marketing strategy considerations in the commercialization...

Marketing Strategy Considerations in the Commercialization of New Techonologies: An Overview and Framework for

Strategy Development

Chapter 6 Teaching Note1

Overview:

The purpose of this class is to introduce the students to the challenges associated with developing a marketing strategy for a new technology. The strategy development process is plagued with uncertainty, and decisions made early in the process impact the tactical marketing efforts that need to occur as the strategy is implemented. Each component of the marketing strategy is interdependent and the decisions made early regarding product positioning and target market selection will have a significant impact on the development of the technology, especially with regards to what the final product features need to be in order to fulfill the needs of the target market. To illustrate the complexity associated with strategy development for an emerging technology; this class is best taught by covering key concepts related to strategy development and then applying the concepts within a case analysis. The Matrix Semiconductor case provides a rich context for students to consider the tradeoffs associated with marketing considerations and the impact they will have on the development of the technology itself. This note begins with a discussion of the teaching objectives and a discussion of the research and key concepts regarding marketing strategy development. Following this is a list of readings for the students as well as assignment questions. From this, a teaching plan is presented along with supplemental slides and a board plan for class discussion. Teaching Purposes: This class is specifically designed for a course with students from different disciplines who include MBAs, scientists, and engineers. These interdisciplinary teams will find the tradeoffs associated with strategy development particularly interesting. The MBA students are focused on customer needs and marketing considerations and less concerned with the technical limitations or development required to serve this market; the scientists and engineers are primarily focused on the attributes of the technology and the development of new features without specifically considering the implications of these to the market itself. It makes for interesting debate regarding the ‘right’ product for the ‘right’ market within a given window of opportunity. This case would also work well in a high tech marketing elective. This class has two primary teaching objectives and requires approximately 2 hours covering key concepts and applying them to the illustrative case.

1 This teaching note was prepared by Dr. Leslie Vincent, Assistant Professor, Marketing, 455T Gatton

Business & Economics Building University of Kentucky, Lexington, KY 40506-0034. [email protected]. Vincent is grateful for support from the Ewing Marion Kauffman Foundation.

mailto:[email protected]�

________________________________________________________________________Chapter 6 – Leslie Vincent 2

Objective 1: How can a firm determine the appropriate target market and positioning for their technology? How does product positioning and target market selection impact the appropriate marketing mix for the new technology? Before a firm determines the marketing strategy for a new technology, it must first consider the environmental conditions that will impact the probability of success or failure within the marketplace. The idea is to develop a marketing strategy that will maximize opportunities, minimize environmental threats and provide value to a compelling target market. Therefore, marketing strategy is comprised of the following: target market selection, product positioning, and the marketing mix. While the fundamentals of marketing strategy development seem fairly straightforward, the process of determining the ‘right’ path is not clear. This class provides students with a framework to use when considering the elements of marketing strategy and the relationships between the key activities. Additionally, students are asked to apply this framework to the problem facing managers at Matrix Semiconductor in order to highlight the complexities associated with strategy development for new technologies. Objective 2: What role does the technology adoption lifecycle play in marketing strategy development? One reason that marketing strategy development for high tech products can be so complicated is in part due to the nature of the technology and its evolution and diffusion within the market. After students become more comfortable with the key concepts of product positioning, target market selection, and marketing mix considerations, the focus of the discussion then shifts to consider the role of the external environment on these marketing activities. Drawing upon the work of Geoffrey Moore (1995, 1999), students then understand that the selection of a marketing strategy and its probability of success is influenced by where the technology is in terms of its lifecycle. Strategy development is not only impacted by the customer environment, technology capabilities, but also by the extent to which the technology has been diffused in the marketplace. Overview of Marketing Strategy Development Marketing strategy can be defined as the selection and analysis of target markets and the creation and maintenance of an appropriate marketing mix to satisfy the needs of the target market (Ferrell, Hartline and Lucas 2002). Here, the target market represents the group of customers that the product will reach, while the marketing mix includes product attributes, distribution channels, promotion, and pricing considerations. Armstrong (1982) posits two guidelines for the development of strategies. First, strategies should be comprehensive in nature and thus consider all important factors. Second, strategies should recognize uncertainty and have flexibility within the plan. This second criteria is of particular importance for high technology products where the technology itself is under development. A framework for marketing strategy development is provided in Figure A. (The details of each section are discussed further in “Marketing Strategy Considerations in the Commercialization of New Technologies: An Overview and Framework for Strategy Development”. In G.D. Libecap and M.C. Thursby (Eds), Advances in the Study of Entrepreneurship, Innovation and Economic Growth (Volume 18): Technological Innovation: Generating Economic Results.)


