Description
Objective of this document is enlists key points from Theodore Levitt paper and explain them with the help of Case Study on Nivea: Global Company with Standardized Products & Case Study on McDonalds Localization.
2010
Analysis – The Globalization of Markets By Theodore Levitt
Thoughts of Management Gurus
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Contents
Essence of the article .............................................................................................................................. 3 Key Points in Levitt’s Article .................................................................................................................... 4 Case Study on Nivea: Global Company with Standardised Products.................................................. 5 Interpretation of the article .................................................................................................................... 8 Criticisms of Levitt’s ‘Globalization of Markets’ ................................................................................... 11 Case Study on McDonalds Localization............................................................................................. 14 Learnings from the article ..................................................................................................................... 17 Conclusion ............................................................................................................................................. 20
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Essence of the article
The worldwide success of a growing list of products that have become household names is evidence that consumers the world over, despite deep-rooted cultural differences, are becoming more and more alike - or, as the author puts it, "homogenized." In consequence, Levitt contends, the traditional MNC's strategy of tailoring its products to the needs of multiple markets may put it at a severe disadvantage vis-a-vis competitors who apply marketing imagination to the task of developing advanced, functional, reliable standardized products, at the right price, on a global scale. Theodore Levitt was one of the first scholars to write a high-impact article on globalization aimed at business managers. Now, two decades later, "The Globalization of Markets" is still widely read. His article offers enduring insights; and those are what we want to explore. Understanding Levitt's "globalization" as an analytical lens through which to view the world is highly useful. Indeed, Levitt's central insight - that "preferences are constantly shaped and reshaped" - is crucial for both managers and scholars. What constitutes globalization, in Levitt's (and our) way of thinking, is interaction that changes things, rather than leaving them the same. Successful firms and the managers who run them do not leave the world as they found it. Rather than taking consumer preferences as a given, successful managers have treated them as outcomes. Following Levitt, then, we can see that the global market is not solely what firms find. The market is, to some important extent, what firms make of it.
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Key Points in Levitt’s Article
Theodore Levitt is often considered to be the first to recognize the trend towards globalization and states that: “companies must learn to operate as if the world were one large market – ignoring superficial regional and national differences…” In addition, he argues that the companies that do not adapt to the new global realities will become the victims of those that do. Theodore Levitt’s 1983 article about the globalization of markets is one of the most discussed essays on this subject. Many companies have become disillusioned with the sales in the international marketplace as old markets become saturated and new ones must be found. Levitt in his essay asserts that well-managed companies have moved from emphasis on customizing items to offering globally standardized products that are advanced, functional, reliable and low priced. Only global companies will achieve longterm success by concentrating on what everyone wants rather than worrying about the details of what everyone thinks they might like. According to Levitt a powerful force drives the world toward a converging commonality, and that force is technology. It has proletarianized communication, transport, and travel. It has made isolated places and impoverished peoples eager for modernity’s allurements. Almost everyone everywhere wants all the things they have heard about, seen, or experienced via the new technologies. Levitt wrote this essay in 1983. Today technology has been much more developed and there are lots of innovations that we face everyday. Facebook, iPhone, 3G communication are just a few examples we experience today. Levitt says that the result is a new commercial reality-the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. Corporations geared to this new reality benefit from enormous economies of scale in production, distribution, marketing, and management.
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Case Study on Nivea: Global Company with Standardised Products
The case describes the brand management strategies of the German branded goods major Beiersdorf for its Nivea range of products. Nivea's journey from being a oneproduct brand to a range encompassing fourteen product categories and over 300 products by the beginning of the 21st century is explored. The case also examines Beiersdorf's 'twin-strategy' of brand extension and globalization, which made Nivea the number one skin care brand in the world. Beiersdorf had a strong focus on innovation-led product development and customer-focused marketing, and examined the strategies taken by the company to ensure that brand dilution did not hamper the umbrella branding initiatives for Nivea. Nivea - Origin & Evolution Beiersdorf was a well-known name in Germany in the early 1900s due to its range of body care products, adhesive tapes and bandages (Refer Exhibit I for a brief note on the company). In 1912, Beiersdorf owner Oskar Troplowitz, a chemist Isaac Lifschütz and a dermatologist Paul Unna jointly developed a skin cream based on Eucerit, the first ever water-in-oil emulsifier. In addition to Eucerit, the cream contained glycerine, citric acid, oil of rose and extract of lily of the valley (fragrant bell-shaped white flowers). Prior to the introduction of this cream, skin care creams were prepared using animal and vegetable fats. Such creams decomposed as the fats lost their freshness. The mild, sweet-smelling product introduced by Beiersdorf, with its stable, long-lasting formula was thus a revolutionary product for cosmetic buyers. Troplowitz named this product Nivea, based on the Latin world 'nivius' (meaning snow-white). MARKETING NIVEA Before Nivea, skin creams were targeted primarily at women from the upper strata of society. However, Beiersdorf mass-marketed Nivea, thus making it very popular with customers. As the market for female grooming evolved, Beiersdorf took the help of
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advertising to gain recognition. By the time the company began exporting Nivea to other countries in the 1920s, it knew that it had a winner on its hands... "In many countries, consumers are convinced that Nivea is a local brand, a mistake which Beiersdorf, the German makers, take as a compliment." "The concept is one that spans a great many categories. Coca-Cola as a brand does not have a lot of extendability. Whereas Coke means Coca-Cola, Nivea is not Beiersdorf." In May 2003, a survey of 'Global Mega Brand Franchises' revealed that the Nivea cosmetics brand had a presence in the maximum number of product categories and countries. The survey, conducted by the US-based AC Nielsen, aimed at identifying those brands which had 'successfully evolved beyond their original product categories.' A key parameter was the presence of these brands in multiple product categories as well as countries. Nivea's performance in this study prompted a yahoo.com news article to name it the 'Queen of Mega Brands.' This title was appropriate since the brand was present in over 14 product categories and was available in more than 150 countries. Nivea was the market leader in skin creams and lotions in 28 countries, in facial cleansing in 23 countries, in facial skin care in 18 countries, and in suntan products in 15 countries. In many of these countries, Nivea was reportedly believed to be a brand of local origin having been present in them for many decades. This fact went a long way in helping the brand attain the leadership status in many categories and countries. In its home country Germany too, many of Nivea's products were the market leaders in their segments. This market leadership status translated into superior financial performance. Between 1991 and 2001, Nivea posted double-digit growth rates every year. For 2001, the brand generated revenues of € 2.5 billion3, amounting to 55% of the parent company's (Beiersdorf) total revenue for the year. According to analysts, the brand was the single largest factor for the 4.4% increase in the company's revenues (€ 4.74 billion) and 10.7% increase in after-tax profit (€ 290 million) for the year 2002.
