Original scientific paper

UDC 339.138 ; 334.726(437.6)

Ing. Zuzana Roby, PhD* University of Economics in Bratislava

MARKETING STANDARDIZATION VERSUS DIFFERENTIATION IN INDUSTRIAL MULTINATIONAL COMPANIES IN SLOVAKIA

Abstract: This paper focuses on the main dilemma of international marketing: the problem of marketing standardization versus differentiation in Slovak multinational industrial companies in international markets. The focus was on factor analysis related to these marketing strategies. In addition, it identifies the possibility of individual marketing instruments (4Ps) for marketing standardization in international markets. We analyzed all basic 4Ps and tried to choose the most important and eligible instrument for marketing standardization and differentiation in foreign markets. Key words: international marketing, standardization, differentiation, Slovakia JEL classification: L15, F23

1. Introduction Currently, it is apparent that many companies have an international orientation to their business activity. Many companies do business domestically, but they place a priority on international markets as well. These companies apply international marketing strategies which satisfy the companys needs, while at the same time satisfying customers in various markets. Business environment is characterized by constant change and ongoing long-term processes of globalization of the economy. Accelerating economic development in recent years led to continuous increase in competition within the domestic market but also in foreign markets. Slovakia contains various industrial companies with a highly concentrated production, which try to establish and strengthen their positions in foreign markets. International business has become a necessity for a large number of enterprises in Slovakia, which was enhanced by the processes of globalization and by the growth of international competition. Entering European Union together with adopting Euro has a pro*

E-mail: zuzana.roby@euba.sk

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found affect on companies in Slovakia. International marketing and its application represent a key part of successful corporate management of all international companies in Slovakia 2. Standardization and differentiation in international marketing There are basically two distinguishable strategies applied in international marketing: marketing standardization and marketing differentiation. The basic reason for applying standardization is that multinational companies should think globally and apply integration access worldwide. Standardization application in marketing means, to a great extent, that companies should apply the four basic marketing instruments (4Ps) in the same way worldwide and ignore national specialties in individual markets. Simply put, companies which apply marketing standardization offer the same product, promote it identically, and price and place it almost equally worldwide as well. International companies try to apply standardization strategy worldwide due to the great impact of Economies of Scale, which can lower their total costs. In the end, standardization also benefits customers by lowering prices. Currently, only a small number of international companies are able to implement global marketing strategy consistently, and the application of standardization is more the exception rather than a regular phenomenon. Almost every international company takes into account (in higher or lower level), regional or local conditions which are typical to the differentiation. The strategy of differentiation is supported by strong market variety, especially by market individualism, or market uniqueness, which encourages the application of marketing differentiation. Marketing differentiation presents higher satisfaction of customers wants and needs, but the customer has to pay more for such a product. This paper focuses on the main dilemma of international marketing: the problem of marketing standardization versus differentiation in Slovak multinational industrial companies in international markets. The focus was on factor analysis related to these marketing strategies. In addition, it identifies the possibility of individual marketing instruments (4Ps) for marketing standardization in international markets. We analysed all basic 4Ps and tried to choose the most important and eligible instrument for marketing standardization and differentiation in foreign markets. 3. Data and methods of survey The main objective of this paper was to identify marketing standardization and differentiation application in Slovak multinational industrial companies. Megatrend Review

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In order to fulfil our main objective, we conducted a survey among 197 Slovak multinational industrial companies. We directly addressed the questionnaires to the 50 largest export enterprises in Slovakia, and we got a response from 17 companies. (The return of questionnaires was 34%, which represents 17 companies out of 50). There were not any restrictive conditions, relating to size, industry type or any other conditions during the enterprise selection process. The rest of the survey was represented by 180 companies, and these companies were randomly picked. The responses were investigated through open and closed questions, and the impact of various factors was identified through the scale system (The factors varied in scale, ranging as follows: no impact, weak, medium, and very strong impact). The research consisted of two parts. In the first part we focused on the main factors which lean toward marketing standardization, and then to marketing differentiation. In the second part of the survey the special attention was especially devoted to individual marketing instruments (4Ps) and their applicability for standardization or differentiation in international markets. To achieve the basic objective of this paper the following partial goals needed to be achieved: To examine the major factors toward marketing standardization in foreign markets, To explore the key factors toward marketing differentiation, To identify the most appropriate marketing instrument/instruments for marketing standardization application in foreign markets. 4. Survey results The results were evaluated by the SPSS program (Statistical Package for the Social Sciences), which is used extensively for marketing research. Companies which operate in foreign markets usually use marketing standardization or differentiation. Literature in some cases also mentions a third strategy, which is in-between the two mentioned basic strategies. It is called a regional strategy, which is frequently applied within the region of several countries that are characterized by a high degree of similarity. For this reason, we also examined the application of regional strategy in foreign markets. The results are shown below.