Segmentation, targeting, and positioning are often referred to as the building blocks of marketing, in that they provide the overall definition of the market space in which organizations or new ventures will compete (Bearden, Ingram and LaForge 2004). Each of these strategic decisions will provide guidance in terms of the remaining tactical decisions that must be made regarding the market introduction of a product. Furthermore, these decisions go hand-in-hand and cannot be made in isolation from one another. Together, these decisions determine what product will be sold and to whom (Lodish et al 2001).

Figure A: Framework for Marketing Strategy Development

Marketing Strategy Development

Goal: To develop a marketing strategy that will leverage the technology’s competitive advantage within the marketplace

Segmentation•Partitioning of a market into meaningful subgroups

•Strategies - Mass market, Differentiated, or Concentration

•Evaluation – Size, Growth, Product Considerations

Marketing Strategy Implementation

Target Market Selection•the group of customers that the product selling efforts will focus on

•Evaluation – Needs (match with technology), Accessibility, Size, Competitive Intensity

Positioning•The perception of the product by consumers compared to the competition

•Need to ensure that value proposition is based on product benefits (performance or price)

Product•Lifecycle Considerations

•Features/Benefits

•Branding

Distribution•Channel Strategy - # of intermediaries

•Distribution Intensity

Pricing•Costs

•Pricing Strategy – Price Skimming, Penetration Pricing, Experience Curve

Promotion•Advertising

•Public Relations

•Sales Promotion

MARKETING MIX

Segmentation is the process by which a market is partitioned into meaningful subgroups such that specific marketing efforts can be tailored to these specific groups of customers (Lodish et al 2001). Thus, segmentation includes dividing the market into homogeneous subgroups such that the marketing mix can be tailored to each group’s specific needs as they relate to the product or technology. There are three types of segmentation:

Segmentation

• Mass Marketing. Mass marketing is a segmentation strategy in which the market

is not segmented into subgroups. The entire market is treated as one segment. o This approach assumes that the market itself is homogeneous with respect

to the technology or product and that consumers belonging to this market have similar needs that can be satisfied with one marketing mix (i.e., the


same product, price, promotion, and distribution channel is used to reach the entire market).

o Mass marketing is most appropriate for commodity products; however, very few firms use a mass marketing approach (Ferrell et al 2002).

o Firms relying on mass marketing are vulnerable to competing products that are more differentiated in nature, thus the potential to provide better solutions to the market’s needs.

• Differentiated Marketing. Differentiated marketing involves dividing the

marketplace into homogeneous subgroups based on needs and then tailoring the marketing program to those different subgroups.

o The characteristics and needs of consumers within each subgroup must be similar while at the same time having different needs and characteristics across the different groups.

o Firms using this segmentation strategy must develop a unique marketing mix for each of the segments identified within the market.

o Requires an extensive resource base to manage several different marketing mixes.

• Market Concentration Strategy or Niche Marketing. Segmentation strategy that

focuses on only one segment and develops a marketing plan suited for that particular sub segment.

o A likely segmentation approach used by start-ups due to resource constraints.

o Marketing efforts are focused on one small, well-defined market segment or niche with a unique, specific set of needs.

o This approach requires a complete understanding of the segment’s needs so that the potential for high market share within this market space can overcome the small size of the market and make this approach profitable to pursue.

o Firms competing with a market concentration strategy are more focused on providing novel and innovative solutions to consumers and are less likely to compete based on price (Bearden et al 2004).

In determining the appropriate strategy for segmentation, several criteria regarding segmentation should be considered. These are listed in the table below. Table A: Effective Segmentation Criteria Criteria Description Measurable The degree to which the size and purchasing power of the segment can be

estimated. This is essential in order to understand the market potential of each segment.

