chapter 2: strategic market planning in high tech firms

Marketing of High-Technology Products and

Innovations

Chapter 2: Strategic Market Planning

In High Tech Firms

© 2010 Pearson Education, Inc. publishing as Prentice Hall

Questions to consider

What is the strategic marketing planning process in high-tech firms?

What constitutes competitive advantage in a high-tech firm?

How do the four strategy archetypes interact?

Why are key metrics important? How are they reported?


Strategic Market Planning


The Objective of Marketing Strategy: Competitive Advantage

Sources◦ Tangible assets:

Products Facilities Financial Resources

◦ Intangible assets: Brands/reputation Know-how Culture

◦ Competencies: Routines Processes


Three Characteristics of Core Competencies

Difficult for competitors to imitate Significantly related to benefits end-user receives

Allow access to a wide variety of disparate product-markets.


Tree Analogy to Core Competencies: Honda

SNOWBLOWERS

Branches/canopy represents the widely different

product markets to which the core competency has provided access

MOTORCYCLES

SMALL CARS

LAWN MOWERS

SUPERIOR R&D

SM

AL

L

EN

GIN

ES

CORPORATE

CULTURE SUPERIOR

MANUFACTURING SUPERIOR MARKETING &

KNOWLEDGE OF CUSTOMERS

Roots are underlying skills and capabilities that represent core competencies.

Trunk is the core product, or the physical embodiment of the core competencies.

The core product must be significantly related to benefits end-user receives.


Implications of Core Competencies in Strategic Planning

Resource allocations may defy conventional logic ◦Violate ROI criterion

High-tech firms’ competencies often reside in their technological skills

R&D processes; technical personnel; etc. ◦They must develop marketing-related

competencies The combination of marketing + technological

competencies maximizes the odds of success


Tests of Superior Competitive Advantage

Customer Value◦Cost-benefit analysis among target market◦May be driven either by Effectiveness in customer operations (deliver

superior benefits) Efficiency in customer operations (focus on cost

side of value equation) Rareness

◦Competitors cannot offer same set of benefits/value


Tests of Sustainable Competitive Advantage Durability

◦How rapidly valued resources become obsolete

◦Length depends on the industry Slow-cycle: slow rate of change Fast-cycle: resources rapidly depreciate

Inimitability ◦ How easily a competitor can copy/obtain valued

resources ◦ Ways to enhance inimitability (next slide)


Inimitability

Tests of Competitive Advantage (cont.)


Requirements for Competitive Advantage

Valuableto Buyers

No

Yes

Yes

Yes

Superior toCompetitors

No

No

Yes

Yes

Difficult to Imitate

No

No

No

Yes

CompetitiveAdvantage

Disadvantage

Parity

Temporary

Sustainable

Profitable

No

Average

Superior

ConsistentlySuperior

Is the resource/competency:

Rarity is a variation on superiority.Transparency, replicability, and transferabilityare variations on imitability.


Superior and Sustainable

Competitive Advantage

Trade off between:◦Competence Exploitation Value Appropriation

◦Competence Exploration Value Creation

Interactive effect between them on innovation performance--


Competence Exploitation versus Exploration

Competence Exploitation◦Refine existing skills and resources ◦Extend existing paradigm into new arenas◦Useful for incremental innovation◦Advertising and marketing to

differentiate offerings Competence Exploration/Value Creation ◦Invest spending in R&D to acquire new

knowledge and skills◦Useful for radical innovation


Interaction Between Competence Exploitation and Exploration on Innovation

To succeed with radical innovation, firm with exploitation competence must couple it with exploration competence as well. ◦ Seek out new markets and value for customers

To reap benefits of competence exploration, firm must combine with exploitation ◦ Must fully leverage the new knowledge gained ◦ Value creation (R&D spending) must be coupled

with value appropriation activities—such as marketing


Market Strategy: Key Strategy Decisions

Who are our

customers?

What value do

we offer them?

How can we create

and deliver that value?

The Strategy

Sweet Spot


Market Strategy: Who are Our Customers? Focus on assessing customers’ articulated and unarticulated needs; ◦Focus less on technology and more on

customer value Identify key market segment(s) rather than diluting efforts across multiple segments


Market Strategy: Who are Our Customers? (Continued) Avoid tyranny of the “served” market

◦Excessive focus on serving current customers

Adopt bifocal vision ◦Simultaneous focus on current AND future customers

Search for “blue ocean” strategies◦New market space

Base-of the-pyramid markets


Market Strategy: What Value?

