1. Chapter 7: Understanding High-Tech Customers

2.  What is meant by “design” and “design thinking?”  How do marketing strategies compare amongst individuals in different adoption categories?  What does “the chasm” represent? How can a firm get across? ©2010 Pearson Education, Inc. publishing as Prentice Hall

3.  Stem from a solid understanding of the how/why of customer decisions ◦ ERP example  Marketing must be tailored to address at least 6 issues (see next slide)

4. © 2010 Pearson Education, Inc. publishing as Prentice Hall Steps in the Purchase Process Segmentation, Targeting, and Positioning Timing of Upgrades and Migration Consumers’ Paradoxical Relationships with Technology Process of Adoption and Diffusion - Factors Affecting Adoption - Categories of Adopters Crossing the Chasm

5. © 2010 Pearson Education, Inc. publishing as Prentice Hall Problem Recognition Information Search Evaluate Alternatives Purchase Decision Post-purchase Evaluation To better understand behavior of potential buyers, begin with a basic behavior model 1. 2. 3. 4. 5.

6. © 2010 Pearson Education, Inc. publishing as Prentice Hall 1.Problem Recognition  Buyer recognizes a need ◦ Problem ◦ Opportunity

7. © 2010 Pearson Education, Inc. publishing as Prentice Hall 2.Information Search  Buyer actively searches for resolution ◦ Personal, commercial, public, experiential sources ◦ Trade shows (see box 7-1 for additional insights)

8. © 2010 Pearson Education, Inc. publishing as Prentice Hall 3.Evaluate Alternatives  Buyers may experience anxiety and uncertainty ◦ Vital to understand factors affecting the customers’ product evaluation (see research techniques in previous chapter)

9. © 2010 Pearson Education, Inc. publishing as Prentice Hall 3.Evaluate Alternatives (cont.) Design: the conscious effort to combine functionality and aesthetics ◦ Huge part of customer evaluation ◦ “Cool” factor ◦ Business case- increased company value ◦ Incorporating sustainability

10. © 2010 Pearson Education, Inc. publishing as Prentice Hall Human Factors Business Factors Technology Factors DesignThinking

11. © 2010 Pearson Education, Inc. publishing as Prentice Hall 3.Evaluate Alternatives (cont.) Design thinking ◦ Analysis  brainstorming  rapid prototyping  final solution ◦ How human beings interact with products and their environment

12. © 2010 Pearson Education, Inc. publishing as Prentice Hall 4.Purchase Decision  Terms of purchase ◦ Scope ◦ Price ◦ Payment terms ◦ Delivery

13. © 2010 Pearson Education, Inc. publishing as Prentice Hall 5.Post-Purchase Evaluation  How well does product live up to its potential?  Issue: buyer’s remorse  End-of-life issues of high-tech products  Valuable to marketers: post-adoption usage patterns

14. © 2010 Pearson Education, Inc. publishing as Prentice Hall Factors Affecting Customer Purchase Decision Relative advantage The benefits of adopting the new technology compared to the costs and in relation to other alternatives Compatibility The extent to which adopting and using the innovation is based on existing ways of doing things and standard cultural norms ComplexityThe difficulty involved in using the new product Trialability The extent to which a new product can be tried on a limited basis Ability to Communicate Product Benefits The ease and clarity with which the benefits of owning and using the new product can be communicated to prospective customers Observability The extent that benefits of the new product are visible to everyone

15. © 2010 Pearson Education, Inc. publishing as Prentice Hall The Chasm

16. © 2010 Pearson Education, Inc. publishing as Prentice Hall Innovators: Technology Enthusiasts  Motivated by idea of being a change agent  Develop make-shift solutions  Willing to alpha/beta test and work with technical personnel  Tolerant of initial problems  First customers ( not typical customers)  Importance: They are the gatekeeper to the next group of adopters

17. © 2010 Pearson Education, Inc. publishing as Prentice Hall Early Adopters: Visionaries  Want to revolutionize competitive rules in their industry  Attracted by high-risk/high-reward projects  Not necessarily price sensitive  Demand customized solutions, intensive tech support  Product form competition (between categories of solutions)  Communicate horizontally- across industry boundaries

18. © 2010 Pearson Education, Inc. publishing as Prentice Hall Early Majority: Pragmatists  Comfortable with only evolutionary changes in business practices  Averse to disruptions in operations  Want proven applications, reliable service/results  Buy only with a reference from trusted colleague ◦ in same industry ◦ catch-22

19. © 2010 Pearson Education, Inc. publishing as Prentice Hall Late Majority: Conservatives  Risk averse, technology shy  Very price sensitive  Require completely preassembled, “bulletproof” solutions  Motivated only by need to keep up with competitors in their industry  Rely on single, trusted advisor

20. © 2010 Pearson Education, Inc. publishing as Prentice Hall Laggards: Skeptics  Want to maintain status quo  Technology is a hindrance to operations ◦ Luddites  Buy only if all other alternatives worse

