Going Global or Staying Local?
International Brand Portfolios in FMCG Companies: an Explorative
Study and Agenda for Future Research
- By Claudia Catharine Pas, December 2013
Going Global or Staying Local?
International Brand Portfolios in FMCG Companies: an Explorative
Study and Agenda for Future Research
Author: Claudia Catharine Pas
Jan Hanzenstraat 27-II 1053 SK Amsterdam c.c.pas@student.rug.nl S1775332 B130027007
Master: Double Degree
Advanced International Business Management & Marketing Rijksuniversiteit Groningen Newcastle University Business School
Supervisors: Dr. A. Visscher
International Brand Portfolios in FMCG Companies: an
Explorative Study and Agenda for Future Research
ABSTRACT
This study researches to which extent the composition of an FMCG company’s international brand portfolio composition affects its business performance. Current literature on this topic is very limited and has little consensus, which is why this research calls for a qualitative explorative approach. This study researched IBP management strategies at several international companies by means of interviewing seven managers from FMCG companies throughout the world. The results show that companies generating the largest share of their sales by global brands dominate the contemporary business climate in the FMCG industry. This illustrates the global character and intent of IBP strategies. Furthermore, results show that global brands contribute to standardisation and globalisation possibilities, thereby reducing costs and attaining economies of scale. Local brands on the other hand respond to local consumer preferences and are essential when wanting to become a market leader. This research makes an important contribution in the field of IBP management since its findings conclude that the objective of a firm determines the global or local orientation of its IBP; market leadership results in locally oriented IBPs while global profit-seeking objectives characterise globally oriented IBPs. Furthermore, the consumer segment in which a business is operating defines the global or local character of a firm’s IBP.
Keywords: International Brand Portfolio management, global brands, local brands, global
standardisation, local adaptation, market share, profitability.
ACKNOWLEDGEMENTS
Firstly I would like to thank Ad Visscher and Peter Edward for their constructive feedback and extensive help during the process of writing my thesis. Your quick feedback responses helped me structure the process and gave me lots of important insights. Thank you very much that I could always email and contact you for questions and help, I really appreciated it! Furthermore I would like to thank Gert van de Weerdhof for helping me construct my topic and for bringing me in contact with several knowledgeable managers. Furthermore I would like to give a special thank you to all the managers who let me interview them. Thank you for the useful data and interesting conversations! Also I would like to thank my friends and beloved ones for always being there for me when I needed advice. Marianne, thank you for giving me access to Nvivo10, without your help I could not have analysed my data. Anne-Albert, thank you for always listening to me when I had questions about this thesis and thank you for your help and constructive feedback! Lastly I would like to thank my friends and family for continuously motivating me and helping me when I needed advice.
Index
Chapter 1: Introduction ... 6
1.1 Research Questions ... 9
1.2 Relevance ...10
Chapter 2: Literature Review ... 12
2.1 History and aims of branding ...12
2.1.1 Branding Strategies ... 13
2.2 International Brand Portfolios ...14
2.2.1 Evolution of IBPs ... 14
2.3 Global or local branding? ...16
2.3.1 Global branding ... 16
2.3.2 Consumer Perceptions Perspective ... 16
2.3.3 Marketing standardisation perspective ... 17
2.3.4 Focus of the firm ... 18
2.4 Local branding ...18
2.5 Globalisation or Localisation? ...19
Chapter 3: Methodology ... 21
3.1 Research design ...21
3.2 Research approach ...22
3.3 Method of data collection ...23
3.4 Data analysis ...24
3.5 Internal validity, generalizability and reliability...25
Chapter 4: Results... 27
4.1 IBP globalness ...27
4.2 Margins and growth ...30
4.3 IBP reduction ...31
4.4 Endorsement ...32
4.5 Focus ...35
4.6 Local brands...37
4.7 Global brands ...39
4.8 Standardisation or adaptation of global brands ...41
4.9 What aspects are most important in brands? ...42
4.10 Dual branding strategies ...43
4.10.1 How do firms perform dual branding strategies? ... 43
4.10.2 Why do firms perform dual branding strategies? ... 45
4.11 The future ...47
Chapter 5: Discussion ... 49
5.1 IBP and Consumer segment globalness...49
5.2 Does strategy contribute to portfolio globalness? ...50
5.3 Did portfolio strategies become more globally oriented over time? ...52
5.4 The role of local brands in an IBP...53
5.5 The role of global brands in an IBP ...54
5.6 Optimal IBP composition ...55
Chapter 6: Conclusion ... 57
6.1 Limitations and directions for further research ...61
References ... 63
Appendices ... 68
Appendix I: Explanation of interviewees ...68
Appendix II: Interview Guide ...70
List of figures
Figure 1 ... 28 Figure 2 ... 29 Figure 3 ... 30 Figure 4 ... 31 Figure 5 ... 32 Figure 6 ... 33 Figure 7 ... 34 Figure 8 ... 35 Figure 9 ... 36 Figure 10 ... 37 Figure 11 ... 38 Figure 12 ... 39 Figure 13 ... 41 Figure 14 ... 42 Figure 15 ... 43 Figure 16 ... 44 Figure 17 ... 45 Figure 18 ... 46 Figure 19 ... 47 Figure 20 ... 47List of tables
Table 1 ... 28 Table 2 ... 29 Table 3 ... 30 Table 4 ... 31 Table 5 ... 33 Table 6 ... 35 Table 7 ... 38 Table 8 ... 40 Table 9 ... 41 Table 10 ... 43 Table 11 ... 44 Table 12 ... 45 Table 13 ... 48List of abbreviations
CEO Chief Executive Officer
CMO Chief Marketing Officer
FMCG Fast Moving Consumer Goods
GB Global brands
IBP International Brand Portfolio(s)
LB Local brands
MNE Multi National Enterprise
Chapter 1: Introduction
Currently we are living in a highly globalised world in which the business climate is dominated by globalisation. Due to radical reductions in international communication and coordination costs, firms can offshore many tasks that were previously considered non-traded (Baldwin, 2006). As Rugman, Waters & Dossett (2005) explain, the global marketplace has internationalised and this increased internationalisation of trade has meant that the boundaries of business can no longer be limited to single countries. Business has started to transcend geographical borders, which created a rapid internationalisation for international trade. The increased globalisation changed the nature of our society (Ritzer 2007; Yip 2003) which is now characterised by a global market integration, standardisation of manufacturing techniques, a growing urbanisation, the emergence of global media and Internet, and a rapid increase in education, literacy and world travel (Steenkamp & de Jong 2010). This international business trend comes along with international brands dominating the view of the city centres worldwide. Branding has become an important part of our daily lives. This phenomenon, which we call globalisation, illuminates the consistent trend of international companies moving from the traditional multi-domestic approach (in which local subsidiaries market locally developed products to the local population) to a global approach, in which firms market their products on a global basis with only limited adaptation to local markets (Kotabe & Helsen 2010; Iversen & Hem 2011).
strategies on global brands with standardised and centralised marketing activities (Laforet & Saunders 1994; Johansson & Ronkainen 2005; Godey & Lai 2011).
