1. Marketing of High-Technology Products and Innovations
Chapter 2:
Strategic Market Planning
In High Tech Firms

2. Questions to consider
What is the strategic marketing planning process in high-tech firms?
What constitutes competitive advantage in a high-tech firm?
How do the four strategy archetypes interact?
Why are key metrics important? How are they reported?
© 2010 Pearson Education, Inc. publishing as Prentice Hall

3. Strategic Market Planning
© 2010 Pearson Education, Inc. publishing as Prentice Hall

4. The Objective of Marketing Strategy: Competitive Advantage
Sources
Tangible assets:
Products
Facilities
Financial Resources
Intangible assets:
Brands/reputation
Know-how
Culture
Competencies:
Routines
Processes
© 2010 Pearson Education, Inc. publishing as Prentice Hall

5. Three Characteristics of Core Competencies
Difficult for competitors to imitate
Significantly related to benefits end- user receives
Allow access to a wide variety of disparate product-markets.
© 2010 Pearson Education, Inc. publishing as Prentice Hall

6. Tree Analogy to Core Competencies: Honda
© 2010 Pearson Education, Inc. publishing as Prentice Hall

7. Implications of Core Competencies in Strategic Planning
Resource allocations may defy conventional logic
Violate ROI criterion
High-tech firms’ competencies often reside in their technological skills
R&D processes; technical personnel; etc.
They must develop marketing-related competencies
The combination of marketing + technological competencies maximizes the odds of success
© 2010 Pearson Education, Inc. publishing as Prentice Hall

8. Tests of Superior Competitive Advantage
Customer Value
Cost-benefit analysis among target market
May be driven either by
Effectiveness in customer operations (deliver superior benefits)
Efficiency in customer operations (focus on cost side of value equation)
Rareness
Competitors cannot offer same set of benefits/value
© 2010 Pearson Education, Inc. publishing as Prentice Hall

9. Tests of Sustainable Competitive Advantage
Durability
How rapidly valued resources become obsolete
Length depends on the industry
Slow-cycle: slow rate of change
Fast-cycle: resources rapidly depreciate
Inimitability
How easily a competitor can copy/obtain valued resources
Ways to enhance inimitability (next slide)
© 2010 Pearson Education, Inc. publishing as Prentice Hall

10. Tests of Competitive Advantage (cont.)
Inimitability
© 2010 Pearson Education, Inc. publishing as Prentice Hall

11. Requirements for Competitive Advantage
Is the resource/competency:
Valuable
to Buyers No
Yes
Superior to
Competitors No
Yes
Difficult
to Imitate No
Yes
Competitive
Advantage
Disadvantage
Parity
Temporary
Sustainable
Profitable No
Average
Superior
Consistently
Rarity is a variation on superiority.
Transparency, replicability, and transferability
are variations on imitability.
© 2010 Pearson Education, Inc. publishing as Prentice Hall

12. Superior and Sustainable Competitive Advantage
Trade off between:
Competence Exploitation
Value Appropriation
Competence Exploration
Value Creation
Interactive effect between them on innovation performance--
© 2010 Pearson Education, Inc. publishing as Prentice Hall

13. Competence Exploitation versus Exploration
Refine existing skills and resources
Extend existing paradigm into new arenas
Useful for incremental innovation
Advertising and marketing to differentiate offerings
Competence Exploration/Value Creation
Invest spending in R&D to acquire new knowledge and skills
Useful for radical innovation
© 2010 Pearson Education, Inc. publishing as Prentice Hall

14. Interaction Between Competence Exploitation and Exploration on Innovation
To succeed with radical innovation, firm with exploitation competence must couple it with exploration competence as well.
Seek out new markets and value for customers
To reap benefits of competence exploration, firm must combine with exploitation
Must fully leverage the new knowledge gained
Value creation (R&D spending) must be coupled with value appropriation activities—such as marketing
© 2010 Pearson Education, Inc. publishing as Prentice Hall

