CASE STUDY NO.1
Akshay Menon, head of SRI’s Dallas operations, was reviewing proposals from three companies for a new scanner. The company had recently been awarded a contract to scan and electronically store the paper files of a large state government agency, and Menon knew he would have to add three to five new scanners. The contract called for the agency to begin shipping files in a week; Menon had to make a decision today.
Margie Cabellero, the production manager, had obtained three proposals at Menon’s request, one for five moderate-speed scanners, one for three high-speed scanners, and one for three moderate-speed scanners and one high-speed scanner. She was pushing for five scanners, because she felt that more scanners meant greater protection in case one broke down. She also believed she had greater flexibility in assigning work if there were more scanners. Currently, her group operated twelve paper scanners, two microfiche scanners, and a microfilm scanner 24 hours per day.
George Whitaker, the chief financial officer, wanted Menon to buy three high-speed scanners. Whitaker thought that the higher cost would be offset by hiring fewer operators, and besides, the company was more likely to have trouble hiring and retaining operators than keeping the machines working. Further, when ‘Whitaker factored in service costs, the higher-speed scanners were cheaper to operate. He recommended to Akshay that he buy the high-speed scanners and run only one shift on the new equipment for now.
Gloria Sigel, human resources manager, agreed that the local employment market made hiring more difficult. She really didn’t care what was bought; she just knew that it was tough to hire new employees. She also told Menon the current operators thought that the high-speed scanners were too unreliable and that paper jams had to be cleared too often. Since their pay was tied to productivity; they didn’t like working the high-speed scanners.
Menon wondered what he should do.
1. List the roles that each person plays in the buying center. Can you identify where Menon is in making a decision, and what he should do next? Other than Menon, who is most important and why?
2. Identify sources of risk for each member of the buying center. ‘What are they risking? How important does that risk seem to be? How would you reduce that risk if you were a scanner salesperson?
3. Assume you market scanners, and this situation is pretty typical of what you find. How would this information influences your marketing activities? Be as specific as possible?
CASE STUDY NO. 2
Environmental Services (ES) provides environmental engineering services to architects, construction firms, and government agencies. The company relies heavily on computer-aided engineering software, and its 42 engineers use computers with oversized screens to handle the size of the engineering drawings. A partnership, the company has a management committee that makes most of the important decisions.
The company now needs to completely upgrade its network and workstations. The management committee formed a subcommittee, chaired by Sylvia Kelly, an engineer who has more of an interest in information technology than do most of the engineers. Sylvia is a junior partner, though, and mentioned to her boss that she was concerned about having enough power on the committee to make sure that the organization’s needs were met. For Sylvia, the biggest concern was network reliability followed by ease of use of the engineering software. The last thing she wanted was to be cursed every time the system went down.
Frank Burns is the most senior partner on the committee and really is only an ex-officio member. He was responsible for the purchase of the first network and is proud of his “bringing the firm out of the dark ages.” A self-proclaimed gadgeteer, he is encouraging the committee to meet with Tata Technologies, an offshore computer engineering firm that promises to create a customized system just for ES. Frank has scheduled a trip for the executive committee to Hyderabad, India, to visit Tata’s headquarters. While there, Frank plans to explore the possibility of outsourcing some of the firm’s easier work to Indian environmental engineers.
1. Explain Sylvia’s and Frank’s motivations in terms of the buyer behavior choice model. You may need to make assumptions about their jobs, so be sure to state those?
2. What are the risks that Sylvia and Frank face?
3. Explain their motivation in terms of reward/measurement. Again, state any assumptions you have to make about their jobs?
4. What would you do if you were a salesperson proposing a computer system to the company? Which model would be more helpful to you, and why?
CASE STUDY NO.3
ROL FROM CIS: A STRATEGY TO LEARN
Information technology in the form of data-driven, Customer Relationship Management has enabled Ritz Canton to win a Malcolm Baldrige Quality Award. It has also contributed to Continental Airlines’ climb from “worst to first” in the past decade. But the failed efforts at Citicorp and elsewhere provide telling cases that not every database marketing effort succeeds.
Recently, Debra Zahay and Abbie Griffin, professors at NC State and the University of Illinois, respectively, asked the question: “Are customer information systems worth it?” Their results from a study of 209 B2B service firms provide some provocative insights.
They find that the positioning strategies of low cost and differentiation and the marketing strategies of personalization and customization seem to motivate the development of customer information systems (CIS). They point to the CIS as providing a set of capabilities for learning, and for gaining customer understanding, through (1) generating information, (2) storing information for future use, (3) disseminating information throughout the organization, and (4) processes that yield shared understandings in the B2B organization.
