Chapter 1: Introduction to the World of High-Technology Marketing.

Chapter 1: Introduction to the World of High-Technology Marketing

Jet Pack International Moller SkyCar Aptera Tesla MIT Smart Cities CityCar Tata Nano See also: A Better Place (electric car

company using an innovative business model)

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How is “high-tech” defined?

What are the common characteristics found in high-tech environments?

What is the importance of dominant design in high-tech markets?

Why are standards important to marketers and customers?


What are the various types of innovations?

Why (and how) does marketing for high-tech innovations differ from traditional marketing?


Some high-tech companies believe that marketing is superfluous◦ The role of marketing is downplayed or

misunderstood

Marketing for high-tech products is complicated and difficult◦ Marketing is an after-thought to product

development ◦ Cross-functional collaboration is difficult ◦ High-technology companies are not “market-driven”


Technological superiority alone does not ensure success for high-tech products

Combination of technology superiority AND marketing competence maximizes the odds of success. ◦ Requires intimate understanding of customers


“High-Tech Marketing” can mean:

◦ Use of technology for marketing purposes “New media,” paid search, online advertising, Web

2.0, etc. Covered primarily in Chapter 11 on Advertising and

Promotion

◦ Marketing of high-tech products/innovations Primary focus of this book: how standard marketing

strategies are adapted/modified for high-tech products


Marketing

◦ Set of activities, processes, and decisions to create, communicate, and deliver products/services that offer value to customers and other stakeholders

◦ A philosophy of doing business that focuses on creating value for customers Uses market-based information to guide internal

decisions Brings the voice of the customer into the firm


Strategic: Proactive decisions to chart the company’s efforts in the market

Segmentation, targeting, positioning ◦ Which markets, which segments?

◦ What value proposition/competitive position?

May include a company’s corporate social responsibility initiatives


When strategic decisions are not made, company’s efforts are diffused across market segments and product development projects ◦ Recipe for disaster

Responsibility for strategic decisions must be vested with some department in the company

Resources for research must be allocated


Decisions regarding the 4 Ps of marketing:

◦ Product, Price, “Place” (distribution), Promotion

◦ Consistency across the marketing mix

◦ Requires effective cross-functional collaboration

◦ Common focus for all departments is delivery of superior customer value:

“Moments of truth:” every interaction a customer has with a company either cements or undermines that customer relationship


Product: e.g., new product development process; licensing; intellectual property rights; services; etc.

◦ Develop a stream of products with the right set of features to satisfy customer needs in a compelling yet simple fashion.

Price: Establish prices for the company’s product

◦ Consider the cost to produce/manufacturer the goods; margins along the distribution channel; competitor’s prices; customer value; total cost of ownership; prices for product bundles; and profitability.


Place: Distribution channels and supply chain management.

Promotion: ◦ Advertising (both media and messaging decisions) ◦ Sales promotion (price deals, trade incentives, etc.) ◦ Personal selling (recruiting, training, compensating sales people) ◦ Public relations/publicity (garnering favorable trade press

attending trade shows, engaging in cause-related marketing, etc.) ◦ The Internet and other new media ◦ Collateral materials


Actual implementation of specific marketing tools

◦ Development of marketing brochures and collateral

◦ Website development

◦ Decisions about which trade shows to attend

◦ Where to place ads


High-technology: ◦ Cutting edge, “advanced” products/processes

that rely on scientific/engineering knowledge

Innovations: ◦ Things that are new—some of which are high-tech


Input-based definitions:

◦ Based on criteria such as the number of technical employees, $ spent on R&D, # of patents filed in industry

◦ Used by the Bureau of Labor Statistics, Organization for Economic Cooperation and Development, and the National Science Foundation

See Appendix A for a list of industries classified as high-tech


Output-based definitions:

◦ Based on whether products embody new/leading-edge technologies

◦ U.S. Census Bureau’s classification (next slide)


Biotechnology

Life sciences technology

Optoelectronics

Information and communications technology (ICT)

Electronics

Flexible manufacturing

Advanced materials (semiconductors, fiber optics)

Aerospace

Weapons

Nuclear technology


Strengths Data easily obtainable

Objective

Effective for Level I* industries

Includes focus on high-tech service sector

WeaknessesClassifications may be deemed

arbitrary

May include industries with products not commonly thought of as high tech

May omit very new industries

Different input-based measures will result in different classifications

Input-Based Approaches

*See text for definitions of Level I, II, and III industries


Strengths Classification tends to have face value

Relatively good correlation between input and output methods for Level I industries

WeaknessesSomewhat post-hoc: judgments

somewhat subjective

Generally not as comprehensive as input-based approaches

Relatively low correlation between input and output methods for Level II and Level IIII industries

Output-Based Approaches


Market Uncertainty

Technological Uncertainty

Competitive Volatility

Marketing of High-Tech Products & Innovations


Ambiguity about the type and extent of customer needs that can be satisfied by a particular technology

◦ Consumer fear, uncertainty and doubt (FUD)

