Review- Module I - Understanding Value

7/31/2019 Review- Module I - Understanding Value

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Business to Business Marketing

Review: Understanding Customer Value

June 16-July 2, 2012


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Business Markets

Business markets are firms, institutions or

governments that acquire products and services

for their own use, to incorporate into products

and services they produce or for resale along

with products and services they produce to other

firms institutions and governments.


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The Consumer Market (B2C) andthe Business Market (B2B) at Dell, Inc.

B2B

Customers

B2C

Individuals &

Households

Businesses

GlobalLarge

Institutions

HealthcareEducation

Government

StateLocal

Dell, Inc.

Small & Medium

sized businesses

Selected

ProductsPCs

PrintersConsumer Electronics

Simple Service

Agreements

PCs

Enterprise StorageServers

Complex Service Offerings


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Business Marketing

Business Market Management is the process of understanding,Business Market Management is the process of understanding,creating, and delivering value.creating, and delivering value.

Value in business markets is the worth in monetary terms of theValue in business markets is the worth in monetary terms of the

economic, technical, service and social benefits a customer firmseconomic, technical, service and social benefits a customer firms

receives in exchange for the price it pays for a market offeringreceives in exchange for the price it pays for a market offering

The fundamental value equation:

(Valuef Pricef ) > (Valuea Pricea )


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Classifying

Goods for theBusinessMarket

Classifying industrial goods by

the following questions:

How does the good or service

enter the production process?

How does it enter the cost

structure of the firm?

Source: Adapted from PhilipKotler,MarketingManagement: Analysis,Planning, and Control, 4th ed.(Englewood Cliffs, N.J.:Prentice-Hall, 1980), p. 172,with permission of Prentice-Hall, Inc.


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Classification: B.M Products/Services

Heavy Equipments: Engines, Compressors etc (high investments; plant

investment)

Light Equipments:

,

large no of customers; mass marketing;

distributors)

Systems

MIS; Turnkey project; (Selling: complex and time

consuming)


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Classification: B.M Products/Services

Raw Materials Crude oil, iron ore, cotton fibre (sold as

commodities; price; brokers)

Processed Materials

Rolled steel, fabric, plastic polymers,

Differentiation possible by adding value for special

applications

Consumable supplies

Coolants, abrasives, medical syringes,

Mfg.; MRO consumables


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Classification

Components

Engines, Motors, Tires, Disk drives, Monitors,

Keyboard

Different from supplies and materials

Close relationship (memory) Vs low cost efficient(keyboard) approach

Industrial Supplies

Engineering Services; Mgmt Consulting; Contractmaintenance

Comprehensive design, installation and operation

Vs support service (transportation)


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(ii) Characteristics: BM

External Linkages

Internal Linkages


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CUSTOMER MANUFACTURINGMARKETING

Key LinkagesExternal Environment Internal Organization

Derived Demand

Fluctuating Demand

Complex Buying ProcessConcentrated Customer Base

Relationships/ Business

Networks

Emphasis on Technology

High Level of CustomizationMade to Order

Cross Functional Relationships


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External Linkages

Derived Demand

Driven by consumer goods demand

AutomobileDashboard - ABS Plastic Pellets3

chemicals (Styrene)---ethylene---petroleum

conditions in strategic decisions


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External Linkages

Complex Buying/Selling Process

Individual / household vs Buying Centers

B.C (DMU): Members of engineering, purchase,

finance and manufacturing

Complexity: The influence of the formalorgan za on; ra eg c mpor ance o e

purchase item; cost of item being purchased;

complexity of the need being serviced;

centralization of purchase decisions

Professional sellers and buyers

Encourages long term relationships; Buyer

becomes dependent on a supplier


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External Linkages

Concentrated Customer Base Few Large Customers

Geographically concentrated ( industrial clusters-

silicon valley, auto component industry, diamond

cutting..)

