1. Marketing of High-Technology Products and Innovations
Chapter 3:
Relationship Marketing: Partnerships and Alliances

2. Chapter Outline Partnerships Relationship Marketing
Types of Partnerships
Reasons to Partner
Risks in Partnering
Keys to Success
Relationship Marketing
Customer Equity
Customer Acquisition
Customer Retention
© Mohr, Sengupta, Slater 2005

3. Types of Partnerships Complementors Suppliers Focal Firm Distribution
Customers
Competitors
© Mohr, Sengupta, Slater 2005

4. Types of Partnerships (cont.)
Vertical partnerships: with members at other levels of the supply chain
Suppliers
Distribution channel members
Customers
Horizontal partnerships: with members at the same level of the supply chain
“Complementors:” makers of jointly-used products
Competitors—”competition”
© Mohr, Sengupta, Slater 2005

5. Antitrust Laws Related to Competitive Collaboration
National Cooperative Research Act (1984)
Eased traditional antitrust laws to allow competitors to form relationships to jointly pursue research and development projects.
National Cooperative Production Amendment (1993)
Expanded the 1984 Act to allow joint production
© Mohr, Sengupta, Slater 2005

6. Example of Competitive Collaboration: Sematech
The semiconductor manufacturing technology consortium of US semiconductor manufacturers and the US government
© Mohr, Sengupta, Slater 2005

7. Reasons to Partner Access resources and skills Gain cost efficiencies
Speed time-to-market
Access new markets
Define industry standards
Develop innovations and new products
Develop complementary products
Gain market clout
© Mohr, Sengupta, Slater 2005

8. The Product Life Cycle, Innovation, and the Role of Alliances
High
Rate of
Major
Innovation
Process
Innovation
Low
Stage of Product Life Cycle
Emergence
Growth
Maturity
Decline
Alliance Types
Standards
Licensing
Technology
Licensing
R&D
Marketing
Manufacturing
Marketing
Process R&D
Attacker
Incumbent
© Mohr, Sengupta, Slater 2005

9. Risks in Partnering Outright failure of relationships
Loss of autonomy and control
Loss of proprietary information to partner
Potential legal issues and antitrust problems
Failure to achieve alliance objectives
Residual allocation when success Responsibility delineation when failure
© Mohr, Sengupta, Slater 2005

10. Factors Contributing to Partnership Success
Joint (bilateral) interdependence
Caution warranted with partners of unequal size
Governance Structure (next slide)
Joint Commitment (credible, safeguarding)
Trust in the partner’s motives and intents
Effective Communication
Compatible Corporate Cultures
Integrative conflict resolution and negotiation (vs. “hard,” win/lose bargaining)
© Mohr, Sengupta, Slater 2005

11. Factors Contributing to Partnership Success (Cont.)
Effective structure to govern the alliance
Unilateral: one party has authority to make decisions
Bilateral: governance based on mutual expectations regarding behaviors and activities
© Mohr, Sengupta, Slater 2005

12. More on Governance Match type of governance to degree of risk:
High risk (arising from uncertainty or investments dedicated to the relationship) warrants either:
“Credible commitments” and safeguards that create mutual dependence -or-
Narrow terms and conditions that keep the firms only loosely-coupled
Bilateral governance based on commitment, trust, and communication
Escape clause
© Mohr, Sengupta, Slater 2005

13. Relationship Marketing
“The formation of long-term relationships with customers and other business partners, which yield mutually-satisfying, win/win results.”
Why relied upon so heavily?
Time to market cycle is short
Development costs/risks are high
Faster and more cost efficient to pursue projects jointly than alone
Synergy!
© Mohr, Sengupta, Slater 2005

14. Relationship Marketing
Building strong and lasting relationships is hard work
and difficult to sustain. But I believe that in a world
where the customer has so many options, even in
narrow product-market segments, a personal relationship
is the only way to retain customer loyalty.
Regis McKenna
© Mohr, Sengupta, Slater 2005

15. Customer Relationship Marketing
Forming long-term relationships with customers that provide mutually-beneficial solutions
Cheaper to keep current customers coming back than to prospect for new ones.
May require sacrificing short-term profits for long-term gains.
© Mohr, Sengupta, Slater 2005

