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Chapter 4 Business-to-Business Marketing 33~ According to Advertising Age, businesses spent over $50 billion on business-to business marketing in 1995.57 In order to examine the marketing methodologies used in the business-to-business marketing activity, we focus on six specific industries. The examples in this chapter have been culled from available literature, including the business press and technical reports, and also from personal interviews with exemplary businesses. The six industries selected came frown the suggestions of the expert pane] for this TCRP project, and include industries known for marketing and industries that are analogous to the public transit sector. The industries are: Package delivery or courier services Banking and finance Telecommunications Travel Insurance and health care Non-profits These six industries provide examples of most all of the marketing methodologies discussed in Chapter 2, including the use of sales forces, direct marketing, partnering, market research, market segmentation, and customer focus. The corporate examples are intended to show the diversity and scope of business-to-business marketing, and to provide some insight into techniques that might be applicable to transit-to-business marketing. The common thread throughout each of the industries (and the lesson for transit agencies) is the clear focus on the customer, even in the face of extreme competitive pressures. P8q~ 4-]

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1-ne88-~ i_M-~- Over the past 20 years, overnight courier services have experienced excellent growth, as the market for express delivery of packages has increased steadily. Much of these companies' volume comes from businesses sending packages to other businesses. Competition between the different players in this field can be very intense, with tens of millions of dollars spent each year on marketing different products and services to businesses across the country and around the world. Because of the highly competitive nature of this market, package delivery companies have been forced to employ a variety of interesting, innovative, and very individualized business-to-business marketing techniques. _ , . _ . .~ Phi .1 il FedEx commIssIon06 an independent i authority to compare FedEx and national competitors in terms of on-time delivery. ,~ A key step for the more successful companies in the field has been to determine their unique value or core competency. In their book The Discipline of Market 1,eaclers, Treacy and Wiersema argue that to become market leaders, companies must be operationally excellent, show product leadership, and develop customer intimacy. Operationally excellent companies provide middIe-of-the-market products at the best price, with the least inconvenience. Product leadership means offering the best product through continual innovation. Customer intimacy means cultivating relationships and providing not what the market wants, but rather what specific customers want. Market leaders must be good in each of these three areas, but must excel in one area. Treacy and Wiersema use Federal Express and Airborne Express as examples of operational excellence and customer intimacy.58 However, several of the package delivery companies have their own unique value or specialty. Federal Express (Fedex), for example, offers value by providing a high rate of service reliability at low cost. DHL Worldwide Express specializes in foreign deliveries, while Airborne Express offers value by developing innovative products that responc! to the needs of its customers. The marketing programs for each company is geared to communicating their unique value to their particular customers. The market leader in package delivery, Federal Express (Fedex), uses a variety of different marketing techniques to publicize its products, including direct mail, telemarketing, attendance at trade shows, anti a toil-free product hotline.59,60 FedEx was incorporated in 1971 with the business concept that a package delivery company that controlled its own airplanes could greatly increase service reliability over existing delivery operations. Their goal was to provide highly reliable service at low cost. FedEx expanded very rapidly during the 1970s, in large part because of an aggressive and innovative marketing strategy. When starting up service in a new city, FedEx would send a "blitz" team of 4 or 5 salespeople who would work for 2-3 weeks introducing business leaders to the services offered by FedEx. This personal selling effort was augmented by print ads in local media, followed by direct mail marketing to potential customers. Page 4-2

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"hess-to_s M~ketbq FedEx also co~n~nissioned an independent authority to perform a comparison between FedEx and local and national competitors in terms of on-time delivery. Widen this research discovered that FedEx performed significantly better, the findings were used in a series of print and television ads aimed at getting business shippers to try FedEx. FedEx also tested the television ads by comparing business growth in cities where the ads aired versus those where it did not. These evaluation efforts showed that the television ads had a very important impact on business decisions. As FedEx grew and increased its volume of business, the company began to take its marketing functions even more seriously, and exerted greater control over the marketing message by performing market research and by developing a more long-term strategic marketing plan. FedEx has continually developed new technologies that allow FedEx and its customers to closely track packages and to provide almost real-time status information about deliveries. Most recently, FedEx developed software to allow customers to easily generate their own mailing labels and to dial into FedEx's database to determine the status of particular packages. Such innovative use of technology allows FedEx to handle customers of any size without lots of hand- holding. FedEx also uses direct mad! to market to small businesses and new companies. For example, one of the expert pane! members for this project received a package from FedEx right after she incorporated. Tile package included a variety of mailing packets and pre-printed forms with her company name and address. Using FedEx for her was therefore extremely easy, and she became a loyal FedEx customer. In addition, FedEx publishes a magazine, Via FedEx, aimed at the secretaries and administrative assistants who make shipping decisions. This magazine has a circulation of over ~ million, I/3 of whom say that it has caused them to increase their usage of FedEx. Via FedEx provides advice to readers on topics such as how to set up and run a meeting and business protocol, while at the same time providing a soft sell for FedEx products in the form of advice or Questions & Answer columns.6' FedEx also employs a wide variety of television, radio, and print ads to make businesses aware of the different products that they offer. DHL Worldwide Express also uses a number of interesting advertising approaches. Similar to FedEx's market segmentation strategy with Via FedEx, DHL also targets secretaries and administrative assistants. DHL recently realized that its services were more popular with front office personnel such as secretaries than with back office personnel such as shipping managers. In an attempt to solve this problem and to generate new sales leads amongst back- office shippers, DHL sent direct mail packages to secretaries who have used DHL services, asking them to deliver an inner package to their shipping manager. The inner promotional packet encouraged shipping managers to also use DHL. In return for delivering the package, front-office personnel were entered in a contest to win a vacation. in a classic example of marketing research, DHL tested a number of different incentives for participation before fully unrolling the campaign; it turned out that a free vacation was the most FelEx Software encourages eustomersto do their own package labeling and delivery tracking, allowing F0dEx to handle customers of any size with minimal hand- holding. Page44