Companies with a good CIS tend to attain higher levels of performance—higher retention rates, greater share of spending, and greater LTV and return on investment for the business unit. Moreover, strategy selection has a greater impact on performance than CIS management. That is, a good strategy can make up for deficiencies in CIS, but CIS without a clear strategy may have no customer-based performance payoffs. CIS may truly help a company to measure customer-based performance and thereby enable managers to improve their programs and grow their organizations.
Q.1) The findings come from a sample of 109 software companies (NAICS code 51121) and 100 B2B property and casualty insurers (NAICS code 524126). Can you think of other industries that might likewise stand to benefit from managing customer information and applying strategies of personalization and customization?
Q.2) Are there companies for which a CIS would be only marginally valuable? That is, what firms are apt to pursue a strategy that calls for resources to be applied elsewhere, not to CIS? What are their alternative means for learning about their customers?
CASE STUDY NO. 5
Travis Pruitt looked at the sales report he had to present the next day to the company president. While sales were the highest ever, net income as a percent of sales had declined slightly. He reviewed results by manufacturer to try to figure out where the problem was. Hi-Flier Products is a distributor of electronic components. These components are used in the assembly of computers, stereos, televisions, and all types of appliances, and the company represents six manufacturers in the Pacific Rim and two in India. Pruitt quickly realized that the Konolta products were the biggest drain on profits. Konolta, a Korean manufacturer of connectors, had introduced no new products that year. As a result, Pruitt and his salespeople were unable to raise prices even though their costs had gone up. Pruitt reflected on one sale in particular: over $100,000 of Konolta products that he had to discount 18 percent to get the sale and beat Hibachi, another Korean manufacturer. Without that sale, he would have lost another million in sales to that account, but it still galled him that he lost money on that portion of the overall business. At the same time, however, Pruitt was excited about the possibilities with Singh, the Indian manufacturer of specialty ceramics. These products, used to house certain components and dissipate heat, were launched only eight months ago but already accounted for 12 percent of total sales. Profits weren’t great on the line, however, as Pruitt had to discount them to get people to try them. But the early results were very promising, and he had been certain to make sure customers knew that these initial low prices were temporary.
Q.1) What factors should Hi-Flier take into account when considering whether to drop Konolta?
Q.2) At what stage of the PLC is the Konolta line? The Singh line? What can Pruitt do to speed acceptance of the Singh products? When will he know that discounting is no longer needed?
Q.3) Pruitt’s company is a distributor—they don’t make anything. What does this mean in terms of new product development? What role should Pruitt play in identifying and building relationships with lead users?
Q.4) What strategies can Pruitt take to stabilize his relationships with customers and grow account share?
CASE STUDY NO.6
The conference room was filled with the friendly buzz of chatter between colleagues when Marisa Hernandez entered. As she sat, she noticed that she was the last of the marketing staff to arrive for the budget meeting.
“OK, now that Marisa is here, we can get started,” smiled Tom Davis, director of marketing. “The purpose of this meeting is to review the budgets you have all submitted and then chop off 15 percent.” This remark was met with nervous laughter, as Tom smiled ruefully. “Sorry gang, but it’s true. If we can’t improve our profitability by another 5 percent, it seems that our parent company will sell us off after this year. So top management has asked everyone to reduce their costs by 15 percent without losing sight of their sales goals.”
Marisa groaned. She was relatively new and was responsible for managing trade shows and other special events, but she had been there long enough to know that the company had been wasting its trade show money in the past. With a little rearranging of the show schedule and the increase in budget she had asked for to build a new booth, she felt sure that she could increase the number and quality of leads enough to handle the 12 percent increase in sales that management had already asked for. Cutting 15 percent of the budget, though, eliminated the new booth.
Tom passed out copies of the summary budgets of each department. “Whoa, here’s the culprit right here,” exclaimed Shelly Tap, national sales manager. She slammed the copies to the table, saying, “Our trade show budget request is 30 percent higher than last year.” Turning to Marisa, she said, “I can’t cut our budget 15 percent and expect to reach the sales target, but if you cut yours to 5 percent less than last year’s, that’ll equal 5 percent of my budget.”
“But if I can upgrade the quality of leads you get, as well as the quantity, you can still achieve your sales targets,” replied Marisa, trying to hide her irritation. For some reason, she didn’t hit it off with Shelly.
“Oh, sure. Everyone knows that trade shows are just a wild party. We haven’t closed a lead from one in years.” Shelly, along with all of the other staff; laughed. “Look, Tom, let’s put our money where the results are, and that’s in sales.”
“Yeah, Tom, and you know how important advertising is to our image,” added Brian Black, director of advertising. “We can’t possibly cut 15 percent.”
At this point, Marisa began to worry about keeping her job.
Q.1) What type of information does Marisa need to justify her proposed budget? Where would she go to get that information?
