1 Business-to-Business Marketing R&D Strategies in Industrial Markets Haas School of Business UC Berkeley Fall 2008 Week 5 Zsolt Katona

2 Where we stand Week 3 –Pricing in Industrial Markets Week 4 –Diving into Industrat Week 5 –R&D Strategies in Industrial markets: Sealed Air –Industrat Decision 4 Week 6 –Sales Force Design and Management

R&D Overview 1.What is research and what is development? 2.Market driven vs. market driving strategies 3.Specifics in B2B markets: work together with your customer, co- development

Research versus Development Capability Technology Takes longer Higher Risk on Investment Microprocessor Nanotechnology Product Specifications Relatively fast Low risk if the firm knows what it wants PC Specialty chemicals

Market-driving and market-driven strategies What is the goal of R&D? Create new demand (market driving) More common in research intensive markets Needs more time to succeed Serve existing demand (market-driven) Focus on new product development using existing technologies Can be profitable in the short term Sealed Air

How to Find New Opportunities in a B2B Context How do our potential customers make profits? -Analyze their revenue drivers -Analyze their cost drivers Key: Understand who their customers are Understand how they serve their customers You Your Customer Your Customer’s Customers

What can we give/develop for them that would: Allow them to better serve their customers? (give their customers a greater value proposition, greater satisfaction) Allow them to gain competitive advantage? (time to market, better reliability over rivals, give their customers unique capabilities) Understand who their customers are and what value propositions they are looking for Revenue Drivers

What can we give/develop for them that would: Reduce need for costly labor Deploy physical resources more efficiently? (less real estate, less IT overhead) Understand the customer’s business and production process and how they serve their customers Cost Drivers

Co-development of products in industrial markets Product development may be inter- twined with the customer ’ s adoption process. Product development and adoption sub-processes: –Problem recognition –Need analysis –Product concept –Technology choice –Financial analysis –Product design –Production sourcing –Unit commitment –Use implementation Seller and buyer may cooperate at different levels for each step.

Problem recognition Need analysis Product concept Tech. choice Financial analysis Product Design Production Sourcing Unit Commitment Implemen- tation Problem recognition Need analysis Product concept Technology choice Financial analysis Product Design Production Sourcing Unit commitment Implementation development adoption Traditional Transaction and Customization

Problem recognition Need analysis Product concept Tech. choice Financial analysis Product Design Production Sourcing Unit Commitment Implemen- tation Problem recognition Need analysis Product concept Technology choice Financial analysis Product Design Production Sourcing Unit commitment Implementation development adoption Traditional Transaction and Co-development

Co-development and Buyer-Seller Relationship Transaction (Supplier-Customer) Custom (Merger) Co-development (Joint venture)

R&D Summary Research and Development are not the same Strategic decision: market driving R&D or marketing driven R&D Working with your customer throughout the development process

14 Industrat Stock Prices

15 Prediction Market