Transcript Marketing of High-Technology Products and Innovations Jakki J. Mohr

Marketing of High-Technology
Products and Innovations
Jakki J. Mohr, Sanjit Sengupta,
and Stanley Slater
Chapter 1:
Introduction to High-Technology
Technology is Ubiquitous
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Examples of traditional “high-tech”
industries:
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Computers and information technology
Biotechnology
Telecommunications
Internet
© Mohr, Sengupta, Slater 2005
Technology is Ubiquitous
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Examples of some industries where
technological innovation is creating
radical changes:
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Waste management
Agriculture
Automotive
Oil and Gas
Consumer Products
© Mohr, Sengupta, Slater 2005
Definition of Technology
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The stock of relevant knowledge that allows
new techniques to be derived
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Product technology: ideas embodied in the
product and its components
Process technology: ideas involved in the
manufacture of a product; a manner of
accomplishing a task especially using technical
processes, methods, or knowledge
© Mohr, Sengupta, Slater 2005
Definitions of “High-Tech”
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Government perspective
“Common underlying characteristics”
perspective
© Mohr, Sengupta, Slater 2005
Government Perspective:
Defining High-Tech
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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
Used by the Bureau of Labor Statistics,
Organization for Economic Cooperation and
Development, and the National Science
Foundation
© Mohr, Sengupta, Slater 2005
Level 1 Industries:
Technology-Intensive
% of High-Tech
Employment 2000
% Change in
Employment
2000-2010
Crude petroleum and natural gas operations
Cigarettes
Industrial inorganic chemicals
Plastics materials and synthetics
Drugs
Soap, cleaners, and toilet goods
Paints and allied products
Industrial organic chemicals
Agricultural chemicals
Miscellaneous chemical products
Petroleum refining
Miscellaneous petroleum and coal products
1.1
0.3
0.9
1.4
2.8
1.4
0.5
1.1
0.5
0.5
0.8
0.4
-22.7%
-14.6%
-16.3%
-15.8%
23.8%
6.0%
7.5%
-9.8%
8.9%
2.2%
-23.2%
10.7%
Nonferrous rolling and drawing
Special industry machinery
1.6
1.5
-1.8%
-8.2%
© Mohr, Sengupta, Slater 2005
Level 1 Industries:
Technology-Intensive (Cont.)
% OF HIGH-TECH
EMPLOYMENT 2000
Computer and office equipment
Electrical industrial apparatus
Communications equipment
Electronic components and accessories
Motor vehicles and equipment
Aircraft and parts
Guided missiles, space vehicles, parts
Search and navigation equipment
Measuring and controlling devices
Medical instruments and supplies
Photographic equipment and supplies
Computer and data-processing services
Engineering and architectural services
Research and testing services
Management and public relations
Services, n.e.c.
% CHANGE IN
EMPLOYMENT
2000-2010
3.2
1.3
2.4
6.0
8.9
4.1
0.8
1.4
2.7
2.5
0.6
18.5
9.0
-3.2%
-15.6%
5.0%
17.3%
8.6%
23.2%
-3.9%
-9.3%
-0.6%
17.4%
-21.6%
86.2%
30.8%
0.4
9.6
0.5
37.9%
42.2%
35.9%
n.e.c. Not elsewhere classified © Mohr, Sengupta, Slater 2005
Level II Industries: Technology Moderate
% of High-Tech
Employment
2000
% Change in
Employment
2000-2010
Miscellaneous textile goods
Pulp mills
Miscellaneous converted paper products
0.5
1.8
2.1
6.2%
-11.5%
0.0%
Ordnance and accessories, n.e.c.
Engines and turbines
General industrial machinery
0.3
0.8
2.2
-8.4%
-2.2%
3.5%
Industrial machines, n.e.c.