Q.2) Similarly, how would any other marketing managers justify their budget requests?
Q.3) What type of budgeting does it seem the company does now? What should the company do? What challenges will Tom face in implementing a different budgeting process? How should Tom go about that implementation?
CASE STUDY NO. 7
DIRECT MARKETING THE NANOV
NanoViz is a new company started by Billie Jean Hudak and Martin Wilkomen, two former tech heads, to develop and market small projection equipment for computer-driven presentations. For example, the current product line features four models ranging in price from $1,399 to $1,899. The firm’s leading seller, the NanoV, sells for $1,599 and allows a presenter (a salesperson, professor, seminar leader, etc.) to connect the sandwich-sized projector to the video-out port on almost any VCR or notebook computer. Clear images are then projected on an ordinary screen or—in a pinch—even a wall. One leading computer magazine recently reviewed the NanoV in its new products feature, calling it “the next best thing to buying a cinema.”
Hudak and Wilkomen don’t want to sell through intermediaries, having been burned in their earlier days by a large department store that reneged on a large order of another home entertainment product. The partners have asked you to pick up the pieces of the marketing plan begun by Billie’s father, just before he had a near-fatal heart attack.
NanoViz is working with little cash right now. Over 90 percent of its $500,000 in assets are tied up in parts (30 percent) and finished goods inventory (70 percent). Product costs run about $330 at the bottom end of the line to about $710 at the top end. Direct costs on the NanoV are $759. About $40,000 is on hand now for marketing, but crisp and early sales could fund substantially more marketing activities.
The following costs illustrate a number of the media options available (M 1,000; MM = I million):
Four-color ad in PC Tec magazine (circ. = 1.1 MM) $ 14000
Black-and-white ad $ 8000
Four-color ad in Sales & Marketing Tips mag. (circ. = 2.6 MM) $ 18000
Black-and-white ad in Wall Street Today (circ. 21 MM per column inch> $600
Mailing lists: “Big Business’ (n 125,407) $80/M
University info Technology directors (n = 27 M) $70/M
Razor Image catalog six-mo. hot list (n = 49,379) $90/M
Trade show exhibit and receptions/demo $5K to 15000
Website development: $5M-$25M; $10,000/mo. for upkeep
Postal charges as low as $20
Telephone service bureau: outbound calls @$1.50 ea.; inbound calls @ $4.50 ea.
1. Outline communication objectives against targets, appeals, media, and expenditures over the coming year.
CASE STUDY NO. 8
ADVERB: SPECIALISTS IN INTEGRATION
Terry Hespers had just returned to campus from the Mother’s Day weekend when the call came. It was / the head of client services, Bud Franklin, offering her an entry position on his team—a competitive salary; plus 5 percent commission. AD verb is a growing marketing agency specializing in serving companies in the building trades. Terry was delighted to land this job. In the semester-long internship at AD verb, she so impressed the founder and president, Char Franklin, with her resourcefulness and attention to detail he dubbed her head of the “Department of Class.”
Two months have now passed since Terry graduated from Landgrant State with a degree in marketing and supporting course work in information systems. She was one of two new corners to AD verb in the training program and enjoyed both the client interaction and excellent mentoring from the Franklins. Chas was the visionary, and time and again he painted the picture for Terry He saw the early promise of CRM a decade ago and left an executive position at a major ad agency to build the IT platform to allow his new company to manage customer databases for its clients: He called it AD verb because he thought the term simply conveyed the dynamic capabilities so necessary in the new marketing environment. “Ad” spoke to the firm’s ability to reach a target market in the right medium with copy and art that delivered a message. The “verb” component of the name meant action.
“We’re not just here to build awareness, sprinkle happy thoughts,” he told Terry when he stopped by one afternoon as she proofread some copy. “This is about getting our clients’ prospects to show up at the trade show, or pick up the phone, or log on and reorder. ACT! Once that behavior becomes part of the customer database, we want to maximize it—up-sell, cross-sell, refer. Retain that customer. We help our clients be proactive in customer retention. It’s all about ACTION.”
All of Terry’s training and wits were being tapped the next Wednesday over lunch with Earl Crossworth. Adverb’s client services people had been pursuing the architectural firm Schniky, Bilge and Crossworth (SBC) for years. SBC had enjoyed a decade of 15 percent average annual growth as a result of a strong and spreading reputation for school design. The firm had a lackluster website, and for years its only advertising has been a quarterly ad on the back of New School magazine. In his own frustration with SBC, Bud once said the whole firm was “nearsighted from too much time at the drafting table.” Crossworth tended to dub it “professionalism” rather than myopia. “Our concepts, renderings, and the completed structures themselves are worth more than all the ads in the industry,” he once told the local paper.