In this globalised society in which we are currently living, companies are faced with several difficult managerial questions regarding to globalise or localise their strategies. Wilk (1995: 11) argues that cross-cultural researchers must examine the “...complex interplay between local context and global content, rather than arguing for the primacy of one over the other.” However, many companies in the consumer good industry do not pursue this strategy and substantial differences in portfolio management are noticed throughout the world.
Consumer Goods Industry
When we look at the consumer good industry, the largest players in the market operate with very diverging brand strategies. Within the FMCG sector, a trend of brand portfolio reduction is clearly visible, as can be seen from some examples of leading companies in this industry. Unilever for example, demonstrated to reduce the number of brands in their portfolio from 1600 to 400 leading brands and fewer than 250 tail brands (Özsomer, 2012). However, when analysing their brand portfolio, this company is seen to operate with several strong local brands alongside its global counterparts. Besides the global brands like Knorr and Dove, Unilever also dominates their markets with local brands like Andrélon and Prodent (unilever.com). Another trend is noticed at Procter & Gamble, which also pruned its brand portfolio in favour of global brands (Pitcher 1999). P&G is currently operating via an international brand portfolio (hereafter referred to as ‘IBP’) that focuses on approximately fifty “leadership brands”, which are brands with strong equities in the minds of consumers, brands that retailers want in their stores, and brands that are platforms for innovation (pg.com). These brands represent ninety per cent of P&G’s sales and generate an even larger percentage of their total profits (pg.com). These and many other companies are betting their futures on global brands: brands that consumers can find under the same name in multiple countries with generally standardised and centrally coordinated marketing strategie
zsomer & Altaras 2008; Steenkamp, Batra, & Alden 2003; Yip 1995). It seems as if being locally responsive has been scraped from the list of priorities for companies operating in this sector.
beer market, Heineken, they have a similar vision as their FMCG counterparts like P&G and Unilever: focusing their main resources on global power brands (theheinekencompany.com). However, while declaring to focus on the global brands in its IBP, the brewer also possesses over two hundred local brands. These local brands take up an astonishing eighty-six per cent of the total beer sold throughout the entire world (Heineken annual report 2012). Heineken dominates the international market therefore not only by its global focus, but also operates via their local beer brands. Heineken’s biggest competitor, AB Inbev, pursues a similar strategy, which has demonstrated to be very successful, as they have become the number-one brewer in the world (Schuiling & Kapferer 2004).
While Heineken, AB Inbev, P&G and Unilever are all international companies operating in the FMCG industry, their strategies cannot be classified as being similar. The IBPs of many FMCG companies show us that the portfolios not only consist of global brands; many firms also place much emphasis on the local brands (coca-colacompany.com; unilever.com; nestle.nl; pepsico.com). Even though all companies demonstrate their intent to focus its initiatives on their global brands, the local brands are still an essential element in their IBPs. As one can see, operating in an international business environment entails several trade-offs regarding global integration or being locally responsive. Prahalad (1975) was the first to introduce a framework explaining the paradox accompanying these two dimensions. The integration–responsiveness (I/R) framework suggests that players in the global market develop competitive poses for both global integration and local responsiveness. These two dimensions represent two salient essentials that confront a business simultaneously while competing internationally, and businesses can choose to emphasise on one dimension over the other (Prahalad & Doz, 1987).
However, in contrast to Schuiling and Kapferer’s (2004) arguments, Varadarajan, DeFanti and Busch’s (2006) research demonstrates that having a small number of brands in a firm’s brand portfolio results in a disproportionately positive impact on its reputation and image, and would therefore be beneficial for a firm’s success. The authors emphasise the importance of brand deletion within IBPs since the presence of having certain brands in a portfolio can have an adverse impact on its image and reputation.
1.1 Research Questions
An important question resulting from the literature therefore involves whether the move toward global brands is consistent with market demands. The question then arises, why do several FMCG companies that operate in the same industry have such diverging international branding strategies? Why do firms tend to focus on the global power brands, while an indispensable element of their IBP are local brands? What importance do the local brands contribute to the performance of these companies? Is being locally adaptive still necessary in this global industry, or is more wealth created by a company’s global brands? And why would a company want both local and global brands in their portfolios? This research aims to investigate this central question:
How does the composition of an FMCG company’s IBP contribute to the firm’s business performance?
This central research question aims to identify how the mix in IBP management works. By identifying what the roles of different brands are, and how these brands work together in order to create the best possible portfolio this central question will be answered. In order to guide the central research question, several sub questions have been defined:
What is the role of local and global brands in an IBP, and how do they contribute to a
firm’s business performance?
What are the reasons and objectives for an FMCG company to pursue a global, local
or mixed branding strategy?
an increase or reduction in IBPs, however, yet little is known about how a firm’s brand portfolio strategy affects its business performance (Anand and Shachar 2004; Carlotti, Coe and Perry 2004; Kumar 2003). There is no available guidance for firms’ management concerning this topic, because of a lack of research on the financial effects of different types of branding strategies. Since branding has proven to have a large influence on the financial value of a firm, this should be regarded as a topic of high interest for managers.
1.2 Relevance
As Godey & Lai (2011) explain, the current globalisation and economic situation placed more emphasis on countries to fulfil a global strategy. The world has become more global which facilitated companies with the ability to standardise and centralise practices, leading to a reduction of IBPs and an increased focus on global brands.
