Transcript High Tech Marketing I

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High Tech Marketing I: Fundamentals
Complexity of Technology
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Phaedrus
Unintended Consequences
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Technological Paradoxes
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South American Fire Ant
Freedom-Enslavement
Control-Chaos
Technological Backlash
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Luddites
GMF
Pfizer?
The business enterprise has two —and only
two—basic functions: marketing and
innovation.
Marketing and innovation produce results; all
the rest are costs…
-- Peter Drucker
Innovation without Marketing…
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Radio (1900-20)
Television (1930s)
AT&T Picturephone
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Wrong “App” targeted
Missing business model
Ahead of time (1960)
Technology is ubiquitous
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Examples of traditional “high-tech” industries:
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Computers and information technology
Biotechnology
Telecommunications
Internet
Examples of some industries where technological
innovation is creating radical changes:
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Agriculture
Waste Management (GM organisms)
Automotive
Consumer Products (GMF, irradiated chicken)
A Supply Chain Perspective on
Technology
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Often, technological innovations occur at
upstream (i.e., supplier) levels in the supply
chain…
…affecting the manufacturing process or
the inner workings of a product, but…
…end-user behavior may not be
significantly affected
Examples: cars, food, computing, hair
styling, Internet, phone
The “Where” of Technology
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Process technology
Product technology
Definition of Technology:
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Technology is people using knowledge, tools,
and systems to control processes and the
environment.
Definition of High-Technology:
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No single preferred method for identifying
high technology industries.
High technology industries have a great
dependence on science and technology
innovation that leads to new or improved
products and services.
Definitions of Technology: Government
Perspective
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Classify industries based on objective,
measurable indicators:
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the number of technical employees
$ spent on R&D
# of patents filed in industry
Marketing Strategy in High-Tech Markets
II
Why is it so difficult to succeed in
High-Tech settings?
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Complexity of Context
(Hyper)competition
Dynamic/Fickle/Ultra-demanding consumers
Incomplete Information/Partial Knowledge
Organization/Culture problems
Money problems
Common, Underlying Characteristics of HighTech Markets
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Market Uncertainty
Technological
Uncertainty
Competitive Volatility
Market
Uncertainty
Technological
Uncertainty
Marketing of
High-Technology
Products &
Innovations
Competitive
Volatility
Market Uncertainty:
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Consumer fear, uncertainty and doubt (FUD)
Customer needs (sometimes rather tastes) change
rapidly and unpredictably (recorded books, ebooks?)
Customer anxiety over the lack of standards and
dominant design (Laserdisc, DVD, DivX)
Uncertainty over the pace of adoption
Uncertainty over/inability to forecast market size
Technology Uncertainty:
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Will the new innovation function as promised?
What is the timetable for new product development?
Will the supplier be able to fix customer problems
with the technology?
What are unanticipated/unintended consequences?
(When) Will our technology be obsolete?
Competitive Uncertainty:
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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?
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competition between product classes vs. between different
brands of the same product
Implication: Creative destruction?
Other Characteristics Common to
High-Tech Markets:
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“Unit-one” costs: when the cost of producing the
first unit is very high relative to the costs of
reproduction
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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)
Other Characteristics Common to
High-Tech Markets: (Cont.)
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Tradeability problems arise because it is difficult to value
the know-how which forms the basis of the underlying
technology
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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.
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Ex: Human Genome Project
Continuum of Innovations
Incremental
•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
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
Supplier vs. Customer Perceptions of
Nature of Innovation
Mismatch:
Delusion
Breakthrough
Incremental
Mismatch:
Shadow
Contingency Theory
Marketing Strategy
New Product Success
Type of Innovation
-Breakthrough
-Incremental
Type of marketing strategy is contingent
upon the nature of the innovation.
Examples of Implications of
Contingency Theory:
Breakthrough
R&D/Marketing Interaction
Incremental
“technology push”
“customer pull”
Lead users; developers
Surveys; focus groups
Primary demand;
customer education
Selective demand; build
image
May be premium
More competitive
Type of Marketing
Research
Role of Advertising
Pricing
Analyzing High-Tech:
Product-related:
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Technology Seduction
From short PLC to short MLC.