Terry happened to achieve this breakthrough appointment after some careful research sparked by her reading of a brief article that described a SBC project that had soured in Memphis. Ongoing investigations have yet to determine whether design flaws or contractor negligence caused the foundation to collapse in the renovation of an historic urban school. Two workers were seriously injured in the collapse. When she called Crossworth to ask for the appointment, he confided,
I take about two calls a day from school superintendents or board members. About half are former clients, the others from schools where we have proposals in the works. I think I put their mind at ease about the tragedy in Memphis, but I worry about some of our contacts that haven’t called. Frankly, I sometimes wonder f we haven’t become too dependent on academic projects.
Terry didn’t intend to linger on the negative over lunch. She saw this as an opportunity to sow a customer orientation at SBC. She estimated that nearly 65 percent of its business each year was with school districts or universities for whom it had designed previous school buildings. She planned to print a few screen captures of the websites of SBC’s top rivals. She wondered what else she should bring up or show briefly over lunch in order to get Crossworth to invite AD verb to make a formal presentation next month. If Terry could lead the team from AD verb to win this account, she’d not only make the Franklin brothers proud, she would have a strong business base for years to come, and those pesky college loans might soon go away.
Terry wanted Bud to come too, but he just rolled his eyes at the suggestion and said, “I’ve already had my cracks at SBC; I’d be a liability.”
1. Help Terry prepare a one-page agenda for introducing IMC to Crossworth over lunch.
CASE STUDY NO. 9
Kevin Cage, general manager of Wind Technology, sat in his office on a Friday afternoon watching the snow fall outside his window. It was January 1991 and he knew that during the month ahead he would have to make some difficult decisions regarding the future of his firm, Wind Technology. The market for the wind profiling radar systems that his company designed had been developing at a much slower rate than he had anticipated.
During Wind Technology’s 10-year history the company had produced a variety of weather-related radar and instrumentation. In 1986, the company condensed its product mix to include only wind-profiling radar systems. Commonly referred to as wind profilers, these products measure wind and atmospheric turbulence for weather forecasting, detection of wind direction at NASA launch sites, and other meteorological applications (i.e., at universities and other scientific monitoring stations). Kevin had felt that this consolidation would position the company as a leader in what he anticipated to be a high- growth market with little competition.
Wind Technology’s advantages over Unisys, the only other key player in the wind-profiling market, included the following: (1) The company adhered stringently to specifications and quality production; (2) Wind Technology had the technical expertise to provide full system integration. This allowed customers to order either basic components or a full system including software support; (3) Wind Technology’s staff of meteorologists and atmospheric scientists provided the customer with sophisticated support, including operation and maintenance training and field assistance; (4) Finally, Wind Technology had devoted all of its resources to its wind-profiling business. Kevin believed that the market would perceive this as an advantage over a large conglomerate like Unisys.
Wind Technology customized each product for individual customers as the need arose; the total system could cost a customer from $400,000 to $5 million. Various governmental entities, such as the Department of Defense, NASA, and state universities had consistently accounted for about 90 percent of Wind Technology’s sales. In lieu of a field sales force, Wind Technology relied on top management and a team of engineers to call on prospective and current customers. Approximately $105,000 of their annual salaries was charged to a direct selling expense.
The consolidation strategy that the company had undertaken in 1986 was partly due to the company being purchased by Vaitra, a high-technology European firm. Wind Technology’s ability to focus on the wind-profiling business had been made possible by Vaitra’s financial support. However, since 1986 Wind Technology had shown little commercial success, and due to low sales levels, the company was experiencing severe cash-flow problems. Kevin knew that Wind Technology could not continue to meet payroll much longer. Also, he had been informed that Vaitra was not willing to pour more money into Wind Technology. Kevin estimated that he had from 9 to 12 months (until the end of 1991) in which to implement a new strategy with the potential to improve the company’s cash flow. The new strategy was necessary to enable Wind Technology to survive until the wind- profiler market matured. Kevin and other industry experts anticipated that it would be two years until the wind- profiling market achieved the high growth levels that the company had initially anticipated.
One survival strategy that Kevin had in mind was to spin-off and market component parts used in making wind profilers. Initial research indicated that, of all the wind-profiling system’s component parts, the high-voltage power supply (HVPS) had the greatest potential for commercial success. Furthermore, Kevin’s staff on the HVPS product had demonstrated knowledge of the market. Kevin felt that by marketing the HVPS, Wind Technology could reap incremental revenues, with very little addition to fixed costs. (Variable costs would include the costs of making and marketing the HVPS. The accounting department had estimated that production costs would run approximately 70 percent of the selling price, and that 10 percent of other expenses—such as top management direct-selling expenses—should be charged to the I-DIPS.)
