Marketing High Profit Product/Service Solutions

Roger More

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317100416
• Edition: 1
• Topic: Business
• Subtopic: Sales
• Index: Business

Marketing High Profit Product/Service Solutions addresses one of the most exciting and growing strategic marketing opportunities facing product and service companies - 'bundling'. Many customers want bundled products and services which represent integrated solutions to their problems, rather than buying individual products and services piecemeal, and if you become that supplier it can transform a company. There are many outstanding examples: Magna International grew in several stages from a supplier of basic individual auto parts to a company manufacturing a product/service 'super-bundle'; ultimately sourcing and assembling the entire car itself. GE developed their business involving the supply of medical imaging machines to hospitals to become a 'super-bundler' of complete hospital radiological floor imaging operations planning, installation, and integration. IBM transformed their position as a supplier of individual hardware, software, and peripherals to companies into a product/service solution 'bundler' of increasing complexity, and finally into the 'super-bundle' of BPO (Business Process Outsourcing); representing an outsourced and complete integrated IT solution set for clients' entire global operations. Roger More explores what was learned by these leading companies (amongst others) when they transformed their market strategies to become bundlers of complex integrated customer solutions. Over many years the author has developed and tested new concepts, maps and tools for use by a wide variety of managers in developing strategies for these bundled product/service solutions. His book now offers these maps and tools to all who invest in a copy.

1 The Global Expansion of New Product/service Integrated Customer Solutions: The Bundling Concept

In rapidly changing global competitive business to business (B2B) marketplaces, one of the fastest growing competitive market strategies is the bundling of complex value-added integrated product/service customer solutions.

Roger More, 2012

Introduction

The huge growth in the size and complexity of integrated product/service bundled market offerings in virtually every competitive global business-to-business market represents important future competitive opportunities for many companies. Companies are increasingly competing on “bundles” of products and services that differentiate them and that customers will value and choose. This chapter will map and outline what products are, what services represent, and the different strategic choices companies have for product/service strategies in different competitive markets, citing many examples. It will outline and illustrate product-centric strategies, service-centric strategies and product/service integrated strategies. The changes in product/service integration and bundling represent great opportunities to grow markets and long-term potential cash flows for many companies of all sizes and industries. It is important for managers to be clear about the differences and connections between products and services in B2B markets.

The chapter will then proceed to map the most important alternative product/service market positions that need to be considered. It will outline three different broad market focus positions – product-centric bundles, service-centric bundles, and product/service integrated bundles – examining a series of companies that exemplify these strategic choices in their product and service portfolios. The chapter will conclude with a series of important questions for managers facing these difficult product and service strategic choices.

The Product/service Bundling Concept

A new competitive strategic concept that has emerged strongly in the past few years is integrated product/service bundling. It has required managers in B2B markets to completely reconceptualize their customers’ life cycle product and service needs and behaviours, and the bases for competitive choices and differentiation. A recent example can be found in the aerospace and defence markets:

In the past, aerospace and defense companies relied on acquisitions, consolidation, and diversification to find growth when the customer purchasing environment was tough. While these approaches to growth will remain available in varying degrees, new opportunities are emerging for companies that approach the marketplace through an integrated product and service lens, creating value propositions and business models that link products together with the services required to operate and support them.1

The authors go on to say:

We believe one of the biggest challenges in the next decade will be to harmonize the business model of original equipment manufacturers (OEM) with that of service providers to evolve into a true solutions-based business model.

Product-based companies must begin to view themselves as more than merely manufacturers if they are to benefit from the incremental revenues that services businesses provide. Instead, companies must consider offering an integrated product and services portfolio that spans product life cycles-in other words, evolve into solutions- based businesses in order to capture greater value across the life cycle of their products.2

Another author notes:

Some of the world’s leading suppliers are developing strategies to move into the provision of innovative combinations of products and services as high-value integrated solutions tailored to each customer’s needs. Rather than simply moving downstream into services, the provision of integrated solutions is attracting firms, traditionally based in manufacturing and services, to occupy a new base in the value stream centered on systems integration.3

In the midst of these dramatic global market changes, several sets of forces are unfolding and operating that make competitive marketing and strategic planning very difficult for managers and teams. In turn, these forces have created a need for new concepts and tools for managers in these critical strategic situations. This book represents one response to this important management need.

Mapping Products, Services and Product/service Bundles

To clarify these management challenges, Figure 1.1 maps a number of examples of different product-centric, service-centric and product/service bundled products and services. These examples are mapped from relatively physically simple products (a hammer) to extremely physically and technically complex product and service bundles (nuclear reactors or aircraft engines). In management terms, these different situations represent very different marketing and strategic planning problems and opportunities. But there are many generic characteristics and questions that tie them together strategically.

Figure 1.1 Mapping product/service bundles size and complexity

WHAT ARE PRODUCTS?

It is important for this book to differentiate between products and services, but there are huge grey areas between them. There really are few “pure” products or services from the point of view of customer life cycle solutions. Even the simplest products require some level of services, and most services have some product content in their delivery in the process. However, products have the following key characteristics:

• Products are physical in nature – they can usually be seen, touched, smelled, tasted or perceived in physical terms.

• Most products are themselves physical bundles of many other individual products, components and technologies. For example, a notebook or a car is a complex assembled bundle of literally thousands of other individual products and technologies, many of which are themselves complex product bundles containing many different parts and pieces

• Each of these individual pieces and components in a product bundle may be highly differentiated in itself. There are fewer and fewer standardized parts and components in global businesses.

• Products and component parts can typically be manufactured, assembled and inventoried over time, and are therefore open to scale and other costs economies.

• The manufacturing financial metrics of fixed, variable and investment costs and cash flows for products can usually be clearly conceptualized, estimated or measured, and as a result the real net cash flows can be estimated well in most cases.