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Bll88~688-~ ~ M-~- compelling prize offer. Ells campaign generated a 15 percent response rate, which, compared to typical direct mad! rates of I-2 percent, indicates the success of this technique.62 An example of a new product introduction by DHL was known as VoiceShip, the purpose of which was to differentiate DHL from other shippers. Using a system developed by AT&T, shippers could leave a personal voicemai] message for the person to whom they were shipping. The package would arrive with instructions about how to retrieve the message, and the message could be recorded at any time up to the delivery of the package. This allowed shippers to include last minute information related to the package or to personalize their shipment. Both options were seen as important in competitive situations such as a project proposal, and equally useful in DHlL's foreign markets, where voicemai] is not common. This new service used a very targeted marketing strategy to reach shippers that could truly benefit from this flexibility. The marketing effort included targeted direct mail, public relations efforts, and promotions through the company's World Wide Web home page. A number of incentives and prize giveaways were also used (including a trip to anywhere in the world and free cellular phones and answering machines).63 Unfortunately, this service was not profitable enough to DHL, and was consequently canceled in September of 1996. Collaboration between AIrborne and PC eonnBctIons allows deliveries ofItems orIer06 aslate as 3:00 A.M.to be deliver04 later thalsame morning. In addition to the DHL example discussed above, a number of other shipping companies are using the World Wide Web to promote their products. Company home pages offer services such as self-service package tracking, automated price quotes, and the ability to arrange pickups. Customers also canread about the traditional services offered by shippers, giving them the opportunity to learn about rates, delivery schedules, and customized options. The World Wide Web is an extremely new marketing platform for many companies, and it may take more time before their success can really be measured. In contrast to the mass marketing campaigns used by shippers such as FedEx, UPS, and DHL, Airborne Express relies much more heavily on personal selling. Airborne does not attempt to provide a narrow range of services to a wide variety of different customers, but rather provides a wide range of customized services to a smaller group of customers. Airborne creates a mutually beneficial partnership between itself and its client, working with each client to provide the specific services required for the client to be successfi~.58 Airborne realized very early on that it would be difficult to compete in a market already saturated by FedEx and UPS. Thus, instead of mass marketing or advertising, 98 percent to 99 percent of Airborne's selling takes place through face-to-face contact with companies that Airborne has identified as being suitable for the unique service they provide. As an example, Airborne has developed a close relationship with PC Connection, a mad! order computer software and hardware supplier. PC Connection has a warehouse connected with Airborne's Ohio hub. This allows phone orders to PC Connection as late as 3:00 AM to be processed and delivered later that very morning. Page 4-4

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Bu8ine88-~8 Maloney ~. .. . Individual Airborne sales representatives are in charge of keeping in contact with local customers and ensuring that all their needs are being met, while national account managers perform the same function for companies that do business nationwide. These account managers act as personal consultants to their clients, working with them to develop new services and to improve those that are already in place. The success of this highly personalized approach is confirmed by the fact that Airborne has been the fastest growing package delivery company over the last ten years (although they still lag behind FedEx and UPS in overall market share). Airborne Express is an example of a company that markets itself not simply through direct sales, but also by developing innovative products that respond to the needs of its customers. This development of a stable relationship between supplier and consumer leads to greater customer loyalty, which can help to ensure long-term success. On the other end of the spectrum, UPS and FedEx have successfully marketed themselves (and the reliable services they provide) using a great deal of mainstream advertising in a wide variety of media. Although less personalized and customized, this approach creates a great deal of brand exposure, which can help to ensure a healthy market share. One conclusion to draw from these examples is that in the package delivery , industry (as in many other industries), no one marketing technique is best. The ~ In package best companies have taken a comprehensive marketing approach to the design of I dIlliV~ry no on' products and services, have determined their unique value, and have developed , marketing methods to promote this unique value. DHL,, Airborne, and Fedders ~ marketing success is also attributable to the rigorous market segmentation which clearly approach Is best. defines target markets, businesses, and customers. Other marketing methods tI,at transit agencies can borrow (and which several transit agencies have Bread ~ The same is true implemented) include the use of advertising to support a sales team for large for tranelt. companies, the 1lse of direct mail to reach small companies cost-effectively, the use of informative newsletters to both educate and market, the use of awards for customer support, and the use of new technologies like the Internee or telephone technologies to provide product information and enhancements. =I,= The banking sector is currently undergoing tremendous change due to deregulation of the industry. Since the nid-l98Os, deregulation has led to a significant number of mergers and acquisitions throughout the United States. Since much of the most lucrative banking transactions come from relationships with businesses, newly merged companies are looking to retain existing business associations and to gain new ones. In this environment, professional marketing has become a very important element of business success. Market research has been used to inform the design of new products and services, and overall marketing strategies Pagers

