Download Marketing of High-Technology Products and Innovations

Chapter 1:
Introduction to the World of
High-Technology Marketing
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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?
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What are the various types of innovations?
Why (and how) does marketing for high-tech
innovations differ from traditional marketing?
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Some high-tech companies believe that
marketing is superfluous
◦ The role of marketing is downplayed or misunderstood
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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”
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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
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“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
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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
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Strategic: Proactive decisions to chart the
company’s efforts in the market
Segmentation, targeting, positioning
◦ Which markets, which segments?
◦ What value proposition/competitive position?
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May include a company’s corporate social
responsibility initiatives
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When strategic decisions are not made,
company’s efforts are diffused across market
segments and product development projects
◦ Recipe for disaster
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Responsibility for strategic decisions must be
vested with some department in the company
Resources for research must be allocated
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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
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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.
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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.
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Place: Distribution channels and supply chain
management.
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Promotion:
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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
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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
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High-technology:
◦ Cutting edge, “advanced” products/processes that
rely on scientific/engineering knowledge
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Innovations:
◦ Things that are new—some of which are high-tech
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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
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Output-based definitions:
◦ Based on whether products embody new/leadingedge technologies
◦ U.S. Census Bureau’s classification (next slide)
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Biotechnology
Life sciences technology
Optoelectronics
Information and communications technology (ICT)
Electronics
Flexible manufacturing
Advanced materials (semiconductors, fiber optics)
Aerospace
Weapons
Nuclear technology
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Input-Based Approaches
Strengths
Data easily obtainable
Objective
Effective for Level
industries
I*
Includes focus on high-tech
service sector
*See text for definitions of
Level I, II, and III industries
Weaknesses
Classifications 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
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Output-Based Approaches
Strengths
Weaknesses
Classification tends to have
face value
Somewhat post-hoc: judgments
somewhat subjective
Relatively good correlation
between input and output
methods for Level I industries
Generally not as comprehensive as
input-based approaches
Relatively low correlation between
input and output methods for
Level II and Level IIII industries
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Technological
Uncertainty
Market
Uncertainty
Marketing of
High-Tech
Products &
Innovations
Competitive
Volatility
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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
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Cumulative Adoption Patterns
(Examples for Some Media Products)
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Cumulative Adoption Patterns
(Examples for Several Durables)
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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
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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”
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Implications:
◦ Avoid myopia
◦ Engage in creative destruction
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“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.
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“The new technology being commercialized by new
competitors will not pose a large threat.”
 But: “You’ve been ‘amazoned!’
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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.
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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
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Typically embodied in new “product forms”
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Often S-shaped curves
(see next slide)
◦ May also be irregular step functions and may not be
overlapping in terms of performance levels
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Performance
Limit of Particular Technology
Time
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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
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Incumbents often underestimate viability of new
developments
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Therefore, new technologies can catch established
firms by surprise
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Flurry of new companies ultimately shakes out
and industry coalesces around “dominant design”
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Performance of new technology takes off and
overcomes capability of legacy technology
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Creative destruction: new technologies obsolete
old technologies creating new winners/losers in
the industry
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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.
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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.
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Knowledge spillovers
◦ Synergies in the creation of know-how further enrich a related
stock of knowledge.
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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
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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)
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Indirect network effects
◦ Based on the incentive to develop and availability of
“complementary” products
 Games played on consoles; DVD/films played on DVD
players
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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.
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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
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Allow customers to gain compatibility across various
components of a product
Fear, uncertainty, and doubt is lessened
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Self-Reinforcing Nature of Industry Standards
Establish
Industry
Standards
Raise
compatibility of
products for
customers
Lower fear,
uncertainty
and doubt
Increase
likelihood of
addoption
Increased value
to each user
Due to
indirect
network
effects
Due to direct
network effects
Increase
number
of users
Increase incentive
for developers of
complementary
Figure 1-5
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Customers and developers of complementary
products take a wait-and-see attitude:
◦ Which platform will “win?”
◦ Examples:
 Telecommunications
 HDTV
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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)
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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”)
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“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
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“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”
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“We shall overcome!”
◦ Through sheer power, effort, and resources, company believes its technology
will become the dominant design.
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“But it’s mine!”
◦ Company is unwilling to share knowledge with other industry players, which is
oftentimes required for using a common industry platform.
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“I deserve more!”
◦ Partners cannot come to terms regarding licensing fees, royalties, or revenue
sharing.
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1. Incremental versus breakthrough
2. Product versus process versus organizational
3. Architectural versus modular (component)
4. Sustaining versus disruptive
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Incremental Innovations
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Continuations of existing products, methods or practices
◦ Minor improvements made with existing methods and
technology
◦ Evolutionary as opposed to revolutionary
Breakthrough Innovations
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Totally new products
◦ Considerable change in basic technologies and methods
◦ Revolutionary ideas that can create new markets
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Product Innovations
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New products offering improvements in functional
characteristics, technical abilities, ease of use, or other
dimensions(incremental or breakthrough)
Process Innovations
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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
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Architectural 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.
Modular Innovations
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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
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Sustaining Innovations
Target demanding, high-end customers with improved
performance
◦ Typically through incremental innovations
Disruptive Innovations
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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
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Organizational Innovations
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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
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Innovations in marketing
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Incremental
Extension of existing product or
process
Product characteristics welldefined
Competitive advantage on low
cost production
Often developed in response to
specific market need
"Demand-side" market/customer
pull
Radical
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
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Radical Innovation
◦ Substantially new technology relative to what already
exists in the industry
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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
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Suppliers
Car
Manufacturers
-raw materials
-components
-production equipment
-services
Car
Dealers
Customers
-personal
consumption
-business use
(fleets, etc.)
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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
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Companies must be ambidextrous and manage
both types of innovation processes
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Incremental innovations require:
◦ Attention to cost competitiveness, manufacturing,
understanding the market
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Breakthrough innovations require:
◦ More long term thinking; risk tolerance; ambiguous
market information
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Marketing
Strategy
New Product
Success
Type of
Innovation
-Breakthrough
-Incremental
Type of marketing strategy is contingent
upon the nature of the innovation.
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Breakthrough
R&D/Marketing
R&D leads;
Interaction “technology push”
Type of Marketing
Research
Lead users;
empathic design
Incremental
Marketing leads;
“customer pull”
Surveys; focus
groups
Role of Primary demand; Selective demand;
Advertising customer education
build image
Pricing May be premium
More competitive
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High-Tech Marketing Decisions:
Framework
Marketing – 4Ps (Ch. 8-12)
}
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
Societal and Ethical Concerns (Chapter 13)
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Technology Solutions for Global Problems:
One Laptop Per Child
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