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Monday, September 27, 2004

How Consumers Value Global Brands

    Posted by Adam Crouch

From an excellent article in September's issue of the Harvard Business Review:
In 2002, we carried out a two-stage research project in partnership with the market research company Research International/USA to find out how consumers in different countries value global brands. First, we conducted a qualitative study in forty-one countries to identify the key characteristics that people associate with global brands. Then we surveyed 1,800 people in twelve nations to measure the relative importance of those dimensions when consumers buy products. A detailed analysis revealed that consumers all over the world associate global brands with three characteristics and evaluate them on those dimensions while making purchase decisions. We found that one factor—American values—didn't matter much to consumers, although many companies have assumed it is critical.

According to the authors, these are the three primary things that shape consumers' feelings about a given global brand:

  • Quality Signal
  • Identification with a certain way of life
  • Social Responsibility
Those 3 dimensions are pretty typical, and shouldn't come as a surprise. What makes this study interesting are the following, somewhat more secondary conclusions:

1. The perception of quality is driven in a large part by the belief among consumers that multinationals face stronger competitive forces than local firms do

This is of course true, but I would have guessed that things like scale (and hence ability to do extensive R&D and quality testing) would stick out in consumers' minds as a causal factor for quality more than competition would.

Maybe large inefficient local firms have driven home the point that abilities (scale) are useless without motivation (competition)

So apparently "the common man" in the world has a much better grasp than commonly assumed of why free markets are better than central planning. Of course, this could be driven more by the authors' biases than by the actual data... there's no way to tell from the article.

2. Specific country-of-origin is not nearly as significant as simply being a "global" brand

Until recently, people's perceptions about quality for value and technological prowess were tied to the nations from which products originated. "Made in the USA" was once important; so were Japanese quality and Italian design in some industries. Increasingly, however, a company's global stature indicates whether it excels on quality. We included measures for country-of-origin associations in our study as a basis for comparison and found that, while they are still important, they are only one-third as strong as the perceptions driven by a brand's "globalness."

This is indeed quite notable. I would hypothesize that this is driven primarily by the increase in globalization -- by more countries getting into the consumer product export business. When you had fewer countries with global brands, and with consumer products from a given country being focused primarily on one or two industries, that specialization was natural. Now you have many types of products coming from a given country, and consequently the high-quality products in a given industry are no longer solely from one country. This makes having a "clear leader" country in any given industry less likely, leading to a decline in the importance of specific country-of-origin.

3. Consumers hold global brands to higher standards of Social Responsibility than they do for local firms

Consumers don't demand that local companies tackle global warming, but they expect multinational giants like BP and Shell to do so. Similarly, people may turn a blind eye when local companies take advantage of employees, but they won't stand for transnational players like Nike and Polo adopting similar practices. Such expectations are as pronounced in developing countries like China and India as they are in developed countries in Europe.

This makes sense, when considered in conjunction with the fact that people consume global brands in order to associate themselves with a certain way of life. It's quite frustrating for multinationals, however, as this can feel unfair, and possibly just a facade for protectionism/nationalism.

Do consumers just have less confidence in local firms? Do they think that being socially irresponsible is necessary for them to succeed when faced with a global competitor? Possibly, but I think the real root of this is fact that people are just more suspicious of and more apt to criticize "the other". A person may be verbally abusive with his family, but he likely wouldn't tolerate other people treating them in the same way.

4. American politics generally have little impact on the perception of American brands

The most interesting thing in this article, for me at least, is the discussion of how a country's politics impacts the perceptions of that country's brands. What is surprising is that they found little to no impact -- consumers *claimed* that they cared, but their actual behavior showed the opposite.

I found this rather surprising, given the success of products like Mecca Cola, and the significant decrease in French wine sales in the US coinciding with the Iraq war.

Humorous anecdote: When I was in Pakistan, multiple people told me: "you shouldn't drink Pepsi... don't you know it stands for Pay Every Penny to Save Israel?!" This might be a reason why RC Cola is quite popular there, despite having practically disappeared in its home country of America... :-P

I think this passage sheds some light on that issue:
"the dimensions influence consumers in Indonesia, Turkey, and Egypt the most. In those predominantly Muslim nations, we could survey only people who worked in the organized economy and belonged to the top 50 percent of the population in socioeconomic terms. Such people may value global brands particularly highly because they represent a way of life that they cherish—a way of life that may be under threat from religious fundamentalism."

So in the places where anti-American sentiment is the highest, their sampling methodology skews things in a more pro-American direction (probably with good reason, as the top 50% is more of the target population for global brands anyway). The more significant point still remains, however: Despite consumer claims to the contrary, American politics have little impact on the perception of American brands for the vast majority of consumers in the wealthiest markets.

It would certainly be nice if people consciously differentiated between a government and its subjects -- terrorism would no longer exist if that were the case. The question of Whether or not the citizenry of a democracy should be considered liable for that country's policies is an interesting philosophical discussion, but that requires a post all to itself (I'd lean towards no, but there are good arguments on both sides).

Whether or not that differentiation is happening in the minds of consumers is not really clear from the article. The authors quote some people who say that, and others who say the opposite.

I'm really fascinated by the people who think and even claim that a country's politics influences their purchasing, but whose behavior doesn't back that up. What is the root of this cognitive dissonance?

It's not clear from the article, however, if there really are a significant number of these people or not. The authors could be interpreted as saying that the people who make these claims really do follow through with them, but they are in the minority, and so don't have a siginificant impact on overall sales.

Other thoughts:

I see an interesting coordination problem here, arising from the fact that one company can screw things up for others

1. A global brand that behaves badly can harm the image of global brands in general (guilt by association)

2. If a nation doesn't already have a business image, bad behavior by one of their companies can create a bad image for the all companies from that nation. For example: say a Croatian drug company has a big product-tampering scare. Croatia had a blank slate with respect to country-of-origin, but consumers now might associate Croatian companies with poor quality controls.

#1 would promote industry self-policing, while #2 would promote state intervention to ensure that companies are really ready for primetime

There's a distinction between brands that are associated with a specific country, and brands that are truly global

By "truly global" I mean brands that consumers don't associate with specific countries, but with the world as a whole. Examples:
Brands associated with specific countries: Nike, McDonald's, Guinness
Truly global brands: Adidas, Nestle, LG (?)

What are the advantages and disadvantages of being associated with specific countries vs. being truly global? In what circumstances should companies position themselves as one or the other? What about if there is no existing image associated with your country/industry combination? And how does a company go about positioning itself as one or the other? Nike vs. Adidas strikes me as a great case study for this, since they have practically identical products, and the route they each took to become the type of brand they are isn't immediately obvious.

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