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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
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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
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Costs
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Awareness
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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