Substantial The segment must be large enough (i.e., number of customers, sales potential) to justify the cost of developing a unique product and marketing mix to serve the segment.


Accessible The degree to which a firm can reach the segment efficiently. Stable The degree to which the needs within the segment change over time.

Ideally the needs within each segment will remain homogeneous over time so that segmentation will be effective.

Differential Response

Each segment identified should respond differently to the marketing mix of the firm in order for segmentation to be worthwhile and effective. This way a firm can tailor a marketing mix to different segments and realize the desired outcomes of this investment through increased sales and profitability. If this is not the case then segmentation may not be valuable to the firm.

After a firm identifies and evaluates its product’s different segments, this information will form the basis from which the target market for the new technology is selected. The target market is the group of customers, either individuals or organizations, on which the firm will focus its selling efforts. In addition, selection of the target market will impact the marketing mix that the firm must manage in order to reach this market efficiently and effectively.

Target Market Selection

In selecting the target market, the most important factor to consider is whether the target segment wants the value derived from the firm’s product offering more than other potential segments (Lodish et al 2001). Other factors that can impact the ultimate decision of the target market include accessibility, size, and current and future competition.

Positioning represents how the firm wants its product or service to be perceived by the target market relative to the competition’s product or service. Positioning is categorization of a new product or technology in consumers’ minds. To create a product positioning statement, a firm must be able to implicitly state why buyers in the target market should buy its product rather than others being offered.

Positioning

Positioning new products is somewhat unique, in that the end user has no preconception of what the technology or product is. This provides a real opportunity to create a particular positioning of the technology without fear of how it will compare to previous positioning attempts of competitive product offerings. To determine market positioning for new technologies, a firm must consider the competitive advantage of its product or technology and then attempt to leverage this advantage with consumers. When a firm commercializes high technology products, the technology and benefits derived from the technology are the likely source of the competitive advantage; thus, it is likely that the positioning of the product likely will focus on the technology. Therefore, it is critical that the technology fit with customer needs in the target market in order to effectively position the product in the consumer’s mind.

The biggest mistake firms make when positioning products is to focus on product attributes/features and not product benefits. Recall that positioning refers to consumer


perceptions and that consumers make purchase and adoption decisions based on product benefits, not features. The rule of thumb is that consumers can at most perceive two or three differentiating attributes or benefits at a time. Any more than that can lead to confusion in consumers’ mind, which ultimately impacts their decision whether to adopt or purchase the technology.

Only after the positioning decision of the product/technology is complete can a firm tackle all of the other marketing-related decisions. The product, brand, price, promotion, and distribution (i.e., the marketing mix) must all be consistent with the product positioning statement.

After the more strategic decisions have been addressed (i.e. target market selection and positioning), the next step is to determine the appropriate marketing mix that will both reach the target market and be effective in meeting the needs of the segment such that they will purchase the product. The marketing mix comprises the tactical marketing decisions: product, placement, promotion, and price. For a detailed description of each component, please review “Marketing Strategy Considerations in the Commercialization of New Technologies: An Overview and Framework for Strategy Development”. In G.D. Libecap and M.C. Thursby (Eds), Advances in the Study of Entrepreneurship, Innovation and Economic Growth (Volume 18): Technological Innovation: Generating Economic Results.

The Marketing Mix

• Product. After determining the needs of the target market and how the product

will be positioned, it is important to go back to the product to ensure that the product can meet those needs. Often this requires more development with respect to the technology, or can change the nature of the technology depending on the specific needs of the target market. In addition, sometimes it is important to consider any services that may be necessary in conjunction with the technology in order to serve the target market and address their needs.

• Placement. This refers to the distribution of the product, or getting the

technology to the end consumer. Depending on the level of market coverage and the nature of the target market, distribution can vary. Most new ventures start with a direct distribution channel and then as they grow along with the number of customers served, the use of intermediaries will come into play.

• Promotion. The target market selected, along with the positioning statement, will

also impact the tools used to promote the product. At this point, firms need to consider advertising messages and medium that will reach their intended market, the use of personal selling depending on the complexity of the technology, promotions that will be used to encourage sales of the product, and the use of public relations to spread the news of the their technology. Most high tech ventures will utilize trade shows to reach their initial target audience.


