection

Protecting Intellectual Property (IP) is also a challenge when opening to international markets.
IP can be defined as the creations of the mind or the intangible property that results from
thought (such as a song, a new type of electrical plug, a brand logo, or a streamlined
production process).

The three most common tactics to protect IP in international markets are copyrights,
trademarks and patents.

• Copyrights are granted to authors for creative works, such as songs and novels. When
a copyright expires it becomes public domain. Until then the work can only be used for
profit with the author’s permission.
• Trademarks apply to the symbols, words, phrases, and logos that are attached to
brands. These brand marks identify products to consumers and can only be used by
the companies that own them.
• Patents apply to inventions, from physical products to processes.

These three are protected under the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) which is a covenant that all members of the World Trade Organization
have signed.

2. Global Marketing Channels

Managing a distribution channel requires many decisions based on the evaluation of the
advantages and disadvantages.

• Direct versus indirect channels (degree of control vs. cost)

• Conventional distribution channels versus Vertical Marketing Systems (such as Directly
Operated Stores)
• Selection of the right channel partners or intermediaries.

The figure on the next page illustrates the range of options between a direct channel (on the
top of the figure) and indirect channels /on the bottom). The structure of a distribution
channel can also be described as the “length” based on the number of different actors in the

Global Marketing Strategies – Jaime Castelló – MIM 23-24 3

channel. Indirect channels are always longer than direct channels. Another concept used to
describe a channel is its “width” which describes the number of actors in a same level (for
example the number of retailers). Traditionally, the more the brand wants to reach as many
consumers as possible, the “wider” the channel is (for example Fast Moving Consumer Goods).

Telephone, Mail, door to door, website

Manufacturer End user / Consumer

Directly Operated Stores

Manufacturer End user / Consumer

Manufacturer’s own Sales Force

Manufacturer End user / Consumer

Manufacturer’s own Sales Force

Manufacturer Retailer End user / Consumer

Manufacturer Wholesaler End user / Consumer

Manufacturer Agent Retailer End user / Consumer

Manufacturer Wholesaler Retailer End user / Consumer

Manufacturer Agent Wholesaler Retailer End user / Consumer

Typologies of Channel Agents in an International Context

• Representatives: they operate in a specific geographical area on behalf of a company

(called the principal) without taking physical possession of the product. In exchange
for a commission, they arrange for a sale, but cannot sign contracts and must pass all
legal documents to the principal that will take all the necessary actions (credit,
handling, and shipping). Representatives represent either buyers or sellers on a more
permanent base than brokers.

• Agents: they are usually used by companies who can’t or won’t afford the costs of their
own sales department. Agents have contractual authority to sell the manufacturer’s
merchandise, so even if they don’t take title to the goods, they have a key role in
setting prices and terms and conditions of sales.

• Brokers and Factors: they facilitate the sale by assisting in negotiations and legally
binding the principal to a sale contract without taking any risk themselves. In exchange
for their services, they receive a commission on the selling price. Both brokers and
factors usually do not develop long term relationships and the contract is not expected
to be exclusive. Factors usually perform all normal brokerage functions plus financing.

• Distributors: they usually stock the product and have formalized and long-lasting
relationships with the manufacturer, with exclusive selling rights for a specific

Global Marketing Strategies – Jaime Castelló – MIM 23-24 4

 geographical area. Distributors negotiate the margin with the suppliers, represented
by the difference between buying and selling prices, minus their cost.

• Dealers: they execute trades for their company’s own account a provide the
manufacturer with a great deal of market information. Besides having the same type
of continuing relationship with suppliers as the Distributors, they also sell the
principal’s products to final consumers. Dealers frequently have exclusive selling rights
in a specified area. Sometimes manufacturers hold an equity share in the dealer’s
business.

• Importers: they provide the same services as distributors, but they may be either
wholesalers or retailers, and generally they don’t have exclusive territory rights. The
principal has limited control over them, and they negotiate their margins with the
supplier.

3. Global Pricing

Impact on prices of distribution strategies

The table below shows the price impact of two different channel strategies (one shorter and
one longer) compared to a domestic channel pricing structure. The table assumes that the
manufacturer is ready to sacrifice some of its margin to offset some of the channel impact on
the final consumer price.

