Arto Rajala, Dr. Helsinki School of Economics Department of Marketing

1. High-tech Marketing Arto Rajala, Dr. Helsinki School of Economics Department of Marketing

2. Outline • Definitions • Characteristics of High Technology • Commercializing High-Tech Products • Identifying and Crossing the Chasm • On the Mainstream Market • Managing Marketing Offerings in High-Tech • Conclusions • Appendix: High Technology in Finland High-tech Marketing - Arto Rajala (HSE)

3. Definitions Marketing & High Technology

4. Defining Marketing • Marketing is a business (management) discipline or orientation ”...performance of business activities that direct goods and services from produces to consumer or user (AMA)” • Understanding actual and potential customer needs, by • developing/modifying products, facilitating customer access to its offerings, attracting and influencing the market, creating differential advantages (brand) • Establishing and maintaining customer relationships • Managing 4P’s (Product, Price, Place, Promotion) • Segmenting  Targeting  Positioning High-tech Marketing - Arto Rajala (HSE)

5. Mass Marketing Same product to all consumers (no segmentation, i.e Coca-Cola) Segment Marketing Different products to one or more segments (some segmentation, i.e. Marriott) Niche Marketing Different products to subgroups within segments (more segmentation, i.e. Standard or Luxury SUV’s) Micromarketing Products to suit the tastes of individuals and locations (complete segmentation) Individual Marketing Tailoring products and programs to the needs of individual customers, i.e. Dell Local Marketing Tailoring brands/ promotions to local customer groups, i.e Sears Through Market Segmentation, Companies Divide Large, Heterogeneous Markets into Smaller Segments that Can be Reached More Efficiently And Effectively With Products and Services That Match Their Unique Needs. High-tech Marketing - Arto Rajala (HSE)

6. Segmentation Process Market Segmentation 1. Identify bases for segmenting the market 2. Develop segment profiles Market Targeting 3. Develop measure of segment attractiveness 4. Select target segments Market positioning 5. Develop positioning for target segments 6. Develop a marketing mix for each segment See more in e.g.Kotler & Armstrong (2003), Principles of Marketing. 10th edition,Prentice Hall. High-tech Marketing - Arto Rajala (HSE)

7. Measurable Accessible Substantial • Size, purchasing power, profiles • of segments can be measured. Differential • Segments can be effectively • reached and served. Actionable • Segments are large or profitable enough to serve. • Segments must respond differently to different marketing mix elements & programs. • Effective programs can be designed to attract and serve the segments. Requirements for Effective Segmentation High-tech Marketing - Arto Rajala (HSE)

8. Characteristics of High Technology… • Novelty – advanced compared to the-state-of-the-art • Knowledge intensity – based on radical innovation • Leading-edge technology • The-state-of-the-art in the field and not widespread acceptance by those working in the field • Technology-base is new • Cross-industry characteristics • Ability to create/modify new applications • Dependence on R&D and highly educated people • R&D investments > 4% of turnover (OECD) • usually between 10% - 20% • Long R&D phase – short market existence High-tech Marketing - Arto Rajala (HSE)

9. …Characteristics of High Technology • Developer’s vs. user’s view on technology • Technology adapters = CUSTOMERS • Technology providers = SUPPLIERS • Customer perceived value • Added value to customer • Knowledge intensity • Different technology settings • Technology life cycle • From product to process technologies High-tech Marketing - Arto Rajala (HSE)

10. A Definition of High-Tech …… from Marketing Point of View “High-tech is that of the leading-edge technology involving a high level of knowledge intensity, which enhances the value of the product or process to the customer in the sense that it provides better quality, lower costs, or it makes the use of the object easier compared to the old technology” High-tech Marketing - Arto Rajala (HSE)

11. High Technology What Makes High-Tech so Difficult for Marketers?

12. Innovations – CORE of high techonology • Innovation ~ a totally new, or a remarkable enhanced, product, service or production system/process • Product innovations • New, or enhanced innovative products or services • Process innovations • New information and material flows within and between units and organizations as well as innovative principles of working, working methods, roles and the tools used in the business process • Organizational (managerial) innovations • Refers to innovations about administrative, social and organizational elements (e.g. new organizational structure, management & reward systems, business models) • Process and organizational innovations differ from product innovations in terms of the implementation of ideas. • Process and organizational innovations have an internal focus, i.e., they are most often implemented within the company • Product innovations are embedded into products and launched into external markets by different individuals and departments High-tech Marketing - Arto Rajala (HSE)

13. Incremental Innovation 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 Customer pull Radical Innovation Now 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 Technology push Continuum of Innovations High-tech Marketing - Arto Rajala (HSE)

14. Technology Life-Cycle Source: Anderson & Tushman (1990) High-tech Marketing - Arto Rajala (HSE)

15. Nature of High Tech Markets • Why are high-tech markets different ? • Market uncertainty • Ambiguity about the type and extent of customer needs that can be satisfied by the technology • Technological uncertainty • Not knowing whether the technology - or the company providing it - can deliver on its promise to meet needs, once they have been articulated • Competitive volatility • Changes in the competitive landscape High-tech Marketing - Arto Rajala (HSE)

