Research Paper

Date: November 30, 2005For: Prof. Zwick

Group #3Xiang Chen

John FarcichChristopher Irwin

Lori RaynerWeijie Yang

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INTRODUCTION

The following study discusses design as a competitive advantage in technology-related

products. More specifically, we will explore where in the life cycle of the product (or category

or model) innovations in design and “form” potentially overtakes core functionality in consumer-

focused technology products, and how this impacts marketing strategies.

The first section of the paper (Form for Existing Function) analyzes the elements of form

and function in the iPod and hybrid cars. Both are examples of “break through” technology,

positioned as an improved product within the existing category.

In contrast, Form for New Function looks at the market created by the Blackberry device.

We also look specifically at the development of mobile communication devices (which have

reclaimed “push e-mail” functionality with smart phones) within the context of the “Attention

Economy”1. The mobile telephone market in China offers an example of the maturing and

crowding of this product category, and we present the form and function responses in the section

More Form, More Function.

As a conclusion, we offer Key Implications to Marketing Strategies for consumer-focused

technology products in the final section of the paper, and compare these to existing research in

this field.

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A. FORM FOR EXISTING FUNCTION

This section of the paper analyzes the elements of form and function in relation to iPods

and hybrid cars. While both product innovations are relatively new to the market space the

successes of each are not congruent. This portion of the paper examines where the main

differences lie and infers conclusions from these variations.

I. IPOD

Since its debut in 2001, the iPod has grown from an advanced music player to a cultural

status symbol. The iPod is a brand of portable and digital audio/video players that are designed

and marketed by Apple Computer. Most iPod models store media on a built in hard drive,

however the iPod Shuffle and iPod Nano utilize flash memory2.

Background/Launch

When Apple first entered the digital music player industry, a market for MP3 players had

already been created by RIO with a release three years earlier in 1998. At this time digital music

players came in two types: (1) small with limited storage (using flash memory), or (2) bulky hard

drives with more storage and impenetrable controls.3 When Apple entered the scene in 2001, it

was determined to create a device that was powerful and easy to use. Moreover however, the

product would be highly design intensive utilizing Apple’s core competency by creating a

product with incandescent style.4 Apparently Apple has succeeded as over 3 million iPods have

been sold in total and this number continues to grow rapidly.

When the iPod was launched in 2001, the marketing department must have been

struggling with the issue of how to position the product. Despite the new technology, Apple

chose not to feature the innovation in the core value proposition that Apple. By positioning on

the basis of new technology, Apple would have needed to create a new category. Obviously, the

process of growing a category is long and strenuous, as Geoffrey Moore has depicts in Crossing

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the Chasm. Instead, Apple chose to position the iPod as simply “a better walkman.” This

strategy had allowed iPod to exploit the growing consumer confidence in the product category.

As a result, Apple was able to directly penetrate the mainstream market and adoption occurred

rather quickly. Now it appears that the iPod actually defines the category of personal music

players.

Current Product Position

From a form/factor perspective, the iPod remains at the top of the pile. Apple recognized

that great design and easy functionality are becoming more and more critical in delivering

consumer technology products to market.5 Years ago this was not the case; design was not

nearly as important. While the Sony Walkman has sold over 300 million units, it is commonly

recognized as a horrible design and a terrible interface.6 While it is apparent that Sony had

focused on several different lifestyles (consumer segments) including: skiing, jogging, or

camping, they neglected to standardize a stylish design.7 In retrospect, we suspect the product

design was engineering-centric, focussing on technology and not on the customer. When the

Sony product debuted as new to market—when the concept of portable music was new—this

function was the key driver for success. Now however, as the personal music player category

has matured, form is beginning to take precedence over function. This is not to say that iPod

isn’t functionally sound, on the contrary, the iPod operates quite smoothly and can hold up to

10,000 songs. However, the emphasis is not on the technology, but more so, on the ownership

experience.

