UNC Kenan-Flagler Business School

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UNC Kenan-Flagler Business School

ROI: RESEARCH INSIGHTS FROM KENAN-FLAGLER


Crossing borders

9/28/2016

ROI Faculty Research Magazine - UNC Kenan-Flagler Business SchoolAn American consumer drives his Korean-made Hyundai to a local store to buy chocolate from Swiss manufacturer Lindt & Sprüngli. In Guangzhou, an affluent Chinese shopper drives her BMW to Carrefour – the French-owned hypermart – to buy Coca-Cola.

The globalization of the marketplace – accelerated by rapidly falling transportation and communication costs – demonstrates the sway that global brands have with billions of consumers. And as the global middle class grows over the next few decades, brand preferences will influence trillions of dollars in purchases.

Marketing professor Jan-Benedict E.M. Steenkamp has studied what distinguishes successful and unsuccessful global brands on six continents. He drew on his 25 years of academic research and interviews with corporate executives around the world to write the new book “Global Brand Strategy: World-Wise Marketing in the Age of Branding.”

Steenkamp introduces the global brand value chain and explains how brand equity factors into shareholder value. Designed to help global marketing executives guide, launch or revitalize global brands, the book also provides real-world case studies of successful and unsuccessful global brand expansions. 

“Many major American companies derive easily 50 percent or more of their sales growth from overseas markets,” Steenkamp says. “When I talk to senior managers at all types of companies, they do not see people rising to the top without them having shown themselves to be very effective brand stewards in the global arena.”

Why brands are important globally
Brands play three key roles for consumers, says Steenkamp.

  • They make decisions easier. At a time when products and services are increasingly complex – most of us simply can’t assess the technical quality of a car or a smartphone – brands guide us toward the products and services most likely to meet our needs.
  • They reduce risk. Will those new running shoes stand up to your daily three-mile jog? Choosing a brand that has an established reputation for quality reduces the risk of those shoes falling apart after the first week of pounding pavement.
  • They provide emotional benefits. For many consumers, brand choices are a way of signaling our values and aspirations. Though most of us will never climb Mount Everest, a jacket from The North Face signals to others that we appreciate aspirational values such as exploration and achievement.

Brands also are important for business-to-business (B2B) buyers, Steenkamp says.

  • Many buyers in small firms don’t have deep technical expertise to fully evaluate their options, and many B2B purchases are relatively low cost and routine, and as such aren’t worth extensive evaluation.
  • Purchasing managers are also human and subject to limitations on their time and susceptibility to social influences as consumers.
  • Managers also look to reduce risk. You can hardly be blamed if the product breaks down if it is sold by a famous brand, reminiscent of the axiom of purchasing agents that “nobody ever got fired for buying IBM equipment.”

Together, these factors allow brands to influence B2B purchases. 

Developing strong global brands
Brand managers can’t approach the global marketplace the same way they do in the “local” market of a brand’s country of origin. Well-managed global brands have distinctive needs beyond those of a local brand.

Companies need to consider several factors. Among the most important:

  • Value proposition: To be successful as a global brand, executives must identify the brand value proposition that appeals to a global – not just local – market segment. “It is more difficult to identify a brand proposition that resonates globally,” Steenkamp says. Simply transplanting a brand’s value proposition from one country to another is no guarantee of success.
  • Trade-offs when adapting to local conditions: Brand managers must consider the trade-offs they’re making when adapting a product or service to local market conditions. Ikea, for example, is focused on providing low-cost goods. Doing extensive customization for each market – such as creating new product names in local languages – would increase costs, contrary to Ikea’s low-cost value proposition. When McDonald’s entered the Netherlands, it found customers would not eat its french fries with ketchup. When the company adapted to local tastes by making mayonnaise available, sales took off. Global brand managers must understand when trade-offs make sense and when they might damage the brand.
  • Incentives for brand managers: Companies need to ensure that incentives for global brand managers are aligned with business strategy and the end-goal of increasing brand equity and shareholder value. Allowing global managers to make decisions in local markets to increase sales there at the cost of weakening the brand globally is ultimately destructive.

These aren’t the only considerations for executives in charge of global brands. The opportunities and challenges of the digital age, the growing importance of firm-wide corporate social responsibility in managing global brands and the role of global brands in creating shareholder value are among the other issues that Steenkamp addresses in “Global Brand Strategy.”

Global brands can generate tremendous value for companies, so the allure of taking a strong local brand and expanding into other countries is understandable. But global brands are also more complex and challenging to manage, says Steenkamp, who provides a roadmap that all global brand executives need to consider.