11 Business-to-Business Marketing B2B Branding Haas School of Business UC Berkeley Fall 2008 Week 8 Zsolt Katona

Today Case Discussion: Barco Case Discussion: Intel Inside A few thoughts on B2B Branding How to measure brand equity? Conjoint analysis

Most valuable global brands BrandValue (million $)Change 1.Coca-Cola66,6672% 2. (3.)IBM59,0313% 3. (2.)Microsoft59,0071% 4.GE53,0863% 5.Nokia35,9427% 6.Toyota34,0506% 7.Intel31,2611% 8.McDonald’s31,0496% 9.Disney29,2510% 10. (20.)Google25,59043%

What is the value of a brand? Marketing Budget Sales 0

Is brand equity important in B2B? BrandValue (million $)Change 1.Coca-Cola66,6672% 2. (3.)IBM59,0313% 3. (2.)Microsoft59,0071% 4.GE53,0863% 5.Nokia35,9427% 6.Toyota34,0506% 7.Intel31,2611% 8.McDonald’s31,0496% 9.Disney29,2510% 10. (20.)Google25,59043%

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Some argue that B2B buyers are rational and not influenced by brands B2B purchases are about the relationship, only sales reps matter Price is the only thing that matters B2B products are too complex B2B companies sell to few customers

But Buyers are people with emotions People do not even know that their emotions are affecting their decisions They may face an overwhelming choice Purchasing department may not be as technically sophisticated as engineers (high-tech) Relationship benefits are hard to objectively measure Signaling quality

Brand value comes from Greater willingness to try Greater likelihood that the product is purchased Willingness to pay a price premium Less sensitive to price increases Less inducement to try a competitive offer

Differences between B2C and B2B Customer risk is a bigger factor (“You never get fired for buying IBM”) Buyer is usually not a single decision maker Brand loyalty is usually higher in B2B, but Building brand equity takes more time Special case: hybrid brands (microsoft, GE)

Small brands Acme Brick – brick manufacturer $1.5 million marketing – mostly image building Partnerships with sports celebrities, PR, charity events 100-year product guarantee (ind. stand.: 3 to 5) 84% brand preference Estimate: brand is worth 10% price premium Sales: $200 million, brand is worth $20 million annually

Leading global brands The CEO is a brand cheerleader Understanding how a strong brand reduces commercial risk (customers’ customers) Efforts are focused on a global corporate brand, not individual products Coordination of company appearance Rigorously measure the payback on marketing expenditures

How to measure brand value? Conjoint Analysis Goal: To estimate consumers’ preference structure (valuation of attributes) by forcing them to trade-off product attributes. Major uses: Measure brand value, New product design, Design modification, Pricing, Price discrimination, Benefit segmentation.

Examples of Conjoint use CONSUMER NONDURABLES Bar soaps Hair shampoos Carpet cleaners Synthetic-fiber garments Gasoline pricing Panty hose Lawn chemicals FINANCIAL SERVICES Branch bank services Auto insurance policies Health insurance policies Credit card features Consumer discount cards Auto retailing facilities High-tech maintenance service INDUSTRIAL GOODS Copying machines Printing equipment Facsimile transmission Data transmission Portable computer terminals Personal computer design OTHER PRODUCTS Automobile styling Automobile & truck tires Car batteries Ethical drugs Toaster/ovens Cameras Apartment design OTHER SERVICES Car rental agencies Telephone services & printing Employment agencies Information-retrieval services Medical laboratories Hotel design TRANSPORTATION Domestic airlines Transcontinental airlines Passenger train operations Freight train operations International Air Transportation Association Electric car design

Main Conjoint steps Define Product Concept Define relevant attributes (focus groups, interviews) Define levels for each attribute based on input from –R&D –Saturation effects (focus groups) Collect data –Full profile procedure –Trade-off matrix Interpret data –Attribute level valuations –Attribute importance –Simulate scenarios –Price, market share

Conjoint exercise: Choosing a laptop computer for personal use Assume alternative laptops only differ in three characteristics (each having two possible levels): 1. Brand (Lenovo or Dell) 2. Weight (3lb or 5lb) 3. Price ($1000 or $2000)

Task 1. Rank order the following combinations (1= most preferred, 8= least preferred) Once finished, assign a rating to the alternatives. (100 is highest, 0 is lowest) RANK RATING Product _____ _____Lenovo,5lb, $1000 _____ _____ Dell,3lb, $1000 _____ _____ Dell,5lb, $2000 _____ _____ Lenovo,3lb, $2000 _____ _____ Lenovo,3lb, $1000 _____ _____ Dell, 5lb, $1000 _____ _____ Dell, 3lb, $2000 _____ _____ Lenovo, 5lb, $2000 Pick one level of one attribute. What is the average rating for it? Do the same for all 6 attribute levels. Average rating: Lenovo _______ Dell _______ 3 lb_______ 5 lb_______ $1000_______ $2000_______ How much is 1 unit of rating worth?

Task 2. Assume “customer utility” is linear and additive. What is the customer utility of a Dell PC weighing 4 lbs for $1500? V(Dell) = V(4 lb) = V($1500) = V(Dell, 4, 1500) = V(Dell) + V(4lb) +V($1500) = Assume market share is proportional to “value”. What is this PC’s market share if it competes with a Lenovo, 3 lb, $2000 machine and a Dell, 5lb, $1000 machine? V(Dell,4, 1500) = V(Dell, 5, 1000) = V(Lenovo, 3, 2000) = Total: MS(Dell, 4, 1500) =

Task 3. Calculate attribute importance by taking the maximum difference in average attribute ratings dividing it by the sum of all the differences in attribute scores. V max (brand)= V max (weight)= V max (price) = Importance of brand:______ Importance of weight:______ Importance of price:______

An example with cars

21 Example: Cars Relative importance of features in car choice (%) Brand Engine Personal possession Comfy transporter Gadget Discreet label Good value Price Warranty Exterior spec Interior spec Financial transaction Jewellery Performance emblem

Conjoint summary thoughts Always use a professional market research firm. A key issue is finding the relevant attributes Consumers need to be familiar with the category (e.g. Electric car) There can only be a few attributes and levels Can include abstract attributes (e.g. brand) Does additive utility model make sense? What about interaction between attributes?

Branding Lessons Branding is a basic way to protect one ’ s market from commoditization In business markets, beyond product benefits, the brand also summarizes –Process benefits (e.g. MIS systems, delivery) –Relationships benefits (partnership, responsiveness … ) Branding works because “ perceptions matter ” Branding has a strategic role in terms of –Resource allocation (R&D vs. marketing) –Going to market strategy (push or pull) –Competitive strategy (positioning)