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The case of the pulled plasterboard
Industrial Marketing
Management
E.V.A.F., London and Elsevier Publishing Company, Amsterdam - Printed in the Netherlands
THE CASE OF THE PULLED PLASTERBOARD Harold
W.
Fox
SUMMARY
Professor Fox describes, in refreshingly frank detail, some of the critical marketing factors used to motivate the construction industry to adopt a new gypsum plasterboard. A case study is presented which explains the product’s innovatory properties, the marketing objectives, the pricing strategy, the
INTRODUCTION What are some of the critical marketing factors in motivating industrial users to adopt a new product? This is a significant question because efforts to translate technical success into commercial success are full of pitfalls. The frame of reference in this case is a billion-dollar market in which a few large companies sell a commodity-type product to a multitude of industrial firms all over the country. The product is bulky. It is used by many small firms. These industrial users order it together with thousands of other products--each in less-thancarload quantities-no earlier than the moment needed. In other words, although the total market is huge, the pattern of buying dictates the use of financially responsible middlemen who first purchase and store carload quantities of this product and of complementary products, then break bulk and develop assortments as needed by users. An example, described in this paper, that fits this description is gypsum plasterboard for the construction industry.
initial and final promotion programs. Of great pedagogical significance is the fact that the reader is treated to an account of a marketing program which ended in failure; despite the apparent potential of a billion-dollar market in which a few large companies sold a conventional product to a multitude of industrial users.
It is often lamented that case studies of this type are subject to the success syndrome. That is, people like to tell about their triumphs and dismiss their disappointments. Due to America’s achievement orientation, the very idea of personal or somebody else’s failure seems subversive and traumatic. Hence the hulman capacity-to learn from one’s mistakes or, better yet, from somebody else’s mistakes-is largely underutilized. Since the purpose is not to enthrall the reader with a gripping plot that dissolves into a surprise ending, it is revealed now that from a financial point of view, the carefully formulated and amended marketing program was a failure. This advance evaluation is intended to predispose the reader toward developing a strategy of his own. The first section will explain the product features and the marketing objectives. Next, the pricing decision. There follow a few words on promotion. Then the focus will shift to channel relationships. These turned out to be critical, and required a modification of the total marketing plan. THE NEW PRODUCT
FINANCIAL FAILURE An interjection is appropriate before delving into the strategic factors of marketing a new wallboard. I~rri.Mark. Manage., 3 (1972)
Plasterboard is, of course, widely used in the walls of buildings. Such companies as U.S. Gypsum and National Gypsum are among the leading sup315
pliers of this uniform product. For many years the users of wallboard have complained about a gap wherever the edges of two sheets are joined. Continuous liaison with all members of the construction industry convinced one of the major manufacturers that elimination of this product problem would represent a real opportunity to differentiate his offering and escape the commodity classification. Prodded by the complaints from builders, the manufacturer conducted a substantial amount of technical research. His laboratory finally developed a different edge to help join two pieces of wallboard evenly. Performance tests of this invention were satisfactory. Underwriters Laboratories certified that the new product gave the same amount of fire protection as the old. The manufacturer patented the new process which, it so happens, entailed only minor modifications on his production equipment. In any event, he now had legally protected exclusivity on the invention of the so-called “Smooth Wall” manufacture for which builders had been clamoring. Two additional-and important-pluses for the new product were that labor unions and building codes were generally no problem. OBJECTIVES
The manufacturer decided to base his marketing strategy on the product’s superior feature. He prepared formal objectives and timetables for changing user segments and geographical segments from the old to the new. Specifically, the manufacturer planned to convert all his wallboard sales from traditional “straight edge” to the new Smooth Wall. More important, he aimed to capture a larger share of the total wallboard market. Here, then, is a one-sentence summary of the manufacturer’s objectives: along with switching all users of his own product to the innovation, he sought to win over his competitors’ customers as well. THE PRICING
DECISION
Presumably most readers would agree on the price level that is appropriate under these circumstances. (1) The new product was available immediately in large tonnages, since the production change was minor. (2) The company’s objective was to gain acceptance for this new product among its own and its competitors’ customers as quickly as possible. 316
Both of these factors argue for penetration pricing. Accordingly, the manufacturer offered his new superior plasterboard at the same price as the commodity product. In passing, it should be mentioned that if an innovation captures a large market share and competitors cannot imitate the new product, there is a danger of a price war. But no price war occurred in this case. PROMOTION
Promotion is fairly standard in this industry. The company’s main vehicle is its own force of missionary salesmen including specialists for some identified segments. For example, its architect service representatives act as consultants and promotion men to professionals who design buildings and specify materials. The bulk of the company’s sales force divides its time about equally between distributors and end users. The salesmen provide informational and liaison services, encouraging end users to insist on the company’s product line when buying construction materials from distributors. The salesmen submit to the local distributor any orders that they book. The company conducted a detailed indoctrination program to familiarize its sales force with the Smooth Wall innovation. Displays of the old and the new product dramatized the improvement. At
Harold W. Fox is professor of marketing at DePaul University, Chicago (U.S.A.). A former business executive, he is now active as a teacher, consultant, and writer. Professor Fox earned his doctorate in economics at Rutgers University in New Jersey. He has authored some 70 publications and has discussed his research on U.S. television and radio as well as in interviews for newspapers and magazines all over the world.
