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Factors influencing the international advertising practices of multinational companies.

Introduction

While much has been written on the issue of whether or not multinational companies should standardize or harmonize their advertising internationally, relatively little has been written about the actual motives of those companies who do practise advertising standardization. Such data are of considerable interest, however, since the companies concerned are more than disinterested observers and will have had both the resources and the incentive to have evaluated both the benefits and costs of standardization.

This paper reports on a study which examined the motives behind the international advertising practices of a sample of major advertising spending US and European multinationals. In the study the focus was on the rationale behind the sampled companies international advertising practices in the EU markets only. In terms of the type and extent of standardization practised, the study focused on all companies who standardized the advertising executions in the EU to any extent and not just those companies who practised total standardization. In other words, we were interested in the rationale for all forms and degrees of advertising standardization and not just one particular variant.

Data from prior studies

In terms of seeking to explain the international advertising practices of multinational companies, and whether or not standardization should be practised, several studies have focused on identifying the variables that determine when advertising standardization becomes viable or optimal. In most instances these studies have focused on environmental variables such as GNP; literacy rates; media infrastructure and government regulations[1-4], but no general conclusions have emerged from these studies. Alternatively, studies have been conducted to investigate which environmental variables are actually correlated with the practice of advertising standardization. In many of these studies the primary objective was to investigate whether the practice of standardization was correlated with the stage of economic development of the markets concerned[5-8], but again no firm conclusions emerged.

As regards those studies which have explicitly studied the motives of those companies who practise international advertising standardization, the following factors have been identified as positively influencing the sampled companies policies:

* Reduced media production costs[9-11].

* Good ideas are rare and should be exploited[9,12-14].

* Standardization is necessary given the increasing degree of consumer convergence resulting from the communications revolution[15,16].

* Standardization helps to establish a uniform world image and a consistent brand identity[10,17].

* Consumer confusion is reduced in areas of media overlap and when consumers are travelling abroad[12,18].

* Standardization is a necessary component of a global strategy[16].

* A common advertising approach helps support basic business decisions[9].

* Many national subsidiaries lack the financial and management resources to develop effective local advertising[19].

* Standardization represents a simple solution to an otherwise complex co-ordination process[14].

When these factors are analysed, it would appear that they can be divided into two groups. First, factors such as economies of scale, the need to exploit good ideas and the ability to build an international image, all of which have an implicit economic rationale in terms that standardization contributes to the sales and profit performance of the brands in question. Second, factors such as the need to achieve skills transfer; concern about the abilities of the national subsidiaries and improved decision making, where the rationale for standardization would appear to have more to do with internal organizational considerations. There are, therefore, indications that the international advertising practices of the multinationals cannot be understood solely in terms of an econometric-based cost/benefit analysis.

In terms of the historical development of the case for advertising standardization, one of the first arguments put forward was that given the scale of consumer convergence resulting from the communications revolution, that national culture no longer represented a significant barrier to standardization[15,16,20]. In the studies relating to the motives of the multinational companies, however, while in some[9], there were indications that many of the sampled companies considered that consumers were converging to some extent, it would not appear that this was a significant influence on the policies of these companies. In the majority of studies the general conclusion would appear to be that most companies consider that national culture still represents a significant barrier to advertising standardization, but the benefits of standardization are such that it was still worth practising. These "cultural" barriers have in many instances, however, prevented the companies from standardizing to a greater extent[21].

As regards attempting to prioritize those factors which were identified as positively influencing the policies and practices of the sampled companies, firm conclusions are difficult given the nature of the data. For instance, while economies of scale is a factor cited in most studies, only one study concludes[11] that these economies are of key importance. Conversely, in several studies it is explicitly stated that such economies were very much a secondary consideration[114]. Indeed, one study[12] concluded that since advertising production costs are relatively low compared with the costs of buying advertising space and airtime, it makes little sense to economize on production costs if the resulting message is not optimal.

Alternatively, one consideration that may have been consistently underrated, but which may be of considerable influence, is the need to exploit good ideas, for instance, via an institutionalized process of cross-fertilization[13,14] it should also be noted that many factors are closely interrelated. For instance, the need to achieve skills transfer and exploit good ideas are related to concern about the ability of national subsidiaries to produce effective advertising.

Methodology

In this study, a two-stage research programme was used to investigate the motives of multinational companies who standardize the advertising campaigns deployed in the EU markets that they operate in.