The composition and size of IBPs encompasses several trade-offs and paradoxes issued by Godey & Lai (2011), and can result in many difficulties for managers. Several problems and trade-offs include how to arbitrate between the choice of a single global brand and the management of local brands with different names and positioning. Secondly, IBP management creates a trade-off on how to mediate between global and local brands. Finally, the least researched difficulty in IBP management is the issue of how to find the right balance between global and local brands (Godey & Lai, 2011).
Firms are still searching for analyses and strategies based on previous case studies to help make these trade-offs appropriately, and to my knowledge, there has not yet been a reflection on this area. Research published on this topic has little consensus and differs greatly between proponents and opponents of globalisation and localisation. Secondly, the literature is mostly focused on the consumer perception aspect of global branding; elaborating the attributes global brands should encompass in order to facilitate the purchase likeability. Little research has been performed on the interplay of local and global brands in a firm’s IBP and there is not yet a clear understanding within this field of research. Therefore, this research aims to fill in this important gap in the branding literature.
the FMCG industry. Since this topic has yet been little researched, this study attempts to broaden the knowledge regarding this contemporary business problem, and will provide guidance for future research.
Chapter 2: Literature Review
2.1 History and aims of branding
Ever since Robinson (1933) noticed that similar products could be sold at different qualities under different names in order to distinguish the rich from the poorer buyers, branding has become a central marketing issue in business. As global business has come to an ever-existing height, and the international supply of goods and services is continuously increasing, correctly branding a product is of great importance when a business wants to survive in this international and competitive industry. The globalisation of markets has put global brands on the centre stage which is noticed everywhere around the world. In economic terms, branding can be interpreted by the consumers, which meet the high price premiums such brands command with negligible resistance (Özsomer & Altaras 2008).
Branding is of growing interest to academics and practitioners because of its ability to provide functional benefits, add value to the product, guide the marketing mix, retain consumer confidence and to define a corporate identity (Aaker 1991). It differentiates the firm and signifies the main source of ownership. It is generally claimed that brand names are a corporate asset and create substantial economic value for a company and its shareholders, as in the mid-1980s an off-balance sheet of intangible assets embedded in a company’s brand names were found to be a source of tangible wealth (Kerin & Sethuraman 1998). The favourable associations accompanying brands provide a possibility for competitive advantage, which enhances future earnings and is classified as ‘brand equity’ (Aaker, 1991;; Kerin & Sethuraman, 1998).
knowledge has on the consumer response to its marketing efforts (Keller, 1993:1), and symbolises the relationship between the company and its customers. Branding is a source for additional value by the link created between consumer and the firm (Rust, Lemon and Zeithaml 2000).
2.1.1 Branding Strategies
There are three approaches to structure corporate identities in branding (Olins, 1989): the
monolithic, the endorsed, and the branded. Monolithic branding structures use one name and
visual style throughout creating a corporate identity for the consumer. Examples for this strategy are Kellogs and British Airways (Laforet & Saunders 1994). Endorsed structures use the corporate identity in association with the name of brands. The visual styles of the brands can thereby be very diverse. General Electric Company and ICI are good examples of these strategies; they seek to endorse their strong brands with a corporate identity and advertising (Laforet & Saunders 1994). Lastly, branded identities are branding strategies in which products are branded under totally different names and appearances. Procter & Gamble and Mars typify this strategy (Laforet & Saunders 1994).
Specific attention needs to be paid to the endorsement branding strategy. International expansion creates a need for reassurance about product quality and reliability for consumers, and is resulting in a shift towards corporate endorsement of products and brands. Endorsement helps giving brands a global corporate identity and gathers the brands and products under one global umbrella (Douglas et al. 2001), giving it the ability to benefit from economies of scale and scope. The global character and reach generates potential cost savings through the promotion of the global corporate brand rather than multiple independent product brands (Douglas et al. 2001). Corporate endorsement of product-level brands is increasingly used as a mechanism to integrate brand structures across country markets, providing a unifying element across product offerings and allowing the firm to benefit from economies of scale. The above-mentioned results in the first proposition:
2.2 International Brand Portfolios
International companies in the FMCG industry operate by means of international brand portfolios. The IBP of a company consists of all brand names of products or services that a company offers throughout the world (Godey & Lai 2011) and is organized into two categories of strategic brands:
Global brands. These are the priority brands, which seek international presence and standardisation, thereby having a unique marketing, name, positioning and segmentation. By applying a marketing mix as global as possible these brands benefit from innovations and are the main vehicle for growth (Godey & Lai 2011).
Local brands. These local brands have a strong position and are considered to be highly important in the local market. A vital aspect of these brands is that they are not intended or able to become global brands, but rather play an important tactical role in the portfolio of a country or segment alongside their global counterparts (Schuiling & Kapferer 2004). They respond better to local needs than any regional or global brand in the portfolio and increase the entry barriers for competitors (Godey & Lai 2011). An IBP cannot be seen as merely the sum of a company’s brands: it is an integrated system, where each brand plays a specific role vis-à-vis the key objectives of the company (Kapferer 2002). Strategic roles can include: increasing your market share, creating differentiation in order to accommodate diverging demands, penetrating a specific category or financing the introduction of global brands (Kapferer 2002). A variety of different branding and associated marketing activities can be conducted to achieve a desired positioning and build brand equity. The ultimate success depends on how these different brands work in combination, such that synergistic results occur (Keller & Lehmann 2006). Therefore, properly managing and aligning an IBP is of great importance, which places much emphasis on the interplay between brands within a portfolio.
2.2.1 Evolution of IBPs
Brand portfolio increase
In the beginning of the 90s, the IBPs of businesses worldwide significantly increased. International deregulation and the reduction of trade barriers increased international trade and caused IBPs to grow (Godey & Lai 2011). To operate in several international markets companies expanded their portfolios in order to accommodate this growing internationalisation trend. IBPs increased as a resulting effect of the decentralised organisations that required a multi-domestic marketing approach.