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The 120-year old, Hamburg (Germany) based Beiersdorf has often been credited for meticulously building the Nivea brand into the world's number one personal care brand. According to a survey conducted by A C Nielsen in the late 1990s, the brand had a 15% share in the global skin care products market. While Nivea had always been the company's star performer, the 1990s were a period of phenomenal growth for the brand. By successfully extending what was essentially a 'one-product wonder' into many different product categories, Beiersdorf had silenced many critics of its umbrella branding decisions. Thus, the globalization strategy of Nivea has worked wonders for them and they have gained a competitive advantage. With the economies of scale, they have managed to reduce the cost of production and with a strong marketing base; they have catapulted the brand across the globe.
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Interpretation of the article
Companies must learn to operate as if the world were one large market- ignoring superficial regional and national differences. ? Focus on standardized products According to Levitt, the focus is on standardised products which will help achieve economies of scale in production, distribution, marketing and management and will cater to worldwide markets. Levitt, in his article says that mass production of standardized items will help lower cost of production and thus eventually lead to lower prices. This lower price advantage will boost worldwide demand for the product leading to homogenised markets. An example to testify this is that of Coca Cola which produces standardized Coke bottles. Not only this, it also has similar ways of distributing, marketing across the globe. For this reason, economies of scale could be achieved and the product could be offered at low cost. ? High Quality at Low cost Levitt is of the view that high quality and low cost can co- exist. They are not opposing entities. It is a popular notion that there exists a trade off between quality and cost. It was regarded that to achieve high quality, huge investment has to be made which in turn increases costs. Also, if cost of operation is reduced, then this happens at the expense of quality. But Levitt advocated that if standardized products are focussed on and production, distribution, marketing is done for the same, and then high quality can be achieved at low costs through economies of scale. An example for this is Intel which offers the best quality microprocessors in the industry. This is accompanied with dropping costs of production due to large scale production. ? Technology and globalization Two vectors that shape the world are technology and globalization. Levitt says that technology not only helps to homogenize the world preferences but it also helps in determining what consumers would really like i.e. human preferences.
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Also, technology helps converge world demand and preferences. ? Customization of product to certain extent Levitt says that it is not that global companies do not do any customization in its products. Instead he says that products are customized according to various segments in a particular market. However, they need to search for similar segments worldwide in order to gain from economies of scale. This proves to be successful because even local market segments have their global equivalents worldwide which can be tapped by the global competitor. In case of Gillette, there are different variants in razor blades for male and female populations, which also form different market segments. These market segments exist worldwide and not only for a particular country or region. Sales opportunities in these segments can be identified and economies of scale can be achieved. ? Acceptance of standardised products compromising preferences Standardised products around the world help reduce the prices of the product to such an extent that even though that is not exactly what consumers want, they are willing to compromise with it given the cost effectiveness and superior quality. If a company forces costs and prices down and pushes quality and reliability up - while maintaining reasonable concern for suitabilitycustomers will prefer its world-standardized products. ? Economies of scale v/s economies of scope Critiques of globalization and standardization are of the opinion that with flexible factory automation, changing products and product features according to consumer preferences will be quick and will result in economies of scope. However Levitt argues that even though this might be true, the benefits of economies of scale will be greater than the benefits of economies of scope. Also, handling two to three marketing segments worldwide would be more efficient than handling more than four or five segments.
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E.g. Economies of scope is best demonstrated by Dell Computers. They have the option of letting consumers completely customise laptops according to the features they need. Economies of scale is widely practiced by Wipro. It manufactures all its CFL bulbs in Vietnam which is sold all across Asia. This allows Wipro to gain out of economies of large scale production and sell the same worldwide. ? Global competitor will never assume that customer is a king who knows his own wishes According to Levitt, a global company will create demand with its standardized products rather than customizing it to specific preferences. The case of Sony Walkman exemplifies this. Many projected the failure of this product because of the already existing tape recorders and other sound devices. But against popular opinion, Sony Walkman was a big hit with first production lot getting sold in the first month itself. This product was targeted towards the youth but to the company’s surprise, the product appealed to all age groups. Thus, Levitt believes that the world will evolve into ‘one big market’ wherein all needs of customers can be catered to.
