1. Chapter 1: Introduction to High-Technology
Marketing of High-Technology Products and Innovations Jakki J. Mohr, Sanjit Sengupta, and Stanley Slater
Chapter 1:
Introduction to High-Technology

2. Technology is Ubiquitous
Examples of traditional “high-tech” industries:
Computers and information technology
Biotechnology
Telecommunications
Internet
© Mohr, Sengupta, Slater 2005

3. Technology is Ubiquitous
Examples of some industries where technological innovation is creating radical changes:
Waste management
Agriculture
Automotive
Oil and Gas
Consumer Products
© Mohr, Sengupta, Slater 2005

4. Definition of Technology
The stock of relevant knowledge that allows new techniques to be derived
Product technology: ideas embodied in the product and its components
Process technology: ideas involved in the manufacture of a product; a manner of accomplishing a task especially using technical processes, methods, or knowledge
© Mohr, Sengupta, Slater 2005

5. Definitions of “High-Tech”
Government perspective
“Common underlying characteristics” perspective
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6. Government Perspective: Defining High-Tech
Classify industries based on objective, measurable indicators:
the number of technical employees
$ spent on R&D
# of patents filed in industry
Used by the Bureau of Labor Statistics, Organization for Economic Cooperation and Development, and the National Science Foundation
© Mohr, Sengupta, Slater 2005

7. Technology-Intensive
TABLE 1-1  HIGH-TECHNOLOGY INDUSTRY EMPLOYMENT 2000
Level 1 Industries:
Technology-Intensive
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8. Technology-Intensive (Cont.)
Level 1 Industries:
Technology-Intensive (Cont.)
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n.e.c. Not elsewhere classified

9. Level II Industries: Technology Moderate
n.e.c Not elsewhere classified
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10. Shortcomings to the government classification approach:
Some industries are R&D intensive (i.e., high-tech), but new products are not revolutionary
Ex: Cigarettes
May exclude industries who are technology-driven
Ex: Textiles production
Some industries with standardized output produced in mass quantities
Ex: Some computing equipment
© Mohr, Sengupta, Slater 2005

11. Definitions of High Technology: Common, Underlying Characteristics
Market Uncertainty
Technological Uncertainty
Competitive Volatility
Other Characteristics
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12. Market Uncertainty: ambiguity about the type and extent of customer needs that can be satisfied by a particular technology
Consumer fear, uncertainty and doubt (FUD)
Customer needs change rapidly and unpredictably
Customer anxiety over the lack of standards and dominant design
Uncertainty over the pace of adoption
Uncertainty over/inability to forecast market size
© Mohr, Sengupta, Slater 2005

13. Technology Uncertainty: not knowing whether the technology or the company can deliver on its promise
Uncertainty over whether the new innovation will function as promised
Uncertainty over timetable for new product development
Ambiguity over whether the supplier will be able to fix customer problems with the technology
Concerns over unanticipated/unintended consequences
Concerns over obsolescence
© Mohr, Sengupta, Slater 2005

14. Competitive Volatility: changes in competitors, offerings, strategies
Uncertainty over who will be future competitors
Uncertainty over “the rules of the game” (i.e., competitive strategies and tactics)
Uncertainty over “product form” competition
competition between product classes vs. between different brands of the same product
Implication: Creative destruction
© Mohr, Sengupta, Slater 2005

15. Characterizing the High-Tech Environment
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16. Network Externalities
When the value of the product increases as more people adopt it
Also called demand-side increasing returns or bandwagon effects
Ex: portals on the Internet
Metcalf’s Law: Value of the network = n2
(where n=# of users)
© Mohr, Sengupta, Slater 2005

17. Implications of Network Externalities
Reliance on strategies to quickly grow the size of the “installed base” (or customers using the particular product/technology)
May give away products for low price or even free
Work to develop industry standards
© Mohr, Sengupta, Slater 2005

18. Development of Industry Standards
Standards create a common, underlying architecture for products offered by different firms in the market.
© Mohr, Sengupta, Slater 2005

19. Why are industry standards important?
Customers gain compatibility
Lowers their perceived risk (FUD factor—fear, uncertainty, and doubt)
Allows for seamless interface of product components.
Due to network externalities, standards can increase the value a customer receives
(when more customers adopt/use products sharing a common standard).
© Mohr, Sengupta, Slater 2005

20. Why are industry standards important? (Cont.)
Availability of complementary products determined by the size of the “installed base” of a given product.
Therefore, standards help ensure greater availability of complementary products by helping to ensure a larger size of the installed base.
Customers get more value from the base product as more complementary products are available.
© Mohr, Sengupta, Slater 2005

21. Self-reinforcing Nature of Standards
Reduce
customer
fear,
uncertainty,
& doubt
Larger
installed
base
More
complementary
products
developed
Increased
value
demand for
product
© Mohr, Sengupta, Slater 2005

22. Implications from Standards
Originator of new technology can set standards—
Even when technology standard may be inferior
Ex: QWERTY keyboards
Critical success factor:
Grow installed base quickly
Antitrust implications when de facto standards become near monopolies
© Mohr, Sengupta, Slater 2005

