High-tech Strategy and Innovation Marketing

1. High-tech Strategy and Innovation Marketing

2. 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

3. 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

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

5. 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

6. 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?

7. 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?

8. 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.”

9. 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.

10. 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 (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) • Cell Phone • 10 years (late 1980s-2000, 800 million globally)

11. Final Thoughts on Adoption • Marketers must provide compelling reasons for adoption, and overcome customers’ fear, uncertainty, and doubt. • Traditional marketing methods (which assumes customers understand the usefulness of the products and know how to evaluate them) are often insufficient. • Often, must focus more on educating potential users about benefits and how to use new product

12. Final Thoughts on Adoption • Involve customers in evaluating new product ideas • Don’t base assessment on inventor’s familiarity with, and enthusiasm for, technology. • Understand who is likely to be an early adopter, and how they differ from the mainstream market.

13. Categories of Adopters

14. Categories of Adopters Who influences whom? Who references whom? Who buys for what reason? What is the whole product? What is the minimum product? Which partner helps bridge the gap? What is the minimum customer base?

15. Visionaries Adventurous Think/spend big Want to be first in implementing new ideas in their industries Think pragmatists are pedestrian Pragmatists Prudent; stay within zone of “reasonable,” and within budget Make slow, steady progress Think visionaries are dangerous Visionaries vs. Pragmatists

16. Satisfaction/ Expectations Who is the buyer? High Compels • Individual • Company More is better - Performance/ Requirements + Must Have Low

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

18. Examples of Implications of Contingency Theory: Breakthrough Incremental

19. Back to the Market • Why are High-Tech markets particularly dynamic? • No established rules of the game • Scalable economies • low entry barriers

20. More on dynamic… • Continuous shortening of product (or better model) life cycles which if true leads to a serious dilemma: => High first part costs in innovation phase is associated with shorter pay-back cycles!

21. How useful is this as a strategic tool? Performance Cumulative Development Effort

22. Some strategic considerations • Segmentation • Timing • Participation

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

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

25. STP • Specialization versus Standardization? • Price-Quantity (cost utility) versus preference oriented (buyer utility)? • Customer-orientation versus competitor-orientation?

26. A Preliminary Summary: What is Hi-Tech? • High R&D intensity => watch technology seduction • Knowledge & skill-intensive products/processes • Short and shrinking development cycles • But long discovery cycles • Short pay-back cycles • Complex products => Customer confusion • Large number of entrepreneurial competitors and low barriers of entry • Uncertainties about design, standards, and technological paradigm • Uncertainties about market/applications • Inadequate support and service systems • Rapid change

27. A Preliminary Summary: What can high-tech firms do? • Ultra-dominance (become de facto standard) • Mega-market-coverage (product/solution for every contingency) • Deep specialization/Focus • Alliances, partnerships, joint ventures, licensing • Accelerate R&D processes and systematize innovation • Effective marketing !!!