Stage I

Stage I consisted of a mailed questionnaire survey and the objective was to identify the key factors influencing their international advertising policies. The respondents were asked to evaluate the importance of a series of statements on a 1-5 scale. Each of these statements summarized a factor that the literature indicated was a potentially important issue regarding the motives of multinational companies relating to advertising standardization. The respondents were also asked to indicate which factor they considered to be the single most important consideration influencing the policies of their companies on advertising standardization. Stage II consisted of personal interviews with selected executives who had participated in Stage I. The objective in these interviews was to examine the motives of the sampled companies in depth and gain further insights into the decision-making process regarding international advertising practices in these companies. For instance, had prior studies identified all the factors that affected policy in this area? In both stages of the study, the research focused on the companies' practices relating to advertising standardization, for just one of their major brands, in the European Union markets only.

The total sample in Stage I consisted of 38 US and European companies, all of whom were manufacturers of consumer products and who spent substantial amounts of money on advertising. Of these 38 companies, 27 were found to standardize their advertising executions to some extent in the markets reviewed and thus could provide data on the rationale behind advertising standardization.

In each instance, the questionnaire was sent to an executive responsible for, or closely involved with, European advertising co-ordination for some, or all, of the company's major brands. In the majority of instances the questionnaires were sent to executives with job titles such as European marketing director/manager; international brand manager or European advertising co-ordinator. Stage II consisted of personal interview with eight of the executives who had completed questionnaires in Stage I.

Findings

The data from the questionnaire survey are presented in two tables, the first showing the respondents' evaluation of a series of statements rated on a 1-5 scale (1 = not very important, 5 = very important), and the second indicating which single factor the respondents considered to be the most influential on their company's policies and practices relating to advertising standardization within the EU markets.

Analysis of the data presented in Table I reveals four statements received a rating of 3.5 or 3.6. When the respondents were asked to indicate what was the single most important factor influencing policy (Table II), the desire to exploit one good idea and the perceived need to build an international image received respective ratings of 33 per cent and 22 per cent.

When the data from the two tables are compared, it can be seen in Table I that the statement relating to the importance of reduced media production costs received the highest mean score at 3.6, while in Table II, 24 out of the 27 respondents, whose companies practised some form of advertising standardization in the EU, did not consider this to be the single most important factor influencing policy. We also note that in Table I, concern about the quality of subsidiary advertising received the lowest mean score of all the statements, but four respondents rated this as the single most important factor.
Table I


Rationale for policy on advertising standardization


                                                              Mean
Number                  Statement description                 score


2                Standardization can significantly             3.6
                 reduce production costs
6                Standardization is good because the           3.5
                 top talent works on one good idea
1                Given the increasing degree of                3.5
                 international communication, it makes
                 economic sense to standardize
8                Having an international image is              3.5
                 suitable for our brand
7                The media and communications                  3.3
                 revolution has done much to reduce
                 or harmonize cultural differences
4                Standardization is the best way to            2.5
                 control subsidiary activities and
                 achieve effective co-ordination
3                Via standardization we can achieve            2.4
                 economies of scale in manpower
5                We sometimes doubt the ability of our         2.3
                 subsidiaries to produce effective
                 advertising


Stage II

When the data from the interviews conducted in Stage II were analysed, it became apparent that the sampled companies could be segmented into two evenly divided groups, the difference being the length of time that they had been practising some form of advertising standardization. Companies in the first group had generally been practising standardization for less than five years and were still relatively inexperienced regarding the issues and complexities involved in determining the efficacy of standardization and how best to develop and implement standardized campaigns.

As to why these companies had begun to practice advertising standardization, in one instance it had been instituted to counteract the threat from a Japanese competitor, whose success had been attributed to the centralized nature of their international marketing operations. In another instance, standardization had followed from attempts by the company to improve their international sales performance by adopting more centralized polices. For the third company, standardization had been introduced to help provide some sort of umbrella branding for a wide product portfolio. In the initial stages, standardization was restricted to a standardized presentation of the corporate logo and attempts to harmonize the mood and tone of the various national commercials.