3.3
10.0%
Household audio and video equipment
Miscellaneous electrical equipment and supplies
0.7
1.3
-3.3%
8.6%
Miscellaneous transportation equipment
0.7
19.0%
n.e.c Not elsewhere classified
© Mohr, Sengupta, Slater 2005
Shortcomings to the government
classification approach:
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Some industries are R&D intensive (i.e., high-tech),
but new products are not revolutionary
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May exclude industries who are technology-driven
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Ex: Cigarettes
Ex: Textiles production
Some industries with standardized output produced
in mass quantities
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Ex: Some computing equipment
© Mohr, Sengupta, Slater 2005
Definitions of High Technology:
Common, Underlying Characteristics
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Market Uncertainty
Technological Uncertainty
Competitive Volatility
Other Characteristics
© Mohr, Sengupta, Slater 2005
Market Uncertainty:
ambiguity
about the type and extent of customer needs
that can be satisfied by a particular technology
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Consumer fear, uncertainty and doubt (FUD)
Customer needs change rapidly and
unpredictably
Customer anxiety over the lack of standards
and dominant design
Uncertainty over the pace of adoption
Uncertainty over/inability to forecast market
size
© Mohr, Sengupta, Slater 2005
Technology Uncertainty:
not knowing whether the technology or the
company can deliver on its promise
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Uncertainty over whether the new innovation
will function as promised
Uncertainty over timetable for new product
development
Ambiguity over whether the supplier will be
able to fix customer problems with the
technology
Concerns over unanticipated/unintended
consequences
Concerns over obsolescence
© Mohr, Sengupta, Slater 2005
Competitive Volatility:
changes in competitors, offerings, strategies
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Uncertainty over who will be future
competitors
Uncertainty over “the rules of the game” (i.e.,
competitive strategies and tactics)
Uncertainty over “product form” competition
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competition between product classes vs. between
different brands of the same product
Implication: Creative destruction
© Mohr, Sengupta, Slater 2005
Characterizing the High-Tech
Environment
Market
Uncertainty
Marketing of
HighTechnology
Products &
Innovations
Technological
Uncertainty
Competitive
Volatility
© Mohr, Sengupta, Slater 2005
Network Externalities
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When the value of the product increases
as more people adopt it
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Also called demand-side increasing
returns or bandwagon effects
Ex: portals on the Internet
Metcalf’s Law: Value of the network = n2
(where n=# of users)
© Mohr, Sengupta, Slater 2005
Implications of Network
Externalities
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Reliance on strategies to quickly grow
the size of the “installed base” (or
customers using the particular
product/technology)
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May give away products for low price or
even free
Work to develop industry standards
© Mohr, Sengupta, Slater 2005
Development of Industry
Standards
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Standards create a common, underlying
architecture for products offered by
different firms in the market.
© Mohr, Sengupta, Slater 2005
Why are industry standards
important?
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Customers gain compatibility
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Lowers their perceived risk (FUD factor—fear,
uncertainty, and doubt)
Allows for seamless interface of product
components.
Due to network externalities, standards can
increase the value a customer receives
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(when more customers adopt/use products
sharing a common standard).
© Mohr, Sengupta, Slater 2005
Why are industry standards
important? (Cont.)
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Availability of complementary products
determined by the size of the “installed
base” of a given product.
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Therefore, standards help ensure greater
availability of complementary products by
helping to ensure a larger size of the installed
base.
Customers get more value from the base
product as more complementary products are
available.
© Mohr, Sengupta, Slater 2005
Self-reinforcing Nature of
Standards
Reduce
customer
fear,
uncertainty,
& doubt
Larger
installed
base
STANDARDS
Increased
demand for
product
More
complementary
products
developed
Increased
customer
value
© Mohr, Sengupta, Slater 2005
Implications from Standards
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Originator of new technology can set
standards—
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Even when technology standard may be
inferior
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Critical success factor:
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Ex: QWERTY keyboards
Grow installed base quickly
Antitrust implications when de facto
standards become near monopolies
© Mohr, Sengupta, Slater 2005
Strategies to Set Industry
Standards
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(1) Licensing/OEM Agreements
 Pros:
 Can ensure initial wide distribution
 Can co-ops competitors from developing competing
technology
 Limits customer confusion over competing standards
 Sends signal to complementors that installed base may
be significant, stimulating development of ancillary
products
 Cons:
 Licensees may attempt minor technological alterations
to bypass need to pay licensing fees
 Original developer “creates” competitors
© Mohr, Sengupta, Slater 2005
Strategies to Set
Industry Standards (Cont.)
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(2) Strategic Alliances to jointly sponsor development
of a particular technological standard
 Pros:
Same four “pros” as the prior strategy, plus:
 By combining skills, alliances may produce superior
technologies than a single company could.
Cons:
 Partner might access and misuse other firm’s
proprietary information
 Need for close attention to structure and
management of the alliance
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© Mohr, Sengupta, Slater 2005
Strategies to Set
Industry Standards (Cont.)
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(3) Product Diversification: Create a standard
by developing the necessary complementary
products to create more value for customers.
 Pros:
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Can “jump-start” the market when no installed base
of customers exists and complementors have no
incentive to develop products
Diversifies revenue base of the firm
Cons:
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Commitment of resources
Potential incompatibility with core competencies
© Mohr, Sengupta, Slater 2005
Strategies to Set
Industry Standards (Cont.)
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(4) Aggressive Product Positioning via
penetration pricing, product proliferation, and
wide distribution.
