Country of Origin Effects as Key Success Factor for Marketing Strategies

A Management Research Project


Research Paper (postgraduate), 2006
45 Pages, Grade: 1
Ulrike Imme (Author)

Excerpt

Table of Contents

I. Abstract

II. Table of Contents

III. List of Illustrations

IV. List of Abbreviations

1. Scope of this Study

2. Introduction

3. Country of Origin Research in a Nutshell

4. Indications by Marketing Communications in Australia

5. The COO Impact on Marketing Strategies of Companies in Australia
5.1. Core Competences
5.2. Production Location
5.3. Distribution and HR Policy
5.4. Use of Marketing and Marketing Communications Tools
5.5. Brand Equity and Pricing
5.6. Customer Value- The image of Service or Quality

6. External Drivers for the Use of Country of Origin
6.1. Labelling Requirements
6.2. Trade Barriers and LegalAspects
6.3. The Impact of Local Loyalty and Consumer Ethnocentrism

7. The Influence of Australia’s National Culture on Marketing Strategy

8. Outcome
8.1. Conclusions
8.2. Limitations
8.3. Suggestions

I. Appendix of Figures

Appendix A

Appendix B

Appendix C

Appendix D

Appendix E

Appendix F

Appendix G

Appendix H

Appendix I

Appendix J

Appendix K

II. List of References
II.I. References from Literature
II.II. Interviews with Experts
II.III. References from the Internet

I. Abstract

This research addresses Country of Origin (COO) effects from the as a measure of strategic marketing and marketing communications of companies in Australia. It reveals that despite the increasing off-shoring and globalization aspects, Country of Origin is of major relevance to a number of product categories in Australia, and consequently very likely worldwide. It is a cross-industry explanatory analysis, which includes major global businesses. It also comprises various aspects of the impact that COO has on the management of companies. The conclusion includes a market overview coupled with a guideline for the application, and future predictions regarding the topic.

III. Listof Illustrations

Figure 1: COO indicators for TV advertisements in Australia

Figure 2: COO indicators for Print Media in Australia

Figure 3: Use of German Language in Print ad ofVolkswagen in Australia

Figure 4: Ford motors marketing the German engineering of the new Focus

Figure 5: Aldi promoting the impact of Australian made on the company

Figure 6: Proudly Australian Made Campaign by Harvey Norman

Figure 7: Dick Smith Foods Promotion

Figure 8: Cultural Dimensions Australia (source: Hofstede, 2006)

Figure 9: Formation of the PCOO image

Figure 10: TV Analysis Advertisements

Figure 11: Outcome analysis TV marketing communications

Figure 12: Outcome analysis print marketing communications:

Figure 13: Comparison ofPrint and TV Advertisement

Figure 14: Kraft Food’s Vegemite Australia, marketing their local production

Figure 15: Arnott's promoting their Australian roots (Amott's, 2006)

Figure 16: Cultural Dimensions, Comparison Greece and World Average (Hofstede, 2006)

IV. List of Abbreviations

Abbildung in dieser leseprobe nicht enthalten

1. Scope of this Study

Within this research, marketing managers across industries disclose a new perspective to the Australian version of “Country of Origin”. By analysing market observations, with examples of case studies, and including compelling illustrations of companies, this paper reveals the viewpoint of the people whose business focus are marketing strategies and marketing communication in Australia.

Much research has been done on the impact of country of origin effects on customers, underlining their diverse attitudes towards credibility and respect of brands and products. In one of the latest studies Jean-Paul Usunier (2006) argues that increasing internationalization of production location and raising acceptance of products irrespective of their origin, lead to insignificance of the topic in real life. Yet today country of origin is considered as neither made-in, designed-in (Nebenzahl et al., 1997), nor country-of-brand. Much rather it is the manipulated consumer perception associated with a product, company or brand. This can be irrespective of location of production or design, such as in the case of 'Michel’s Patisserie in Australia.

