Marketing Strategy in Marketing Strategy in High-Tech Markets IIHigh-Tech Markets II

The Big Group Smack The Big Group Smack Down!Down!

Define “High-Tech” and why are hi tech markets particularly dynamic?

What do you consider the What do you consider the most important barriers to adoption of the of the Wearable Computer? ?

Give an example of what you would consider a radical technology-based innovation and from it develop a short definition..

Contingent on the type of innovation, the role of marketing differs. How?

What would you call these and what do they have in common?

“Unit-one costs of HT products are often high, payback cycles of a new HT products shorter and shorter.” Why is this so? Why is this so? As a marketing consultant, what do you recommend a As a marketing consultant, what do you recommend a

company do that has a breakthrough product on its company do that has a breakthrough product on its hand ready to launch? hand ready to launch?

Why are High-Tech markets Why are High-Tech markets particularly dynamic?particularly dynamic? No established rules of the gameNo established rules of the game Significant size economiesSignificant size economies low entry barriers.low entry barriers.

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Barriers of AdoptionBarriers of Adoption

Perceived valuePerceived value Institutional supportInstitutional support ObservabilityObservability CompatibilityCompatibility Ease of useEase of use ReliabilityReliability

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Continuum of Continuum of InnovationsInnovations

Incremental Radical •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

•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

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Contingency TheoryContingency Theory

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

Marketing Strategy

New Product Success

Type of Innovation -Breakthrough -Incremental

Examples of Implications Examples of Implications of of

Contingency Theory:Contingency Theory:R&D/R&D/Marketing Marketing InteractionInteractionType of Type of Marketing Marketing ResearchResearch

Role of Role of AdvertisingAdvertising

Pricing Pricing

Breakthrough Incremental

““technology technology push”push”

““customer customer pull”pull”

Lead users; Lead users; developersdevelopers

Surveys; Surveys; focus groupsfocus groups

Primary Primary demand; demand; customer customer educationeducation

Selective Selective demand; demand; build image build image

May be May be premiumpremium

More More competitive competitive

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Muskets/then machine guns Muskets/then machine guns Steam shipsSteam ships AutomobilesAutomobiles PCsPCs Digital photographyDigital photography NetflixNetflix

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What is a disruptive What is a disruptive technology?technology?

Disruptive technologies typically have worse Disruptive technologies typically have worse performance, at least in the near term. performance, at least in the near term.

But: They have features that a few fringe and But: They have features that a few fringe and generally new customers value and which generally new customers value and which represent a key source of competitive value in the represent a key source of competitive value in the future. future.

Products based on them are typically cheaper, Products based on them are typically cheaper, simpler, smaller and frequently more convenient simpler, smaller and frequently more convenient to use - often representing a new product to use - often representing a new product architecture, design, and even market (category). architecture, design, and even market (category).

They often bring a new and different value They often bring a new and different value proposition. proposition.

See Christensen: “The Innovator's Dilemma” See Christensen: “The Innovator's Dilemma” Back

Characteristics Common Characteristics Common to High-Tech Markets: to High-Tech Markets:

Supply Side Supply Side ““Unit-one” costs: Unit-one” costs: when the cost of when the cost of

producing the first unit is very high relative producing the first unit is very high relative to the costs of reproductionto the costs of reproduction Ex: development vs. reproduction of softwareEx: development vs. reproduction of software

Demand-side increasing returnsDemand-side increasing returns: : When When the value of the product increases as more the value of the product increases as more people adopt itpeople adopt it Also called network externalities and Also called network externalities and

bandwagon effectsbandwagon effects Ex: telephone, fax, MS WordEx: telephone, fax, MS Word Implications: may give away products for free Implications: may give away products for free

(IM)(IM)

Characteristics Common Characteristics Common to High-Tech Markets: to High-Tech Markets:

Supply SideSupply Side Tradeability problems Tradeability problems arise because it is arise because it is

difficult to value the know-how which forms the difficult to value the know-how which forms the basis of the underlying technologybasis of the underlying technology Ex: How much to charge for licensing the rights to a Ex: How much to charge for licensing the rights to a

waste-eating microbe? waste-eating microbe?

Knowledge spillover: Knowledge spillover: Another type of Another type of externality that arises from the fact that externality that arises from the fact that technological developments in one domain spur technological developments in one domain spur new developments and innovations in other new developments and innovations in other areas.areas. Ex: Human Genome Project Ex: Human Genome Project

Common, Underlying Common, Underlying Characteristics of High-Tech Characteristics of High-Tech

Markets: Demand Side Markets: Demand Side PerspectivePerspective Market Market

Uncertainty Uncertainty Technological Technological

Uncertainty Uncertainty Competitive Competitive

Volatility Volatility

Market Uncertainty

Technological Uncertainty

Competitive Volatility

Marketing of High-Technology

Products & Innovations

Market Uncertainty:Market Uncertainty:

FUD factorFUD factor Customer needsCustomer needs Anxiety over the lack of standards and Anxiety over the lack of standards and

dominant design (Laserdisc, DVD, DivX) dominant design (Laserdisc, DVD, DivX) Pace of adoption Pace of adoption Inability to forecast market sizeInability to forecast market size

Technology Uncertainty: Technology Uncertainty:

Will it function as promised? Will it function as promised? Timetable for new product development?Timetable for new product development? Who will fix customer problems?Who will fix customer problems? What are unanticipated/unintended What are unanticipated/unintended

consequences?consequences? (When) Will our technology be obsolete?(When) Will our technology be obsolete?