16. Computing Customer Equity
Profit stream from customer <less> acquisition costs
© Mohr, Sengupta, Slater 2005

17. Computing Customer Equity
© Mohr, Sengupta, Slater 2005

18. Customer Acquisition Strategies
High
Full Throttle
Selective
Retention
Profit
Potential
Restructure/
Divest
Pay as You Go
Low
Short
Long
Acquisition Investment Recovery Time
© Mohr, Sengupta, Slater 2005

19. Aspects of Cost to Serve
Acquisition Costs
Production Costs
Distribution Costs
Service Costs
Why do some customers cost more to serve than others?
© Mohr, Sengupta, Slater 2005

20. Customer Acquisition Rules
Acquire any customer as long as the discounted future value of the customer exceeds the acquisition costs for that customer.
When you broaden the acquisition effort, be prepared for lower response rates.
The greater its profits from retention, the greater a firm's customer acquisition investment should be.
The higher the percentage of the initial acquisition investment that a firm recovers in the first period, the greater its acquisition investment should be.
© Mohr, Sengupta, Slater 2005

21. Developing and Maintaining Relationships: Acquiring Customers
Segment the market by value perceptions
Target segments that appreciate value
Segment attractiveness
Competitive position ( & capability assessment)
Generate awareness (promotion & communication)
Pricing
Skimming or penetration
Trial
Post-purchase service
© Mohr, Sengupta, Slater 2005

22. Switching Costs Arising from:
investments in equipment, procedures, or people that make it costly or risky for a customer to switch to another firm’s products.
perceived risk of making a bad choice
Other factors related to switching costs:
Platform considerations (inter-operability)
Vendor Considerations (the lock-in effect)
© Mohr, Sengupta, Slater 2005

23. Customer Relationship and Retention Strategies
Is Customer Loyalty Profitable?
Claim 1: It costs less to serve loyal customers.
Claim 2: Loyal customers pay higher prices for the same bundle of benefits.
Claim 3: Loyal customers market the company.
As opinion leaders & benchmarks
© Mohr, Sengupta, Slater 2005

24. Which Customers Are Really Profitable?
Transaction
Relationship
Service provider 20%
Grocery retail 15%
Mail-order 19%
Brokerage 18%
Service provider 30%
Grocery retail 36%
Mail-order 31%
Brokerage 32%
High Profit
Service provider 29%
Grocery retail 34%
Mail-order 29%
Brokerage 33%
Service provider 21%
Grocery retail 15%
Mail-order 21%
Brokerage 17%
Low Profit
© Mohr, Sengupta, Slater 2005

25. Loyalty Strategies Transaction Relationship High Profit Low Profit
Butterflies:
Good fit
High profit potential
Transaction satisfaction
Milk active accounts
Cease investing
True Friends:
Good fit
Best profit potential
Consistent communication
Attitudinal & behavioral loyalty
Delight customers
High Profit
Strangers:
Little fit
Lowest profit potential
Make no investment
Max transaction profit
Barnacles:
Limited fit
Low profit potential
Measure size and share of wallet
Low share, up- and cross-sell
Small wallet, strict cost control
Low Profit
© Mohr, Sengupta, Slater 2005

26. Relationship Marketers
Perform a long-term business planning function for their customers.
Help customers define their businesses, their markets, and their product-service needs.
Maintain high-level, multi-function access in customer companies.
Sell systems of products and services.
Draw on the full complement of company functions and services for support.
IBM plans businesses for her IT users
MS provides anything for her users
© Mohr, Sengupta, Slater 2005

27. Appendix: Inter-firm Learning
Issue: Must learn to have effective partnership, but too much information sharing can dilute source of competitive advantage
Types of knowledge:
Explicit (migratory)
Tacit (embedded)
© Mohr, Sengupta, Slater 2005

28. Managing the Paradox
Want closest partnership possible to enhance learning
Want loosely-coupled partnership to prevent unintended transfers of information
Use caution!
Cross-licensing agreements
© Mohr, Sengupta, Slater 2005