Brand portfolio reduction
In the late 90s however, a reduction in IBPs became visible. This was the result of a less favourable economic climate in which companies faced rising costs for businesses and an increased competition due to the globalisation. These effects eventually required companies to centralise and standardise its marketing activities and maximise the highest priority global brands in order to remain profitable (Godey & Lai 2011). After several decades of exponential growth of IBPs, many multinationals today are increasingly pursuing a strategy of rationalisation and reduction. This strategy is characterised by choosing a top-down approach which places the decision making authority at the corporate level of the IBP (Godey & Lai 2011). In the current context of globalisation, as it continues to elevate competition, firms now concentrate their efforts on the development of international brands. As a result, IBPs have been restructured, resulting in an elimination of many successful local brands (Schuiling & Kapferer 2004).
Proposition II: IBP reduction reduces the number of local brands and increases the focus on global brands in an IBP, which allows the company to benefit from attaining economies of scale and scope.
2.3 Global or local branding?
A thorough investigation on IBP management literature demonstrates that there has not been much consensus. On one hand, several authors elucidate the benefits of global branding and standardisation (Özsomer & Altaras 2008; Godey & Lai 2011; Johansson & Ronkainen 2005; Laforet & Saunders 1994), while on the other hand, several studies explain the importance of being locally adaptive (Schuiling & Kapferer 2004; Kapferer 2002; Ittersum & Wong 2010; Steenkamp & de Jong 2010; Özsomer 2012). For a clear and comprehensive understanding, a review on both angles of the literature will be given.
2.3.1 Global branding
In the current business climate, branding is more often being conducted on a global landscape. The first researcher who acknowledged the benefits of standardisation and globalisation, and who is a great proponent of global branding is Levitt (1983). Levitt argues that companies need to learn to operate as if the world were one large market, thereby ignoring “superficial” regional and national differences, which will result in global standardisation.
Global brands are defined as “those that have widespread regional/ global awareness, availability, acceptance, and demand and are often found under the same name with consistent positioning, personality, look, and feel in major markets enabled by centrally coordinated marketing strategies and programs” (Özsomer & Altaras, 2008:1). Global brands are often associated with the main advantage of having a global reach, thereby benefiting from cost reductions accompanying attaining economies of scale and scope.
2.3.2 Consumer Perceptions Perspective
Within global branding, two different schools of thought exist in defining the construct (Özsomer & Altaras 2008). The definitions related to the first school are based on the
consumer perceptions perspective (Alden, Steenkamp, and Batra 2006; Batra et al. 2000;
(Steenkamp et al. 2003), which stimulates the purchase behaviour of consumers. Most research published on IBP management focuses on the consumer perceptions perspective, illustrating the attributes global brands should have in order to increase the purchase likeability and behaviour of consumers. This research however will focus on the second school of thought, being the perspective of firms rather than consumers.
2.3.3 Marketing standardisation perspective
The second school of thought is the emerged research in which the construct is defined from the marketing standardisation literature (Özsomer & Altaras 2008). According to this school, companies’ primary motivation for building global brands is to benefit from strong economies of scale and scope, which lowers costs and thus enhances firm performance. These supply side benefits are created by attaining scale advantages in several divisions, like R&D, manufacturing, sourcing, and marketing. From the demand side, global brands benefit from consistently positioning a unique perceived image worldwide. This global positioning increases its strategic appeal as consumers around the world develop similar needs and tastes (Hassan and Katsanis 1994; Özsomer and Simonin 2004).
Proposition III: The primary role and benefit of global brands is the ability to benefit from strong economies of scale and scope.
2.3.4 Focus of the firm
Another important aspect regarding global branding strategy is the focus of a firm. Firm focus determines the number of industry segments in which the firm operates. Comment and Jarrell (1995) find that focus is positively related with Tobin’s Q values. This research demonstrates that less diversified firms (or firms with higher focus) have higher Tobin’s Q values than companies with a low focus. High Tobin’s Q values represent unrecorded assets of the company, which can be attributed to intangible assets inferring brands and brand equity (Comment and Jarrell 1995). Therefore, the higher the Tobin’s Q, the more companies are encouraged to invest in brands.
As the study of Varadarajan, DeFanti and Busch (2006) explains, firm focus proved to be an important aspect triggering IBP reduction of several MNEs in the 90’s. In this era, a growing number of diversified firms resorted to becoming more focused by divesting businesses and brands unrelated to their core business (Varadarajan et al. 2006). Therefore, by divesting brands their portfolios were reduced and a higher focus was attained. The study of Varadarajan et al. (2006) shows that this enhanced focus due to smaller IBPs results in a disproportionately positive impact on the reputation and image of a firm and enhances the performance. Focus results in enhanced business performance due to the ability to free up resources that can then be deployed towards enhancing the competitive position of the brands in an IBP which have the greatest potential for financial success (Varadarajan et al. 2006). Focusing on the firm’s core business in a limited amount of industries with a limited amount of brands can therefore potentially benefit the business performance.
Proposition IV: High focus leads to enhanced business performance
2.4 Local branding
throughout the world. Just like their global counterparts local brands have their own strengths, such as perceptions of uniqueness, originality, and pride of representing the local market (Özsomer 2012). Local brands traditionally benefit from a high level of awareness as well as their close relationships with consumers in their countries (Özsomer 2012). While local brands cannot benefit from scale advantages like having standardised marketing and production, these brands obtain great benefits from specialisation and adaptation to local preferences. Adaptation represents cultural aspects and local preferences in brands that are not generalised throughout the world.
Another benefit of local brands is that they provide more flexibility and diversity in IBPs. Schuiling and Kapferer (2004) emphasise the need for managers of to offer a great diversity in their IBPs in order to avoid overloading consumers with equal brands around the world. By eliminating strong local brands in order to globalise a portfolio, firms might be throwing away strategic opportunities within local markets. Also, enlarging an IBP with several local brands reduces the firm’s risk, which ultimately benefits the company (Schuiling & Kapferer 2004). Moreover, local brands provide the ability to respond the local market’s specific needs and provide flexibility by adapting to local consumers’ particular needs (Schuiling & Kapferer 2004). Strong local brands are developed for and tailored to the unique needs and desires of local markets (Öszomer, 2012), and do not only provide a unique product but also select it’s positioning so that it reflects local preferences and adaptations. The next proposition therefore results:
Proposition V: The main role and benefit of having local brands in an IBP is the ability to adapt to local preferences.
