High Tech Marketing Fundamentals: Process and Product

Complexity of Technology Phaedrus  What does the story teach technology marketers? Unintended Consequences  South American Fire Ant Technological Paradoxes  Freedom-Enslavement  Control-Chaos Technological Backlash  Luddites  GMF  Others?

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

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 Timing/Synchronization problems Organization/Culture problems Money problems

Marketing Strategy in High-Tech Markets I

Characteristics Common to High- Tech Markets: Supply Side “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)

Characteristics Common to High- Tech Markets: Supply Side 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

Common, Underlying Characteristics of High- Tech Markets: Demand Side Perspective 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?

Effects of Uncertainty? Adoption rate! There are five variables that have been cited as responsible for speed of technology adoption:  Relative Advantage: the degree to which an innovation is perceived as better than the idea it supersedes  Compatibility: the degree to which an innovation is perceived as consistent with existing values, past experiences, and needs of potential users  Complexity: the degree to which an innovation is perceived as relatively difficult to use and understand  Trialability: the degree to which an innovation may be experimented with on a limited basis  Observability: the degree to which the results of an innovation are visible to others (Wow-factor).  Rogers, “Diffusion of Innovation.”

Think Telephone Introduced in 1877, people had to be convinced that it was useful. Despite its simple design and seemingly obvious value, it took 75 years for the telephone to reach 50 million users It wasn't until the 1960s that users saw a residential phone as a necessity.

Diffusion Rates The printing press (~1440):  400 years (1833, NY Sun). The automobile (1885):  75 years (market saturation in US around 1960) The telephone (1876):  85 years (full saturation in the 1960s) The fax machine (around 1843):  140 years (late 1980s) The Internet (1968)  35 years (mid-2000 an estimated 130 million Americans had access to the Internet, 330 million globally)

Value: Perceived Need-Perceived Price Variables essential to the successful uptake of technology:  Providing an infrastructure  Providing a function  Providing the right price point  Providing a compelling need to buy (make it a necessity).

Telegraph! Faster than Phone…Why? Morse presented prototype of the electric telegraph to the US Congress in 1838 by 1873 Western Union had carried more than twelve million messages  creation of the infrastructure which supported it.  cheap and predictable rates.  a shared language (global communication).

What is a disruptive technology? Disruptive technologies typically have worse performance, at least in the near term. But: They have features that a few fringe and generally new customers value and which represent a key source of competitive value in the future. Products based on them are typically cheaper, simpler, smaller and frequently more convenient to use - often representing a new product architecture, design, and even market (category). They often bring a new and different value proposition.  See Christensen: “The Innovator's Dilemma”

Examples: Muskets Steam ships Automobiles PCs Hard disk Digital photography Sony Walkman

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; developers Surveys; focus groups Primary demand; customer education Selective demand; build image May be premiumMore competitive

Virden What should Jim Merrick do about VM 2.0? What do you think of Merrick’s crew? What should be the role of marketing in high- technology firms?