1. Marketing of High-Technology Products and Innovations
Chapter 1:
Introduction to the World of
High-Technology Marketing

2. Opening vignette: Innovations in Automobiles and Transportation
Jet Pack International
Moller SkyCar
Aptera
Tesla
MIT Smart Cities CityCar
Tata Nano
See also: A Better Place (electric car company using an innovative business model)

3. Questions to Consider How is “high-tech” defined?
What are the common characteristics found in high-tech environments?
What is the importance of dominant design in high-tech markets?
Why are standards important to marketers and customers?

4. Questions to Consider What are the various types of innovations?
Why (and how) does marketing for high-tech innovations differ from traditional marketing?

5. Why Do So Many High-Tech Innovations Fail?
Some high-tech companies believe that marketing is superfluous
The role of marketing is downplayed or misunderstood
Marketing for high-tech products is complicated and difficult
Marketing is an after-thought to product development
Cross-functional collaboration is difficult
High-technology companies are not “market-driven”

6. Importance of High-Tech Marketing
Technological superiority alone does not ensure success for high-tech products
Combination of technology superiority AND marketing competence maximizes the odds of success.
Requires intimate understanding of customers

7. Distinction Between “High-Tech Marketing” & “Marketing of High-Tech Products”
“High-Tech Marketing” can mean:
Use of technology for marketing purposes
“New media,” paid search, online advertising, Web 2.0, etc.
Covered primarily in Chapter 11 on Advertising and Promotion
Marketing of high-tech products/innovations
Primary focus of this book: how standard marketing strategies are adapted/modified for high-tech products

8. Lexicon of Marketing Marketing
Set of activities, processes, and decisions to create, communicate, and deliver products/services that offer value to customers and other stakeholders
A philosophy of doing business that focuses on creating value for customers
Uses market-based information to guide internal decisions
Brings the voice of the customer into the firm

9. Three Levels of Marketing Decisions: Strategic
Strategic: Proactive decisions to chart the company’s efforts in the market
Segmentation, targeting, positioning
Which markets, which segments?
What value proposition/competitive position?
May include a company’s corporate social responsibility initiatives

10. Three Levels of Marketing Decisions: Strategic (cont.)
When strategic decisions are not made, company’s efforts are diffused across market segments and product development projects
Recipe for disaster
Responsibility for strategic decisions must be vested with some department in the company
Resources for research must be allocated

11. Three Levels of Marketing Decisions: Functional
Decisions regarding the 4 Ps of marketing:
Product, Price, “Place” (distribution), Promotion
Consistency across the marketing mix
Requires effective cross-functional collaboration
Common focus for all departments is delivery of superior customer value:
“Moments of truth:” every interaction a customer has with a company either cements or undermines that customer relationship

12. 4 Ps of Marketing
Product: e.g., new product development process; licensing; intellectual property rights; services; etc.
Develop a stream of products with the right set of features to satisfy customer needs in a compelling yet simple fashion.
Price: Establish prices for the company’s product
Consider the cost to produce/manufacturer the goods; margins along the distribution channel; competitor’s prices; customer value; total cost of ownership; prices for product bundles; and profitability.

13. 4 Ps of Marketing (cont.)
Place: Distribution channels and supply chain management.
Promotion:
Advertising (both media and messaging decisions)
Sales promotion (price deals, trade incentives, etc.)
Personal selling (recruiting, training, compensating sales people)
Public relations/publicity (garnering favorable trade press attending trade shows, engaging in cause-related marketing, etc.)
The Internet and other new media
Collateral materials

14. Three Levels of Marketing Decisions: Tactical
Actual implementation of specific marketing tools
Development of marketing brochures and collateral
Website development
Decisions about which trade shows to attend
Where to place ads

15. Definitions of High-Technology
Cutting edge, “advanced” products/processes that rely on scientific/engineering knowledge
Innovations:
Things that are new—some of which are high-tech

16. Government-Based Classifications of “High-Tech”
Input-based definitions:
Based on criteria such as 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
See Appendix A for a list of industries classified as high-tech

17. Government-Based Classifications of “High-Tech” (cont.)
Output-based definitions:
Based on whether products embody new/leading- edge technologies
U.S. Census Bureau’s classification (next slide)

18. U.S. Census Bureau Output-based Definition
Government-Based
Classifications of “High-Tech” (cont.)
U.S. Census Bureau Output-based Definition
Biotechnology Life sciences technology Optoelectronics Information and communications technology (ICT) Electronics Flexible manufacturing Advanced materials (semiconductors, fiber optics) Aerospace Weapons Nuclear technology