Based on established COO research and first hand interviews and surveys, the paper links proven facts of consumer behaviour with potential and actual usage within the marketing strategies of global and domestic companies in Australia. Supported by qualitative and quantitative research, conclusions about the current development are drawn and future applications are predicted and suggested. Country image is the overall impression which consumers form of products from a particular country, based on their prior perceptions of the state’s production. The picture can be created by such variables as representative products, national characteristics, economic background, history, or tradition (Nagashima, 1970, p.68). This research is concerned with if, and how, companies willingly form this perception in Australia and in the end should guide marketing managers on how to use COO as a KSF in Australia and ultimately globally.

2. Introduction

Entering a Woolworths supermarket in Sydney, one of the first things catching the customer’s eye is a 2m2 sign with the label “97% of all Freshfoods are Australian grown”. If the customer continuous his ways along to the cheese counter, he will determine quite quickly the Swiss origin of the most expensive cheese, offered at more than twice the price of the British product in the same category. Without apparent differences in quality, Greek labelled Feta is sold at a more than 2 dollar Premium in comparison to Tasmanian products. Surely logistics costs have a strong impact on differences in pricing, but nevertheless this would contradict the budget charge of British cheese. So cut the slack: how do marketing strategists use the origin of the product to influence which cheese the consumer selects for the Friday night dinner party?

German engineered cars, Japanese high-tech articles, Italian designer suits, and French perfume. These products are priced at a premium, marketed for their finest quality, and explicitly communicating their country of origin. Coincidence? Certainly not. Companies noticeably still use COO to market and position their products, even though it is clearly not the only factor in branding policies and does by far not affect all categories and industries.

My hypothesis 1 is that the use of COO supports the positioning of premium products at a premium price in Australia.

Porter’s (1985) theory of competitive advantage is reasonably simple and up to today widely used: its three generic drivers are differentiation, focus or cost. And the undoubtable most attractive one for companies is differentiation. Therefore, in today’s competitive market environment, how can companies possibly ignore any positive factor distinguishing them from competition, by providing a unique selling proposition far superior than the price war?

Hypothesis 2 therefore is: Country of Origin should be used wherever it offers companies the possibility to differentiate themselves positively from competition in Australia.

The Halo Effect in brand theory refers to the reflection of a positive image of individual quality on other qualities of a product or service (wikipedia, 2006). Cognitive bias such as statistical, social attribution or memory, influence the perception of the overall value proposition. By applying this theory to country of origin research, it could be assumed that a favourable perception of a quality connected to a country could have a positive
effect on the overall perception of various types of offerings from this particular country. Therefore the connotation could promote even products, which are not associated with the certain quality, by impacting the perception of other qualities.

Hypothesis 3: Country of Origin effects are generally related to very specific product categories, supported by a positive characteristic of the COO. Nevertheless even unrelated products to that special feature can profit from this image creation and should be marketed this way in Australia.

3. Country of Origin Research in a Nutshell

With their first experiment discovering an evaluation bias based on US and Japanese COO in 1968, Schoolar and Wildt initiated the publishing of more than 300 papers and articles in print on the topic (Usunier, 2006) over the last 40 years. A number of countries, markets and industries where examined by for example Schooler and Sunoo, 1969; Bailey et al., 1997, Nagashima, 1970; Schooler, 1971; Wang and Lamb, 1980; and Cattin et al., 1982. All of these researches show how COO affects purchasing behaviour in a B2B or B2C environment.

While Bilkey and Nes argued in 1982 that COO perceptions are overestimated as single influencer on purchasing decisions, Morello (1984) draws the conclusion that the stereotype of home-made and foreign made produced goods does have an impact on purchasing behaviour. Yet from 1984 onward, almost all researches have cited multi-cue influences, associated with the “7P” (Appendix A) marketing mix influencing the consumer. Country of origin was still stated as main influencer, however among other criteria (Morganosky and Lazarde, 1987; Thorelli et al., 1989). Baumgartner and Jolibert (1977) analyse the perception of foreign products in France, Hampton (1977) the perceived risk of products made abroad, and Lumpkin et al. (1985) the application in a special industry, such as clothing. With a study of Han and Terpstra in 1988, the understanding of consumer ethnocentrism and consumer patriotism vs. the purchase of foreign products has progressed. Kotler and Keller (2005, p.635) claim a correlation between the favourability of a country image and the frequency of using the “made in” label, whereas Samiee argued in 1994 for a more detailed check on the relevance of COO in general for consumers. In their Meta-analyses of COO, Peterson and Jolibert (1995) and Verlegh and Steenkamp (1999) sum-up all current literature and imply changes for the future. Jean Paul Usunier denounces in 2006 the high impact of US research on the topic (56%) and an increasing “disconnection with both, consumer and corporate concern”. However, since then, a large number of additional publications have been written.