ltd. Mark. Manage.,
3 (1972)
the early stages of the campaign, the main topic at sales meetings was explanation of test results. Later the company arranged to have satisfied users of Smooth Wall give case histories of their experience. Sales managers reviewed the quotas for the new product and other administrative details. The company conducted a nationwide contest. The incentives motivated salesmen to switch customers from the old product to the new. In short, this carefully planned campaign was launched with great enthusiasm and confidence. A limited amount of industrial advertising used readers’ service cards to obtain additional leads for distributors. Stories were planted in trade journals. Moreover, the new product was exhibited at trade shows. CHANNELS
Thus, four major aspects of this case have been reviewed, viz.: 1. The structure of the industry. 2. The new product’s unique superiority, designed to correct a widespread complaint, and a brand name which communicates instantly the benefit to the buyer. 3. The decision to offer the new product at a price no higher than the old. 4. The careful indoctrination of the sales force. Despite all these favorable aspects, the independent distributors balked at accepting the new article. The main objection was that acceptance of the new product would double their inventory and escalate their administrative costs. Experienced businessmen will appreciate the difficulties of stocking two types of wallboard instead of one, with all the attending problems of mixed deliveries to customers, order mixes to the factory, and mixedup records. lnventories were not the only problem. Some competitors ignored the innovation, but others greeted it enthusiastically. That is, they enthusiastically disparaged the new product’s serviceability until many distributors and others had real doubts about its performance. Eventually these doubts were strengthened by the adverse experience of some users. EARLY
DISAPPOINTMENTS
Every new product ltd.
Mark.
Manage.,
finds its acceptance
3 (1972)
retarded
in proportion to the amounts of risk, learning and extra cost that potential buyers perceive. It soon developed that for steel stud buildings, the old product is better. But this concerns only a small part of the market. More damaging to wide acceptance, the manufacturer’s equal-price policy did not translate into equal cost to a user. In its application, the new product requires special cement and special treatment of the joint. The monetary impact is only $10 for a house and perhaps $1,000 for an office building. Again, two crafts-the hangers and some of the tapers-required a higher rate of pay for handling the new product. These men, who are compensated on the basis of piece work, found that the new wallboard takes longer to process than the old. Hence the new product gave them a lower rate of hourly earnings. On a $30,000 house or a million-dollar commercial building, these cost increases seem negligible, of course. But the drywall contractor has no reason for absorbing them, and the builder cannot pass them forward to his buyers. If the builder explains the straight edge problem to prospective homeowners, he deprecates the quality of his standard materials and workmanship. With respect to apartment houses and other large structures, the financial syndicates buying these are unconcerned about this matter. Finally, it was unrealistic to expect instantaneous acceptance of the new product since every party commercially or physically involved with wallboard had to learn and evaluate the new feature. Small builders, especially, are quite conservativeperhaps because they cannot afford to gamble. Relative to the potential benefit, the risk seemed great once the new product was put in place. REVISED
MARKETING
STRATEGY
Thus the early feedback from the field indicated a need for debugging the marketing plan. What are some reasonable alternatives? Shrewd marketers would rule out a price reduction because it would cheapen the superior product and because it would be impractical in this market structure. Nor should the product be withdrawn since it offers a functional improvement that many users want. Other options can be considered. But the two basic alternatives are a push strategy and a pull strategy. 317
Push and Pull A push strategy emphasizes selling vertically down the channel of distribution. The manufacturer tries to load the distributors who, in turn, merchandise the product to their customers. In contrast, a pull strategy stimulates demand initially among customers. This final demand motivates each intermediary, successively upward through the channel, to order the product. The pull approach is often used by manufacturers of packaged consumer goods who first secure a following among household buyers through mass advertising, couponing, and free samples. In practice, push and pull are matters of emphasis. An astute marketer allocates part of his resources to the nonfeatured elements of his marketing mix since some combination of tactics is usually more effective than total concentration. But, somewhere in the channel, one level of prospects must be selected as the prime target of a marketing plan. This important decision warrants close analysis. Consumer versus User Focus Since the manufacturer was frustrated at the upper portion of the commercial channel, the distributors, he looked at the options of pulling the product from below. One possibility is to focus on consumers. In the case of a consumer approach, he would initially win over the ultimate home buyers, then the builder, hence the drywall contractor and, finally, the distributor. Alternatively, a user approach would concentrate on builders. Although marketing should be consumer oriented, the first idea of focusing on ultimate consumers seemed impractical for several reasons. When a family buys a home, it is faced with major decisions such as location, old house or new, building style, size of lot, price range, and financing. Often the family exercises a choice on some highly visible and personal factors; for example, lighting fixtures, appliances, and wall colors. But with respect to the thousands of materials and variety of methods that the different subcontractors might use, most home buyers lack the competence and the time to evaluate them. Home buyers should certainly be reluctant to assume responsibility for specifying a particular brand of plasterboard. They would have been confused by conflicting technical claims. The issue might impress many householders as trivial because in a finished room the difference between the two types of plasterboard should not be obvious. 318
From a promotion point of view, two further disadvantages of targeting on consumers are: (1) Only two-tenth of one percent of all American families buy a new home monthly, and (2) a long time elapses until a repeat purchase is made. Even if the communication could have been convincing, the lack of truly specialized media condemned such an effort to gross inefficiency. It is also a fact that many new homes are sold in various stages of completion, after all basic materials have been specified, ordered or put in place. In the case of tracts, streamlined administration limits change from the standard bill of materials as much as possible. Moreover, the choice and supervision of subcontractors is one of the functions of the builder. An advertising campaign directed at prospective home buyers might have offended the manufacturers’ end users. Altogether, the low probability of capturing the interest of consumers plus the high risk of alienating the builders argued against a marketing focus on families. An alternative pull strategy could concentrate on the intended beneficiary of the new product-the builder-and this approach was adopted and implemented. Builders would be interested in a better wall. They could appreciate that-for slightly higher processing cost-they would have fewer callbacks, reflecting greater satisfaction on the part of their customers. This, then, became the theme of the user-focused pull approach. Focus on the Builder The builder is the logical target in this case. He can evaluate the promotional claims, and he is the decision maker. Since practically every builder is a prospective customer, and repeat purchases are very frequent, this campaign could also be quite efficient. Furthermore, in the manufacturer’s direct dealings with users he could imply or warrant that the new product was stronger than the traditional one. Briefly, here are some of the marketing tools in a user-oriented pulling campaign. Advertising in trade journals has been mentioned before. So was publicity in the form of articles in the business press. But with a pull approach, these types of effort received greater emphasis. Furthermore, the manufacturer conducted an extensive direct-mail campaign to builders. Another promotional tool was a slide film with sound, to indoctrinate salesmen and to present at meetings of builders.
