Transcript Launch Menu - Ralph Oliva

Business-to-Business Marketing
MKTG 533.101
Fall, 2013
Business-to-Business Marketing
and Value…
Dr. Gary Lilien, Research Director, ISBM
Dr.Ralph Oliva, Executive Director, ISBM
www.isbm.org
814 863 2782
Marketing “Value - Delivery Framework”
1. Build Value Understanding
2. Strategy Formulation
3. Design Customer Value
4. Communicate and Deliver Value
5. Life-Cycle Management
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1. Build Value Understanding
 Understand the language and concept of Value*
 Study and understand the key environmental Trends
with impact on your marketing efforts
 Understand value and processes in:
 Customers
 Competitors
"Trends and
4C's Analysis"
 Category
 Value Chain
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1. Build Value Understanding
2. Strategy Formulation
 Segmentation
 Targeting
 Positioning
 Synthesis of Segment Strategies
Our Primary
Concentration in this
course
TM
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Conceptualize Market Structure for STP
Think of Markets as Hierarchies of Customers
Mass Market Non-Segmentation
After studying segmentation of
market decide to treat every
customer the same
"Spray and Pray"
Customer Categorization
Classify customers into logical
categories then target and allocate
resources – geography, product
usage, customer size
Segments
Classify customers by their needs,
problems, attitudes, and behaviors
then select targets and allocate
resources
Segments of One
Customize offering to each customer
– costly, but ultimate marketing!
Thanks to: Dr. Bob Thomas, Georgetown
6/13/11
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1. Build Value Understanding
2. Strategy Formulation
3. Design Customer Value
 New Product/Portfolio
Management Processes
 Value and Pricing Strategy*
 Brand Strategy and Management
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1. Build Value Understanding
3. Design Customer Value
2. Strategy Formulation
4. Communicate and Deliver Value
 Integrated Market Communications
 Channel/Distribution Strategy
 Sales Management/Support*
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1. Build Value Understanding
3. Design Customer Value
2. Strategy Formulation
4. Communicate and Deliver Value
5. Life-Cycle Management
 Manage Customer Relationships
 Measure/Track Performance
 Process Management/Continuous
Improvement
 Education/Professional Development
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Pricing a New Product…
…Kalrez® resists over 1,800 different chemicals while offering the high temperature
stability of PTFE (327°C). Kalrez® parts provide reliable, long-term service with a wide
range of aggressive industrial and electronic grade chemicals. It is used in highly
aggressive chemical processing, semiconductor wafer processing, pharmaceutical, oil
and gas recovery, aerospace and petroleum applications
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Kalrez®: A replacement for
conventional Neoprene
rubber “O-Ring” Material…
Neoprene Rubber: Replace
every 3 months…
Kalrez®: Replace every
3 years…
Key Issues…
 Kalrez® didn’t cost much more to manufacture than
the incumbent O-Ring material Neoprene rubber (?)
 The cost of O-Ring replacement:
 O-rings Themselves
 Process Shutdown
 Special Labor
 Disassembly/worker protection
 Reassembly
 Process Startup
 Lost production
 What else?
3x/yr
1/3x /yr
TM
What is the “value” of Kalrez®?
(c) 2013, ISBM - Penn State
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Value, Costs and Prices…
Price
Margin
Total
Cost
External
Purchases
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COST-BASED PRICING
Traditional Costing
Activity-Based Costing
 Direct Costs
 Indirect costs
assigned to activities
 Indirect cost
allocations
(indexed)
 Allocated by activity
usage
Price = Costs + Margin Target
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What’s the biggest problem
with cost-based pricing?
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CONCEPTUALIZE
EXERCISE
What should the term, “customer value”
mean when applied to a product or service?
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© 2010, ISBM _ Penn State
Customer Value Definition
Customer Value is the economic impact,
compared to the next best alternative, a supplier’s
offering has on a customer’s business. Economic
impact comes from increasing a customer’s
revenue flow and/or decreasing a customer’s cost
of operations.
Offering: Tangible Product/Service, Brand,
Relationships, KnowHow, Everything…
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Customer Perceived Value Definition
A customer’s current understanding of an
offering’s economic impact on their business.
Perceived value may be less than customer
value because:
• Customers may not be aware of a supplier’s
total value delivery.
• Customers may take a lower value position
for price negotiations.
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(c) 2013, ISBM - Penn State
Conceptualizing: Value, Costs, and Prices
Customer
Value
Perceived
Value
Total
Cost
External
Purchases
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© 2001, ISBM _ Penn State
BUYER-SELLER RELATIONSHIPS
• Positive sum game (win-win) -- Cooperation
• You, customers, your supply chain, etc. -work together to create value...
• “Essence” of growth of the GDP...
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© 2010, ISBM _ Penn State
Conceptualizing: Value, Costs, and Prices
Customer
Value
Perceived
Value
Value Created
Total
Cost
External
Purchases