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_- ~ May - t Some very successful banks hay. closely ~ Integrated their ,~ marketing and product development i functions in order to provide produet~ and service' betI0r tailored to oostemor needs have been developed to promote new products and to enhance corporate images. A detailed account of bank marketing is provided in Chapter 8, which contains a case study of Bank of America. In the banking industry, as in the package goods industry, marketing to large corporations is usually accomplished with a field sales force, whereas direct marketing techniques are preferred for marketing to small businesses and individual consumers. Banks frequently use marketing techniques such as direct mail, telemarketing, and media advertising as vehicles for introducing new products.64~65'66 Some very successful banks have closely integrated their marketing and product development functions in order to provide products and services better tailored to customer needs. XYZ Bank (not its real name) is an example of a bank that integrates marketing into its entire product development process. Within XYZ Banks, the Product Management department develops a marketing campaign simultaneously with the development of a new product or service. Product developers are given full responsibility for the product and its success, and are expected to perform a full cost-benef~t analysis using estimated expenditures (in all areas) and revenues (directly related to the product). XYZ's marketers prepare a yearly marketing plan by looking at the strengths and weaknesses of each product and then deciding which ones to market heavily. At the same time, the marketers identify areas where new products are needed and take steps to begin product development. Marketing is not seen merely as an expense to be allocated, but as an activity with its own set of costs and benefits that must be economically justified in order to be approved. Further, marketing is seen as an integral part of the Bank's operations, not just as a costly activity with little measurable benefit.67 An integral part of this process of developing new products is performing market research. Only through this research can banks understand the characteristics of customers and their reactions to future products. XYZ Bank takes this process so seriously that they perform market research almost continuously throughout the year. XYZ also coordinates focus groups with current customers to help develop advertising campaigns and to determine reactions to existing and proposed products. XYZ also tracks data about different products and marketing campaigns to determine customer reaction to both. They also test their marketing campaigns and products heavily by sending out different test direct mailings and theta tracking response rates, or by testing out ~ new, bank serv ice at a select number of banks before unrolling it company-wide. In past years, XYZ has conducted a statewide market research audit in its home state, performing 1/2 hour telephone interviews to ask current customers about all of the XYZ Bank accounts they currently hold.67 As another example of customer-driven product design, Citibank in Germany was able to attract many younger customers away from German banks simply by offering more services carefully designed around the specific needs of target customers aged 25-40 years old. TI,is customer-driven product design, Pag94~

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Ib~-to_8 Mikes combined with advertising and promotion that also was targeted at that particular market segment, allowed Citibank to develop a meaningful market share quite rapidly.64 New computer and telecommunications technologies have been crucial to helping banks integrate their marketing and product development functions. For example, BayBank in Boston has created an extensive telephone banking system which gives customers the ability to check balances, transfer money, and pay bills over the phone. This system brings in as much revenue as 30 branches while at the same time providing customers with the convenience of 24-hour banking. Banks also are beginning to offer loan application and approval over tile phone, thereby reducing demand on loan officers at bank branches. To help communicate these choices to customers, BayBank has created a mail-out catalog of services (modeled after the L.~. Bean Catalog). which customers can use to select among the various bank services.66 The use of a business database has become quite important to the banking industry, since transaction records provide a rich source of information about customer behavior.65 Capital One Financial Corporation has an entire Information Services division devoted to a process known as data mining, by which new information can be extracted from an existing source of data. This precise picture of customer behavior has translated into marketing that is targeted toward very specific market sectors. In addition, this in-depth knowledge allows Capital One to be on the leading edge of new product development. Capital One has used this information on the previous behavior of customers to develop the first credit card balance-transfer option and, more recently, to develop a large number of targeted credit products such as student credit cards and affinity cards.68 Database customer information is also used by banks to target customers with direct marketing and telemarketing campaigns, to identify customers who can benefit from new services, and to analyze the profitability of individual branches and customers in order to find areas where financial improvements can be made. XYZ Bank, for example, has adopted a system of codes to track different types of customers and transactions, thereby facilitating the use oftheir database. MBNA Corporation also sees product development as an extremely important part of marketing, as evidenced through its affinity credit card arrangement with over 3,500 organizations. By developing products tailored to the individual needs and wants of its customers, MBNA has become the second largest credit card issuer in the United states.69 Banks also use market segmentation quite heavily to target their products at specific groups. XYZ Bank has a number of special banking packages, including special services aimed at preferred customers such as car dealers, realtors, and lawyers. Business markets are segmented mainly by the size of the companies, and products and advertising campaigns are developed that respond to the needs of the different segments. By using a database with a wide variety of customer information, they are able to identify very narrow market segments and aggressively target each with specific services that will meet their needs. XYZ also uses database information to develop advertising campaigns directed Page 4-7

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Mom- at very specific market segments. PaineWebber Group uses market segmentation in its business telemarketing efforts to target companies that might be interested in the different products and services that they provide.70 In addition to this general product and service marketing, banks also perform marketing intended to promote their overall image. In the crowded New York City market, Chemical Bank has sponsored a number of different activities aimed simply at gaining name recognition. More specifically, Chemical has sponsored a major golf tournament, the New York City Marathon, and several other athletic events in the area.74 XYZ Bank in New England uses television advertising as a way to promote its own image, while print and poster ads are used to promote specific services. And Chase Espana, the Spanish division of Chase Manhattan, launched a marketing campaign to ensure float the negative financial performance of its consumer banking operations would not have an adverse effect on its business banking image.72 . .. . .. Preserving it customer In ; loyally has become an important goal for many banks, since it I' far cheaper to create more revenue from x~st~ng customers than It Is to attract new 1i consumers. Preserving customer loyalty has become an important goal for many banks, since it is far cheaper to create more revenue from existing customers than it is to attract new customers. Banks, as a first priority, attempt to create and foster a long-term relationship between themselves and their customers. For example, Chemical Bank sponsors a tree Radio City Music Hall performance open only to chosen customers; Chemical distributes free baseball tickets to preferred customers.74 XYZ Bank has created special teller windows for preferred customers, giving them faster, more sophisticated service for their special banking needs. Often, XYZ Bank's design and marketing of new services is aimed at keeping existing customers or increasing these customers' use of XYZ bank services. They also will provide new services that take business away from older bank services in order to continue providing a high level of service to customers and therefore stay competitive. CoreStates Bank, on tile other hand, accumulates customer information to identify customers that are likely to leave their bank, and targets them with marketing efforts aimed at keeping their business.73 PaineWebber Group's approach is to establish a strong relationship between clients and their bankers. When marketing to prospects, PaineWebber markets more than a specific set of products; PaineWebber is equally aggressive about stressing its broad financial services capabilities, professionalism, and willingness to tailor its services to the needs of the client. While PaineWebber's product group is in charge of developing new products for customers, their client banking group deals with catering to individual clients and customizing products that have already been developed. The client bankers thus act as an advocate for each customer within the bank. This system allows PaineWebber to work effectively for all its clients helping to ensure a mutually profitable long-term relationship. 70 As is clear from the previous examples, the banking industry has been an important innovator in marketing products to consumers and small businesses. One key to the success of a number of banking industry leaders has been the PB9B4~