Personal Selling; Direct Marketing


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The Supply Chain


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Relationships, Networks, Technology

Relationship Perspective: Implications

Task of selecting, developing and managing customer

relationships for the advantage of both customer and

supplier with regard to their respective skills,

resources, technologies, strategies and objectives Variety of relationships (critical for survival;

contribution large or small; friendly/antagonistic;

close/distant; simple/complex); Profitable; Leading to

technological developments; Provide access to other

companies

Need to manage a portfolio of relationships


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Unit of analysis: relationships--- rather than single purchase; sales

territory or market

Each transaction to be seen in the context of relationship

Relationships as primary assets; value can only be delivered through

relationship channels

Business relationships develop, integrate and use the skills resources

and technologies of both supplier and customer; Links activities of the

companies, ties their resources to each other and form bond between

individuals from each company


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Business Buying:

Similar Activity to Business Marketing

Choose suppliers on the basis of their resources and

skills Persuade that they are good customers

Manage based on mutual interest

B.M: Interaction between two active parties


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(iii) Relationships, Business Networks, Technology

Business Networks Relationships do not exist in isolation

Embedded in network of relationships

Work Teams - Working Relationships -Collaborative

Relationships (Strategic Alliance) - Business

Networks

Business Network : Two or more connected businessrelationships

Example of a business network: Alliance Network- tocreate new markets; to bring together resources; toagree on common standards; to spread risk across ano of firms


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Business Networks

Characteristics Organized around a market opportunity

Multiplex relationship between firms

Increasingly international in composition (domestic : Chaebol,

Keiretsu)

na yz ng e wor s

Actors; Activities; Resources

Network Horizon; Network Context; Network Identities;

Network Roles : Architect; Lead Operator; Care Taker


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Business Networks

Supplier Networks: Toyota

50,000 companies

First Tier: system suppliers; Second Tier: Deliver

System Parts; Third Tier: Standardized, non

adapted components; Fifth tier: homeworkers

Indirect relationships

Co-ordination between relationships (Quality /Eff.)

Influence of large companies (invest, long term,

others interests)

Problems with a single perspective


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Relationships, Networks, Technology

Inextricably linked technology on which the offer isbased and the supplier technology

Increasing use of technology eg. Electronic

technology in automobiles

Need a wide range of know-how , skills and abilitiesor ec no og es o prov e mprove o er ngs


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Technology

Increasing cost of new gen. technologies

Competitors in a race to use new technologies (Al

replacing steel in car bodies construction)

New competitors arrive with new technologies

Increasingly difficult to develop and maintain alltechnologies required- Hence becoming more dependent

on business networks


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Technology

Acquiring (Internal/External/Outsource Offerings)

Exploiting (Internal/External)

Managing Technology (Commercializing)

Understanding and using technologies in relationships

and networks


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CUSTOMER MANUFACTURINGMARKETING

Key LinkagesExternal Environment Internal Organization

Derived Demand

Complex Buying Process

Concentrated Customer BaseBusiness Networks

Emphasis on Technology

High Level of Customization

Made to Order


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Internal Linkages

Emphasis on technology

Technology: Visible

Performance, functions and features important in

design, manufacturing and marketing of a product

Price/Performance ratio (semiconductors; memory)

High Level of Customization Meet users technical requirements

Cross Functional Relationships


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Marketings Cross Functional Relationship

Business marketing planning mustbe coordinated and synchronizedwith corresponding planning efforts.

Developed by Cool Pictures and MultiMedia Presentations


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Marketing is perhaps best understood as

1. The customer-product connectionlinking thecustomer to the focal offering.

2. The customer-service delivery connectionthe

design and delivery actions involved in providing arm s goo s an serv ces.

3. The customer- financial accountabilityconnection. Activities and processes that linkcustomers to financial outcomes.


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Marketings Role in Managing Three Customer Connections

Customer

Human Resources,

Marketing,Operations

Product Service Delivery Financial Accountability

Top Management

Operations

,

Accounting

Accounting, Management

Information Systems

HumanResources


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Cross-Functional Connections Explores the Interrelationships Between Marketing and

Four Business Functions

Formulating Business Marketing Strategy:Vital Cross-Functional Connections


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Business Vs Consumer Mktg. Strategy

Business Markets Consumer Markets

1 MarketSegmentation

Industry Characteristics;

Organization Characteristics; End

user markets; Product Application

Consumer demographic, Psychographic

variables

2 Positionin

Positionin on Value monetar

On s cholo ical attributes

Product Policy

worth of benefits; (technology,capabilities, performance,features)

3 Pricing Flexible / customized Standard

4 Channels ofDistribution

Personal Selling Wholesalers / Retailers

5 MarketingResearch

Customer specific; Relationship

specific; Internally generated

Market specific; Survey; External

Agencies


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Customer Value Management


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What is Value in Business Markets?