As regards the final company in this group, their motives for initiating a policy of standardization were similar to the others in that the primary motive was to begin to exert more control from the centre. Until then, the level of involvement by the centre in the marketing policies of the national subsidiaries had been marginal. Rather than attempting to exert influence on existing brands and to change the current strategies, it was decided that the best method was to launch a new product altogether. It was considered that the national subsidiaries were more likely to accept interference on marketing decisions for a new brand, rather than one where the policies were already in place. As such, for this one particular brand, a high level of executional standardization was practised from the outset, though it should be noted that three major European subsidiaries insisted on substantial revisions to the international campaign. It should also be noted that progress towards standardizing the [TABULAR DATA FOR TABLE II OMITTED] advertising for the company's other brands had been slow.

Regarding the above point, while in three out of four of these companies the initial degree of standardization practised on the given brand was limited at the outset, it had grown considerably since. The indications were that the extent of standardization practised was influenced to a considerable degree by the ability of the organization to handle the complex administrative and managerial issues involved in developing and implementing standardized advertising. A key factor was the ability of the centre to "persuade" the national subsidiaries to accept the consequent loss of autonomy. The actual type and extent of standardization practised was possibly as much due to the compromises agreed by the two parties, as objective evaluation of what was optimal.

When the executives from these four companies were probed regarding the specific benefits of advertising standardization, while factors such as consumer convergence and economies of scale were cited, the extent to which these factors had actually influenced policy was questionable. Rather the indications were that the polices of these companies had continued to be more influenced by the managerial and organizational issues cited earlier, namely the perceived need to increase central control and to improve overall marketing performance. For instance, one of the respondents argued that it was inefficient for each of the national subsidiaries to continue to develop their advertising campaigns in isolation both from the centre and other national markets, and that it was more efficient to produce just one or two campaigns. Increasing centralization could be justified by the need to exploit the centre's skills and resources, particularly since there were doubts in many instances about the abilities of the subsidiaries to produce effective advertising on their own. They considered that if a modern multinational was to be more than the sum of its parts, it could not afford to take a laissez-faire attitude towards something as critical as advertising.

It was also found that none of the respondents could claim that their company had undertaken any substantive analysis of the specific costs and benefits of standardization. For instance, no econometric analysis had been conducted to estimate the impact on sales of standardization in the relevant markets. As a substitute for such analysis, in two instances the respondents claimed that the efficacy of advertising standardization had been proven by the success of noted exponents of standardization, such as Pepsi-Co and Coca-Cola.

As regards those companies who had been practising standardization for longer periods, two were among the earliest exponents of standardized international campaigns. Given the time period involved the respondents were unable to state with any real certainty what the original motives behind standardization had been. In one instance the domestic campaign had been exported without modification and this practice had been continued. The product concerned had become one of the world's first global brands and its dominance in the marketplace had been largely attributed to this positioning.

Both of these early exponents of standardization operated a lead market system to produce new campaigns, focusing their efforts into one well-resourced team, who the respondents argued were more likely to produce effective advertising than any given national market. Also, they argued that if only one commercial or campaign was produced, the company could afford larger production budgets, exceeding what any individual national markets could afford. Such budgets allowed for commercials with high production values and also for hiring expensive celebrities to appear in the commercials. It was notable that both of the respondents claimed that their company was in favour of the principle of standardization and that it was more than just good practice. For instance, they subscribed to the convergence notion; the need to build international brands and that advertising standardization was the optimal policy in the current international environment.

By contrast, the other two experienced practitioners of advertising standardization were more agnostic about the principle of standardization. In particular they were cautious about claims that the international environment had changed to the extent that standardization was the optimal solution for most brands in most markets. One of these respondents asserted that their company considered that markets and consumers were still sufficiently diverse for a large degree of subsidiary autonomy in marketing to be essential. In this company, advertising standardization was the outcome of an organized process of cross-fertilization. International managers identified successful local campaigns that they considered lent themselves to international transfer. Local managers were then asked to evaluate this campaign and to test it in research against the local campaign. If the research indicated that the "international" campaign was preferred, then the local manager was expected to adopt it, but modifications were permitted when a case could be made for them. In other words, the objective in this instance was quality not standardization as such. Standardization was not practised because of any inherent qualities of standardization or commitment to related principles, such as market and consumer convergence, but because one campaign was considered to be more effective than another. The company's flexibility regarding standardization was reflected in the fact that for the brand in question, locally-developed campaigns were still run in two EU markets. Also, the level of standardization practised on this brand was atypical of the company's practices and in general lower levels of standardization were practised on their other brands.