The technology S-Curve.
Performance
Cumulative Development Effort
Specific Strategic Challenges in High-Tech
Markets
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We see a continuous shortening of
product life cycles, which leads to a
serious dilemma:
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High “first part” costs in innovation
phase is associated with shorter
pay-back cycles!
STP
High innovation costs plus shortening PLC
means strategically:
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Enter as many market segments as possible at
the same time to shorten pay-back time.
Develop a broad geographical strategy as low
entry barriers allow competitors to exploit
uncovered territory.
STP
Three Entry Options:
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Pioneers
Early Followers
Late followers
What are some pros and cons of each?
The Unique Pricing Challenge
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Why is pricing such a challenge for hightech innovations?
How should you price at each stage of the
technology diffusion cycle?
When should a product be free?
How do you define value if the product is
free?
Developing Breakthrough
Products and Services - the
"Lead User Method" and
Outsourcing
The Great Unknown!
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The “fuzzy front end” of the innovation
process
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how it works
how to make it better
how marketing can help
Studies in: Industrial products (like
semiconductors); consumer products (sports
equipment); OS software
Why Pursue MAJOR Innovations?
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Everything becomes a commodity
eventually.
Major Innovations are RARE
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So what can Markers do to avoid premature
COMMODIFICATION?
Product differentiation (aka, create new MLC)
Segment the market
By demographics
By need
Etc.
Promotional response to declining MLC
Pricing
Channel strategy
“Breakthrough” vs Incremental Innovation
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We define “breakthrough” innovation as the first
member of a major new product line in a firm
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“Incremental” innovations are improvements to
existing product lines
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iPod for Apple
Sticky notes for 3M
Improved iPod
Improved sticky notes
CAUTION: You still need consumer corroboration!
Why study how to generate
breakthroughs?
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Because:
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Periodic breakthroughs are ESSENTIAL to firms
Firms are (pretty) good at incremental innovation
but they don’t know how to develop breakthroughs
systematically
Result: major innovations are often very rare and
desperately sought by management:
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In 5 3M Divisions studied less than 1 new product line
introduced per Division every 2 years on average
Breakthrough innovation is both
essential and UNWANTED
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Change is disruptive
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to be avoided if possible
Change obsoletes marketing expertise and
production investments
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Polaroid produces instant film and cameras – not DVD
players!
Kodak produces film – not digital cameras!
Change devalues personal “intellectual property”
 I know how to market films - not digital cameras!
 I know how to sell copy machines – not services!
Contrasting innovation methods
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Traditional methods are based on “find a
need and fill it” (Target users provide needs;
Manufacturer develops solutions)
New methods are based on finding /
encouraging and commercializing solutions
developed by users themselves
And Marketing?
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As the traditional model goes does marketing
become obsolete and turn into selling?
Innovation in the 21st Century comes from
two Sources: Lead Users and Pure
Innovators
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Users innovate when it pays… for them
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“Lead Users” are users that:
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Have needs that foreshadow general demand in the
marketplace
Expect to obtain high benefit from a solution to their
needs. (Such users are more likely to innovate –
“Necessity is the mother of invention!”)
Structures of Technology Innovation
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Creative Destruction
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Proactively develop next-generation technology that
may obsolete current technology
Ex: Develop Web-sites that undermine current
distribution channels
Corporate Imagination
Experimental Marketing
Elements of
Corporate Imagination
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Escape the “tyranny of the served market”
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Excessive focus on current customers
Obscures the fact that customer needs may
change over time and may be solved in radically
new ways
Ex. Kodak, Dell
Experimental Marketing: Advantages
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More accurate learning of customer needs
Time between market learning and product launch is
shortened
Implication: It is less about being right the first time,
but being able to accumulate market experience,
and quickly adapt market offerings
Ex.: Google?
Summary
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Technology is everywhere: “Technoculture”
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BUT, the ‘where’ matters for marketers
Marketing important for successful innovation
What is high-tech is not easily defined
High-tech markets are complex
(uncertainties)
Lots of strategic challenges
Radical vs. incremental innovation
New sources of innovation in the 21st century