Value Selling – Delivering Value

Lecture 4
Business Market Management Overview
Crafting Managing New Business
Gaining
Market Market Offering Channel
Customers
Strategy Offerings Realization Management

Sustain
Firms as Understanding Reseller
Creating Value Delivering Value
Customers Value Relationships

Guiding Principles
Market Sustaining
Sensing Customer
Regard Value as the Cornerstone Relationships

Focus on Business Market Processes

Stress Doing Business Across Borders

Accentuate Working Relationships and Business Networks

What is Price?
Some Generic Concepts
• Strategic element of marketing mix
• Indication of value or worth of something
• Without it, transactions could not take place
• Price paid/value exchanged at purchase and includes
• Location Convenience
• Handling and storage cost for customer
• Inventory financing & holding costs
• Environmental impact and disposal costs
• For capital equipment – financing, installation, maintenance, facilities, training costs
• Image, goodwill and reputation costs
• Contribution Margin - Difference between ongoing attributable costs and ongoing attributable revenue
• Represents portion of revenue that contributes to:
• Fixed Costs
• Indirect Costs
• Profit
“Pricing is often determined by intuition, opinions, rule of thumb, outright dogma, top management higher wisdom or internal
power fights”
Strategic & Tactical Pricing
Strategic Purpose of Pricing
• Achieving target level of profitability
• Building good-will or relationships (in a market with certain customers)
• Penetration of a new market or segment
• Maximizing profit for a new product
• Keeping competitors out of an existing customer base
Tactical Purpose of Pricing
• Winning business of new, important customers
• Penetrating a new account
• Reducing inventory levels
• Keeping business of disgruntled customers
• Encourage customer trials
• Encourage purchase of complementary products
Pricing Considerations Through:
Product Life Cycle and Technology Adoption Life Cycle
• Pricing is situational
• Customer perceptions of value change
• Different market segments attracted at different stages in life cycle
• Competitive environment changes
• Role of offering in both marketer’s and customer’s organization will change
Tactical Pricing Strategy
• Bundling
• Discounts and Allowances
• Competitive Bidding
• Initiating Price Changes
Market Conditions Necessary for Success
Skimming Strategy
Charging relatively high prices that take advantage of early adopters’ strong desire for the product.
• Perception must reflect high price
• Market is inelastic
• Sustainable market advantage
• Competitive market entry blocked
• Production levels profitable at lower volumes
Penetration Strategy
Charging relatively low prices to entice as many buyers as possible into the early market.
• Market somewhat elastic
• Low price acts as barrier
• Economies of scale are necessary

6
Pricing Issues in IT Industry
• Cost Plus Pricing
o Needs good understanding of costs
o Transparency
• Competition Based Pricing
o Very common but situational
o Competition Profile
• Transfer Price
o Transparency
o Tax implications
o Currency Risks
• Maximum List Price
o Discount
o Rebates
o Authorization Limits
• Other Considerations
o Who has the authority to make final
decisions?
o What are the bargaining styles of
participants in bargain decision?
o Is bargain perceived as transaction,
relationship or both?
o What evaluated price range is the
customer expecting?
o Concept of Budgetary Price
• Emerging External Factors
o Time Compression
o Hyper-competition
o Internet
7
New Offering Realization
New Offering Realization is the process of developing new core products or services, augmenting them to
construct market offerings and bringing them to market. It transforms an idea into a market offering that is then
commercialized.
• A New Offering can create value through
• Lowers customers’ total costs
• Provides superior performance in customer application Increase
Reduce Costs
• Meets customers’ changing requirements or needs Revenue
• Lowers supplier’s own cost
• It is about a consistent, repeatable process Improve Improve
• Realization Strategy Customer Compliance
• Realization Process Experience
• Making Realizations more market oriented
• New offering realization often fails due to unanticipated shifts in technology or market behavior, mistaken
expectations of other functions, unexpected technical problems, problem solving delays and unresolved
policy issues or changes in government/regulatory environment
New Offering Realization
Success Criteria (Lynn and Reilly)
• Senior Management Commitment
• Clear vision of immutable goals for the product that teams must deliver
• Flexible approach to trying new ideas, sometimes in parallel
• Diversified and informal communications flow
• Focus on goals prioritized over getting along well
Development Strategy Framework – Wheelwright & Clark