The final company was equally agnostic about advertising standardization and asserted that there was no slavish adherence to standardization for its own sake. The company nevertheless practised high levels of standardization on most of their major brands. In the interview it became apparent that the organizational structures that the company had in place concerning international marketing co-ordination generally, were probably the most sophisticated of all the companies sampled in Stage II. This was particularly apparent when the effort put in by the company to research the viability of international campaigns, and the classification systems employed to classify national markets and to identify key differences, were analysed. To actually produce the campaigns the company employed a lead market system, and in all instances extensive care was taken to adapt the campaign to ensure its success in the targeted markets. In the interview it was stated that while the company was very aware of the potential costs of standardization in terms of producing advertising that might not maximize the given brand's sales performance in some markets, they considered that the benefits of standardization outweighed these costs.

Summary and conclusions

This study has shown that a wide variety of factors influence the international advertising practices of multinational companies regarding the standardization decision. In particular, the data obtained from the interviews conducted in Stage II demonstrated that there can be no generic rationale for advertising standardization, since many different types and forms of standardization are practised and it is not a simple either/or choice. For instance, the case for standardizing the presentation of the corporate logo is likely to differ substantially from the case for practising total executional standardization, where both the visuals and the copy are totally standardized in every market. One policy bears very little risk in terms of its economic implications, while the latter policy bears considerably more risk.

Besides the type and extent of standardization, this study has shown that another key factor affecting the rationale behind standardization is the international marketing experience of the company. For example, those companies who have been practising standardization for a relatively short time period were found to be influenced to varying degrees by the dynamic effect: namely that since more and more companies are beginning to standardize their advertising, this puts pressure on those not doing so to imitate their peers and conform. Standardization is further legitimized by the perceived success of exponents of standardization such as Levi-Strauss and Philip Morris.

While the companies in the two segments or groups differed across many dimensions, the motives they shared in common relate primarily to concerns regarding international marketing co-ordination issues. In particular, how to ensure that the organization performs as effectively as possible as an international entity. The data obtained from both stages of the study indicated that the desire to achieve skills transfer from headquarters to the national subsidiaries, and the perceived need to compensate for weak marketing performances by the national subsidiaries, were of particular importance. There was thus support for the conclusions reached by two prior studies[13,22].

More specifically, there was concern that some national subsidiaries do not possess the management skills necessary to conduct effective research and to develop coherent advertising strategies[12]. Further, that subsidiaries often lack the financial resources to produce advertising executions with high production values. Assistance is therefore required in both these areas and advertising standardization may in some instances be the outcome of the process designed to achieve skills transfer, rather than a specific objective as such.

Even if advertising standardization is a stated objective, it should be noted that the benefits of standardization are not necessarily evaluated in terms of its specific economic contribution[23]. Indeed, it should be noted again, that in this study none of the sampled companies were able to produce any econometric analysis indicating that standardization had improved the sales and profit performances of the brands concerned. This is not to say that factors or considerations identified in the research that might affect economic performance, i.e. reduced media production costs; the desire to build an international image; consumer convergence and the existence of cross-border media, are of no influence. Rather that the executives concerned bring a wide-ranging agenda to the decision-making process concerning advertising standardization. In particular, the indications from this study are that any cost/benefit analysis concerning advertising standardization must be broad and incorporate non-economic factors to a greater extent than has hitherto been suggested.

References

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11 Kirpalani, V.H., Laroche, M. and Darmon, R.Y., "Role of headquarters control by multinationals in international advertising decisions", International Journal of Advertising, Vol. 7, 1988, pp. 323-33.

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17 Sandler, D.M. and Shani, D., "Brand globally, but advertise locally? An empirical investigation", International Marketing Review, Vol. 4 No. 4, 1992, pp. 18-31.

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21 Onkvisit, S. and Shaw, J.J., "Standardized international advertising: a review and critical evaluation of the theoretical and empirical evidence", Columbia Journal of World Business, Fall, 1987, pp. 43-52.

22 Robbins, K.L., "Does standardization work in international marketing?", The McKinsey Quarterly, No. 4, pp. 3-18.

23 Walters, P.G.P., "International marketing policy - a discussion of the standardization construct and its relevance for corporate policy", Journal of International Business Studies, Vol. 17, Summer, 1986, pp. 55-69.

Further reading

Boddewyn, J.J., Soehl, R. and Picard, J., "Standardization in international marketing: is Ted Levitt in fact right?" Business Horizons, Vol. 29, November-December 1986, pp. 69-75.
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Author:Harris, Greg
Publication:Management Decision
Date:Nov 1, 1996
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