Marketing Of High-Technology Products and Innovations

Jakki Mohr, Ph.D.Professor of Marketing University of Montana-MissoulaJakki.mohr@business.umt.edu

May 26-27, 2004Volterra, Italy

Objectives

Overview key ingredients for effective high-tech marketing

Provide opportunity to develop the outline of a basic marketing plan for your company

Provide well-rounded foundation on marketing as a critical factor for high-tech business success

Agenda

Day 1 – Foundations of high-tech marketing success– Begin development of marketing tools

Day 2 – Overview critical barriers to success– Continue development of marketing plans

Barriers to Effective High-Tech Marketing

Corporate culture that worships technical skills and de-emphasizes marketing – “Engineering does its thing and then marketing

helps get it out the door.”– “Customers don’t know what they want’ – “Marketers don’t know what they’re talking about”

Why is this important?

Higher level of success is the result of close, formal linkages between R&D and marketing

When these two functions interact sequentially, only 1 of 60 ideas is commercialized successfully.

When these two functions interact in parallel cross-functional teams, 1 in 7 ideas is commercialized successfully.

Critical Barriers/Sticking Points

Focus on sales– “technology push”

Functional silos with incompatible metrics for success

A manager and an engineer…

A man is flying a hot air balloon and realizes he is lost. He reduces altitude and spots a woman down below. He lowers the balloon further and shouts,

"Excuse me. Can you help me? I promised a friend I would meet him half an hour ago, but I do not know where I am."

The woman below says, "Yes, you are in a hot air balloon, hovering approximately 30 feet above this field. You are between 40 and 42 degrees north latitude and between 58 and 60 degrees west longitude."

"You must be an engineer," calls down the balloonist. "Yes, I am," replies the woman. "How did you know?"

A manager and an engineer (continued)

"Well," says the balloonist, "everything you have told me is technically correct, but I have no idea what to make of your information, and the fact is, I am still lost."

The woman below says, "you must be a manager." "Yes, I am," replies the balloonist, "but how did you know?" "Well," comes the answer from the engineer, "you did not know

where you are, nor where you are going. You have made a promise which you have no idea how to keep, and you expect me to solve your problem. The fact is, you are in exactly the same position you were in before we met, BUT NOW IT IS SOMEHOW MY FAULT."

Cross-functional integration(Interfunctional coordination)

Rank your company on the following attributes (1-5)

– I understand the role of marketing in the product development process

– Marketing is an integral part of the product development process

– Marketing is more than an afterthought to product innovation– Marketing and engineering have a common language for talking

about customer needs– There is mutual respect for the knowledge my

marketing/engineering counterpart brings to the table

Development of Marketing Plan/Tools (Continued)

– Additional Sources of Revenue Licensing, Service Strategies

– Market Segmentation – Pricing – Distribution – Marketing Communications (Advertising & Promotion)– Customer Relationship Cycle

Product considerations

Licensing Service Strategies

QFD and Kano Concept

“What to Sell” Decision

Continuum of options based on the additional expenditures customers must

incur beyond the cost of the purchase to derive the intended benefits of the technology

– Know-how only– “Proof of concept”– Components to OEM– Final products to end-user– End-to-end solution, service bureau

Service StrategiesHigh-Tech

Low-Tech

Product Service

Relationship between Entries in the Market and Quality

ONE-DIMENSIONAL QUALITY

Model 1

Model 2

Model 3

Time

Development Overall Revenue Incr. Revenue New Models

Attractive Quality

Must be quality

QFD—Using the Kano Concept

Satisfaction

Dissatisfaction

Dysfunctional Functional

Attractive One-dimensional

Know vs. UnknownSpoken vs. Unspoken

Must-be

Marketing is…

                                                                                                                           

The High-Tech Pricing Environment

Customer fears of obsoleting

prior purchases

Short, volatile product life

cycles

Pressure on Price/performance

ratios: Moore's Law

Rapid pace of change

Networkexternalities

Competition

Unit-onecosts

The Internet

Customer's perceptions of cost/benefit of new

technology

Investments in R&D

Backward compatibility, derivatives

The 3 Cs of Pricing

Competition

Customers Costs

Unit-One Costs

When the cost of producing the first unit is very high relative to the costs of reproduction– Due to R&D/embedded knowledge – Ex: development vs. reproduction of software

Additional Customer Considerations

Total Cost of Ownership– Ex: Lifetime cost of owning a corporate PC is

$6,400 per year (in 2002; average life of 3-5 years) Including hardware, software, installation, training,

maintenance, infrastructure, and support Purchase price accounts for only 10% of total cost

Implication: – Show total cost of ownership lower than

competitor’s, despite higher initial outlay

Customer Perceptions of Benefits/Costs

Benefits: – Functional– Operational– Financial– Personal

Costs: – Monetary– Nonmonetary

Customer-Oriented Pricing

How will the customer use the product? What are the benefits the customer will receive

from using the product? Calculate customer costs and understand

customer’s trade-off between costs and benefits.

Analyzing customers for profitability

High

Passive Carriage trade

Net Price Paid

Low

Bargain basement

Aggressive

Low High Cost-to-Serve

Implications of Customer-Oriented Pricing

Pricing decisions are part of product design decisions

Different segments value the product differently

Therefore, different customers yield differential profitability

The 3 Cs of Pricing(Hands-on Exercise)

Recall our discussions of – CRM, – customer value, – competitive analysis, and – compelling benefits that enhance customer

productivity on a critical success factor.

Provide some insights into your company’s price strategy.

