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 Timing/Synchronization problems Organization/Culture problems Money problems

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

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 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; developersSurveys; focus groups Primary demand; customer education Selective demand; build image May be premiumMore 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?