The rounded corners, the slim profile, the bright colours, and the toggle wheel have

allowed iPod stand out from competitors in a crowded marketplace. Targeted towards several

tech-savvy segments, the iPod has become “the new walkman.” In fact, iPod has become so

popular it has captured 75% of the mobile music player market and iTunes now accounts for

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84% of legal downloaded music sales.8 As mentioned the real lure of the iPod is not the access

to an entire music collection, but more so, access to an exclusive community of fellow iPod

users. The iPod culture has proliferated the mainstream.

From a network ecology perspective, Apple has been quite successful in creating an iPod

community. iPod users have an immediate common bond. Users share stories and discuss their

music preferences. Fan sites abound the Internet and users are posting recommendations and

ideas for iPod innovations and accessories. There is a sense of co-creation in the fact iPod’s can

be customized to a particular taste via the accessories offered. This brings us to the compliments

network. Apple and other manufacturers have been extremely triumphant in the establishment of

a very deep compliments network. These include such physical things as charging stations,

protective casings, and belt clips, to the more intangible iTunes software package. As witnessed,

the iPod compliment products have a similar emphasis on the stylish form factor. These vast

compliments allow for continued user loyalty. Apple success is apparent, as they are the only

producer of this new product category (with the exception of the newly branded HP iPods).

Therefore, they control all of the distribution channels. This exclusivity is another factor in

iPod’s success. Also the success of the iPod may have been caused by the shortened product

lifecycle of the personal music player.

Future Outlook

With the debut of the iPod Nano, it is quite apparent that form is continuing to take

precedent over function from a marketing perspective. While the true innovation behind

introduction of the Nano (flash memory) was indeed functional, the product is primarily

positioned on its new and slimmer design (thinner than a pencil). Accordingly, proper

positioning will prove to be essential for growth within this category.

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Conclusion

In conclusion, the community effect along with its aesthetically pleasing appearance and

simple functionality has made iPod one of the most successful products of the 21st century. In

the case of iPod, we can further conclude that as the digital music player product category has

matured, form has begun to take precedence over function as the key driver for success.

II. HYBRID CAR

The hybrid car has recently created the latest buzz in Hollywood as many celebrities

including Brad Pitt, Leonardo DiCaprio and Cameron Diaz are trading in their gas-guzzlers for

the environmentally friendly hybrid car. The hybrid car is an automobile that uses a combination

of at least two different fuel sources for its propulsion, e.g. gasoline and electricity. This section

of the paper will use the Toyota Prius to illustrate the evolution of the hybrid car in the North

American market9.

As a full hybrid, the Toyota Prius can run on solely the engine alone, the batteries alone,

or a combination of both. Typically, the gasoline engine handles routine high-speed travel and

the electronic engines handle the everyday stop-and-go street traffic situations.

Background/Launch

The hybrid car is an old concept that can be traced back to 1665, when astronomer

Ferdinand Verbiest created plans for a miniature four-wheel unmanned steam “car” for Chinese

Emperor Khang His.10 The first electric-powered taxicab was launched in England in 1886; the

car used a battery with 28 cells and a small electric motor.11 It was not, however, until the early

1990’s that car manufacturers began to invest heavily in research and development of hybrid

vehicles. In 1997, Toyota launched the world’s first mass-produced hybrid car in Japan, the

Toyota Prius.12 An international launch followed in 2000. This car was functionally designed to

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enable consumers to experience an increase in a vehicle's fuel mileage and low emissions

through energy optimization management, torque on demand control, and regenerative brake

control.13

Originally, the hybrid car was positioned as an environmentally friendly and fuel-

efficient car, within the existing automobile product category. Toyota’s market positioning was

appealing to a niche market of environmentalists; however this positioning was not successful in

reaching the mass market of consumers. Generally, “hybrid drivers tend to be environmentalists,

free-thinkers who resist the over-commercialized aspect of American society.”14

Current Product Position

After eight years in the market, the hybrid is still in the infancy stage. The product has

yet to achieve mass-market adoption. Currently, hybrids account for less than 1% of total

vehicle sales.15 The cars have proven to have comparable performance vs. traditional cars (see

table below for comparison) and achieve as much as 100% more fuel efficiency. How on earth

can such an innovative product not yet be a market success?