High-Voltage Power Supplies
For a vast number of consumer and industrial products that require electricity; the available voltage level must be transformed to different levels and types of output. The three primary types of power supplies include linears, switchers, and converters. Each type manipulates electrical current in terms of the type of current (AC or DC) and/or the level of output (voltage). Some HVPS manufacturers focus on producing a standardized line of power supplies, while others specialize in customizing power supplies to the user’s specifications.
High-voltage power supplies vary significantly in size and level of output. Small power supplies with relatively low levels of output (under 3 kV’) are used in Anne that produce seemed Wind money from to improve necessary communications equipment. Medium-sized power supplies that produce an output between 3 and 10 kV are used i9 a wide range of products including radars and lasers. Power supplies that produce output greater than 10 kV are used in a variety of applications, such as high- powered X-rays and plasma-etching systems.
Background on Wind Technology’s HVPS
One of Wind Technology’s corporate strategies was to control the critical technology (major component parts) of its wind-profiling products. Management felt that this control was important since the company was part of a high-technology industry in which confidentiality and innovation were critical to each competitor’s success. This strategy also gave Wind Technology a differential advantage over its major competitors, all of whom depended on a variety of manufacturers for component parts. Wind Technology had successfully developed almost all of the major component parts and the software for the wind profiler, yet the development of the power supply had been problematic.
To adhere to the policy of controlling critical technology in product design (rather than purchasing an HVPS from an outside supplier), Wind Technology management had hired Anne Ladwig and her staff of HVPS technicians to develop a power supply for the company’s wind-profiling systems. Within six months of joining Wind Technology, Anne and her staff had completed development of a versatile power supply which could be adapted for use with a wide variety of equipment. Some of the company’s wind-profiling systems required up to ten power supplies, each modified slightly to carry out its role in the system.
Kevin Cage had delegated the responsibility of investigating the sales potential of the company’s HVPS to Anne Ladwig since she was very familiar with the technical aspects of the product and had received formal business training while pursuing an MBA. Anne had determined that Wind Technology’s HVPS could be modified to produce levels of output between 3 and 10 kV. Thus, it seemed natural that if the product was brought to market, Wind Technology should focus on applications in this range of output. Wind Technology also did not have the production capabilities to compete in the high-volume, low-voltage segment of the market, nor did the company have the resources and technical expertise to compete in the high-output (10 kV+) segment.
The Potential Customer
Power supplies in the 3—10 kV range could be used to conduct research, to produce other products, or to place as a component into other products such as lasers. Thus, potential customers could include research labs, large endusers, OEMs, or distributors. Research labs each used an average of three power supplies; other types of customers ordered a widely varying quantity.
HVPS users were demanding increasing levels of reliability, quality, customization, and system integration. System integration refers to the degree to with other parts of a system are dependent upon the HVPS for proper functioning, and the extent to which these parts are combined into a single unit or piece of machinery.
Anne had considered entering several HVPS market segments in which Wind Technology could reasonably compete. She had estimated the domestic market potential of these segments at $237 million. To evaluate these segments, Anne had compiled growth forecasts for the year ahead and had evaluated each segment in terms of the anticipated level of customization and system integration demanded by the market. Anne felt that the level of synergy between Wind Technology and the various segments was also an important consideration in selecting a target market. Exhibit 1 summarizes this information. Anne believed that if the product was produced, Wind Technology’s interests would be best served by selecting only one target market on which to concentrate initially.
To gather competitive information, Anne contacted five HVPS manufacturers. She found that the manufacturers varied significantly in terms of size and marketing strategy (see Exhibit 2). Each listed a price in the $5,500—$6,500 range on power supplies with the same features and output levels as the HVPS that had been developed for Wind Technology. After she spoke with these firms, Anne had the feeling that Wind Technology could offer the HVPS market superior levels of quality, reliability, technical expertise, and customer support. She optimistically believed that a one-half percent market share objective could be achieved the first year.
Promotion If Wind Technology entered the HVPS market, they would require a hard-hitting, thorough promotional campaign to reach the selected target market.
Three Factors made the selection of elements in the promotion mix especially important to Wind Technology: (1) Wind Technology’s poor cash flow, (2) the lack of a well- developed marketing department, and (3) the need to generate incremental revenue from sales of the HVPS at a minimum cost. In fact, a rule of thumb used by Wind Technology was that all marketing expenditures should be about 9 to 10 percent of sales. Kevin and Anne were contemplating the use of the following elements:
1. Collateral Material
Sales literature, brochures, and data sheets are necessary to communicate the product benefits and features to potential customers. These materials are designed to be (1) mailed to customers as part of direct-mail campaigns or in response to customer requests, (2) given away at trade shows, and (3) left behind after sales presentations.