15. Market Strategy: Key Strategy Decisions
Who are our
customers?
What value do
we offer them?
How can we create
and deliver that value?
The Strategy
Sweet Spot
Market Strategy: Key Strategy Decisions
The Strategy Sweet Spot: Intersection of these three decisions that capitalizes on the firm’s resources to yield competitive advantage.
© 2010 Pearson Education, Inc. publishing as Prentice Hall

16. Market Strategy: Who are Our Customers?
Focus on assessing customers’ articulated and unarticulated needs;
Focus less on technology and more on customer value
Identify key market segment(s) rather than diluting efforts across multiple segments
© 2010 Pearson Education, Inc. publishing as Prentice Hall

17. Market Strategy: Who are Our Customers? (Continued)
Avoid tyranny of the “served” market
Excessive focus on serving current customers
Adopt bifocal vision
Simultaneous focus on current AND future customers
Search for “blue ocean” strategies
New market space
Base-of the-pyramid markets
© 2010 Pearson Education, Inc. publishing as Prentice Hall

18. Market Strategy: What Value?
Products, services and technologies are mere vehicles for value creation
They do not have intrinsic value in and of themselves
Requires understanding the customer
Value of products, services, and technologies
Requires understanding competitors’ value propositions
Look beyond direct competitors
Include competition from outside existing industry boundaries (“product form competition”
© 2010 Pearson Education, Inc. publishing as Prentice Hall

19. Market Strategy: What Value? (cont.)
Value Proposition: Captures the essence of why a customer should purchase the product
Three types of value propositions:
“All Benefits”
Articulates customer benefits
“Favorable Points of Difference”
Contrasts advantages with competition
“Resonating Focus”
Addresses buyer’s key needs AND documents the value explicitly
© 2010 Pearson Education, Inc. publishing as Prentice Hall

20. Market Strategy: How to Create & Deliver Value?
Requires:
Right competencies
Appropriate structures/systems
Good decisions in distribution, pricing, and promotion
Flexibility
© 2010 Pearson Education, Inc. publishing as Prentice Hall

21. Four Strategy Types Product Leader Fast Follower Customer Intimacy
Prospector; Pioneer; First Mover
Fast Follower
Analyzer
Customer Intimacy
Differentiated Defender
Operationally Excellent
Low-Cost Defender
© 2010 Pearson Education, Inc. publishing as Prentice Hall

22. Strategy Types: Product Leader
Strategy is first to market with innovative new products
Successful Product Leaders:
Target innovator and early adopter customers
Are creative and use novel sources of information
Exhibit a culture of innovativeness
Have technological foresight
Commercialize ideas quickly—engineered for speed
Willing to “leapfrog” their own products
Have marketing acumen
Understand competitors’ strengths and weaknesses
Benefit from a bit o’luck
© 2010 Pearson Education, Inc. publishing as Prentice Hall

23. Strategy Types: Product Leader
PROS CONS
Entry barriers
Economies of scale
Experience effects
Reputational effects
Technological leadership
Buyer switching costs
Higher profits and higher share
Define product exemplar
Higher consumer awareness
Large development costs
Market uncertainty
“Wait-and-see” attitude among consumers
Failure rate of pioneers is 47%, with an average market share of 10%.
Failure rate of Fast Followers is 8%, with an average market share of 28%.
© 2010 Pearson Education, Inc. publishing as Prentice Hall

24. Complications for Pioneers in High-Tech Industries
Risks of pioneering greater for incremental innovations in markets with network externalities
Customers take a “wait-and-see” attitude
Delays revenue stream.
Later entrants gain disproportionately because of the larger network effects that exist later in the market’s development
Risks of pioneering lower with incremental innovations than radical innovations
“First to market with radical innovation is first to fail”
Unless market is characterized by network effects—
Then pioneering a radical innovation may succeed.
© 2010 Pearson Education, Inc. publishing as Prentice Hall