Products, services and technologies are mere vehicles for value creation ◦ They do not have intrinsic value in and of

themselves Requires understanding the customer

◦ Value of products, services, and technologies

Requires understanding competitors’ value propositions◦ Look beyond direct competitors ◦ Include competition from outside existing industry

boundaries (“product form competition”


Market Strategy: What Value? (cont.)

Value Proposition: Captures the essence of why a customer should purchase the product

Three types of value propositions:

◦“All Benefits” Articulates customer benefits

◦ “Favorable Points of Difference” Contrasts advantages with competition

◦“Resonating Focus” Addresses buyer’s key needs AND documents

the value explicitly


Market Strategy: How to Create & Deliver Value? Requires:

◦Right competencies

◦Appropriate structures/systems

◦Good decisions in distribution, pricing, and promotion

◦Flexibility


Four Strategy Types

Product Leader◦ Prospector; Pioneer; First Mover

Fast Follower◦Analyzer

Customer Intimacy◦Differentiated Defender

Operationally Excellent◦Low-Cost Defender


Strategy Types: Product Leader

Strategy is first to market with innovative new products

Successful Product Leaders:◦ Target innovator and early adopter customers ◦ Are creative and use novel sources of information◦ Exhibit a culture of innovativeness ◦ Have technological foresight◦ Commercialize ideas quickly—engineered for speed◦ Willing to “leapfrog” their own products ◦ Have marketing acumen◦ Understand competitors’ strengths and weaknesses◦ Benefit from a bit o’luck


Strategy Types: Product Leader

Entry barriers◦ Economies of scale◦ Experience effects ◦ Reputational effects◦ Technological leadership◦ Buyer switching costs◦ Higher profits and higher

share◦ Define product exemplar ◦ Higher consumer

awareness

Large development costs Market uncertainty “Wait-and-see” attitude among

consumers

PROSCONS

Failure rate of pioneers is 47%, with an average market share of 10%.

Failure rate of Fast Followers is 8%, with an average market share of 28%.


Complications for Pioneers in High-Tech Industries Risks of pioneering greater for incremental

innovations in markets with network externalities◦ Customers take a “wait-and-see” attitude ◦ Delays revenue stream. ◦ Later entrants gain disproportionately because of

the larger network effects that exist later in the market’s development

Risks of pioneering lower with incremental innovations than radical innovations ◦ “First to market with radical innovation is first to

fail” Unless market is characterized by network effects— Then pioneering a radical innovation may succeed.


An Additional Benefit of Being A Product Leader


Strategy Types: Fast Follower

Strategy is to imitate Product Leader, with some key improvement

Successful Fast Follower/Analyzers◦Target early adopter and early majority customers

◦Identify overlooked product position Innovate superior products Undercut the leader on prices Out-advertise or out-distribute Innovate business/marketing strategies

that change the rules of the game


Strategy Types: Fast Follower Relative to Product Leaders, Fast Followers:

◦ Grow faster ◦ Have higher market share


An Advantage of Being A Follower


Strategy Types: Differentiated Defender

Strategy is to focus more narrowly on specific customers/market niches

Successful Differentiated Defenders/Customer Intimate:◦ Target early and late majority customers◦ Emphasize long term relationships◦ Exhibit intimate customer knowledge ◦ Deliver superior customer service◦ Follow appropriate “tiering” of customers


Strategy Types: Low-Cost Defender

Strategy of technological, production, or distribution efficiencies that allow them to offer low prices

Successful Low-Cost Defenders/Operationally Excellent◦ Target early and late majority customers◦ Offer superior combination of quality, price, and

ease of purchase◦ Aggressively protect their market with cost

leadership in their value chain


Caveat on Strategy Types Most successful companies have a

dominant strategy type and one or two supporting types.


Creating Innovation in Business Strategy: Approaches and Structures

Strategy creation process itself is a deeply embedded skill

Seek new, unique, and innovative perspectives to customer-value creation

Change the basis of industry competition to create new wealth

Envision new opportunities Paradox: Make serendipity happen Take risks, break rules, be a maverick


Creating Innovation in Business Strategy: Approaches and Structures (Cont.) Foster new connections inside and

outside of the company Exude passion for discovery and

novelty Experiment, take risks, and learn! Maintain a flexible strategic posture

◦Don’t create strategy-making processes that are more complex than the high-tech market situation itself.