Because no one in Wind Technology was an experienced copywriter, Anne and Kevin considered hiring a marketing communications agency to write the copy and to design the layout of the brochures. This agency would also complete the graphics (photographs and artwork) for the collateral material. The cost for 5,000 pieces (including the 10 percent markup for the agency) was estimated to be $5.50 each.
2. Public Relations
Kevin and Anne realized that one very cost-efficient tool of promotion is publicity. They contemplated sending out new product announcements to a variety of trade journals whose readers were part of Wind Technology’s new target market. By using this tool, interested readers could call or write to Wind Technology, and the company could then send the prospective customers collateral material. The drawback of relying too heavily on this element was very obvious to Kevin and Anne—the editors of the trade journals could choose not to print Wind Technology’s product announcements if their new product was not deemed newsworthy.
The cost of using this tool would include the time necessary to write the press release and the expense of mailing the release to the editors. Direct costs were estimated by Wind Technology to be $500.
3. Direct Mail
Kevin and Anne were also contemplating a direct-mail campaign. The major expenditure for this option would be buying a list of prospects to whom the collateral material would be mailed. Such lists usually cost around $5,000, depending upon the number of names and the list quality. Other costs would include postage and the materials mailed. These costs were estimated to be $7,500 for a mailing of 1,500.
4. Trade Shows
The electronics industry had several annual trade shows. If they chose to exhibit at one of these trade shows, Wind Technology would incur the cost of a booth, the space at the show, and the travel and incidental costs of the people attending the show to staff the booth. Kevin and Anne estimated these costs at approximately $50,000 for the exhibit, space, and materials, and $50,000 for a staff of five people to attend.
5. Trade Journal Advertising
Kevin and Anne also contemplated running a series of ads in trade journals. Several journals they considered are listed in Exhibit 3, along with circulation, readership, and cost information.
6. Personal Selling
(a) Telemarketing (Inbound/Inside Sales)2. Kevin and Anne also considered hiring a technical salesperson to respond to HVPS product inquiries generated by product announcements, direct mail, and advertising. This person’s responsibilities would include answering phone calls, prospecting, sending out collateral material, and following up with potential customers. The salary and benefits for one individual would be about $50,000.
(b) Field Sales. The closing of sales for the HVPS might require some personal selling at the customer’s location, especially if Wind Technology pursued the customized option. Kevin and Anne realized that potentially this would provide them with the most incremental revenue, but it also had the potential to be the most costly tool. Issues such as how many salespeople to hire, where to position them in the field (geographically), and so on, were major concerns. Salary plus expenses and benefits for an outside salesperson were estimated to be about $80,000.
Q.1) Analyze the case in detail.
CASE STUDY NO. 10
TEXAS INSTRUMENTS: DIGITAL SIGNAL PROCESSORS
Texas Instruments (TI) is a large ($12 billion sales in 1995), global, technology-based corporation with R&D manufacturing operations throughout the world. Although it is well known for its consumer products (calculators and laptop computers), these products represent a relatively small part of TI’s business worldwide.
The central business (and core technologies) of Texas Instruments are
Semiconductor components: This represents over half of Ti’s annual sales volume worldwide. This business designs, develops, manufactures, and delivers integrated circuit chips for a wide variety of applications to original equipment manufacturers (OEMs) worldwide. These components are the heart of the intelligent products from computers and industrial equipment to high-end 7½ and stereos.
Defense systems: TI is a world-leading supplier of tactical defensive products for the US. and allied military services.
Materials and controls: Texas Instruments has a proprietary “clad metal” process, which enables the molecular bonding of two dissimilar materials. This technology is at the core of a large business in thermostatic controls and protectors, automotive trim and coinage metal, and other specialty material products.
Information technology: TI is developing and marketing a variety of “client—server” software applications for use in a spectrum of business situations.
Personal productivity products: This TI line includes calculators, mostly sold in large sets to schools for classroom use, as well as laptop computers and other “personal” digital products.
With manufacturing facilities in over 40 countries and nearly 50,000 employees worldwide, Texas Instruments represents a major force in most of the markets it serves. The general public throughout the globe knows TI for its consumer products, but individual target segments know the products TI produces for that specific segment. Texas Instruments sells everything from ordnance to the military, to calculators for classroom use, under the parent “Texas Instruments” brand name.
Texas Instruments Semiconductors
The core of Texas Instruments’ business, representing the bulk of its annual revenues and the largest share of its employee base, are semiconductor integrated circuit products. As mentioned, these products are the working chips that power everything from today’s computers, to intelligent products such as answering machines, stereos, and medical technologies—anything with logic and memory. Texas Instruments manufactures one of the broadest lines of semiconductor product families.