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Criticisms of Levitt’s ‘Globalization of Markets’
? Mirage of Global Markets: The belief that global approaches can overwrite local differences is one of the main reasons for best companies under- performing in international markets. E.g. Henkel’s detergent business had struggled to balance economies of scale achieved by standardisation with deep concerns about potential harm to its relationship with consumers. Henkel's conclusion was that the consumer, not the company, must decide what can be the same across borders. ? Confusing Globalization with Standardization: A painful lesson was learnt by Procter & Gamble. As its president of Western European operations, Paul Polman, told The Wall St Journal, European business was suffering because it had been confusing globalisation with standardisation. Rather than look outward to the consumer, the company was too busy looking inward, based on the belief that the world was converging. Now P&G operates a unique strategy for each country. Its toothpaste brand Crest remains Blend-a-Med in Germany and AZ in Italy. And a more local approach with Pampers is paying off in Germany, where P&G claims to be one of the few consumer goods companies growing in what is considered Europe's toughest market. ? Global Product Standardization: Although there is a general perception that standardized products are displacing locally customized products in many categories, the evidence suggests "the global standardization hypothesis has less momentum behind it than is often supposed to be the case," according to HBS professor Pankaj Ghemawat. "The Globalization of Markets" was probably too extreme in the way it emphasized the momentum behind global standardization. Its more enduring contribution seems to be that it correctly flagged demand-side preferences and supply-side economies of simplicity and standardization as the two key economic determinants of standardization versus customization in market outcomes.
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Rooting Marketing Strategy in Human Universals: Global and local marketing efforts run at the opposite sides of the spectrum, and both "ignore crucial aspects of consumer behaviour. This can be a good way to combine both if, marketers are willing to dig below superficial benefits and attributes to connect products and services to emotions and schemes of thoughts that are almost universally shared among human beings.
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Global Brands- Managing the Brand Product Continuum in Global Markets: Dr. Hans-Willi Schroiff and David Arnold argue that global branding is the policy of establishing globally consistent brand names, identities, and positions. By separating brand from product, this approach aims to highlight possible ways in which brand owners in international corporations can address the trade-off between global integration and local responsiveness.
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Managing the Transnational Brand: How Global Perceptions Drive Value: While globalness has become a stronger quality signal than nation of origin, consumers still prefer brands that hail from countries that are considered to have particular expertise: Switzerland in chocolates, Italy in clothing, France in cosmetics, Germany in cars, Japan in electronics, for example.
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The Unglobal Consumer: In today’s scenario, even though the world is becoming ‘flat’ (due to globalization); however the consumers are still ‘unglobal’ i.e. they look out for products and services that would particularly cater to and fulfil their needs. Thus, global companies have to customise their brands to an extent according to the local needs of the customer. e.g. Pepsi has a sweeter taste in India since Indian consumers prefer it that way. A study showed that one person in ten worldwide wouldn't buy global brands if given a choice (Such consumers are called Anti- globals). That's an extraordinary number. The antiglobals represent more potential sales than do markets the size of Germany or the United Kingdom, according to our calculations. Few businesses are in a position to ignore such a large group of potential consumers.
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Companies must earn the trust of that segment by focusing on them as disgruntled consumers.
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Case Study on McDonalds Localization
McDonald's Localisation Strategy: Brand Unification, Menu Diversification Levitt’s belief of eventual failure of Glocalization is proven wrong in today’s scenario. The same is demonstrated in the form of the case study by Mc Donald’s.
McDonald's Corporation (McDonald's), is one of the oldest chains of quick service restaurants in the world. Over the years, McDonald's had developed a thriving market globally and as of end 2008, had a presence in 121 countries. Analysts pointed out that while many restaurants and restaurant chains were facing hard times because of the economic slowdown, McDonald's had shown improvement in sales. Its international business had also helped insulate it from the housing-led US economic downturn, they said. The company used various strategies that the company adopted in the international market including its localization, pricing, promotional, and operational strategies in various countries.
McDonald's global presence is as strong now as it ever has been and people all over the world are becoming more accustomed to eating McDonald's fast and inexpensive meals on the go." - Ockham Research, in 2008. "McDonald's international operations continued to grow at a brisk rate, helping to insulate the company from the housing-led US economic downturn that is hurting upscale restaurants." 14 | P a g e
- Financial Express, in 2008. "The world is becoming a service society. People are hungry for service, but in many countries they don't get any except at McDonald's. That's why our stores are so crowded. That's why we're ahead."
- Rolf Kreiner, ex-Head of marketing at McDonald's Germany Operation, in 1994 Untouched by Global Economic Slowdown In July 2008, US-based McDonald's Corporation (McDonald's), one of the world's leading fast food restaurant chains, reported a net income of US$ 1.19 billion for the second quarter of the year 2008. This stood in sharp contrast to the corresponding quarter of the previous year when it had suffered a net loss of US$ 711.7 million. The company said that the sales had largely been achieved due to brisk business in its international markets. It also reported a rise of four percent in revenues, which stood at US$ 6.04 billion, backed by 6.1 % growth in same-store sales at the global level , while the comparable sales in the US grew by 3.4 %. The history of McDonald's dates back to the late 1930s, when two brothers Richard McDonald (Richard) and Maurice McDonald (Maurice) started a hot dog stand in California.