Id.
Mark. Manage.,
3 (1972)
The A.I.D.A. Model Impersonal tools like these are suitable for the first stage of the purchasing process, when a manufacturer tries to get attention for his product, provided the promised benefit is understandable and desirable to the user, as in this case. First impressions can be crucial. Hence the function of advertising and sales promotion in the introductory stage is to implant a favorable impression of the new product among as many desirable prospects as possible. Subsequently the marketer must nurture the interest of these potential buyers, arouse desire for his offering, and obtain action in the form of a purchase order. This sequence of attention-interestdesire-action is widely known as the A.I.D.A. model. As he leads his target buyers through these stages, a marketer increasingly invokes methods that involve physical demonstrations and personal explanations. To stimulate interest, the manufacturer distributed samples showing Smooth Wall joints of two plasterboard miniatures. Advertising in various business papers spread information about the new product to more partners 01 officials of wore building firms, drywall contractors, architects, governmental purchasing officers, distributors, and so forth-and more quickly-than personal solicitation could have. The ads generated leads which the manufacturers’ salesmen followed up on behalf of local distributors. Indeed, just the ability to show a number of local inquiries or filled-out service cards is an opportunity to develop interest among distributors. Moreover, this trade advertising established, firmly in print, the large manufacturer’s commitment to the new product. Among other efforts to promote interest, the manufacturer exhibited full-length walls at various trade shows such as National Association of Home Builders, Building Materials Convention, and regional meetings. At these trade shows the manufacturer’s staff could discuss the product’s features with visitors at his booth. These meetings generated additional leads. To arouse desire, the manufacturer conducted seminars for builders’ groups. These get-togethers provided a useful forum for two-way communication between the seller and his prospects. The manufacturer’s technical staff gave detailed explanations and assurances about the new product. Afterwards the staff fielded questions from the attendees. Meantime the salesmen concentrated on converting the pacesetters in their territory. Once a Id.
Mark.
Manage.,
3 (1972)
prestigious, large company with formal qualitytesting procedures decided to adopt the new product, a large proportion of the smaller local builders usually followed suit. Inducing action among the builders was almost entirely the task of the sales force. At first the distributors were passive. They voiced no objection to handling Smooth Wall for specific orders. As demand became more widespread, they reluctantly started to stock the new material. Salesmen were also active in getting newspapers to publish articles about the product’s use in new local homes and other buildings. But most newspaper editors evinced little enthusiasm for this story, and it appears that their apathy was justified. Some newspaper articles were published, but they had no discernible impact. For the same reason, a supporting campaign of advertising in consumer magazines was not extended. Hierarchy of Adoption The research connected with this case brought out clearly that in the construction field there is a sequence of adopters just as prior investigators found among farmers, physicians, and consumers. In the vanguard of adopters are industrial and home builders who are knowledgeable and who are concerned about their long-term reputation. On the one hand, these opinion leaders may be large companies. Or they may be sincere craftsmen. It seems clear that knowledgeable firms with a long-range perspective will be most responsive to documented arguments involving superior performance, higher profit, and greater attractiveness to their own customers. It may be the influence of these opinion leaders that causes an emphasis on rationality in much of industrial purchasing, just as taste volatility among early adopters of consumer goods may inject an element of faddism into consumer marketing. Perhaps one-sixth or less of all builders are sufficiently venturesome and self-confident to qualify for this vanguard category. A marketing executive experienced in his trade or a specialized salesmen should be able to identify many members of this group by name. These pacesetters are followed by imitators who may comprise anywhere from 10 to 60% of the market. This enormous range represents an important opportunity for marketing. Until enough studies are available to permit generalization, one can say only that formal research must identify, 319
separately for each case, the relevant characteristics of these buyers. Then the marketer can formulate his campaign to aim for profitable expansibility of this adopter segment. If the marketer fails to tap the imitator segment adequately-say, he penetrates just the upper fringe of 10% or so-he faces a more difficult selling job among the skeptics that remain. This third adopter category of skeptics is willing to consider innovations, but these people are more resourceful than others in convincing themselves why the innovations won’t work. Once formed, a mental commitment like that is very difficult to change. Hence it is worth repeating that through research, intuition, personal knowledge of individual customers and appropriate strategy, the second category of adopters should be enlarged as much as profitable, leaving the third category correspondingly small. The balance of the market comprises abstainers and accidental or intermittent users. Many of these firms are not permanent. Most buyers in this category are quite small and put greater emphasis on low price than on any other variable. Large manufacturers would rely mainly on their network of distributors to gain a share among these transient adopters. But it would be a mistake to dismiss this fourth category as inconsequential in the marketplace. Just as the first category exerts an influence down to later adopters in favor of long-term commercial soundness, the known or suspected existence of the fourth category puts a countervailing pressure on preceding adopters to stress cheapness. Thus the buying criteria of all adopter categories are interdependent. Conceptually, the downward and upward disseminations of influence can be depicted as in Fig. 1. The strength of influence diminishes in each successive adopter category. In practice, the opposing curves of influence would be neither smooth nor symmetrical. Research would have to try and approximate the shapes of the curves separately in each market and for each product. The area under each curve guides the marketer in formulating different emphases to separate adopter categories. THE OUTCOME
The total marketing campaign, bypassing the distributors and pulling the Smooth Wall product through the channel by means of direct promotion 320
1st
2nd Adopter
3rd categories
Figure 1. Interdependence of buyers’ preferences. high quality; - - -- , low price.