Manufacture Toyota Honda HondaModel Prius Sedan Civic Sedan Accord SedanType Full Hybrid Traditional Traditional

Invoice Price 19,222 19,109 18,130

Engine 1.5L 76 hp 14 1.7L 100 hp I4 2.4L 166 hp 14Horsepower 76 @ 5000 RPM 100 @ 6100 RPM 166 @ 5800 RPM

Torqe 82 @ 4200 RPM 98 @ 4000 RPM 160 @ 4000 RPM

City (mpg) 59 30 25Highway 51 34 34

Engines & Power

Fuel Economy

Comparison

Source: www.automotive.com

There are many factors which are inhibiting the mass market success of the hybrid car,

the primary factors include, i) perceived value of car, ii) car design and iii) limited network

infrastructure.

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The Toyota Prius enables consumers to achieve high performance without sacrificing fuel

economy, but at a higher initial cost. The Prius hybrid models carry a price premium of between

$4815 and $5250 (US) over standard gasoline cars (i.e., Echo or Corolla).16 The price

differential becomes larger as the power of the electric drive components is increased. Although

the initial price is higher than that of a traditional car, Toyota was anticipating that consumers

would be willing to pay a premium and then recoup the incremental costs through gas savings

over the lifetime of the car. However, consumer research illustrates that consumers do not utilize

payback periods or discount rates in making purchasing decisions. Consumer researchers have

argued that such calculations are beyond most consumer decision capabilities and do not fit with

cultural models of behaviour.17 As a result, consumers who are concerned with fuel economy are

turning to cheaper alternative technologies available including, clean diesel, turbo charging and

six-speed transmissions, all which give fuel economy benefits at a lower initial cost than hybrids.

The design of the hybrid car has been criticized for lacking design differentiation vs.

traditional cars. In North America, cars are considered to be a “status symbol” and consumers do

not want to pay a premium for a vehicle that does not enhance their image. Moreover, despite

increased gas prices, 56% of Americans refuse to downsize their premium sport utility vehicles.18

Hybrid car manufacturers are slowly discovering that the design of the car is critical. The most

successful hybrid model to date, the 2004 Toyota Prius, has allowed owners to differentiate

themselves through a futuristic design.19 “‘The Prius is a fashion statement,’ said Art Spinella, a

consultant with CNW Marketing Research, who surveys car-buying trends. ‘It looks different.

The Prius has set itself apart with a geek-chic look -- a thick, curved body, a high back end and

glittering computer displays on the dashboard. People recognize that the driver is driving a

hybrid vehicle. It clearly makes a bigger statement about the person than other hybrid

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designs.’”20 This appealing design has created such a strong demand for the Prius that there is

now a six-month waiting list.

So while manufacturers are starting to realize that form / factor is an important

differentiator, there are still other concerns that have inhibited growth potential. There has been

limited success in creating a flourishing hybrid user community; as a result, this has lead to high

consumer uncertainty. Many consumers are not confident in making a large financial investment

in a hybrid vehicle because there are many uncertainties associated with the new technology.

These uncertainties include: long term cost of operation, reliability, resale value, durability, as

well as the associated complementary networks (i.e.: maintenance / repair).21 Through strong

consumer networks, potential customers would have the ability to alleviate some concerns

through learning about the experiences of others. The technology perception is at the product

level now. Car manufactures must remove consumer concerns before the technology will be

able to reach the process level. Also the product lifecycle for the automobile is extremely long

and slow to change. This has resulted in function taking primary precedent over form. As the

product continues to advance through the lifecycle however form will begin to supersede

function.

Future Outlook

Many manufacturers are starting to introduce consumers to the next generation of larger

and “more mainstream hybrids [that] emphasize luxury, high-tech wizardry, and/or power—

rather than environmental benefits”—as a result the demographic profile of a hybrid driver will

shift into the mass market.22

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Conclusion

The hybrids inability to move beyond the initial niche environmentally friendly cars has

been a key inhibitor to the success of the product. As a result of its niche positioning, the car has

been unable to penetrate the mass market. However, manufactures are recognizing these trends

and the current (e.g. 2006) generation of hybrid vehicles are moving towards more mainstream

needs by putting an emphasis on design.

