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Chapter 2: Strategic Market Planning In High Tech Firms.

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Presentation on theme: "Chapter 2: Strategic Market Planning In High Tech Firms."— Presentation transcript:

1 Chapter 2: Strategic Market Planning In High Tech Firms

2 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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?

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4  Sources ◦ Tangible assets:  Products  Facilities  Financial Resources ◦ Intangible assets:  Brands/reputation  Know-how  Culture ◦ Competencies:  Routines  Processes

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

6 © 2010 Pearson Education, Inc. publishing as Prentice Hall

7  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

8 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

9 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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)

10 © 2010 Pearson Education, Inc. publishing as Prentice Hall  Inimitability

11 © 2010 Pearson Education, Inc. publishing as Prentice Hall 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 Superior Is the resource/competency: Rarity is a variation on superiority. Transparency, replicability, and transferability are variations on imitability.

12 © 2010 Pearson Education, Inc. publishing as Prentice Hall  Trade off between: ◦ Competence Exploitation  Value Appropriation ◦ Competence Exploration  Value Creation  Interactive effect between them on innovation performance--

13 © 2010 Pearson Education, Inc. publishing as Prentice Hall  Competence Exploitation ◦ 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

14 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

15 © 2010 Pearson Education, Inc. publishing as Prentice Hall Who are our customers? What value do we offer them? How can we create and deliver that value? The Strategy Sweet Spot

16 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

17 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

18 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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”

19 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

20 © 2010 Pearson Education, Inc. publishing as Prentice Hall  Requires: ◦ Right competencies ◦ Appropriate structures/systems ◦ Good decisions in distribution, pricing, and promotion ◦ Flexibility

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

22 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

23 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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 PROSCONS 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%.

24 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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.

25 © 2010 Pearson Education, Inc. publishing as Prentice Hall

26  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

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

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29  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

30 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

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

32 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

33 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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.

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

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

36 © 2010 Pearson Education, Inc. publishing as Prentice Hall 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.

37 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

38 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

39 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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)

40 © 2010 Pearson Education, Inc. publishing as Prentice Hall 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 WalletProfit Growth Time: Order to Delivery Volume of Complaints Sales from Referrals Profit Margin

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

42 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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?

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

44 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

45 © 2010 Pearson Education, Inc. publishing as Prentice Hall  Management experience  Marketing  Technology/product  Anticipated ROI

46 © 2010 Pearson Education, Inc. publishing as Prentice Hall  Incubators ◦ 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

47 © 2010 Pearson Education, Inc. publishing as Prentice Hall  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

48 © 2010 Pearson Education, Inc. publishing as Prentice Hall 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.


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