• Price. Pricing is the most easily changed element of the marketing mix. New ventures primarily use one of the following pricing strategies:

o Price skimming – Set the initial price high and then lower over time • Useful for products that have a performance advantage that initial

customers are willing to pay a premium for. o Penetration pricing – Set the initial price low and then raise the price over

time • This is useful to stimulate demand early on and preempt

competition from entering the market. o Experience curve pricing – Set the initial price low and keep it low over

time • As firms gain experience in getting the product to the end customer,

costs will decrease over time such that the profitability of the technology will increase.

Now that all of the building blocks of developing a marketing strategy have been presented, the purpose of this section is to examine how high tech ventures can put these different elements together to formulate an effective marketing strategy. One of the primary difficulties facing new ventures is deciding which product (or form of the technology) to launch when and to whom. Most high-tech innovations have the potential to become platform technologies, meaning that there are many different options available in terms of the product-form which can complicate marketing strategy development considerably. There may be many different target market options with different marketing mix configurations. The work by Geoffrey Moore (1995; 1999) provides some unique insights regarding the introduction of disruptive technologies into the marketplace (See Figure B).

The Technology Adoption Lifecycle and Marketing Strategy Development


Figure B: The Technology Adoption Life-Cycle

Where the technology is in the lifecycle can impact which marketing strategies are likely to be most effective. A quick overview of each stage and the implications on strategy development is provided below.

• The Early Market. Competing in the early market is based on deal driven marketing. The key is to find a customer that is willing to pay for the new technology because of the competitive advantage it provides. Most products are customized and focused on fulfilling the needs of a specific customer. Product performance is critical in this stage of the lifecycle. Early on segmentation is not necessary as customers will lead you toward the optimal solution.

• The Chasm. This is the critical point in the technology lifecycle where

technologies either make it or die off. To cross the chasm, firms will need to segment in order to negotiate getting to the next stage.

• The Bowling Alley. The focus in the bowling alley is on niche marketing. The goal of the marketing strategy is to offer the complete solution to a small segment of the market. The marketing strategy is driven by customer needs and a willingness to create specific products for these market niches. Customer references are critical in this stage and referrals from satisfied customers will help spur the adoption of the technology.

• The Tornado. This is the time of mass market adoption of the technology. The technology becomes the standard within the industry and the focus is on low cost to make it available to all consumers in the market. The marketing strategy shifts

Early Market – great excitement The Chasm – great despair The Bowling Alley – niche based adoption The Tornado – mass-market adoption Main Street – after market development End of Life – obsolescence and retirement

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away from segmentation and rather focuses on one marketing mix for the entire market. It is at this time that other competitors try and enter the market.

• Main Street. The technology has been adopted by the masses and now the focus

shifts back to one of customization for consumers and segmentation. Marketing strategies on Main Street go back to offering differentiated products to try and meet the needs of the different segments within the marketplace.

• End of Life. The technology has been replaced by a new paradigm and is phased out.

The strategic implications of the Technology Adoption Lifecycle are profound. If competing in the Bowling Alley the emphasis is on customer driven strategies for specific niches. As the technology diffuses into the Tornado, the push is in the opposite direction towards that of a mass market marketing strategy. Main Street refocuses the technology on specific customer needs by emphasizing the need for differentiated products. It is imperative that the life cycle stage be a driver of the marketing strategy developed due to the inherent differences, or requirements, across the diffusion of the technology. Firms must be flexible in their strategy development so as to navigate the various stages effectively. Recommended Student Readings:

1. Vincent, L. H. 2008. Marketing Strategy Considerations in the Commercialization of New Technologies: An Overview and Framework for Strategy Development. In G.D. Libecap and M.C. Thursby (Eds), Advances in the Study of Entrepreneurship, Innovation and Economic Growth (Volume 18): Technological Innovation: Generating Economic Results. Elsevier JAI Press.

2. Stanford Case: SM-126A; Matrix Semiconductor Inc (A): Tackling Challenges of Strategic Dimensions.

Recommended Assignment Questions:

1. Describe your team’s value proposition in terms of market benefits (and not technical features or attributes).

2. Identify your target market. a. What basis of segmentation is most appropriate to use when segmenting

the market for your technology? b. Who are your customers? How will you identify them? c. Are there different segments of customers within the market that are

identifiable? (i.e. based on technical application, geographic location, organizational type, etc)

d. Which segment identified has the best match in terms of customer needs and benefits provided by the technology?