Technology Strategy

Technology
Assessment &
Forecasting
Development Aggregate Project Project Post Project
Goals & Objectives Plan Management & Learning &
Execution Improvement

Market Sensing

Market Strategy
Development Goals & Objectives
Overall Development Goals that need to be balanced
• Learning – gains in design and process knowhow capabilities. Needs to institutionalize learning post project
• Efficiency – getting the most out of available resources – reusing, multiplexing
• Speed to Market – time to complete development cycle. Big focus but be aware of critical bottlenecks
Project Objectives involves trade-off amongst the following four by comparing cumulative profit over the life of the
product
1. Time-to-market – from conception to product delivery to customer
2. Product Cost – all costs including sales, marketing and support services
3. Product Performance – how well the product meets requirements and preferences of target customer
4. Development Program Expense – all the one-time development expenses
• Newness map (newness of developed product vs newness to the market). Cannibalization. Line Extensions.
• Aggregate Project Plan – for multiple projects – a systematic way for firms to realize performance greater than the
sum of projects – selection, sequencing and management
• Mapping varying kinds of development projects, capacity decisions, making provisions for gaining critical skills and
capabilities
 Mapping Different kinds of Development Projects
Research &
Advanced
Development More Less
Projects Product Change

New Core Next Generation Addition to Derivatives &

Product Product Product Family Enhancements
More

New Core Breakthrough

Process Projects
Process Change

Next Platform Projects

Generation (usual starting point of
Process flexible market offerings)

Single Derivative
Department Projects
Upgrade
Less

Incremental
Change

Alliances &
Partnership
Projects
Mapping Different kinds of Development Projects
Derivative Projects
• are initiatives that realize small advances in the firm’s current market offering or production process (example
– product line extension or cost reductions in existing products)
• Typically, these are short duration and relatively less management involvement and other resources
Platform Projects
• Are in the middle of development spectrum
• But do not introduce radically new technology or new processes
• Natural staring point for the core product part of flexible market offering (example ABB Power Plant)
Breakthrough Projects
• Involve new technology or new process
• Typically considered big bets.
• Full top management commitment & high resource intensity (example Tata ACE)
Platform Project example
Standardization of Combined Cycle Power Plant at ABB
Gas Turbine
Standardization starts
from Inside to Outside
Electrical, I&C,
Generator, Condenser,
Machine House

Preheating, Cooling
Tower, Fuel Transfer,
Water Treatment

Site, Civil, Building

Facilities, Water Supply.
Fuel Storage, HW
Switchgear

Customization starts
from Outside to Inside
Business Channel Management

• Marketing Channel can be an important source of competitive differentiation

• Channels can augment market offerings through creation of highly valued total customer experience (TCE)
• Business Marketers draw upon emerging information, logistics & supply management technologies to create
novel value-adding networks – multiple channels, modular channels, hybrid channels & integrated multi-
channels
• Channel networks can combine elements of supplier firm’s direct sales force, traditional reseller firms,
pioneering on-line formats and third-party service providers
• Marketing Channel is a set of interdependent organizations involved in the process of making a product or
service available for use or consumption
• Business Channel Management is the process of designing a set of marketing and distribution arrangements
that create superior customer value for targeted market segments and customers and executing these
arrangements through supplier firm direct sales force and logistics systems or indirectly through resellers and
third-party service providers.
Business Channel Management
Creating Value through Direct Channel
Create Value Deploy Value Create Value for targeted
Merchants Merchants Market Segments &
Customers
Design Logistics Systems

Create Value for targeted

Designing Superior Value
Hybrid Market Segments &
Adding Marketing Channel Customers
Channels Arrangements