In 1961, the McDonald brothers sold off their business to Raymond Kroc (Kroc), who was managing the franchise operations at McDonald's. The company reached new heights in terms of growth under Kroc's leadership. In 1967, McDonald's first ventured out into the international market by starting a store in Canada. This was followed by the setting up of more restaurants in Europe and Asia. Although most of the operations were standardized, the company also took the route of localization to gain acceptance in different countries.
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Some of the localization strategies used included adding local items to its menu and deleting from it certain food items that were objectional in some places. The company also undertook different marketing techniques in different countries and adjusted the pricing according to the prevailing economic conditions there. As of 2008, McDonald's was present in around 121 countries across the world. Localization of Mc Donalds: McDonald's, the world's leading fast-food retailer with 30,000 restaurants in 119 countries, has successfully maintained its global brand identity by standardising its principles and service quality but customising its offerings across the globe. The highlight of McDonald's localisation strategy has been its foray into Asia where it has survived and has repeatedly proved itself vis-à-vis other big food retailers who have failed due to their inability to adapt to Asia's diverse cultures, tastes and temperaments.
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Learnings from the article
1. When a brand is marketed around the world, that fact alone gives it an aura of excellence--and a set of obligations. To maximize the value of global reach, companies must manage both. 2. Although Levitt did not explicitly discuss branding, managers interpreted his ideas to mean that transnational companies should standardize products, packaging, and communication to achieve a least-common-denominator positioning that would be effective across cultures. From that commonsense standpoint, global branding was only about saving costs and ensuring consistent customer communication. The idea proved popular in the 1980s, when several countries opened up to foreign competition and American and Japanese corporations tried to penetrate those markets with global brands and marketing programs.
3. Consumers in most countries had trouble relating to the generic products and
communications that resulted from companies' least-common-denominator thinking. Executives therefore rushed to fashion hybrid strategies. They strove for global scale on backstage activities such as technology, production, and organization but made sure product features, communications, distribution, and selling techniques were customized to local consumer tastes. Such "glocal" strategies have ruled marketing ever since.
4. Global brands have never been more salient in the minds of consumers. In fact,
most transnational corporations don't realize that people view them differently than they do other firms. Because of their pervasiveness, global brands are seen as powerful institutions--capable of doing great good and causing considerable harm.
5. The forces that Levitt described didn't produce a homogeneous world
market; they produced a global culture. Culture is created and preserved mainly by communication. In modern societies, communication takes many forms: newspaper and magazine articles, television and radio broadcasts, Internet content, books, films, music, art, and, of course, advertising and marketing communications. For decades, communication had circulated mostly
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within the borders of countries, helping to build strong national cultures. Toward the end of the twentieth century, much of popular culture became global. As nations integrated into the world economy, cross-border tourism and labor mobility rose; TV channels, movies, and music became universally available to consumers; and, more recently, Internet growth has exploded. Those factors force people to see themselves in relation to other cultures as well as their own. For instance, consumers everywhere have to make sense of the world vis-à-vis Hollywood and Bollywood films, CNN and al-Jazeera news reports, hip-hop and Sufi music.
6. The rise of a global culture doesn't mean that consumers share the same tastes
or values. Consumers ascribe certain characteristics to global brands and use those attributes as criteria while making purchase decisions. 7. Consumers all over the world associate global brands with three characteristics and evaluate them on those dimensions while making purchase decisions. The three characteristics are: a. Quality Signal: Until recently, people's perceptions about quality for value and technological prowess were tied to the nations from which products originated. "Made in the USA" was once important; so were Japanese quality and Italian design in some industries. Increasingly, however, a company's global stature indicates whether it excels on quality. b. Global Myth: Consumers look to global brands as symbols of cultural ideals. They use brands to create an imagined global identity that they share with like-minded people. Transnational companies therefore compete not only to offer the highest value products but also to deliver cultural myths with global appeal. Further, no longer are myths created only by lifestyle and luxury brands; myths are now spun by virtually all global brands, in industries as diverse as information technology and oil. c. Social Responsibility: People recognize that global companies wield extraordinary influence, both positive and negative, on society's wellbeing. They expect firms to address social problems linked to what they sell and how they conduct business. The playing field isn't level; consumers don't demand that local companies tackle global warming, but
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they expect multinational giants like BP and Shell to do so. Similarly, people may turn a blind eye when local companies take advantage of employees, but they won't stand for transnational players like Nike and Polo adopting similar practices. Such expectations are as pronounced in developing countries like China and India as they are in developed countries in Europe.
8. Key Take-aways for Global Companies: Smart companies manage their brands as global symbols because that's what consumers perceive them to be. However, people all over the world are either astonished or disturbed by giant transnational corporations. Firms must learn to participate in that polarized conversation about global brands and influence it. A major obstacle is the instability of global culture. Consumer understandings of global brands are framed by the mass media and the rhizome-like discussions that spread over the Internet. Companies must monitor those perceptions constantly.
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Conclusion
With Levitt's help, companies today understand that the market is what they make of it, not what they find. However, Levitt’s article in itself will not provide holistic solution to companies for what strategies they should adopt. Companies need to adopt a hybrid strategy; have a globalised approach but customise the marketing, distribution and promotion activities as per local demands. Also, the concept of Globalization may not be applicable to all products and services. Some products can be served as it is on the global platter; however others need to be altered according to the changing needs of the market and customer preferences.
