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Alex Bhrer
Philipp Kobus
Hajo Riesenbeck
Hermann Ude
Felix Weber
Business-to-Business Marketing
Business-to-Business
Marketing:
a cornerstone of
profitable growth
Contents
Prologue
13
18
25
27
37
46
57
59
62
Confidentiality
We invariably treat information about our clients as confidential. To
make the case for business-to-business marketing come alive without
compromising this confidentiality, we have only mentioned by name a
number of companies that are acknowledged marketing all-stars or talented specialists in a particular area. Their success stories, drawn from
public sources, are supplemented by further disguised examples from
our consulting work.
Foreword
In most industrial companies, marketing used to be a lower-level management job. Often it was synonymous with supporting the sales force;
sometimes it was associated with creative advertising. Most companies
were centred on engineering and on offering a wide range of standardized and/or technically advanced products.
Those days are ending. More and more managers are realizing
that developing and selling are not enough. Knowing how to position,
value, price, and brand your product or service is now the key factor
for success. Companies that very early on adopted a systematic marketing orientation based on a good understanding of these fundamentals
have gained share and outperformed competitors.
Their success has generated intense interest in business-to-business marketing or B-to-B for short. It is a vast arena. Last year, more
than 20 million businesses around the world sold more than $20 trillion dollars of products and services to other businesses. As one of my
American colleagues put it: It is BHP Steel selling processed metals to
Motorola; Motorola using that metal to make semiconductors, which
are sold to Arrow Electronics. Arrow Electronics reselling those same
semiconductors to IBM. IBM using the semiconductors to build mainframe computers, which in turn are sold to Boeing. Boeing using its
mainframes to build airplanes, which are sold to GE Capital. GE Capital leasing those airplanes to Delta Air Lines, which then uses those
planes to provide special charter flights for Coca-Colas annual meeting of bottlers.
Of course, B-to-B marketing is never this linear. The market is
really a multiplicity of user communities; the customer is a multiplicity of decision-makers. Suppliers who already have strong marketing processes naturally have an advantage.
Prologue
Prologue
Prologue
Prologue
Prologue
136
35
100
5
89
11
113
14
ROS
+11%
ROS
+17%
Sales
Cost
Outset
Restruc- Price
turing
erosion
levers
Volume Growth
loss from levers*
existing
products
Figure 1
Figure 2
100
105
12
28
30
ROS
5%
Sales
Cost
Outset
101
93
ROS
9%
Restruc- Price
turing
erosion
levers
Volume Growth
loss from levers*
existing
products
Prologue
Chapter 3 Capturing the opportunities discusses the organizational aspects of implementing excellent marketing processes. Often
the biggest hurdle is not figuring out the right strategy, but rather
building the few right capabilities and attitudes into the organization that are needed to execute the strategy consistently.
Developing effective business-to-business marketing takes years of
leadership by example and hard work on all fronts. In our experience,
however, quick wins and a huge motivational effect can be achieved in
the short term with coordinated actions to create and focus energy and
promote learning.
6
Prologue
Strategy
Great marketing is built upon a foundation of solid industry understanding coupled with creative insights into customers, competitors,
and the companys core manufacturing/operating skills, including its
dealings with suppliers and distributors. In all types of businesses, a
three-step cycle helps set the stage for success:
u Study
Strategy
Strategy:
Setting the stage
Strategy
Understand
Walking in your customers
market/customer shoes (understanding your
needs
customers customers)
Levers/tools
Systematic market
research (ear to the
ground)
Conjoint analysis
Basing segmentation on
customers key buying factors
and breakpoints
Define value
proposition
Figure 3
Price/value framework
Key account
management
Capture the
Perspective on life-cycle
economic surplus economics
(not: single sale)
Pricing tactics geared to
capturing maximum economic
surplus over lifetime
Product management
Price management
Brand/
communicate the
value
Branding
Source: McKinsey
Sales force
effectiveness
Channel management
Risk management
Strategy
Strategy
10
Strategy
11
Strategy
12
Strategy
following tests: (1) Customers are classified by buying behaviours and needs into distinct groups whose members are similar and (2) the profile of each group suggests a practical course
of action for satisfying its requirements.