19. Input-Based Approaches
Strengths/Weaknesses of Government Approaches to Defining High Technology
Input-Based Approaches
Strengths
Data easily obtainable
Objective
Effective for Level I* industries
Includes focus on high-tech service sector
Weaknesses
Classifications may be deemed arbitrary
May include industries with products not commonly thought of as high tech
May omit very new industries
Different input-based measures will result in different classifications
*See text for definitions of Level I, II, and III industries

20. Output-Based Approaches
Strengths/Weaknesses of Government Approaches to Defining High Technology (cont.)
Output-Based Approaches
Strengths
Classification tends to have face value
Relatively good correlation between input and output methods for Level I industries
Weaknesses
Somewhat post-hoc: judgments somewhat subjective
Generally not as comprehensive as input-based approaches
Relatively low correlation between input and output methods for Level II and Level IIII industries

21. Characterizing the High-Tech Environment: Common Characteristics

22. Common Characteristics of the High-Tech Environment:
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

25. Technology Uncertainty:
Common Characteristics of the High-Tech Environment:
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

26. Competitive Volatility:
Common Characteristics of the High-Tech Environment:
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
“Convergence”

27. Competitive Volatility: (cont.)
Common Characteristics of the High-Tech Environment:
Competitive Volatility: (cont.)
Implications:
Avoid myopia
Engage in creative destruction

28. Three Sources of Marketing Myopia in High-Tech Markets
“Our technology is so new we have no competitors.”
But: customer needs are already being solved; entrenched customer habits harder to address than “real” competition.
“The new technology being commercialized by new competitors will not pose a large threat.”
But: “You’ve been ‘amazoned!’
That competitor is in a different industry, and its strategies don’t/won’t affect my business.
But: customer needs can be solved using different underlying technology platforms.

29. Technology Life Cycles
Evolution in new generations of technology
Moore’s Law:
Performance of an existing technology doubles every 18 months with no increase in price;
Predicts upper limits of a particular generation of technology
Typically embodied in new “product forms”
Often S-shaped curves (see next slide)
May also be irregular step functions and may not be overlapping in terms of performance levels

30. Technology Life Cycles (cont.)

31. Some Implications of Technology Life Cycles
New technologies often come from companies not selling current generation of technology
At its initial introduction a new discontinuous technology often underperforms the legacy technology
Incumbents often underestimate viability of new developments
Therefore, new technologies can catch established firms by surprise

32. Some Implications of Technology Life Cycles (cont.)
Flurry of new companies ultimately shakes out and industry coalesces around “dominant design”
Performance of new technology takes off and overcomes capability of legacy technology
Creative destruction: new technologies obsolete old technologies creating new winners/losers in the industry

33. Other Characteristics of High-Tech Industries
Unit One Costs
When the cost of producing the first unit is very high relative to the variable costs of reproduction of subsequent units
The ratio of variable costs to fixed costs is very low.
Tradeability problems
The difficulty in selling “know-how” because of uncertainty in how to value the knowledge-- especially when it is tacit and resides in people and organizational routines.
Knowledge spillovers
Synergies in the creation of know-how further enrich a related stock of knowledge.

34. 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; social network sites
Based on (driven by) communications and connectivity among users

35. Network
Externalities

36. Two Sources of Network Effects
Direct network effects
Based on the size of the installed base, and communications/connectivity among users
Metcalf’s Law: Value of the network = n2
(where n=# of users)
Indirect network effects
Based on the incentive to develop and availability of “complementary” products
Games played on consoles; DVD/films played on DVD players

37. Indirect Network Effects
Which comes first, the chicken or the egg?
Does the device/hardware lead the availability of software/applications, or vice versa?
Research suggests hardware sales drive availability of software (in some markets) while in others, hardware and software together are necessary.

38. Critical Success Factors in Industries Characterized by Network Externalities
Quickly grow the installed base of customers
Establish industry standards for compatibility/ interoperability
Industry Standards: agreed-upon specifications to ensure technical compatibility for products across different firms
Allow customers to gain compatibility across various components of a product
Fear, uncertainty, and doubt is lessened

39. Self-Reinforcing Nature of Industry Standards
Figure 1-5

40. When Competing Platforms Exist:
Customers and developers of complementary products take a wait-and-see attitude:
Which platform will “win?”
Examples:
Telecommunications
HDTV

41. Will a Dominant Design Emerge? How Long?
Dominant design emerges when:
Company/industry follows open business model
Innovation is less radical
R&D intensity is high (creates pressure to select dominant design)
Dominant design emerges sooner when:
Value network has large number of firms (creates pressure to know what dominant design will be)
De facto process guides development of industry standards (versus imposed by some “body”)