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© 2010, ISBM _ Penn State
Price: The “Knife” That Distributes Value
Customer
Value
Perceived
Value
Price
Value Created
Total
Cost
External
Purchases
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© 2010, ISBM _ Penn State
The “Zero-Sum” Game: Pricing
VALUE CREATED - The Value “Salami”
“Cut” by price into two pieces:
 Margin (x Quantity) - the seller’s economic
driving force
 Value distributed (x Quantity) - the customer’s
economic driving force
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© 2010, ISBM _ Penn State
Buyer-Seller Relationships: The Two Games
 Positive sum game (win-win) -Cooperation
 Zero sum game (win-lose) -Competition
Implications for “Customer Satisfaction”
Creating Value Together:
"Positive Sum"
Dividing the Value:
"Zero Sum"
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Conceptualizing Value: Language and Taxonomy
Value, Costs, and Prices
Customer
Value
Differentiation
Value
Perceived
Value
Incentive
To Buy
Price
Price
Total
Cost
External
Purchases
Competitive
Reference
Value
Incentive
To Supply
KNOWING COSTS AND VALUES
Customers spend more effort to know
supplier’s costs
than
Suppliers spend to know customer’s values
POWER vs. “PARTNERSHIP”
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Tools from George Cressman – Strategic Pricing Group:
EVE® Value Analysis Template
•Competitive Alternative:
•Value
•Feature •Benefit
Driver
•Positive Differential Value
•Value
Formula
•Inputs and
Sources
•Differential
Value
•Negative Differential Value
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•Total Differential Value
© 2009, Strategic Pricing Group: George Cressman
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EVE EG
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Quantifying Value
Additional Value the
New Offering Provides
•
•
•
•
•
Reduced disposable use
Time savings
Increased success rate
Reduced recovery time
Consulting services
Positive
Differentiation
Value
Negative
Differentiation
Value
Additional Cost
Associated With
Using
the New Offering
• Technical training
• Switching costs
• Risk
Net Differentiation Value
The Value of Existing
Alternatives
•
•
•
•
•
Next best alternative
Current systems
Installed technology
Emerging competitors
Alternative solutions
Competitive
Reference Value
© 2009, Strategic Pricing Group: George Cressman
Net
Economic
Value
Streamax
Video
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Pricing a New Product: RapidForm…
New metal treatment technology for
reducing scrap in customers
application – “RapidForm” Steel
Customer Complaints -Incumbent –Standard High-Carbon Steel :
• Extraordinarily High Scrap Rate
• Ran Slowly through Process
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RapidForm Pricing
• It cost very little more to make
RapidForm
• And High Carbon currently sells
for $0.60/lb
• Let’s try $0.70/lb
• They’ll buy at $0.68/lb
• We’ll make a bundle…
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RapidForm Value: Key Facts…
 2 lbs of steel per part
 Current scrap rate –very high – say 25%
 Currently allotted $0.80 of machine time
to process – too slow
 Specific muffler line, specific type of steel
delivered --Focused
customer application
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Case Calculations…
Customer Value is the economic impact, compared to the
next best alternative a supplier’s offering has on a
customer’s business.
Value comes from two components:
• Reduced scrap generation
• Reduced Labor Cost
Are there any other value elements?
TM
(c) 2013, ISBM - Penn State
Tools from George Cressman – Strategic Pricing Group:
EVE® Value Analysis Template
•Competitive Alternative:
•Value
•Feature •Benefit
Driver
•Positive Differential Value
RapidForm
Easier
Stamping
than HC
RapidForm
Easier
Stamping
than HC
•Value
Formula
•Inputs and
Sources
Customer
2
lbs/part
X
Reduced
Less
Factory
$0.60/lb
X
Scrap Rate
Waste
Floor
(.25 - .05)
Reports
Customer
$0.80
$0.50
Fewer
Reduced
= $0.30 Labor Factory
Sheets
fed
to
Scrap Rate
Savings/part Floor
Machine
Reports
•Differential
Value
Savings of
$0.24/part;
$0.12/lb
Savings of
$0.30/part;
$0.15/lb
•Negative Differential Value
TM
•Total Differential Value
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© 2009, Strategic Pricing Group: George Cressman
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EVE EG
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Decreased
Labor $0.15
Reduced
Scrap $0.12
Reference
Value
Next Best
Alternative
HC Steel
$0.60
Positive
Differentiation
Value
Decreased
Labor $0.15
Price Set At
$0.68/Pound
Reference
Value
Reduced
Scrap $0.12
Next Best
Alternative
HC Steel
$0.60
Total Value
Delivery =
$0.82/lb
Could the price have
been set higher?
If so, how could the
firm achieve a higher
price?
A very important – and often
unasked – question…
WHY does my customer buy my
product/service?
And others…
WHAT is it’s REAL value?
WHO is the key decider?
Do we really know?
TM
(c) 2013, ISBM - Penn State
Tools to Build Value Understanding
ALCOA’S PROBING CHECKLIST
I would like to learn more about how you’re using my product:
• Inventory
• Added Operations
• Rejects
• Inspections
• Any Added Parts
• Waste
• Set-Up
• Special Tools
• Rework
• Delays
For each of the above:
• Can I see what you’re doing?
• How much time does it take?
• Why does this take place?
• How costly is it?
• What becomes of this work?
• Is there a better way?
In general:
• Get on the plant floor
• Learn all you can
• Examine the total use pattern
• Funnel information to the right people
4/13/2015
The “Next Best Alternative”