25. An Additional Benefit of Being A Product Leader
© 2010 Pearson Education, Inc. publishing as Prentice Hall

26. Strategy Types: Fast Follower
Strategy is to imitate Product Leader, with some key improvement
Successful Fast Follower/Analyzers
Target early adopter and early majority customers
Identify overlooked product position
Innovate superior products
Undercut the leader on prices
Out-advertise or out-distribute
Innovate business/marketing strategies that change the rules of the game
© 2010 Pearson Education, Inc. publishing as Prentice Hall

27. Strategy Types: Fast Follower
Relative to Product Leaders, Fast Followers:
Grow faster
Have higher market share
© 2010 Pearson Education, Inc. publishing as Prentice Hall

28. An Advantage of Being A Follower
© 2010 Pearson Education, Inc. publishing as Prentice Hall

29. Strategy Types: Differentiated Defender
Strategy is to focus more narrowly on specific customers/market niches
Successful Differentiated Defenders/Customer Intimate:
Target early and late majority customers
Emphasize long term relationships
Exhibit intimate customer knowledge
Deliver superior customer service
Follow appropriate “tiering” of customers
© 2010 Pearson Education, Inc. publishing as Prentice Hall

30. Strategy Types: Low-Cost Defender
Strategy of technological, production, or distribution efficiencies that allow them to offer low prices
Successful Low-Cost Defenders/Operationally Excellent
Target early and late majority customers
Offer superior combination of quality, price, and ease of purchase
Aggressively protect their market with cost leadership in their value chain
© 2010 Pearson Education, Inc. publishing as Prentice Hall

31. Caveat on Strategy Types
Most successful companies have a dominant strategy type and one or two supporting types.
© 2010 Pearson Education, Inc. publishing as Prentice Hall

32. Creating Innovation in Business Strategy: Approaches and Structures
Strategy creation process itself is a deeply embedded skill
Seek new, unique, and innovative perspectives to customer-value creation
Change the basis of industry competition to create new wealth
Envision new opportunities
Paradox: Make serendipity happen
Take risks, break rules, be a maverick
© 2010 Pearson Education, Inc. publishing as Prentice Hall

33. Foster new connections inside and outside of the company
Creating Innovation in Business Strategy: Approaches and Structures (Cont.)
Foster new connections inside and outside of the company
Exude passion for discovery and novelty
Experiment, take risks, and learn!
Maintain a flexible strategic posture
Don’t create strategy-making processes that are more complex than the high-tech market situation itself.
Planning processes must be simple, fast, iterative, integrated in high-tech industries.
© 2010 Pearson Education, Inc. publishing as Prentice Hall

34. Strategy Creation: The Formulation Process
Formal Planning Approach
Leaders formulate intentions in a written plan
Comprehensive search, evaluation, and selection
Useful for predictable environments where formal controls can be used.
Emergent Planning
Improvised
Emergent process from lower levels of the organization; informal entrepreneurialism
Based on trial-and-error learning
© 2010 Pearson Education, Inc. publishing as Prentice Hall

35. Strategy Creation: The Formulation Process
Which is best: formal or emergent planning processes?
False choice:
Both types of processes must exist
Complement each other
Depends upon the strategy type:
Product Leaders – more emergent
Operationally Excellent and Customer Intimate – more formal
High-tech companies must have fairly systematic planning
© 2010 Pearson Education, Inc. publishing as Prentice Hall

36. Strategy Creation: Eight-Step Approach to the Strategic Market Planning Process
1. Define the company’s goals and mission.
2. Choose the arena.
3. Identify potentially attractive opportunities.
4. Make tough strategic choices.
5. Plan key relationships.
6. Complete the winning strategy.
7. Understand the profit dynamic.
8. Implement the chosen strategy.
© 2010 Pearson Education, Inc. publishing as Prentice Hall