III. Key Findings - Form for Existing Function:

In comparing the launch of the successful Apple iPod vs. the Toyota Hybrid, there are several

key learning’s including:

Development of user network and complements network is critical to achieve strong

consumer buying confidence.

Targeting one specific niche market vs. mass market will significantly impact the time to

reach the mass market.

Focusing on functionality as well as form is a key success factor for penetrating the mass

market.

The length of the product lifecycle is strongly correlated to when form surpasses

functionality as a key differentiating feature.

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B. FORM FOR NEW FUNCTION: THE BLACKBERRY

The Blackberry has become a symbol of the mobile executive and has enjoyed

promotional activity from celebrities23, including Jack Welch and Oprah Winfrey. Blackberry

created and continues to dominate the category of the converged mobile device that brings e-mail

and voice together in a mobile handset. First launched in 1999 as a “push” e-mail solution, the

Blackberry line of products has evolved to include voice capability since 2002.

Initially targeted to business people as a tool for corporate productivity, Blackberry is

widely available to consumers through wireless carriers in Canada, the United States and

throughout the world. This is the result of Research in Motion’s (RIM) strategic decision to

work with wireless carriers24.

Background/Launch

The precursor to what became the Blackberry line of products was in August 1998, when

RIM released the Inter@ctive Pager with full keyboard25. On January 19, 1999, RIM released

media material launching the “Blackberry” solution, purported to be: “the first complete, secure,

integrated, wireless email solution for the mobile professional26.” The media and promotional

material at the time describe the functionality in depth, highlighting (1) the ability to keep one e-

mail address; (2) Always On, Always Connected™ function, (3) security features, and (4)

optional corporate support.

The initial marketing focus was to Wall Street professionals who RIM’s VP of Corporate

Marketing, Mark Guibert, describes as “heavily communications focused, [and] heavily

customer focused.” This would enable the audience to adopt the technology—based on the

functionality—without the Blackberry being proven in other segments.27

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Industry: Voice and e-mail devices (1998-1999)

Home/office based Mobile

VOICE Telephone Mobile phone

E-MAIL Desktop/laptop Blackberry*

*Research in Motion created this category with the Inter@ct/ Blackberry.

Current Product Position:

The Blackberry redefined mobile communications and created new product categories

based on functionality that was previously unavailable. From 2002 to 2005 the Blackberry

operated alone in a niche market without any major competitors (although there continued to be

a large number of substitute products).

During this time, Blackberry had created quite a strong user network that gave customers

a brief sense of community. Blackberry was an elite product to the more affluent and successful

business person. At the time, RIM was able to be an exclusive compliment in terms of service

provider and producer of the product. Based on network ecology this aided in the Blackberry’s

early successes.

Industry: Voice and e-mail devices (2002)

Home/office based Mobile

VOICE Telephone Mobile phone

VOICE and EMAIL Microsoft Exchange Blackberry*

*Blackberry created this category with the Blackberry 5810

In 2003, the first Blackberry with a colour display appeared on the market, which was the

first significant product improvement not directly related to the core functionality of receiving

information in real time. The 2004 product launches includes the first Blackberry that looks like

a telephone (T-mobile); in response to new entrants into the category, in the form of

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smartphones. As the category has evolved, RIM has realized that a phone like design is

becoming a necessary point of parity.

Today the category is filled with numerous competitors, and RIM is losing ground to

smartphones and, in the corporate hybrid PDA space, to Palm and Dell28. Differentiation is

largely based on non-core functions and design, as is evident in the following product analysis.