21. © 2010 Pearson Education, Inc. publishing as Prentice Hall Target Innovators or Majority?  Target the majority when: ◦ Word of mouth effects are low ◦ Consumer products industries (vs. B2B) ◦ Low ratio of innovators to majority users ◦ Profit margins decline slowly with time ◦ Long time period for market acceptance

22. © 2010 Pearson Education, Inc. publishing as Prentice Hall What is “ THE CHASM ” ?  Present in high-tech environments  Gap between early market and mainstream market— ◦ Visionaries vs. Pragmatists  Visionary market is saturated, and mainstream not yet ready to buy  Marketing that was successful with visionaries simply is not effective with pragmatists

23. © 2010 Pearson Education, Inc. publishing as Prentice Hall  Visionaries ◦ Adventurous ◦ Think/spend big ◦ Want to be first in implementing new ideas in their industries ◦ Think pragmatists are pedestrian  Pragmatists ◦ Prudent; stay within zone of “reasonable,” and within budget ◦ Make slow, steady progress ◦ Think visionaries are dangerous These two groups want no part of each other!

24. © 2010 Pearson Education, Inc. publishing as Prentice Hall  High level of customized tech support  costly ◦ Initial revenue is low  Products sometimes released too early  Firm’s goal: Establish reputation  Exciting time! ◦ Engineering drives, brilliance is rewarded. ◦ Focus on developing the best possible solution

25. © 2010 Pearson Education, Inc. publishing as Prentice Hall  Firm takes on more visionaries than it can handle  Pragmatists are not yet ready to buy ◦ Visionaries are not a credible resource  Early market becomes saturated ◦ Revenue growth tapers off or declines  Key personnel become disillusioned  Venture capital well begins to runs dry Goal: get out of the chasm ASAP!

26. © 2010 Pearson Education, Inc. publishing as Prentice Hall  Marketing strategies that lead to success in selling to visionaries hinder success in selling to pragmatists  Look to new strategies necessary to reach the mainstream market 1.Identify a beachhead 2.Develop a whole product solution

27. © 2010 Pearson Education, Inc. publishing as Prentice Hall 1.Identify a beachhead: a single target market from which to pursue the mainstream market A good beachhead: a)Gives customers a compelling reason to buy based on the firm’s capabilities (see table 7-2) b)Provides “adjacencies ” to enter related segments  Bowling Alley Analogy (see next slide)

28. © 2010 Pearson Education, Inc. publishing as Prentice Hall App 1 App 3App 2 Seg 1 Seg 2Seg 1 Seg 3 Seg 2Whole Product Customer References The Beachhead b) Bowling Alley Market Development 1. Identify a beachhead

29. © 2010 Pearson Education, Inc. publishing as Prentice Hall 1.Word of mouth relationship should exist between adjacent market segments 2.Quickly capture the beachhead 3.Risks: Focus on one segment could lead to being outflanked by competitors -Pursuing too many segments at outset without enough resources 1. Identify a beachhead

30. © 2010 Pearson Education, Inc. publishing as Prentice Hall 2.Develop the Whole Product  Complete, end-to-end solution  Defined within confines of a specific target market Adjacencies are also determined by similarities in whole product needs. Pragmatist market requires vendor responsibility for system integration

31. © 2010 Pearson Education, Inc. publishing as Prentice Hall 2.Develop the Whole Product (cont.)  Utilizing Partnerships ◦ Advantages:  Each player provides a part of the whole product solution  Partners may drive further expansion

32. © 2010 Pearson Education, Inc. publishing as Prentice Hall 2.Develop the Whole Product (cont.)  Utilizing Partnerships ◦ Risks:  Issue of Power Visionaries  technology providers Chasm  company with “best” beachhead, whole product design Pragmatists  market leaders (and partners)

33. © 2010 Pearson Education, Inc. publishing as Prentice Hall Other Strategies… ◦ Reputation already established, now focus on growing revenue  Pragmatists need ◦ An industry standard ◦ Competitor’s proposal and product  Brand competition ◦ Simplified, best solution possible ◦ Superb customer services

34. © 2010 Pearson Education, Inc. publishing as Prentice Hall The Chasm

35. © 2010 Pearson Education, Inc. publishing as Prentice Hall

38. Gorilla: the dominant, post-tornado competitor Chimps : typically, there are two other major competitors Monkeys: the rest of the market is accounted for by numerous niche competitors

39. © 2010 Pearson Education, Inc. publishing as Prentice Hall  Market to Conservatives ◦ Make product simpler, cheaper, more reliable & convenient ◦ This is not the time to add “wow” factors

40. © 2010 Pearson Education, Inc. publishing as Prentice Hall  The whole product is the critical success factor  Until a high-tech firm has established itself in the mainstream market, it has not proven itself.  To manage the mainstream market effectively, firm must work with partners in a disciplined fashion (that prioritizes partners)