3. Based on the value proposition of the technology and the specific needs/wants of the target market selected, how will you position your technology in this market?


a. Write a one sentence positioning statement for your technology. “Buyers in the (specify your target market) should buy our product rather than others being offered and used because: ___________________.”

4. Discuss the potential business models outlined in the Matrix case. Which one would you recommend to Steere? Why?

The discussion progresses through three main blocks. The instructor begins with an overview of marketing strategy and provides an overview of segmentation, target market selection, and positioning. From this, the students are then asked to apply the concepts to the Matrix case. The next block focuses on the elements of the marketing mix. Again, the instructor uses the Matrix case to provide an illustration of the key concepts regarding the tactical marketing concepts. Finally, the discussion evolves to the importance of the technology adoption lifecycle and the impact it has on the effectiveness of marketing strategies. In order to illustrate the importance of lifecycle considerations, an update to the Matrix case is communicated to the students.

Teaching Plan

Block 1: Overview of Marketing Strategy (60 minutes) I begin this section of the class by asking students, “What is marketing strategy?” Most answers will mention the customer, getting the product to the customer, determining what customers want, etc. From this discussion I then move into a discussion of the role of marketing strategy within firm strategy and then highlight the key concepts around segmentation, target market selection, and positioning (as discussed earlier in this teaching note). After I introduce those concepts, I then ask the students to think about developing a marketing strategy for Matrix Semiconductor. To start the discussion, I say, “Now let’s think about Matrix. Before we decide the target market and positioning of their technology, let’s talk about the background to the case. What is the technology that Matrix has developed? What factors led to the development of this technology?” Student responses to this vary. Some focus on the technical features (i.e., 3D chip, memory), while others focus on the benefits associated with the technology (i.e., cheaper, performance). Students also highlight that a market shift pushed the development of the technology. As the number of electronics in the market expands, so does the need for “smaller, faster, cheaper chips” (Matrix case, page 3). I also like to point out to students that the case does a good job of describing a very complex technology in a way that individuals without a PhD in science and engineering can understand. This is a critical task for those engaged in commercializing complex technologies. I then ask, “What is the value proposition of the technology?” The value proposition for the 3D chip includes cost savings because the cost of chips is proportional to the area consumed per chip. If Matrix were to enter the memory market, the Matrix team estimates that they could build nonvolatile memory chips for 1/10th of the cost of competing technologies and better performance.


“Is this a disruptive or sustaining technology?” This builds upon material that the students have already covered in this course. Disruptive technologies are those that introduce an entirely new value proposition to consumers but in doing so initial performance may be limited. When I ask this question to the class, responses are often split. Some feel that the technology is disruptive because it is a 3D chip which does introduce a new value proposition. Chips can now do more than before in smaller spaces which opens up new avenues and address the customer pain. In addition, at the time the case was written, the technology would use polysilicon which would be inferior to competing chips made using single crystal silicon. Other students may argue that this is a sustaining technology because there are competing technologies on the market and this application is not new. After we discuss the technology in general, the focus of the discussion shifts to that of a market application. “How did the founders take the technology and decide on a practical application? The first application is that of memory chips. Why?” Students will point out that memory chips do not require top-end performance and thus the concerns regarding the 3D chip performance and functionality would be minimized. Others may point out that it is the industry norm to start with this application due to less complicated designs. It is also a potentially large market with many applications. Furthermore, Matrix felt it could capitalize upon the significant price/performance gap within the market. Finally, at the time the case was written, it did not seem as if Matrix faced any direct competition with regards to the 3D chip. “What were key decisions made during development that has an impact on commercialization?” Here the students will mention the decision to focus on nonvolatile memory (as opposed to volatile memory), “no new atoms”, and compatibility with existing standards. The “no new atoms” meant that the company would only use materials and equipment that were already found in a current fabrication plant. This would help eliminate some of the barriers to entry for the 3D chip. Matrix also planned the design of the chip so that it would be compatible with existing formats and standards within the memory industry thus lowering the switching costs for customers that adopted the technology. Next, we move on to segmenting the market and target market selection. I ask the students, “How would you define the market for Matrix? How should Matrix segment the market (i.e., what are the segments)?” The students will quickly point out that Matrix is considering offering the technology to the mass consumer electronics market where performance requirements are compatible with the performance available with a 3D chip and price elasticity is large. From this larger overall market the three segments that are discussed in the case are 1) digital cameras, 2) digital audio, and 3) gaming and other pre-recorded content. To kick off the next discussion, I ask, “Now, how do we evaluate which segment is the most compelling?” In this discussion I ask the students to estimate the size of each market, the growth potential present, and the level of competition within each segment. The instructor should capture this discussion in a table as illustrated in Teaching Note Exhibit 1. Leave this information up on the board because the discussion will come back