4th
---,
to users, especially the known pacesetters, brought a very quick and dramatic surge in market share. Competition which had been jeering at the new product all along now imitated it promptly, leaving the originator to seek possible redress some day for patent infringement. It should be recalled that the change in production technique had been minor. As competitors entered similar products, the innovator’s market share cascaded to its original level, so that his technical research and development and his marketing introduction did not gain him any permanent sales advantage. A large proportion of the users have switched to the new type of product, but many others have not. One of the interesting consequences of this innovation is the creation in some end-use markets of a two-layer pricing system. Some enterprising homebuilders are offering houses with Smooth Wall plasterboard at a higher price than their basic model in which Square Edge is used. As noted near the beginning of this presentation, the financial results are unsatisfactory. The consequence to the innovator is a doubling in the complexity of production schedules, inventory and order processing. Since this management, administrative burden could not be recaptured through a price increase, this product line earns a lower rate of profit than formerly. Longer range, the manufacturer feels that this innovation maintained and strengthened his image as a progressive company. He hopes that his company’s reputation for leadership will pave the way for complementary new products which his research and marketing departments are readying hi.
Mark.
Manage.,
3 (1972)
for the building industry. The main lesson that the company has learned is that future innovations especially if not dramatic improvements to the ultimate consumer, should carry no cost premium to the builder or preferably give the builder a lower total cost. CONCLUSIONS
In conclusion, here are seven strategic features of introducing an industrial product gleaned from this history. 1. It is vital to heed the wishes of product users, but the vendor must carefully evaluate the true monetary worth to the users of their preferences. 2. The true monetary value of product improvements will range, possibly widely, from positive to negative, for different applications and different types of customers. Hence product improvement may just increase market fragmentation rather than increase market share. 3. A manufacturer should adopt a pricing perspective which encompasses the total cost per unit for all channel members and beyond, from his first sale ex factory till his product’s recycling or other final disposal. 4. Along with this forward determination of financial progress, a marketer also needs to trace and influence all physical, commercial and informational flows-with their timing-for his proposed product. 5. The differences between consumer marketing and industrial marketing are more a matter of degree than kind. Approaches of proven effectiveness on some consumer products; for example, direct appeal to the ultimate decision makers in terms of their self-interests can be adapted to marketing which focuses on industrial users. 6. Promotion has separate tasks such as gaining a favorable awareness for a new product, stimulating interest in it, arousing desire, and obtaining actual purchase orders. Different promotional efforts are appropriate for each task, depending on the type of prospect and the characteristics of the product. In general, personal representatives are necessary at the stage where a new product’s unfamiliar functions must be explained. 7. It is important to delineate and describe the intended users according to their “followership”. Table I outlines a complete marketing plan, reflecting explicit distinctions among the successive promotional tasks (#6 above) and among the Ind. Mark.
Manage.,
3 (1972)
TABLE
I
Conceptual Outline for Marketing Promotional sequence:
Adoption setters Pace-
Strategy
sequence Imitators
Skeptics
Transients
Attention Interest Desire Action
separate adopter categories. Ordinarily (but not always), initial efforts should concentrate on converting the pacesetters. Campaigns for new products which hit mainly imitators and skeptics are apt to be very inefficient. Targeting on the fourth category among adopters may doom the new product to heavy price pressure throughout it brief existence. Ri%UMi
L’Affirire du Planchkiage
Fir.4
Le professeur Fox dicrit tout carrtment en dCtai1 quelques-uns des facteurs critiques de marketing qu’on emploie pour pousser l’industrie de construction g adopter un nouveau planchkiage en gypse. On prCsente une Ctude particuli&re qui explique les nouvelles qualit& du produit, les objectifs marketing, la stratCgie de l’Cvaluation, et les premiers et les derniers programmes de fondation. C’est un fait d’une grande importance pedagogique qu’on offre au lecteur un compte-rendu d’un programme marketing qui a abouti en faillite, malgrC le potentiel apparent d’un march6 d’un billion de dollars oti quelques grandes compagnies vendaient un produit normal B une multitude d’usagers industriels. ZUSAMMENFASSUNG
Das Beispiel des abziehbaren
Innenputzes
Professor Fox beschreibt in genauen Einzelheiten einige der kritischen Marketingfaktoren, die die Bauindustrie zur Aufnahme eines neuartigen Gipsinnenputzes veranlaflten. Diese Studie behandelt die Eigenheiten der Produktsinnovation, die Marketingziele, die Preisstrategie und die Anfangs- und Endfiirderungsprogramme. Die Tatsache, da13 dem Leser ein Marketing321
programme vorgestellt wird, das mit einem Fehlschlag endete, ist von grol3er pgdagogischer Bedeutung, da dieser Fehlschlag trotz des Potentials
322
eines Billion-Dollar-Marktes eintrat, auf dem einige grog, Unternehmen ein konventionelles Produkt an eine Vielzahl industrieller Abnehmer verkauften.
