Chapter 7: Understanding High-Tech Customers. What is meant by “design” and “design...

Chapter 7: Understanding

High-Tech Customers

What is meant by “design” and “design thinking?”

How do marketing strategies compare amongst individuals in different adoption categories?

What does “the chasm” represent? How can a firm get across?

©2010 Pearson Education, Inc. publishing as Prentice Hall

© 2010 Pearson Education, Inc. publishing as Prentice Hall

Stem from a solid understanding of the how/why of customer decisions ◦ERP example

Marketing must be tailored to address at least 6 issues (see next slide)


Steps in the

Purchase Process

Segmentation,

Targeting, and

Positioning

Timing of

Upgrades and

Migration

Consumers’

Paradoxical

Relationships

with Technology

Process of

Adoption and Diffusion

- Factors Affecting Adoption

- Categories of Adopters

Crossing

the Chasm


ProblemRecognition

InformationSearch

EvaluateAlternatives

Purchase Decision

Post-purchaseEvaluation

To better understand behavior of potential buyers, begin with a basic behavior model

1. 2. 3. 4. 5.


1. Problem Recognition

Buyer recognizes a need◦ Problem◦ Opportunity


2. Information Search

Buyer actively searches for resolution◦ Personal, commercial, public, experiential sources◦ Trade shows

(see box 7-1 for additional insights)


3. Evaluate Alternatives

Buyers may experience anxiety and uncertainty◦ Vital to understand factors affecting the customers’

product evaluation

(see research techniques in previous chapter)


3. Evaluate Alternatives (cont.)

Design: the conscious effort to combine functionality and aesthetics◦Huge part of customer evaluation◦ “Cool” factor◦ Business case- increased company value◦ Incorporating sustainability


Human

Factors

Business

Factors

Technology

Factors

DesignDesign

ThinkinThinkingg


3. Evaluate Alternatives (cont.)

Design thinking

◦Analysis brainstorming rapid prototyping final solution

◦How human beings interact with products and their environment


4. Purchase Decision

Terms of purchase◦Scope◦Price◦Payment terms◦Delivery


5. Post-Purchase Evaluation

How well does product live up to its potential?

Issue: buyer’s remorse End-of-life issues of high-tech products

Valuable to marketers: post-adoption usage patterns


Factors Affecting Customer Purchase Decision

Relative advantageThe benefits of adopting the new technology compared to the costs and in relation to other alternatives

CompatibilityThe extent to which adopting and using the innovation is based on existing ways of doing things and standard cultural norms

Complexity The difficulty involved in using the new product

TrialabilityThe extent to which a new product can be tried on a limited basis

Ability to Communicate Product Benefits

The ease and clarity with which the benefits of owning and using the new product can be communicated to prospective customers

ObservabilityThe extent that benefits of the new product are visible to everyone


Innovators

Technology Enthusiasts

Early Adopters

Visionaries

Late Majority

Conservatives

Early Majority

Pragmatists

Laggards

Skeptics

{ { { { {

TheChasm


Innovators: Technology Enthusiasts

Motivated by idea of being a change agent Develop make-shift solutions Willing to alpha/beta test and work with

technical personnel Tolerant of initial problems First customers (not typical customers) Importance: They are the gatekeeper to the next

group of adopters


Early Adopters: Visionaries Want to revolutionize competitive rules in their

industry Attracted by high-risk/high-reward projects Not necessarily price sensitive Demand customized solutions, intensive tech

support Product form competition (between categories of

solutions) Communicate horizontally- across industry boundaries


Early Majority: Pragmatists Comfortable with only evolutionary changes in

business practices Averse to disruptions in operations Want proven applications, reliable

service/results Buy only with a reference from trusted

colleague ◦ in same industry◦ catch-22


Late Majority: Conservatives

Risk averse, technology shy Very price sensitive Require completely preassembled,

“bulletproof” solutions Motivated only by need to keep up with

competitors in their industry Rely on single, trusted advisor


Laggards: Skeptics

Want to maintain status quo Technology is a hindrance to operations

◦ Luddites Buy only if all other alternatives worse


Target Innovators or Majority?

