Marketing of High-Technology Products and Innovations. Chapter 5: Relationship Marketing: Partnerships and Alliances

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1 Marketing of High-Technology Products and Innovations Chapter 5: Relationship Marketing: Partnerships and Alliances

2 Questions to Consider What are the types of partnerships high-tech companies form? What are the reasons for forming such partnerships? How can the risks of partnering arrangements be mitigated? Why do some customers cost more than others to serve? Are loyal customers more profitable than others?

3 Reasons for Partnering Gain access to resources and skills in a timely, more cost-efficient manner Reasons vary over the product life cycle Develop innovations and new products Develop complementary products Gain market clout Maintain focus on core competencies Learn from partners

4 The Product Life Cycle, Innovation, and the Role of Alliances Rate of Major Innovation High Product 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

5 Risks in Partnering Increase project complexity Loss of autonomy and control Decisions must be made jointly Success dependent on another s efforts Loss of trade secrets Failure to achieve objectives Incompatible cultures Lack of attention/resources in managing the relationship Trust issues

6 Customer Relationship Management (CRM) Marketing is used to develop close, long-term relationships with customers Customers as investments Acquisition cost/customer= (total cost of marketing campaign) / (# of prospects who become customers) Customer equity (Lifetime value): net present value of the cash flows associated with a customer Net present value cash inflows > present value of cash outflows

7 Computing Customer Equity

8 Data to Quantify CRM 1. Total marketing cost to acquire new customers 2. Number of prospects reached during the campaign 3. Number of prospects who became customers 4. Revenue from a new customer s initial purchase 5. Expected retention duration for a customer 6. Annual revenues expected from the customer 7. Costs to serve a customer 8. Firm s cost of capital 9. Present value chart

9 Not all customers are equally valuable High Profit Low Profit Transaction Butterflies: Good fit High profit potential Transaction satisfaction Milk active accounts Cease investing Strangers: Little fit Lowest profit potential Make no investment Max transaction profit Relationship True Friends: Good fit Best profit potential Consistent communication Attitudinal & behavioral loyalty Delight customers Barnacles: Limited fit Low profit potential Measure size and share of wallet Low share, up- and cross-sell Small wallet, strict cost control

10 CRM: Loyalty strategies Develop the Customer Portfolio Management Strategy TRUE FRIENDS The most valuable customer group Highly profitable and loyal Relationship-oriented Seek social, economic, and technical ties Risk: Overkill Keep relationship fresh with open, frequent communication

11 CRM: Loyalty Strategies BUTTERFLIES Develop the Customer Portfolio Management Strategy 2 nd most valuable customer group Transient, and highly profitable Shoppers Seek the best value Risk: continued investment after they ve flown Capture as much of their business as possible in the short time.

12 CRM: Loyalty Strategies Develop the Customer Portfolio Management Strategy BARNACLES Loyal, desire long-term relationship Not very profitable Low size/volume of transactions Cost to serve them may be high Risk: create drag Renegotiation may be required

13 CRM: Loyalty Strategies STRANGERS Develop the Customer Portfolio Lowest Profit Potential Transaction-oriented Focus on price instead of value Management Strategy Limited buyer-seller communication Risk: wasted resources company should not invest by marketing to strangers Ever transaction must produce a profit

14 CRM Software Used to capture data about customers from any contact within the enterprise Provide the ability to: Track profitability Detect dissatisfaction before customer is lost Improve Product selling Retention Loyalty Revenue

15 CRM Software Software includes Sales force automation Call-center automation Marketing automation Web sales Web configurators Web analysis and marketing CRM software revenue is projected to surpass $7.8 billion worldwide in 2008.

16 CRM Software Despite all that Nearly 1/3 of CRM deployments fail* Sale representatives may reject CRM Lack of training and understanding Top management goals must be aligned with CRM goals Relationship marketing philosophy must come before CRM system *according to AMR Research

17 Marketing of High-Technology Products and Innovations Chapter 5: Relationship Marketing: Partnerships and Alliances

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