PRODUCT-CENTRIC BUNDLES

As shown in Figure 1.1, product-centric bundles can be as small and physically simple, such as a hammer or electrical conduit, or as large and complex as an aircraft engine or nuclear power plant. Both these examples represent increasingly complex physical bundles of other products and technologies. Product-centric bundles and marketing strategies have the following important characteristics:

• In companies with product-centric marketing strategies, primary competitive differentiation is built on physical product performance characteristics rather than services performance attributes, even though some services may be involved.

• Even the simplest product, like a hammer, may still have some services required, at the point of customer choice, but post-choice, the services component is very limited.

• As product bundles grow more complex, more individual product and technology components and bundles are part of the overall product-centric bundle. For example, computer notebooks are physical bundles of literally hundreds of individual product and technology bundles.

• As product bundles grow larger and more complex, the technical, physical and systemic interactions and interdependencies grow in complexity, and aftermarket services like parts and maintenance become ever more critical. For example, complex equipment like GE medical imaging scanners and aircraft engines each contain thousands of individual high-tech product and technology components in their product bundles. As a result, they require huge and complex services bundles throughout the customer purchase and usage cycles.

• As an extreme example of a complex product bundle, nuclear power plants contain many thousands of individual product and technology components and bundles. Given the complexities and risks involved, the services bundles attached to these power plants are large, technically complex, high-risk and costly throughout the entire customer choice/rejection experience life cycle process.

• As product bundles increase in size and complexity, so do the services required, and the bundling of products and the critical services becomes more compelling and synergistic for supplier companies.

Product-centric Strategies

Figure 1.2 maps a number of examples of primarily product-centric company market strategies. As it illustrates, there are many global companies and competitive markets where major resource commitments, competitive differentiation, and cash flow creation have historically been crucial in the development and marketing of product-centric bundles.

Many of these companies are now moving more into product/service bundling in some of their competitive markets. However, it is important to note that for many companies, product-centric strategies make sense in their competitive markets, and there may be no real need to add services.

INTEL

Intel is a major researcher, manufacturer and marketer of computer motherboard microprocessors, a major and critical high-tech component in notebooks and computers and the primary software driver. Intel managers have market-focused their strategy strongly on differentiating their product technology and performance, and have a history of technologically leapfrogging other microprocessor competitors with large and discontinuous chipset technology innovations. Intel’s primary competitive differentiation consists of the physical performance characteristics of its microprocessor chipsets, and their capacity to be integrated with and control other notebook components, be they hardware, software or other systems. Intel has resisted the temptation to move into larger product bundles like notebooks or tablets, preferring to sustain its competitive differentiation on the microprocessor product bundle, which has been adopted by most major notebook makers and covers a high market share of the notebook market. Its brand identity appears on the cover of many leading notebook manufacturers, like Toshiba and Dell.

Figure 1.2 Examples of different product/service bundled strategies

RESEARCH IN MOTION (RIM)

Research in Motion’s initial market strategy consisted of single-function product-centric one-way paging products and technologies, and its product-centric evolution led to the Blackberry product bundle, driven by proprietary “push” email software. RIM has greatly enlarged the Blackberry product bundle and portfolio to include a wide range of user functionality, including telephony, and a wide range of hundreds of applications similar to most wireless telephones. However, the customer retail and business distribution and networking services required for the Blackberry are provided by other major telecommunications network companies such as Bell Telephone and Rogers Telecommunications, with RIM as a product-centric supplier only.

RIO TINTO

Rio Tinto is one of the world’s largest mineral mining companies and producers of various metallic ores, including iron, copper, gold, molybdenum and diamonds. It operates a large number of huge open-cast and underground mining operations around the globe. Its various metals and materials are channelled into thousands of downstream value-added and service-centric minerals and metals processing markets, but Rio Tinto has largely avoided these downstream processing services opportunities, leaving these markets to other companies. It has clearly maintained their product-centric strategic position.

VISTAKON

Vistakon is a developer, manufacturer and marketer of human contact lenses, and markets a wide range of different types of lenses through retail outlets and eyecare professionals, which provide the required complex series of market network, retail and downstream service bundles to individual vision customers. In specifying contact lenses, customers need access to clinical medical sets of services bundles offered by oculists, ophthalmologists, optometrists and other eyecare professionals. Vistakon focuses on product-centric competitive differentiation of its contact lenses, driven by manufacturing technologies that have dramatically reduced lens variable manufacturing costs, product differentiation and improved vision performance.

In all of the above example companies, their primary businesses are product-centric. The majority of their net cash flow, marketing strategies and competitive differentiation are focused on their product-centric bundles and portfolio of products. The sets of services needed to deliver the total customer solution are provided by third-party companies and professionals in complex m...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• Preface
• Overview of the Book
• About the Author
• Chapter 1 The Global Expansion of New Product/service Integrated Customer Solutions: The Bundling Concept
• Chapter 2 Creating New Product/service Bundles: The Critical Role of Market-focused Planning
• Chapter 3 Creating Market-focused New Product/service Integrated Solutions and Super-bundles: Six Critical Management Questions
• Chapter 4 Can You Create New Market Segments and Customer Life Cycle Choice/rejection/experience Processes?
• Chapter 5 Can You Create New Product/service Solution Bundle Customer Value and Competitive Differentiation?
• Chapter 6 Do You Have the Critical Integrated Product/service Bundle Core Competencies?
• Chapter 7 Can You Create and Manage the Product/service Bundle Market Networks, Account Relationships and Outsourcing?
• Chapter 8 Can Your Product/service Integration Strategy Create High Long-term Net Cash Flow?
• Chapter 9 Can You Change and Adapt Your Organization, Management Teams and Planning Processes?
• Index