4. Indications by Marketing Communications in Australia

An important measure refecting the magnitude of COO to companies and consumers is the evaluation of marketing communications. In a quantitative analysis of print and TV media, the application of country of origin images within the advertisement industry was analysed. Direct and indirect indicators, such as signs, symbols, language, phrases, music, or colours where used to classify the relevance of COO. The examination took place over a time-frame of 3 months, observing 1280 advertisements on Australia’s four major free on air TV channels. It contained a variety of random samples of different genres and shows andwhere taken in time frames between 7am and lam.

Abbildung in dieser leseprobe nicht enthalten

Figure 1: COO indicators for TV advertisements in Australia

Australia consists of a considerable small market size, with high regional spread and approximately 20 million potential consumers. Most commercials are produced internationally and are merely supported by a local voiceover (Romano, 2006). Regardless of this fact, an unexpectedly high percentage of approximately 17% (69% negative) of all TV spots analysed show evidence of country of origin in one of the forms mentioned above. The majority of advertisements including COO, was either appealing to the Australian consumer ethnocentricity in campaigns such as Duracell marketing their product amid the Australian flag or Australian Freshjuices supported by an Australian emphasising his national pride with the phrase “as Aussie as it gets”. The
most straight-forward commercial was Herron, marketing the fact, that everything about their pain killer is equal to competition, except for the detail that their product was Australian made and Australian owned. A number of foreign brands “borrowed” the Australian COO. In addition a variety of products were advertised as premium products, using original qualities related to their home country, such as leather jackets from Italy, Audi marketing their “Vorsprung durch Technik” indicating the German engineering expertise, or Birdseye clearly communicating the Tasmanian origin of their fresh food products. Excluded from the analysis where restaurants or tourism advertisements, as COO is manifested in the product itself. Company names indicating country of origin, such as American Express, Deutsche Bank or Bank of Scotland where rated as neutral as well, as in many cases this refers more to company tradition than country of origin promotion.

In a second analysis print media was observed. Print advertisement can be more locally adapted, due to generally cheaper rates for production. An indicator for willingness to communicate COO, but limited budgeting, would be reflected in an increased percentage of COO advertisement in Australian newspapers and magazines in comparison to TV. Sophia Romano (2006) of the category leader in cleaning product, Reckitt Benckiser, argues that if the budget was available to market their products with a truly Australian housewife in Australian style, their commodities would be very likely even more successful. In reality, about 21% of the 647 analysed print media advertisements showed COO images or language. This in relative terms higher figure could be explained by the reluctance of companies to use COO in global campaigns, as this could narrow the consumer segment and provoke negative reactions in certain regions.

Abbildung in dieser leseprobe nicht enthalten

Figure 2: COO indicators for Print Media in Australia

The fairly small sample size does not make this evaluation representative, but a considerably good indicator for a tendency in marketing communications in Australia. This limitation in research also inhibits the splitting into several product categories and an evaluation based on the outcome of this. Nevertheless it reveals that COO does play a significant role for a number of products, especially in life style and consumer goods. In magazines of these categories, such as “Good Living” or “The Sydney Magazine”, partly more than 50% of the ads mirrored COO, as for example VW, advertising with German language to emphasize their heritage, L’Oreal communicating their roots from Paris, or Heuer marketing their Swiss-made watches.

Deleted due to copyright issues

Figure 3: Use of German Language in Print ad ofVolkswagen in Australia

Another significant factor within marketing communications is the explanatory style, design and idea behind advertisement, not reflecting country of origin, but indicating it. Australian produced ads inherit “craziness”, daring concepts, and up-front communication. Thus, even in advertisements which do not necessarily mirror country of origin, the style in many cases does indicate the heritage of distinct countries. Most multinational companies, such as Lufthansa and Schenker have global guidelines of their headquarters, which integrate the, in these cases German, values of clear, structured and straight forward information (Rohse, 2006; Ladenthin, 2006), whereas Australian commercials are often much trendier and fresh looking (Dawson, 2006). In this manner country of origin is implicitly present in a variety of advertisements.

