Marketing Strategy in High-Tech Markets II

► What is a high-tech product?  Hardly any product consist of one technology only => difficult to define high-tech products on technology they incorporate. ► What does a Marketer suggest? High-tech is in the eye of the customer and supplier. – High-tech to the extend that customer and supplier evaluate a product based on incorporated technology.

The Where of Technology ► Process technology ► Product technology

Meldrum’s Definition of High-tech Products: ► have been developed in a highly technical environment ► incorporate a new or advanced technology which acts as a focus for their evaluation ► are associated with a high degree of technologically-based uncertainty on the part of both the supplier and the customer ► are not currently accepted as natural solutions for the problems they have been designed to address; ► do not yet have an associated external infrastructure.  Is the iPad a high-tech product?  Is Laser Eye surgery a high-tech product?

Common, Underlying Characteristics of High-Tech Markets ► Market Uncertainty ► Technological Uncertainty ► Competitive Volatility

Market Uncertainty: ► Consumer fear, uncertainty and doubt (FUD) ► Anxiety over the lack of standards and dominant design ► Customer needs (sometimes rather tastes) change rapidly and unpredictably (recorded books, e- books?) ► Uncertainty over the pace of adoption ► Uncertainty over/inability to forecast market size

New Orders Time Customer Adoption a la Moore* * Moore (1991), Crossing the Chasm Innovators/ Early Adopters Early Majority Late MajorityLaggards Moore’s Chasm Visionaries Pragmatists Who influences whom? Who references whom? Who buys for what reason? What is the whole product? What is the minimum product? Which partner helps bridge the gap? What is the minimum customer base? What are optimal price points? Conservatives Skeptics

Technology Uncertainty: ► Will the new innovation function as promised? (and what happens if not?)  Will the supplier be able to fix customer problems with the technology? ► What is the timetable for new product development? ► 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

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, IM, eBay  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 IncrementalRadical 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

Contingency Theory Type of marketing strategy is contingent upon the nature of the innovation.

Examples of Implications of Contingency Theory: R&D/Marketing Interaction Type of Marketing Research Role of Advertising Pricing BreakthroughIncremental “ technology push” “customer pull” Lead users; developers Surveys; focus groups Primary demand; customer education Selective demand; build image May be premiumMore competitive

Let’s explore further… ► In groups…

Benkenstein and Bloch (1994) ► Why are High-Tech markets particularly dynamic?  No established rules of the game  No significant size economies  low entry barriers.

Research Shows: ► Continuous shortening of product life cycles, which if true leads to a serious dilemma: =>High first part costs in innovation phase is associated with shorter pay-back cycles!

Authors claim: Technology is the fundamental success factor!

Concentrated vs. Differentiated ► Pros and Cons? ► Strategic Implications?  (Segmentation, timing, participation)

STP High innovation costs plus shortening PLC means strategically: 1)Enter as many market segments as possible at the same time to shorten pay-back time. 2)Develop a broad geographical strategy as low entry barriers allow competitors to exploit uncovered territory.

Three Entry Options: ► Pioneers ► Early Followers ► Late followers What are some pros and cons of each? STPSTPSTPSTP

Strategic Considerations: 1) Differentiation versus Standardization? 2) Price-Quantity (cost utility) versus preference oriented (buyer utility)? 3) Customer-orientation versus competitor-orientation? STPSTPSTPSTP

A Preliminary Summary: What can high-tech firms do? ► Ultra-dominance (become de facto standard) ► Mega-market-coverage (product/solution for every contingency) ► Deep specialization/Focus ► Alliances, partnerships, joint ventures, licensing ► Accelerate processes (IT steroid injections) ► Shift to services (configure, integrate, consult…) ► Develop breakthrough innovations ► Effective marketing !!!