Competitive alternative should answer the question:
– What would customers do / use if they did not have our product / service?
Options for Competitive
Alternatives
1:1 Competitive Products
Where to Use?
Examples
Mature industries
 Significant competition
 “Near” commodities
 “Spec” products

“Home grown solutions”
 Technology / IT infrastructure


Making / Doing it
Themselves (Internal
Resources)

Doing Without

Combination of Products
and Services

Reference for new products / product
segments
Service driven environments
 Significant support
 Environments requiring integration


Chemicals
Medical Products
Printing Services

Outsourcing Services
Marketing Services
Trade Clearing Software

Online Training

Financial Services Outsourcing
Funeral Services


© 2011 George Cressman, World Class Pricing, All Rights Reserved
CONCEPTUALIZE
Build Value
Costs, Prices and Values
$0.92
Value
passed to
your
customer’s
value chain
Customer
Value
Perceived
Value
Compute and
Explain Value
Move Perceived
toward
Customer Value
Price to Harvest
Value
Total
Cost
Manage Over the
Life Cycle
External
Purchases
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© 2010, ISBM _ Penn State
Demonstrate, Document
 Demonstrate value – build the
value in use and “resonating
focus” value proposition before
the sale
 Document value – after the sale –
product in use: create the
scenario for documenting that the
value promised was delivered.
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Next…
 Building a Customer Value Model
 Account Pricing for the Abcor 2000
 Pricing Options for Atlantic Computer
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Application: Account Pricing for Abcor 2000
 Focus ONLY on the Longform
Printing Account:
 Prepare a bid
 Justify that bid both to Longform and to
your (Abcor) managment
 Other Q’s…
 How much info about buyer’s costs should
buyer reveal?
 How much pricing authority should a
salesperson have?
TM
Due at 6 PM Tuesday, Sept 3
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4/13/2015
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Break Even VIU for Abcor 2000
 Assumptions: (0% discount rate, for simplicity)
 Costs:
 Machine Cost = $3980
 Plate Cost = $2.00 ea.
 Assume Usage:
 1000 plates/year – 8 years=8000 plates
 Break-Even:
0= MachPrice-3980+8000*(PlatePrice-2.00)
Seller Break Even Chart:
Machine Price vs. Price/Plate
Sell Here
The Buyer’s Side
 Additional Buyer Assumptions: :
 Salvage Value Old Machine/ New Machine: $1000/$3000
 Old Plate Price = $5.00 ea.
 Break-Even:
0= $1000+$3000-MachPrice +8000*($5.00-PlatePrice)
Buyer Break Even Chart:
Machine Price vs. Price/Plate
Buy Here
Combining The Two..
Zone of Agreement