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Ib-88-t8~ S8 Market - integration of the ~narketing function with banking operations. Product design, quality, and customer satisfaction are, for the most part, linked to the development of a comprehensive marketing strategy. This can be a valuable lesson for transit providers. Alan Hoffman writes in Building New Transit Markels, "[transit] marketing has tended to focus on revenue and ridership, while operations has tended to focus on costs and efficiency, leading to a built-in conflict between marketing's insistence on change and operations' concern with caution." 74 Perhaps future program development in the transit sector can better integrate the needs and concerns of customers with the design and implementation of transportation services. I~3C The telecommunications industry has gone through tremendous change in the past decade. The playing field shifted from a single monopoly to a situation with multiple competitors on both the regional and national levels. There are some similarities between the telecommunications industry and the public transportation industry. Both industries must be operated and analyzed as networks, and both experience peaking that can result in inefficient use of the system. They also have similar strategies in business marketing since the telephone service, like the public transportation system, is used by many different employees in the workplace, for example, but the decision to purchase a particular service is made by a few decision-makers. A key difference, however, is the highly competitive nature of the telecom industry, especially since the breakup of the AT&T monopoly. This competition has demanded aggressive marketing campaigns in both the business and residential markets. While the most visible ads have been geared toward the individual consumer, telecom companies do take the business market very seriously, largely because they can charge higher rates for the generally non- discretionary business telephone use than they can for the mainly discretionary residential telephone use. In many cases, business and residential telecom advertising are mixed together. Nevertheless, there are still a number of interesting and innovative marketing techniques being directed solely at the business-to-business market. In ~ 994, in fact, Aclvertising Age 's Business Marketing estimated that AT&T was the largest business-to-business marketing spender of any industry.75 In general, telecom marketers employ most of the basic business-to-business marketing tools that were previously discussed in this report. Direct mad! is used extensively, particularly to convince businesses to switch between competing long distance service providers.76 77 78 Office managers also report the heavy use of telemarketing to encourage provider switching.77'79 Telecom companies are also phone companies, and are thus able to offer rate comparison, service __ Sprint sponsors the Small Business Ad min istratIon's World Wide Web site, a good means of reaching the small business owner Pagers

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BUST ~ M - ~ - . switching, and national directory service through national toll-free numbers. 76 On the consumer side, especially, telecom companies participate in co- marketing, so that, for example, frequent flyer miles are provided as a bonus for switching to a particular long-distance carrier. As most consumers know, media advertising (television, radio, print, outdoor, and almost any other location where exposure is possible) is used heavily by all of the major long distance telephone companies.77,77 Trade shows are also an important venue for local and long-distance telephone companies to make contact with potential customers and to market new and improved services.76,76 Telephone companies also are moving into the on-line world to market products and to announce promotional activities. Sprint sponsors the Small Business Ad~ninistration's World Wide Web site, a good means of reaching the small business owner.76 l .! I it , i Me! has Identified four different business markets that It Is targeting because ll bellevas they have the most potential for business growth: banking and financial services; campus and university markets; small I office and home At it offic0; and !i CBmPl8~0S '~ specializing In ii t80hil8~09Y Page I-~ Like many other industries, telecom separates its marketing strategy for big and small businesses. The evolution of MCI's overall marketing strategy would be a good case study for successful big business/small business marketing segmentation. MC} has used a sales force for a long time, starting in the late 1970s when it used multidisciplinary marketing teams supported by direct mad! to deal directly with the Chief Financial Officers of the large corporations it was pursuing. Today, this sales force has grown to 8,500 account sales representatives staffing 250 offices nationwide with another 60 offices overseas.77,79 The move into the small business market was partly the impetus for such extensive growth. MC} began by using telemarketing "cold calls" to reach targeted businesses in the small business market. Although "cold calling" was somewhat successful (particularly when compared to an earlier print campaign), the intense competition between the telemarketing salespeople damaged MCI's public image. But as MC! developed more experience with marketing and was able to better train its salespeople, its corporate image began to improve. Moreover, MC} began to understand the importance of market segmentation and targeted marketing, and therefore was able to reach each customer segment with the proper product. Due to its increase in market research, MCT began to develop more sophisticated advertising campaigns. By 1982, MC! was firmly established in the long-distance telephone industry, generating a $2,500 increase in gross sales per month per $ ~ ,000 invested in advertising. 79 MCI's success in the small business market has prompted other telecom companies to follow suit. Previously, small businesses were almost ignored in favor of large businesses and residential markets. In order for these new companies to infiltrate the small business market, they are providing a number of new value added services.76 Some companies are providing free consulting services, while others are inviting representatives to attend seminars and presentations. In general, telecom companies have found targeted marketing and targeted product development to be essential for success. Telephone companies have further developed a number of products and services such as customized rate

