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

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

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

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

Definitions of “High-Tech” Government perspective “Common underlying characteristics” perspective © Mohr, Sengupta, Slater 2005

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

Technology-Intensive TABLE 1-1  HIGH-TECHNOLOGY INDUSTRY EMPLOYMENT 2000 Level 1 Industries: Technology-Intensive © Mohr, Sengupta, Slater 2005

Technology-Intensive (Cont.) Level 1 Industries: Technology-Intensive (Cont.) © Mohr, Sengupta, Slater 2005 n.e.c. Not elsewhere classified

Level II Industries: Technology Moderate n.e.c Not elsewhere classified © Mohr, Sengupta, Slater 2005

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

Definitions of High Technology: Common, Underlying Characteristics Market Uncertainty Technological Uncertainty Competitive Volatility Other Characteristics © Mohr, Sengupta, Slater 2005

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

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

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

Characterizing the High-Tech Environment © Mohr, Sengupta, Slater 2005

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Continuum of Innovations © Mohr, Sengupta, Slater 2005

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

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

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

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

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

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