One element of the Texas Instruments business mix is the dynamic random access memory (DRAM) business. Dynamic random access memories—the heart of the working memory of many computer systems—are especially in demand when the desktop personal computer business is on the upswing. Because of the entry of manufacturers around the world, DRAM pricing is largely market driven.
The price for building a new factory to produce DRAMs is quite high ($500 million per factory). The inherent volatility in this business, coupled with its commodity like pricing, makes it a difficult business to be in over the long haul.
Texas Instruments has significant capacity in DRAMs, but over the past few years has moved most of its DRAM capacity into joint venture arrangements with customers having a large and stable demand such as Acer Computer, Hitachi, Cannon, and Hewlett-Packard.
Digital Signal Processors (DSPs)
Over quite a few years, Texas Instruments had developed core technologies and competencies in the processing of electronic signals. Learning to understand and process signals from various sorts very rapidly as well as to compress, store, manipulate, and retrieve signals is a core competency of Texas Instruments. Building on this competency Texas Instruments was working to develop a lead in the more custom-oriented, less volatile, digital signal processing (DSP) market.
DSPs enable many exciting features in the electronic products of which they are a part. Digital answering machines, high-end stereophonic receivers, computer workstations processing video signals, and special color displays—all rely on digital signal processing technology. DSPs enable electronic design engineers to put much more “sizzle” into the products they design at low cost. However, because DSPs are more of a custom than a commodity product, DSP designers need to be cautious about their source of supply. If they commit to a DSP in a piece of equipment they are designing, such as a stereo, they need to be absolutely certain that the supplier can meet their demand with the right parts at the right price at the right time. In addition, developments in DSP technology are very rapid, so staying at the state of the art can be difficult in this area.
Because of its critical competencies in this area, the opportunity for better profitability and less volatility, Texas Instruments has decided to focus its semiconductor business around digital signal processing.
Digital signal processors are finding their way into a wide variety of products including
- High-end TVs
- TV cameras
- Video recorders
- Answering machines
- Automobiles (in braking systems, engine control, traction control, entertainment, and heating and cooling systems)
- Digital cellular telephones
- Digital pagers
The DSP Market
Texas Instruments sells its DSP and other semiconductor products largely through a direct sales force who are typically focused on larger national accounts, where a full profile of “silicon, software, service, and support” can be provided. In addition, such manufacturers, once a Texas Instruments IC is “designed in,” often require very strict (JIT) delivery ground rules and a direct electronic connection (electronic data interface [EDI]) to their manufacturing operation.
The remainder of the customers for these products are treated through a two-tier distribution scheme, working through large, value-added distributors and a variety of smaller value-added resellers who develop specific “solutions” that incorporate TI digital signal processors. The value-added resellers produce full printed circuit boards that accomplish a specific application, which are then sold to companies that incorporate them in their products.
Because of their importance to the OEM using the DSPs, the decision to buy and use digital signal processors is an important one. First of all, not all companies are aware of digital signal processing technology and what it can bring to their products. Some would rather utilize a standard off-the- shelf microprocessor, such as Intel’s Pentium processor, and build the application that they require using software solutions that run on a more general-purpose chip. The digital signal processor has advantages over the general- purpose processor for many applications, because it’s more customized to the sorts of end equipment solutions that are required. DSPs are faster, more versatile, and more economical in many applications than the general- purpose processor or other approaches to a solution. The “value-in-use” of the DSP in many design solutions can be three to five times higher than alternatives. To some leading- edge companies this is a well-known fact; to many companies who have not yet explored the use of DSPs, this was not fully known.
Perceptions of TI in the Marketplace
TI was investigating the possibility of repositioning itself in the marketplace around becoming the leading supplier of digital signal processing solutions. Before beginning to do this, TI market research was conducted in major regions of the world in 1993. At that time the current perceptions of the company were as follows:
Sixty-seven percent of design engineering managers think of TI as an “off-the-shelf—oriented” company.
Only 31 percent believe that TI supplied the integrated circuits that allow customers to differentiate their design.
Focus groups consistently generated statements such as “TI is all over the place. They don’t seem to have a focus.”
“They have a 1970s image.”
“TI is a jigsaw puzzle that no one has put together.”
This general perceptual pattern had resulted from the fact that up to this point, most of TI’s market communications had been fairly diffuse and run on a division-by-division basis. So although TI had leadership products across many product categories in the semiconductor business, no one central unifying position had surfaced for Texas Instruments. As a result, the sales team was having trouble positioning TI in this emerging field of digital signal processing. It was not easy to convince engineers to design a product into their end equipment or to get purchasing agents to pay a price premium for TI DSPs.