Ind. Mark.
Manage.,
3 (1972)
Management
E.V.A.F., London and Elsevier Publishing Company, Amsterdam - Printed in the Netherlands
THE CASE OF THE PULLED PLASTERBOARD Harold
W.
Fox
SUMMARY
Professor Fox describes, in refreshingly frank detail, some of the critical marketing factors used to motivate the construction industry to adopt a new gypsum plasterboard. A case study is presented which explains the product’s innovatory properties, the marketing objectives, the pricing strategy, the
INTRODUCTION What are some of the critical marketing factors in motivating industrial users to adopt a new product? This is a significant question because efforts to translate technical success into commercial success are full of pitfalls. The frame of reference in this case is a billion-dollar market in which a few large companies sell a commodity-type product to a multitude of industrial firms all over the country. The product is bulky. It is used by many small firms. These industrial users order it together with thousands of other products--each in less-thancarload quantities-no earlier than the moment needed. In other words, although the total market is huge, the pattern of buying dictates the use of financially responsible middlemen who first purchase and store carload quantities of this product and of complementary products, then break bulk and develop assortments as needed by users. An example, described in this paper, that fits this description is gypsum plasterboard for the construction industry.
initial and final promotion programs. Of great pedagogical significance is the fact that the reader is treated to an account of a marketing program which ended in failure; despite the apparent potential of a billion-dollar market in which a few large companies sold a conventional product to a multitude of industrial users.
It is often lamented that case studies of this type are subject to the success syndrome. That is, people like to tell about their triumphs and dismiss their disappointments. Due to America’s achievement orientation, the very idea of personal or somebody else’s failure seems subversive and traumatic. Hence the hulman capacity-to learn from one’s mistakes or, better yet, from somebody else’s mistakes-is largely underutilized. Since the purpose is not to enthrall the reader with a gripping plot that dissolves into a surprise ending, it is revealed now that from a financial point of view, the carefully formulated and amended marketing program was a failure. This advance evaluation is intended to predispose the reader toward developing a strategy of his own. The first section will explain the product features and the marketing objectives. Next, the pricing decision. There follow a few words on promotion. Then the focus will shift to channel relationships. These turned out to be critical, and required a modification of the total marketing plan. THE NEW PRODUCT
FINANCIAL FAILURE An interjection is appropriate before delving into the strategic factors of marketing a new wallboard. I~rri.Mark. Manage., 3 (1972)
Plasterboard is, of course, widely used in the walls of buildings. Such companies as U.S. Gypsum and National Gypsum are among the leading sup315
pliers of this uniform product. For many years the users of wallboard have complained about a gap wherever the edges of two sheets are joined. Continuous liaison with all members of the construction industry convinced one of the major manufacturers that elimination of this product problem would represent a real opportunity to differentiate his offering and escape the commodity classification. Prodded by the complaints from builders, the manufacturer conducted a substantial amount of technical research. His laboratory finally developed a different edge to help join two pieces of wallboard evenly. Performance tests of this invention were satisfactory. Underwriters Laboratories certified that the new product gave the same amount of fire protection as the old. The manufacturer patented the new process which, it so happens, entailed only minor modifications on his production equipment. In any event, he now had legally protected exclusivity on the invention of the so-called “Smooth Wall” manufacture for which builders had been clamoring. Two additional-and important-pluses for the new product were that labor unions and building codes were generally no problem. OBJECTIVES
The manufacturer decided to base his marketing strategy on the product’s superior feature. He prepared formal objectives and timetables for changing user segments and geographical segments from the old to the new. Specifically, the manufacturer planned to convert all his wallboard sales from traditional “straight edge” to the new Smooth Wall. More important, he aimed to capture a larger share of the total wallboard market. Here, then, is a one-sentence summary of the manufacturer’s objectives: along with switching all users of his own product to the innovation, he sought to win over his competitors’ customers as well. THE PRICING
DECISION
Presumably most readers would agree on the price level that is appropriate under these circumstances. (1) The new product was available immediately in large tonnages, since the production change was minor. (2) The company’s objective was to gain acceptance for this new product among its own and its competitors’ customers as quickly as possible. 316
Both of these factors argue for penetration pricing. Accordingly, the manufacturer offered his new superior plasterboard at the same price as the commodity product. In passing, it should be mentioned that if an innovation captures a large market share and competitors cannot imitate the new product, there is a danger of a price war. But no price war occurred in this case. PROMOTION
Promotion is fairly standard in this industry. The company’s main vehicle is its own force of missionary salesmen including specialists for some identified segments. For example, its architect service representatives act as consultants and promotion men to professionals who design buildings and specify materials. The bulk of the company’s sales force divides its time about equally between distributors and end users. The salesmen provide informational and liaison services, encouraging end users to insist on the company’s product line when buying construction materials from distributors. The salesmen submit to the local distributor any orders that they book. The company conducted a detailed indoctrination program to familiarize its sales force with the Smooth Wall innovation. Displays of the old and the new product dramatized the improvement. At
Harold W. Fox is professor of marketing at DePaul University, Chicago (U.S.A.). A former business executive, he is now active as a teacher, consultant, and writer. Professor Fox earned his doctorate in economics at Rutgers University in New Jersey. He has authored some 70 publications and has discussed his research on U.S. television and radio as well as in interviews for newspapers and magazines all over the world.
