National Image & Competitive Advantage

National Image & Competitive Advantage

Eugene D. Jaffe & Israel D. Nebenzahl National Image & Competitive Advantage The Theory and Practice of Place Branding Copenhagen Business School Press

National Image & Competitive Advantage The Theory and Practice of Place Branding Copenhagen Business School Press Printed in Denmark by Narayana Press, Gylling Cover design by Morten Højmark 2 nd edition 2006 e-isbn 978-87-630-9976-9 Distribution: Scandinavia DBK, Mimersvej 4 DK-4600 Køge, Denmark Phone: +45 3269 7788, fax: +45 3269 7789 North America International Specialized Book Services 920 NE 58th Ave., Suite 300 Portland, OR 97213, USA Tel +1 800 944 6190 Fax +1 503 280 8832 E-mail: orders@isbs.com Rest of the World Marston Book Services, P.O. Box 269 Abingdon, Oxfordshire, OX14 4YN, UK Phone: +44 (0) 1235 465500, fax: +44 (0) 1235 4655 E-mail: client.orders@marston.co.uk All rights reserved. No part of this publication may be reproduced or used in any form or by any means graphic, electronic or mechanical including photocopying, recording, taping or information storage or retrieval systems without permission in writing from Copenhagen Business School Press at www.cbspress.dk

Table of Contents Preface to the Second Edition... 9 Acknowledgments... 11 1. Introduction: Image, Images and Imagination... 13 Introduction... 13 What Do We Mean by Product, Brand and Country Image?... 14 Learning Processes... 15 Categorization, Abstraction and Generalization... 16 Symbols... 19 Generalization versus Discrimination... 20 Brand and Country Image Compositioning... 20 Misconceptions of Country Image... 22 What Lies Ahead... 24 2. The Theory of Country Brand and Product Images... 27 Introduction... 27 Country Image Taxonomy... 28 Measuring Country Image Dimensions... 32 Multiple Independent Image Items and Dimensions... 32 Multi-Item Image Scale... 33 Statistically Derived Multi-Item Image Dimensions... 33 Consumer-Sourced and Statistically Derived Multi-Item Image Dimensions... 33 The Need for a Theory of Country, Brand and Product Images... 34 A Framework for Theory Development... 35 Theory-Based Approaches to CIE... 37 Country Image Effect: A Combined Halo and Summary Construct... 38 The Effect of Familiarity on the Salience of the Country Image Cue... 40 An Integrative Dynamic Model of Country, Brand and Product Images... 44 The Effects of the Made-In Country (MC)... 49 The Effect of Brand Name... 51 The Effect of the Perceived Country of Origin (OC)... 51 The Effect of Extrinsic Cues on Product Evaluations... 52

National Image & Competitive Advantage Comparative Evaluation and Purchase Decisions... 52 The Interaction among Determinants of Product Image... 52 Dynamic Aspects of the CIE... 53 Conclusion... 56 3. Monetizing Brand and Country Image... 59 Introduction... 59 Brand Image, Brand Equity and Brand Value From Consumer Perceptions to Measurable Values... 60 Country Image, Country Equity and Country Value... 63 Estimating Relative Customer-Based Brand Value... 64 Brand Image and Brand Value... 65 Estimating Relative Country Image Value... 66 Long-Term Valuation of Customers... 69 The Value of a Brand s Customer Base and Brand Value... 71 Acquisition of New Customers... 71 Implications for Brand Image and Brand Value... 72 Implications of the Contribution of Country Image to Brand Value... 73 Estimating Brand Value by Means of Firm-Based Financial Data... 74 Extracting Brand Value from Share Prices and the Firm s Financial Data... 76 Implications to the Measurement of Country Value... 77 Conclusion... 77 4. It s All in the Eyes of the Consumer... 79 Introduction... 79 What Do We Know About National Images in the Eyes of Consumers?... 80 Consumers Place of Residence (HC) Effect on Perceived National Images... 80 Constructs of Country Image... 83 Country Image Varies by Product Line... 84 Country Image and Purchase Intentions... 86 Can Consumers be Segmented by their Attitudes?... 87 Consumer Ethnocentrism and Patriotism... 87 Patriots... 88 Traitors... 91 Identifying Patriots, Cosmopolitans and Traitors... 91 Mexican Patriots versus Malinchismas (Traitors)... 93 6