u From
13
Strategy
14
Macro-segmentation: identifying
and ranking key buying factors
An excellent understanding of market mechanisms lays the basis for
identifying the key buying factors (KBFs). Price may be a knock-out
factor in most industrial purchasing contexts, but successful marketers
keep in mind that, as shown in Figure 4, non-price factors such as
quality of product, logistics, and on-time delivery often account for 6070% of the customer decision.
Starting from a conventional regional/customer-industry segmentation, a European chemical company that sells petrochemical products successfully redefined its approach to serving its main customers
in terms of the key buying factors quality, speed of service, and
Figure 4
Buying factors
Price/terms of payment
355
Technical service
120
Logistics
120
On-time delivery
Product range
113
89
Technical service
81
Commercial service
75
Waste management
70
Source: McKinsey
Non-price factors
Strategy
15
Strategy
16
Value to
customer
Breakpoints
Performance
of supplier
Figure 5
Source: McKinsey
Strategy
17
Attractiveness
portfolio
High
Content, less
attractive existing customers
Attainable, but
unattractive
customers
Attractiveness of supplier
to customer
Value delivery
Price/benefit positioning
Available alternatives
Malcontent
unattractive
customers
At-risk, attractive
existing
customers
Undesirable
non-customers
Desired noncustomers
Low
Low
High
Figure 6
trial companys revenue comes from customers who are too expensive
to serve, as measured by pocket contribution margins. These customers
rarely provide enough other intangible value in the form of new ideas
or new customer referrals to compensate for the low or negative margins they generate.
Dropping unprofitable customers is the easy-to-understand extreme.
In competitive markets and when moving into new arenas, the dual
perspective helps companies plan ways to achieve higher volumes and
margins with their target customers by:
u Raising
ers through key account management, customer loyalty management, and pricing.
Strategy
18
u Enhancing
Bill Cosby
Strategy
19
those with a flat profile provided the spike is relevant to the customer segment. To illustrate this: a sports car with very high performance has a more distinctive and credible appeal for sporting drivers if the value proposition admits to the cars weaknesses in terms
of comfort, space, and ease of use. Figure 7 sets out the essential elements of a well-thought-through value proposition.
Figure 7
Source: McKinsey
Strategy
20
Figure 8
Value map
Value
equivalence line
Perceived
price
Value disadvantage
Share
loser
Share
gainer
Strategy
21
Perceived
price
Leader upgrades
product but does
not raise price
to match ...
resulting in a
downward shift in
price across markets
Perceived benefits
Source: McKinsey
Figure 9
Perceived benefits
Strategy
22
Strategy
ket as a whole not just one corner of it thoroughly impressed the customer and led to a new level of trust in their
professional relationship, raising barriers to entry for the suppliers competitors.
u Third,
plier gained an excellent source for replenishing the idea pipeline for more business.
23
Strategy
24
Once the stage is set with a good marketing strategy and product definition, how do you uncover specific opportunities to grow profitably?
How do you decide which marketing levers are key profit drivers for
your business? What is the best way to apply them for the highest
economic payoff?
In answering these questions, it helps to consider the type of business you are in. In our work, we have found that if you analyze industrial businesses in two dimensions the degree of product standardization and the average order size three types of businesses emerge:
standardized products, systems, and project-based businesses.
In Figure 10, the three types of industrial businesses are arrayed
along a continuum with consumer goods. While this perspective overlooks many details and differences, it also raises some useful questions.
For example: in what ways could you standardize your products or
parts of the business system to build an advantage in cost-efficiency or
consistency of execution? How could you increase your average order
size, or how vulnerable are your orders to being shrunk or un-bundled by customers or competitors?