5. The COO Impact on Marketing Strategies of Companies in Australia

5.1. Core Competences

Kotler and Keller (2005, p.635) underline the common perceptions of stereotypically favourable reputation of Japan for automobiles and electronics, US for IT and France for wine, perfume and luxury goods. Consequently companies creating product categories within this range, gain from the use of this factor in their marketing strategy. A number of highly successful transport and logistics companies are from Europe (Schenker, DHL, Maerck). None of them is very keen on communicating their origin in Australia, even though German origin of DHL and Schenker would emphasize reliability, speed, knowledge and quality. Nevertheless it contradicts with KSFs of the industry, which are local knowledge, market adaptation and friendliness (Dawson, 2006). With a three year sponsorship contract of Australia’s surf lifesaving, one of the national symbols, DHL started to earn more local credibility and reputation in 2003 (Carden, 2006). This reality contradicts Hypothesis 3, as the Halo Effect in these cases does not have any positive impact on non-technology related fields for German companies, but is rather perceived as a negative factorwithin the marketing strategy of service companies.

Examining hypothesis 1 and 2, companies selling high-quality, premium products built upon their country’s supposed core competences, should therefore in any case actively market COO. Observing the cases of BMW, Porsche or Mercedes in Australia, this is not supported. Yet, looking back 15 years ago, it was very strongly used to position these products in Australia (Dawson, 2006). Main reason, why Mercedes does not communicate their heritage explicitly, is that it would be duplicated information after the enforcement over a number of years. In essence all Daimler Chrysler customers know of the German origin, claims Chris Meehan (2006), director of buses and coaches of DC. Today companies promote it more implicitly, using native language and signs to indicate derivation. For Braun Medical Services this effect is reversed. Customers still need to be educated about the high quality related to their products and generally would prefer local or US production (Robertson, 2006). Braun communicates the production of high end-quality as German core competence much more in Asia than in Australia. This is due to the overall respect that European and especially German medical manufacturing has in Asia. In Australia, due to historical industry dominance of US companies such as GE, the image of German manufacturing is much less solid. For French technology producer Sagem, COO is a measure of differentiation, which adds value to their products by attaching an elegant and chic image to them. The French core competence associated with style and elegance of clothing and perfume, does reflect positively on faxes, printers and multifunctional office technology, deluding the image of luxury in a workplace (Stephan, 2006), which would support hypothesis 3. “It is important to deliver something special to the customer, something to remember you by.”

In Australia the local product mix is very limited, and the country does not possess a distinct core competence in a certain product category. Therefore the few products made in the country will be successfully communicated as such. Generalizing it does make sense to market commodities with an Australian-made label, whereas premium, highly emotional products should be pushed by respective COO, such as France, Italy, Japan or Germany for example (Migliorino, 2006). Emotional products entail high involvement of their consumers, be it financially, physically or mentally. Quality and image play a significant role in the purchase decision, which can frequently be traced back to core competences of certain countries. Louis Giguere (2005) and Thompson et al. (2006) assessed the impact of emotional branding on products as highly successful. By inspiring associations of feelings, such as guilt, jealousy, or satisfaction, marketing can make a much stronger and more recognizable impact on customers. The purchase of a car, make-up, clothes, baby food or candy in general is already much more involving for human beings than buying a cleaning solution. And in these cases the origin of products can stimulate emotional reactions of the customers. This can be applied as a KSF for marketing (Romano, 2006), which does support Hypothesis 1.

5.2. Production Location

Hugstad and Durr (1986) analysed the American market: 60% of the surveyed customers say it is not important where products come from. Subsequently Hester and Huen (1987) estimated that only 20% of Canadian and 25% of American consumers knew where products come from. Usunier (2002) analysed that within the French Market 35% of the consumers knew the origin of their last purchase, whereas only 15% had a certain preference. And beyond doubt, this tendency does not differ in Australia.

This again refers to the peculiarity between country of manufacturing and perceived country of origin, which were not clearly distinct in these researches. Furthermore there are severe differences between product categories, which make it rather impossible to generalize (Sutherland, 2006).