Table of Contents Hostiles and Friends: The Animosity-Affinity Model of the Purchase of Products from Certain Countries... 95 A Two-Dimensional Consumer Segmentation Model... 99 Travel and Country Image of Visited Countries... 100 From Attitudes to Behavior... 103 Country of Origin Labeling Do Consumers Care?... 103 Evidence for the Impact of Country Image on Purchase Behavior... 106 Conclusion... 108 5. Managing Country of Origin Effects by the Firm... 111 Introduction... 111 Managing CI by the Firm... 111 Production Sourcing... 112 Hybrid Products... 115 Decomposing Country of Origin... 116 Strategic Implications of a Decomposed Country of Origin... 120 Alternative Marketing Entry Strategies... 122 Strong Country Image Strong Brand Image... 123 Weak Country Image Strong Brand Image... 123 Strong Country Image - Weak Brand Image... 126 Weak Country Image Weak Brand Image... 126 Product-Country Matches and Mismatches... 128 Product-Country Matches Empirical Evidence... 130 Place Branding Made in Europe... 133 The National Image International Life Cycle... 133 Conclusion... 135 6. Managing Country of Origin Effects by Industry and Government... 137 Introduction... 137 Place Branding... 137 Developing a National Brand... 138 Umbrella Branding... 141 Case Examples of Country Branding... 144 United Kingdom... 145 Scotland... 148 Germany... 151 New Zealand... 154 Brand USA... 157 Emerging Countries: Latvia and Slovenia... 158 7

National Image & Competitive Advantage Regional Branding... 160 The Difference between Place and Product Branding... 162 The Case of the Øresund Region... 162 Branding Municipalities... 166 Case Study Branding Aalborg, Denmark... 167 Buy National Campaigns... 170 Australia... 170 USA/Canada... 171 New Zealand... 172 Russia... 173 The Evolution of the Japanese Country Image since WWII... 174 Improving CI by Attracting Leading Brands The Israeli Experience... 175 7. Legal Aspects of Country Image... 177 Made-In Labels What Do They Mean?... 177 Country of Origin Labeling Requirements... 178 Tests for Substantial Transformation... 182 Name, Character, and Use Test... 184 Essence Test... 185 Value-Added Test... 186 Article of Commerce Test... 187 Country Marking Criteria... 188 Country of Origin Marking... 191 Marking in the USA... 191 Misleading or Deceiving Labeling... 193 The Marking Rules of NAFTA... 194 The World Trade Organization (WTO Standards)... 194 European Union... 195 Epilogue... 197 E-Commerce... 198 An Additional Research Agenda... 200 Appendix... 203 Bibliography... 207 Index... 235 8

Preface to the Second Edition In today s globalized world, both a powerful global company and a powerful country need to have strong brands that can attract and hold consumers and investors As we move into a world where everyone has the same hardware and everyone is being forced to get the same software to go with it, a country s brand, and the unique bond it can build with its foreign investors, becomes even more important. Thomas Friedman, author of The Lexus and the Olive Tree The idea that countries have a brand or image is not new. Corporations have images (or identities), stores have images and so do individuals (especially actors and politicians). All of these entities are concerned about their identity and try to shape and improve it, if need be. A positive brand image is a valuable asset when interfacing with one s audience or stakeholders. What is true for corporations, stores and individuals, is also true for nations regions and even cities. Every location has an image, favorable or unfavorable, positive or negative. Some nations are viewed as benevolent and progressive, others as contemptible and repressive. Some are noted for engineering prowess, others for design skills. International as well as local regions have unique images and so do major cities. Whatever these views are, they color both investors and consumers perceptions of a locality s brand. And, these perceptions partly determine the brand s marketability, whether in the form of exports or as a place to establish a subsidiary. While a locality s brand or image is certainly of concern to its leaders, it is equally important to private and public organizations that are trying to stimulate both incoming investment and tourism and encourage cooperative alliances between business firms. A locality s brand, or image, as viewed by outsiders, is an outgrowth of its economic, political and educational systems, in short its culture. Therefore, how this image is formed, and what form it