This way of thinking cuts through the clutter to the most powerful
marketing tools for your business. For each type of business, we have
given the toolkit a thematic label to describe the richest source of ideas
for competitive differentiation.
Operations
Operations
25
Operations
26
High
Type of business
Standardized product
businesses
Selling largely
standardized
products to
Selling complex largely unknown
products to more customers
customers
System
businesses
Project-based
businesses
Consumer
goods
businesses
Selling fully
standardized
products to the
mass market
Selling tailored
projects to a few wellknown customers
Low
Figure 10
Large
Medium
Average size of transaction
Small
Source: McKinsey
Operations
27
Operations
28
u They
range decision processes around this competence often a product management function.
Operations
29
and as a swayer in the case of the Pentium. This brand was introduced
by Intel because Cyrix and AMD could not be forced to stop cloning
the 386 and 486 chips (a court ruling prevented Intel from trademarking
those numbers). Successful exploitation of the Pentium chips introduction has greatly strengthened Intels position in the market.
We have recently done some 13 studies on the impact of a brand
name on customers decisions in business-to-business marketing acrossa
range of industries. The results are summarized in Figure 11, which
18
Other factors
Product
Service
Price
Channel
Other
82
Factors influencing
customer decision
Source: McKinsey
makes it clear that the brand name itself plays an important role in
the customers decision.
Figure 12, based on research with various clients, shows the relative importance of a strong brand identity in different markets.
In many cases, Original Equipment Manufacturers (OEMs) can
also benefit from branding standard products to create a pull effect to
support existing push concepts. Take a product as mundane as water
taps. Fifteen years ago, it was the plumbers or contractors who selected
Figure 11
Operations
30
Brand importance
Electrical utilities
26
Electronics computer
26
21
Airline
21
Telecom mobile
16
HMO
14
Electronics computer
12
Electronics computer
12
Telecom mobile
Source: McKinsey
The Intel and Grohe success stories are still fairly unusual, illustrating the fact that, in industry, branding initiatives have mostly been
undertaken as a defensive reaction to competitive pressure. Thus, a lot
of potential is still untapped. In a market research study some years
ago, people entering a car repair shop were asked which company they
thought was the best maker of brake linings. More than 50% said Bosch,
the brand name of Germanys largest auto parts supplier. They also
said that they were willing to pay a premium for Bosch quality. The
only problem was that Bosch neither made nor sold brake linings. Could
it be that your own brand is underutilized as well?
Operations
network.
Focusing on these activities when designing their channel configurations has made successful companies more effective in achieving superior growth performance.
31
Operations
32
Operations
33
4
16
6
13
1
8
Number 4
28
24
Number 3
16
Number 2
21
Number 1
Spending on
distributor support
Percent of turnover
48
Less successful
company
Successful
company
1.1%
2.6%
Source: McKinsey
Figure 13
Operations
34
Operations
35
Other activities
50
Discussion of
product/market
strategy
29
33
10
x5
42
15
Troubleshooting
3
Less successful Successful
company
company
Source: McKinsey
Figure 14
Operations
36
Operations
but how. Without product management, there was simply no one there
to look at the links between plant logistics and customer value.
Some industrial companies are already meeting the two main challenges of successful mass-marketing: gathering and translating anonymous customer data into a vision of customer value and pushing this
vision consistently through the entire organization from channel managers to R&D and production operations. These are the companies that
are attracting and retaining talented people people who can interpret
market data in value-creating ways, have a feeling for business, and can
provide inspiring leadership.
