Marketing of High-Technology
Products and Innovations
Chapter 3:
Relationship Marketing:
Partnerships and Alliances
Chapter Outline

Partnerships





Types of Partnerships
Reasons to Partner
Risks in Partnering
Keys to Success
Relationship Marketing



Customer Equity
Customer Acquisition
Customer Retention
© Mohr, Sengupta, Slater 2005
Types of Partnerships
Complementors
Suppliers
Focal Firm
Distribution
Competitors
© Mohr, Sengupta, Slater 2005
Customers
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
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
Example of Competitive Collaboration:
Sematech


The semiconductor manufacturing
technology consortium of US
semiconductor manufacturers and the
US government
http://www.sematech.org/
© Mohr, Sengupta, Slater 2005
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
The Product Life Cycle, Innovation,
and the Role of Alliances
High
Product
Innovation
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 Attacker
Marketing
Incumbent
Process R&D
© Mohr, Sengupta, Slater 2005
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
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
win/lose bargaining)
© Mohr, Sengupta, Slater 2005
(vs. “hard,”
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
More on Governance

Match type of governance to degree of risk:

High risk (arising from uncertainty or
investments dedicated to the relationship)
warrants either:

Escape
clause


“Credible commitments” and safeguards that
create mutual dependence -orNarrow terms and conditions that keep the firms
only loosely-coupled
Bilateral governance based on commitment, trust,
and communication
© Mohr, Sengupta, Slater 2005
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
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
Customer Relationship
Marketing



Forming long-term relationships with
customers that provide mutuallybeneficial 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
Computing Customer Equity

Profit stream from customer <less>
acquisition costs
© Mohr, Sengupta, Slater 2005
Computing Customer Equity
60
50
40
Profit from Referrals
30
20
Profit from Increased
Purchases
10
0
-10
-20
Base Profit
Year 1
Year 2
Year 3
Year 4
Year 5
Acquisition Cost
-30
-40
-50
© Mohr, Sengupta, Slater 2005
Customer Acquisition Strategies
High
Retention
Profit
Potential
Low
Full Throttle
Pay as You Go
Selective
Restructure/
Divest
Short
Long
Acquisition Investment Recovery Time
© Mohr, Sengupta, Slater 2005
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
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
Developing and Maintaining
Relationships: Acquiring Customers


Segment the market by value perceptions
Target segments that appreciate value




Generate awareness
Pricing



Segment attractiveness
Competitive position ( & capability assessment)
(promotion & communication)
Skimming or penetration
Trial
Post-purchase service
© Mohr, Sengupta, Slater 2005
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
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
As opinion
company.
leaders &
benchmarks
© Mohr, Sengupta, Slater 2005
Which Customers Are Really Profitable?
Transaction
High Profit
Low Profit
Relationship
Service provider
Grocery retail
Mail-order
Brokerage
20%
15%
19%
18%
Service provider
Grocery retail
Mail-order
Brokerage
30%
36%
31%
32%
Service provider
Grocery retail
Mail-order
Brokerage
29%
34%
29%
33%
Service provider
Grocery retail
Mail-order
Brokerage
21%
15%
21%
17%
© Mohr, Sengupta, Slater 2005
Loyalty Strategies
Transaction
High Profit
Low Profit
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
© Mohr, Sengupta, Slater 2005
Relationship Marketers

Perform a long-term business planning
IBM plans function for their customers.
businesses
for her IT  Help customers define their businesses, their
users
markets, and their product-service needs.

MS
provides
anything
for her
users


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.
© Mohr, Sengupta, Slater 2005
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
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