High Tech Marketing I: Fundamentals

Complexity of Technology Phaedrus Unintended Consequences  South American Fire Ant Technological Paradoxes  Freedom-Enslavement  Control-Chaos Technological Backlash  Luddites  GMF  Pfizer?

The business enterprise has two —and only two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs… -- Peter Drucker

Innovation without Marketing… Radio ( ) Television (1930s) AT&T Picturephone Wrong “App” targeted Missing business model Ahead of time (1960)

Technology is ubiquitous Examples of traditional “high-tech” industries:  Computers and information technology  Biotechnology  Telecommunications  Internet Examples of some industries where technological innovation is creating radical changes:  Agriculture Agriculture  Waste Management (GM organisms)  Automotive  Consumer Products (GMF, irradiated chicken)

A Supply Chain Perspective on Technology Often, technological innovations occur at upstream (i.e., supplier) levels in the supply chain… …affecting 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, phone

The “Where” of Technology Process technology Product technology

Definition of Technology:  Technology is people using knowledge, tools, and systems to control processes and the environment.

Definition of High-Technology: No single preferred method for identifying high technology industries. High technology industries have a great dependence on science and technology innovation that leads to new or improved products and services.

Definitions of Technology: Government Perspective Classify industries based on objective, measurable indicators:  the number of technical employees  $ spent on R&D  # of patents filed in industry

Marketing Strategy in High-Tech Markets II

Why is it so difficult to succeed in High-Tech settings? Complexity of Context (Hyper)competition Dynamic/Fickle/Ultra-demanding consumers Incomplete Information/Partial Knowledge Organization/Culture problems Money problems

Common, Underlying Characteristics of High- Tech Markets Market Uncertainty Technological Uncertainty Competitive Volatility

Market Uncertainty: Consumer fear, uncertainty and doubt (FUD) Customer needs (sometimes rather tastes) change rapidly and unpredictably (recorded books, e- books?) Customer anxiety over the lack of standards and dominant design (Laserdisc, DVD, DivX) Uncertainty over the pace of adoption Uncertainty over/inability to forecast market size

Technology Uncertainty: Will the new innovation function as promised? What is the timetable for new product development? Will the supplier be able to fix customer problems with the technology? What are unanticipated/unintended consequences? (When) Will our technology be obsolete?

Competitive Uncertainty: Who will be future competitors? What will be “the rules of the game” (i.e., competitive strategies and tactics)? What will “product form” competition be like?  competition between product classes vs. between different brands of the same product Implication: Creative destruction?

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 Demand-side increasing returns : When the value of the product increases as more people adopt it  Also called network externalities and bandwagon effects  Ex: telephone, fax, MS Word  Implications: may give away products for free (IM)

Other Characteristics Common to High-Tech Markets: (Cont.) Tradeability 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? Knowledge spillover: Another type of externality that arises from the fact that technological developments in one domain spur new developments and innovations in other areas.  Ex: Human Genome Project

Continuum of Innovations IncrementalRadical Extension of existing product or process Product characteristics well-defined Competitive advantage on low cost production Often developed in response to specific market need "Demand-side" market New technology creates new market R&D invention in the lab Superior functional performance over "old" technology Specific market opportunity or need of only secondary concern "Supply-side" market

Supplier vs. Customer Perceptions of Nature of Innovation

Contingency Theory Type of marketing strategy is contingent upon the nature of the innovation.

Examples of Implications of Contingency Theory: R&D/Marketing Interaction Type of Marketing Research Role of Advertising Pricing BreakthroughIncremental “technology push”“customer pull” Lead users; developersSurveys; focus groups Primary demand; customer education Selective demand; build image May be premiumMore competitive

Analyzing High-Tech: Product-related: Technology Seduction From short PLC to short MLC. The technology S-Curve.

Cumulative Development Effort Performance

Specific Strategic Challenges in High-Tech Markets We see a continuous shortening of product life cycles, which leads to a serious dilemma: =>High “first part” costs in innovation phase is associated with shorter pay-back cycles!

STP High innovation costs plus shortening PLC means strategically: 1) Enter as many market segments as possible at the same time to shorten pay-back time. 2) Develop a broad geographical strategy as low entry barriers allow competitors to exploit uncovered territory.

Three Entry Options: Pioneers Early Followers Late followers What are some pros and cons of each? STP

The Unique Pricing Challenge Why is pricing such a challenge for high- tech innovations? How should you price at each stage of the technology diffusion cycle? When should a product be free? How do you define value if the product is free?

Developing Breakthrough Products and Services - the "Lead User Method" and Outsourcing

The Great Unknown! The “fuzzy front end” of the innovation process  how it works  how to make it better  how marketing can help Studies in: Industrial products (like semiconductors); consumer products (sports equipment); OS software

Why Pursue MAJOR Innovations? Everything becomes a commodity eventually.

Major Innovations are RARE So what can Markers do to avoid premature COMMODIFICATION? Product differentiation (aka, create new MLC) Segment the market By demographics By need Etc. Promotional response to declining MLC Pricing Channel strategy

“Breakthrough” vs Incremental Innovation We define “breakthrough” innovation as the first member of a major new product line in a firm  iPod for Apple  Sticky notes for 3M “Incremental” innovations are improvements to existing product lines  Improved iPod  Improved sticky notes CAUTION: You still need consumer corroboration!

Why study how to generate breakthroughs? Because:  Periodic breakthroughs are ESSENTIAL to firms  Firms are (pretty) good at incremental innovation  but they don’t know how to develop breakthroughs systematically Result: major innovations are often very rare and desperately sought by management:  In 5 3M Divisions studied less than 1 new product line introduced per Division every 2 years on average

Breakthrough innovation is both essential and UNWANTED Change is disruptive  to be avoided if possible Change obsoletes marketing expertise and production investments  Polaroid produces instant film and cameras – not DVD players!  Kodak produces film – not digital cameras!  Change devalues personal “intellectual property” I know how to market films - not digital cameras! I know how to sell copy machines – not services!

Contrasting innovation methods Traditional methods are based on “find a need and fill it” (Target users provide needs; Manufacturer develops solutions) New methods are based on finding / encouraging and commercializing solutions developed by users themselves

And Marketing? As the traditional model goes does marketing become obsolete and turn into selling?

Innovation in the 21 st Century comes from two Sources: Lead Users and Pure Innovators Users innovate when it pays… for them  “Lead Users” are users that: Have needs that foreshadow general demand in the marketplace Expect to obtain high benefit from a solution to their needs. (Such users are more likely to innovate – “Necessity is the mother of invention!”)

Structures of Technology Innovation Creative Destruction  Proactively develop next-generation technology that may obsolete current technology  Ex: Develop Web-sites that undermine current distribution channels Corporate Imagination Experimental Marketing

Elements of Corporate Imagination Escape the “tyranny of the served market”  Excessive focus on current customers  Obscures the fact that customer needs may change over time and may be solved in radically new ways  Ex. Kodak, Dell

Experimental Marketing: Advantages More accurate learning of customer needs Time between market learning and product launch is shortened Implication: It is less about being right the first time, but being able to accumulate market experience, and quickly adapt market offerings Ex.: Google?

Summary Technology is everywhere: “Technoculture”  BUT, the ‘where’ matters for marketers Marketing important for successful innovation What is high-tech is not easily defined High-tech markets are complex (uncertainties) Lots of strategic challenges Radical vs. incremental innovation New sources of innovation in the 21 st century