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OCR for page 81
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-]
OCR for page 82
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.
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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
OCR for page 84
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.
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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
OCR for page 86
_- ~ 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~
OCR for page 87
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
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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~
OCR for page 89
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
OCR for page 90
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
OCR for page 91
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.
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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.
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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
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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
OCR for page 96
~ ~ ~ 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
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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
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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 messaŁes.~°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
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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.
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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
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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$.
~-
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Representative terms from entire chapter:
direct mail