to these segments later on in the class. I close this discussion by having students vote for the market segment they feel is the most compelling. Write the number on the board by the segment. Block 2: The Marketing Mix (30 minutes) Now that the more strategic issues related to marketing strategy development have been discussed, the focus now shifts to the more tactical decisions. Again, I begin this discussion with an overview of product, placement, promotion and pricing considerations. I give the students a 5 minute overview of each topic and afterwards we go back to the Matrix case and try and apply the information to the decision facing Matrix and the commercialization of their 3D chip. After discussing the marketing mix considerations, I ask the students, “Now, let’s go back to the case. For each segment listed on the board, which product is necessary to meet the needs of this segment? Should Matrix commercialize a one-time programmable (OTP) or rewriteable chip?” Again, I add this discussion point to the board. For digital cameras, there is some debate as to whether or not the OTP chip will work. At the time the case was written, the management team at Matrix felt that they could position their memory chip as consumable and thus OTP would be a viable option. However, most students do not agree with this assessment (now that we know that consumers do want the capability of a rewriteable chip). Students often point out the need to further develop the 3D chip so that it can be rewriteable regardless of the delay in the development. Other students feel that the delay could be very costly to Matrix’s low cost value proposition because the more time that goes by the less this advantage becomes. For digital audio, all students feel that OTP chips could be a substitute for prerecorded music. The gaming industry would also be well suited with the OTP chips and could provide some significant cost advantages to customers due to field programmability that would help with supply chain issues.

I then ask the students how they would approach the branding of the Matrix 3D chip for each segment. “Should Matrix create their own brand of memory and take them directly to consumers? Why or why not?” Here students pick up on the tradeoffs associated with this decision. Depending on the market segment, this strategy may or may not make sense. If pursuing the camera and audio markets this could be a viable strategy but one that will require substantial resources. For the gaming segment, it may not make sense to create a consumer brand around the Matrix name because the consumers will be the OEMs.

“How will the decision regarding the appropriate target market impact the channels of distribution needed to get the product to the consumer?” In this discussion, several factors come into play. First, if Matrix decides to target end consumers in the digital camera and audio markets, it will be much more difficult for them to get their product in the distribution channels. It will require them to compete with big players for shelf space as well as require extensive resources to make the product available in a comparative manner. If Matrix decides not to focus on the end consumer but rather on OEMs then the


distribution may be more streamlined but the exposure may not be as great. The important point to highlight in this discussion is that the selection of a target market will impact the final product form, the pricing, the promotion, and the distribution of the product. Additionally, given the limited resources of Matrix, competing against some of the big names (Sony, Flash) may prove to be quite difficult. The decision as to which market to enter is not so straightforward.

I then ask, “Which business model is most appropriate for Matrix?” Again, the tradeoffs here are numerous. I recommend listing these on the board similar to the table in Teaching Note Exhibit 2.

To close the block, I ask the students to pull all of this information together and make a choice as to which market segment they would target first. Again, I poll the students and compare the number with that from the first poll. Most students are not happy with any of the segments or the tradeoffs that must be made. This reiterates the complexity of developing a marketing strategy for a new technology. Block 3: The Technology Adoption Lifecycle (30 minutes) The first portion of this block is to introduce the concept of the Technology Adoption Lifecycle (TALC) and then present the implications this has for developing a marketing strategy. I provide students with an overview of the work by Moore (1995, 1999) and then apply this material to the Matrix case.

