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Business-to-Business MarketingDifferentation Strategies

Haas School of BusinessUC Berkeley

Fall 2008Week 7

Zsolt Katona

Today

• Case Discussion: Barco

• Differentiation in practice: Perceptual Maps

• Industrat: What happened so far?

• Industrat Decision 6

3

Competitive continuum

1 firm

Monopoly Oligopoly

“few” firms many firms

“Perfect” competition

4

Competitive “continuum”

Oligopoly

Monopoly ~Perfect comp.

Scope for strategy

5

Basic way to avoid competition: Differentiation

Vertical differentiation:

Horizontal differentiation:

Att2

Att1

Segment 1

Segment 2

Att2

Att1

Segment 1

Segment 2

Competitor Analysis

Goal: To understand competitors strength and weaknesses and to discover untapped opportunities.

Method:

- Perceptual mapping.(i) Along what relevant dimensions is competition taking place?(ii) How are competitors positioned along those dimensions?

Perceptual Mapping

• Used mainly for: – Segmentation and Positioning– Designing differentiation strategy– Identify new product opportunities– Avoid cannibalization

• Output:– Identifies perceptual dimensions along which consumers evaluate

products in the category– Identifies the location of brands along these dimensions– Identifies consumers’ “ideal points” (= segments).

• Limitations:– Static (descriptive)– Interpretation may be subjective– Aggregation

Two approaches

• Compositional (uses product attributes)

– obtain “important” product attributes (focus groups)

– obtain ratings on attributes (survey)

– obtain “relevant” attributes (factor analysis)

• Decompositional (uses holistic evaluations)

– obtain perceived distance measures between products– compose map (multidimensional scaling)

Factor AnalysisFactor analysis is a statistical method used to determine the few underlying dimensions of a larger set of correlated variables. It is the “analyst’s data-mining tool”.

Correlation of two variables:

Correlation table:

V1

V2

V1 V2 V3 V4V1

V2

V3

V4

c = -1...0..1

11

11

.9.9

.8.8

.2

.2

.1

.1

.3.3

.2

.2

Factor Analysis• Factor Analysis rearranges any correlation matrix in such a way

that it is only composed of blocks of “high” and “low” figures:

• Factors are listed in order of their contribution to overall variation in the data.

• How many factors we have depends on how much variance we want to explain

• Easy-to-use tool to discover correlation structures. • Danger: do not infer “causality”

1

1

1

0

0

Example: B2B communication product

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

25. Maintain contact

24. Commitment

23. Enhance idea development

22. Quick response

21. Inexpensive

20. Group discussion

19. Misinterpret

18. Express feelings

17. Solve problems

16. Interaction

15. Monitor people, operations, experiments

14. Eliminate red tape

13. Plan in advance

12. Security

11. Control impression

10. Real hassle

9. All forms of information

8. Focus on issues

7. Persuade

6. Eliminate paperwork

5. Get trapped

4. Not need visual aids

3. Save time

2. Find and reach the right person

1. Effective information exchange

CORRELATIONDimension 1 Dimension 2

Extract 2 most important factors:

Represent products in the space of the 2 factors

Effectiveness

Ease of Use

Telephone

Teletype

Closed-circuit television

Personal visit

New product opportunity

NBVT

Decompositional Method: MDS of 10 U.S. cities

Subjective GeographicLocations of 10U.S. cities…

perceived airline distances between cities.

…based on…

Map of the U.S. based on subjective judgment

Source: Reproduced with permission from a Research Study of R.N. Shepard.

MDS of major beer brands:

MDS in a blind-taste test:

Example with Business Schools

Compositional vs. Decompositional• Compositional

– More objective in interpreting dimensions and diagnosing competitive situation

– May frame consumers– Easier data collection – Can be done with fewer brands– Research may miss key dimensions– More suitable for non-existing products

• Decompositional– More general– Allows only few dimensions– More likely to provide surprises– Interpretation may be subjective– Needs at least 7 brands (substitutes)

B2B Challenges

• Small number of customers

• Different decision makers might have different perceptions

• Who do you want to make happy?

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Key lessons:

• Differentiation is a fundamental way to avoid competition

• Product differentiation needs to be embedded in a consistent strategy including all other elements of the value delivery system (distribution, communication, pricing).

• Strategy needs to be consistent over time. • Strategy needs to be clear to competitors

(“strategic posture”)

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Industrat Stock Prices

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Sales

24

Costs

25

Awareness

26

Corporate Marketing

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Sales Force Training

Segmentation

Resistance

Suspension

Communication

Aggregate Instrumentation

Consumer

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Market Shares: Instrumentation

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Market Shares: Communication

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Market Shares: Consumer

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Buying Process: Instrumentation

Production Manager Engineering Manager Purchasing Manager General Manager

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Buying Process: Communication

Production Manager Engineering Manager Purchasing Manager General Manager

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Buying Process: Consumer

Production Manager Engineering Manager Purchasing Manager General Manager

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R&D