Download Marketing of High-Technology Products and Innovations

Chapter 2:
Strategic Market Planning
In High Tech Firms
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What is the strategic marketing planning
process in high-tech firms?
What constitutes competitive advantage in
a high-tech firm?
How do the four strategy archetypes
interact?
Why are key metrics important? How are
they reported?
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© 2010 Pearson Education, Inc. publishing as Prentice Hall
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Sources
◦ Tangible assets:
 Products
 Facilities
 Financial Resources
◦ Intangible assets:
 Brands/reputation
 Know-how
 Culture
◦ Competencies:
 Routines
 Processes
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Difficult for competitors to imitate
 Significantly related to benefits enduser receives
 Allow access to a wide variety of
disparate product-markets.
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Branches/canopy
represents the widely different
product markets to which
the core competency has provided access
MOTORCYCLES
SNOWBLOWERS
LAWN
MOWERS
Trunk is the core
product, or the physical
embodiment of the
core competencies.
SUPERIOR R&D
SUPERIOR
MANUFACTURING
SMALL
ENGINES
SMALL
CARS
The core
product must be
significantly related to benefits
end-user receives.
CORPORATE
CULTURE
SUPERIOR MARKETING &
KNOWLEDGE OF CUSTOMERS
Roots are underlying skills and capabilities that represent core competencies.
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Resource allocations may defy
conventional logic
◦ Violate ROI criterion
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High-tech firms’ competencies often
reside in their technological skills
 R&D processes; technical personnel; etc.
◦ They must develop marketing-related
competencies
 The combination of marketing + technological
competencies maximizes the odds of success
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Customer Value
◦ Cost-benefit analysis among target market
◦ May be driven either by
 Effectiveness in customer operations (deliver
superior benefits)
 Efficiency in customer operations (focus on cost
side of value equation)
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Rareness
◦ Competitors cannot offer same set of
benefits/value
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Durability
◦ How rapidly valued resources become
obsolete
◦ Length depends on the industry
 Slow-cycle: slow rate of change
 Fast-cycle: resources rapidly depreciate
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Inimitability
◦ How easily a competitor can copy/obtain valued
resources
◦ Ways to enhance inimitability (next slide)
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Inimitability
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Is the resource/competency:
Valuable Superior to Difficult Competitive
to Buyers Competitors to Imitate Advantage
Profitable
No
No
No
Disadvantage
No
Yes
No
No
Parity
Average
Yes
Yes
No
Temporary
Superior
Yes
Yes
Yes
Sustainable
Consistently
Superior
Rarity is a variation on superiority.
Transparency, replicability, and transferability
are variations on imitability.
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Trade off between:
◦ Competence Exploitation
 Value Appropriation
◦ Competence Exploration
 Value Creation
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Interactive effect between them on
innovation performance--
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Competence Exploitation
◦ Refine existing skills and resources
◦ Extend existing paradigm into new arenas
◦ Useful for incremental innovation
◦ Advertising and marketing to differentiate
offerings
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Competence Exploration/Value Creation
◦ Invest spending in R&D to acquire new
knowledge and skills
◦ Useful for radical innovation
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To succeed with radical innovation, firm
with exploitation competence must couple it
with exploration competence as well.
◦ Seek out new markets and value for customers
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To reap benefits of competence exploration,
firm must combine with exploitation
◦ Must fully leverage the new knowledge gained
◦ Value creation (R&D spending) must be coupled
with value appropriation activities—such as
marketing
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What value do
we offer them?
Who are our
customers?
The Strategy
Sweet Spot
How can we create
and deliver that value?
