McKinsey Marketing

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Marketing

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  • Business-to-BusinessBusiness-to-BusinessMarketing:Marketing:a cornerstone ofa cornerstone ofprofitable growthprofitable growth

    Thomas Baumgartner

    Alex Bhrer

    Philipp Kobus

    Hajo Riesenbeck

    Hermann Ude

    Felix Weber

    McKinsey & Company, Inc.

    Busi

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  • McKinsey & Company, Inc.

    Dsseldorf

    1st edition 1998

    2nd edition 2000

    Printed by Frhlich Druck AG, Zollikon

    McKinsey & Company, Inc.

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  • ContentsContents

    Prologue 1

    Strategy: Setting the stage 7

    Understanding customers and market 9

    Pinpointing the right segments and customers 13

    Defining a distinctive value proposition 18

    Operations: Putting the system in place 25

    Standardized product businesses: 27

    learning from consumer goods

    System businesses: 37

    profiting from integrated solutions over the whole lifecycle

    Project-based businesses: 46

    providing economic value to the customer

    Organization: Capturing the opportunities 55

    Building an attractive platform 57

    Executing a well-orchestrated set of initiatives 59

    Ensuring implementation and adjusting the organization 62

  • Confidentiality

    We invariably treat information about our clients as confidential. To

    make the case for business-to-business marketing come alive without

    compromising this confidentiality, we have only mentioned by name a

    number of companies that are acknowledged marketing all-stars or tal-

    ented specialists in a particular area. Their success stories, drawn from

    public sources, are supplemented by further disguised examples from

    our consulting work.

  • Foreword

    In most industrial companies, marketing used to be a lower-level man-

    agement job. Often it was synonymous with supporting the sales force;

    sometimes it was associated with creative advertising. Most companies

    were centred on engineering and on offering a wide range of standard-

    ized and/or technically advanced products.

    Those days are ending. More and more managers are realizing

    that developing and selling are not enough. Knowing how to position,

    value, price, and brand your product or service is now the key factor

    for success. Companies that very early on adopted a systematic market-

    ing orientation based on a good understanding of these fundamentals

    have gained share and outperformed competitors.

    Their success has generated intense interest in business-to-busi-

    ness marketing or B-to-B for short. It is a vast arena. Last year, more

    than 20 million businesses around the world sold more than $20 tril-

    lion dollars of products and services to other businesses. As one of my

    American colleagues put it: It is BHP Steel selling processed metals to

    Motorola; Motorola using that metal to make semiconductors, which

    are sold to Arrow Electronics. Arrow Electronics reselling those same

    semiconductors to IBM. IBM using the semiconductors to build main-

    frame computers, which in turn are sold to Boeing. Boeing using its

    mainframes to build airplanes, which are sold to GE Capital. GE Capi-

    tal leasing those airplanes to Delta Air Lines, which then uses those

    planes to provide special charter flights for Coca-Colas annual meet-

    ing of bottlers.

    Of course, B-to-B marketing is never this linear. The market is

    really a multiplicity of user communities; the customer is a multi-

    plicity of decision-makers. Suppliers who already have strong market-

    ing processes naturally have an advantage.

  • With this brochure we would like to summarize the great benefits

    of developing a superior marketing orientation, the levers that can be

    used to do this, some examples of successful practical approaches from

    companies in various types of businesses, and a roadmap for doing it,

    using consultant support to accelerate the process.

    On behalf of the authors, I would like to thank the clients and

    colleagues who generously shared their views with us. My special thanks

    go to Terry Gilman, whose great dedication and skilful editing have

    enabled a diverse team of authors to produce a readable whole, and to

    Charles Whitehouse for his invaluable contribution to design and pro-

    duction.

    In my own experience, the focus on delivering value to the cus-

    tomer that is at the heart of marketing makes it an infinitely fascinating

    and satisfying field of professional activity. I hope we have managed to

    convey our enthusiasm.

    Hajo Riesenbeck

    Director

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    Prologue

    As an introduction to excellent business-to-business marketing, here

    are some brief answers to the five key questions on the back cover:

    Why learn to sell your customers products to their customers?

    Because the industrial companies that grow profitably are the ones

    that focus obsessively on their customers business needs. They put

    themselves in their customers shoes and think about how to satisfy

    their customers. This helps them to identify the main points of leverage

    to improve customers performance in the marketplace a source of

    hard-to-copy ideas for even better products and services.

    Why have a list of customers you dont want to serve? Because all

    customers are not created equal. Even the best understanding of cus-

    tomer conduct is no guarantee that a particular account will be profit-

    able. But if your basic market segmentation reflects customer needs

    and attractive earnings potential, a hard look at individual accounts

    will make plain where to focus your energy and adjust your offering.

    And for great growth, excellent marketers know that Its better to own

    80% of one customer segment than 10% of the market.

    Why go all-out to convince customers that your offering is distinc-

    tive? Because you can only own a segment if customers believe there

    is no substitute for your product offering. Rapid short-term growth can

    be achieved by developing a value proposition that, in customers eyes,

    offers benefits they cannot get elsewhere. It is often enough to have a

    profile just 510% better than your competitors in carefully selected

    areas. But the higher the real or perceived price-value positioning, the

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    eharder it is for competitors to copy. It also deflects competitive attacks

    based solely on savings from restructuring.

    Why worry if customers pay a competitor more for products with

    fewer technical features than yours? Because they are building a rela-

    tionship you may never be able to penetrate. Instead of just relying on

    the technical advantages of a product to attract and retain customers,

    top competitors like SAP, Federal Express, Intel, Cummins Engines,

    and Gore-Tex have also actively invested in branding the value. They

    have forged a link between their names and customer satisfaction, lay-

    ing the basis for lasting customer relationships.

    Why figure out how much you could earn by giving customers your

    equipment for free? Because knowing all the numbers gives you an

    edge. We are not advocating selling below cost, but understanding the

    entire lifecycle of the customers investment. System suppliers like Otis

    and Tetra Pak are professionals at this. They have grown by thinking

    through the total profit stream that can be generated over the useful

    life of the initial investment, whether an elevator or a packaging line.

    Their bundled product and pricing solutions for equipment plus

    services, spare parts, software, and supplies are being emulated by more

    and more industrial companies. The lifecycle perspective points the

    way out of the commoditization trap of pure price competition and

    eroding profit margins. It also suggests new strategies for teaming up

    with suppliers and customers to create more value.

    Why ask yourself questions like these? Because they go to the core

    of marketing strategy. Coming up with explicit answers here will help

    your company or business unit to identify the two or three activities

    that really drive profitable growth, and then to perform them excel-

    lently, day by day.

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    Marketing makes the difference

    Our studies in the international electronics, machinery, and compo-

    nents manufacturing industries confirm that what distinguishes the top

    companies is not better restructuring skills. What makes the diffe