Communication functions

Other functions

Compatibility Competitive positioning

1 Davenport, T. H., & Beck, J. C. (2001). The Attention Economy: Understanding the New Currency of Business. Boston: Harvard Business School Press.2 Wikipedia. Accessed from: http://en.wikipedia.org/wiki/Apple_iPod3 “Introducing the World’s first MP3 Player” Eliot Van Buskirk 20054 “iPod Nation” Steven Levy 20055 “iPod Marketing Exposed” David Richards 20056 “iPod Marketing Exposed” David Richards 20057 “Doing Cultural Studies: The story of Sony Walkman” Paul du Gay, Stuart Hall, Linda Janes, Hugh Mackay and Keith Negus8 “iPod Marketing Exposed” David Richards 2005

9 Toyota Prius web site. Accessed from: www.toyota.com/prius/10 http://www.hybridcars.com/history.html11 ibid.12 Toyota web site. Accessed from: www.toyota.com/prius/13 Lemonick, Michael D. “How to Kick the Oil Habit.” Time Magazine. 10/31/2005, Vol. 166 Issue 18, p60-64, 4p, 3c.

14 Recycled Thought Web site. Accessed from: http://recycledthought.blogspot.com/15 Author Unknown. “ Hybrid car sales rose 81% last year”. USA Today.16 Car Smart Web site. Access from: www.carsmart.com17 Automobile Buyer Decisions about Fuel Economy and Fuel EfficiencyFinal Report. University of Californaia. Energy Foundation. Sept 1, 2004.18 Author Unknown. “56 Percent of Americans Refuse to Downsize Vehicles Despite High Gas Prices.” NEWSWEEK. Oct 10, 2005.

19 USNews.com. “2004 Toyota Prius. A revolution becomes routine”. Accessed from: www.usnews.com.20 http://www.precautionarytales.net/2004_09_05_archive.shtml21 “An environmental and economic comparison between hybrid electric vechicles and pure combustion engines.” January 2004. University of California.22 Hybrid Car web site. Accessed from: www.hybridcars.com23 http://www.blackberry.com/products/blackberry/using_blackberry.shtml#quotes24 http://www.rim.net/news/kit/media/pdfs/rim_history.pdf; retrieved Nov. 19, 200525 http://www.blackberry.com/news/press/1998/pr-26_08_1998.shtml26 http://www.rim.net/news/press/1999/pr-19_01_1999-01.shtml; retrieved Nov. 19, 200527 http://www.cnn.com/2005/BUSINESS/03/23/blackberry.rim/

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HP IPAC hw6515

Voice and e-mail Colour screen; Camera, GPS

Cingular Wireless Network; MS Office Mobile 3

Right size to use

Motorola Q Voice and e-mail Colour screen, thumb wheel, speaker phone

Cellular network; MS Window’s Mobile 5

Slimmest (Razr cell phone)

Nokia E61 (expected in 2006)

Voice and e-mail Push-to-talk, Wifi, VoIP and global roaming, Blackberry e-mail, MS Office

Roams like a cellphone

Blackberry 7100

Voice and e-mail 20-key keyboard, Sure type

Blackberry software; works “virtually anywhere in the world”

A phone-like Blackberry

Dell Axim X51v

e-mail only Advanced gaming

Wifi, MS Mobile 5 Cheaper (with no voice function)

Conclusion

While the Blackberry was first to market in the “push button email solution” product

category, their first mover advantage has been all but lost. Non-traditional competitors such as

cell phone and consumer electronic manufacturers have been rapidly entering the market and

differentiating their products based upon form. While offering similar functionality to that of the

Blackberry, competition appears to be much more design focused and therefore attempting to

capture more of the mainstream market.

Key Findings - Form for New Function:

Initially when launching a new product category, the marketing focus is on the education

of the consumer on the core functions that the new product provides.

Once the product reaches the mass market and the industry becomes saturated with

competition, manufactures focus on product differentiation.

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The differentiation is based on both functionality and design features, but design

continues to become more important as the product moves through the lifecycle.

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C. MORE FORM, MORE FUNCTION: MOBILE PHONES IN CHINA

“Mobile phones are changing us and the world we live in. Over the last decade, mobile

phones have massively changed our culture, society and communication patterns.”29 A mobile

phone is an electronic telecommunications device with the same capability as a traditional fixed

line telephone. However, the mobile phone is portable and connects to the phone network using

radio wave transmission technology.30 This section of the paper will use the Chinese market to

illustrate the advancements of the mobile phone. The market in China is the largest in the world.