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BU8be88~ 8 nBa M~k~og plans and specialized equipment installations, wI,icI, are targeted specifically at the needs of businesses of a certain size or type. MC] has identified four different business markets that it is targeting because it believes they have the most potential for business growth: banking and financial services; campus en c] university markets; small office and home office; and companies specializing in technology.77 By focusing its marketing and product development on these markets, MC! can specifically meet the needs of these businesses and give them a higher-quality service. A number of unique marketing techniques are used by telecom companies to take advantage of the emerging technologies of the industry. One area that is developing quite rapidly is the use of promotional prepaid calling cards. These cards can have a picture or advertisement printed on one side, and can be used to make national or international long-distance calls. Telephone companies can use these to market their own products, or to co-market with other companies that advertise on the cards. In both cases, the cards provide a new source of long distance calling revenue, and offer an innovative location for advertising.~ Given the competitiveness of the industry, customer retention is a concern. To show customers how much they are saving on a regular basis, MCI's international business calling plan sends customers a statement every 90 days showing them how much they have saved over an alternative plan. This type of constant reinforcement of the benefits of a telephone plan helps to create customer continuity in a market where businesses change providers quite often.78 In another innovative marketing technique, AT&T will help 800- number customers pay for print ads if the AT&T 800 number is featured in the ad. This helps to increase AT&T's business while at the same time creating a mutually beneficial bond between the client and the service provider.84 Two particular lessons may be taken from the telecommunications industry example. One is that highly visible marketing is extremely important in a very competitive industry, where many firms are vying for market share. Second is that targeted marketing is an important ingredient to success. At the heart of a segmentation strategy is the identification of groups most likely to respond positively the service (or product) being offered. This positive response can translate into a block of consumers that values the service enough to make the provision of service financially feasible. Likewise, transit needs to focus on those target markets most likely to increase their transit use. Page 4-'

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-to Hess Marketing The travel industry (comprised of hotels, airlines, and travel agents) is another sector in which marketing to business is an extremely important ingredient for success. Although vacation travel for pleasure has increased significantly over the last decade, business travel remains a key component of the industry. Business travelers tend to pay more for travel arrangements and accommodations and therefore make up a large percentage of the income to companies within the travel industry. As deregulation has opened up the airline industry, however, competition for the lucrative business traveler has become very tight. In order to compete, airlines have been forced to increase efficiency while simultaneously improving service. Naturally, much of the marketing efforts of the industry are devoted to business travelers. Delta Airlines, for example, devotes 75 percent of its marketing resources to this targeted group, while British Airways spends about one half of its advertising budget on promotions designed exclusively for business travel.82 There is also a similar trend in the hose! industry. Holiday Inn spends 25 percent of its corporate advertising budget on direct business marketing; its individual hotels often spend closer to 50 percent of their local advertising budget to attract business travelers.83 As expected, hotels and airlines utilize many of the same marketing techniques as the other industries selected for this report. Direct mail is used heavily by airlines and hotels, as well as by cruise lines and other travel service providers.82 84 General media sources (print, outdoor, radio, and television) also are used to increase public exposure. 82985 For example, in 1993, British Airways launched its Club World business service and, in order to promote this campaign, used a $30 million print and television advertising campaign directed solely at the business sector.86 Telemarketing also is used by some travel companies, although its use does not appear to be as widespread as it is in other sectors.82,82 A number of travel companies also use direct sales to market their products to large businesses. Delta Airlines uses a sales force to make personal contact with its customers, and Royal Caribbean Cruise Lines conducts the majority of business selling through its I ~ sales representatives who make face- to-face visits. The travel industry also has adopted the Internet as the new vehicle for reaching the business community. Most airlines, hotels, and travel agencies have set up World Wide Web sites where potential customers can receive a variety of information regarding travel specials, available times, and . 82 vacancies. Page 4-E

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Bu~sIne88-~_ Market Travel agents are also an important conduit for marketing and delivering travel services, and many travel companies have very close relationships with agents. In addition to commissions, travel companies often provide a wide variety of supplementary incentives to travel agents, including brochures, posters, models of specific products' and free or discounted travel and accommodations.82 87 In addition to these basic marketing activities, the travel industry also uses a number of uniquely interesting marketing techniques. Paralleling the banking industry, the travel industry has realized the important role that product development plays in the marketing process. In the past few years, many travel companies have moved away from competing solely on price (although price remains an important marketing area) and have moved toward value- and quality-based competition as well.82 88 Airlines are offering new business class services, both internationally and domestically, and are improving service frequency between important origins and destinations. Also, hotels are providing more business services such as in-room faxes, free newspapers, and on-site business services.~8' Moreover, hotels compete with incentives such as free travel, free roots upgrades, ant! merchandise catalogs and certificates. Hilton Hotel offers tickets to the Academy Awards and the Super Bow! for elite business members.89 Iberia Airlines once offered free high-end electronics equipment to transatlantic business travelers who use their airline consistently.90 Super Shuttle, an airport transportation service, offers a premium plan to hotels in their service area Under this Priority Program, the hose] is assigned a personal account executive who will assist the hotel in making reservations for its guest and will even deal with any difficulties or last minute changes. In addition, a Super Shuttle direct dial telephone is installed in the hotel lobby for the exclusive use of hotel guests and employees.94 By offering these kinds of special services, travel companies can create customer loyalty and better word- of-mouth among business travelers. In addition, by moving the competition away from pricing, they can generate more profits while still remaining competitive in the marketplace. The travel industry is also heavily involved in market segmentation, both in terms of the products that are offered and the marketing that is performed. Product differentiation in the airline industry is easily apparent; most airlines offer a first class, business class, and coach class. But this type of product segmentation also is utilized in the hotel industry. Oftentimes a single corporation owns a variety of hose! chains and accommodations designed to meet the diverse needs of travelers; Courtyard by Marriott and Holiday Inn Select are two such examples.83 Most airlines. hot01$ Bell travel agencies have set up World Wide Web sites where potential customers eat receive a variety of Information regardin'trav01 specials, available tIm0$ and vacaneles. Pale 4-~

