Kapitel 6: System business 2

Question 1

What is the system business?
and characteristis project business?

Answer 1

System business:
system technologies like computer-integrated manufacturing (CIM) systems or telecommunication systems are sold

Characteristis: contrast to project business:
- these systems are not sold as a full package but
- rather as individual components in a continous process over time

Question 2

What are the two sources of system lock-in in System business?

Answer 2

Product-product-compatibility:
the system lock-in is determined by product characteristics and their compatibility

Product-user-compatibility:
To use the goods and services, specific know-how and or organizational requirements are needed

Question 3

On what does the lock-in intensity depend on in the System business?

Answer 3

Lock-in intensity depends on the specificity of a system and the openness of a systems architecture

–>open systems allow the use of components from other suppliers over time
–>closed systems curtail repeat purchases to a large extent

Question 4

What are the two high-level characteristis of system business for marketin?

Answer 4

1.Purchase sequence: (over time)
the differentiation between initial and repeat purchases is important

2.System architecture: (interrelated product purchase):
Consideration of system lock-in effect important

Question 5

What is the problem of Systems business marketing? and what are the two problem types?

Answer 5

Problem: customer´s uncertainty (before initial purchase)

• Behavior-related uncertainty:
  supplier has a monopoly like position, which may lead to opportunism (e.g. in terms of price, quality, and service of repat purchases)
• Usage-related uncertainty:
  performance of the acquired system, possible follow-up investments (e.g. type, frequency, timing, and monetary volume)

Question 6

What is the pricing in System business`? (Goal)

Answer 6

Lowering barriers for a purchase:
offering initial purchase at price lower than manufacturing costs, then due to further investments –> increasing profit from customer over time:

• manufacturing costs baseline
• Cost-plus pricng
• Cross-subsidization

Question 7

How to influence the perceived lock-in effect?
(Goal, two methods(levers))

Answer 7

Goal: reducing the customers uncertainty by…

• Creating a counterbalance to the lock-in effect
• Lowering the lock-in effect

Question 8

How can suppliers create a counterbalance to the lock-in effect?

Answer 8

Counterbalance to the lock-in effect:

• use of warranties as contractual safeguarding instrument, e.g. a completion gurantee (supplier gurantee to accomplish services agreed on upon the initial purchase, in the case of additonal purchase as well)
• use of credible assurance as a non-contractural safeguarding instrument, e.g. references, test installations, expansion of the suppliier´s service network

Question 9

How can suppliers lower the lock-in effect in sytem business?

Answer 9

Lowering the lock-in effect:

• use of leasing offers as a contractual instrument to reduce the perceived risk resulting from a high initial investment (leasing lease over time)
• adjustments with regard to the openness of the system/ the standards used as a non-contractual tool, e.g. changing the compatibility of an IT-application. As a result, the risk of future adjustments or follow-up costs decreases

Question 10

What are the suppliers risk in system business?

Answer 10

• general loss of image if customer expectations are not fulfilled
• Uncertainty of the supplier´s employees about the suppliiers strategy
• Uncertainty of the customers due to the lock-in effect
• Uncertainty customers about the suppliers strategy

Question 11

What are the two forms of system business?

Answer 11

Two forms:
- Annonymous market
- Interrelated product purchase