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doc_345628128.docx
Objective of this document is enlists key points from Theodore Levitt paper and explain them with the help of Case Study on Nivea: Global Company with Standardized Products & Case Study on McDonalds Localization.
2010
Analysis – The Globalization of Markets By Theodore Levitt
Thoughts of Management Gurus
Page | 1
Contents
Essence of the article .............................................................................................................................. 3 Key Points in Levitt’s Article .................................................................................................................... 4 Case Study on Nivea: Global Company with Standardised Products.................................................. 5 Interpretation of the article .................................................................................................................... 8 Criticisms of Levitt’s ‘Globalization of Markets’ ................................................................................... 11 Case Study on McDonalds Localization............................................................................................. 14 Learnings from the article ..................................................................................................................... 17 Conclusion ............................................................................................................................................. 20
2|Page
Essence of the article
The worldwide success of a growing list of products that have become household names is evidence that consumers the world over, despite deep-rooted cultural differences, are becoming more and more alike - or, as the author puts it, "homogenized." In consequence, Levitt contends, the traditional MNC's strategy of tailoring its products to the needs of multiple markets may put it at a severe disadvantage vis-a-vis competitors who apply marketing imagination to the task of developing advanced, functional, reliable standardized products, at the right price, on a global scale. Theodore Levitt was one of the first scholars to write a high-impact article on globalization aimed at business managers. Now, two decades later, "The Globalization of Markets" is still widely read. His article offers enduring insights; and those are what we want to explore. Understanding Levitt's "globalization" as an analytical lens through which to view the world is highly useful. Indeed, Levitt's central insight - that "preferences are constantly shaped and reshaped" - is crucial for both managers and scholars. What constitutes globalization, in Levitt's (and our) way of thinking, is interaction that changes things, rather than leaving them the same. Successful firms and the managers who run them do not leave the world as they found it. Rather than taking consumer preferences as a given, successful managers have treated them as outcomes. Following Levitt, then, we can see that the global market is not solely what firms find. The market is, to some important extent, what firms make of it.
3|Page
Key Points in Levitt’s Article
Theodore Levitt is often considered to be the first to recognize the trend towards globalization and states that: “companies must learn to operate as if the world were one large market – ignoring superficial regional and national differences…” In addition, he argues that the companies that do not adapt to the new global realities will become the victims of those that do. Theodore Levitt’s 1983 article about the globalization of markets is one of the most discussed essays on this subject. Many companies have become disillusioned with the sales in the international marketplace as old markets become saturated and new ones must be found. Levitt in his essay asserts that well-managed companies have moved from emphasis on customizing items to offering globally standardized products that are advanced, functional, reliable and low priced. Only global companies will achieve longterm success by concentrating on what everyone wants rather than worrying about the details of what everyone thinks they might like. According to Levitt a powerful force drives the world toward a converging commonality, and that force is technology. It has proletarianized communication, transport, and travel. It has made isolated places and impoverished peoples eager for modernity’s allurements. Almost everyone everywhere wants all the things they have heard about, seen, or experienced via the new technologies. Levitt wrote this essay in 1983. Today technology has been much more developed and there are lots of innovations that we face everyday. Facebook, iPhone, 3G communication are just a few examples we experience today. Levitt says that the result is a new commercial reality-the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. Corporations geared to this new reality benefit from enormous economies of scale in production, distribution, marketing, and management.
4|Page
Case Study on Nivea: Global Company with Standardised Products
The case describes the brand management strategies of the German branded goods major Beiersdorf for its Nivea range of products. Nivea's journey from being a oneproduct brand to a range encompassing fourteen product categories and over 300 products by the beginning of the 21st century is explored. The case also examines Beiersdorf's 'twin-strategy' of brand extension and globalization, which made Nivea the number one skin care brand in the world. Beiersdorf had a strong focus on innovation-led product development and customer-focused marketing, and examined the strategies taken by the company to ensure that brand dilution did not hamper the umbrella branding initiatives for Nivea. Nivea - Origin & Evolution Beiersdorf was a well-known name in Germany in the early 1900s due to its range of body care products, adhesive tapes and bandages (Refer Exhibit I for a brief note on the company). In 1912, Beiersdorf owner Oskar Troplowitz, a chemist Isaac Lifschütz and a dermatologist Paul Unna jointly developed a skin cream based on Eucerit, the first ever water-in-oil emulsifier. In addition to Eucerit, the cream contained glycerine, citric acid, oil of rose and extract of lily of the valley (fragrant bell-shaped white flowers). Prior to the introduction of this cream, skin care creams were prepared using animal and vegetable fats. Such creams decomposed as the fats lost their freshness. The mild, sweet-smelling product introduced by Beiersdorf, with its stable, long-lasting formula was thus a revolutionary product for cosmetic buyers. Troplowitz named this product Nivea, based on the Latin world 'nivius' (meaning snow-white). MARKETING NIVEA Before Nivea, skin creams were targeted primarily at women from the upper strata of society. However, Beiersdorf mass-marketed Nivea, thus making it very popular with customers. As the market for female grooming evolved, Beiersdorf took the help of
5|Page
advertising to gain recognition. By the time the company began exporting Nivea to other countries in the 1920s, it knew that it had a winner on its hands... "In many countries, consumers are convinced that Nivea is a local brand, a mistake which Beiersdorf, the German makers, take as a compliment." "The concept is one that spans a great many categories. Coca-Cola as a brand does not have a lot of extendability. Whereas Coke means Coca-Cola, Nivea is not Beiersdorf." In May 2003, a survey of 'Global Mega Brand Franchises' revealed that the Nivea cosmetics brand had a presence in the maximum number of product categories and countries. The survey, conducted by the US-based AC Nielsen, aimed at identifying those brands which had 'successfully evolved beyond their original product categories.' A key parameter was the presence of these brands in multiple product categories as well as countries. Nivea's performance in this study prompted a yahoo.com news article to name it the 'Queen of Mega Brands.' This title was appropriate since the brand was present in over 14 product categories and was available in more than 150 countries. Nivea was the market leader in skin creams and lotions in 28 countries, in facial cleansing in 23 countries, in facial skin care in 18 countries, and in suntan products in 15 countries. In many of these countries, Nivea was reportedly believed to be a brand of local origin having been present in them for many decades. This fact went a long way in helping the brand attain the leadership status in many categories and countries. In its home country Germany too, many of Nivea's products were the market leaders in their segments. This market leadership status translated into superior financial performance. Between 1991 and 2001, Nivea posted double-digit growth rates every year. For 2001, the brand generated revenues of € 2.5 billion3, amounting to 55% of the parent company's (Beiersdorf) total revenue for the year. According to analysts, the brand was the single largest factor for the 4.4% increase in the company's revenues (€ 4.74 billion) and 10.7% increase in after-tax profit (€ 290 million) for the year 2002.
