Business-to-Business Marketing and Channel Strategy
Ning Li, Ph.D.
Learning Objectives
q Aspects of product offerings.
q Analyze how innovation can be managed in a B2B
context to ensure enduring success in creating
offerings for customers.
q Examine how to build a strong B2B brand.
Product Strategy in B2B Markets
2
Aspects of Product Offerings
3
“Product” may only capture a part of an overall offering, namely its physical
attributes.
Many developed economies generate most wealth from intangibles services, which
are increasingly information intensive.
“Advice giving” constitutes another relevant element of the design of offerings.
• Installation, maintenance, training, warranty
• Operations assistance, trouble-shooting
• Automated ordering, logistics management
• Shared resource planning, information sharing
• Process engineering and redesign
• Cost reduction programs
• Advice and consulting, joint product development
• Joint market research, co-promotion
Source: Anderson & Narus (1991).
Sample Augmenting Elements for Adapted Product Offer
4
q Products are developed to fit the needs of the market and are modified as needs change.
q Tools to help marketers select markets and provide products that meet their needs
• Market & demand analysis
Ø Who are consumers, non-consumers?
Ø Potential product/market fit
Ø New market opportunities
Ø Competition
• Business market segmentation
• Market potential forecasting
Ø What the future might offer, what problems might exist, what products will solve them?
q Product policy is directly related to market selection.
q A product’s competitive position in the market is referred to as the product’s position.
• Positioning = Segmentation + Differentiation
Product Management
5
New Product Development Risks
6
Clancy and Krieg (2003) estimate that no more than 10% of all new products or
services are trading profitably three years after launch.
Berggren and Nacher (2001) indicate that the failure rate could be as high as 95%.
Schilling and Hill (1998) present a much broader band of between 33% and 60% of
products not generating an economic return.
Even an optimistic estimate of failure rates for new industrial products puts it as high
as 30% (Armstrong and Kotler, 2005).
1. Put innovative products in the hands of technology enthusiasts (innovators).
2. After a while, visionaries (early adopters) will see the value of the new
technology and will begin to view it in business terms.
3. New technologies usually enjoy a honeymoon reception from enthusiasts and
visionaries; however, sales begin to falter … A chasm forms …
Strategy for High-Tech Adoption
7
q A Chasm is a period of time where sales falter (and sometimes plummet) due to differences between
Visionaries and Pragmatists (early majority).
q Visionaries want change (revolution) whereas Pragmatists want change (evolution). But Pragmatists make
most buying decisions in organizations.
q Pragmatists are the gateway to the mainstream market. If that chasm gap can’t be bridged, often products
become part of ancient history.
q One strategy to cross the chasm is for the marketer to provide pragmatists with 100% solutions to their
problems using the new technology: experts
q Many companies only supply a part of a solution. They are trying to be something to all, not 100% to some:
unacceptable to pragmatists.
q Goal: Win a niche foothold with a small group of pragmatists as quickly as possible … that is what crossing the
Chasm means.
Chasm
8
q A business marketer’s marketplace identity is established through:
• Brand
• Products
• Services
q A brand is one of the firm’s most valuable assets.
q Brands in B2B markets are normally at the corporate level so we can explain a brand as
‘comprising the expression and stakeholder images of an organization’s identity’ (Abratt
and Kleyn 2012)
q Branding has emerged as a priority to marketing executives, CEOs, and the financial
community.
Marketplace Identity
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q Brand: Name, sign, symbol, logo or anything that identifies and differentiates the product
from competitors
q Brand equity: Set of brand assets and liabilities linked to a brand; it can add to or subtract
from the value of the brand
q Brand Power relies on:
• What customers have learned, felt, seen, and heard about the brand over time.
• How customers link their thoughts to feelings, perception, imagination, and experience of the brand.
• Research argues that organizational buyers can be influenced by both rational and emotional brand
values
Brand and Brand Equity Defined
10
Source: Boles et al. (1999).
Brand Identity and Brand Positioning
q Brand identity
• To achieve brand identity, marketers must create:
Ø Brand salience – something prominent about the product, tied directly to brand awareness
Ø Brand awareness – ability to recall or recognize the brand under different conditions
• Marketers need to create a clear connection between the product and the brand name in markets
where the product competes.
q Brand positioning
• Establishes an association in the customer’s mind that differentiates the brand’s meaning
• Types of brand associations
Ø Brand Performance – the way(s) a product/service meets customers’ functional needs
Ø Brand Imagery – The way(s) a brand meets customers’ psychological or social needs
11
Top B2B Brands (from sources across the web by Google search)
Product Quality
q International competition has made quality an important strategic issue.
q As a prerequisite, suppliers need to meet ISO-9000 standards.
• The ISO 9000 family addresses various aspects of quality management and contains some of ISO’s best-known standards. The
standards provide guidance and tools for companies and organizations who want to ensure that their products and services
consistently meet customers’ requirements, and that quality is consistently improved.
q ISO-9000 standards
• Certification requires a supplier to thoroughly document its quality-assurance program.