Channel Considerations in High-Tech Markets

High-Tech Channels

Need for indirect channels to provide value to manufacturer

Blurring of distinctive members in the supply chain

Evolution of high-tech channels

The Internet

Gray markets

Black markets, piracy and export restrictions

Supply chain management software

Vertical hubs

Matching Tasks to Channels, By Segment

Lea

d G

ener

atio

n

Qua

lify

Sal

es

Pre

sale

s

Clo

se S

ales

Pos

t Sa

les

Serv

ice

Acc

t. M

gmt.

National Acct. Mgmt.

Big

Direct Sales

Telemarketing Medium

Small Direct Mail

Retail Sales

Distributors

Dealers/ VARs

Tasks

Channels

Advertising and Promotion Pyramid

Salesperson

Telemarketing

Catalog Literature

and Manuals

Trade Shows, Seminars, Training

Direct Mail

Public Relations /Publicity

Media Advertising

Narrow Broad

Coverage of Target Audience (Reach)

Cos

t p

er C

onta

ct

HIGH

LOW

What hi-tech salespeople say and what they mean by it

All new: – Parts not interchangeable with previous design.

Field-tested: – Manufacturer lacks test equipment.

Revolutionary: – It's different from our competitors.

Breakthrough: – We finally figured out a way to sell it.

Futuristic: – No other reason why it looks the way it does.

What hi-tech salespeople say and what they mean by it

Distinctive: – A different shape and color than the others.

Re-designed: – Previous faults corrected, we hope.

Customer service across the country: – You can return it from most airports.

Unprecedented performance: – Nothing we ever had before worked this way.

Media Considerations

Wasted Coverage Message Strategy Impact and Repetition Measurement/leads/follow-up Customer Experience!

– Moments of truth– Post-sales encounters– Trust and Word-of-Mouth

Advertising and Promotion Pyramid (Hands-on Exercise)

Identify– Your company’s current approach to A&P– Tools that could be usefully added to the mix– Additional information that would be useful

Using the Internet

Search engine positioning

Branding in High-Tech Markets

Advantages of strong brands to firms: – Command premium prices – Have credibility which can be leveraged in new markets

Can lower customer acquisition costs

– Reduces risks with new product introductions Advantages of strong brands to customers:

– Signal of a safe choice: trustworthy and long-lived– Decision-making heuristic

Branding in High-Tech Markets

Short product life cycle and customer fear, uncertainty, and doubt put a premium on having strong brand names.

Strategies to Develop Strong Brands

Supply steady stream of innovations that deliver value

Emphasize traditional media advertising and PR tools rather than sales promotion

“Influence the influencers” to credibly stimulate word-of-mouth via opinion leaders

Strategies to Develop Strong Brands (Cont.)

Brand the company, platform, or idea (rather than the individual product)

Rely on symbols and imagery to create brand personality

Effectively manage all points of customer contact Work with partners in co-branding Effectively use the Internet

Moments of truth…

A software manager, a hardware manager, and a marketing manager are driving to a meeting when a tire blows. They get out of the car and look at the problem.

The software manager says, "I can't do anything about this - it's a hardware problem."

The hardware manager says, "Maybe if we turned the car off and on again, it would fix itself."

The marketing manager says, "Hey, 75% of it is working - let's ship it!"

Develop Brand Equity for Small High-Tech Start-Ups

Conclusion and Wrap-up Exercises

Exercise: Key Take-Aways– What are the three most important take-aways that you learned

today? – What three things will you do differently in your job tomorrow and

the next day, based on these insights? – What do you need to implement these ideas successfully? – What will prevent you from adopting a market-orientation your

company? – Identify three “next steps” in development marketing.

Customer Value Creation and the Role of Employees

Manage through the values of the organization

Customer is key All systems/structures focused on it. Marketing MUST be integrated with other

business functions to share in meeting customer needs effectively.

Keeping the Customer In Mind

Customer Marketing Engineering Product Technology

Rock Pile

Would you like a rock?

Sure

Here’s a blue rock?

OK Find me a big, cheap, fast, dense, sharp...rock

Wrong rock

Do you have a red rock?

What’s wrong with blue?

I can make a purple one

OK, but only if its square

We don’t have square ones

The “Far Side” of Product Development

Customer Value Creation Through Alliances

Customer value proposition only as strong as the weakest link.

Disparate firm cultures can be fatal. All partners must embrace the marketing

concept and focus on creating superior customer value.

Framework for High-Tech Marketing Decisions

Marketing – 4Ps and the Internet

High-Tech Firm Internal Considerations Core Competencies/Core Rigidities Funding Considerations Market Orientation Relationship Marketing R&D/Marketing Interactions

Customers Understanding Customers High-tech Research Forecasting Customer Decision-Making Adoption Diffusion of Innovations Target Marketing

Societal, Ethical, and Regulatory Concerns

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Conclusion and Closing Insights

Success factors – Marketing philosophy must pervade the entire enterprise. – R&D/Marketing integration– Know your customers – Segment effectively– Know their perceptions of value– Don’t assume tactical marketing = marketing – Customer relationship management for the long-term

Marketing Tasks and Responsibilities

Core competencies Hire an expert,

– but don’t give authority Generate leads, publicity, follow up with

customers, manage Website, etc. etc. Downside:

– Can you afford not to devote sufficient time to marketing activities?

Additional High-Tech Resources

Moore, Geoffrey, Crossing the Chasm Ryan, Rob, High-Smartups (Lessons from

Rob Ryan's Entrepreneur America Boot Camp for Start-Ups)

Ryans, Adrian, Roger More, Donald Barclay, Terry Deutscher, Winning Market Leadership: Strategic Market Planning for Technology-Driven Businesses

Keeping in mind the reason for being in high-tech: