James Anderson, Marketing
spending more makes cents
Anderson researches how to market superior-value products
at the prices they deserve
introducing a superior product to the marketplace. It will
help your customers be more efficient and productive. It will
also save them money over the long haul.
more expensive than what theyre now using, and theyre
not inclined to make a change. How do you persuade them to
purchase your product?
Anderson, the William L. Ford Distinguished Professor of Marketing
and Wholesale Distribution, has been researching this perennial
marketing question. Its one being asked with increasing
urgency by companies in todays technology-driven marketplace.
customers to purchase higher-priced, higher-value products
can be a tough sell, Anderson acknowledges. Sometimes,
purchasing managers just buy the cheapest item, even if their
firms would be better off with the more expensive ones,
says the Kellogg professor. As long as it meets their
requirements, they just want to pay the lowest price possible.
has found that certain approaches seem to bear more fruit
than others. Whats most important, he says, is that
suppliers know the full value of their product offering --
the economic, technical, service and social benefits customers
receive in exchange for their purchase.
easy to give value away, but the challenge is, how do you
get an equitable return for your firm? Anderson asks.
If you can document the value created -- better performance,
lower costs -- the bigger the share you can capture for your
insight into how to convince firms in business markets to
purchase a better but pricier product, Anderson and his co-researchers,
Finn Wynstra, a professor at Eindhoven University of Technology
in the Netherlands, and James B.L. Thomson, a researcher at
The Economist Group in Cambridge, Mass., focused on a single
part -- a 10-horsepower motor -- that was being marketed to
chose the motor because it is replaced often, used in significant
quantities and employed in various kinds of equipment. This
particular model was being billed as a superior product that
would have a measurable impact on energy consumption and maintenance
costs. However, it was more expensive than the motors already
in place at the plants.
convince these companies to buy this part? Much seemed to
hinge on the level of responsibility borne by the person making
the decision, Anderson says. A plant maintenance manager responsible
for the overall cost of operations was more likely to OK a
slightly more expensive purchase to reduce long-term costs.
A purchasing manager rewarded strictly for meeting his or
her budget was less likely to do so, even if the transaction
would save money in the long run.
the customer with a list of respected competitors that have
tried the new product and found it worth the extra cost also
seemed to influence managers favorably, Anderson says. Involving
the customer in pilot programs to test the product was another
approach that seemed to undercut the reluctance to switch
to a more expensive motor.
seem to work? Guarantees, Anderson says. Assurances to replace
the item if it did not generate the promised cost savings
seemed, if anything, to prime customers risk aversion
by conjuring up notions of failure.
of the approach, companies must be able to explain why their
products are worth the extra cost, Anderson says. This documentation
can involve a fair amount of money and time to perform the
customer value research. But companies that do not do so risk
losing more down the road.