2.5 Globalisation or Localisation?
parties. Furthermore, global brands can be launched faster in foreign markets because few local modifications must be made, thus improving the speed of entry (Neff 1999). In the eyes of many, the phenomenon of globalisation is accelerating the emergence of a homogeneous global consumer culture.
On the other hand, the increased international character of firms and brands causes a differentiating impact, since globalisation strengthens and reactivates national, ethnic, and communal identities (Ger, 1999), and provides a tendency to oppose to the generalised global products which are available worldwide. Steger (2003) illuminates the recent emergence of an opposing view by consumers on global brands. This phenomenon created a renewed appreciation for local consumer culture among some consumers, who oppose the homogeneity of the same products, services and symbols everywhere (Steger, 2003).
Chapter 3: Methodology
3.1 Research design
As the previous section of the reviewed literature clearly shows, scientific knowledge on IBP composition is minimal and has little consensus. This is why this research calls for an explorative approach. The goal of explorative research is to discover new ideas and insights, relevant features, factures or issues that might apply (Myers, 2009).
In order to properly generate new insights and enhanced knowledge on the topic of IBP management, a qualitative research methodology has been chosen. Qualitative research is most appropriate in situations where exploration is needed to gain further insights. In qualitative research, the sample consists of a small number of representative cases and data collection is used in a un- or semi-structured way. The outcome of qualitative research is aimed to develop an initial understanding, which is in contrast to the outcome of quantitative research, which seeks to recommend a final course of action (Malhotra, 2010). Since the goal of this type of research is to gain a qualitative understanding of the underlying reasons and motivations on IBP management, qualitative research is best suitable (Myers, 2009; Malhotra, 2010). This research does not lend itself to large datasets since the underlying reasons about IBP strategies are aimed to be explored through several personal interviews. Therefore, pursuing a qualitative semi-structured interview approach is best suitable for this type of research.
3.2 Research approach
Within qualitative research, four different streams of research methodologies exist: action
research, case study research, ethnographic research and grounded theory research. The
explorative character of this research calls for a multi-case study research approach. Case
study research aims at better understanding a theory and principles that are relevant to
business and investigates a phenomenon in its natural context (Yin, 2014). The purpose of case study research is to contribute to the knowledge in a particular field and aims to describe actual situations that the interviewee and interviewer explore together (Malhotra 2010; Myers 2009), which therefore suits very well with the aim of this research.
this company is not part of the FMCG industry, the firm operates with a very clear global branding strategy. Moreover, this manager has extensive previous experience at managerial and branding positions at several FMCG companies. Lastly, the Managing Partner and CEO of a global branding office from the United States is interviewed, giving this research a good view and valuable information on global branding strategies. Further elaboration on the interviewees can be found in Appendix I.
The managers and organisations are selected for several reasons. First of all, all managers interviewed have considerable experience in brand portfolio and/or marketing management in an international organisation. Secondly, interviewing such a broad range of managers and consultants gives a thorough and overarching view on IBP management strategies in the FMCG industry. This research does not only focus on professionals working at FMCG companies, but also includes experts in the field on consultancy and global branding advice, giving this research a more thorough and overarching view. Lastly, all companies interviewed operate by means of different IBP strategies. Some firms tend to focus on global brands while other focus their efforts on local brands, giving this research a solid representation of the issue and providing a reliable and suitable sample.
3.3 Method of data collection
Data is being collected by performing semi-structured interviews with several managers from international FMCG companies. Interviews are one of the most important data gathering techniques when performing qualitative research in business and management (Myers, 2009). This research will be performed by having semi-structured interviews. Semi-structured interviews have some pre-formulated questions that are used but the conversation is mainly used to generate new questions or insights (Myers, 2009). The pre-formulated questions have been classified under several different topics, which you can find in Appendix II. This interviewing strategy gives room for improvisation, and gives the interviewee the opportunity to add important details, insights and thoughts as they arise during the interview (Myers, 2009).
hour and were tape-recorded, after which they were transcribed verbatim in the language in which they were conducted. This provides the highest reliability of the data since the researcher can fully focus on listening and asking the right questions, as it does not have to pay extensive attention to writing down notes. The interviews have been transcribed in the language of the interview itself, because translating the interviews would create a possibility of misinterpretation due to changed meanings of important concepts. Since the researcher is bilingual, the interviews have been conducted in the mother tongue of the interviewee and were transcribed accordingly. After transcribing the interviews, the transcripts were sent to the managers to check the validity and their consent. All managers gave their consent and no adjustments had to be made. Due to confidentiality issues the transcripts are not included in this research, but are available upon request.
3.4 Data analysis
For this research, a combination of a deductive and inductive research approach has been chosen. When working with a deductive approach, established concepts are derived from existing literature and will be tested on specific cases (Anderson, 2009). This is suitable for this research since several main concepts and propositions, which resulted from the literature, have been tested and used in the interviews. An inductive research approach moves from broad observations to generalisations. From the interviews conducted several observations and answers provided a base for preliminary generalisations.
After the coding process was completed, the data was analysed by setting up several matrixes defining the relationship between nodes and sub-nodes. These matrixes either show what has been mostly said within a specific category (an example could be what attributes of global brands have mostly been named by the interviewers) or demonstrate a relationship between certain categories (for example: is there a difference on how endorsement strategies are being used between companies focusing on local or on global brands?). The graphs illustrate the pattern of the roles, the advantages and disadvantages and the relationships between global and local branding issues. In chapter 4 and 5 these findings will be discussed and interpreted. Per topic it is explained what nodes appeared most and which relationships could be drawn, which is graphically displayed by bar chart graphs. Under each graph a table displays the number of sources (interviewees who agreed on the topic and mentioned the quotes) and the number of references this topic has generated. The sources respond the interviewees (manager 1 to 7), and the references depict how often certain quotes are mentioned. Topics demonstrating a large number of sources and references therefore show that there was an overall consensus with the interviewees. Below each graph a summary and conclusion on the information obtained from the interviewees is given. Due to confidentiality issues the findings are anonymised. Furthermore, several topics are analysed based on whether there is a difference between globally and locally oriented companies. Companies focusing on global brands are defined as companies generating over 70 per cent of their sales by their global brands. Companies focusing on local brands are defined as companies generating over 70 per cent of their sales by local brands.