Competitive Uncertainty: Competitive Uncertainty:

Who will be future competitors?Who will be future competitors? What will be “the rules of the game” (i.e., What will be “the rules of the game” (i.e.,

competitive strategies and tactics)?competitive strategies and tactics)? What will “product form” competition be What will “product form” competition be

like?like? competition between product classes vs. competition between product classes vs.

between different brands of the same productbetween different brands of the same product Implication: Creative destruction?Implication: Creative destruction?

Effects of Uncertainty?Effects of Uncertainty? Adoption rate!Adoption rate! There are five variables that have been cited as There are five variables that have been cited as

responsible for speed of technology adoption:responsible for speed of technology adoption: Relative Advantage:Relative Advantage: the degree to which an innovation is the degree to which an innovation is

perceived as better than the idea it supersedesperceived as better than the idea it supersedes Compatibility:Compatibility: the degree to which an innovation is the degree to which an innovation is

perceived as consistent with existing values, perceived as consistent with existing values, technologies, past experiences, and needs of potential technologies, past experiences, and needs of potential usersusers

Complexity:Complexity: the degree to which an innovation is the degree to which an innovation is perceived as relatively difficult to use and understandperceived as relatively difficult to use and understand

Trialability:Trialability: the degree to which an innovation may be the degree to which an innovation may be experimented with on a limited basisexperimented with on a limited basis

Observability: the degree to which the results of an Observability: the degree to which the results of an innovation are visible to othersinnovation are visible to others (Wow-factor). (Wow-factor).

Rogers, “Diffusion of Innovation.”Rogers, “Diffusion of Innovation.”

Diffusion RatesDiffusion Rates The printing press (~1440): The printing press (~1440):

400 years (1833, NY Sun).400 years (1833, NY Sun). The automobile (1885): The automobile (1885):

75 years (market saturation in US around 1960)75 years (market saturation in US around 1960) The telephone (1876): The telephone (1876):

85 years (full saturation in the 1960s)85 years (full saturation in the 1960s) The fax machine (1843): The fax machine (1843):

140 years (late 1980s)140 years (late 1980s) The Internet (1968) The Internet (1968)

35 years35 years

Value: Perceived Need-Value: Perceived Need-Perceived PricePerceived Price

Variables essential to the successful Variables essential to the successful uptake of technology: uptake of technology: Providing an infrastructureProviding an infrastructure Providing a functionProviding a function Providing the right price pointProviding the right price point Providing a compelling need to buy Providing a compelling need to buy

(make it a necessity).(make it a necessity).

Telegraph! Faster than Telegraph! Faster than Phone…Why?Phone…Why?

Morse presented prototype of the Morse presented prototype of the electric telegraph to the US Congress electric telegraph to the US Congress in 1838in 1838

by 1873 Western Union had carried by 1873 Western Union had carried more than twelve million messagesmore than twelve million messages

creation of the infrastructure which creation of the infrastructure which supported it.supported it.

cheap and predictable rates.cheap and predictable rates. a shared language (global communication). a shared language (global communication).

What is a disruptive What is a disruptive technology?technology?

Muskets/then machine guns Muskets/then machine guns Steam shipsSteam ships AutomobilesAutomobiles PCsPCs Digital photographyDigital photography

What is a disruptive What is a disruptive technology?technology?

Disruptive technologies typically have worse Disruptive technologies typically have worse performance, at least in the near term. performance, at least in the near term.

But: They have features that a few fringe and But: They have features that a few fringe and generally new customers value and which generally new customers value and which represent a key source of competitive value in the represent a key source of competitive value in the future. future.

Products based on them are typically cheaper, Products based on them are typically cheaper, simpler, smaller and frequently more convenient simpler, smaller and frequently more convenient to use - often representing a new product to use - often representing a new product architecture, design, and even market (category). architecture, design, and even market (category).

They often bring a new and different value They often bring a new and different value proposition. proposition.