“Where do you think Matrix is on the TALC at the time of the case?” All will agree that the technology is not in the Tornado, Main Street, or End of Life. Most feel that the technology is in the Early Market because they do not have any initial sales at the time the case was written. Some students feel that because they are focusing on a specific market application that the managers are acting like they are in the Bowling Alley when in fact they have not ‘crossed the chasm’. Students pick on the fact that the decisions that management is making at this time may not fit where the technology is in the lifecycle. I point out the need for Matrix to land a deal with one potential customer and focus on offering a complete customized solution before formulating a niche marketing strategy for one of these applications.

As a follow up to the TALC, I give students an overview of what Matrix actually did in commercializing the 3D chip. This can be found in Stanford Case: SM-126B “Matrix Semiconductor Inc. (B): Transitioning from Innovation to Execution”. A summary of this is provided below:

• Matrix decided to focus on the OTP memory first. o Balanced risk and reward. o Simplest path to market that would have a significant enough reward to

make it worthwhile. o Shorter time-to-market so as to not miss the window of opportunity.


o Market research indicated that OTP would not be as limiting as originally thought.

o This would be the 1st generation offering and would establish Matrix in this market. This would allow for subsequent investments in R&D to improve the technology.

• Matrix decided to create strategic partnerships with Sony, Kodak and Thomson Multimedia.

o Linking back to the TALC, this is similar to deal driven marketing where you focus on providing a solution to key customers and leveraging that in future product offerings.

• Matrix decided to use fabless manufacturing to produce the product. o Licensing was a convincing option due to minimal upfront investment;

Matrix could not prove that the product could be produced in high volumes, thus making licensing an unrealistic option.

o Some were against licensing because they were emotionally invested in the technology and wanted to see it through commercialization.

o The expense associated with acquiring a fabrication facility made it an unappealing option.

o However, the production process for the 3D chip was problematic and led to HUGE delays in the introduction of the product. Matrix faced two challenges:

• There was a cost disadvantage associated with using a 3rd party to produce the chips.

• To build the 3D chips required a unique process technology. o The relationship with the key fabless manufacturer fell apart and they had

to find another partner which cost them 6 to 9 months. They chose Cypress Semiconductor.

• During this delay the cost advantage associated with the 3D chip decreased dramatically and the process technologies fell behind competing technologies currently on the market.

At this point I bring the focus back to ‘crossing the chasm’. Matrix faced a great deal of problems in their commercialization efforts, but were able to hang in there and pull through in order to finally offer the 3D chip to the market. How did Matrix navigate this time of great despair?

• They kept their strategic partners up to date and provided upfront and honest information regarding the development of the technology.

o Strategic partners stayed with Matrix and this kept investors interested in the 3D chip.

• Matrix decided to scale back the product. o They decided that a 4 layer memory cell was a more attainable goal (rather

than an 8 layer cell).


Finally, in 2003, Matrix introduced their 1st generation product to a scaled down market space. They focused on Sharp’s eDictionary product line. This was a modest enough market space to allow Matrix to test their skills in producing the technology as well as provide feedback on the business processes. The 1st generation chip spent 9 months in production and only 50,000 units were shipped.

In July 2004, Matrix introduced their 2nd generation product and shipped 100,000 units. By the end of 2004, Matrix had shipped a total of 4 million units. The chips were designed into consumer products in time for the holiday season. The learning that occurred with the 1st generation technology allowed them to get the units to the market within 14 weeks after the technology was ready.

In 2005, Matrix introduced the 3rd generation of the 3D chip, with significant technological advances, to a larger market. The product provided superior performance at a lower price. Matrix focused on less customization and went after the digital camera and gaming market. In an effort to branch out into other markets, they also decided to sell blank OTP cards for applications such as digital photography. It was at this time that Matrix made an investment in the development of the read/write memories. This had been put on hold in order to get the 1st and 2nd generation products to market. Most students pick up on the similarities between the 3rd generation offering and the Tornado phase of the TALC. Matrix was also concerned about other start-ups working on 3D chips as well as other giants within the industry investing in the technology.