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Focus on assessing customers’
articulated and unarticulated needs;
◦ Focus less on technology and more on
customer value
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Identify key market segment(s) rather
than diluting efforts across multiple
segments
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Avoid tyranny of the “served” market
◦ Excessive focus on serving current
customers
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Adopt bifocal vision
◦ Simultaneous focus on current AND
future customers
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Search for “blue ocean” strategies
◦ New market space
 Base-of the-pyramid markets
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Products, services and technologies are mere
vehicles for value creation
◦ They do not have intrinsic value in and of
themselves
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Requires understanding the customer
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Requires understanding competitors’ value
propositions
◦ Value of products, services, and technologies
◦ Look beyond direct competitors
◦ Include competition from outside existing industry
boundaries (“product form competition”
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Value Proposition: Captures the essence of why a
customer should purchase the product
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Three types of value propositions:
◦ “All Benefits”
 Articulates customer benefits
◦ “Favorable
Points of Difference”
 Contrasts advantages with competition
◦ “Resonating Focus”
 Addresses buyer’s key needs AND documents
the value explicitly
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Requires:
◦ Right competencies
◦ Appropriate structures/systems
◦ Good decisions in distribution, pricing,
and promotion
◦ Flexibility
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 Product
◦
Leader
Prospector; Pioneer; First Mover
 Fast
Follower
◦ Analyzer
 Customer
Intimacy
◦ Differentiated Defender
 Operationally
Excellent
◦ Low-Cost Defender
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Strategy is first to market with innovative new
products
Successful Product Leaders:
◦ Target innovator and early adopter customers
◦ Are creative and use novel sources of information
◦ Exhibit a culture of innovativeness
◦ Have technological foresight
◦ Commercialize ideas quickly—engineered for speed
◦ Willing to “leapfrog” their own products
◦ Have marketing acumen
◦ Understand competitors’ strengths and weaknesses
◦ Benefit from a bit o’luck
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PROS
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CONS
Entry barriers
 Large development costs
◦ Economies of scale
 Market uncertainty
◦ Experience effects
 “Wait-and-see” attitude
◦ Reputational effects
among consumers
◦ Technological leadership
◦ Buyer switching costs
◦ Higher profits and higher
share
◦ Define product exemplar
◦ Higher consumer
awareness
Failure rate of pioneers is 47%, with an average
market share of 10%.
Failure rate of Fast Followers is 8%, with an average
market share of 28%.
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Risks of pioneering greater for incremental
innovations in markets with network
externalities
◦ Customers take a “wait-and-see” attitude
◦ Delays revenue stream.
◦ Later entrants gain disproportionately because of the
larger network effects that exist later in the market’s
development
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Risks of pioneering lower with incremental
innovations than radical innovations
◦ “First to market with radical innovation is first to fail”
 Unless market is characterized by network effects—
Then pioneering a radical innovation may succeed.
© 2010 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Education, Inc. publishing as Prentice Hall
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Strategy is to imitate Product Leader, with
some key improvement
Successful Fast Follower/Analyzers
◦ Target early adopter and early majority
customers
◦ Identify overlooked product position
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Innovate superior products
Undercut the leader on prices
Out-advertise or out-distribute
Innovate business/marketing strategies
that change the rules of the game
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Relative to Product Leaders, Fast Followers:
◦ Grow faster
◦ Have higher market share
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© 2010 Pearson Education, Inc. publishing as Prentice Hall
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Strategy is to focus more narrowly on
specific customers/market niches
Successful Differentiated
Defenders/Customer Intimate:
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Target early and late majority customers
Emphasize long term relationships
Exhibit intimate customer knowledge
Deliver superior customer service
Follow appropriate “tiering” of customers
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Strategy of technological, production, or
distribution efficiencies that allow them to
offer low prices
Successful Low-Cost
Defenders/Operationally Excellent
◦ Target early and late majority customers
◦ Offer superior combination of quality, price, and
ease of purchase
◦ Aggressively protect their market with cost
leadership in their value chain
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Most successful companies have a dominant
strategy type and one or two supporting
types.
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Strategy creation process itself is a
deeply embedded skill
Seek new, unique, and innovative
perspectives to customer-value creation
Change the basis of industry competition
to create new wealth
Envision new opportunities
Paradox: Make serendipity happen
Take risks, break rules, be a maverick
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Foster new connections inside and
outside of the company
Exude passion for discovery and novelty
Experiment, take risks, and learn!
Maintain a flexible strategic posture
◦ Don’t create strategy-making processes that
are more complex than the high-tech market
situation itself.
