Product and Technical Standards

Even with the forces that are creating some convergence of consumer tastes and preferences among advanced, industrialized nations, Levitt's vision of global markets may still be a long way off because of national differences in product and technological standards.

Differing government-mandated product standards can rule out mass production and marketing of a standardized product. For example, Caterpillar, the US construction equipment firm, manufactures backhoe-loaders for all of Europe in Great Britain. These tractor-type machines have a bucket in front and a digger at the back. Several special parts must be built into backhoe-loaders that will be sold in Germany: a separate brake attached to the rear axle, a special locking mechanism on the backhoe operating valve, specially positioned valves in the steering system, and a lock on the bucket for traveling. These extras account for 5 percent of the total cost of the product in Germany.¹⁰ The European Union is trying to harmonize such divergent product standards among its member nations. If the EU is successful, the need to customize products will be reduced within the boundaries of the EU.

Differences in technical standards also constrain the globalization of markets. Some of these differences result from idiosyncratic decisions made long ago, rather than from government actions, but their long-term effects are nonetheless profound. For example, video equipment manufactured for sale in the United States will not play videotapes recorded on equipment manufactured for sale in Great Britain, Germany, and France (and vice versa). Different technical standards for frequency of television signals emerged in the 1950s that require television and video equipment to be customized to prevailing standards. RCA stumbled in the 1970s when it failed to account for this in its marketing of TVs in Asia. Although several Asian countries adopted the US standard, Singapore, Hong Kong, and Malaysia adopted the British standard. People who bought RCA TVs in those countries could receive a picture but no sound!¹¹

Distribution Strategy

A critical element of a firm's marketing mix is its distribution strategy, the means it chooses for delivering the product to the consumer. The way the product is delivered is determined by the firm's entry strategy, which we discussed in Chapter 14. In this section, we examine a typical distribution system, discuss how its structure varies between countries, and look at how appropriate distribution strategies vary from country to country.

A Typical Distribution System

Figure 17.1 illustrates a typical distribution system consisting of a channel that includes a wholesale distributor and a retailer. If the firm manufactures its product in the particular country, it can sell directly to the consumer, to the retailer, or to the wholesaler. The same options are available to a firm that manufactures outside the country. Plus, this firm may decide to sell to an import agent, who then deals with the wholesale distributor, the retailer, or the consumer. The factors that determine the firm's choice of channel are considered later in this section.

Figure 17.1

A Typical Distribution System

The three main differences between distribution systems are retail concentration, channel length, and channel exclusivity.

Differences between Countries

Retail Concentration

In some countries, the retail system is very concentrated, but it is fragmented in others. In a concentrated system, a few retailers supply most of the market. A fragmented system is one in which there are many retailers, no one of which has a major share of the market. In Germany, for example, four retail chains control 65 percent of the market for food products. In neighboring Italy, retail distribution is fragmented, with no chain controlling more than 2 percent of the market.

Many of the differences in concentration are rooted in history and tradition. In the United States, the importance of the automobile and the relative youth of many urban areas have resulted in a retail system centered around large stores or shopping malls to which people can drive. This has facilitated system concentration. Japan's much greater population density together with the large number of urban centers that grew up before the automobile have yielded a more fragmented retail system of many small stores that serve local neighborhoods and to which people frequently walk. In addition, the Japanese legal system protects small retailers. Small retailers can block the establishment of a large retail outlet by petitioning their local government.

There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, number of households with refrigerators and freezers, and number of two-income households. All of these factors have changed shopping habits and facilitated the growth of large retail establishments sited away from traditional shopping areas.