Companies can no longer count on cosy national markets and are now busily researching the Eurobrand formula, the one that will cross borders and taste barriers to satisfy foreign and domestic needs equally.
Ask any multinational manufacturer of fast-moving consumer goods about its global brands. The company's marketing people will immediately respond with a list of familiar names which are claimed to be outstanding successes worldwide. But press the matter a little further. It usually transpires that some brands are quite differently received 'here' than 'there', and differently positioned in the market. Or that certain brands carry particular names in particular markets. Or that promotion and packaging vary. Or that different distribution channels are employed. Or, frequently, that the formula is adapted 'to meet local market conditions'. For the Briton abroad, say, the familiar version of a favourite global brand can sometimes be as difficult to track down as warm British beer.
Nevertheless some brands are incontrovertibly global. Marlboro, Coca-Cola and McDonald's are cases in point, and there are multitudes more whose marketing reaches round the world and is only marginally less standardised. Successes such as Benetton demonstrate that Europeans, too, can pull off this trick. Yet pan-European brands are scarcely more common than the global kind. With Europe a single market once more, this situation cannot possibly last for long. (The revived single market has been in place for just over two years, of course, and during the interval - of nearly 2,000 years - the European races developed very different tastes.) Europe's FMCG producers, large and small, know that they can no longer count on cosy national markets. All across the Continent they are busily conducting experiments, finding out for themselves what makes a Eurobrand - and how it should be managed.
Privately-owned Lofthouse of Fleetwood, maker of Fisherman's Friends lozenges, first ventured overseas some 20 years ago. The trip proved better than a cure. Until then the company had been wholly dependent on the domestic market. By 1992, when it was featured in Management Today, it was exporting 84% of a turnover which at that time totalled £14 million. 'Revenues have more than doubled since,' says financial director Duncan Lofthouse, 'and overseas sales have climbed to 95%.'
The positioning of the product in some of its overseas markets is dramatically different from at home. 'In the UK we're selling a medicine,' says export sales director Kieran Ryan. Not so everywhere. 'In Germany or Switzerland Fisherman's Friends are bought as a confectionery product.' The distinction matters for several reasons. Confectionery products are bought more regularly and in greater volumes than medicinal products. Thus in Britain 'the highest brand awareness of any of our markets coincides with the lowest per capita consumption'. Further, sales of medicines are strongly linked to the occurrence of the ailment that they are intended to relieve. So there is a large element of seasonality, with sales peaking in the winter months when coughs and colds are most frequent.
'Sales are more seasonal than we'd like,' Ryan admits. The Danes, like the British, are inclined to regard Fisherman's Friends as medicinal, even though their Scandinavian cousins in Norway and Sweden, with closely similar tastes, tend to buy them as sweets. It was with a steady eye on the importance of positioning that the export managers bypassed France until the advent of the single market at the beginning of 1993. Until then French law required that Fisherman's Friends should be distributed through pharmacies, on account of their menthol content. Only now that it is no longer barred from positioning the brand as confectionery, has Lofthouse at last entered the French market.
In spite of the enormous significance of overseas sales, the company takes an unusual approach to export organisation. This dates from the early days when exports were negligible, but top management shows no sign of looking for a change. Lofthouse contracts out the entire export function to a small team of experienced consumer goods managers, whose only client is itself. Ryan, although officially 'export sales director', is not actually an executive of the company. He is a member of the team, which, being remunerated on a commission basis, has a standing incentive to expand sales. While there is no secret about this principal-agent relationship, it is not normally apparent to the outside world.
The export team, in turn, has 'good professional partners' standing closer to the consumer. Volumes may now be sufficient to justify subsidiaries in several countries, but Ryan rejects that solution. Instead the team relies on distributors, one in each national market. Nevertheless the emphasis is all on the long term. 'We like private companies - preferably family-owned - with a high degree of management continuity.' The distributors enjoy long-term agreements, and standard but higher-than-normal profit margins. There was no thought of clawing back distributors' profits as the business grew. The reason is simple, as Ryan explains: 'When I get on that plane on a Friday night and head for home, I want to leave behind people who will invest management time in the brand.'
Similar themes, of deliberate brand positioning and reliance on local expertise - implying a close working relationship with foreign partners - recur in the trans-national evolution of McVitie's Group, a division of United Biscuits. But the biscuit manufacturer offers a new twist too. Even when conducted under one roof, market development can be a two-way process. At the same time as launching British brands in overseas markets, McVitie's has been introducing foreign brands into the UK - and into other markets on the European continent. Sales are up by 30%, or over £200 million, compared to 1990, but only a third of this growth has been organic, points out McVitie's managing director Hartwig Conzelmann. Two-thirds are attributable to cross-border transplants.
The story begins in the late 1980s. Although McVitie's was by no means new to exporting, it had previously focused on Anglo-Saxon markets and the developing world. Continental Europe - nearby, populous and with a developed distribution network - offered better potential, as long as a significant presence in the £8 billion market could be built up quickly and without undue risk. McVitie's research showed that the various national markets possess widely different characteristics. French biscuit-makers tend to be oriented towards young people, six of the top 10 brands being targeted at children. In Spain biscuits are effectively a bread substitute - often consumed dunked in coffee for breakfast - and are even cheaper than bread on a per-kilo basis. Portuguese practices are closer to the British model. But everywhere biscuits are perceived as highly traditional products, and established brand names command considerable loyalty.
