marketing of high-technology products and innovations chapter 3: relationship marketing:...

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


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Types of Partnerships

Complementors

Suppliers

Focal Firm

Distribution

Customers

Competitors


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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”


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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


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Example of Competitive Collaboration: Sematech

The semiconductor manufacturing technology consortium of US semiconductor manufacturers and the US government

http://www.sematech.org/


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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


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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


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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


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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)


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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


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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


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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!


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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


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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.


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Computing Customer Equity Profit stream from customer

<less> acquisition costs


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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


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Customer Acquisition Strategies

Retention ProfitPotential

Acquisition Investment Recovery Time

High

Low

Short Long

Full Throttle Selective

Pay as You Go Restructure/Divest


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Aspects of Cost to Serve Acquisition Costs

Production Costs

Distribution Costs

Service Costs

Why do some customers cost more to serve than

others?


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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.


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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


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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)


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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


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Which Customers Are Really Profitable?

Service provider 20%Grocery retail 15%Mail-order 19%Brokerage 18%




High Profit

Low Profit

Transaction Relationship


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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


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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


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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)


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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

marketing of high-technology products and innovations chapter 3: relationship marketing:...

Documents

failure slide

bargaining slide

joint production slide

market clout slide

marketing of high

vertical partnerships

technology products

new products