marketing of high-technology products and innovations chapter 3: relationship marketing:...
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Marketing of High-Technology Products and
Innovations
Chapter 3: Relationship Marketing:
Partnerships and Alliances
© Mohr, Sengupta, Slater
2005
Chapter Outline Partnerships
Types of Partnerships Reasons to Partner Risks in Partnering Keys to Success
Relationship Marketing Customer Equity Customer Acquisition Customer Retention
© Mohr, Sengupta, Slater
2005
Types of Partnerships
Complementors
Suppliers
Focal Firm
Distribution
Customers
Competitors
© Mohr, Sengupta, Slater
2005
Types of Partnerships (cont.)
Vertical partnerships: with members at other levels of the supply chain Suppliers Distribution channel members Customers
Horizontal partnerships: with members at the same level of the supply chain “Complementors:” makers of jointly-used
products Competitors—”competition”
© Mohr, Sengupta, Slater
2005
Antitrust Laws Related to Competitive Collaboration National Cooperative Research Act
(1984) Eased traditional antitrust laws to allow
competitors to form relationships to jointly pursue research and development projects.
National Cooperative Production Amendment (1993) Expanded the 1984 Act to allow joint
production
© Mohr, Sengupta, Slater
2005
Example of Competitive Collaboration: Sematech
The semiconductor manufacturing technology consortium of US semiconductor manufacturers and the US government
http://www.sematech.org/
© Mohr, Sengupta, Slater
2005
Reasons to Partner Access resources and skills Gain cost efficiencies Speed time-to-market Access new markets Define industry standards Develop innovations and new products Develop complementary products Gain market clout
© Mohr, Sengupta, Slater
2005
The Product Life Cycle, Innovation, and the Role of Alliances
EmergenceGrowth Maturity Decline
ProcessInnovation
ProductInnovation
StandardsLicensingTechnology
LicensingR&DMarketing
ManufacturingMarketingProcess R&D
AttackerIncumbent
High
Low
Rate ofMajor
Innovation
Stage of Product Life Cycle
Alliance Types
© Mohr, Sengupta, Slater
2005
Risks in Partnering Outright failure of relationships Loss of autonomy and control Loss of proprietary information to
partner Potential legal issues and antitrust
problems Failure to achieve alliance objectives
Residual allocation when success Responsibility delineation when failure
© Mohr, Sengupta, Slater
2005
Factors Contributing to Partnership Success
Joint (bilateral) interdependence Caution warranted with partners of unequal size
Governance Structure (next slide) Joint Commitment (credible, safeguarding) Trust in the partner’s motives and intents Effective Communication Compatible Corporate Cultures Integrative conflict resolution and negotiation
(vs. “hard,” win/lose bargaining)
© Mohr, Sengupta, Slater
2005
Factors Contributing to Partnership Success (Cont.) Effective structure to govern the
alliance Unilateral: one party has authority to
make decisions Bilateral: governance based on
mutual expectations regarding behaviors and activities
© Mohr, Sengupta, Slater
2005
More on Governance Match type of governance to degree of
risk: High risk (arising from uncertainty or
investments dedicated to the relationship) warrants either:
“Credible commitments” and safeguards that create mutual dependence -or-
Narrow terms and conditions that keep the firms only loosely-coupled
Bilateral governance based on commitment, trust, and communication
Escape clause
© Mohr, Sengupta, Slater
2005
Relationship Marketing
“ The formation of long-term relationships with customers and other business partners, which yield mutually-satisfying, win/win results.”
Why relied upon so heavily? Time to market cycle is short Development costs/risks are high Faster and more cost efficient to pursue
projects jointly than alone Synergy!
© Mohr, Sengupta, Slater
2005
Relationship Marketing
Building strong and lasting relationships is hard work and difficult to sustain. But I believe that in a world where the customer has so many options, even in narrow product-market segments, a personal relationship is the only way to retain customer loyalty.
Regis McKenna
© Mohr, Sengupta, Slater
2005
Customer Relationship Marketing
Forming long-term relationships with customers that provide mutually-beneficial solutions
Cheaper to keep current customers coming back than to prospect for new ones.