37. Strategy Creation: Organizational Structure
Hierarchical/functional structure
Formal rules/procedures
Centralized decision making
Appropriate in slow-cycle markets
Market-Focused Structure
More appropriate in high-tech markets
Multi-dimensional focus on customers, flexibility and speed
Shift away from product-focused to customer-centered
Decentralized decision making
Informal coordination among departments
© 2010 Pearson Education, Inc. publishing as Prentice Hall

38. Strategy Creation: Marketing Performance Measurement
Can’t manage what isn’t measured
CEOs in high-tech companies with well- developed marketing performance measurement realize superior performance and greater satisfaction with the marketing function
Marketing Metrics
Financial accountability of marketing activities
Link investments/decisions to measurable outcomes
© 2010 Pearson Education, Inc. publishing as Prentice Hall

39. Strategy Creation: Marketing Performance Measurement
Marketing Dashboard
Multidimensional report card for performance
Often automated with software and databases
Specific metrics must tie to marketing strategy focus
Leading and lagging indicators of market success
Sample dashboard for Customer Intimate Company (next slide)
© 2010 Pearson Education, Inc. publishing as Prentice Hall

40. Marketing Performance Measurement for Customer Intimate Strategy
Product/Service
Quality
Customer Satisfaction
Customer Loyalty
Financial Results
Return Rate
% “Very” or “Extremely Satisfied”
% of Sales from Existing Customers
Sales Growth
Reject Rate
Satisfaction with Specific Features
Duration of Relationship
Market Share
Perceived Quality
Satisfaction with Experience
Share of Wallet
Profit Growth
Time: Order to Delivery
Volume of Complaints
Sales from Referrals
Profit Margin
© 2010 Pearson Education, Inc. publishing as Prentice Hall

41. Strategy Creation: Marketing Performance Measurement
© 2010 Pearson Education, Inc. publishing as Prentice Hall
Examples of Salesforce.com Dashboards

42. Measuring Innovation Performance
Metrics include innovation’s usefulness, quality, speed to market, sales/sales takeoff
Compares attained performance not only to the company’s objectives, but also to the possibilities
What is the record of innovation in the industry? How does ours compare? Did we miss important opportunities? Why? Do we successfully convert R&D spending into commercial product?
© 2010 Pearson Education, Inc. publishing as Prentice Hall

43. Chapter Features Opening Vignette: Medtronics
Technology Expert: IPTV company, Auroras
Technology Tidbit: Dignity Toilets
End-of-Book Case: Xerox
© 2010 Pearson Education, Inc. publishing as Prentice Hall

44. Appendix: Resource Issues for Small High-Tech Start-ups
Funding options:
Friends & Family
(Also referred to as “friends, family, and fools”)
Bootstrapping:
Fund business through early customer revenues
Slow, but founders retain ownership
Grants, Loans, etc.
Venture Capitalists
Formal VCs – professional investors
Seek high rate of return
Informal: Angels
© 2010 Pearson Education, Inc. publishing as Prentice Hall

45. What Venture Capitalists Look For
Management experience
Marketing
Technology/product
Anticipated ROI
© 2010 Pearson Education, Inc. publishing as Prentice Hall

46. Other Resources Incubators Other:
Facility that offers business support services and access to low-cost facilities
Goal: to successfully “incubate” a new high-tech start- up so that it can survive on its own in a competitive market
Economic development tool
Can be run by private companies, or local/regional/federal agencies
Success factors (next slide)
Other:
US-based: SCORE, SBA, US Dept. of Commerce, NIST
Partnerships
© 2010 Pearson Education, Inc. publishing as Prentice Hall

47. Incubators Mixed rate of success Successful programs:
Access to educated work force/talent
Access to financing
Support of local business community/experienced business people
Culture of innovation and risk taking
© 2010 Pearson Education, Inc. publishing as Prentice Hall

48. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
© 2010 Pearson Education, Inc. publishing as Prentice Hall