Strengthening Reseller Performance Create Value for targeted

Market Segments &
Build Craft Reseller Customers
Construct
Marketplace Value
Channel Offering
Equity Proposition
Designing Superior Value Adding Marketing Channels
• Total Customer Experience – includes all aspects of customer firm’s encounter with supplier firm
• TCE should be positive, seamless and memorable
• Immediacy of fulfillment – breadth & depth of products & services, availability, timing and reliability of delivery,
installation and payment terms
• Value Added Services – Pre-Sales, Point of Sales and Post-Sales Services
• Four TCE Based positions
• Efficient, Low-Cost Transactional Experience – catalog sales & increasingly on-line portals
• High Touch, Consultative Experience – expensive and complex
• Flexible, Multi-point Experience – combination of channels – on-line, tele-sales & consultative selling
• One-Stop Shopping Experience – wide variety from single source. B2B portals
• Marketing Channel Designing is a strategic Exercise. The six steps are
• Specify marketing channels goals & objectives
• Assess the customer value of potential TCE elements
• Envision value proposition for each targeted market segment
• Reformulate the intended TCE for each targeted market segment
• Configure the channel network
• Finalize marketing and distribution arrangement
Designing Marketing Channel
1. Specify marketing channels goals & objectives – Market Access (reach), Value Added & Cost-to-serve
2. Assess the customer value of potential TCE elements – what do customers value and how much are
they ready to pay?
3. Envision value proposition for each targeted market segment – make it distinctive
4. Reformulate the intended TCE for each targeted market segment – add, delete, modify product &
service offerings
5. Configure the channel network
• Exposure – degree to which targeted customers are actually reached – single channel or multi-
channel
• Coverage – number of resellers authorized to serve a particular geography – exclusive, intensive,
selective
• Postponement – product design, customization and value-added service augmentation in geographic
proximity (manufacturing & logistics)
• Speculation – standard products and rely on direct sales and extensive distribution
• Functional Acquisition
• Functional Spin-off – shifting and sharing
6. Finalize marketing and distribution arrangement – Profit Model, Channel Selection Criteria,
Partnership Agreements & Contracts. Credit Terms
Example of Channel Exposure & Coverage Model

Offering
Small orders of Standard Medium sized orders of Large orders of Customized
Segment Items Specialty Items Solutions

Electronic Component 3 x Electronic Component

No coverage
Manufacturers Distributor

Direct Sales
Scientific Testing 8 x Scientific Equipment • 20 x Field Sales
Equipment Manufacturers Indirect Sales Distributor • 10 x Service Reps

Direct Marketing
Process Control 10 x Machine Tool
Manufacturers • Supplier Website Distributor
• Inside Sales Reps
Strengthening Reseller Performance
• Critical to support resellers to deliver superior value
• Channel positioning is the process of establishing & sustaining the
supplier’s reputation among targeted resellers for providing superior Supplier Channel
value
Equity
• Channel positioning involves 4 steps
1. Determine Reseller Performance expectations
2. Assess reseller value of channel offering elements Brand Reseller
3. Craft a reseller value proposition Equity
4. Communicate the reseller value proposition
• Channel Offering is distinctive bundle of core products, capability
building programs and incentives Marketplace
• Build Marketplace Equity Equity Reseller
Equity
• Cultivate Brand & Reseller Equity
• Determine Reseller Performance Expectation - Market Access, Value
Added Services, Cost-to-serve, intended TCE & management
professionalism
Targeted
• Resellers provide personnel, facilities, technical & marketing expertise Customer
and professional management
Segment
Reseller Value of Channel Offering Elements
Channel Core Elements
• Financial Returns Channel Core
• Quality Products Elements
• Competitive Products
• Reliable Delivery
• Brand Equity Capability Building
• Discounts & Rebates Programs
• Payment Terms
• Credit Limits
• Capability-building programs
• Trainings & Certification Incentive Programs
• Accreditations
• Promotional Support
• Market Research
• Incentive Programs
• Revenue/Margin based
• Front End & Back End
• Special Promos
• KRA based
Business Market Management Overview
Crafting Managing New Business
Gaining
Market Market Offering Channel
Customers
Strategy Offerings Realization Management

Sustain
Firms as Understanding Reseller
Creating Value Delivering Value
Customers Value Relationships

Guiding Principles
Market Sustaining
Sensing Customer
Regard Value as the Cornerstone Relationships

Focus on Business Market Processes

Stress Doing Business Across Borders

Accentuate Working Relationships and Business Networks

Thank You