Marketing Strategy in High-Tech Markets II

The Big Group Smack Down!

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

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

Give an example of what you would consider a radical innovation (tech or no tech) and 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? As a marketing consultant, what do you recommend a

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

Why are High-Tech markets particularly dynamic?Þ No established rules of the gameÞ Significant size economiesÞ low entry barriers.

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Barriers of Adoption

Perceived value Institutional support Observability Compatibility Ease of use Reliability

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Continuum of Innovations

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" marketBack

Contingency 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 of

Contingency Theory:R&D/Marketing InteractionType of Marketing Research

Role of Advertising

Pricing

Breakthrough Incremental

“technology push”

“customer pull”

Lead users; developers

Surveys; focus groups

Primary demand; customer education

Selective demand; build image

May be premium

More competitive

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Muskets/then machine guns Steam ships Automobiles PCs Digital photography

What is a disruptive technology?

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

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

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

They often bring a new and different value proposition.

See Christensen: “The Innovator's Dilemma”

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Characteristics Common to High-Tech Markets:

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

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

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

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

(IM)

Characteristics Common to High-Tech Markets:

Supply Side Tradeability problems arise because it is

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

waste-eating microbe?

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

Common, Underlying Characteristics of High-Tech

Markets: Demand Side Perspective Market

Uncertainty Technological

Uncertainty Competitive

Volatility

Market Uncertainty

Technological Uncertainty

Competitive Volatility

Marketing of High-Technology

Products & Innovations

Market Uncertainty:

FUD factor Customer needs Anxiety over the lack of standards and

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

Technology Uncertainty:

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

consequences? (When) Will our technology be obsolete?

Competitive Uncertainty:

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

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

like? competition between product classes vs.

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

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

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

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

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

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

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

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

Rogers, “Diffusion of Innovation.”

Diffusion Rates The printing press (~1440):

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

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

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

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

35 years

Value: Perceived Need-Perceived Price

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

(make it a necessity).

Telegraph! Faster than Phone…Why?

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

by 1873 Western Union had carried more than twelve million messages

creation of the infrastructure which supported it.

cheap and predictable rates. a shared language (global

communication).

What is a disruptive technology?

Muskets/then machine guns Steam ships Automobiles PCs Digital photography

What is a disruptive technology?

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

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

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

They often bring a new and different value proposition.

See Christensen: “The Innovator's Dilemma”

Continuum of Innovations

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 Perceptions of Nature of

Innovation

Mismatch: Delusion

Incremental

Breakthrough

Mismatch: Shadow

Contingency 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 of

Contingency Theory:R&D/Marketing InteractionType of Marketing Research

Role of Advertising

Pricing

Breakthrough Incremental

“technology push”

“customer pull”

Lead users; developers

Surveys; focus groups

Primary demand; customer education

Selective demand; build image

May be premium

More competitive

Marketing Strategy in High-Tech Markets II

The Big Group Smack Down!

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

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

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

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

disruptive technology and develop a short definition.

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

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

Why are High-Tech markets particularly dynamic?Þ No established rules of the gameÞ Significant size economiesÞ low entry barriers.

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

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

Concentrated vs. Differentiated

Pros and Cons? Strategic Implications?

(Segmentation, timing, participation)

STP

High innovation costs plus shortening PLC means strategically:

1) Enter as many market segments as possible at the same time to shorten pay-back time.

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

Three Entry Options:

Pioneers Early Followers Late followers

What are some pros and cons of each?

STP

Strategic Considerations:

1) Differentiation versus Standardization?

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

3) Customer-orientation versus competitor-orientation?

STP

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