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Figure 1: Marketing strategies used among industrial multinational corporations in Slovakia

50 40 30 20 10 0 34,6 24,6 differentiation standardization regional strategy 40,8

We found out that marketing standardization is the most common used strategy in foreign markets (40.8%) which mean the application of identical, or similar marketing strategies for all foreign markets. It is obvious that companies see advantages of this strategy and apply marketing instruments identically worldwide. The production in large quantities and total cost reduction is the engine of multinational companies, which lean toward standardization. Marketing standardization should not be understood only with regards to product policy, but it can be seen in the same way in the promotion policy with customers in various foreign markets. Distribution and pricing is done in various foreign markets. Differentiation is also often used among multinational companies in Slovakia (34.6 %). Adapting marketing instruments to local customers is away of satisfying a customers needs and wants at a much higher level than through marketing standardization. Foreign markets vary and sometimes, due to different legal matters, standardization application is not always possible, so companies see the benefits in the adaptation to the local customer. They try to get higher profits due to higher prices, which are a reflection of better needs and wants satisfaction. Some foreign markets are so different that ignoring these differences would mean atotal failure in those markets. Almost one quarter of the analysed companies use the regional strategy, within countries with certain similarities (24.6%). Application of the regional strategy means the basic utilization of the strengths of both strategies. To put it another way, the regional strategy applies standard procedures in regional markets, while reflecting on the higher satisfaction of local customers as compared to global customers). Multinational companies which apply standardization in foreign markets are influenced by various factors. Examination of these factors was crucial, since these factors greatly affect the application of marketing standardization. We evaluated these important factors: the nature of production (connected either with the production of final goods or with the products used as investment for other production), cost savings in several functional areas, planning and control, inventory reduction and consolidation of customer requirements. The following Megatrend Review

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table shows the importance of these factors among the analysed companies and their relation towards standardization. Table 1: Impact of factors related to marketing standardization among industrial multinational companies in Slovakia
Factors of standardization Characteristics of production Cost savings in R&D Cost savings in production Cost savings in communication Simplifying planning and control Inventory reduction Unification of customers requirements No importance (%) 1.2 15.9 3.0 6.0 3.5 13.7 5.4 Low importance (%) 9.6 28.0 15.8 29.3 28.8 42.3 20.2 Medium importance (%) 36.5 37.2 46.7 41.9 47.6 32.7 42.3 Strongest importance (%) 52.7 18.9 34.5 22.8 20.0 11.3 32.1

Results show that the characteristics of production is the most important factor related to standardization. It is obvious that the type of product can greatly affect the decision-making process related to marketing. Marketing instruments are used in a different way for afinal product than for the product which is used in production for another company. Therefore, the product itself is a precondition for either standardization application or differentiation application. Standardization is most easily applied for investment products, such as construction machinery, machine lines, or others. Cost savings in production is the second most important factor of standardization among selected companies. Companies tend to see total costs savings only in this functional area. This action is understandable, but companies should have wider attempt in saving costs and they should to cut costs in other functional areas as well. R&D savings are not crucial for companies due to still lesser expenses into this area in comparison with formal EU countries. Unification of customers requirements can be considered to be the third factor of importance towards standardization. Companies have noticed that customers, for many reasons, have more similar expectations towards products, and they offer identical or similar products in various foreign markets. If customers are similar, then their needs and wants can be met in an identical manner. We can say that the unification of the customers requireVol. 7 (2) 2010: pp. 243-252

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ments in various foreign markets greatly support marketing standardization. The fourth factor is cost savings in communication policy. Communication policy is not as important as production policy. Multinational companies in Slovakia still sometimes underestimate the impact of promotion, or they lack the know-how in this area. Other factors toward standardization play a lesser role in marketing standardization, because their impact is either low or medium. Marketing differentiation takes into account particular local conditions of the market to satisfy the wishes of local consumers. In most cases, the adaptation of professional marketing instruments means that multinational companies differentiate the products and their attributes, offer different prices on foreign markets. Additionally, they use different distribution and communication policy, depending on the market. As a reward for these efforts, companies charge higher prices. Various factors towards differentiation were examined as well. We focused on these factors: market requirements, macro-economic differences, the legal system, socio-cultural differences, differences in customers preferences, behaviour of the competition towards the local market, marketing infrastructure, and technological adaptation. The following table shows the importance of these factors among analysed companies and their relation towards differentiation. Table 2: Impact of factors related to marketing differentiation among industrial multinational companies in Slovakia
Factors of differentiation Market requirements Macro-economic differences Legal system Socio-cultural differences Differences in customers preferences Adaptative behaviour of the competition towards the local market Marketing infrastructure Technological adaptation No importance (%) 2.5 4.5 7.7 14.2 5.8 2.6 6.5 5.2 Low importance (%) 3.8 12.9 26.3 29.7 21.3 7.7 29.9 32.0 Medium importance (%) 29.3 56.1 40.4 34.2 41.3 49.7 50.0 39.9 Strongest importance (%) 64.3 26.5 25.6 21.9 31.6 40 13,6 22.9

