High Tech Marketing I: Fundamentals

Complexity of Technology

Phaedrus Unintended Consequences

South American Fire Ant

Technological Paradoxes Freedom-Enslavement Control-Chaos

Technological Backlash Luddites GMF Pfizer?

The business enterprise has two —and only two—basic functions: marketing and innovation.

Marketing and innovation produce results; all the rest are costs…

-- Peter Drucker

Innovation without Marketing…

Radio (1900-20) Television (1930s) AT&T Picturephone

Wrong “App” targeted Missing business model Ahead of time (1960)

Technology is ubiquitous

Examples of traditional “high-tech” industries: Computers and information technology Biotechnology Telecommunications Internet

Examples of some industries where technological innovation is creating radical changes: Agriculture Waste Management (GM organisms) Automotive Consumer Products (GMF, irradiated chicken)

A Supply Chain Perspective on Technology

Often, technological innovations occur at upstream (i.e., supplier) levels in the supply chain…

…affecting 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, phone

The “Where” of Technology

Process technology Product technology

Definition of Technology:

Technology is people using knowledge, tools,

and systems to control processes and the environment.

Definition of High-Technology: No single preferred method for identifying

high technology industries. High technology industries have a great

dependence on science and technology innovation that leads to new or improved products and services.

Definitions of Technology: Government Perspective Classify industries based on objective,

measurable indicators: the number of technical employees $ spent on R&D # of patents filed in industry

Marketing Strategy in High-Tech Markets II

Why is it so difficult to succeed in High-Tech settings? Complexity of Context (Hyper)competition Dynamic/Fickle/Ultra-demanding consumers Incomplete Information/Partial Knowledge Organization/Culture problems Money problems

Common, Underlying Characteristics of High-Tech Markets 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?

Other Characteristics Common to High-Tech Markets: “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 (IM)

Other Characteristics Common to High-Tech Markets: (Cont.) 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

Continuum of Innovations

Incremental Radical •Extension of existing product or process•Product characteristics well-defined•Competitive advantage on low cost production•Often developed in response to specific market need•"Demand-side" market

•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

Supplier vs. Customer Perceptions of Nature of Innovation

Mismatch: Delusion

Incremental

Breakthrough

Mismatch: Shadow

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

Analyzing High-Tech:

Product-related:

Technology Seduction From short PLC to short MLC. The technology S-Curve.

Cumulative Development Effort

Performance

Specific Strategic Challenges in High-Tech Markets

We see a continuous shortening of product life cycles, which leads to a serious dilemma:

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

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

The Unique Pricing Challenge Why is pricing such a challenge for high-

tech innovations? How should you price at each stage of the

technology diffusion cycle? When should a product be free? How do you define value if the product is

free?

Developing Breakthrough Products and Services - the "Lead User Method" and Outsourcing

The Great Unknown!

The “fuzzy front end” of the innovation process how it works how to make it better how marketing can help

Studies in: Industrial products (like semiconductors); consumer products (sports equipment); OS software

Why Pursue MAJOR Innovations? Everything becomes a commodity

eventually.

Major Innovations are RARE

So what can Markers do to avoid premature COMMODIFICATION?

Product differentiation (aka, create new MLC)Segment the market

By demographicsBy needEtc.

Promotional response to declining MLCPricingChannel strategy

“Breakthrough” vs Incremental Innovation

We define “breakthrough” innovation as the first member of a major new product line in a firm iPod for Apple Sticky notes for 3M

“Incremental” innovations are improvements to existing product lines Improved iPod Improved sticky notes

CAUTION: You still need consumer corroboration!

Why study how to generate breakthroughs? Because:

Periodic breakthroughs are ESSENTIAL to firms Firms are (pretty) good at incremental innovation but they don’t know how to develop breakthroughs

systematically Result: major innovations are often very rare and

desperately sought by management: In 5 3M Divisions studied less than 1 new product line

introduced per Division every 2 years on average

Breakthrough innovation is both essential and UNWANTED Change is disruptive

to be avoided if possible Change obsoletes marketing expertise and

production investments Polaroid produces instant film and cameras – not DVD

players! Kodak produces film – not digital cameras! Change devalues personal “intellectual property”

I know how to market films - not digital cameras! I know how to sell copy machines – not services!

Contrasting innovation methods Traditional methods are based on “find a

need and fill it” (Target users provide needs; Manufacturer develops solutions)

New methods are based on finding / encouraging and commercializing solutions developed by users themselves

And Marketing?

As the traditional model goes does marketing become obsolete and turn into selling?

Innovation in the 21st Century comes from two Sources: Lead Users and Pure Innovators Users innovate when it pays… for them

“Lead Users” are users that: Have needs that foreshadow general demand in the

marketplace Expect to obtain high benefit from a solution to their

needs. (Such users are more likely to innovate –“Necessity is the mother of invention!”)

Structures of Technology Innovation

Creative Destruction Proactively develop next-generation technology that

may obsolete current technology Ex: Develop Web-sites that undermine current

distribution channels Corporate Imagination Experimental Marketing

Elements of Corporate Imagination Escape the “tyranny of the served market”

Excessive focus on current customers Obscures the fact that customer needs may

change over time and may be solved in radically new ways

Ex. Kodak, Dell

Experimental Marketing: Advantages

More accurate learning of customer needs Time between market learning and product launch is

shortened Implication: It is less about being right the first time,

but being able to accumulate market experience, and quickly adapt market offerings

Ex.: Google?

Summary Technology is everywhere: “Technoculture”

BUT, the ‘where’ matters for marketers Marketing important for successful innovation What is high-tech is not easily defined High-tech markets are complex (uncertainties) Lots of strategic challenges Radical vs. incremental innovation New sources of innovation in the 21st century