ltd. Mark. Manage.,
3 (1972)
the early stages of the campaign, the main topic at sales meetings was explanation of test results. Later the company arranged to have satisfied users of Smooth Wall give case histories of their experience. Sales managers reviewed the quotas for the new product and other administrative details. The company conducted a nationwide contest. The incentives motivated salesmen to switch customers from the old product to the new. In short, this carefully planned campaign was launched with great enthusiasm and confidence. A limited amount of industrial advertising used readers’ service cards to obtain additional leads for distributors. Stories were planted in trade journals. Moreover, the new product was exhibited at trade shows. CHANNELS
Thus, four major aspects of this case have been reviewed, viz.: 1. The structure of the industry. 2. The new product’s unique superiority, designed to correct a widespread complaint, and a brand name which communicates instantly the benefit to the buyer. 3. The decision to offer the new product at a price no higher than the old. 4. The careful indoctrination of the sales force. Despite all these favorable aspects, the independent distributors balked at accepting the new article. The main objection was that acceptance of the new product would double their inventory and escalate their administrative costs. Experienced businessmen will appreciate the difficulties of stocking two types of wallboard instead of one, with all the attending problems of mixed deliveries to customers, order mixes to the factory, and mixedup records. lnventories were not the only problem. Some competitors ignored the innovation, but others greeted it enthusiastically. That is, they enthusiastically disparaged the new product’s serviceability until many distributors and others had real doubts about its performance. Eventually these doubts were strengthened by the adverse experience of some users. EARLY
DISAPPOINTMENTS
Every new product ltd.
Mark.
Manage.,
finds its acceptance
3 (1972)
retarded
in proportion to the amounts of risk, learning and extra cost that potential buyers perceive. It soon developed that for steel stud buildings, the old product is better. But this concerns only a small part of the market. More damaging to wide acceptance, the manufacturer’s equal-price policy did not translate into equal cost to a user. In its application, the new product requires special cement and special treatment of the joint. The monetary impact is only $10 for a house and perhaps $1,000 for an office building. Again, two crafts-the hangers and some of the tapers-required a higher rate of pay for handling the new product. These men, who are compensated on the basis of piece work, found that the new wallboard takes longer to process than the old. Hence the new product gave them a lower rate of hourly earnings. On a $30,000 house or a million-dollar commercial building, these cost increases seem negligible, of course. But the drywall contractor has no reason for absorbing them, and the builder cannot pass them forward to his buyers. If the builder explains the straight edge problem to prospective homeowners, he deprecates the quality of his standard materials and workmanship. With respect to apartment houses and other large structures, the financial syndicates buying these are unconcerned about this matter. Finally, it was unrealistic to expect instantaneous acceptance of the new product since every party commercially or physically involved with wallboard had to learn and evaluate the new feature. Small builders, especially, are quite conservativeperhaps because they cannot afford to gamble. Relative to the potential benefit, the risk seemed great once the new product was put in place. REVISED
MARKETING
STRATEGY
Thus the early feedback from the field indicated a need for debugging the marketing plan. What are some reasonable alternatives? Shrewd marketers would rule out a price reduction because it would cheapen the superior product and because it would be impractical in this market structure. Nor should the product be withdrawn since it offers a functional improvement that many users want. Other options can be considered. But the two basic alternatives are a push strategy and a pull strategy. 317
Push and Pull A push strategy emphasizes selling vertically down the channel of distribution. The manufacturer tries to load the distributors who, in turn, merchandise the product to their customers. In contrast, a pull strategy stimulates demand initially among customers. This final demand motivates each intermediary, successively upward through the channel, to order the product. The pull approach is often used by manufacturers of packaged consumer goods who first secure a following among household buyers through mass advertising, couponing, and free samples. In practice, push and pull are matters of emphasis. An astute marketer allocates part of his resources to the nonfeatured elements of his marketing mix since some combination of tactics is usually more effective than total concentration. But, somewhere in the channel, one level of prospects must be selected as the prime target of a marketing plan. This important decision warrants close analysis. Consumer versus User Focus Since the manufacturer was frustrated at the upper portion of the commercial channel, the distributors, he looked at the options of pulling the product from below. One possibility is to focus on consumers. In the case of a consumer approach, he would initially win over the ultimate home buyers, then the builder, hence the drywall contractor and, finally, the distributor. Alternatively, a user approach would concentrate on builders. Although marketing should be consumer oriented, the first idea of focusing on ultimate consumers seemed impractical for several reasons. When a family buys a home, it is faced with major decisions such as location, old house or new, building style, size of lot, price range, and financing. Often the family exercises a choice on some highly visible and personal factors; for example, lighting fixtures, appliances, and wall colors. But with respect to the thousands of materials and variety of methods that the different subcontractors might use, most home buyers lack the competence and the time to evaluate them. Home buyers should certainly be reluctant to assume responsibility for specifying a particular brand of plasterboard. They would have been confused by conflicting technical claims. The issue might impress many householders as trivial because in a finished room the difference between the two types of plasterboard should not be obvious. 318
From a promotion point of view, two further disadvantages of targeting on consumers are: (1) Only two-tenth of one percent of all American families buy a new home monthly, and (2) a long time elapses until a repeat purchase is made. Even if the communication could have been convincing, the lack of truly specialized media condemned such an effort to gross inefficiency. It is also a fact that many new homes are sold in various stages of completion, after all basic materials have been specified, ordered or put in place. In the case of tracts, streamlined administration limits change from the standard bill of materials as much as possible. Moreover, the choice and supervision of subcontractors is one of the functions of the builder. An advertising campaign directed at prospective home buyers might have offended the manufacturers’ end users. Altogether, the low probability of capturing the interest of consumers plus the high risk of alienating the builders argued against a marketing focus on families. An alternative pull strategy could concentrate on the intended beneficiary of the new product-the builder-and this approach was adopted and implemented. Builders would be interested in a better wall. They could appreciate that-for slightly higher processing cost-they would have fewer callbacks, reflecting greater satisfaction on the part of their customers. This, then, became the theme of the user-focused pull approach. Focus on the Builder The builder is the logical target in this case. He can evaluate the promotional claims, and he is the decision maker. Since practically every builder is a prospective customer, and repeat purchases are very frequent, this campaign could also be quite efficient. Furthermore, in the manufacturer’s direct dealings with users he could imply or warrant that the new product was stronger than the traditional one. Briefly, here are some of the marketing tools in a user-oriented pulling campaign. Advertising in trade journals has been mentioned before. So was publicity in the form of articles in the business press. But with a pull approach, these types of effort received greater emphasis. Furthermore, the manufacturer conducted an extensive direct-mail campaign to builders. Another promotional tool was a slide film with sound, to indoctrinate salesmen and to present at meetings of builders.