42. Other Strategies to Become Industry Standard
“Get Big Fast” Strategies
Free offerings
License technology to other industry players
Create customer lock-in based on switching costs to a competitive offering
Caveats:
Best technology may not win the standards war
Companies that are the de facto industry standard are carefully scrutinized for monopolistic behavior
Superior technology may not unseat established standards

43. Why Can’t Companies Agree on Standards?
“It’s my way or the high-way.”
Company believes its technology is superior and will prevail in the marketplace; willing to “go it alone”
“We shall overcome!”
Through sheer power, effort, and resources, company believes its technology will become the dominant design.
“But it’s mine!”
Company is unwilling to share knowledge with other industry players, which is oftentimes required for using a common industry platform.
“I deserve more!”
Partners cannot come to terms regarding licensing fees, royalties, or revenue sharing.

44. Types of Innovations Incremental versus breakthrough
Product versus process versus organizational
Architectural versus modular (component)
Sustaining versus disruptive

45. Types of Innovations: Incremental vs. Breakthrough
Incremental Innovations
Continuations of existing products, methods or practices
Minor improvements made with existing methods and technology
Evolutionary as opposed to revolutionary
Totally new products
Considerable change in basic technologies and methods
Revolutionary ideas that can create new markets
Breakthrough Innovations

46. Types of Innovations: Product vs. Process
Product Innovations
New products offering improvements in functional characteristics, technical abilities, ease of use, or other dimensions(incremental or breakthrough)
New techniques of producing goods or services
Improve the effectiveness or efficiency of production processes
Facilitate the discovery of underlying scientific properties of technological domains
Product innovations of one firm may be used as a
process innovation by another and vice versa
Process Innovations

47. Types of Innovations: Architectural vs. Modular
Architectural Innovations
New foundations or fundamentals of how the various components of a system work together to function
Based on scientific principles
Different from existing technological platforms
May be considered radical.
New parts or materials within the same technological platform
Example: Magnetic tape, floppy disk, and zip disk differ by components or materials, all three based on the platform of magnetic recording
Modular Innovations

48. Types of Innovations: Sustaining vs. Disruptive
Sustaining Innovations
Target demanding, high-end customers with improved performance
Typically through incremental innovations
New, simpler, more convenient, less sophisticated and/or less expensive than existing products or services
Appeal to customers at the lower end of the market
Low-end disruption: attracts low-end customers initially, moves into more upscale markets over time as the technology improves
New-market disruption: converts previous non-customers into new customers, thereby creating a new market
Disruptive Innovations

49. Types of Innovations: Organizational
Organizational Innovations
Create or alter business structures, practices, and models
Business model (strategy) innovations
Change in the way business is done in terms of capturing value
New methods of financial management
Innovations aimed at social needs and issues
Innovations in marketing

50. Continuum of Innovations

51. Radical vs. Disruptive Innovation
Radical Innovation
Substantially new technology relative to what already exists in the industry
Disruptive Innovation
Increased sophistication of the feature set in product offerings at a faster rate than customers can keep up may lead to a gap in the marketplace.
Gap = Opportunities
New companies may enter the market with lower-end products, selling to lower-end customers first

52. Supply Chain for Auto Industry
Car Manufacturers
Car Dealers
Suppliers
Customers
-raw materials
-components
-production equipment
-services
-personal
consumption
-business use
(fleets, etc.)

53. 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: food, fashion, apparel

54. Differential Strategies: Breakthrough vs. Incremental Innovations
Companies must be ambidextrous and manage both types of innovation processes
Incremental innovations require:
Attention to cost competitiveness, manufacturing, understanding the market
Breakthrough innovations require:
More long term thinking; risk tolerance; ambiguous market information

55. Contingency Theory of High-Tech Marketing
Type of marketing strategy is contingent upon the nature of the innovation.

56. Implications of Contingency Theory: Examples
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
©2010 Pearson Education, Inc. publishing as Prentice Hall

57. } High-Tech Marketing Decisions: Framework Marketing – 4Ps (Ch. 8-12)
High-Tech Firm (Ch. 2-5)
Strategic Planning Process
Core Competencies
Organizational Culture and Climate
Core Rigidities
Market Orientation
Cross-Functional Teams
R&D/Marketing Interactions
Partnerships and Alliances
Customer Relationship Marketing
Understanding Customers
(Ch 6, 7)
High-tech Research
Forecasting
Customer Decision-Making
Adoption/Diffusion of Innovations
Market Segmentation,
Targeting, Positioning
Societal and Ethical Concerns (Chapter 13)

58. Technology Solutions for Global Problems:
One Laptop Per Child

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