Currently over 300 million Chinese own a mobile phone and over 6 million new contracts are

taken out every month.

Background/Launch

The history of mobile phones can be traced back to the 1950s with the introduction of the

radiophone. Motorola launched the first mass marketed mobile phone into the China market in

1987. 31 The initial phone was a large handset that weighed approximately a half a pound. This

cell phone was initially targeted to business users who required a convenient means of voice

communication.32 Within the past 20 years however, the mobile phone market in China has

evolved with increased functionality and changing form factors. They have shifted from being

rare and expensive pieces of equipment used by businesses to a pervasive low-cost personal item

purchased by the masses.

A strong user network has evolved through increased mobile functionality and high levels

of user penetration. For example, the emergence of the first Chinese input (SMS) mobile phone

(CD928+) captured over 2 million users.33 This creation allowed network users to interact with

one another through text messaging and created a mobile community. Many users increasingly

rely on their mobile phone to keep in touch with their friends via text messaging, photo sharing,

instant messaging, etc.

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The Chinese market has not only experienced rapidly changing functionality, but also,

changing form. In 2002, when Motorola launched its first 360-degree swivel phone in China, the

Motorola V70, the primary focus of the phone moved from functionality to form.34 The

fashionable design made it very attractive to the young generation. Additionally, many

manufacturers have been successful in establishing an extensive compliments network. These

include such physical things as belt clips, protective casings, headsets and decorative jewels.

“The mobile phone itself has also become a fashion object, with users decorating, customizing,

and accessorizing their mobile phones to reflect their personality.”35 This co-creation has

enabled consumers to customize their phones in order to differentiate themselves from the mass

consumer market.

Current Product Position

Currently, the multimedia cell phone is a mainstream product in the Chinese cell phone

market. Mobile phone manufacturers are faced with increasing competitive rivalry as well as

shortening model life cycles.36 As a result, manufacturers are constantly seeking new functions

and features to satisfy rapidly changing customer needs and increase their market shares. Nokia

has tried to increase market share by quickly bringing new products onto the market. The

company launched 40 new products during 2003, including 31 handsets with colour screens and

14 with cameras.37 Not only are more Chinese consumers purchasing the phones, but also

current users are constantly upgrading as new phones with new features are introduced into the

28 Smart Phones and Hybrid PDAs, wavewire.com, accessed Nov. 28, 200529 http://www.taipeitimes.com/News/bizfocus/archives/2005/01/16/200321967230 http://en.wikipedia.org/wiki/Mobile_phone31 ibid.32 http://www.accessmag.com/CurrentIssue/Technology.html33 http://www.mm123.com/mmnum123.htm 34 http://www.infosyncworld.com/reviews/n/2209.html35 Wikipedia. Accessed from: http://en.wikipedia.org/

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market. Consequently, this has significantly reduced the model life cycle and increased research

& development and marketing expenses.38

In the context of a rapid growth of multimedia cell phones, the upgrade of functionality

has become the major growth driver. According to the consumer behaviour analysis of 2004 and

2005, price and functionality are still the major factors consumer consider when buying mobile

phones. Almost 68% of consumers thought that functionality and price are very important, 55%

consumer will consider brand name when they buy the mobile phone; only 44% consider that the

appearance is very important.39

Source: http://market.ccidnet.com/pub/report/show_2446.html

See table below for growth rates driven by functionality in 2005:

Functionality Number of Units Sold 2005 (Q3)

Growth Rate (2005 vs. 2004)

Colour Screen Phone 19,335,000 35%Camera Enabled Phone 13,191,000 106.6%MP3 Phone 4,998,000 392.0%Smart Phone 1,398,000 119.1%

Source: China Mobile Network www.chinamobile.gov.cn

36 Datamonitor. Mobile Phones in China. Industry Profile. November 2004.37 Ibid.38 http://www.mindfully.org/Technology/2005/Mobile-Phone-Sales25may05.htm39 http://market.ccidnet.com/pub/report/show_2446.html