Target the majority when: ◦ Word of mouth effects are low◦ Consumer products industries (vs. B2B)◦ Low ratio of innovators to majority users◦ Profit margins decline slowly with time◦ Long time period for market acceptance


What is “THE CHASM”?

Present in high-tech environments

Gap between early market and mainstream market—◦ Visionaries vs. Pragmatists

Visionary market is saturated, and mainstream not yet ready to buy

Marketing that was successful with visionaries simply is not effective with pragmatists


Visionaries◦Adventurous◦Think/spend big ◦Want to be first in

implementing new ideas in their industries

◦Think pragmatists are pedestrian

Pragmatists◦Prudent; stay within

zone of “reasonable,” and within budget

◦Make slow, steady progress

◦Think visionaries are dangerous

These two groups want no part of each other!


High level of customized tech support costly

◦ Initial revenue is low

Products sometimes released too early

Firm’s goal: Establish reputation

Exciting time!

◦ Engineering drives, brilliance is rewarded.

◦ Focus on developing the best possible solution


Firm takes on more visionaries than it can handle Pragmatists are not yet ready to buy

◦ Visionaries are not a credible resource

Early market becomes saturated◦ Revenue growth tapers off or declines

Key personnel become disillusioned

Venture capital well begins to runs dry

Goal: get out of the chasm ASAP!


Marketing strategies that lead to success in selling to visionaries hinder success in selling to pragmatists

Look to new strategies necessary to reach the mainstream market

1.Identify a beachhead2.Develop a whole product solution


1.Identify a beachhead: a single target market from which to pursue the mainstream market

A good beachhead:a) Gives customers a compelling reason to buy based on

the firm’s capabilities (see table 7-2)

b) Provides “adjacencies” to enter related segments Bowling Alley Analogy (see next slide)


App 1

App 1

App 1

App 3App 2

App 2

Seg 1

Seg 2 Seg 1

Seg 1

Seg 3

Seg 2 WholeProduct

CustomerReferences

The Beachhead

b) Bowling Alley Market Development

1. Identify a beachhead


1. Word of mouth relationship should exist between adjacent market segments

2. Quickly capture the beachhead 3. Risks:

Focus on one segment could lead to being outflanked by competitors

- Pursuing too many segments at outset without enough resources

1. Identify a beachhead


2. Develop the Whole Product Complete, end-to-end solution Defined within confines of a specific target

market

Adjacencies are also determined by similarities in whole product needs.

Pragmatist market requires vendor responsibility for system integration


2. Develop the Whole Product (cont.)

Utilizing Partnerships◦ Advantages:

Each player provides a part of the whole product solution

Partners may drive further expansion


2. Develop the Whole Product (cont.)

Utilizing Partnerships◦ Risks:

Issue of PowerVisionaries technology providersChasm company with “best” beachhead,

whole product designPragmatists market leaders (and partners)


Other Strategies…◦ Reputation already established, now focus on

growing revenue

Pragmatists need◦ An industry standard◦ Competitor’s proposal and product

Brand competition◦ Simplified, best solution possible◦ Superb customer services


Innovators

Technology Enthusiasts

Early Adopters

Visionaries

Late Majority

Conservatives

Early Majority

Pragmatists

Laggards

Skeptics

{ { { { {

TheChasm

GorillaChimp 1Chimp 2Monkeys

Gorilla: the dominant, post-tornado competitorChimps : typically, there are two other major competitorsMonkeys: the rest of the market is accounted for by numerous niche competitors


Market to Conservatives

◦Make product simpler, cheaper, more reliable & convenient

◦This is not the time to add “wow” factors


The whole product is the critical success factor

Until a high-tech firm has established itself in the mainstream market, it has not proven itself.