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The 120-year old, Hamburg (Germany) based Beiersdorf has often been credited for meticulously building the Nivea brand into the world's number one personal care brand. According to a survey conducted by A C Nielsen in the late 1990s, the brand had a 15% share in the global skin care products market. While Nivea had always been the company's star performer, the 1990s were a period of phenomenal growth for the brand. By successfully extending what was essentially a 'one-product wonder' into many different product categories, Beiersdorf had silenced many critics of its umbrella branding decisions. Thus, the globalization strategy of Nivea has worked wonders for them and they have gained a competitive advantage. With the economies of scale, they have managed to reduce the cost of production and with a strong marketing base; they have catapulted the brand across the globe.
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Interpretation of the article
Companies must learn to operate as if the world were one large market- ignoring superficial regional and national differences. ? Focus on standardized products According to Levitt, the focus is on standardised products which will help achieve economies of scale in production, distribution, marketing and management and will cater to worldwide markets. Levitt, in his article says that mass production of standardized items will help lower cost of production and thus eventually lead to lower prices. This lower price advantage will boost worldwide demand for the product leading to homogenised markets. An example to testify this is that of Coca Cola which produces standardized Coke bottles. Not only this, it also has similar ways of distributing, marketing across the globe. For this reason, economies of scale could be achieved and the product could be offered at low cost. ? High Quality at Low cost Levitt is of the view that high quality and low cost can co- exist. They are not opposing entities. It is a popular notion that there exists a trade off between quality and cost. It was regarded that to achieve high quality, huge investment has to be made which in turn increases costs. Also, if cost of operation is reduced, then this happens at the expense of quality. But Levitt advocated that if standardized products are focussed on and production, distribution, marketing is done for the same, and then high quality can be achieved at low costs through economies of scale. An example for this is Intel which offers the best quality microprocessors in the industry. This is accompanied with dropping costs of production due to large scale production. ? Technology and globalization Two vectors that shape the world are technology and globalization. Levitt says that technology not only helps to homogenize the world preferences but it also helps in determining what consumers would really like i.e. human preferences.
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Also, technology helps converge world demand and preferences. ? Customization of product to certain extent Levitt says that it is not that global companies do not do any customization in its products. Instead he says that products are customized according to various segments in a particular market. However, they need to search for similar segments worldwide in order to gain from economies of scale. This proves to be successful because even local market segments have their global equivalents worldwide which can be tapped by the global competitor. In case of Gillette, there are different variants in razor blades for male and female populations, which also form different market segments. These market segments exist worldwide and not only for a particular country or region. Sales opportunities in these segments can be identified and economies of scale can be achieved. ? Acceptance of standardised products compromising preferences Standardised products around the world help reduce the prices of the product to such an extent that even though that is not exactly what consumers want, they are willing to compromise with it given the cost effectiveness and superior quality. If a company forces costs and prices down and pushes quality and reliability up - while maintaining reasonable concern for suitabilitycustomers will prefer its world-standardized products. ? Economies of scale v/s economies of scope Critiques of globalization and standardization are of the opinion that with flexible factory automation, changing products and product features according to consumer preferences will be quick and will result in economies of scope. However Levitt argues that even though this might be true, the benefits of economies of scale will be greater than the benefits of economies of scope. Also, handling two to three marketing segments worldwide would be more efficient than handling more than four or five segments.
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E.g. Economies of scope is best demonstrated by Dell Computers. They have the option of letting consumers completely customise laptops according to the features they need. Economies of scale is widely practiced by Wipro. It manufactures all its CFL bulbs in Vietnam which is sold all across Asia. This allows Wipro to gain out of economies of large scale production and sell the same worldwide. ? Global competitor will never assume that customer is a king who knows his own wishes According to Levitt, a global company will create demand with its standardized products rather than customizing it to specific preferences. The case of Sony Walkman exemplifies this. Many projected the failure of this product because of the already existing tape recorders and other sound devices. But against popular opinion, Sony Walkman was a big hit with first production lot getting sold in the first month itself. This product was targeted towards the youth but to the company’s surprise, the product appealed to all age groups. Thus, Levitt believes that the world will evolve into ‘one big market’ wherein all needs of customers can be catered to.