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The A.I.D.A. Model Impersonal tools like these are suitable for the first stage of the purchasing process, when a manufacturer tries to get attention for his product, provided the promised benefit is understandable and desirable to the user, as in this case. First impressions can be crucial. Hence the function of advertising and sales promotion in the introductory stage is to implant a favorable impression of the new product among as many desirable prospects as possible. Subsequently the marketer must nurture the interest of these potential buyers, arouse desire for his offering, and obtain action in the form of a purchase order. This sequence of attention-interestdesire-action is widely known as the A.I.D.A. model. As he leads his target buyers through these stages, a marketer increasingly invokes methods that involve physical demonstrations and personal explanations. To stimulate interest, the manufacturer distributed samples showing Smooth Wall joints of two plasterboard miniatures. Advertising in various business papers spread information about the new product to more partners 01 officials of wore building firms, drywall contractors, architects, governmental purchasing officers, distributors, and so forth-and more quickly-than personal solicitation could have. The ads generated leads which the manufacturers’ salesmen followed up on behalf of local distributors. Indeed, just the ability to show a number of local inquiries or filled-out service cards is an opportunity to develop interest among distributors. Moreover, this trade advertising established, firmly in print, the large manufacturer’s commitment to the new product. Among other efforts to promote interest, the manufacturer exhibited full-length walls at various trade shows such as National Association of Home Builders, Building Materials Convention, and regional meetings. At these trade shows the manufacturer’s staff could discuss the product’s features with visitors at his booth. These meetings generated additional leads. To arouse desire, the manufacturer conducted seminars for builders’ groups. These get-togethers provided a useful forum for two-way communication between the seller and his prospects. The manufacturer’s technical staff gave detailed explanations and assurances about the new product. Afterwards the staff fielded questions from the attendees. Meantime the salesmen concentrated on converting the pacesetters in their territory. Once a Id.
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prestigious, large company with formal qualitytesting procedures decided to adopt the new product, a large proportion of the smaller local builders usually followed suit. Inducing action among the builders was almost entirely the task of the sales force. At first the distributors were passive. They voiced no objection to handling Smooth Wall for specific orders. As demand became more widespread, they reluctantly started to stock the new material. Salesmen were also active in getting newspapers to publish articles about the product’s use in new local homes and other buildings. But most newspaper editors evinced little enthusiasm for this story, and it appears that their apathy was justified. Some newspaper articles were published, but they had no discernible impact. For the same reason, a supporting campaign of advertising in consumer magazines was not extended. Hierarchy of Adoption The research connected with this case brought out clearly that in the construction field there is a sequence of adopters just as prior investigators found among farmers, physicians, and consumers. In the vanguard of adopters are industrial and home builders who are knowledgeable and who are concerned about their long-term reputation. On the one hand, these opinion leaders may be large companies. Or they may be sincere craftsmen. It seems clear that knowledgeable firms with a long-range perspective will be most responsive to documented arguments involving superior performance, higher profit, and greater attractiveness to their own customers. It may be the influence of these opinion leaders that causes an emphasis on rationality in much of industrial purchasing, just as taste volatility among early adopters of consumer goods may inject an element of faddism into consumer marketing. Perhaps one-sixth or less of all builders are sufficiently venturesome and self-confident to qualify for this vanguard category. A marketing executive experienced in his trade or a specialized salesmen should be able to identify many members of this group by name. These pacesetters are followed by imitators who may comprise anywhere from 10 to 60% of the market. This enormous range represents an important opportunity for marketing. Until enough studies are available to permit generalization, one can say only that formal research must identify, 319
separately for each case, the relevant characteristics of these buyers. Then the marketer can formulate his campaign to aim for profitable expansibility of this adopter segment. If the marketer fails to tap the imitator segment adequately-say, he penetrates just the upper fringe of 10% or so-he faces a more difficult selling job among the skeptics that remain. This third adopter category of skeptics is willing to consider innovations, but these people are more resourceful than others in convincing themselves why the innovations won’t work. Once formed, a mental commitment like that is very difficult to change. Hence it is worth repeating that through research, intuition, personal knowledge of individual customers and appropriate strategy, the second category of adopters should be enlarged as much as profitable, leaving the third category correspondingly small. The balance of the market comprises abstainers and accidental or intermittent users. Many of these firms are not permanent. Most buyers in this category are quite small and put greater emphasis on low price than on any other variable. Large manufacturers would rely mainly on their network of distributors to gain a share among these transient adopters. But it would be a mistake to dismiss this fourth category as inconsequential in the marketplace. Just as the first category exerts an influence down to later adopters in favor of long-term commercial soundness, the known or suspected existence of the fourth category puts a countervailing pressure on preceding adopters to stress cheapness. Thus the buying criteria of all adopter categories are interdependent. Conceptually, the downward and upward disseminations of influence can be depicted as in Fig. 1. The strength of influence diminishes in each successive adopter category. In practice, the opposing curves of influence would be neither smooth nor symmetrical. Research would have to try and approximate the shapes of the curves separately in each market and for each product. The area under each curve guides the marketer in formulating different emphases to separate adopter categories. THE OUTCOME
The total marketing campaign, bypassing the distributors and pulling the Smooth Wall product through the channel by means of direct promotion 320
1st
2nd Adopter
3rd categories
Figure 1. Interdependence of buyers’ preferences. high quality; - - -- , low price.
