Monday, September 30, 2013

Early Indications September 2013: How the Internet is Changing Business-to-Business Marketing

My colleague Ralph Oliva has done a great job running a research center here at Penn State called the Institute for the Study of Business Markets (ISBM). They just celebrated their 30th anniversary, and that milestone promoted me to ask how digital business is reshaping B2B markets. Here are some initial thoughts.

A) Product
Let's start with the product, or more properly, the offer: what customer problem is being solved? The rapid drop in the prices of many sensors, along with nearly universal access to wi-fi, means that B2B providers can instrument a customer's business process and sell "holes rather than drills," as the old saying goes. That is, if I'm a body shop, I don't want to buy sandpaper and abrasives; I want to know that I can prep and paint any car that comes in without delays for out-of-stock supplies. Thus 3M's model, as I understand it, of continuous restocking of the abrasives and masking tape supply closets turns their stuff into a service. Add sensors on nozzles or chemical tanks for remote monitoring, access to product engineers and experts to explain exactly how best to address a new challenge -- or custom-design a fresh solution, testing and certification services, or operator training for Green or Lean or other objectives. The result is that something as mundane as industrial lubricants can become a differentiated offering, as achieved by Castrol Industrial and other providers.

Thus the Internet and related technologies can play a crucial role in "servicization": recall that an Qantas Airbus A380 had its Rolls Royce jet engine fail spectacularly in November 2010. Rolls Royce knew immediately about the issue because the Trent 900 engines are monitored by satellite in real time all over the world. Not long ago, such a capability would sound like science fiction, but with the reality of "thrust by the hour" payment options, engine builders must maintain this kind of close oversight of their assets.

Finally, the Internet's power as an information medium makes it well suited for conveying knowledge. In B2B markets, this is often critical: engineers want to know parameters, plant managers want to know work-arounds, and designers want to know next-generation capabilities. It's been said that information about stuff is more valuable than stuff: if a supplier can differentiate its offer with the kind of supplemental expertise Castrol is providing, the purchasing decision can move from a low-price bake-off to a specified non-competitive contract. The customer goes from buying granules or goo to paying a premium for the knowledge of how to extract unconventional or optimal performance of the now-differentiated commodity.

B) Channel (Place, in marketing-speak)
Here's a revealing experiment: search for a B2B product on Google. See what channels have the product available: it's quite likely eBay and/or Amazon have resellers -- sometimes licensed ones -- offering everything from test equipment to medical devices to raw chemicals to forklifts. This isn't just used goods either: some are new, with unclear warranty backing.

Now repeat the experiment on Baidu, enlisting a Chinese speaker if at all possible.

C) Price
Search costs, in the economic sense of the word, have been dramatically altered by search, in the Google sense. Price transparency is a real issue, whether across national boundaries, across competitors, or across primary (new) versus secondary markets. One response is to bundle products and services, which can defeat transparency in some instances, but the once-secret pricing sheet is now often semi-public information.

D) Promotion
Here we will consider what a company can do to reach potential customers.

The first point worth mentioning here is that Internet marketing cannot replace all the things the marketing team has been doing for decades: thought leadership, sales collateral, conferences and trade shows, even direct mail. Thus there are four related challenges raised by Internet methods:

1) Identifying how marketing supports corporate strategy

2) Identifying profitable areas of Internet action

3) Identifying the points of connection with the previous marketing portfolio.

4) Identifying the right metrics, communicating them to the proper parties, and adjusting action to enhance profitability, market share, or whatever the high-level objective may be.

Companies in B2B often put a premium on innovation because commodity price pressure crashes profit margins. If the objective is to get X% of revenue from products less than Y years old, profitability can be enhanced, but the task becomes to tell the buying public about all the new items in the pipeline, often without the shorthand benefits conferred by a brand.

Other companies in B2B innovate less frequently but at greater scale: WL Gore comes to mind. In these situations, patents and brand can combine to create a high-margin scenario. Steep barriers to entry clarify the marketing objective to focus on product performance.

Still other companies run with ruthless efficiency and can underprice most any competition.

These three types of companies would each require dramatically different marketing strategies. In the real world, markets might not be so clearly sorted out, so aligning marketing effort to larger objectives can be tricky.

Internet marketing
The sheer number of options in this one domain can make priority-setting a complex matter. E-mail, social media, webinars, YouTube videos, search engine marketing, user communities, mobile applications, product configurators and other widgets, knowledge bases, and many other tools can be useful in the right context. Each can also turn out to be an expensive diversion of scarce resources and public goodwill. Devising a fresh portfolio appropriate to a given competitive context, product suite, and customer segment can be extremely challenging.

Integrated marketing  - now with added Internet goodness
As hard as it is to build an effective Internet effort, getting leverage across all the firm's marketing investments challenges lines of authority, budgeting processes, cultural assumptions, and customer habits. In some instances, budget decisions might come down to an either/or: choosing either a local seminar series or a website re-launch. In more promising scenarios, identifying how a Twitter campaign can enhance the trade show presence, or how "chalk talk" videos can drive demand for white papers, or how a mobile app can feed call center volumes can reinvigorate old methods as well as giving the team credibility across demographics.

The number of potential combinations in a grid with the following axes grows very big very fast. In many cases, causation is not immediately apparent: in any given cell, which activity is driving outcomes in the other?

Traditional marketing efforts (an incomplete list)

Public relations
Analyst relations
Editorial connections: obtaining product reviews, for example, or placing guest editorials
Advertising: print, TV, other
Trade promotion (rebates, etc)
Thought leadership
Trade shows
Direct mail
Other marketing events
Sponsored content
Case studies and testimonials
Certifications (LEED, fair trade, organic, cruelty-free, conflict-free, etc)
Call centers
Sales force support (print, gifts, laptop or tablet demos, pitch decks, proposal templates, etc)
Customer events (golf, auto racing, etc)
Professional associations

Internet marketing (also incomplete)

Estimation and configuration tools
Knowledge bases
Search engine optimization
Customer communities
Chat/discussion boards
Mobile apps
Banner ads

That hypothetical grid should make the point: building an integrated marketing plan with Internet activities connected to a coherent portfolio requires thinking digitally, in terms of word of mouth (no longer controlled by brands), in terms of speed, in terms of customer engagement, and in terms of revenue paths.

Knowing how and what to manage becomes more complex in the online era, in part because certain forms of measurement (tweets, clicks, downloads) are so straightforward. Finding true signal, relative to the strategic objectives noted above, amidst the noise is a critical first step - but only that. Communicating evolving measurement systems, and the rationale behind them, to a broadly distributed, demographically diverse population is a true test of both management and leadership.

Thus there's a lot to discuss here. The game, the rules, the players, and the scoreboard are all in a state of flux, but in such times, the advantage goes not to the biggest, but to the most nimble and the fastest learners. Tallying those winners will be the task of a future newsletter.