◦ Customer needs change rapidly and unpredictably

◦ Customer anxiety over the lack of standards and dominant design

◦ Uncertainty over the pace of adoption

◦ Uncertainty over/inability to forecast market size


Cumulative Adoption Patterns(Examples for Some Media Products)

1. Based on the number of households with the electronic device (eg, television set, DVD player, etc.), survey results on the share of the population, that indicated using a medium in a given year (eg, read newspapers, went to a movie), or estimates based on circulation or unit data

Source: Communications Industry Forecast, 2005-09


Cumulative Adoption Patterns(Examples for Several Durables)


Not knowing whether the technology or the company can deliver on its promise

◦ Uncertainty over whether the new innovation will function as promised

◦ Uncertainty over timetable for new product development

◦ Ambiguity over whether the supplier will be able to fix customer problems with the technology

◦ Concerns over unanticipated/unintended consequences

◦ Concerns over obsolescence


Changes in competitors, offerings, strategies

◦ Uncertainty over who will be future competitors

◦ Uncertainty over “the rules of the game” (i.e., competitive strategies and tactics)

◦ Uncertainty over “product form” competition Competition between product classes vs. between

different brands of the same product

“Convergence”


Implications:

◦ Avoid myopia

◦ Engage in creative destruction


“Our technology is so new we have no competitors.”

But: customer needs are already being solved; entrenched customer habits harder to address than “real” competition.

“The new technology being commercialized by new competitors will not pose a large threat.”

But: “You’ve been ‘amazoned!’

That competitor is in a different industry, and its strategies don’t/won’t affect my business.

But: customer needs can be solved using different underlying technology platforms.


Evolution in new generations of technology ◦ Moore’s Law:

Performance of an existing technology doubles every 18 months with no increase in price;

Predicts upper limits of a particular generation of technology

Typically embodied in new “product forms”

Often S-shaped curves (see next slide) ◦ May also be irregular step functions and may not be

overlapping in terms of performance levels


Per

form

ance

Time

Limit of Particular Technology


New technologies often come from companies not selling current generation of technology

At its initial introduction a new discontinuous technology often underperforms the legacy technology

Incumbents often underestimate viability of new developments

Therefore, new technologies can catch established firms by surprise


Flurry of new companies ultimately shakes out and industry coalesces around “dominant design”

Performance of new technology takes off and overcomes capability of legacy technology

Creative destruction: new technologies obsolete old technologies creating new winners/losers in the industry


Unit One Costs ◦ When the cost of producing the first unit is very high relative to

the variable costs of reproduction of subsequent units ◦ The ratio of variable costs to fixed costs is very low.

Tradeability problems◦ The difficulty in selling “know-how” because of uncertainty in

how to value the knowledge-- especially when it is tacit and resides in people and organizational routines.

Knowledge spillovers◦ Synergies in the creation of know-how further enrich a related

stock of knowledge.


When the value of the product increases as more people adopt it

◦ Also called:

Demand-side increasing returns or

Bandwagon effects

◦ Ex: portals on the Internet; social network sites◦ Based on (driven by) communications and

connectivity among users



Direct network effects◦ Based on the size of the installed base, and

communications/connectivity among users◦ Metcalf’s Law: Value of the network = n2

(where n=# of users)

Indirect network effects ◦ Based on the incentive to develop and availability of

“complementary” products Games played on consoles; DVD/films played on DVD

players


Which comes first, the chicken or the egg?

◦ Does the device/hardware lead the availability of software/applications, or vice versa?

◦ Research suggests hardware sales drive availability of software (in some markets) while in others, hardware and software together are necessary.


1. Quickly grow the installed base of customers

2. Establish industry standards for compatibility/ interoperability

◦ Industry Standards: agreed-upon specifications to ensure technical compatibility for products across different firms

Allow customers to gain compatibility across various components of a product

Fear, uncertainty, and doubt is lessened


Self-Reinforcing Nature of Industry StandardsSelf-Reinforcing Nature of Industry Standards

Establish Industry

Standards

Raise compatibility of

products for customers

Lower fear, uncertainty and doubt

Increase likelihood of addoption

Increase number of users

Increase incentive for developers of complementary

Increased value to each user

Due to indirect network effects

Due to direct network effects

Figure 1-5


Customers and developers of complementary products take a wait-and-see attitude:

◦Which platform will “win?”

◦ Examples:

Telecommunications

HDTV


Dominant design emerges when: ◦ Company/industry follows open business model ◦ Innovation is less radical◦ R&D intensity is high (creates pressure to select

dominant design)

Dominant design emerges sooner when: ◦ Value network has large number of firms (creates

pressure to know what dominant design will be) ◦ De facto process guides development of industry

standards (versus imposed by some “body”)


“Get Big Fast” Strategies ◦ Free offerings

◦ License technology to other industry players

◦ Create customer lock-in based on switching costs to a competitive offering

Caveats: Best technology may not win the standards war Companies that are the de facto industry standard are

carefully scrutinized for monopolistic behavior Superior technology may not unseat established

standards


“It’s my way or the high-way.” ◦ Company believes its technology is superior and will prevail in the

marketplace; willing to “go it alone”

“We shall overcome!”◦ Through sheer power, effort, and resources, company believes its technology

will become the dominant design.