4th
---,
to users, especially the known pacesetters, brought a very quick and dramatic surge in market share. Competition which had been jeering at the new product all along now imitated it promptly, leaving the originator to seek possible redress some day for patent infringement. It should be recalled that the change in production technique had been minor. As competitors entered similar products, the innovator’s market share cascaded to its original level, so that his technical research and development and his marketing introduction did not gain him any permanent sales advantage. A large proportion of the users have switched to the new type of product, but many others have not. One of the interesting consequences of this innovation is the creation in some end-use markets of a two-layer pricing system. Some enterprising homebuilders are offering houses with Smooth Wall plasterboard at a higher price than their basic model in which Square Edge is used. As noted near the beginning of this presentation, the financial results are unsatisfactory. The consequence to the innovator is a doubling in the complexity of production schedules, inventory and order processing. Since this management, administrative burden could not be recaptured through a price increase, this product line earns a lower rate of profit than formerly. Longer range, the manufacturer feels that this innovation maintained and strengthened his image as a progressive company. He hopes that his company’s reputation for leadership will pave the way for complementary new products which his research and marketing departments are readying hi.
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for the building industry. The main lesson that the company has learned is that future innovations especially if not dramatic improvements to the ultimate consumer, should carry no cost premium to the builder or preferably give the builder a lower total cost. CONCLUSIONS
In conclusion, here are seven strategic features of introducing an industrial product gleaned from this history. 1. It is vital to heed the wishes of product users, but the vendor must carefully evaluate the true monetary worth to the users of their preferences. 2. The true monetary value of product improvements will range, possibly widely, from positive to negative, for different applications and different types of customers. Hence product improvement may just increase market fragmentation rather than increase market share. 3. A manufacturer should adopt a pricing perspective which encompasses the total cost per unit for all channel members and beyond, from his first sale ex factory till his product’s recycling or other final disposal. 4. Along with this forward determination of financial progress, a marketer also needs to trace and influence all physical, commercial and informational flows-with their timing-for his proposed product. 5. The differences between consumer marketing and industrial marketing are more a matter of degree than kind. Approaches of proven effectiveness on some consumer products; for example, direct appeal to the ultimate decision makers in terms of their self-interests can be adapted to marketing which focuses on industrial users. 6. Promotion has separate tasks such as gaining a favorable awareness for a new product, stimulating interest in it, arousing desire, and obtaining actual purchase orders. Different promotional efforts are appropriate for each task, depending on the type of prospect and the characteristics of the product. In general, personal representatives are necessary at the stage where a new product’s unfamiliar functions must be explained. 7. It is important to delineate and describe the intended users according to their “followership”. Table I outlines a complete marketing plan, reflecting explicit distinctions among the successive promotional tasks (#6 above) and among the Ind. Mark.
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TABLE
I
Conceptual Outline for Marketing Promotional sequence:
Adoption setters Pace-
Strategy
sequence Imitators
Skeptics
Transients
Attention Interest Desire Action
separate adopter categories. Ordinarily (but not always), initial efforts should concentrate on converting the pacesetters. Campaigns for new products which hit mainly imitators and skeptics are apt to be very inefficient. Targeting on the fourth category among adopters may doom the new product to heavy price pressure throughout it brief existence. Ri%UMi
L’Affirire du Planchkiage
Fir.4
Le professeur Fox dicrit tout carrtment en dCtai1 quelques-uns des facteurs critiques de marketing qu’on emploie pour pousser l’industrie de construction g adopter un nouveau planchkiage en gypse. On prCsente une Ctude particuli&re qui explique les nouvelles qualit& du produit, les objectifs marketing, la stratCgie de l’Cvaluation, et les premiers et les derniers programmes de fondation. C’est un fait d’une grande importance pedagogique qu’on offre au lecteur un compte-rendu d’un programme marketing qui a abouti en faillite, malgrC le potentiel apparent d’un march6 d’un billion de dollars oti quelques grandes compagnies vendaient un produit normal B une multitude d’usagers industriels. ZUSAMMENFASSUNG
Das Beispiel des abziehbaren
Innenputzes
Professor Fox beschreibt in genauen Einzelheiten einige der kritischen Marketingfaktoren, die die Bauindustrie zur Aufnahme eines neuartigen Gipsinnenputzes veranlaflten. Diese Studie behandelt die Eigenheiten der Produktsinnovation, die Marketingziele, die Preisstrategie und die Anfangs- und Endfiirderungsprogramme. Die Tatsache, da13 dem Leser ein Marketing321
programme vorgestellt wird, das mit einem Fehlschlag endete, ist von grol3er pgdagogischer Bedeutung, da dieser Fehlschlag trotz des Potentials
322
eines Billion-Dollar-Marktes eintrat, auf dem einige grog, Unternehmen ein konventionelles Produkt an eine Vielzahl industrieller Abnehmer verkauften.
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