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Examining the colour screen phone and camera-enabled phones for example, the rapid

growth period for colour screen phones have gone and the market share of colour screen phone

have stabilized at over 90%.40 Right now, the market is moving towards a higher resolution

screen and higher quality colour. In terms of new function and features, growth on new camera

phones has slowed down. Last year, new camera phones represented 75% of newly introduced

cell phones.41 This year, this number increased 2% to 77%. On the other hand, MP3-enabled

phones have increased from 31.4% to 47.7%, Bluetooth has increased from 11.0% to 15.4% and

smart phones have increased from 6.8% to 9.2%.42 Therefore, colour screens and camera phones

have become the mainstream and necessary features in the market and MP3 phones and Smart

Phones will likely become the new growth drivers. Smart phones are especially poised for

success and are still in the very early stage of its development.

For the past few years, cellular carriers and handset manufacturers have talked a lot about

third-generation (3G) services for mobile phones. Simply put, 3G cellular technology brings

wireless broadband data services to your mobile phone. Boosting speeds from 144Kbps (roughly

three times faster than a 56K dial-up modem connection) to 2.4Mbps (close to cable-modem

speed), 3G networks let you speed through Web pages, enjoy streaming music video, watch on-

demand video programming, download and play 3D games, and videoconference with your

fellow mobile user network. While the interface is undoubtedly different on a cell phone, the

experience of surfing, downloading, and streaming stands to be very close to that of a broadband

connection on a computer. 3G cell phones are the next big trend in the cell phone market of

China. However, before getting into 3G, cell phone producers are going to have to work closely

with carriers to make sure that their products meet the necessary requirements. Network analysis

shows us that as the market grows to mature, carriers are going to play an increasingly important

40 http://www.chinamobile.gov.cn/200511/56594.shtml41 ibid42 ibid

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role in the cell phone market. Carriers like Bell and Rogers (the compliment network) will

require the likes of Nokia, Samsung, and Motorola (the producer network) to customize cell

phones and sell them as service packages to customers.

To summarize the mobile phone product category from a network ecology perspective, it

is quite apparent that the development of each network is critical to the products success. That

is, the product can only be as strong as its user network. As the user network expands features

such as text and video messaging suddenly become more attractive and necessary. A large

compliments network is required as mobile service providers act as the link between the users.

Less necessary compliments such as accessories enhance the user’s experience. Finally the large

producer network ensures differentiation by innovation. That is, companies must differentiate

their offering to ensure success in the marketplace.

Conclusion

In the mobile phone industry in China, consumer behaviour is quite complex; they desire

low price, high functionality and also fashionable design. As model lifecycles are very short

companies are trying to differentiate themselves by whatever means necessary. Based on the

consumer research results, functionality is still the key driver in customers purchase decisions.

Technological innovation on cell phones will keep more focus on new features rather than just

the design and appearance. Once the design or function becomes an industry standard, it

becomes the must-have feature customers require. Colour screen cell phones (form) accounts for

90% of market now), Chinese input (function) is now also an industry norm. Based on the

consumer analysis, although design differentiation is important to consumers, due to the

abundance of features that can be added, their top consideration when purchasing a product

continues to be functionality. There is so much farther to go in the cell phone market before

complete convergence is met, therefore functionality may continue to surpass form.

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Key Findings:

Consumer’s behaviours are changing rapidly. Today's “wows” become tomorrow's must-

have features.

Customer “satisfaction” requires fulfilling basic requirement, but future customers

demand "wow factor" that exceed their expectations.

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D. KEY MARKETING IMPLICATIONS

The following is a discussion of marketing implications drawn from these case studies, as well as

existing marketing theory.

1. Form for Existing Function

The positioning of both the iPod and hybrid cars have been within an existing category. (iPod

within “portable music players” and hybrid cars within “cars.”) As discussed in class43, the

advantage of positioning a product in an existing category defines the parameters for consumer

demand. An existing category confirms that consumer demand exists.

These markets are by definition “mature” and therefore differentiation comes largely from

design. Entrants, however, earn the right to draw on existing demand by being a “better” version

of what is already there.