3.5 Internal validity, generalizability and reliability.
Validity refers to the degree to which the research truly measures what it was meant to
the interviewees to verify the content and their consent. This enhances the objectivity since the managers could correct any possible subjective interpretations.
Generalizability means to statistically extrapolate findings from a specified sample to the
wider population (Finlay, 2006). In the case of this research, data is retrieved from interviewing a wide range of different companies and managers with extensive knowledge in the field of branding. This research has a wide scope because managers from all over the world are interviewed, giving this research a broad international coverage, which enhances the generalizability of IBP management strategies in the FMCG industry. Because interviews were held among several different companies and interviewees with different occupations within the branding and marketing division, a robust and thorough data analysis has been tried to attain. While within the scope of this study this research aims to include an as wide and diverse perspective as possible, one must bear in mind that the results cannot be generalizable on a global scale due to the relatively small dataset. These findings are therefore preliminary findings and aim to increase the understanding on this topic and give a direction for future and more extensive research.
Chapter 4: Results
This chapter will discuss the research results of the transcribed interviews. Several topics are assessed on differences between companies focusing on global versus local brands. As mentioned in the methodology, companies focusing on global brands represent the firms that generate over 70 per cent of their sales from global brands. Conversely, companies focusing
on local brands are those that generate over 70 per cent of their sales by local brands.
4.1 IBP globalness
Figure 1
IBP globalness Sources References
Sales higher with GB than LB 2 3
> 70% of sales comes from LB 2 3
> 70% of sales comes from GB 5 7
GB biggest brand 3 4
Depends on sector 5 16
Table 1
The first result on this topic shows that two managers interviewed reported sales are higher with global than with local brands, and none of the managers reported findings the other way around. Secondly, the results demonstrate that the majority of the companies interviewed generate the largest per cent of their sales from global brands. From all companies interviewed, only the brewing company generates most by its local brands, around eighty per cent. The consultancy company also acknowledged this, which explains the two sources agreeing on this topic. All other companies interviewed and discussed have the largest share of their sales coming from global brands. Furthermore, the results show that overall the global brand is reported as being the largest brand, even in the international brewer’s IBP. The most appearing result in this topic however illustrates the influence of the consumer segment on the globalness of an IBP. Five out of seven managers state that whether you are orienting your IBP towards global or local brands depends on the segment in which you are operating.
0 2 4 6 8 10 12 14 16 Sales higher with GB than LB > 70% of sales comes from LB > 70% of sales comes from GB GB biggest
4.1.1 Globalness per sector
A closer look at the degree of globalness of IBPs illustrated in figure and table 2 shows that there is a very clear relationship between the globalness of a company’s IBP and the sector in which it is operating. The companies that participated in this research resulted to work in either the food and beverage sector (operating in an industry producing edibles and beverages) or in the personal care and premium sector. This sector includes premium brands (high-end exclusive and expensive luxury brands), fashion, personal care brands (shampoo, soap and cosmetics) and home care brands (detergents and cleaning products).
Figure 2
Globalness per sector Food and beverage category Food and beverage category
Sources References
>70% of sales comes from LB 5 3
>70% of sales comes from GB 1 1
Globalness per sector Personal Care & Premium category Personal Care & Premium category
Sources References
>70% of sales comes from LB 0 0
>70% of sales comes from GB 6 4
Table 2
Figure 2 represents a relationship matrix in which the two different industries (Food & Beverage versus Personal Care & Premium) are compared with the two types of companies (generating either most of their sales from global or from local brands). The results show that companies generating the largest share of their sales from local brands are only operating in the food and beverage sector, and are not present in the other industry. On the other hand,
0 0,5 1 1,52 2,53 3,54
A : Food and beverage category B : Personal Care & Premium category N o. of r efer ences
Globalness per sector
companies generating the largest share by their global brands appear to operate mostly in the personal care and premium sector.
4.2 Margins and growth
When determining the different functions and benefits of global and local brands, an important aspect to take into account is de degree of growth and margins. Determining which brands contribute best to the success of a company requires looking at their growth and future potentials.
Figure 3
Margins and growth Sources References
LB have higher margins 1 1
GB have higher margins 2 2
LB grow faster than GB 2 2
GB grow faster than LB 4 14
High margins most important 4 16
Table 3
The results in figure and table 3 demonstrate that managers think global brands have higher margins than local brands. High margins create a higher profit because of the larger difference between the sales price and the cost of production (smallbusiness.chron.com). One manager reported that local brands often have high gross margins because of their strong local positions. The majority however believes global brands have higher margins than their local counterparts, however as table 3 shows, only two managers have expressed their thoughts on
0 2 4 6 8 10 12 14 16 LB have higher margins GB have higher margins LB grow
faster than GBfaster than LBGB grow High marginsmost important N o. of r efer ences
this topic making it a little solid outcome. Furthermore, the analysis clearly demonstrates that global brands grow faster than local brands. Several managers reported in the interviews that global brands grow faster due to the creation of synergies, the larger market share and the ability to benefit from economies of scale. Lastly, the results show that the most important aspect in a brand, regardless of whether it is a global or a local brand, is the fact that it has a high margin. Four managers explained high margins are created because of good positions in the market and result in more profitability and a better bargaining power at retailers and distributors.
4.3 IBP reduction
As the literature review explained, several multinationals in the FMCG industry have severely restructured their IBPs in the recent past. To investigate to which extent this restructuring process had something to do with finding an optimal composition of a firm’s IBP, the interviewees were asked to define the reasons and benefits for carrying out such a reduction strategy.
Figure 4
IBP reduction Sources References
High margin brands preferred 1 1
Globalising and standardising 3 8
Enhance organisational focus 3 3
Create economies of scale 1 1
Table 4 0 1 2 3 4 5 6 7 8 High margin
As the results show, the main reason for restructuring IBPs is because firms want to globalise and standardise their brands and management practices. Three managers explained IBP reduction facilitated simplification and standardisation of business practices and brands, in order to get scale. Secondly, the results depict IBP reduction was carried out in order to enhance the organisational focus, meaning that restructuring IBPs caused for centralisation and standardisation of organisational practices. Another reason for IBP reduction expressed by the managers can be attributed to the firm’s desire to create economies of scale and prefer high margin over low margin brands. However, as table 5 demonstrates most managers agree on the standardisation and organisational focus advantages and objectives of IBP reduction. In the following graph, a distinction is made on how globally and locally oriented companies respond to IBP reduction strategies. As figure 5 demonstrates, only companies with globally oriented IBPs pursued IBP reduction strategies.