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Buli.n - -a ~ Mat - Even hotels that attract a mixed clientele often provide a special set of services aimed only at the business travelers. Specifically, hose] and airlines create advertisements to solely attract their business clientele. Hyatt hotels recently unveiled a series of print ads aimed at what tired call the "independent entrepreneurial business traveler." They fee] that this could be quite a lucrative market, but must be targeted with special advertising and promotion in order to attract the most desirable customers.82 Residence Inn by Marriott targets its advertising at business travelers making extended stays by using media they fee' will reach those customers, including television ads featured on CON, Headline News, and ESPN; and print ads appearing in USA Today, Sports Illustrated, the major weekly newsmagazines, and in publications aimed at personnel, sales, and marketing professionals.92 Many hotels also target marketing at meeting and , ~..... ~ San Franeleco International Airport [Sag] targets conventI0n planners, travel agents. hose! managers, and large bleInes508 with Information about rIdasharIng to the airport. convention planners because they have the ability to deliver a large number of guests to a hotel with only a minimum promotional effort. Hyatt Hotels recently held a two-day, "Virtual Resort" meeting aimed at encouraging travel agents, travel wholesalers, and meeting planners to choose their hotels. In the airline industry, British Air targets much of its advertising at male travelers, who they fee! make up the most important segment of their business travel market.82 San Francisco International Airport (SFO) targets convention planners, travel agents, hose! managers, and large businesses with information about ridesharing to tile airport. Businesses are seven rolodex cards. notepads. and barrage Bags ~ ~ ~ ~ ~ r -- -- - ~ ~ ~ - Ore ~ ~~~ promoting the service, as well as a pre-wrltten article for their company newsletter or emai! system. Businesses, in turn, share the information about available ridesharing options with their clients or employees. By targeting these efforts at bulk purchasers of transportation services, it is possible for travel companies to reach their markets more cost-effectively.84 Frequent flyer travel programs also have inspired a number of marketing innovations. Although frequent-use programs have spread to other sectors in recent years, they truly have flourished in the travel industry. Practically every airline company in the world is part of a frequent flier program; some airlines have membership in several. Airlines such as British Airways fee! that frequent flier programs are such an important part of their business marketing strategy that they put considerable effort into promoting and encouraging their use. Continental Airlines is so eager to enroll passengers in its OnePass elite frequent flier program that it offers membership to any traveler who can document membership in another elite frequent flier program. This type of poaching illustrates the fierce competition that is evident in these programs. and how important these consumers are to the airlines.93 A key lesson from the travel industry is the importance and effectiveness of co- marketing. A frequent-flyer program, for example, offers lower rates (and subsequent bonus miles) for overnight stays in particular hotel chains or car rentals from a specific company. The consumer benefits from tower prices; the companies benefit through expanded advertising on another company's bill. Transit has used co-marketing approaches by offering discounts on certain merchants' goods or by merchants providing a discounted transit fare for Page 4-U

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BU81 - S8-~_ M rk08ns customers. Advanced fare technologies such as smart cards (which allow transit passes to double as bank debit cards) are a promising innovation in co-marketing for transit. Nonetheless, the transit industry could possibly extend marketing (and operating) dollars by doing more to establish promotional links with other businesses. As with the other industries covered in this section, insurance marketers do make use of the basic business-to-business marketing techniques. Direct mail appears to be a quite popular way of reaching businesses, particularly for marketing insurance packages different from those found in a typical employee benefits package.94 95 One insurer sends with each introductory correspondence a dollar and a letter stating that he is giving the business a dollar, and will show them how to save even more dollars if they respond to his offer.96 While telemarketing also is used, it is primarily a follow-up to direct mailings that have not produced an immediate response. It seems the narrow market for business insurance as well as the complexity of insurance products have made mass advertising an unsuitable medium for business-to-business marketing. Some insurers and brokers have had mixed success with print advertising, but much of the current media advertising is aimed at individuals.94 (However, this type of marketing can also be effective for influencing businesses, since employees may pressure employers to switch to a new insurer based on ads they see in the general media.) In addition, some insurance marketers use trade shows to showcase the variety of products and services that they offer to businesses.97 For example, health insurance companies and HMOs participate in health fairs to give employers and employees the chance to learn about available health insurance products.98 However, most insurance marketers fee} that the most important marketing .. . . . . , ~ - . method when dealing with businesses Is a one-on-one meeting with the person In charge of purchasing the policy.96 99 ~ T ~ ~ ~ ~ - ~--~ =- ~ - --^ -- usually, ~ prell~nlnary 1~;~-llIlulng rnt;~;tln,~ is required to analyze the needs and characteristics of the company, and to determine the type of product they should be purchasing. Because life and healths insurance products are often quite complicated, it is important that the insurance products being marketed are carefully explained during these conversations.99 PB98 4-15