What being market-orientedmeans in business marketsis changing:

Features of an offering

Supplier needs to translate

Benefits of an offering

What the offering is worthin the customersapplication

Supplier needs to translate


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What is Value in Business Markets?

Value in business marketsis the worth in monetaryterms of the technical, economic, service, and socialbenefits a customer firm receives in exchange forthe price it pays for a market offering.

The fundamental value equation:

(Valuef Pricef ) > (Valuea Pricea)


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The essence of customer value management:

-- Deliver superior value to targeted

market segments and customer firms.

-- Get an equitable return on the

value delivered.

Increasingly, to get an equitable return, suppliers must be able

to persuasively demonstrateand documentthe superior value

their offerings deliver.


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To understand customer requirements and preferences, and

what it is worth in monetary terms to fulfill them, progressivesuppliers rely on customer value assessment.

They then put this understanding of customer value to use in:

-- Crafting market strategy

--

-- Guiding new offering realization

-- Gaining customers

-- Sustaining customer relationships


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Customer value management can be implemented as a processfor improving specific business performance:

Translating business issues into projects

Customer value workshop: Build an initial value model

Customer value research: Data collection and analysis

Constructing a business case for change

Value realization

More broadly, customer value management can be an underlyingphilosophy for running a business.


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Building Customer Value Models

Building the initial value model:

Generate a comprehensivelist of value elements.

Decide which competitors market offering customers ineach (sub)segment regard as the next-best-alternative.

Revisit the value elements to delineate:

o nts o par ty

Points of difference

In initial customer visits, determine points ofcontention.

Focus the model and data-gathering on points ofdifference and points of contention.

Construct a word equationfor each one and be explicitin the assumptions made.


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An example of a word equation:

A point-of-difference between two large-format, document reproductionsystems was the number of paper jams a customer wouldexperience each day. The word equation for this was expressed as:

Paper Jam Cost Savings B,A =

[(paper jams per day x minutes to fix jam)A

(paper jams per day x minutes to fix jam)B] / 60 minutes perhour

x operator wages per hour x annual work days

An explicit assumption made was that if operator hours could bereduced, he/she can be reassigned for doing to other value-addingtasks.


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Customer Value Research:

Gain customer co-operation

Data Collection

Analysing the data

Constructing a Business Case for


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Constructing a Business Case forChange

What specific action does the team recommend basedon research?

What resources would be needed to accomplish therecommended changes in doing business?

What are the specific concern in implementing thebusiness case?

What milestones can be specified to chart the progressin accomplishing the change?

What would be the profitability impact if the businesscase for change were approved?


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Building customers value models takes time and

money, and is not easy.

Yet, can suppliers afford notto build them?


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Value Realization

Senior management approval and continued support ofbusiness case

Refining or extending customer value models

Action plan for implementing business case:

Supporting changes in performance review andcompensation

Devise system for tracking incremental profitability

Create value-based sales tools and sales force training

V l R li i


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Value Realization

Use the customer value model results to create

value-based sales tools:

Value in-use case histories

Value calculators

Value documenters

-- Value assessment as a consultative selling approach


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Understand what customers value

Constructing Customer Value Models


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Generate a comprehensive list of value elements

Identify the economic, social,technical and service

benefits;

Less tangible elements: value placeholders

Conduct a customer value workshop to gather data to

estimate the monetary worth and understand the relative

importance of the benefits compared to BASE

Focus group discussions/ indepth interviews Field visits: Spend a day in the life of your customer


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Validate the model and understand the variance in the

estimates

Create value based sales tools

Value case histories; Report savings to the customer

Value assessment and consultative selling

Tailor supplementary services


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Spend a day in the life of your

customers

Spend a day in the life of your customers


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Spend a day in the life of your customers