Moreover when reading COO articles, a rather dominant picture emerges whereby products manufactured in Western industrial nations are challenged by price-cutting competition from Asia. The rivalry was originally based in Japan (Nagashami, 1970, 1977), but later also Korea and other Asian nations (Khanna, 1986). It also refers to the topic of hybrid products (Chao & Rajendran, 1993). Given that consumers encounter plenty of products designed in one country and manufactured in another country due to the competitive business environment, their evaluation of such hybrid products may have a number of consequences for marketers and advertisers. In Australia Ford designed their positioning around the image of the German-engineered Ford Focus (Figure 4). Slogans like “German engineering just got sexier” promote smooth and silent driving as well as reliability. This perceived country of origin is very distinct to country of manufacturing or the HQ of Ford. Nevertheless the American company claims the intellectual production to be made in Germany, whereas the manufacturing of parts of this hybrid product is spread globally.

Deleted due to copyright issues

Figure 4: Ford motors marketing the German engineering of the new Focus

Leclerc et al. (1994) and Amine et al. (2005) argue that now more frequently companies manipulate customer’s evaluation either by avoiding displaying a made-in label when it would be unfavourable or by using foreign brand names which suggest a favourable national origin. This is supported by Silvia Scholle (2006) of Colgate-Palmolive, underlining that the current off-shoring of their production location to Asia would be perceived as highly negative by Australian customers.

Various products of the premium kitchen manufacturer Miele are merely assembled in Germany, while production is done primarily in Czech Republic or China. Nevertheless, alongside with automotive manufacturers like BMW and Mercedes, the perception of being German remains established, irrespective of production location or even communication of COO. However of severe importance is that companies do remain at least part of their production in the home country, and if possible another part in Australia. Miele operates nine plants in Germany and one in Australia, appealing positively to the Australian national identity by creating local employment (Kissel, 2006).

A few researchers (e.g. Johansson and Nebenzahl, 1986) examined the impact of production location change on consumers' evaluation of products and the price they were willing to pay. Nevertheless, until today the effects on the image of a brand associated with a certain country, when produced in another country, are so far unclear. Evidently this as well depends heavily on product category and brand reputation, as “Made in Asia” for example is fairly accepted in the clothing industry, whereas premium high-tech products suffer from negative impact.

Research and experts claim that on the one hand, the quality image (and prices) of Asian exports has increased, especially in the case of Japan, Korea, and Taiwan; on the other hand, Western multinational companies have started sourcing heavily from Asia. The chemical company BASF has to face the increasing threat of Asian generic products, overhauling rapidly in quality and service, whereas the price gaps remain reasonably high (Engelbogen, 2006). This leads to the common practice of selling Asian-made products under the own brand while downplaying the manufacturing origin. In case the place of production turns consumers off, organizations have the options of co-producing with more favourable countries, such as South Korea with Italy for leather jackets (Kotler and Keller, 2005, p.635). Especially in the B2B market involving high-technology with immense impact on production or even the life of patients, location of manufacturing is of crucial importance for companies. In the technical health industry, consumers are reluctant to accept products made in Asia (Robertson, 2006; Martin, 2006). This again underlines, how much COO depends on the product category. In contrast to the technological aspects, Asian, especially Chinese herbal medicine, does enjoy a well established market position.

Production in Asia also impacts heavily on the sales of Husky Australia. The company reallocated part of their high end engineering production to Asia. About 70% of the customers do not accept products made in Asia, even at half of the price of Western manufacturing (Sky, 2006). Yet the image of Asia in Australia does change gradually. While there are still prejudices against China, Taiwan and Korea in regards to production and manufacturing, Japan has turned from a low cost to premium-country (Dawson, 2006).

There is an obvious tendency in Australia that COO emphasis is shifting from production location to the location of the management of the company, such as the example of Miele. Companies can still communicate their products based on COD, even though production is outsourced or off-shored. The acceptance of consumers regarding international, also Asian, production is increasing, as recent research and expert opinion underlines. However, the example of Husky reveals, that in a number of industries production location and associated quality aspects are still of severe importance to consumers and therefore has to be communicated by companies respectively.