To manage the mainstream market effectively, firm must work with partners in a disciplined fashion (that prioritizes partners)


Identify group(s) of customers who share similar needs & buyer behavior characteristics

4 Steps in the Segmentation Process

1.Divide the market into groups

2.Profile the customers in each segment

3.Evaluate and select a target market

4.Position the product within the segment


1. Divide market into groups based on common characteristics

◦ Demographics § Role of women

Expect high level of customer service, user-friendly design Gender differences in shopping experience

◦ Geographics ◦ Psychographics (values and lifestyles)◦ Behavioral Variables

Usage Volume Benefits Sought Usage Occasion


1. Divide market into groups based on common characteristics (cont.)

◦ B2B Industry codes Firm size Corporate culture

Vertical vs.Horizontal - industry specific - cuts across industry boundaries- different value - common approach among propositions customers


2. Profile (describe) the “typical” customers in each segment

Segmentation of US ICT Users

Tier Segment% of US Adults

Elite Tech Users

Omnivores, Connectors, Lackluster Veterans, Productivity Enhancers

31

Middle-of-the-Road Tech Users

Mobile Centrics, Connected But Hassled

20

Few Tech Assets

Inexperienced Experimenters, Light But Satisfied, Indifferents

49

(see Table 7-4 for complete list)


3. Evaluate and Select Target Market

◦Size of segment in terms of sales volume 80-20 rule

◦Growth rate of the segment Capture new customers, grow with the market

◦Competition within the segment Competitor defense of their existing customer base

◦Capabilities of firm to serve segment needs Partnering, core competencies


4. Positioning the product within the segment

◦Consider customer perceptions

◦Position relative to perceived competition

◦Position on important, compelling attributes/benefits

Positioning strategy: Multi-Attribute Model: reveals relative importance

of attributes (see example on next slide)

Perceptual maps


4. Positioning the product within the segment (cont.)

Illustration: Multi-Attribute ModelCompetitor

Attributes (Importance)

My Company

#1 #2

Scalability (8) 10 5 5

Security (6) 3 5 7

Ease of Use (7)

3 6 8

Total Score 119 112 131


4. Positioning the product within the segment (cont.)

Perceptual Map for Smart Phones


Basic Issue: Adopting newest generations of technology prior investments obsolete

Marketing implication: Firms must manage

a migration path for customers to the new generation


What affects a customer’s decision to migrate?

◦Expectations about pace and magnitude of improvements relative to price

◦In general:The greater the anticipated product improvements and/or expected price declines, the greater the customer’s propensity to delay purchase


High-tech firms must provide upgrades

Utilize a “migration path” ◦series of upgrades◦helps transition the customer


Withdraw older generation immediately

Sell old & new generations

No migration assistance

Offer migration assistance

Sell simultaneously for brief periods

Indefinitely

CUSTOMER OPTIONS:

Constrained Enlarged


When customers expect a rapid pace in technology advancement:

◦They will be willing to wait for price declines

◦Migration assistance (i.e., trade-ins, etc.) mitigates against customer stalling and leapfrogging


When customers expect significant magnitude of improvement

◦They realize smooth upgrading is unlikely

◦Waiting for price declines may result in purchasing an obsolete product

◦Migration path is less crucial


When customers have uncertainty about expectations:

◦Migration path makes sense

◦Sell old and new simultaneously


Control

Chaos

Freedom

Enslavement

New

Obsolete

Intelligence

Stupidity

Efficiency

Inefficiency

Fulfilling Needs

Creating Needs

Assimilation

Isolation

Engagement

Disengagement


Marketers must understand how customers cope with presence of paradoxical effects ◦Ex: Limits on computer usage◦Ways to lessen impacts via holistic activities◦Luddite movement

Marketers should not be blinded by their own enthusiasm for technology


Understand consumers’ fears

Focus on positive benefits (without disregarding negative effects)◦ Educated trade-offs

Astute marketing via consumer education, labeling, and so forth

Be Proactive!


Opening Vignette: RFID Chips

Technology Expert: Panasonic Mobile (Japan)

Technology Solution: Manila Water

End-of-Book Case: TiVo, ESRI, Goomzee


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