See Christensen: “The Innovator's Dilemma” See Christensen: “The Innovator's Dilemma”

Continuum of Continuum of InnovationsInnovations

Incremental Radical •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

•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

Supplier vs. Customer Supplier vs. Customer Perceptions of Nature of Perceptions of Nature of

InnovationInnovation

Mismatch: Delusion

Incremental

Breakthrough

Mismatch: Shadow

Contingency TheoryContingency Theory

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

Marketing Strategy

New Product Success

Type of Innovation -Breakthrough -Incremental

Examples of Implications Examples of Implications of of

Contingency Theory:Contingency Theory:R&D/R&D/Marketing Marketing InteractionInteractionType of Type of Marketing Marketing ResearchResearch

Role of Role of AdvertisingAdvertising

Pricing Pricing

Breakthrough Incremental

““technology technology push”push”

““customer customer pull”pull”

Lead users; Lead users; developersdevelopers

Surveys; Surveys; focus groupsfocus groups

Primary Primary demand; demand; customer customer educationeducation

Selective Selective demand; demand; build image build image

May be May be premiumpremium

More More competitive competitive

Marketing Strategy in Marketing Strategy in High-Tech Markets IIHigh-Tech Markets II

The Big Group Smack The Big Group Smack Down!Down!

Define “High-Tech”.Define “High-Tech”. What do you consider the most important barriers to What do you consider the most important barriers to

adoption of the Wearable Computer? adoption of the Wearable Computer? Give an example of what you would consider a radical Give an example of what you would consider a radical

innovation and develop a short definition.innovation and develop a short definition. Contingent on the type of innovation, the role of Contingent on the type of innovation, the role of

marketing differs. How?marketing differs. How? Give an example of what you would consider a Give an example of what you would consider a

disruptive technology and develop a short definition.disruptive technology and develop a short definition. ““Unit-one costs of HT products are often high, Unit-one costs of HT products are often high,

payback cycles of a new HT products shorter and payback cycles of a new HT products shorter and shorter.”shorter.” Why is this so? Why is this so? As a marketing consultant, what do you recommend a As a marketing consultant, what do you recommend a

company do that has a breakthrough product on its hand company do that has a breakthrough product on its hand ready to launch? ready to launch?

Why are High-Tech markets Why are High-Tech markets particularly dynamic?particularly dynamic? No established rules of the gameNo established rules of the game Significant size economiesSignificant size economies low entry barriers.low entry barriers.

Continuous shortening of product Continuous shortening of product life cycles, which if true leads to life cycles, which if true leads to a serious dilemma:a serious dilemma:

=>=> High first part costs in High first part costs in innovation innovation phase is associated phase is associated with shorter with shorter pay-back cycles!pay-back cycles!

Concentrated vs. Concentrated vs. DifferentiatedDifferentiated

Pros and Cons?Pros and Cons? Strategic Implications?Strategic Implications?

(Segmentation, timing, participation)(Segmentation, timing, participation)

Characteristics Common Characteristics Common to High-Tech Markets: to High-Tech Markets:

Supply Side Supply Side ““Unit-one” costs: Unit-one” costs: when the cost of when the cost of

producing the first unit is very high relative producing the first unit is very high relative to the costs of reproductionto the costs of reproduction Ex: development vs. reproduction of softwareEx: development vs. reproduction of software

Demand-side increasing returnsDemand-side increasing returns: : When When the value of the product increases as more the value of the product increases as more people adopt itpeople adopt it Also called network externalities and Also called network externalities and

bandwagon effectsbandwagon effects Ex: telephone, fax, MS WordEx: telephone, fax, MS Word Implications: may give away products for free Implications: may give away products for free

(IM)(IM)

Characteristics Common Characteristics Common to High-Tech Markets: to High-Tech Markets:

Supply SideSupply Side Tradeability problems Tradeability problems arise because it is arise because it is

difficult to value the know-how which forms the difficult to value the know-how which forms the basis of the underlying technologybasis of the underlying technology Ex: How much to charge for licensing the rights to a Ex: How much to charge for licensing the rights to a

waste-eating microbe? waste-eating microbe?

Knowledge spillover: Knowledge spillover: Another type of Another type of externality that arises from the fact that externality that arises from the fact that technological developments in one domain spur technological developments in one domain spur new developments and innovations in other new developments and innovations in other areas.areas. Ex: Human Genome Project Ex: Human Genome Project

SSTPTP

High innovation costs plus shortening High innovation costs plus shortening PLC means strategically:PLC means strategically:1)1) Enter as many market segments as Enter as many market segments as

possible possible at the same time at the same time to shorten to shorten pay-back time.pay-back time.

2)2) Develop a broad geographical Develop a broad geographical strategy as low entry barriers allow strategy as low entry barriers allow competitors to exploit uncovered competitors to exploit uncovered territory.territory.

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Three Entry Options:Three Entry Options:

PioneersPioneers Early FollowersEarly Followers Late followersLate followers

What are some pros and cons of each?What are some pros and cons of each?

SSTTPP

Strategic Considerations:Strategic Considerations:

1)1) Differentiation versus Differentiation versus Standardization?Standardization?

2)2) Price-Quantity (cost utility) versus Price-Quantity (cost utility) versus preference oriented (buyer utility)?preference oriented (buyer utility)?

3)3) Customer-orientation versus Customer-orientation versus competitor-orientation?competitor-orientation?

SSTTPP

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