The described international product life cycle (IPLC) suggested by Vernon was primarily used to explain shifts in foreign direct investments between countries.
This has to be clearly distinguished from the product life cycle (PLC) which suggests that the revenues and profits of products follow a distinct pattern of introduction, growth, maturity and decline. During the introduction stage, sales increase only slowly and companies may suffer a loss. Next, the growth stage is characterized by strong increases in sales and often accompanied by adding product variants to stimulate demand. During the maturity phase, sales slow down and often barely keep up with GDP or population growth. The maturity phase is also characterized by increasing competition and associated price pressures. In the decline phase, structural shifts in demand occur; the product is gradually replaced by others offering more innovative technologies or more relevant benefits; sales and profit decrease.
While the PLC that traces the development of sales and profits during the lifetime of a product has not been specifically developed with international applications in mind, it has long been recognized as a concept that is extremely useful in drawing up international strategies. As early as the 1970s, Hofer argued that “the most fundamental variable in determining an appropriate business strategy is the stage of the product life cycle.”62Similarly, Biggadike identified the product life cycle as one of five major contributions marketing made to strategic manage-ment.63Finally, the famous portfolio approach of the Boston Consulting Group is implicitly based on the product life cycle concept.
When the PLC concept is applied in an international context, it is often also referred to as international product life cycle although, as pointed out before, it is fundamentally different from Vernon’s IPLC. However, using the PLC as an analytical tool across different country markets can reveal important differences.
First, the product diffusion pattern, that is, the shape of the PLC curves, may differ in terms of their starting points as well as the lengths and gradients of the various phases. While it should be acknowledged that the rapid globalization observed in the last few decades has also led to some decrease in the differences between countries with regards to PLCs, it is remarkable how persistent cross-country differences are. In an analysis of more than 130 new products in 16 European countries, Gerard Tellis and his colleagues showed that sales developments of new products are characterized by distinct differences in the shape of their PLCs.64
62Hofer and Schendel (1978).
63Biggadike (1981).
64Tellis et al. (2003) and Stremersch and Tellis (2004).
Given that this is the case within a relatively homogeneous European market, it becomes clear that PLC differences in culturally and economically more diverse markets, such as India and the US or Germany and Nigeria, are much more accentuated. Figure5.4provides an illustration of possible PLC differences for a given product across different country markets.
5.6 Summary
Consumers buy solutions not products! To manage products as solution providers, marketers distinguish between thecore customer value, that is the problem-solving benefit, theactual product including brand name, quality, design, packaging, and theaugmented product that creates additional customer value through supplemen-tary services. In a global marketing context, a company may provide the same core product all over the world, but adapt its brand name, design and offer different levels of support service. Product classifications such asconsumer products and business products, durable and non-durable products, and physical products and services may also be helpful in creating global market offers.
Following the description of the main dimensions and types of products, our focus shifts to one of the central debates in global marketing strategy, namely the adaptation versus standardization debate. Following the debate back to seminal contributions by Buzzell, Levitt, Friedman and Ghemawat, it becomes clear that neither standardization nor adaptation alone, but the right balance between both, is called for. In fact, adaptation may be a must rather than a choice. Hence, much of the standardization–adaptation debate centers onvoluntary adaptation, and several scholars favor a contingency perspective; in essence claiming that firms can neither fully standardize nor adapt, but need to apply a combination of both.
Next, the discussion shifts to global innovation and product development. A key task for any global marketing manager is to encourage the development of innovation in different parts of the organization around the world and to ensure that the innovation is rapidly diffused throughout the corporation regardless of where it originally occurred. While most people think about new products when discussing innovation, the term encompasses a much broader set of dimensions Fig. 5.4 PLC in different
countries
with different impacts on the firm and the market. To capture the impact of different innovation types on corporate change, strategy and market impact, the Prange Schlegelmilch Innovation Cube is introduced. Subsequently, we discuss alternative global innovation strategies, such as the location of internal R&D facilities and the scope for acquiring innovation externally. The section on innovation and product development ends with a detailed look at the new product development process, encompassing idea generation, initial screening, business analysis, development, market testing, and commercialization.
The chapter finishes with a look at the international product life cycle. A distinction is made between Vernon’s conceptualization of the IPLC that focuses on explaining internationally shifting foreign direct investment patterns, and the international application of the product life cycle that traces the revenue and profit development of a given product in different countries around the world. We argue that the former conceptualization has lost much of its relevance in today’s intensely global business environment, but that the latter remains a useful strategic tool for global marketing managers.
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