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Criticisms of Levitt’s ‘Globalization of Markets’
? Mirage of Global Markets: The belief that global approaches can overwrite local differences is one of the main reasons for best companies under- performing in international markets. E.g. Henkel’s detergent business had struggled to balance economies of scale achieved by standardisation with deep concerns about potential harm to its relationship with consumers. Henkel's conclusion was that the consumer, not the company, must decide what can be the same across borders. ? Confusing Globalization with Standardization: A painful lesson was learnt by Procter & Gamble. As its president of Western European operations, Paul Polman, told The Wall St Journal, European business was suffering because it had been confusing globalisation with standardisation. Rather than look outward to the consumer, the company was too busy looking inward, based on the belief that the world was converging. Now P&G operates a unique strategy for each country. Its toothpaste brand Crest remains Blend-a-Med in Germany and AZ in Italy. And a more local approach with Pampers is paying off in Germany, where P&G claims to be one of the few consumer goods companies growing in what is considered Europe's toughest market. ? Global Product Standardization: Although there is a general perception that standardized products are displacing locally customized products in many categories, the evidence suggests "the global standardization hypothesis has less momentum behind it than is often supposed to be the case," according to HBS professor Pankaj Ghemawat. "The Globalization of Markets" was probably too extreme in the way it emphasized the momentum behind global standardization. Its more enduring contribution seems to be that it correctly flagged demand-side preferences and supply-side economies of simplicity and standardization as the two key economic determinants of standardization versus customization in market outcomes.
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Rooting Marketing Strategy in Human Universals: Global and local marketing efforts run at the opposite sides of the spectrum, and both "ignore crucial aspects of consumer behaviour. This can be a good way to combine both if, marketers are willing to dig below superficial benefits and attributes to connect products and services to emotions and schemes of thoughts that are almost universally shared among human beings.
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Global Brands- Managing the Brand Product Continuum in Global Markets: Dr. Hans-Willi Schroiff and David Arnold argue that global branding is the policy of establishing globally consistent brand names, identities, and positions. By separating brand from product, this approach aims to highlight possible ways in which brand owners in international corporations can address the trade-off between global integration and local responsiveness.
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Managing the Transnational Brand: How Global Perceptions Drive Value: While globalness has become a stronger quality signal than nation of origin, consumers still prefer brands that hail from countries that are considered to have particular expertise: Switzerland in chocolates, Italy in clothing, France in cosmetics, Germany in cars, Japan in electronics, for example.
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The Unglobal Consumer: In today’s scenario, even though the world is becoming ‘flat’ (due to globalization); however the consumers are still ‘unglobal’ i.e. they look out for products and services that would particularly cater to and fulfil their needs. Thus, global companies have to customise their brands to an extent according to the local needs of the customer. e.g. Pepsi has a sweeter taste in India since Indian consumers prefer it that way. A study showed that one person in ten worldwide wouldn't buy global brands if given a choice (Such consumers are called Anti- globals). That's an extraordinary number. The antiglobals represent more potential sales than do markets the size of Germany or the United Kingdom, according to our calculations. Few businesses are in a position to ignore such a large group of potential consumers.
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Companies must earn the trust of that segment by focusing on them as disgruntled consumers.
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Case Study on McDonalds Localization
McDonald's Localisation Strategy: Brand Unification, Menu Diversification Levitt’s belief of eventual failure of Glocalization is proven wrong in today’s scenario. The same is demonstrated in the form of the case study by Mc Donald’s.
McDonald's Corporation (McDonald's), is one of the oldest chains of quick service restaurants in the world. Over the years, McDonald's had developed a thriving market globally and as of end 2008, had a presence in 121 countries. Analysts pointed out that while many restaurants and restaurant chains were facing hard times because of the economic slowdown, McDonald's had shown improvement in sales. Its international business had also helped insulate it from the housing-led US economic downturn, they said. The company used various strategies that the company adopted in the international market including its localization, pricing, promotional, and operational strategies in various countries.
McDonald's global presence is as strong now as it ever has been and people all over the world are becoming more accustomed to eating McDonald's fast and inexpensive meals on the go." - Ockham Research, in 2008. "McDonald's international operations continued to grow at a brisk rate, helping to insulate the company from the housing-led US economic downturn that is hurting upscale restaurants." 14 | P a g e
- Financial Express, in 2008. "The world is becoming a service society. People are hungry for service, but in many countries they don't get any except at McDonald's. That's why our stores are so crowded. That's why we're ahead."
- Rolf Kreiner, ex-Head of marketing at McDonald's Germany Operation, in 1994 Untouched by Global Economic Slowdown In July 2008, US-based McDonald's Corporation (McDonald's), one of the world's leading fast food restaurant chains, reported a net income of US$ 1.19 billion for the second quarter of the year 2008. This stood in sharp contrast to the corresponding quarter of the previous year when it had suffered a net loss of US$ 711.7 million. The company said that the sales had largely been achieved due to brisk business in its international markets. It also reported a rise of four percent in revenues, which stood at US$ 6.04 billion, backed by 6.1 % growth in same-store sales at the global level , while the comparable sales in the US grew by 3.4 %. The history of McDonald's dates back to the late 1930s, when two brothers Richard McDonald (Richard) and Maurice McDonald (Maurice) started a hot dog stand in California.
