1. Marketing Strategy in High-Tech Markets II

2. 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

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

4. 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

5. 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?

6. 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?

7. 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)

8. 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

9. 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

10. Supplier vs. Customer Perceptions of Nature of Innovation

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

12. 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

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

14. Cumulative Development Effort Performance

15. 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!

16. 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.

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

18. 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?