Foreign channel with Foreign channel with

Domestic channel with
Importer and retailer importer, wholesaler and
retailer (manufacturer
(manufacturer margin retailer (manufacturer
margin 70%)
50%) margin 50%)

Manufacturer's cost 5,00 5,00 5,00

Manufacturer's margin +70% +50% +50%
(%)
Manufacturer's margin 3,5 2,5 2,5
(US$)
Manufacturer's price 8,50 7,50 7,50
+ Insurance, shipping ,
- 0,15 0,15
documentation costs (2%)
Landed cost - 7,65 7,65
+ Tariff (20%) - 1,53 1,53
Importer's cost - 9,18 9,18
+ Importer's margin (30%
- 2,75 2,75
of cost)
Wholesaler's cost - - 11,93
+ Wholesaler's margin
- - 3,58
(30% on cost)
Retailer's cost 8,50 11,93 15,51
+ Retailer's margin (40%
3,4 4,77 6,21
on cost)
Retail price 11,90 16,71 21,72

Price escalation over

- 40,40% 82,52%
domestic price

Global Marketing Strategies – Jaime Castelló – MIM 23-24 5

Purchasing Power Parity

The “law of one price” states that identical products should be priced identically in different
markets once the price is converted to the same currency in each market.

Price of bread in Bolivia = 1,5 Bolivian Pesos

Price of bread in Peru = 1.500 Peruvian Soles
Exchange rate (fictional) = 1 Bolivian Peso = 1.000 Peruvian Soles

The law of one price does not often apply, as often identical products are more or less
expensive depending on purchasing power differences. Purchasing power refers to the
amount of goods and services a unit of currency can purchase. Purchasing power reflects the
strength of different currencies in terms of their ability to purchase goods.

One example of purchasing power differences is the “Big Mac” index, released periodically by
The Economist.

https://www.economist.com/big-mac-
index?utm_medium=cpc.adword.pd&utm_source=google&ppccampaignID=18151738051&p
pcadID=&utm_campaign=a.22brand_pmax&utm_content=conversion.direct-
response.anonymous&gclid=CjwKCAiAu5agBhBzEiwAdiR5tLKcs3rsEtLDWXPMopgVew6x9JRk
-tjd6C4djElNFXqOkjGnxb2YPRoCdwQQAvD_BwE&gclsrc=aw.ds

(Retrieved for economist.com on 27/02/23)

Global Marketing Strategies – Jaime Castelló – MIM 23-24 6

The OECD creates a more exhaustive measure of purchasing power using the prices for a
basket of more than 1.000 goods and services (https://data.oecd.org/conversion/purchasing-
power-parities-ppp.htm).

PPP (Purchasing Power Parity) drastically influences costs and revenues. Understanding PPP
leads to more effective methods for comparing the prices of goods and services across
countries.

Grey Markets or Parallel imports

Parallel imports (also known as Grey Markets) occur when branded goods, purchased in low
price markets, are diverted to other markets without the authorization of the manufacturer
or the brand owner. These products are priced lower than the goods sold by authorized
distributors in the target market. In many cases parallel exports come from authorized
wholesalers which start to sell the product to other countries without any authorization, to
get more profits or to get rid of excessive inventory.

If a company wishes to reduce the risk of parallel import, it can:

• Reduce the price differential between markets... if the price difference is low,
opportunities for opportunistic behavior are less.
• Clearly differentiate the product for the different markets.
• Design the after-sales service (such as guarantees) so that it can control for the country
where the product has been purchased.

International Pricing strategies

• Local price follower: the exporter has little knowledge of foreign markets and receives
the information mainly from local agents and distributors. This induces the exporter
to be local cost oriented and competitor based, which results in setting different for
each of its foreign markets.

• Global price follower: the exporter operates in a more globalized industry

characterized by more standard prices across different countries, mainly set by global
industry leaders. The set their prices accordingly to the global industry leaders.

• Multi-local price setter: They adapt the prices to the different markets in which they
operate, usually by leaving pricing decisions to local subsidiaries. They are interested
in aligning prices to avoid parallel imports.

• Global price leader: they often operate in transnational segments where prices are
rather homogeneous. They often price their products or services higher than local
alternatives.

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