Transcript Twelve Themes of the New Economy*

Professor Ran Kivetz
Columbia Business School
Spring 2007
High Technology Marketing and
Entrepreneurship
THE ROLE OF MARKETING
(& “Can this High-tech Product Sell
Itself”)
The Role of Marketing - Agenda
• Overview of RIDE Model
• Marketing communications and promotions
• Matching RIDE strategies with marketing
communications & promotion tactics
• “Can Visual Motion 2.0 sell itself”
• Conclusion of case discussion: “The role of
marketing in high-technology firms”
The R I D E Model_
R I D
E
Market
Tech. Info
Industrial Elastic
Inelastic
Externalities
(vs. Execution)
economics
Homogenous Heterogeneous
Copyright © 2001, Professor Ran Kivetz
The RIDE Model
Technological Risk
RISK
Market Risk
• Functionality & Delivery
• Demand
- concern re feasibility & performance
- concerns re delivery timetables
- problems with service & “experience”
- preferences are ill-defined and labile
- adoption and diffusion are hard to predict
- market measurement is difficult
- capacity-setting is risky
• Obsolescence
- changing standards
- dominating innovations
- leapfrogging technologies
• Side Effects
- malice: e.g., cyber-crime, viruses &
attacks, access violations
- privacy & trust concerns
- intellectual property (IP) issues
• Standards & Compatibility
• Competition
- abundant & fast
- 1st mover & “unfair” advantages
- sometimes: “winner-take-all” dynamics
• Value & Supply Chain
- partners, competitors, suppliers, customers, &
channels involve risk and change
- frequent power conflicts
• Environment
- uncertain and changing business environment
(e.g., financial markets; regulation)
The type of RISK (& focus/opportunities)
shifts over time
Technology
Chasm
Buyers are the
Early Adopte rs
- Technology-centered
- Feature-driven
Level
required
by mass
market
Technology is
insufficient for
the mass marke t
Product becomes more
comple x than ne cessary
for the mass market
Buyers are theMass Market
- Application-centered
- Usability-driven
Time
Technological Risk
Market Risk
Information versus Industrial Products
Total Industrial Good Cost
•Variable costs are low relative to fixed costs
•Decreasing average cost, no capacity limits:
Substantial economies of scale
•Sunk Costs
•Information commodity markets don’t work
•Potential Market Structures
•Differentiated product (personalize)
OR
Volume
Total Information Good Cost
Volume
•Cost Leadership
•First Mover Advantages:
•Aggressive Pricing
•Competitive signal, threat
•Pricing:
•Personalized & value pricing
•Versioning
•Market Segment pricing
•Experience goods
Demand Typology:
• Heterogeneous vs. homogeneous Demand
• Demand for high-tech products can often be extreme
 varies from remarkably elastic to remarkably inelastic
• Dependence on unit of analysis (e.g., company vs. consumer;
“between” vs. “within” product categories) and product lifecycle
• Demand type has implications for customization, “versioning,”
branding, bundling, and marketing communications
When thinking Externalities think about...
• Network Externalities
• Chicken & Egg Externalities
• Other externalities & dependencies in value chain
• Standards & Compatibility
• Switching costs & Exit barriers
• Lock-in
• Speed and path dependencies
Positive Feedback
Technology has the
largest Installed
Base of Users
Technology is
Attractive To
New Buyers
Installed base
grows
Technology gets
large share of new
purchases
Apple’s Market Share
14.7%
14.1%
7.8%
5.5%
1994
1995
1996
1997
4.9%
1998
(first quarter)
Key Strategies for Dealing with
Network Externalities
• Positive Feedback, path dependencies, and “snowball” effects
can lead to extreme outcomes
• Try to predict the (unpredictable, stochastic) future landscape
• Race to reach critical mass; fast growth & installed base are key
• Manage customer expectations and create sense of inevitability
• Razorblade & seeding strategies may be required when
chicken & egg externalities exist
• Viral marketing, evangelism, and buzz
Key Strategies for Dealing with
Network Externalities
• Focus on partnerships and nurturing the network
• Often need to overcome collective switching costs
• Chose between “evolution via compatibility” and
“revolution via performance”
• Chose between openness (maximizing the network) and
control (maximizing your brand share-of-network)
Can This High-Tech Product Sell Itself?
The Role of Marketing - Lessons
• How do you promote a new high-technology product?
• Marketing communications & promotions tactics must match
the strategic situation of the company (RIDE analysis)
• Being a marketer in a high-technology firm is not easy...