Would you pay extra to support a local brand?

Global has more appeal but there is a home-country advantage

TV viewers may recently have spotted an advertisement for the global fast-food chain McDonald's which tells us the company opened its first store in Australia in 1971 and has since localised its products.

"There wasn't anything Aussie about it back then. But we got hold of it and started giving it a local flavour," the voiceover states in a broad Australian accent. "And before long McDonald's was as Aussie as a bloke in a ute and a singlet."

We learn that the McCafe is an Australian invention and has been introduced all around the world, and that "Maccas" has localised its burgers with beetroot.

What the marketing team of the US-owned food giant appears to be attempting is to at least create the perception that it is a local brand, even if the reality is different.

Recent research from UNSW Business School suggests this could be a smart move.

Gary Gregory, a senior lecturer in the school of marketing, has revealed that being a local brand at the same time as being an international (global) brand – and one brand can be both – is a powerful combination.

'People who look at brands as being global see them as being prestigious, more expensive and higher quality'

GARY GREGORY

A better image

In the paper Global vs Local Brands: How Home Country Bias and Price Differences Impact Brand Evaluations, Gregory and his co-authors first consider what it means to be global and what it means to be local.

We tend to think of these as being opposites, global means "them" and local means "us". But Gregory says that's overly simplistic, because the terms actually relate to different attributes.

Local refers to where a company is owned or perceived to be owned – an ownership issue. Whereas global refers to whether a brand is present in several different countries – a distribution issue.

Hence, a brand can be both local and global. Qantas is probably the best-known example of such a brand in Australia, though BHP would be another.

Next, the researchers looked at whether any of this mattered. And they found that it did.

"People who look at brands as being global see them as being prestigious, more expensive and higher quality," Gregory says. "It's consistent around the world that global brands have a better image than what people think of as local brands.

"People think of local brands as locally owned, smaller in size, focused on local tastes/desires, less in quality (relative to global brands) and so forth."

In fact, the authors found that regardless of where a brand was owned, consumers preferred global over non-global brands.

Perceived origin

Gregory and his co-authors looked at perceptions of four different product categories among consumers in Thailand – airlines, fruit juice, jeans and coffee shops.

They assessed whether consumers preferred global brands or local brands, or both, and how much of a premium they were prepared to pay for the brand they preferred.

The researchers found that on average, Thai consumers were prepared to pay 25% more for a pair of jeans from the foreign-owned global (FG) brand Lee, than for local but also global (LG) brand McJeans.

Likewise, they were prepared to pay 15% more for a coffee from FG brand Starbucks than for a cup of coffee from Black Canyon, a popular locally owned global brand.

This wasn't true of every product category, however. FG brands in categories such as tourism and fresh fruit, where Thai consumers perceived Thailand to be strong, didn't gain any benefit from being foreign.

Hence, consumers weren't prepared to pay a premium for a foreign airline than they were for Thai Airways, or for a FG fruit juice brand than they were for the popular LG brand Tipco.

What the researchers discovered was that the strongest brands were those that were both local and global – such as Thai Airways. They benefitted from the prestige of being a global brand as well as the benefits of being locally owned.

But this only holds true in product or service categories where the locally owned firms have a specific advantage. In this case, Thailand is well known for both tourism and delicious fresh foods – so naturally both of these industries hold an advantage over large FG firms.

"Although brand ownership may be a fluid concept in the era of international investments and global financing, consumers are still found to attach considerable importance to the perceived origin of a brand," the authors write.

Getting the sweet spot right in terms of local and global balance can achieve extraordinary returns

MARK CROWE

Local icons

Gregory says Australian companies can take advantage of these insights by playing up on their localness, which should allow them to charge a price premium over foreign competitors.

But there's a caveat. This only works in product categories where consumers perceive Australia to be strong. For example, tourism brands would benefit, but electronic goods wouldn't gain any advantage being perceived as Australian, because consumers believe Japan and South Korea are stronger in these categories.

And there's an exception to these observations too, says Gregory, and that's what's known as "the local icon". Brands that consumers have formed an emotional attachment with can overcome their country of origin (ownership) issues.

Biscuit-maker Arnott's is a good example. It was bought by the Campbell Soup Company of North America in 1997 but it remains a local favourite.

"They sold the company off a long time ago and yet in people's minds, it's a local icon. They're willing to give up this 'us versus them' because they've got an emotional attachment," Gregory says.

The sweet spot

Mark Crowe, managing director of Brand Finance Australia, says some Australian brands can leverage the sweet spot of being both local and global to achieve price premiums, but that depends on the execution of the strategy:

"It's being able to retain the local attributes that consumers value – whether that's the strong association with the country or a discrete local market or with people's view of the particular market they operate in – but at the same time leveraging their global reach to reinforce consumers' views about the credibility and quality of the brand."

Australian surfwear companies such as Billabong and Mambo have done this successfully, says Crowe.

"The globalisation of a lot of those brands can actually reinforce their position in the minds of local consumers," he says.

But the surf brands were taking a bit of a gamble when they expanded overseas, because there was the risk that they could have diluted their offering in the local market, by losing a bit of their perceived alternative and hip image.

"Getting the sweet spot right in terms of local and global balance can achieve extraordinary returns. But, at the same time, there can be tension there as well which brands have to manage very sensitively," says Crowe.

According to the authors: "Foreign and local-owned companies alike can cultivate a global brand image by emphasising global cues (such as, widespread distribution and availability), as well as crafting appeals to emphasise the social status and prestige gained by consuming the global brand."