11 Business-to-Business Marketing Differentation Strategies Haas School of Business UC Berkeley Fall 2008 Week 7 Zsolt Katona

Today Case Discussion: Barco Differentiation in practice: Perceptual Maps Industrat: What happened so far? Industrat Decision 6

3 Competitive continuum 1 firm Monopoly Oligopoly “few” firms many firms “Perfect” competition

4 Competitive “continuum” Oligopoly Monopoly ~ Perfect comp. Scope for strategy

5 Basic way to avoid competition: Differentiation Vertical differentiation: Horizontal differentiation: Att 2 Att 1 Segment 1 Segment 2 Att 2 Att 1 Segment 1 Segment 2

Competitor Analysis Goal: To understand competitors strength and weaknesses and to discover untapped opportunities. Method: - Perceptual mapping. (i) Along what relevant dimensions is competition taking place? (ii) How are competitors positioned along those dimensions?

Perceptual Mapping Used mainly for: –Segmentation and Positioning –Designing differentiation strategy –Identify new product opportunities –Avoid cannibalization Output: –Identifies perceptual dimensions along which consumers evaluate products in the category –Identifies the location of brands along these dimensions –Identifies consumers ’ “ ideal points ” (= segments). Limitations: –Static (descriptive) –Interpretation may be subjective –Aggregation

Two approaches Compositional (uses product attributes) –obtain “ important ” product attributes (focus groups) –obtain ratings on attributes (survey) –obtain “ relevant ” attributes (factor analysis) Decompositional (uses holistic evaluations) –obtain perceived distance measures between products –compose map (multidimensional scaling)

Factor Analysis Factor analysis is a statistical method used to determine the few underlying dimensions of a larger set of correlated variables. It is the “analyst’s data-mining tool”. Correlation of two variables: Correlation table: V1 V2 V1V2V3V4 V1 V2 V3 V4 c =

Factor Analysis Factor Analysis rearranges any correlation matrix in such a way that it is only composed of blocks of “ high ” and “ low ” figures: Factors are listed in order of their contribution to overall variation in the data. How many factors we have depends on how much variance we want to explain Easy-to-use tool to discover correlation structures. Danger: do not infer “ causality ”

Example: B2B communication product

Extract 2 most important factors:

Represent products in the space of the 2 factors Effectiveness Ease of Use Telephone Teletype Closed-circuit television Personal visit New product opportunity NBVT

Decompositional Method: MDS of 10 U.S. cities Subjective Geographic Locations of 10 U.S. cities… perceived airline distances between cities. …based on…

Map of the U.S. based on subjective judgment Source: Reproduced with permission from a Research Study of R.N. Shepard.

MDS of major beer brands: MDS in a blind-taste test:

Example with Business Schools

Compositional vs. Decompositional Compositional –More objective in interpreting dimensions and diagnosing competitive situation –May frame consumers –Easier data collection –Can be done with fewer brands –Research may miss key dimensions –More suitable for non-existing products Decompositional –More general –Allows only few dimensions –More likely to provide surprises –Interpretation may be subjective –Needs at least 7 brands (substitutes)

B2B Challenges Small number of customers Different decision makers might have different perceptions Who do you want to make happy?

21 Key lessons: Differentiation is a fundamental way to avoid competition Product differentiation needs to be embedded in a consistent strategy including all other elements of the value delivery system (distribution, communication, pricing). Strategy needs to be consistent over time. Strategy needs to be clear to competitors (“strategic posture”)

22 Industrat Stock Prices

23 Sales

24 Costs

25 Awareness

26 Corporate Marketing

27 Sales Force Training

Segmentation Resistance Suspension Communication Aggregate Instrumentation Consumer

29 Market Shares: Instrumentation

30 Market Shares: Communication

31 Market Shares: Consumer

32 Buying Process: Instrumentation Production Manager Engineering Manager Purchasing Manager General Manager

33 Buying Process: Communication Production Manager Engineering Manager Purchasing Manager General Manager

34 Buying Process: Consumer Production Manager Engineering Manager Purchasing Manager General Manager

35 R&D