To conclude this class, I then ask the students to think about the technology they are working on. “How can their market be segmented? Which segment is the ‘right’ one to focus on given the value proposition of their technology? How should the technology be positioned within this market space? What should the marketing mix be? How does the technology lifecycle impact these considerations?”

If time permits, I ask the students to share the positioning statement developed for their technology. I have found that most focus on technical attributes and not customer benefits. I reiterate that marketing strategy development does not just happen at one point in time, but rather this is a process where the strategy changes and evolves as the technology does and market conditions change. Hopefully with the tools and concepts covered in this course they are better prepared to respond to these changes and consider the market in the development of their technology.


Teaching Note Exhibit 1 A Comparison of the Different Market Segments

Gaming and OtherGaming and OtherDigital AudioDigital AudioDigital CameraDigital Camera

•Matrix has field programmability•Better control over supply chain and inventory management

•Standard format not established•Matrix is inexpensive•Intense competition

•Eliminate limited capacity issues•Low cost – very price sensitive market•Compatibility•Position as consumable

Other considerations

•MaskROM•Flash- current leader•Sony•Smart Media•SanDisk

•Sony, FlashCompetition

•-6.5% growth rate (1997-2002)

•150% compound annual growth rate

•High growth potentialGrowth

•$909M market (MaskROM)•$7B gaming market; 200M games•60% handheld•Opportunity – 120M-300M

•1.3B prerecorded cassette tapes•2.4B prerecorded CDs•1.3B blank tapes

•$1.4B by 2000•80% sales from consumer cameras•$2.8B film sales market

Size

Gaming and OtherGaming and OtherDigital AudioDigital AudioDigital CameraDigital Camera

•Matrix has field programmability•Better control over supply chain and inventory management

•Standard format not established•Matrix is inexpensive•Intense competition

•Eliminate limited capacity issues•Low cost – very price sensitive market•Compatibility•Position as consumable

Other considerations

•MaskROM•Flash- current leader•Sony•Smart Media•SanDisk

•Sony, FlashCompetition

•-6.5% growth rate (1997-2002)

•150% compound annual growth rate

•High growth potentialGrowth

•$909M market (MaskROM)•$7B gaming market; 200M games•60% handheld•Opportunity – 120M-300M

•1.3B prerecorded cassette tapes•2.4B prerecorded CDs•1.3B blank tapes

•$1.4B by 2000•80% sales from consumer cameras•$2.8B film sales market

Size


Teaching Note Exhibit 2 Comparison of Business Models for Matrix FablessFabless

ManufacturingManufacturingAcquiring Acquiring FabFabLicensingLicensing

•Difficult to identify the right partner•Product steps are non standard•Cost model – could impact the competitive advantage

•Huge expense•Diverts attention away from R&D

•Little control in getting the product to market

Disadvantages

•Focus on design and marketing without the strain of acquiring and operating a manufacturing facility

•Most control over production•Higher gross margin

•Smallest up front investment•Focus on R&D

Advantages

FablessFablessManufacturingManufacturing

Acquiring Acquiring FabFabLicensingLicensing

•Difficult to identify the right partner•Product steps are non standard•Cost model – could impact the competitive advantage

•Huge expense•Diverts attention away from R&D

•Little control in getting the product to market

Disadvantages

•Focus on design and marketing without the strain of acquiring and operating a manufacturing facility

•Most control over production•Higher gross margin

•Smallest up front investment•Focus on R&D

Advantages


Bibliography Armstrong, J.S. (1982). The Value of Formal Planning for Strategic Decisions: Review of Empirical Research. Strategic Management Journal 3, 197-211. Bearden, W.O., Ingram, T.N. and LaForge, R.W. (2004). Marketing: Principles and Perspectives, 4th Edition. Boston: McGraw Hill Irwin. Ferrell, O.C., Hartline, M.D. and Lucas, G.H. (2002). Marketing Strategy, 2nd Edition. Fort Worth: Harcourt College Publishers. Lodish, L., Morgan, H.L. and Kallianpur, A. (2001). Entrepreneurial Marketing. New York: John Wiley and Sons, Inc. Moore, G.A. (1995). Inside the Tornado: Marketing Strategies from Silicon Valley’s Cutting Edge. New York: Harper Collins Publishers. Moore, G.A. (1999). Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers. New York: Harper Collins Publishers.

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