There’s no question about it — the retail industry is booming around the world. With a projected global industry value higher than $31 billion by 2023, the incentive for retailers to expand internationally is a no-brainer. But there are many factors that brand managers must take into consideration when approaching internationalization, including the level to which they want to blend in with the local culture or stay true to their brand’s elements.
Although standardizing can keep costs down and efficiency up, what does it mean for profitability and brand performance? New research from Michigan State University, Clemson University and California State University is the first to look at how these factors interact and offer practical recommendations to impact retailers’ global marketing strategy.
“Our study indicates that internationalization helps global retailers increase their profits through higher sales. In this process, brand standardization is a critical factor that seems to be much more beneficial for firms with retailers that tend to be already global,” Ahmet H. Kirca, associate professor of marketing and director of MSU’s International Business Center, said.
The research paper, “A Study of the Internationalization–Performance Relationship in Global Retailing: The Moderating Role of Brand Standardization and Cultural Diversity,” was published in the latest issue of the Journal of International Marketing. Pravin Nath, assistant professor of marketing at Clemson, and Saejoon Kim, assistant professor of marketing at California State, coauthored the paper alongside Kirca.
The team looked at data from the top 250 retailers in the world by sales from 2003 to 2012, examining reported profits and firm performance. In addition, they calculated the level of brand standardization and the cultural diversity of brands in foreign markets.
They found that internationalization in general has a positive impact on profitability — and brand standardization only makes the gains stronger. The more a retailer expands globally, the higher the economic benefits and costs there are, but standardization moderates these so that the benefits outweigh the costs in the long run.
“When brands standardize, this reduces duplication of efforts and costs, increases market power, boosts knowledge and accelerates organizational learning by creating a sense of global identity,” Kirca said. “On top of that, coordination is streamlined, which ramps up quality for the customers.”
Cultural diversity of the foreign market or country to which a retailer is expanding also plays a role in global retailers’ performance. The researchers found that profits are higher by 15% when brands expand in markets that are lower in cultural diversity — meaning the culture is parallel to markets in which the brand is already operating. This reduces friction from customers in the new market who might refuse or resist the brand.
“Our findings indicate that brand standardization works much better and enhances performance more strongly when used by global retailers who have expanded to a high number of culturally similar countries,” Kirca said.
The research also brought to light a learning curve that brand managers should be aware of.
“Brand standardization offers benefits at low and high levels of internationalization, with the effect being strongest at high internationalization,” Kirca said. “This means that a global brand identity can enhance the accelerated learning afforded by network effects.”
Most prior research has looked at product diversification, advertising or R&D intensity impacting performance during internationalization. This work is the first to confirm brand standardization as a core element of the marketing mix.
Kirca says global retailers should be encouraged by the results as they can incorporate the findings into their marketing strategy to achieve superior performance.
“As capital-intensive service firms such as retailers expand into foreign markets, a key marketing-related strategic decision that they face is whether to standardize or adapt their marketing mix,” he said. “Our findings suggest that for one of the critical elements of the marketing mix, brand standardization, the gains from internationalization can be improved by using a standard branding approach.”