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~ ~ ~ Mom- ~. . . s;-L l ~ Existing customers I! are more Ilk0lY ' than a new customer to purchase new products. ., .. !t !, :! Since personal contact is such an important element of the insurance marketing process, marketers must work with target businesses to develop a package of appropriate products and services. Although price is an important factor in buying decisions, the quality of the insurance product or service can be even more important. In the New York City market, Oxford Health Plan was able to gain market share very quickly by offering a new product that closely resembled a typical indemnity health insurance plan, despite a higher cost when compared to HMOs. Evidently, the higher quality made employers willing to pay the higher cost. 9699,02 Insurance marketers also place a high value on personal relationships with their client contacts. Successful insurance sales relationships tend to be built on trust rather than on high pressure, hard sell marketing techniques. 99 403 Thus, constant upgrading of the insurance product (and the accompanying marketing effort) combined with a commitment to excellent service and fair dealing will create an atmosphere in which a client is willing and eager to purchase different products, and even to recommend the insurer to a business associate.404 Maintaining a good personal relationship is a good way of ensuring repeat business when customers seek additional coverage. Like the banking sector, this idea of one-stop shopping is essential to the insurance industry; it has been observed that existing customers are altogether many times more likely to purchase new products than is a new customer. _ 97.105 Also, database information systems and computerized data are a new and effective resource for the insurance industry to isolate specific company types that are potential customers. Commercial databases such as those sold by Dun & Bradstreet are a particularly good source of leads because they provide detailed information that can be used to analyze the suitability of a company.96 Another important source of new contacts is referrals from businesses that are already customers, or even from friends, family, and other business associates. Word-of-mouth and sharing of information between companies is often the method by which businesses seek insurance company providers.404 Even though business returns may be variable, oftentimes a company benefits manager will respond to a recommendation from his or her counterpart at another firm rather than answer a stack of mailings and telephone messages.96 As financial services companies have expanded their product lines to include insurance, banking, and investments, life insurance also is being cross-marketed. Banks are analyzing their customer databases to identify prospects for their insurance affiliate, while mutual fund managers are showcasing insurance as another investment option for customers. This has opened up a new source of leads, particularly in conjunction with the sophisticated banking database . . . . ~ . . analysls tools that have been discussed earlier. 6 Another source of leads is through the use of affinity groups, who can provide an insurance seller with a membership list for marketing purposes. In California, for example, a third party insurance seller worked with the United Way to sell Page 4-~

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Bl1811~ tl}Bu~l~ Malt01hD property and liability insurance to other, smaller non-profits that are affiliated with the United Way of California.94 This provided a ready-made source of contacts that shared certain characteristics- and who therefore required similar products and product marketing. The seller started by performing market research in the form of a questionnaire sent to all of the agencies on the list. Based on the results of this questionnaire, it was possible to develop a group of products and a supporting marketing campaign that was targeted specifically at these non-profits. Using a combination of direct mad! and telephone sales representatives to answer inquiries, it was possible to make a large penetration into the non-profit sector, a market which is open ignored by the larger insurance companies. Based on the success ofthis initial experience in California, the marketing was expanded nationwide. Again, direct mail with a response card or toll-free number was the major marketing tool, with target businesses identified through affinity lists from other umbrella non-profit groups throughout the United States (telemarketing was felt to be too expensive). Press releases and press conferences were used to raise the profile of the campaign, although it was not possible to measure the effect this may have had on overall sales. The direct mad! marketing pieces cost anywhere from 20 to 60 per piece, depending on size and content, while the response rate varied from just over ~ percent to almost ~ O percent, depending on the mailing and the audience. Higher response rates were achieved through the use of affinity groups, and usually when there was a special mailing rather than a flyer inserted with other material in a general mailing. In addition, seminars were held with representatives of the targeted non-profits to explain the products being offered and to show them the benefits of offering insurance benefits to their employees. In another example ofthe innovative personal selling of employee benefits, the founder of the company Work Family Directions (which markets employee assistance services to business) conducted research showing how much more productive employees are when supported by such services. This research was written up in a front page WaR Street Journal article. Work Family Directions leveraged this publicity with the assistance of existing clients. Current clients of Work Family Directions would sponsor a seminar for other employers, at which Work Family Directions staff could explain their services as well as the potential positive outcomes from offering these benefits to employees. The endorsement of the current client did much to help win new clients who attended these informational seminars. The original research, the Journal article, and Work Family Direction's innovative strategy led to significant organizational growth; the company started in 1982 ar,6 now boasts services to almost every employer in the Fortune 500. Due in large part to the complexity and variation in insurance products, personal contact has been the most effective method of business-to-business marketing. It seems that some products need to be carefully explained and options thoroughly explored before businesses are likely to accept products as benefits for their employees. These one-to-one sales are also facilitated by "messages'' that distill complex products or services into more manageable, more persuasive concepts. Another effective alternative to personal contact is to work through affinity groups where there is a high level of trust. While transit may not share Page 4-V

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It- ~ M - 0 - the level of complexity found in tile insurance industry, tile importance of a personal contact making the sale and/or the use of direct mail through affinity ~ groups to reach employers may be useful lessons for transit organizations. The scope of non-profit work is extraordinary. There are ~ . ~ million United States non-profit organizations (24,000 of which are national or international) with 7.5 to ~ million paid employees. They annually generate revenues of $! . ~ trillion and receive $130 billion in private contributions, about 88 percent from individual donors.~07 Also, tile United States mass media provides billions of dollars in advertising space for ptablic-service messaes.~8 This free ~ ~ .i 5_ _.. advertising space (however inexpensive) still does not mitigate the cost constraints of most non-profit agencies. Tile financial strains almost inherent in non-profit work have nonetheless led to a number of creative solutions to garnering marketing dollars and marketing expertise from the for-profit sector. Because of their constrained budgets, and because they provide a "public good," the private non-profit industry also has some similarity to transit. The focus on the "public good" also shifts the focus and style of traditional for- profit marketing; Table 4-! outlines these differences more clearly. The United States Postal Service is an independent federal agency with 825,000 employees and yearly revenues of more than $50 billion. It delivers 175 billion pieces of mail annually (40 percent of the worId's total mail) and runs 40,000 post offices. Competition is intense, and it must deliver all mail, no matter how uneconomical. The Postal Service often runs an annual deficit, and all rate increases must be approved by a Board of Governors. The re-engineering of the United States Post Office has been an overwhelming success story for the United States government. To protect itself against competitors and to stimulate consumer demand, the Postal Service has enacted a strong marketing program that consists of continuing and new offerings, and extensive advertising. With Express Mail, packages and letters are delivered overnight; to eliminate wait lines the items can be dropped at special boxes or picked up for a small fee. Priority Mail is an inexpensive service (usually $3), with two-to-three day delivery anywhere in the United States. ZTP+4 is an improved zip-code service that offers cost savings for both the Postal Service and its business customers.409 The Postal Service also generates $300 million in sales per year via its commemorative stamp program, with projected sales expected to increase to $1 billion within the next five years.~ To stimulate sales, the Post Office is featuring more celebrities on its stamps (for example, the Elvis Presley stamp generated $40 million in sales). Many post offices now sell such items as hand- held scales, padded envelopes for packages, air mail markets, and devices to adhere stamps to envelopes. Self-service stamp vending machines are in Page4-g