As discussed, positioning the “iPod as a better walkman” was successful because it surpassed

the functionality of the Walkman (compatibility with digital music), Discman (smaller and does

not skip) and MP3 players (more storage and the “wheel”). This combined with a sleek design

ensured a successful launch and continued market success.

The hybrid car was “just like cars but better for the environment” only it offered unfamiliar

experiences (silent idling) and was not noticeably superior in relevant areas. The innovative form

of the Honda Insight could not overcome the functional parity, and in some cases had

shortcomings.

Micki Eisenman cautions that a focus on form necessitates constant contact with customers

and interaction to remain engaged with fickle consumer tastes44 (e.g. cell phones in China).

Attaching a memorable aesthetic form to a product can also create positive associations between

the brand and new developments. This can be especially powerful as the technology adoption

43 Detlev Zwick, Nov 10, 200544 Micki Eisenman’s website: retrieved Nov. 24, 2005 www.columbia.edu/~le86/Dissertation_Summary.htm

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increases and the consumer perceptions move from the product to the process. As evident from

the hybrid car example, the slow adoption can stifle a product whose functionality does not

exceed the customer’s base level requirements on core attributes.

2. Form for New Function

A product with brand new—and unfamiliar—function must create its own market and

following. As described by Geoffrey Moore,45 the product must move across the “chasm” that

separates the relatively small group of early adopters and the large market of mainstream

consumers. In a relevant class reading46, Meldrum supports this with his discussion on the

importance of building trust with end-users (e.g. consumers) when presenting a product or

service that is unfamiliar.

In this category, the form of the product appears only relevant as relating to function (e.g.

size and weight for a portable device). Within the new category the differentiation is on function,

as was the case with the launch of the Blackberry in 1999. Positioning in a new category enables

the company to define the market and establish leadership as a first mover47. The key risks with

this approach involve that the market will be unproven, and there is significant time-to-adoption

risks involved in reaching the mainstream market profitably.

3. More Form, More Function

From a function perspective, marketers must ask: “Which customers value this new function

and by how much?” It is possible (and very tempting to try!) to serve more needs of customers,

which can build in switching costs and offer more value (for which can command a premium).

45 Geoffrey Moore, “Crossing the Chasm,” Harper Business Books46 M.J. Meldrum, “Marketing high-tech products; the emerging themes” European Journal of Marketing: 199547 ibid M.J. Meldrum referencing Ansoff and Stweart

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Again, this is related primarily to products within well-established markets, where supply

exceeds demand.

In the Meldrum reading48, the term “technology seduction” describes the practice of

focussing on improvements that are enabled by the technology, as opposed to concentrating on

the consumer need. In a recent rant, leading New York Times technology columnist David Pogue

took issue with hyping “irrelevant specs” in his Ten Commandments to electronics

manufacturers49.

The threat is someone stealing the low end of the market and creating a new niche. In his

book The Innovator’s Dilemma50, Clayton Christensen describes the risk associated with

incremental developments (additional or horizontal) over-serving some segments of the customer

group. This leaves this group open to simpler (and cheaper) products, and forces incumbents to

move up market in order to avoid competing on price with and inferior product.

48 ibid M.J. Meldrum49 David Pogue, “10 Ways to Please Us, the Consumers,” New York Times, Nov. 2, 2005

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E. CONCLUSION

Today’s continual technology improvements and product innovations and improvements

create more opportunities and choices for marketers of consumer technology products. By

definition, technology products perform a function. Additionally, all will have a form. Marketers

must consider both in approaching strategies to engage consumers.

True breakthroughs can create opportunities to create—and own—a market. However, even

with bona fide innovations, the iPod example shows advantages in playing down the innovation

in order to access and existing market.

Consumer preferences and pressures to differentiate are pushing cell phone makers to add

more and more, but is this creating an opportunity for a low-end solution provider?

Understanding the relative position on the life cycle, and understanding customer needs can

assist in formulating a sustainable strategy.

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Endnotes

50 Christensen, Clayton M. (1997). The Innovator's Dilemma, Harvard Business School Press.

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