Marketing Strategy in High-Tech Markets II

The Big Group Smack Down! Define High-Tech and why are hi tech markets particularly dynamic? Define High-Tech and why are hi tech markets particularly dynamic? Define High-Tech and why are hi tech markets particularly dynamic? Define High-Tech and why are hi tech markets particularly dynamic? What do you consider the most important barriers to adoption of the Wearable Computer? What do you consider the most important barriers to adoption of the Wearable Computer?most important barriers to adoptionWearable Computermost important barriers to adoptionWearable Computer Give an example of what you would consider a radical/disruptive technology-based innovation and from it develop a short definition. Give an example of what you would consider a radical/disruptive technology-based innovation and from it develop a short definition. Give an example of what you would consider a radical/disruptive technology-based innovation and from it develop a short definition Give an example of what you would consider a radical/disruptive technology-based innovation and from it develop a short definition Contingent on the type of innovation, the role of marketing differs. How? Contingent on the type of innovation, the role of marketing differs. How? Contingent on the type of innovation, the role of marketing differs. How? Contingent on the type of innovation, the role of marketing differs. How? “Unit-one costs of HT products are often high, payback cycles of a new HT products shorter and shorter.” “Unit-one costs of HT products are often high, payback cycles of a new HT products shorter and shorter.” “Unit-one costs of HT products are often high, payback cycles of a new HT products shorter and shorter.” “Unit-one costs of HT products are often high, payback cycles of a new HT products shorter and shorter.” Why is this so? Why is this so? As a marketing consultant, what do you recommend a company do that has a breakthrough product on its hand ready to launch? As a marketing consultant, what do you recommend a company do that has a breakthrough product on its hand ready to launch?

Why are High-Tech markets particularly dynamic? Why are High-Tech markets particularly dynamic?  No established rules of the game  Significant size economies  low entry barriers. Back

Barriers of Adoption Perceived value Perceived value Institutional support Institutional support Observability Observability Compatibility Compatibility Ease of use Ease of use Reliability Reliability Back

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 Back

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 premium More competitive Back

Muskets/then machine guns Muskets/then machine guns Steam ships Steam ships Automobiles Automobiles PCs PCs Digital photography Digital photography Netflix Netflix Back

What is a disruptive technology? Disruptive technologies typically have worse performance, at least in the near term. 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. 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). 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. They often bring a new and different value proposition. See Christensen: “The Innovator's Dilemma” See Christensen: “The Innovator's Dilemma” Back

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 “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 Ex: development vs. reproduction of software Demand-side increasing returns : When the value of the product increases as more people adopt it Demand-side increasing returns : When the value of the product increases as more people adopt it Also called network externalities and bandwagon effects Also called network externalities and bandwagon effects Ex: telephone, fax, MS Word Ex: telephone, fax, MS Word Implications: may give away products for free (IM) 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 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? 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. 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 Ex: Human Genome Project

Common, Underlying Characteristics of High-Tech Markets: Demand Side Perspective Market Uncertainty Market Uncertainty Technological Uncertainty Technological Uncertainty Competitive Volatility Competitive Volatility

Market Uncertainty: FUD factor FUD factor Customer needs Customer needs Anxiety over the lack of standards and dominant design (Laserdisc, DVD, DivX) Anxiety over the lack of standards and dominant design (Laserdisc, DVD, DivX) Pace of adoption Pace of adoption Inability to forecast market size Inability to forecast market size

Technology Uncertainty: Will it function as promised? Will it function as promised? Timetable for new product development? Timetable for new product development? Who will fix customer problems? Who will fix customer problems? What are unanticipated/unintended consequences? What are unanticipated/unintended consequences? (When) Will our technology be obsolete? (When) Will our technology be obsolete?

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

Effects of Uncertainty? Adoption rate! Adoption rate! There are five variables that have been cited as responsible for speed of technology adoption: 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 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, technologies, past experiences, and needs of potential users Compatibility: the degree to which an innovation is perceived as consistent with existing values, technologies, past experiences, and needs of potential users Complexity: the degree to which an innovation is perceived as relatively difficult to use and understand 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 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). Observability: the degree to which the results of an innovation are visible to others (Wow-factor). Rogers, “Diffusion of Innovation.” Rogers, “Diffusion of Innovation.”

Diffusion Rates The printing press (~1440): The printing press (~1440): 400 years (1833, NY Sun). 400 years (1833, NY Sun). The automobile (1885): The automobile (1885): 75 years (market saturation in US around 1960) 75 years (market saturation in US around 1960) The telephone (1876): The telephone (1876): 85 years (full saturation in the 1960s) 85 years (full saturation in the 1960s) The fax machine (1843): The fax machine (1843): 140 years (late 1980s) 140 years (late 1980s) The Internet (1968) The Internet (1968) 35 years 35 years

Value: Perceived Need-Perceived Price Variables essential to the successful uptake of technology: Variables essential to the successful uptake of technology: Providing an infrastructure Providing an infrastructure Providing a function Providing a function Providing the right price point Providing the right price point Providing a compelling need to buy (make it a necessity). 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 Morse presented prototype of the electric telegraph to the US Congress in 1838 by 1873 Western Union had carried more than twelve million messages by 1873 Western Union had carried more than twelve million messages creation of the infrastructure which supported it. creation of the infrastructure which supported it. cheap and predictable rates. cheap and predictable rates. a shared language (global communication). a shared language (global communication).

What is a disruptive technology? Muskets/then machine guns Muskets/then machine guns Steam ships Steam ships Automobiles Automobiles PCs PCs Digital photography Digital photography

What is a disruptive technology? Disruptive technologies typically have worse performance, at least in the near term. 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. 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). 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. They often bring a new and different value proposition. See Christensen: “The Innovator's Dilemma” See Christensen: “The Innovator's Dilemma”

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 premium More competitive

Marketing Strategy in High-Tech Markets II

The Big Group Smack Down! Define “High-Tech”. Define “High-Tech”. What do you consider the most important barriers to adoption of the Wearable Computer? What do you consider the most important barriers to adoption of the Wearable Computer?Wearable ComputerWearable Computer Give an example of what you would consider a radical innovation and develop a short definition. Give an example of what you would consider a radical innovation and develop a short definition. Contingent on the type of innovation, the role of marketing differs. How? Contingent on the type of innovation, the role of marketing differs. How? Give an example of what you would consider a disruptive technology and develop a short definition. Give an example of what you would consider a disruptive technology and develop a short definition. “Unit-one costs of HT products are often high, payback cycles of a new HT products shorter and shorter.” “Unit-one costs of HT products are often high, payback cycles of a new HT products shorter and shorter.” Why is this so? Why is this so? As a marketing consultant, what do you recommend a company do that has a breakthrough product on its hand ready to launch? As a marketing consultant, what do you recommend a company do that has a breakthrough product on its hand ready to launch?

Why are High-Tech markets particularly dynamic? Why are High-Tech markets particularly dynamic?  No established rules of the game  Significant size economies  low entry barriers.

Continuous shortening of product life cycles, which if true leads to a serious dilemma: Continuous shortening of product life cycles, which if true leads to a serious dilemma: =>High first part costs in innovation phase is associated with shorter pay-back cycles!

Concentrated vs. Differentiated Pros and Cons? Pros and Cons? Strategic Implications? Strategic Implications? (Segmentation, timing, participation) (Segmentation, timing, participation)

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

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. Back

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