No substitute for managers instincts, imagination and

personal knowledge of the market

Single most important skill: instinctive capacity to

empathize with and gain insights from customers

Imaginative probing keeping aside pre-conceived idea

about a clients situation

Market focused leadership essential to meet new marketneeds


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Brands & Branding in

Business Markets

Branding in Business Markets


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Branding in Business Markets

Powerful B2B Brands

GE, ABB, L&T, Caterpillar, Dupont, Fedex, IBM, Intel,

HP, Siemens, 3M, Cisco

Branding as Differentiation Strategy

Products and services associated with a brand and

what attribute sand befits make it distinctive

Top 20 Brands: Brand Finance 2012


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2012-Ranking

Company Brand Value

1 Apple $70.6B

2 Google $47.4B

3 Microsoft $45.8B


4 IBM $39.135B

5 Walmart $38.319

6 Samsung $38.197

7 General Electric $33.214

8 Coca Cola $31.082

9 Vodafone $30.044

10 Amazon $28.665


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2012-

Ranking

Company Brand Value

11 AT&T $ 28.379

12 Verizon $27.616

13 HSBC 27.597


14 NTT $26.324

15 Toyoto $24.431

16 Well Fargo $23.229

17 Bank of America $22.91018 McDonalds $22.230

19 Shell $22.021

20 INtel $21.908

Branding


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Branding

Bran Essence

Key point of difference that are the essence and spirit

of the brand in 3-5 words

Nike:

Internal brand mantra: authentic athletic

per ormance

External brand slogan: Just Do it

Brand Slogans:

GE: Imagination at Work HP: INVENT

Xerox: The document company

Branding


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Branding

Brand Charter:

Summary of history and positioning of a brand

Marketing actions should be evaluated against the

brand charter

Strong Brands:

Consistent brand image across customer population

Aligned with the firm strategy

Branding Derived Demand & Fewer


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Branding , Derived Demand & FewerCustomers

Derived demand & ingredient branding

Every firm in the value chain benefits from a strong brand

Business Goods and Services

Raw materials, processed materials, component parts,

subassemblies, Li ht e ui ments; construction: MRO and

services

Services: Supplementary services or standalone intangibleservices like tax advice / investment banking

Brand name differentiates- Bechtel (construction); Cargill

(raw materials), caterpillar (heavy equipment), Dupont(processed materials); Mckinsey consulting; MorganStanley (Banking); Xerox: Light Equipment

Branding and Business Buying


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Branding and Business BuyingBehaviour

Characterised by profit motivated and Budget

constrained customers; rather than products

Buyers: Fewer, Larger, nature of relationship demanded

& importantly buying process

any ac ors; ong per o s; mu p e ec s on s ages

Combination of individual and organisational decision

making process; brands to influence both processes

Branding and Business Buying


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Branding and Business BuyingBehaviour

Decisions made interacting with internal and external

people

Decisions made within organisational goals, resources,

strategy and structure

Organisation in a dynamically changing business

environment (changing technology, products)

Branding and Buying Situation


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g y g

Situation characterized by complexity of the problem

solved, significance, newness of the buying requirement,no of people involved, stages and time taken

Buyers: Branding receptive; highly tangible and low

interest Branding receptive: Found in more risky situation;

formal; thorough and open minded; Use more

suppliers; sophisticated ; better educated and buy in

volumes

Branding and Buying Situation


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g y g

Highly receptive buyers

Typical product oriented re-buys and went by the

book in a structured process

Low interest buyers

Transaction oriented, straight re-buy procurements

ase on conven ence an ow nvo vemen

Over time: New buy- Re- buys- Routine purchase

Brand play different role in different situation

Buying Centre and Branding


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y g g

Initiators, Users, Buyers, Deciders, Influencers,

Gatekeepers Strong brand awareness and favorable attitudes among

dispersed buyers can exert major influence throughoutthe process

Buying authority; veto power; consensus & group

decision makin Self interests; functional area; organizational interests &

multiple buying criteria

Brand as a major tool for building consensus inorganisational perceptions; predisposition and buying

action

Business Buying and Branding


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Individuals take decisions

Individual goals vs organizational goals

Individuals are buying solution to two problems

Or anisations economic and strate ic roblem Their own desire to obtain individual achievement and

rewards

Rational & Emotional Basis

Product related brand association are likely to playmore importance

Branding and Customer relationships


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Customers on the relationship continuum