37
Operations
38
Operations
39
Operations
40
Second-hand business
Market maturity
New sales
New
sales
Mature markets
Emerging markets
Second-hand sales
Figure 15
Phase 1
Sale of second-hand Customer acquisition
equipment to
and establishment of
emerging markets
relationships in emerging
New sales in mature markets
markets
Support for market
development
Source: McKinsey
Time
Phase 2
New sales in emerging
markets
New markets for new sales
Good competitive position
on account of existing
customer relationship
Operations
41
Operations
42
Operations
43
180
650
Spare parts
170
Service contracts
210
Total profit
850
Source: McKinsey
Figure 16
Operations
44
High price/margin
23
34
34
12
23
34
12
12
23
Low price/margin
Low
Medium
High
Consequences of failure at customer
Figure 17
Source: McKinsey
Operations
45
Operations
46
Figure 18
100
Competitive discount
Invoice price
92
Production-driven changes
Customer-driven changes
Forex losses
Pocket price
8
69
31%
Source: McKinsey
Project-based businesses:
providing economic value to the customer
Since 1993, Ericsson Australia, a local subsidiary of the leading Swedish telecommunications equipment supplier, has transformed itself into
a world-class benchmark for customer partnerships based on providing
real economic value to the customer. This change has meant a shift in
focus and accountabilities from products and tasks to customers and
end users in other words, to creating value that adds to customer
success. The old functional silos have been replaced with teams defined by business and customer value, and people policies are marked
by a high level of trust and empowerment.
Operations
47
Operations
48
Operations
49
Operations
50
2
10
3
8
7
5
Low
Projects economic
value to the
customer
End-user
requirements
Customer
requirements
Customer
business case
High
6
Low
4
9
Win-win
opportunities
subject to further
action planning:
No.
2
3
8
10
Project title
1.2 GW coal
800 MW coal
400 MW coal
600 MW gas
High
Figure 19
Source: McKinsey
tailed review in the third and final phase of the business development
process. Disputes are resolved, remaining questions answered, detailed
business cases calculated, and feasibility studies completed. In most
instances, action planning for the top-ranked ideas also begins in this
phase. Turning a new idea into reality may involve changes in product
line planning, a memorandum of understanding on a joint project with
a lead customer, or on the customer side initial marketing activities
to inform and attract end users. The result is a solid business concept
and clear next steps.
Only a few companies today have really institutionalized a flexible
business development process. Those that have are building a sustainable competitive advantage that will keep them growing profitably in
dynamic industry environments.
Operations
telecommunications industry: two years ago, a software house developed a system that dramatically increased the transmission rate in data
networks. Despite the products undisputed technological superiority,
the market did not respond initially. It was only after the software
vendor created a new customer workshop format, and marketing materials that explicitly pointed out the economic value to the customer
that the new system finally took off.
This workshop approach helps suppliers to communicate the advantages of their product to the customer effectively. As shown in Figure 20, three major topics are on the agenda: describing customer
value, calculating customer value and capturing customer value. To set
the stage, the supplier describes the customer value by showing the
benefits of key product features to the customer and end user. At the
heart of the workshop is an interactive business model, programmed
to allow key parameters to be modified on-line for on-the-spot calculation of a projects cash flow under different customer-specific assumptions. To round off, actions for capturing the value by ensuring smooth
product integration and effective marketing to end users are recommended. By putting the accent on the mutual benefits of the solution
and thus opening up opportunities for a win-win outcome, the workshop offers a way to get beyond pure price discussions and promotes
trust-based relationships with customer decision makers.
Let us take a closer look at the workshop agenda. Describing customer value follows the pattern of traditional product descriptions,
though putting them into the context of a conclusive discussion of
customer and end user benefits. The purpose of this is to show that the
suppliers products can help the customer to satisfy the needs of his
customers. To do this, we start with end user scenarios. In the telecommunications example mentioned above, these might be the growing
demand of small and medium-sized companies for larger bandwidths,
51
Operations
52
the integration of voice and data services or more flexible tariff structures. Having thoroughly understood customer and end user requirements, the supplier can now talk technology: key product features, constraints on existing infrastructure at customer or end user premises,
evolution strategies, and so forth.