Figure 5
4.4 Endorsement
In the literature it has been concluded that endorsement strategies give brands a global appeal and character and generates potential cost savings through the global promotion possibilities (Douglas et al. 2001). Managers have been asked how FMCG companies respond to endorsement strategies, which represents figure 6.
0 1 2 3 4 5 6 7 8 High margin
brands preferred Globalising andstandardising organisationalEnhances focus Create economies of scale N o. of r efer ences
IBP reduction per type of company
Figure 6
Endorsement Sources References
Strenghtens image and awareness 2 2
Only successful if identities are equal 2 7
Mostly used for migration process 3 7
Increases sales and profits 2 5
Creates risk and confusion at customer 4 5
Table 5
From figure 6 and table 5 the first result shows that global brand endorsement can strengthen the image and awareness of the local brand. Managers explained this is because it provides a brand with more safety by transferring the high equity image of the global brand to the local brand. Moreover, several managers explained endorsement strategies are only successful if the identities are equal. If identities are not equal confusion can exist with consumers, which will negatively affect the business performance. As one manager explained:
“The established values should be equal. Why? Because we know different segments bite each other, that is why they exist.”
Furthermore, the main reason for endorsement resulting from this research is for migration purposes. The interviewees explained endorsement strategies make a local brand bigger until the global brand can eventually take it over.
“Endorsement strategies work somewhat tactically, and in a migration process, let’s say you want to migrate your local brand into a global brand than you can do that.”
0 1 2 3 4 5 6 7 Strenghtens image and awareness Only successful if identities are equal
Mostly used for migration
process
Increases sales
Only five interviewees talked about endorsement strategies, of which three demonstrate to agree on the main purpose of endorsement being for migration processes. Furthermore, two managers stated that endorsing a local brand by a global brand creates better margins and more sales. The majority of the respondents however expressed its concerns regarding risks and confusion that comes along with this strategy. Managers explained that PR damage could be bigger if brands are endorsed and endorsing a local brand with a different identity will create possible confusion at the consumer, which negatively affects its success.
Since the results demonstrate divergent characteristics, benefits and risks concerning endorsement strategies, a second analysis was performed. Figure 7 shows whether there is a difference between companies with globally and locally oriented IBPs responding to endorsement.
Figure 7
As these results show, overall globally oriented companies are more often associated with endorsement strategies. Figure 7 shows that positive opinions on endorsement strategies (strengthening the image and increasing sales) only come from globally oriented companies. Furthermore, these firms tend to use endorsement strategies mostly for migration purposes. Locally oriented companies on the other hand associate endorsement strategies mostly with potential risks and they explain endorsement is only successful if identities are equal.
0 1 2 3 4 5 6 Strenghtens image and awareness Only successful if identities are equal Mostly used for migration process Increases sales
and profits and confusionCreates risk with consumer N o. of r efer ences
Endorsement per type of company
4.5 Focus
The focus of a firm determines the number of industry segments in which the firm operates. Several authors illustrate the benefits of being highly focused in a certain industry stating that it contributes to enhanced value creation of the firm (Varadarajan et al. 2006). Since Varadarajan et al. (2006) explain focus does not only apply to the number of industry segments in which a business is present, but also applies to the number of brands a firm works with, this research asked managers for their opinions on both aspects.
Figure 8
Focus Sources References
More brands facilitate distribution 1 1
Focus on small no. of brands 2 3
Successful if focus on one cons.segment 7 20
Focus contributes to success 6 18
Diversification reduces risks 2 2
Diversification increases complexity 4 10
Table 6
The results show that only one manager explained more brands facilitate the distribution of other brands by improving the bargaining power at retailers and distributors. Furthermore, two managers explained focusing on a small number of brands in an IBP reduces managerial complexity and therefore benefits firm performance. One of these respondents operates with a very locally oriented IBP, and he/she explained that even though an IBP can be large, a firm
0 2 4 6 8 10 12 14 16 18 20 More brands facilitate distribution Focus on small
no. of brands focus on sameSuccessful if segment
Focus contributes to
success
Diversification
tends to focus on a small number of strong brands per country to avoid overloading consumers with extensive options. As the results show, all managers agree the success of focus depends on focusing on the same industry segment. It is explained that this focus allows a company to target a same positioning and consumer segment, which creates sharpness and gives a firm a competitive advantage. Furthermore, six managers tend to agree with Varadarajan et al. (2006) findings that focus contributes to the success of a firm. The managers explain that focus gives a firm the ability to set up a specific team for a special segment, allowing it to focus on all the problems and opportunities of that specific industry. This creates a sharpness that is not always present at other companies, resulting in an enormous competitive advantage. Furthermore, the managers explain that focus creates domain expertise, synergies and creates possibilities for standardisation. These benefits facilitate economies of scale and cost reductions. Furthermore, two managers explained risks can be spread out over more brands when diversification is present. Lastly, four managers explain diversification increases managerial complexity.
Figure 9 demonstrates whether globally or locally oriented companies mostly pursue focus strategies. Figure 10 depicts how the different type of companies respond to the main benefits and characteristics of focus strategies.
Figure 9
0 10 20
Companies focusing on
local brands Companies focusing onglobal brands
Figure 10
Figure 9 and 10 show that globally oriented companies are more focused. Furthermore, globally oriented companies find it more important to focus on the same consumer segment than locally oriented companies. Moreover, they state focus contributes to success much more often than their locally adapted counterparts.
4.6 Local brands
As Schuiling and Kapferer (2004) have researched, local brands are important in a company’s IBP and create several substantial benefits. The figure below demonstrates the roles and characteristics of local brands according to the managers interviewed.