National Image & Competitive Advantage takes, should be of concern to government, industry and individual firms. Managing this image correctly may well determine a locality s success in selling its goods in other markets. In spite of the convincing evidence that a country s image affects consumer perception of its products, decision makers from government to firms have rarely taken these effects into consideration (Papadopoulos et al, 1987, 5). National Image and Competitive Advantage: The Theory and Practice of Place Branding culminates the authors research and writing on country of origin effects during the past twenty five years. Many others have extensively investigated the subject over a period of forty years, resulting in several hundred academic journal and proceedings articles. In addition, a book of original papers, edited by Nicolas Papadopoulos and Leslie Heslop was published in 1993. In writing the first edition of National Image and Competitive Advantage, the present authors believed that the time had come to integrate the vast literature relating to country image in order to place more emphasis on strategy. In other words, we believed and still believe that proper management of a nation s image can give its business institutions a competitive advantage in world markets. Still needed are the tools that decision-makers can use to manage it. In the second edition we broaden the scope of the book from country branding to place branding. We start out in this endeavor by reviewing the theoretical basis for country image: What it is and how it can be measured. Then we turn to the subject of how it can be managed by countries, localities, industry organizations and firms. In doing so, we have collected much material never before published and material that has seen print, but largely ignored by theoreticians. For example, a good deal of quality research has been conducted by consulting firms on behalf of industry groups, government and business firms. The results of this research have been used to design national image campaigns for a number of countries. However, most academic writers have largely ignored it. We are grateful to the Copenhagen Business School Press for encouraging a second edition of this book. As the book s title suggests, the second edition has been extensively expanded to include a section on the subject of branding nations, regions and cities. How this task can be successfully done is accompanied by case examples. It is one thing to determine whether a country s image is positive or negative, and we have expanded the discussion in this regard, but it is equally important to determine what the monetary value of the image 10

Preface to the Second Edition is. We have added a chapter on monetizing country image, based on the concept of brand equity. This book has been written with several audiences in mind. It can be used in International Marketing and Business courses as a supplement to global product and advertising strategy. Most textbooks devote very little space to country of origin effects on planning and decision making. The present book fills this gap. A second audience consists of international marketing managers. Sections of the book that deal with country image implications for the firm will be of interest for them. Finally, those industry and government officials who must deal with the problems of creating and maintaining a country s national image will find this book useful. Acknowledgments The authors wish to thank a number of individuals and organizations who have encouraged the undertaking of this book. Professor Lauge Stetting, Publisher of the Copenhagen Business School Press took an early interest and guided the book to fruition. Two subsequent publishers, Axel Shultz-Nielsen and Ole Wiberg guided the second edition. We are also indebted to Hanne Thorninger Ipsen, Project Manager at CBS Press, who worked long hours to get the manuscript into a publishable product. The first author wrote a good deal of his contribution while on sabbatical as a Visiting Professor in the Department of International Economics at the Copenhagen Business School during 1999-2000. The revised edition was written while serving in a similar capacity at the Department of Marketing during 2004-2006, also at CBS. He is indebted to Professors Poul Shultz and Ricky Wilke and colleagues for creating a stimulating atmosphere conducive to research and writing. The second author worked on his contribution to the second edition while on sabbatical as an Arlene and Robert Kogod Outstanding Visiting Professor of Undergraduate Programs and as a Scholar-in-Residence at the Kogod School of Business, American University, Washington, DC, during 2003-2005. He is indebted to Professor Tomasz Mroczkowski and other colleagues for their support. The authors are indebted to the Research Authority of Bar-Ilan University for covering some of the secretarial expenses in putting the manuscript together. Some of the ideas presented in this book are the result of collaboration and/or discussions over the years with a number of colleagues, especially Shlomo Lampert at Bar-Ilan University and 11

National Image & Competitive Advantage Nicolas Papadopoulos at Carleton University. We are also indebted to a number of practitioners, especially Jack Yan who have shared their experience with us to enrich the examples in this book. Last, but certainly not least, we would like to thank our wives, Liora and Ora, as well as our children, for putting up with our long hours of collaborative research over the past twenty five years. Copenhagen and Ramat-Gan, March 2006. 12