This fact, plus the need to make a rapid impact, pointed to a policy of acquisition. McVitie's management examined its own portfolio for potential 'off-the-shelf Euro-brands' that could be channelled through established partners. But first it had to secure the partners. The new policy came into effect in summer 1990 with the purchase of the Dutch biscuit company, Verkade. Several more acquisitions have followed. Besides providing a conduit for British exports, the newcomers to the group had brands of their own to pour into the pot.
'Verkade's management wanted to prove to themselves that being part of McVitie's would increase their sales and keep their business growing,' recalls Conzelmann. 'The company's marketing director put his entire range on the table and we ate our way through.' Two products, Shuttles and Cafe Noir, satisfied the criteria of possible Eurobrands. A third, Riva, came with the subsequent acquisition of the Finnish company, Frazer.
Shuttles and Cafe Noir are now available all over Europe, and £20 million-worth of Riva are consumed annually in the UK. The principal British contribution to this cross-border traffic is provided by McVitie's Digestives, which are on sale in 11 European countries. They take first place in Denmark and Sweden as well as Britain and Ireland, and are said to be Europe's No 1 selling biscuits. But they don't everywhere occupy the same position in the market. Their homely associations on the domestic front contrast sharply with, it seems, a yuppie image in Scandinavia.
Whatever their place of origin, the group's products usually wear packaging appropriate to the point of sale: McVitie's Hob-nobs are Verkade Hob-nobs in Holland; Verkade's Shuttles appear under a McVitie's house name in the UK; Penguin, in France, is spelled Pingouin. Local nuances, Conzelmann insists, are far too important to ignore. Even though a brand might be capable of crossing national frontiers undisguised, it would be liable to run up against practical difficulties. French supermarkets shelves seldom have shelf rails, for example, so a typical British roll pack will simply roll off. And while the Dutch might be willing to p-p-pick up a Penguin, their space-constrained supermarkets don't want the product in British pack sizes.
McVitie's approach to marketing management is to give individual brand managers - who are profit-accountable in their home markets - the additional remit of looking beyond national frontiers and considering other markets' needs in relation to their particular products. This role could become more demanding as new brands are developed with cross-border potential in mind. Conzelmann acknowledges that some convergence of tastes and attitudes is already discernible. On the one hand is a Europe-wide trend towards healthy eating; on the other a growing fondness for chocolate 'indulgence' biscuits. Nevertheless Conzelmann is adamant that 'We are firm believers in the virtues of local management. The theory of the Eurobrand manager sitting in Brussels just doesn't work out in practice.'
But do lessons derived from the manufacture of biscuits and lozenges have any relevance outside the realm of fast-moving consumer goods? Yes, it seems that they do, to judge from the experience of Microsoft, a very different company - with very different products - which looks at Europe from the perspective of a headquarters half a world away. Microsoft first arrived in Europe in 1982, when its revenues fell short of $25 million (against $4.6 billion last year) and founder Bill Gates was a 26-year-old stripling. The company urgently needed a presence in Europe because sales of personal computers were mushrooming, but it had no understanding of European markets. So having set up subsidiaries in France, Germany and the UK, it hired three nationals to run them. One of these general managers was Bernard Vergnes, now president of Paris-based Microsoft Europe. The parent company's message to the three recruits was simple, as Vergnes recollects: 'We're going to tell you what the products do - how you market and position them is up to you.'
The policy was fully justified. In those days people reacted to personal computer software in very different ways. Southern Europeans were even more disinclined than the northerners to put a finger to a keyboard, for instance: that was seen as a task appropriate to secretaries and subordinates. The marketing message in France had to contain a little flair, or charm: even today the French Microsoft logo is unique in being adorned with a butterfly. German advertising was invariably serious, stressing solid capability rather than any lifestyle qualities.
Microsoft must continue to be sensitive to national differences, but the European market for software, as for other technological products, is much more homogenous than it used to be. Whether in offices or at home, people are fairly well aware of what software can do for them. 'It's now fashionable to have a PC on one's desk - and if you've got one, you want to use it,' remarks Vergnes. Therefore the presentation, as well as the product, can to a large extent be standardised. 'The competitors are the same worldwide, and so should the response be.' Thus the recent $100 million advertising campaign, asking 'Where do you want to go today?', presents exactly the same message to consumers in the UK, France and Germany as in the US (or, for that matter, in Canada or Australia). It looks as if the French butterfly hasn't much longer to live.
Microsoft, of course, succeeded in promoting itself into the global league, and in record time. In the nature of things, not many companies are going to emulate that achievement. But in the coming decades a lot more businesses with European bases will willy-nilly find themselves trading across frontiers. If they ever prided themselves on 'listening to the customer' at home, they are going to have to extend the range of their hearing. Those that do learn to satisfy foreign and domestic needs with equal facility may - one or two of them - be on the way to global status themselves.