41. © 2010 Pearson Education, Inc. publishing as Prentice Hall  Identify group(s) of customers who share similar needs & buyer behavior characteristics 4 Steps in the Segmentation Process 1.Divide the market into groups 2.Profile the customers in each segment 3.Evaluate and select a target market 4.Position the product within the segment

42. © 2010 Pearson Education, Inc. publishing as Prentice Hall 1.Divide market into groups based on common characteristics ◦ Demographics §Role of women Expect high level of customer service, user-friendly design Gender differences in shopping experience ◦ Geographics ◦ Psychographics (values and lifestyles) ◦ Behavioral Variables  Usage Volume  Benefits Sought  Usage Occasion

43. © 2010 Pearson Education, Inc. publishing as Prentice Hall 1.Divide market into groups based on common characteristics (cont.) ◦ B2B  Industry codes  Firm size  Corporate culture  Vertical vs.Horizontal - industry specific- cuts across industry boundaries - different value- common approach among propositions customers

44. © 2010 Pearson Education, Inc. publishing as Prentice Hall 2.Profile (describe) the “typical” customers in each segment Segmentation of US ICT Users TierSegment% of US Adults Elite Tech Users Omnivores, Connectors, Lackluster Veterans, Productivity Enhancers 31 Middle-of- the-Road Tech Users Mobile Centrics, Connected But Hassled 20 Few Tech Assets Inexperienced Experimenters, Light But Satisfied, Indifferents 49 (see Table 7-4 for complete list)

45. © 2010 Pearson Education, Inc. publishing as Prentice Hall 3.Evaluate and Select Target Market ◦ Size of segment in terms of sales volume  80-20 rule ◦ Growth rate of the segment  Capture new customers, grow with the market ◦ Competition within the segment  Competitor defense of their existing customer base ◦ Capabilities of firm to serve segment needs  Partnering, core competencies

46. © 2010 Pearson Education, Inc. publishing as Prentice Hall 4.Positioning the product within the segment ◦ Consider customer perceptions ◦ Position relative to perceived competition ◦ Position on important, compelling attributes/benefits Positioning strategy:  Multi-Attribute Model: reveals relative importance of attributes (see example on next slide)  Perceptual maps

47. © 2010 Pearson Education, Inc. publishing as Prentice Hall 4.Positioning the product within the segment (cont.) Illustration: Multi-Attribute Model Competitor Attributes (Importance) My Company#1#2 Scalability (8)1055 Security (6)357 Ease of Use (7)368 Total Score119112131

48. © 2010 Pearson Education, Inc. publishing as Prentice Hall 4.Positioning the product within the segment (cont.) Perceptual Map for Smart Phones

49. © 2010 Pearson Education, Inc. publishing as Prentice Hall  Basic Issue: Adopting newest generations of technology  prior investments obsolete  Marketing implication: Firms must manage a migration path for customers to the new generation

50. © 2010 Pearson Education, Inc. publishing as Prentice Hall  What affects a customer’s decision to migrate? ◦ Expectations about pace and magnitude of improvements relative to price ◦ In general: The greater the anticipated product improvements and/or expected price declines, the greater the customer’s propensity to delay purchase

51. © 2010 Pearson Education, Inc. publishing as Prentice Hall  High-tech firms must provide upgrades  Utilize a “migration path” ◦ series of upgrades ◦ helps transition the customer

52. © 2010 Pearson Education, Inc. publishing as Prentice Hall

53.  When customers expect a rapid pace in technology advancement: ◦ They will be willing to wait for price declines ◦ Migration assistance (i.e., trade-ins, etc.) mitigates against customer stalling and leapfrogging

54. © 2010 Pearson Education, Inc. publishing as Prentice Hall  When customers expect significant magnitude of improvement ◦ They realize smooth upgrading is unlikely ◦ Waiting for price declines may result in purchasing an obsolete product ◦ Migration path is less crucial

55. © 2010 Pearson Education, Inc. publishing as Prentice Hall  When customers have uncertainty about expectations: ◦ Migration path makes sense ◦ Sell old and new simultaneously

56. © 2010 Pearson Education, Inc. publishing as Prentice Hall

57.  Marketers must understand how customers cope with presence of paradoxical effects ◦ Ex: Limits on computer usage ◦ Ways to lessen impacts via holistic activities ◦ Luddite movement  Marketers should not be blinded by their own enthusiasm for technology

58. © 2010 Pearson Education, Inc. publishing as Prentice Hall  Understand consumers’ fears  Focus on positive benefits (without disregarding negative effects) ◦ Educated trade-offs  Astute marketing via consumer education, labeling, and so forth  Be Proactive!

59. © 2010 Pearson Education, Inc. publishing as Prentice Hall Chapter Features  Opening Vignette: RFID Chips  Technology Expert: Panasonic Mobile (Japan)  Technology Solution: Manila Water  End-of-Book Case: TiVo, ESRI, Goomzee

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