0 2 4 6 8 10 12 Success if focus on
one cons.segment Focus contributesto success Diversificationreduces risks Diversificationincreases complexity N o. of r efer ences
Focus per type of company
Figure 11
Local brands Sources References
Generate growth 2 2
Scale from standardising practices 4 14
Represent cultural aspects 7 24
Respond to local preferences 7 55
Set up local strategy teams 2 4
Mostly present in food and beverage 5 31
Contribute to market leader position 7 42
Facilitate distribution of GB 4 7
Create freedom & flexibility 1 3
Table 7
As figure 11 and table 7 demonstrate, local brands are not often used to generate growth since only four references by two managers are measured on this topic. What local brands do facilitate is the standardisation of underlying management practices. Even though local brands are diversified, several managers state that having a locally oriented IBP allows a company to standardise the underlying marketing and management practices across several local brands. One manager explained, “Its my job to build a global mind for the local fight.” From the interviews it resulted that this is often done by setting up local strategy teams, which adapt the advertisement and marketing strategies to the local markets. Furthermore all managers agree that the main characteristic and benefit of local brands is responding to cultural and local preferences. The food and beverage sector has appeared to be very locally oriented as was
explained earlier. One manager stated: “Tastes are not easily transferred from one country to another, therefore it is important to be country specific.” All managers reported that local brands drive local relevance and allows a firm to adapt to culturally embedded or habitual local preferences.
Furthermore, another important benefit and characteristic expressed by all seven managers is the ability to contribute to a market leader position. All managers stated that local brands respond to local preferences and allow a firm to control a market by several means, responding both to generic global consumer preferences as well as the local ones. They state that this strategy penetrates a market and allows a firm to be the market leader. Lastly, four managers stated that local brands facilitate the distribution of the global brand due to enhanced market positions and bargaining power at retailers and suppliers, and one manager expressed local brands provide flexibility in markets.
4.7 Global brands
When Holt and Quelch (2004) conducted their research they found that most people choose a global brand over another because of differences in the brands’ global qualities. But what are the qualities, characteristics and roles of global brands?
Global brands Sources References
Reduce costs 6 15
Leverage of best practice and people 4 12
Standardisation and Simplicity 7 34
Generate growth 2 8
Global reach for niche markets 3 6
Global promotion & sponsoring 7 22
Global strategy teams 6 18
Create economies of scale 7 37
Create competitive advantage 5 10
Table 8
Six out of seven managers explain global brands reduce costs by attaining economies of scale and scope. They state that this lowers the costs of advertisement, packaging, production, distribution and R&D. As one manager explains, “Global brands allow you to do fewer things far better”, which increases the efficiency and global mobility. Furthermore, four managers explained global brands allow a company to benefit from having the ability to leverage best practices and people. They state global brands allow a firm to attract and employ the best talent and facilitate leveraging best practices from all practices performed worldwide. Moreover, all managers agree that global brands facilitate standardisation and simplicity. They state that the global character of these brands allows a firm to make the same global advertisement and simplify many managerial practices. Furthermore, two managers state global brands facilitate growth by the economies of scale and scope created. Another important conclusion that can be drawn from the data is the fact that global brands provide a company with global promotion and sponsorship opportunities. As a global brand you have a worldwide reach, which allows you to sponsor and promote certain global events. This option is only possible if your global brand is known throughout the world.
“If you were a small player in the market, would you ever be able to invest in a proposition as the Olympics? Or the World Cup? Or have ties with global celebrities? You would not. You would never be able to do that as a local brand.”
promotion, which gives a brand a global reach and awareness and ultimately contributes to the competitive advantage of the firm.
4.8 Standardisation or adaptation of global brands
When looking at the global brands, several interviewees mentioned having minor local adjustments in order to adapt to the local consumer preferences. Managers reported local adjustments to global brands being different recipes in food products and brands, or having locally adapted brand names. Other examples included marginal adaptations to flavours, like adjusting the level of sweetness or saltiness in global products. In order to properly assess how global the global brands in an IBP are, the brands have been classified as being either purely global (i.e. without any local modifications) or locally adapted. The first graph shows whether there is a distinction in adapting global brands between the consumer segments in which firms are present. The second graph shows whether globally or locally oriented companies tend to adapt their global brands.
Figure 13
Global or locally adapted brands? Personal Care & Premium Personal Care & Premium
Sources References
GB purely global 1 4
GB with local adaptations 0 0
Global or locally adapted brands? Food & Beverage Food & Beverage
Sources References
GB purely global 0 0
GB with local adaptations 2 7
0 1 2 3 4 5 6 7
A : GB purely global B : GB with local adaptations
N o. of r efer ences
This graph shows that the Personal Care & Premium industry is dominated by only purely global brands, and the Food & Beverage industry on the other hand is dominated by global brands with local adaptations.
Figure 14
Figure 14 shows that companies focusing on local brands operate very little with purely global brands and tend to locally adapt the global brands they have in their portfolio. Companies focusing on global brands on the other hand tend to have a mixed strategy, operating both with purely global and locally modified global brands.
4.9 What aspects are most important in brands?
What attribute is most important in global and local brands? The interviews demonstrate that the most important aspect with local brands is the ability to respond to local preferences, which all seven managers agree. As figure 14 illustrates, this characteristic is very specific for local brands, as global brands show hardly to be affected by this. With global brands however, all managers explained that they require universal consumer preferences. With universal consumer preferences it is meant that the desires and preferences of a specific product or brand are homogeneous throughout the world. The managers explained that when a segment consists of homogeneous preferences, global brands arise. When local adaptations are important, local brands arise.
0 2 4 6 8 10
A : GB purely global B : GB but with local adaptations
N o. o f r ef er en ces
Figure 15
Important aspects in brands Local brands: Sources Local brands: References
Respond to local preferences 7 55
Universal consumer preferences 1 1
Important aspects in brands Global brands: Sources Global brands: References
Respond to local preferences 2 4
Universal consumer preferences 4 17
Table 10
4.10 Dual branding strategies
While the extent to which firms focus on global or local brands differs, all companies interviewed stated to work with a dual IBP strategy to deal with the difficulties regarding global standardisation or local adaptation. A dual strategy means focusing the firm’s efforts on the global brands while simultaneously operating via one or more local brands.
4.10.1 How do firms perform dual branding strategies?
In order to get a better understanding of how companies are pursuing a dual branding strategy, a relationship matrix is conducted to find the underlying connection, which is demonstrated in figure 16. 0 10 20 30 40 50 60
A : Respond to local preferences B : Universal consumer preferences N o. of r efer ences
