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

► What is a high-tech What is a high-tech productproduct? ? Hardly any product consist of one technology Hardly any product consist of one technology

only => difficult to define high-tech products only => difficult to define high-tech products on technology they incorporate.on technology they incorporate.

► What does a Marketer suggest?What does a Marketer suggest?High-tech is in the eye of the customer and High-tech is in the eye of the customer and

supplier.supplier.– High-tech to the extend that customer and supplier High-tech to the extend that customer and supplier

evaluate a product based on incorporated technology.evaluate a product based on incorporated technology.

The Where of TechnologyThe Where of Technology

► Process technologyProcess technology► Product technologyProduct technology

Meldrum’s Definition of High-Meldrum’s Definition of High-tech Products:tech Products:

► have been developed in a have been developed in a highly technical highly technical environment environment

► incorporate a new or advanced technology incorporate a new or advanced technology which acts as a focus for their evaluationwhich acts as a focus for their evaluation

► are associated with a high degree of are associated with a high degree of technologically-based uncertainty on the part technologically-based uncertainty on the part of of both the supplier and the customerboth the supplier and the customer

► are not currently acceptedare not currently accepted as natural solutions as natural solutions for the problems they have been designed to for the problems they have been designed to address; address;

► do notdo not yet have anyet have an associated external associated external infrastructureinfrastructure. .

Is the iPad a high-tech product?Is the iPad a high-tech product? Is Laser Eye surgery a high-tech product?Is Laser Eye surgery a high-tech product?

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

MarketsMarkets► Market Uncertainty Market 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:

► Consumer fear, uncertainty and doubt (FUD)Consumer fear, uncertainty and doubt (FUD)► Anxiety over the lack of standards and Anxiety over the lack of standards and

dominant design dominant design ► Customer needs (sometimes rather tastes) Customer needs (sometimes rather tastes)

change rapidly and unpredictably (recorded change rapidly and unpredictably (recorded books, e-books?)books, e-books?)

► Uncertainty over the pace of adoption Uncertainty over the pace of adoption ► Uncertainty over/inability to forecast market Uncertainty over/inability to forecast market

sizesize

New Orders

Time

Customer Adoption a la Moore*

* Moore (1991), Crossing the Chasm

Innovators/Early Adopters

Early Majority Late Majority Laggards

Moore’s Chasm

Visionaries Pragmatists

Who influences whom?Who references whom?Who buys for what reason?What is the whole product?What is the minimum product?Which partner helps bridge the gap?What is the minimum customer base?What are optimal price points?

ConservativesSkeptics

Technology Uncertainty: Technology Uncertainty:

►Will the new innovation function as Will the new innovation function as promised? (and what happens if not?) promised? (and what happens if not?) Will the supplier be able to fix customer Will the supplier be able to fix customer

problems with the technology? problems with the technology? ►What is the timetable for new product What is the timetable for new product

development?development?►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

Other Characteristics Other Characteristics Common to High-Tech Common to High-Tech

Markets: Markets: ►““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, IM, eBayEx: telephone, fax, IM, eBay Implications: may give away products for free Implications: may give away products for free

(IM)(IM)

Other Characteristics Other Characteristics Common to High-Tech Common to High-Tech

Markets: (Cont.)Markets: (Cont.)►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

Continuum of InnovationsContinuum 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 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 of Examples of Implications of Contingency Theory:Contingency Theory:

R&D/Marketing Interaction

Type 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

Let’s explore further…Let’s explore further…

► In groups…In groups…

Benkenstein and Bloch Benkenstein and Bloch (1994)(1994)

►Why are High-Tech markets Why are High-Tech markets particularly dynamic?particularly dynamic?No established rules of the gameNo established rules of the gameNo significant size economiesNo significant size economieslow entry barriers.low entry barriers.

Research Shows:Research Shows:►Continuous shortening of product Continuous shortening of product

life cycles, which if true leads to a life cycles, which if true leads to a serious dilemma: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!

Authors claim:Authors claim:

Technology is the fundamental success Technology is the fundamental success factor!factor!

Concentrated vs. DifferentiatedConcentrated vs. Differentiated

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

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

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

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

A Preliminary Summary:A Preliminary Summary: What can high-tech firms do?What can high-tech firms do?

► Ultra-dominanceUltra-dominance (become de facto standard) (become de facto standard)► Mega-market-coverageMega-market-coverage (product/solution for (product/solution for

every contingency)every contingency)► Deep Deep specializationspecialization/Focus/Focus► AlliancesAlliances, partnerships, joint ventures, licensing, partnerships, joint ventures, licensing► AccelerateAccelerate processes (IT steroid injections) processes (IT steroid injections)► Shift to Shift to servicesservices (configure, integrate, consult…) (configure, integrate, consult…)► Develop breakthrough Develop breakthrough innovationsinnovations► Effective Effective marketingmarketing !!! !!!