May require sacrificing short-term profits for long-term gains.
© Mohr, Sengupta, Slater
2005
Computing Customer Equity Profit stream from customer
<less> acquisition costs
© Mohr, Sengupta, Slater
2005
Computing Customer Equity
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
Year 1 Year 2 Year 3 Year 4 Year 5
Profit from Referrals
Profit from IncreasedPurchases
Base Profit
Acquisition Cost
© Mohr, Sengupta, Slater
2005
Customer Acquisition Strategies
Retention ProfitPotential
Acquisition Investment Recovery Time
High
Low
Short Long
Full Throttle Selective
Pay as You Go Restructure/Divest
© Mohr, Sengupta, Slater
2005
Aspects of Cost to Serve Acquisition Costs
Production Costs
Distribution Costs
Service Costs
Why do some customers cost more to serve than
others?
© Mohr, Sengupta, Slater
2005
Customer Acquisition Rules Acquire any customer as long as the discounted
future value of the customer exceeds the acquisition costs for that customer.
When you broaden the acquisition effort, be prepared for lower response rates.
The greater its profits from retention, the greater a firm's customer acquisition investment should be.
The higher the percentage of the initial acquisition investment that a firm recovers in the first period, the greater its acquisition investment should be.
© Mohr, Sengupta, Slater
2005
Developing and MaintainingRelationships: Acquiring Customers
Segment the market by value perceptions
Target segments that appreciate value Segment attractiveness Competitive position ( & capability assessment)
Generate awareness (promotion & communication)
Pricing Skimming or penetration
Trial Post-purchase service
© Mohr, Sengupta, Slater
2005
Switching Costs
Arising from: investments in equipment, procedures, or people
that make it costly or risky for a customer to switch to another firm’s products.
perceived risk of making a bad choice Other factors related to switching costs:
Platform considerations (inter-operability) Vendor Considerations (the lock-in effect)
© Mohr, Sengupta, Slater
2005
Customer Relationship and Retention Strategies
Is Customer Loyalty Profitable? Claim 1: It costs less to serve loyal
customers.
Claim 2: Loyal customers pay higher prices for the same bundle of benefits.
Claim 3: Loyal customers market the company.
As opinion leaders & benchmarks
© Mohr, Sengupta, Slater
2005
Which Customers Are Really Profitable?
Service provider 20%Grocery retail 15%Mail-order 19%Brokerage 18%
Service provider 29%Grocery retail 34%Mail-order 29%Brokerage 33%
Service provider 30%Grocery retail 36%Mail-order 31%Brokerage 32%
Service provider 21%Grocery retail 15%Mail-order 21%Brokerage 17%
High Profit
Low Profit
Transaction Relationship
© Mohr, Sengupta, Slater
2005
Loyalty Strategies
Butterflies:Good fitHigh profit potentialTransaction satisfactionMilk active accountsCease investing
Strangers:Little fitLowest profit potentialMake no investmentMax transaction profit
True Friends:Good fitBest profit potentialConsistent communicationAttitudinal & behavioral loyaltyDelight customers
Barnacles:Limited fitLow profit potentialMeasure size and share of walletLow share, up- and cross-sellSmall wallet, strict cost control
High Profit
Low Profit
Transaction Relationship
© Mohr, Sengupta, Slater
2005
Relationship Marketers
Perform a long-term business planning function for their customers.
Help customers define their businesses, their markets, and their product-service needs.
Maintain high-level, multi-function access in customer companies.
Sell systems of products and services. Draw on the full complement of company
functions and services for support.
IBM plans businesses for her IT users
MS provides anything for her users
© Mohr, Sengupta, Slater
2005
Appendix: Inter-firm Learning Issue: Must learn to have effective
partnership, but too much information sharing can dilute source of competitive advantage
Types of knowledge: Explicit (migratory) Tacit (embedded)
© Mohr, Sengupta, Slater
2005
Managing the Paradox Want closest partnership possible
to enhance learning Want loosely-coupled partnership
to prevent unintended transfers of information
Use caution!
Cross-licensing agreements