Results proved that market requirements are critical for differentiation. If customers desire a specific product amultinational company should respect this fact. Otherwise, the company can lose a customer and the company is replaced by other company which is able to satisfy customers wants on higher level. ThereMegatrend Review

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fore, analysed companies in Slovakia should conduct a market research to analyse foreign markets more in details(to know what the local customer want) and more frequently as well. Adaptative behaviour to the local market is the second strongest factor connected with marketing differentiation. Multinational companies from Slovakia are usually not leaders in foreign markets, and they seek to apply a similar adaptive strategy and follow their competitors in the industry. This means that, if successful competitors apply differentiation in foreign markets, other multinational competitors are likely to use a similar strategy. Macroeconomic differences can be considered to be the third and fourth factor together with differences in customers preferences. A multinational company cannot afford to ignore macroeconomic differences, and due to many differences in the economies (e.g. customer purchasing power), it is essential to take these differences into account. Different customer preferences force multinational companies to adapt marketing instruments to local markets. This factor proves the importance of marketing researches on various markets to know the potential customers needs and wants. Although other analysed factors have less importance with regards to differentiation, still, they need to be considered as well. After identifying the importance of key factors related to marketing standardization and differentiation, we examined the basic marketing instruments (4Ps) in terms of the possibility of marketing standardization. We wanted to know which marketing instrument is the most suitable for marketing standardization in foreign markets. We did not examine marketing instruments for differentiation, because, usually, marketing instruments suitable for standardization are not suitable for differentiation and vice versa. The results of basic marketing instruments analysis are shown in the table below. Table 3: Suitability of marketing instruments related to standardization among industrial multinational companies in Slovakia
Marketing instrument (4Ps) Product Promotion Price Place No importance Low Medium Strongest (%) importance (%) importance (%) importance (%) 1.6 4.9 7.7 4.4 6.5 23.2 30.6 26.0 29.6 48.1 38.3 55.8 62.4 23.8 23.5 13.8

Results of the research confirmed that the best marketing instrument for standardization in foreign markets is the product. A standardized product can be offered in foreign markets because its characteristics and quality, and the way it is used are the same in foreign markets. Taking into account the percentage of the two highest ratings of importance (strongest and medium), 92% of multinational companies considered the product to be an easily standardized tool Vol. 7 (2) 2010: pp. 243-252

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without any substantial differences in several foreign markets. Promotion can be considered the second most important marketing instrument related to standardization application. We need to say, though, that we expected the results of the research to be higher (especially in the level of strongest importance). We were surprised by the relatively high results achieved by Place as marketing instruments in this regard. But according to our results, it is the third most important factor related to marketing standardization among analysed companies in Slovakia. Identical distribution channels application is a recent trend which can be seen in distribution in several foreign markets in order to achieve costs reduction. Price is relatively the least suitable marketing instrument for standardization. Still, we can say, that multinational companies have started to think about standardization in price policy additionally, due to economic difference elimination e.g. among EU countries. 5. Conclusion Marketing standardization is the most often applied strategy in foreign markets among multinational companies in Slovakia. Standardization is represented by an identical, or similar, marketing approach for foreign markets. Cost reduction due to Economies of Scale is the most important reason for multinational companies, which lean toward standardization. Differentiation is also often used among multinational companies in Slovakia. Adapting marketing instruments to the local market is a way of satisfying customer needs at a much higher level than through marketing standardization. The advantage of this approach is the opportunity to charge higher prices, because of a higher satisfaction of customer needs and wants through a tailored product. Several factors affect both strategies of marketing standardization and marketing differentiation in foreign markets. Some of them have a great impact on multinational companies; the other ones can affect the companies only slightly. Expert marketing theory considers product policy to be the most suitable marketing instrument for standardization in foreign markets. Communication policy is also considered to be an appropriate instrument for standardization. This paper verified both these theoretical opinions through the survey within multinational companies in Slovakia. We found out that product policy is exclusively the most important marketing instrument suitable for marketing standardization. Promotion is the second most important marketing instrument for marketing standardization. Both marketing strategies (marketing standardization and marketing differentiation) have their own advantages and disadvantages. In practice, there is no universal conclusion as to which strategy is the most suitable and most often applied in international markets. Despite different advantages related to both of Megatrend Review

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these marketing strategies, we cannot say that these strategies represent contradictions in international marketing. They coexist, and the most important task for any multinational company is to determine the right level of standardization or differentiation, not only for the companys sake, but also for the sake of the customer. Reference Albaum, G. Strandskov, J. Duerr, E.: International Marketing and Export Management, Addison - Wesley, Harlow, 1998 Farell, D.: Beyond Offshoring: Assess Your Companys Global Potential, Harvard Business Review, Dec. 2004 Schuh, A.: Global Standardization as a Success Formula for Marketing in Central Eastern Europe, Journal of World Business, 35 (2), 2000

Paper received: March 1st, 2010 Approved for publication: September 5th, 2010 Vol. 7 (2) 2010: pp. 243-252