Europeans and Americans assume that what works with their domestic consumers will work equally well elsewhere. They misread, or don’t attempt to understand the nuance of consumers’ cultural preferences and neglect differences in market dynamics, communication styles and business expectations, as well as unexpected challenges of operating in different time zones.
The markets are quite different in structure, market positioning, consumer/reseller attitudes, regulations, labelling and claims, value chain, and product specifications/packaging.
Lack of experience can lead to unwise strategic and tactical decisions, such as operating from across the Atlantic with no base on the other side, failing to employ knowledgeable local staff, making agreements with supposedly enthusiastic distributors that turn out to be less so, or making an acquisition only to find that it was overvalued and underperforming.
Do your homework
Not doing the basic market homework can make the whole strategic effort a waste of time and money. Conversely, gaining a thorough understanding of the target market early in the process can have a great impact on the outcome by helping companies to make informed decisions and implement better strategies. An investment in informed and objective advice from people and companies familiar with the target market can be returned many-fold.
Before going into another country, companies should determine real numbers in the target market, understanding the value chain and decision making at each step and profiling the target customers.
Many products popular on one side of the Atlantic have less success on the other. Americans are happy to pay for costly dietary supplements but balk at any increase in food prices; Europeans, while viewing supplements with ambivalence, have always spent more on food and will pay extra for perceived or actual quality. Attitudes even vary within Europe, with the UK and Sweden skewing closer to the US than France and Spain, for example.
In the US, food/beverage producers wield enormous power over what is on supermarket shelves; In Europe, where supermarkets earn larger margins, they tell producers what they’re willing to stock. Broadly, the consumers’ pulse is taken by producers in the US, but by retailers in Europe.
In the US, cost and speed remain the overwhelmingly dominant issues for food producers whereas in Europe, performance, specifications, service and even style can be more important. Even managers who are aware of this can continue to act as though they were at home. Companies from both sides of the Atlantic find the priorities on the other side puzzling, but have to accept them if they want to succeed.
Learning from examples
One European client formulated ingredient blends and produced the best quality and most effective blends possible; to provide the best technical service for customers in the US, they sent technical staff from Europe. Their products and technical support were first class, but the products were pricey and beyond ‘good enough’ and service was not instantaneous; their sales were slow, costs were high and resulting losses predictable.
Another European client tried selling an excellent new ingredient through its US commodity sales channel with technical and product support from Europe. Sales people accustomed to selling tonnes were asked to sell kilograms supported by complex explanations and persuasion. Predictably sales were disappointingly slow.
Conversely, one US client had some excellent speciality products at reasonable prices to sell in Europe, but these were sold on price, like commodities, with little service and product or technical support. Potential customers never warmed to this approach and sales remained low.
More successfully, on several occasions US clients with innovative speciality products avoided their own larger European commodity-oriented parent companies and found more specialist routes into European markets.
In another example of the cultural divide, US companies do not understand the resistance of European consumers to GM ingredients; they are not prohibited, but have to be clearly labelled, and evidence to date suggests European consumers are unlikely to accept them anytime soon.
Another consideration is regulatory oversight. There is no GRAS protocol in Europe, and many new ingredients have to obtain approval under the Novel Foods Directive, a potentially lengthy and expensive process with no guarantee of success. Label health claims can also be a minefield with the regulatory body, EFSA, already well behind in processing claims as well as turning down quite a few. Being well-informed can help US companies avoid unrealistic expectations of what to expect from European regulators.
There are many challenges to crossing the Atlantic; all companies think they’re on Concorde when in reality many are on the Mayflower. Companies should do their homework; research the market, understand the different characteristics and dynamics; know whether there is a ‘real’ opportunity; and then decide on the best strategic and tactical approach to the market.
Knowledge is still power and hope is no substitute for planning.
Steve Lisansky, Ph.D., is the chief executive and Esther Hunter, Ph.D., the chief operating officer at CPL Business Consultants, based in Oxford, England. CPL provides consulting on markets, technology and strategies for business development in food ingredients. www.CPLconsult.com, +44-14-918-29346.