High-tech Strategy and Innovation Marketing

Characteristics Common to High-Tech Markets: Supply Side

“Unit-one” costs: when the cost of producing the first unit is very high relative to the costs of reproduction 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

Characteristics Common to High-Tech Markets: Supply Side

Tradeability problems 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?

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.

Ex: Human Genome Project

Common, Underlying Characteristics of High-Tech Markets: Demand Side Perspective

Market Uncertainty

Technological Uncertainty

Competitive Volatility

Market Uncertainty

Technological Uncertainty

Competitive Volatility

Marketing of High-Technology

Products & Innovations

Market Uncertainty: Consumer fear, uncertainty and doubt (FUD) Customer needs (sometimes rather tastes)

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

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:

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:

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? competition between product classes vs.

between different brands of the same product Implication: Creative destruction?

Effects of Uncertainty? Adoption rate! There are five variables that have been cited as

responsible for speed of technology adoption: Relative Advantage: the degree to which an innovation is

perceived as better than the idea it supersedes Compatibility: the degree to which an innovation is

perceived as consistent with existing values, past experiences, and needs of potential users

Complexity: the degree to which an innovation is perceived as relatively difficult to use and understand

Trialability: the degree to which an innovation may be experimented with on a limited basis

Observability: the degree to which the results of an innovation are visible to others (Wow-factor).

Rogers, “Diffusion of Innovation.”

Think Telephone Introduced in 1877, people had to be

convinced that it was useful. Despite its simple design and

seemingly obvious value, it took 75 years for the telephone to reach 50 million users

It wasn't until the 1960s that users saw a residential phone as a necessity.

Diffusion Rates The printing press (~1440):

400 years (1833, NY Sun). The automobile (1885):

75 years (market saturation in US around 1960) The telephone (1876):

85 years (full saturation in the 1960s) The fax machine (1843):

140 years (late 1980s) The Internet (1968)

35 years (mid-2000 an estimated 130 million Americans had access to the Internet, 330 million globally)

Cell Phone 10 years (late 1980s-2000, 800 million globally)

Final Thoughts on Adoption

Marketers must provide compelling reasons for adoption, and overcome customers’ fear, uncertainty, and doubt.

Traditional marketing methods (which assumes customers understand the usefulness of the products and know how to evaluate them) are often insufficient. Often, must focus more on educating

potential users about benefits and how to use new product

Final Thoughts on Adoption

Involve customers in evaluating new product ideas

Don’t base assessment on inventor’s familiarity with, and enthusiasm for, technology.

Understand who is likely to be an early adopter, and how they differ from the mainstream market.

Categories of Adopters

Innovators

Technology Enthusiasts

Early Adopters

Visionaries

Late Majority

Conservatives

Early Majority

Pragmatists

Laggards

Skeptics

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Categories of Adopters

Innovators

Technology Enthusiasts

Early Adopters

Visionaries

Late Majority

Conservatives

Early Majority

Pragmatists

Laggards

Skeptics

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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?

Visionaries vs. Pragmatists

Visionaries Adventurous Think/spend big Want to be first in

implementing new ideas in their industries

Think pragmatists are pedestrian

Pragmatists Prudent; stay within

zone of “reasonable,” and within budget

Make slow, steady progress

Think visionaries are dangerous

Who is the buyer?

1) Individual

2) Company

Must Have

Performance/Requirements- +

Satisfaction/Expectations

High

Low

More isbetter

Compels

Contingency 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 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

Back to the Market

Why are High-Tech markets particularly dynamic? No established rules of the game Scalable economies low entry barriers

More on dynamic… Continuous shortening of product

(or better model) life cycles which if true leads to a serious dilemma:

=> High first part costs in innovation phase is associated with shorter pay-back cycles!

Cumulative Development Effort

Performance How useful is this as a strategic tool?

Some strategic considerations Segmentation Timing Participation

STP

High innovation costs plus shortening PLC means strategically:

1) Enter as many market segments as possible at the same time to shorten pay-back time.

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

Three Entry Options:

Pioneers Early Followers Late followers

What are some pros and cons of each?

STP

1) Specialization versus Standardization?

2) Price-Quantity (cost utility) versus preference oriented (buyer utility)?

3) Customer-orientation versus competitor-orientation?

STP

A Preliminary Summary: What is Hi-Tech?

High R&D intensity => watch technology seductionKnowledge & skill-intensive products/processesShort and shrinking development cyclesBut long discovery cyclesShort pay-back cyclesComplex products => Customer confusionLarge number of entrepreneurial competitors and low barriers of entryUncertainties about design, standards, and technological paradigmUncertainties about market/applicationsInadequate support and service systemsRapid change

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

Ultra-dominance (become de facto standard)

Mega-market-coverage (product/solution for every contingency)

Deep specialization/Focus Alliances, partnerships, joint ventures,

licensing Accelerate R&D processes and

systematize innovation Effective marketing !!!