5.3. Distribution and HR Policy

The “global” marketing manager of the 21st century certainly has multinational experience. Nevertheless it is supportive for a company wanting to promote their COO to work with management from the same origin. In Australia many companies instead do rely on local managers, who do not necessarily speak the language of the company’s origin (Rohse, 2006). The international exposure and expertise of their employees though is of immense importance for international organizations such as Microsoft (Rack, 2006). This is supported by Bemd Martin (2006) of Fresenius Medical Services and David Partridge (2006) of Allianz Australia, stating that almost all employees are of non-German origin. The marketing management is conducted in relative independence from the headquarters, and each country is perceived as a very distinct market. Foreign companies, such as Aldi, believe in the competitive advantage of employing mainly local employees and communicating this, to establish a closer relationship to the Australian consumers (Skorning, 2006). Schenker conducts a very different approach, employing preferably German expatriate managers, to emphasize the image of punctuality, reliability and superior quality in Australia (Ladenthin, 2006), which could backfire if not applied carefully. Nevertheless, this, in turn, refers to the fact that almost all of their customers know of the heritage, without further communication of COO. Even though premium priced, the positive feedback from customers about timing and reliability of the logistics services leads Marketing Implementation Manager Ralf Ladenthin (2006) to the conclusion that “Australians like doing business with Germans”.

The way products and services are distributed by companies can also be impacted by the origin of the companies, in case of the purchasing preferences of retailers. However, in Australia this factor is clearly diminishing. The overall need for profit generation does by far outweigh loyalty to local manufacturing (Romano, 2006; Fercher, 2006). A fairly good example is the airline industry, which used to be dominated by Qantas, supported by restrictions from local government and tight relationships to flight agents. In 2006 the airline market is as open as never before, and travel agents simply sell based on margin, bonus incentives and overall customer preference (Rohse, 2006).

Many global companies such as Microsoft are often much more dependent on their brands than on COO. Even though the image of Microsoft is not extremely favourable based on increasing anti-American or anti-monopolist attitudes (Dach, 2006), the brand itself is of such power, that in most cases this outweighs all negatives (Rack, 2006). Sophia Romano (2006), former home-brand manager of Coles, argues that the power of retailers in Australia is much bigger than in other countries. The duopoly of Coles and Woolworths in the retail sector puts intense pressure on the marketing departments of FMCG companies. Pull-marketing is of severe importance considering the fight for shelf-space and the emerging impact of home-brands. Any point of differentiation needs to be used, as no company can afford to loose approximately 50% of their market by being neglected one of the major retailers. Customer demand in turn is mainly driven by brand image in many product categories. And this in reality can be triggered by COO as explained below. Miele’s reputation is strong enough to work almost without margins for retailers, using the Miele Chartered Agents only as shelf-space. The company sells directly to their customers, and retailers only supply property, but no marketing support (Kissel, 2006).

5.4. Use ofMarketing and Marketing Communications Tools

There are various ways in which COO can contribute to the business success of a company. One very effective idea is integrated by Freixenet in Australia. While the

[...]

Excerpt out of 45 pages

Details

Title
Country of Origin Effects as Key Success Factor for Marketing Strategies
Subtitle
A Management Research Project
College
The University of Sydney
Course
International Marketing
Grade
1
Author
Year
2006
Pages
45
Catalog Number
V137856
ISBN (eBook)
9783668687370
ISBN (Book)
9783668687387
File size
858 KB
Language
English
Notes
This research paper covers qualitative and quantitative methods, such as interviews with marketing managers across various industries, media channel analysis (includign TV & amp, print) and focuses on the impact of Country of Origin Effects on the Australian market.
Tags
Strategy, Marketing, Marketing Strategy, Country of Origin, Communication, Media, Marketing Communication, Australia, Country of Origin Effects, Strategie, Konsument, Kunde, Organisation
Quote paper
Ulrike Imme (Author), 2006, Country of Origin Effects as Key Success Factor for Marketing Strategies, Munich, GRIN Verlag, https://www.grin.com/document/137856

Comments

  • No comments yet.
Read the ebook
Title: Country of Origin Effects as Key Success Factor for Marketing Strategies


Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free