Texas Instruments’ “Total Integration”
TI had experimented with a theme of “Total Integration” for a couple of years, which essentially may be summarized as follows:
Satisfying the needs of today’s electronic original equipment manufacturer (OEM) requires more than leading edge semiconductor components and solutions. It requires “That Integration.”
Total integration is TI’c ability to bring together the best of
- Silicon technologies
- Software application tools
TI’s approach to integration includes more than the ability to put more functions on a single integrated circuit silicon chip. Total integration brings together the necessary technologies, tools, information, and talents needed to help TI customers—designers of computers, stereos, TVs, cellphones, and so on—to move on to their next level of integration faster and with a better product.
A communications campaign based on this essential proposition was implemented and tested, but results were not as powerful in creating a position for TI as desired. There wasn’t a single, focused benefit that could be associated with the name Texas Instruments that was crisp, clear, and tightly defined.
Texas lnstruments” Digital Signal Processing Solutions”
In 1994, Texas Instruments decided to focus its semiconductor market communications on a more concentrated proposition: Texas Instruments is the leading provider of “Digital Signal Processing Solutions.” Basically, TI wanted to reach its more critical customers— design engineers in certain original equipment manufacturers—with the message that if their application was of a certain (very demanding) category; a special sort of integrated circuit called a digital signal processor (DSP) was the best solution, and TI DSPs were the easiest to use, state of the art, and overall best value.
The Role of the Design Engineer
The design engineer is the most critical component of the buying chain for TI digital signal processors. The design engineer inside a large company, such as Sony, is responsible for the overall design of a consumer electronic product, such as a TV radio, or answering machine. As they’re working their design, if they decide to “design in” an integrated circuit from Texas Instruments, Texas Instruments then has the chance to deliver many integrated circuits over the life of the manufacture of that product. Capturing the design engineer at the design-in phase of the product life cycle is crucial to the selling process.
Digital signal processors are not the easiest technology to use. To enable designers to simulate what DSPs will do as part of their product designs, a suite of software tools is necessary Extensive documentation, applications information, and other technical support may be required as part of a design-in. Sometimes DSPs represent a more risky; although potentially much more cost-effective, solution than more conventional means. Design engineers are not rewarded for taking great risks, especially manufacturing risks in OEM products. They want solutions that position their products as leading edge, get the product to market quickly at competitive prices, and assure them of never being held up because of lack of supply of parts they had specified in the design.
Because of the strategic nature of a DSP design-in, design engineers often could not make the decision to employ DSPs on their own. If they specified a specific part from a specific company, and that company—for any reason—couldn’t live up to specifications, deliver or just- in-time standards, the results could be disastrous for their product. Therefore, DSP design-ins often involved other “influentials” in the purchase chain, both up and down. Senior management, engineering management, and product managers were often involved in the process, although most lacked full knowledge of what this product family could do. In addition, the purchasing department inside the OEM often played a key role.
Design engineers tend to be sponges for information of use to them in doing their job. Recent surveys have shown that they gain information from wherever they can: the Internet, trade magazines, conferences, journals, peer networks, university contacts, and manufacturers’ representatives.
For a group of design engineers who had embraced the digital signal processing product family, the whole notion of DSPs as part of their solution was cool. They seemed to take great joy in pushing the envelope of what the DSP could do, which in turn enabled them to load their products with a wide variety of features and benefits beyond what was typically expected—at very reasonable prices.
Integrated Market Communications
At the beginning of 1994, Texas Instruments began the design and implementation of an integrated market communications program, targeted at building a leadership share of the market in the high-growth digital signal processing business. TI already had a significant share of this market, but TI’s target was clear: to be number one in this market in less than a two-year period. Key competitors in this area could be viewed as quite formidable. Motorola, Analog Devices, and AT&T Microelectronics all were suppliers of DSPs.
Beyond that, a powerful force in the semiconductor industry, Intel, was beginning to discuss how its general- purpose processors were becoming so powerful and so cost effective that it might be possible in the future to do what today’s DSPs do, at a better price with more flexibility, by utilizing general-purpose processors such as Intel’s Pentium. Intel has a great reputation and the enviable position of being the virtual standard in the industry for general-purpose microprocessors. Standards had not yet emerged for digital signal processors, although because of their use in a variety of special-purpose applications, it was unclear how standards could or should be established.
Q.1) What questions would you need to ask further to begin building an integrated market communications program for TI digital signal processors?
Q.2) What are the most important things you know now?
Q.3) What would you need to know?
Q.4) What are the key audiences who should be considered?
Q.5) Build a behavioral timeline that begins to address the desired beliefs and behaviors of each of these Audiences?
Q.6) Outline a brief IMC plan to accomplish the tasks set down in your behavioral timeline?
Q.7) How would you begin to compute the ROI on the program you’re beginning to build?