◦ Planning processes must be simple, fast,
iterative, integrated in high-tech industries.
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Formal Planning Approach
◦ Leaders formulate intentions in a written plan
◦ Comprehensive search, evaluation, and selection
◦ Useful for predictable environments where formal
controls can be used.
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Emergent Planning
◦ Improvised
◦ Emergent process from lower levels of the
organization; informal entrepreneurialism
◦ Based on trial-and-error learning
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Which is best: formal or emergent planning
processes?
◦ False choice:
 Both types of processes must exist
 Complement each other
◦ Depends upon the strategy type:
 Product Leaders – more emergent
 Operationally Excellent and Customer Intimate – more
formal
◦ High-tech companies must have fairly systematic
planning
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1.
2.
3.
4.
5.
6.
7.
8.
Define the company’s goals and mission.
Choose the arena.
Identify potentially attractive opportunities.
Make tough strategic choices.
Plan key relationships.
Complete the winning strategy.
Understand the profit dynamic.
Implement the chosen strategy.
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Hierarchical/functional structure
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Market-Focused Structure
◦ Formal rules/procedures
◦ Centralized decision making
◦ Appropriate in slow-cycle markets
◦ More appropriate in high-tech markets
◦ Multi-dimensional focus on customers,
flexibility and speed
◦ Shift away from product-focused to
customer-centered
◦ Decentralized decision making
◦ Informal coordination among departments
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Can’t manage what isn’t measured
CEOs in high-tech companies with welldeveloped marketing performance measurement
realize superior performance and greater
satisfaction with the marketing function
Marketing Metrics
◦ Financial accountability of marketing activities
◦ Link investments/decisions to measurable outcomes
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Marketing Dashboard
◦ Multidimensional report card for performance
◦ Often automated with software and databases
◦ Specific metrics must tie to marketing strategy
focus
◦ Leading and lagging indicators of market success
◦ Sample dashboard for Customer Intimate Company
(next slide)
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Product/Service
Quality
Customer
Satisfaction
Customer
Loyalty
Financial
Results
Return Rate
% “Very” or
“Extremely
Satisfied”
% of Sales from
Existing Customers
Sales Growth
Reject Rate
Satisfaction with
Specific Features
Duration of
Relationship
Market Share
Perceived Quality
Satisfaction with
Experience
Share of Wallet
Profit Growth
Time: Order to
Delivery
Volume of
Complaints
Sales from
Referrals
Profit Margin
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Strategy Creation:
Marketing Performance Measurement
Examples of Salesforce.com Dashboards
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Metrics include innovation’s usefulness,
quality, speed to market, sales/sales takeoff
Compares attained performance not only to
the company’s objectives, but also to the
possibilities
◦ What is the record of innovation in the industry?
How does ours compare? Did we miss important
opportunities? Why? Do we successfully convert
R&D spending into commercial product?
© 2010 Pearson Education, Inc. publishing as Prentice Hall
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Opening Vignette: Medtronics
Technology Expert: IPTV company, Auroras
Technology Tidbit: Dignity Toilets
End-of-Book Case: Xerox
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Funding options:
◦ Friends & Family
 (Also referred to as “friends, family, and fools”)
◦ Bootstrapping:
 Fund business through early customer revenues
 Slow, but founders retain ownership
◦ Grants, Loans, etc.
◦ Venture Capitalists
 Formal VCs – professional investors
 Seek high rate of return
 Informal: Angels
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Management experience
Marketing
Technology/product
Anticipated ROI
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Incubators
◦ Facility that offers business support services and access
to low-cost facilities
◦ Goal: to successfully “incubate” a new high-tech startup so that it can survive on its own in a competitive
market
◦ Economic development tool
◦ Can be run by private companies, or
local/regional/federal agencies
◦ Success factors (next slide)
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Other:
◦ US-based: SCORE, SBA, US Dept. of Commerce, NIST
◦ Partnerships
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Mixed rate of success
Successful programs:
◦ Access to educated work force/talent
◦ Access to financing
◦ Support of local business community/experienced
business people
◦ Culture of innovation and risk taking
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