• It has become a seal of approval to compete for business overseas and in the United States.
q The quest for improved quality permeates the entire supply chain.
q Buyers focus on market-perceived quality and value verses competitors’ offerings with the objective of “not
only zero product defects” but “zero customer defections.”
q The objective is to have a cadre of suppliers that can produce quality products that keeps customers
LOYAL!
13
Learning Objectives
q Examine how cost analysis, competitor analysis, and
customer analysis are essential elements of well-
informed price decisions in business markets.
q Analyze various pricing strategies and price-setting
methods.
q Evaluate the types of bid processes in B2B markets.
q Explore the ethical dimension of pricing decisions.
Pricing Strategy in B2B Markets
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Key Components of the Price-Setting Decision Process
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q This is one of the most difficult
issues that face companies:
What is the right price to
charge?
q No easy formula for pricing
industrial product or service
q Decision is multidimensional
Set Strategic Pricing Objectives
Estimate Demand and the
Price Elasticity of Demand
Determine Costs and
Their Relationship to Volume
Examine Competitors’ Prices and Strategies
Set the Price Level
15
q Pricing decision must be based on objectives congruent with marketing and
overall corporate objectives.
q Marketer starts with principal objectives and adds collateral pricing goals:
• Achieving a target return on investment
• Achieving a market-share goal
• Meeting competition
q Other objectives include channel relationships, customer value, and
product-line considerations.
16
Price Objectives
qCosts = price floor
qCompetitors’ prices = orienting point
qCustomers’ assessment of unique features =
price ceiling
qAll these factors should be considered
Three Major Considerations in Price
17
q When a PRICE WAR occurs, what should you do?
q You could:
• Maintain price
• Maintain price and add value
• Maintain price for a while and then reduce price
• Reduce price
• Increase price and improve quality
• Launch a low-price fighter line
• Additional methods?
Evaluating a Competitive Threat
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q Before responding, ask: “Do the benefits justify the costs?”
• If responding to a price change is less costly than losing a sale, then do it.
• If competitor threat only affects a small segment, the revenues lost from ignoring it may be so small
that it is not worth it.
• In other words, “Why lower the price to lose revenue from other segments too?”
• Image
q If you respond to the threat, is the competitor willing to merely reduce price again to
restore the price difference?
• Matching a price cut is ineffective if the competitor will merely lower the price again.
• Therefore, try to understand what the competitor is trying to do.
Ø Do they want % share of market?
Ø Do they just want to clear inventory?
Ø Do they just want to recoup some of their investment quickly?
Evaluating a Competitive Threat
19
q Markup pricing: the most elementary pricing method is to add a standard markup to the product’s cost.
q Suppose a chair manufacturer has the following costs and sales expectations: Variable cost per unit: $10;
Fixed cost: $300, 000; Expected unit sales: 50, 000.
q Unit cost = unit variable cost + fixed costs/unit sales =$10 + $300,000/50,000 = $16
q If the manufacturer wants to earn a 20% markup on price (sales), what should its markup price (p) be to the
distributor?
q (p-unit cost)/p = desired markup on sales è 1-unit cost/p = markup
è p = unit cost/(1-desired markup on sales) = $16/(1-20%) = $20
q Do standard markups make logical sense?
q Markup pricing remains popular for a number of reasons:
• Simplify the pricing task
• Prices tend to be similar è minimizes price competition
• Cost-plus pricing è fair to both buyers and sellers
Price-Setting Methods – Markup Pricing
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q Target-return pricing: the firm determines the price that would yield its target rate of return on investment
(ROI)
q Example: Suppose the chair manufacturer in the previous example has invested $1 million and wants to earn
a 30% return on its invested capital. Unit cost = $16; expected unit sales = 50,000. What should the target-
return price (p) be?
Profit = p x unit sales – Total cost = desired return x invested capital
è p = (Total cost + desired return x invested capital)/unit sales
è target-return price = unit cost + (desired return x invested capital) / unit sales = $16 + (30% x
$1,000,000) / 50,000 = $22
q Limitations
• The manufacturer will realize this 30% ROI, provided its costs and estimated sales turn out to be
accurate.
• Much depends on price elasticity and competitors’ prices – two elements ignored by target-return
pricing.
Price-Setting Methods – Target-Return Pricing
21
q Auction is used to
• dispose of excess inventories or used goods
• procure goods and services at lower prices
q Types
• English (ascending price)
• Dutch (descending price)
• Sealed bid
• Internet auction
q Concerns
• Time-consuming
• Can damage supplier-customer relationship
Auction-Type Pricing (Competitive Bidding)
22
1. Pricing is ethical where the buyer voluntarily pays the agreed price.
2. Pricing is ethical where both parties have equal information.
3. Pricing is ethical where there is no exploitation of a buyer’s ‘essential needs’.
4. Pricing is ethical where it is justified by costs.
5. Pricing is ethical where everyone has equal access to goods and services regardless of
ability to pay.
Five Ethical Levels
23
Source: Nagle & Holden (2002).