In 1961, the McDonald brothers sold off their business to Raymond Kroc (Kroc), who was managing the franchise operations at McDonald's. The company reached new heights in terms of growth under Kroc's leadership. In 1967, McDonald's first ventured out into the international market by starting a store in Canada. This was followed by the setting up of more restaurants in Europe and Asia. Although most of the operations were standardized, the company also took the route of localization to gain acceptance in different countries.
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Some of the localization strategies used included adding local items to its menu and deleting from it certain food items that were objectional in some places. The company also undertook different marketing techniques in different countries and adjusted the pricing according to the prevailing economic conditions there. As of 2008, McDonald's was present in around 121 countries across the world. Localization of Mc Donalds: McDonald's, the world's leading fast-food retailer with 30,000 restaurants in 119 countries, has successfully maintained its global brand identity by standardising its principles and service quality but customising its offerings across the globe. The highlight of McDonald's localisation strategy has been its foray into Asia where it has survived and has repeatedly proved itself vis-à-vis other big food retailers who have failed due to their inability to adapt to Asia's diverse cultures, tastes and temperaments.
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Learnings from the article
1. When a brand is marketed around the world, that fact alone gives it an aura of excellence--and a set of obligations. To maximize the value of global reach, companies must manage both. 2. Although Levitt did not explicitly discuss branding, managers interpreted his ideas to mean that transnational companies should standardize products, packaging, and communication to achieve a least-common-denominator positioning that would be effective across cultures. From that commonsense standpoint, global branding was only about saving costs and ensuring consistent customer communication. The idea proved popular in the 1980s, when several countries opened up to foreign competition and American and Japanese corporations tried to penetrate those markets with global brands and marketing programs.
3. Consumers in most countries had trouble relating to the generic products and
communications that resulted from companies' least-common-denominator thinking. Executives therefore rushed to fashion hybrid strategies. They strove for global scale on backstage activities such as technology, production, and organization but made sure product features, communications, distribution, and selling techniques were customized to local consumer tastes. Such "glocal" strategies have ruled marketing ever since.
4. Global brands have never been more salient in the minds of consumers. In fact,
most transnational corporations don't realize that people view them differently than they do other firms. Because of their pervasiveness, global brands are seen as powerful institutions--capable of doing great good and causing considerable harm.
5. The forces that Levitt described didn't produce a homogeneous world
market; they produced a global culture. Culture is created and preserved mainly by communication. In modern societies, communication takes many forms: newspaper and magazine articles, television and radio broadcasts, Internet content, books, films, music, art, and, of course, advertising and marketing communications. For decades, communication had circulated mostly
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within the borders of countries, helping to build strong national cultures. Toward the end of the twentieth century, much of popular culture became global. As nations integrated into the world economy, cross-border tourism and labor mobility rose; TV channels, movies, and music became universally available to consumers; and, more recently, Internet growth has exploded. Those factors force people to see themselves in relation to other cultures as well as their own. For instance, consumers everywhere have to make sense of the world vis-à-vis Hollywood and Bollywood films, CNN and al-Jazeera news reports, hip-hop and Sufi music.
6. The rise of a global culture doesn't mean that consumers share the same tastes
or values. Consumers ascribe certain characteristics to global brands and use those attributes as criteria while making purchase decisions. 7. Consumers all over the world associate global brands with three characteristics and evaluate them on those dimensions while making purchase decisions. The three characteristics are: a. Quality Signal: Until recently, people's perceptions about quality for value and technological prowess were tied to the nations from which products originated. "Made in the USA" was once important; so were Japanese quality and Italian design in some industries. Increasingly, however, a company's global stature indicates whether it excels on quality. b. Global Myth: Consumers look to global brands as symbols of cultural ideals. They use brands to create an imagined global identity that they share with like-minded people. Transnational companies therefore compete not only to offer the highest value products but also to deliver cultural myths with global appeal. Further, no longer are myths created only by lifestyle and luxury brands; myths are now spun by virtually all global brands, in industries as diverse as information technology and oil. c. Social Responsibility: People recognize that global companies wield extraordinary influence, both positive and negative, on society's wellbeing. They expect firms to address social problems linked to what they sell and how they conduct business. The playing field isn't level; consumers don't demand that local companies tackle global warming, but
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they expect multinational giants like BP and Shell to do so. Similarly, people may turn a blind eye when local companies take advantage of employees, but they won't stand for transnational players like Nike and Polo adopting similar practices. Such expectations are as pronounced in developing countries like China and India as they are in developed countries in Europe.
8. Key Take-aways for Global Companies: Smart companies manage their brands as global symbols because that's what consumers perceive them to be. However, people all over the world are either astonished or disturbed by giant transnational corporations. Firms must learn to participate in that polarized conversation about global brands and influence it. A major obstacle is the instability of global culture. Consumer understandings of global brands are framed by the mass media and the rhizome-like discussions that spread over the Internet. Companies must monitor those perceptions constantly.
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Conclusion
With Levitt's help, companies today understand that the market is what they make of it, not what they find. However, Levitt’s article in itself will not provide holistic solution to companies for what strategies they should adopt. Companies need to adopt a hybrid strategy; have a globalised approach but customise the marketing, distribution and promotion activities as per local demands. Also, the concept of Globalization may not be applicable to all products and services. Some products can be served as it is on the global platter; however others need to be altered according to the changing needs of the market and customer preferences.
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