◦Planning processes must be simple, fast, iterative, integrated in high-tech industries.


Strategy Creation: The Formulation Process

Formal Planning Approach◦ Leaders formulate intentions in a written plan◦ Comprehensive search, evaluation, and selection◦ Useful for predictable environments where formal

controls can be used. Emergent Planning

◦ Improvised◦ Emergent process from lower levels of the

organization; informal entrepreneurialism◦ Based on trial-and-error learning


Strategy Creation: The Formulation Process Which is best: formal or emergent planning

processes? ◦ False choice:

Both types of processes must exist Complement each other

◦ Depends upon the strategy type: Product Leaders – more emergent Operationally Excellent and Customer Intimate –

more formal◦ High-tech companies must have fairly systematic

planning


Strategy Creation:Eight-Step Approach to the Strategic Market Planning Process 1. Define the company’s goals and mission.2. Choose the arena. 3. Identify potentially attractive

opportunities. 4. Make tough strategic choices. 5. Plan key relationships. 6. Complete the winning strategy. 7. Understand the profit dynamic.8. Implement the chosen strategy.


Strategy Creation: Organizational Structure

Hierarchical/functional structure ◦Formal rules/procedures ◦Centralized decision making ◦Appropriate in slow-cycle markets

Market-Focused Structure◦More appropriate in high-tech markets ◦Multi-dimensional focus on customers,

flexibility and speed◦Shift away from product-focused to

customer-centered◦Decentralized decision making◦Informal coordination among departments


Strategy Creation: Marketing Performance Measurement

Can’t manage what isn’t measured CEOs in high-tech companies with well-

developed marketing performance measurement realize superior performance and greater satisfaction with the marketing function

Marketing Metrics◦ Financial accountability of marketing activities ◦ Link investments/decisions to measurable outcomes


Strategy Creation: Marketing Performance Measurement Marketing Dashboard

◦ Multidimensional report card for performance◦ Often automated with software and databases◦ Specific metrics must tie to marketing strategy

focus◦ Leading and lagging indicators of market success◦ Sample dashboard for Customer Intimate

Company (next slide)


Marketing Performance Measurement for Customer Intimate StrategyProduct/Service

QualityCustomer

SatisfactionCustomer Loyalty

Financial Results

Return Rate% “Very” or “Extremely Satisfied”

% of Sales from Existing Customers

Sales Growth

Reject RateSatisfaction with Specific Features

Duration of Relationship

Market Share

Perceived QualitySatisfaction with

ExperienceShare of Wallet Profit Growth

Time: Order to Delivery

Volume of Complaints

Sales from Referrals

Profit Margin


Strategy Creation: Marketing Performance Measurement

Examples of Salesforce.com Dashboards


Measuring Innovation Performance Metrics include innovation’s usefulness,

quality, speed to market, sales/sales takeoff Compares attained performance not only to

the company’s objectives, but also to the possibilities◦ What is the record of innovation in the industry?

How does ours compare? Did we miss important opportunities? Why? Do we successfully convert R&D spending into commercial product?


Chapter Features Opening Vignette: Medtronics Technology Expert: IPTV company, Auroras Technology Tidbit: Dignity Toilets End-of-Book Case: Xerox


Appendix: Resource Issues for Small High-Tech Start-ups Funding options:

◦ Friends & Family (Also referred to as “friends, family, and fools”)

◦ Bootstrapping: Fund business through early customer revenues Slow, but founders retain ownership

◦ Grants, Loans, etc.◦ Venture Capitalists

Formal VCs – professional investors Seek high rate of return

Informal: Angels


What Venture Capitalists Look For Management experience Marketing Technology/product Anticipated ROI


Other Resources Incubators

◦ Facility that offers business support services and access to low-cost facilities

◦ Goal: to successfully “incubate” a new high-tech start-up so that it can survive on its own in a competitive market

◦ Economic development tool ◦ Can be run by private companies, or

local/regional/federal agencies ◦ Success factors (next slide)

Other: ◦ US-based: SCORE, SBA, US Dept. of Commerce, NIST ◦ Partnerships


Incubators Mixed rate of success Successful programs:

◦ Access to educated work force/talent ◦ Access to financing ◦ Support of local business community/experienced

business people ◦ Culture of innovation and risk taking


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chapter 2: strategic market planning in high tech firms

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