Chemical company: Low price seekers, dial toners;

techies. Win-win partners

Branding to address different segments

Relationship seekers value corporate brand; reliability

an rus wor ness

Transaction customers: Product performance, pricing

and tangible service attributes

Intel and Microsoft has successfully managed their

complex relationships with OEM and Users throughbranding efforts

Branding Strategy


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Corporate Brand

Sub-brand for different product lines ( Intel- Pentium;Dupont- Teflon)

Firm may be more important than the products

Branding will increase in significance with increase in

user base Brand Value proposition: meaningful to buyers; users;

influencers and deciders in the organisational buying

decision process

Guidelines for B2B Branding


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Differentiate your offer

Symbolic identifier or a shorthand descriptor for the set

of economic, social, service benefits that customers

receive from a suppliers offering

Brands get endowed with meaning through consistent

Dupont brands: Lycra, Teflon, Kevlar etc

Brand associations



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Capture the value of value placeholders (the intangibles)

Demonstrated value and brand equity may not be the

same

Ingredient Brands: Conveys values of a suppliers

offering to its customers Increases marketing effectiveness: lowers cost of new

product launched

Create emotional attachment or loyalty to an offering

through their association with customer experiences



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Emphasise a corporate branding approach

Build the corporate brand around brand intangibles such

as expertise, trustworthiness, ease of doing business

and likeability

Internal Branding



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Branding to be aligned with suppliers business model

and value delivery strategy

Understand the role of brand in the organisatonal buying

process

Basic value proposition to be relevant to all significant

members in the DMU

Examples of Value Models Used in thei d t


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industry

Value Model:Siemens- Value Calculatorshttp://www.energy-efficient-production.siemens.com/en/cost-saving-

potential/calculation-examples.htm

https://www.industry.siemens.com/topics/global/en/energy-efficient-production/energy-saving-tools/energy-saving-calculator/Pages/energy-saving-calculator.aspx?HTTPS=REDIR

Value proposition

http://www.mckinsey.com/client_service/marketing_and_sales/expe

rtise/digital_marketing

Examples of Value Models Used in theindustry
http://www.energy-efficient-production.siemens.com/en/cost-saving-http://www.industry.siemens.com/topics/global/en/energy-efficient-http://www.mckinsey.com/client_service/marketing_and_sales/expertise/digital_marketinghttp://www.industry.siemens.com/topics/global/en/energy-efficient-http://www.energy-efficient-production.siemens.com/en/cost-saving-http://www.mckinsey.com/client_service/marketing_and_sales/expertise/digital_marketinghttp://www.industry.siemens.com/topics/global/en/energy-efficient-http://www.energy-efficient-production.siemens.com/en/cost-saving-


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industry

Value -Case studiesInfosys

http://www.infosys.com/global-sourcing/case-studies/Pages/information-services-casestudy.aspx

http://www.infosys.com/global-sourcing/case-

studies/Pages/networking-casestudy.aspx

White Paper: Benefits of Cloud Computinghttp://www.infosys.com/cloud-computing/white-

papers/Documents/realizing-value-proposition.pdf

TCSYou may refer to http://www.tcs.com/Pages/default.aspx to understand

their value prosposition and value based sales tools
http://www.infosys.com/global-sourcing/case-http://www.infosys.com/global-sourcing/case-http://www.infosys.com/cloud-computing/white-http://www.mckinsey.com/client_service/marketing_and_sales/expertise/digital_marketinghttp://www.tcs.com/Pages/default.aspxtohttp://www.tcs.com/Pages/default.aspxtohttp://www.tcs.com/Pages/default.aspxtohttp://www.infosys.com/cloud-computing/white-http://www.infosys.com/global-sourcing/case-http://www.infosys.com/global-sourcing/case-http://www.tcs.com/Pages/default.aspxtohttp://www.infosys.com/cloud-computing/white-http://www.infosys.com/global-sourcing/case-http://www.infosys.com/global-sourcing/case-http://www.mckinsey.com/client_service/marketing_and_sales/expertise/digital_marketing


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Thank You