Calculating customer value requires a deep understanding of your
customers business logic, in order to get through to the real source of
Figure 20
Calculating
customer
value
Operations
53
Figure 16
Describing customer
Calculating
customer
value
Source: McKinsey
Operations
54
Organization
Organization
Organization:
Capturing the
opportunities
55
Organization
56
municating an ambitious market-driven performance improvement target, preparing a roadmap for reaching the target, and
forming a dedicated project team with full leadership backing
u Implementing
Build a platform
Activities
Set stretched targets
Communicate your
aspiration
Choose and introduce
23 clear signals for
change
Design program and
team
Typical timing
13 months
612 months
23 years
Designing and executing a program to enhance marketing performance is a major effort. The program must integrate activities concerned with achieving the companys business objectives, with bringing
Organization
about the required cultural change, and with raising skill levels in
the organization. A consultant can accelerate the process from the
start by contributing broad industry expertise and the necessary
analytical methods, for example, with an initial outside-in analysis
of the companys position in the marketplace. These can be
complemented by proven approaches for communicating the need for
action, followed up by assistance in defining, prioritizing, and
implementing the handful of key projects that will deliver short and
long-term operational improvements.
57
Organization
58
Organization
Executing a well-orchestrated
set of initiatives
Business-to-business marketing is a way of thinking, not a function. A
marketing department with a strong customer orientation can be a good
start, but it is not enough to win the customer. The value delivered by
R&D and Production must fulfil the promises made by Marketing and
Sales. The question is, what practical steps can be taken to motivate
everyone across the organization to share the values and behaviour of
a successful marketer?
No matter how urgently performance improvement is required, it
is usually a mistake to start immediately with a broad range of parallel
initiatives, for example, a sales performance improvement program
across the entire company, global reorganization of the sales force, or
a multi-year program to build a new marketing MIS (management information system). This approach consumes energy rather than liberating and channelling it.
We recommend focusing first on early wins and a few, very carefully selected pilot initiatives. For example, a project to determine account-specific profitability in the equipment business can be an important source of early wins. The results give the sales organization useful
information for capturing better returns immediately by focusing on
the most profitable customers. Each success creates an opportunity to
communicate the value and importance of focusing on customer needs
and profit potential, thereby maintaining the credibility of the program and boosting momentum.
59
Organization
60
Organization
best tools are only as good as the people who use them. For example, a
textile machinery supplier equipped its sales force with a computer model
for making pricing decisions. Unfortunately, most of the sales people
were afraid to use the computer. They finally pushed their objections
through and the system was ultimately scrapped much to the satisfaction of the suppliers more sophisticated competitor.
Learning labs. Targets and actions must be hammered out and
implemented in a manner that fosters learning, leading to continuous
and lasting improvement. The key to promoting learning is to marry
the set of basic problem-solving skills with the process of cultural change.
Analytical problem-solving is always necessary, but never enough on its
own. Companies that successfully achieve both one-time and continuous improvements address the issues of building skills and developing
change agents at an early stage when they define the project team for
each initiative. They also actively seek to teach as many people as possible the problem-solving approaches, so as to develop expertise and
make sure that the methods will be applied throughout the organization. As a reinforcing mechanism, one approach used by Cummins in
its marketing skill-building program is marketing accreditation for
individuals, based on an individualized skills matrix and including elements of peer pressure.
Depending on the type and the complexity of the initiatives, this
phase takes six to twelve months. The end product of each initiative
must be a clear-cut action plan with measurable expected improvements and responsibilities for implementation, broken down and tailored to different organizational levels, for example, corporate architect projects for top management, market and relationship development initiatives for middle management, and customer satisfaction and
productivity improvement projects for the front line.
61
Organization
62
Organization
tomer knowledge?
u Application
63
Organization
64
Organization
65
Executing a program of this kind is a major undertaking. It requires vision, courage, skills, time, persistence and a good deal of intuition. However, if the program is well executed, the potential is ex-
Source: McKinsey
Figure 23