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B - Ross- ~ - - - shopping centers and are even part of ATM teller services. Some post off~ces are even "postal stores," with interior space divided into two sections, one for specialized postal service and one for retail sales. The retail part of the stores carries stamps, envelopes, packing materials, posters, T-shirts, coffee mugs, pen- and-penci' sets, and earrings. In 1994, the Postal Service's annual advertising budget was over $140 million, with large sums going to Express Mail and Priority Mail, direct-mai] ads for business accounts, and commemorative 111 stamps. The United Way of America, with more than 2,000 chapters and annual fund- raising efforts yielding $3 billion, is another leader in non-profit marketing. The United Way supports such groups as the Boys Club, the Girl Scouts, the Red Cross, centers for children with learning disabilities, immigration centers, and mental health and drug rehabilitation programs. Although contributions have doubled since ~ 980, the percentage of total philanthropic giving received by the United Way has dropped - from 3 percent in ~ 980 to just over 2 percent in the mid-nineties - and total contributions have leveled off (partly due to the negative publicity about its former chief executive, who misused United Way funds). Currently, most donations come from deductions made from worker's paychecks.4 42 For years, the United Way has had an excellent long-term marketing strategy. The organization is well known for its association with the National Football League (NFL) and the ads that appear during each NFL broadcast. United Way's marketing director for the New England region (home of the New England Patriots NFL team) noted that his chapter receives at least $4 million in free advertising each season thanks to the NFL/United Way link. In earlier years the NFL took an active role in training the United Way in more sophisticated marketing techniques, and provided NFL marketing personnel to conduct training and to develop marketing plans for local United Way chapters. P8gB 4-18

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BU8InB88-~ ~ Mat- Table 4-1: Diff0rene~s between Non-profit and Profit-Ori0nted Marketing - ,~ 1. Non-profit marketing is concerned with organizations, 1. people, places, and ideas, as well as goods and services. 2. Exchanges may be non-monetary or monetary. ~- Profit-oriented market~ng is largely concerned with goods and services. 2. Exchanges are generally monetary. 1 Objectives are more complex because success or 3. failure cannot be measured strictly in financial terms. Objectives are typically stated in terms of sales, profits, and recovery of cash. . I related to consumer payments. 4. The benefits of profit-oriented marketing are usually related to consumer payments. 5. Non-profit organizations may be expected or required 5. to serve economically unfeasible market segments. Profit-oriented organizations seek to serve only those market segments that are profitable. 6. Non-profit organizations typically have two key target 6. markets: clients and donors. Profit-oriented organizations typically have one key target market: clients. ~ k ~ Now all employees in affiliated chapters are trained in marketing, and the national office even coordinates yearly marketing and advertising conferences. ~2 The NFE's relationship with the United Way is part of a new trend in corporate philanthropy, where companies now tie corporate giving directly to business strategy. Within prof~t-oriented companies, philanthropic and business units have joined forces to develop giving strategies that increase their name recognition among consumers, boost employee productivity, reduce research and development costs, overcome regulatory obstacles, and foster synergy among business units. Like the NFE, most companies are giving far more than cash assistance. Many are providing non-profits with managerial advice, technological and communications support, and teams of employee volunteers. They are funding these initiatives not only from philanthropy budgets, but also from business units such as marketing and human resources. While it may be unrealistic to expect that transit providers will suddenly find corporate sponsors to subsidize marketing efforts or program costs, there may be some advantage for transit agencies to foster stronger links with local or national corporations. These links may even be developed from pools of employers already connected to transit programs. The key for transportation providers, though, would be to continue to market transit as a public good with specific Page 4-20

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b.~8in~848-~_~ Maker . social, environmental, and financial benefits. This strategy leas certainly proved effective in the non-profit sector, and may encourage employers to make even larger commitments to local or regional transit providers. Get= In order to adapt to extreme competitive pressures, the package delivery, banking and finance, telecommunications, travel, insurance and health care, and non-profit industries all developed a number of innovative marketing strategies and techniques to reach consumers. While this broader industry perspective can be critical in identifying popular trends and practices, such a broad view can obscure the experiences of individual companies, firms, and organizations. To satisfy the need for more specific information, several case studies sites were selected for more detailed analysis: Pace, a transit service provider in suburban Chicago; Voucher Programs throughout the country; the financial institution Bank of America; and the HMO Kaiser Permanente. Pace is reviewed in the following chapter, Voucher Programs in Chapter 6, Bank of America in Chapter 7, and Kaiser Permanente in Chapter 8. The NFE took an aotIv0 role in training the United Way in more ~ophI$ticated marketing techniques, and provided NFt marketing personnel to conduct training an! to develop marketing plans for loGal UnIted Way ohapler$. ~- Page 4-~

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