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Requires investments in production capacity,
product development, and building market
share
Costs of failure are very high
© Mohr, Sengupta, Slater 2005
Conditions That Affect the Choice
of Standards-Setting Strategy:
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Barriers to imitation
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Skills and resources
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Via patents or copyrights, for example
in technology, manufacturing, marketing,
finances, and firm reputation
Existence of capable competitors
Potential suppliers of complementary
products
© Mohr, Sengupta, Slater 2005
Which Strategy
Under Which Conditions?
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Aggressive Sole Provider when:
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Barriers to imitation are high
Firm possesses required skills and resources
Suppliers of complementary products exist
Apparent absence of capable competitors
Passive Multiple Licensing when:
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Barriers to imitation are low
Firms lacks required skills and resources
Presence of many capable competitors
© Mohr, Sengupta, Slater 2005
Which Strategy
Under Which Conditions? (Cont)
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Aggressive Multiple Licensing (combines
licensing with aggressive positioning) when:
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Firm possesses needed skills and resources
Barriers to imitation are low
Presence of many capable competitors
Selective Partnering when:
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High barriers to imitation
Firm lacks needed skills and resources
Presence of capable competitors
© Mohr, Sengupta, Slater 2005
Other Characteristics Common
to High-Tech Markets:
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“Unit-one” costs:
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when the cost of producing the first unit is
very high relative to the costs of reproduction
Ex: development vs. reproduction of software
© Mohr, Sengupta, Slater 2005
Other Characteristics Common
to High-Tech Markets: (Cont.)
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Tradability problems
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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?
•The perceived problem and valuation
•Pricing on tangible goods vs. intangible goods
© Mohr, Sengupta, Slater 2005
Other Characteristics Common
to High-Tech Markets: (Cont.)
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Knowledge spillover:
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Technological developments in one domain
spur new developments and innovations in
other areas.
Ex: Human Genome Project
© Mohr, Sengupta, Slater 2005
A Supply Chain Perspective of
Technology—a case of Auto Industry
Interwoven impacts on facing innovation
Suppliers
Car Manufacturers
Car Dealers
-raw materials
-components
-production equipment
-services
© Mohr, Sengupta, Slater 2005
Customers
personal
consumption
-
-business use
(fleets, etc.)
Critical ideas on a Supply Chain
Perspective on Technology
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Often, technological innovations occur at
upstream (i.e., supplier) levels in the supply
chain
Such innovations may radically affect 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
© Mohr, Sengupta, Slater 2005
Continuum of Innovations
Incremental
Radical
Extension of existing product or
process
Product characteristics welldefined
Competitive advantage on low
cost production
Often developed in response to
specific market need
"Demand-side" market/customer pull
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/technology
push
© Mohr, Sengupta, Slater 2005
Supplier vs. Customer Perceptions
of Nature of Innovation
Mismatch:
Delusion
Breakthrough
Incremental
Mismatch:
Shadow
© Mohr, Sengupta, Slater 2005
Contingency Theory
Marketing Strategy
New Product Success
Type of Innovation
-Breakthrough
-Incremental
Type of marketing strategy is contingent
upon the nature of the innovation.
© Mohr, Sengupta, Slater 2005
Examples of Implications of
Contingency Theory:
Breakthrough
R&D/Marketing
Interaction
R&D leads;
“technology push”
Type of Marketing Lead users;
empathic design
Research
Incremental
Marketing leads;
“customer pull”
Surveys; focus
groups
Role of
Advertising
Primary demand;
Selective demand;
customer education build image
Pricing
May be premium
© Mohr, Sengupta, Slater 2005
More competitive
Framework for High-Tech
Marketing Decisions
Marketing – 4Ps (Ch. 7-10) and the Internet (Ch 11)
}
High-Tech Firm
Customers
Internal Considerations (Ch. 2, 3, 4)
Strategy Formation
Core Competencies/Core Rigidities
Funding Considerations
Market Orientation
Relationship Marketing
R&D/Marketing Interactions
Understanding Customers (Ch. 5,6)
High-tech Research
Forecasting
Customer Decision-Making
Adoption Diffusion of Innovations
Target Marketing
Societal, Ethical, and Regulatory Concerns (Ch.12)
© Mohr, Sengupta, Slater 2005
Job Opportunities in
High-Tech
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For non-technical backgrounds:
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Find temporary work or internships to
develop knowledge and language
Read industry publications; join industry
trade groups
Work for high-tech company customers or
suppliers
© Mohr, Sengupta, Slater 2005
Appendix: Outline of a
Marketing Plan
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Executive Summary
Market Analysis
Company Analysis
Objectives & Positioning
Value Proposition
Marketing Strategy
Budgeting and Control
© Mohr, Sengupta, Slater 2005