23. Strategies to Set Industry Standards
(1) Licensing/OEM Agreements
Pros:
Can ensure initial wide distribution
Can co-ops competitors from developing competing technology
Limits customer confusion over competing standards
Sends signal to complementors that installed base may be significant, stimulating development of ancillary products
Cons:
Licensees may attempt minor technological alterations to bypass need to pay licensing fees
Original developer “creates” competitors
© Mohr, Sengupta, Slater 2005

24. Strategies to Set Industry Standards (Cont.)
(2) Strategic Alliances to jointly sponsor development of a particular technological standard
Pros:
Same four “pros” as the prior strategy, plus:
By combining skills, alliances may produce superior technologies than a single company could.
Cons:
Partner might access and misuse other firm’s proprietary information
Need for close attention to structure and management of the alliance
© Mohr, Sengupta, Slater 2005

25. Strategies to Set Industry Standards (Cont.)
(3) Product Diversification: Create a standard by developing the necessary complementary products to create more value for customers.
Pros:
Can “jump-start” the market when no installed base of customers exists and complementors have no incentive to develop products
Diversifies revenue base of the firm
Cons:
Commitment of resources
Potential incompatibility with core competencies
© Mohr, Sengupta, Slater 2005

26. Strategies to Set Industry Standards (Cont.)
(4) Aggressive Product Positioning via penetration pricing, product proliferation, and wide distribution.
Requires investments in production capacity, product development, and building market share
Costs of failure are very high
© Mohr, Sengupta, Slater 2005

27. Conditions That Affect the Choice of Standards-Setting Strategy:
Barriers to imitation
Via patents or copyrights, for example
Skills and resources
in technology, manufacturing, marketing, finances, and firm reputation
Existence of capable competitors
Potential suppliers of complementary products
© Mohr, Sengupta, Slater 2005

28. Which Strategy Under Which Conditions?
Aggressive Sole Provider when:
Barriers to imitation are high
Firm possesses required skills and resources
Suppliers of complementary products exist
Apparent absence of capable competitors
Passive Multiple Licensing when:
Barriers to imitation are low
Firms lacks required skills and resources
Presence of many capable competitors
© Mohr, Sengupta, Slater 2005

29. Which Strategy Under Which Conditions? (Cont)
Aggressive Multiple Licensing (combines licensing with aggressive positioning) when:
Firm possesses needed skills and resources
Barriers to imitation are low
Presence of many capable competitors
Selective Partnering when:
High barriers to imitation
Firm lacks needed skills and resources
Presence of capable competitors
© Mohr, Sengupta, Slater 2005

30. 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
© Mohr, Sengupta, Slater 2005

31. Other Characteristics Common to High-Tech Markets: (Cont.)
Tradability 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?
The perceived problem and valuation
Pricing on tangible goods vs. intangible goods
© Mohr, Sengupta, Slater 2005

32. Other Characteristics Common to High-Tech Markets: (Cont.)
Knowledge spillover:
Technological developments in one domain spur new developments and innovations in other areas.
Ex: Human Genome Project
© Mohr, Sengupta, Slater 2005

33. A Supply Chain Perspective of Technology—a case of Auto Industry
Interwoven impacts on facing innovation
Suppliers
Car Manufacturers
Car Dealers
Customers
-personal consumption
-business use (fleets, etc.)
-raw materials
-components
-production equipment
-services
© Mohr, Sengupta, Slater 2005

34. Critical ideas on a Supply Chain Perspective on Technology
Often, technological innovations occur at upstream (i.e., supplier) levels in the supply chain
Such innovations may radically affect the manufacturing process or the inner workings of a product, but
End-user behavior may not be significantly affected
Examples: cars, food, computing, hair styling, Internet
© Mohr, Sengupta, Slater 2005

35. Continuum of Innovations
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36. Supplier vs. Customer Perceptions of Nature of Innovation
Mismatch:
Delusion
Incremental
Breakthrough
Shadow
© Mohr, Sengupta, Slater 2005

37. Contingency Theory
Type of marketing strategy is contingent upon the nature of the innovation.
© Mohr, Sengupta, Slater 2005

38. Examples of Implications of Contingency Theory:
Breakthrough Incremental
R&D/Marketing Interaction
R&D leads; “technology push”
Marketing leads; “customer pull”
Type of Marketing Research
Lead users; empathic design
Surveys; focus groups
Role of Advertising
Primary demand; customer education
Selective demand; build image
Pricing
May be premium
More competitive
© Mohr, Sengupta, Slater 2005

39. Framework for High-Tech Marketing Decisions
© Mohr, Sengupta, Slater 2005

40. Job Opportunities in High-Tech
For non-technical backgrounds:
Find temporary work or internships to develop knowledge and language
Read industry publications; join industry trade groups
Work for high-tech company customers or suppliers
© Mohr, Sengupta, Slater 2005

41. Appendix: Outline of a Marketing Plan
Executive Summary
Market Analysis
Company Analysis
Objectives & Positioning
Value Proposition
Marketing Strategy
Budgeting and Control
© Mohr, Sengupta, Slater 2005