“But it’s mine!”◦ Company is unwilling to share knowledge with other industry players, which is

oftentimes required for using a common industry platform.

“I deserve more!”◦ Partners cannot come to terms regarding licensing fees, royalties, or revenue

sharing.


1. Incremental versus breakthrough

2. Product versus process versus organizational

3. Architectural versus modular (component)

4. Sustaining versus disruptive


Continuations of existing products, methods or practices

◦ Minor improvements made with existing methods and technology

◦ Evolutionary as opposed to revolutionary

Totally new products◦ Considerable change in basic technologies and methods

◦ Revolutionary ideas that can create new markets

Incremental Innovations

Breakthrough Innovations


New products offering improvements in functional characteristics, technical abilities, ease of use, or other dimensions(incremental or breakthrough)

New techniques of producing goods or services◦ Improve the effectiveness or efficiency of production processes ◦ Facilitate the discovery of underlying scientific properties of

technological domains

Product innovations of one firm may be used as a process innovation by another and vice versa

Product Innovations

Process Innovations


New foundations or fundamentals of how the various components of a system work together to function◦ Based on scientific principles◦ Different from existing technological platforms◦ May be considered radical.

New parts or materials within the same technological platform◦ Example: Magnetic tape, floppy disk, and zip disk differ by components

or materials, all three based on the platform of magnetic recording

Architectural Innovations

Modular Innovations


Target demanding, high-end customers with improved performance◦ Typically through incremental innovations

New, simpler, more convenient, less sophisticated and/or less expensive than existing products or services◦ Appeal to customers at the lower end of the market ◦ Low-end disruption: attracts low-end customers initially, moves into

more upscale markets over time as the technology improves◦ New-market disruption: converts previous non-customers into new

customers, thereby creating a new market

Sustaining Innovations

Disruptive Innovations


Create or alter business structures, practices, and models

Business model (strategy) innovations◦ Change in the way business is done in terms of

capturing value New methods of financial management Innovations aimed at social needs and issues

Innovations in marketing

Organizational Innovations


Incremental R a di c a l Extension of existing product or process

Product characteristics well- defined

Competitive advantage on low cost production

Often developed in response to specific market need

"Demand-side" market/customer pull

New technology creates new market

R&D invention in the lab

Superior functional performance over "old" technology

Specific market opportunity or need of only secondary concern

"Supply-side" market/technology push


Radical Innovation◦ Substantially new technology relative to what

already exists in the industry

Disruptive Innovation◦ Increased sophistication of the feature set in product

offerings at a faster rate than customers can keep up may lead to a gap in the marketplace.

Gap = Opportunities◦ New companies may enter the market with lower-end

products, selling to lower-end customers first


SuppliersCar

ManufacturersCar

Dealers Customers

-raw materials-components-production equipment-services

-personal consumption-business use (fleets, etc.)


Often, technological innovations occur at upstream (i.e., supplier) levels in the supply chain

◦ Such innovations may radically affect the manufacturing process or the inner workings of a product, but

◦ End-user behavior may not be significantly affected

Examples: food, fashion, apparel


Companies must be ambidextrous and manage both types of innovation processes

Incremental innovations require: ◦ Attention to cost competitiveness, manufacturing,

understanding the market

Breakthrough innovations require: ◦ More long term thinking; risk tolerance; ambiguous

market information


Type of marketing strategy is contingent upon the nature of the innovation.

New Product

Success Marketing Strategy

Type of Innovation

-Breakthrough -Incremental

R&D/Marketing

Interaction

R&D leads; “technology

push”

Marketing leads; “customer pull”

Type of Marketing Research

Lead users; empathic design

Surveys; focus groups

Role of Advertising

Primary demand; customer education

Selective demand; build

image

Pricing May be

premiumMore

competitive

Breakthrough Incremental

©2010 Pearson Education, Inc. publishing as Prentice Hall


High-Tech Firm (Ch. 2-5)Strategic Planning Process

Core Competencies

Organizational Culture and Climate

Core Rigidities

Market Orientation

Cross-Functional Teams

R&D/Marketing Interactions

Partnerships and Alliances

Customer Relationship Marketing

Understanding Customers(Ch 6, 7)

High-tech Research

Forecasting

Customer Decision-Making Adoption/Diffusion of Innovations Market Segmentation, Targeting, Positioning

High-Tech Marketing Decisions:High-Tech Marketing Decisions:FrameworkFramework }

Societal and Ethical Concerns (Chapter 13)

Marketing – 4Ps (Ch. 8-12)


Technology Solutions for Global Problems:Technology Solutions for Global Problems: One Laptop Per Child One Laptop Per Child


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Chapter 1: Introduction to the World of High-Technology Marketing.

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