16. TechnologicalUncertainty MarketUncertainty • Sources ofTechnological Uncertainty • Will the newproduct function aspromised? • Will the deliverytimetable be met? • Will the vendorgive high-qualityservice? • Will there be sideeffects of theproduct or service? • Will the new technology makeours obsolete? • Sources of MarketUncertainty • What needs mightbe met by the newtechnology? • How will needschange in the future? • Will the marketadopt industrystandards? • How fast will theinnovation spread? • How large is thepotential market? Marketing ofHigh TechnologyProducts andInnovations CompetitiveVolatility • Sources of Competitive Uncertainty • Who will be the newcompetitors in future? • What competitive tacticswill be used? • What products will wecompete with Sources of Uncertainties Source: Mohr (2001) High-tech Marketing - Arto Rajala (HSE)

17. Challenges for Marketing • New designs must win market share • Role of distribution channel • Customer perceptions • Competition • From higher performance to lower costs and differentiation through minor design variations and strategic positioning tactics • incremental changes take place • Segmenting  Targeting  Positioning High-tech Marketing - Arto Rajala (HSE)

18. Commercialising High-Tech Products (1/2) Identifying and Crossing the Chasm

19. Key Issues • Why so many excellent products fail? • 90-95 % of new product ideas newer reach market • 30-50 % of introduced products seem to fail on the market • Are there differences between high-tech and low-tech product concerning the commercialisation process? • Critical issue: Time-to-Market • Using the ‘Market Development Model’ High-tech Marketing - Arto Rajala (HSE)

20. Pragmatists: Stick with the herd! Conservatives: Hold on! Visionaries: Skeptics: Get ahead of the herd! No way! Techies: 33% 33% Try it! 16,5% 14% 2,5% Innovators Early Early Majority Late Majority Laggards Adopters Technology Adoption Life-Cycle Pragmatists create the dynamics of high-tech market development. Source: Moore (1998) High-tech Marketing - Arto Rajala (HSE)

21. Innovators ~ Technology Enthusiasts • Primary Motivation: • Learn about new technologies for their own sake • Key Characteristics: • Strong aptitude for technical information • Like to alpha test new products • Can ignore the missing elements • Do whatever they can to help • Challenges: • Want unrestricted access to top technical people • Want no-profit pricing (preferably free) High-tech Marketing - Arto Rajala (HSE)

22. Early Adopters ~ Visionaries • Primary Motivation: • Gain dramatic competitive advantage via revolutionary breakthrough • Key Characteristics: • Great imaginations for strategic applications • Attracted by high-risk, high-reward propositions • Will commit to supply the missing elements • Perceive order-of-magnitude gains — so not price-sensitive • Challenges: • Want rapid time-to-market • Demand high degree of customization and support High-tech Marketing - Arto Rajala (HSE)

23. Early Majority ~ Pragmatists • Primary Motivation: • Gain productivity improvements via evolutionary change • Key Characteristics: • Astute managers of mission-critical applications • Understand real-world issues and tradeoffs • Focus on proven applications • Like to go with the market leader • Challenges: • Insist on good references from trusted colleagues • Want to see the solution in production at the reference site High-tech Marketing - Arto Rajala (HSE)

24. Late Majority ~ Conservatives • Primary Motivation: • Just stay even with the competition. • Key Characteristics: • Better with people than technology • Risk averse • Price-sensitive • Highly reliant on a single, trusted advisor • Challenges: • Need completely pre-assembled solutions • Would benefit from value-added services but do not want to pay for them High-tech Marketing - Arto Rajala (HSE)

25. Laggards ~ Skeptics • Primary Motivation: • Maintain status quo. • Key Characteristics: • Good at debunking marketing hype • Disbelieve productivity-improvement arguments • Believe in the law of unintended consequences • Seek to block purchases of new technology • Challenges: • Not a customer • Can be formidable opposition to early adoption High-tech Marketing - Arto Rajala (HSE)

26. The Logic of Commercialising High-Tech Products • Seeding new products to Techis • Techis help and educate Visionaries • Visionaries serve good references for the Pragmatists • Becoming the market leader by serving Pragmatists and setting standards • Leverage success - generate sufficient volume & experience -- reliable products which are also cheap enough to Conservatives • Leaving Sceptics to their on devices High-tech Marketing - Arto Rajala (HSE)

27. Chasm Early Market Mainstream Market Discovering the Chasm • High-tech products are warmly welcome in an early market but then they usually fall into a chasm (sales will falter and often plummet) • Visionaries don’t see enough of a head start • Pragmatists see no reason to start yet Source: Moore (1998) High-tech Marketing - Arto Rajala (HSE)

28. Crossing the Chasm • High-tech paradox… • 80% of many solutions but none of 100% • Pragmatists won't buy 80% solutions !!! • High-tech myopia… • Committing to the most common enhancement requests • Never finishing any one customer's wish-list Source: Moore (1998) High-tech Marketing - Arto Rajala (HSE)

29. Successful Crossing • Understanding the difference between visionaries and pragmatists • The former is willing to bet ‘on the come’ • The latter want to see the solutions in production (i.e. see the whole product before they by it)’ • Clear focus on a single beachhead • Use a niche strategy  a full solution for one niche • Putting all eggs in one basket (e.g. Nokia in 1990s) • Global focus with local applicapility • ‘Think global act local’ Gaining the acceptance within a mainstream market • Gaining the acceptance within a mainstream market High-tech Marketing - Arto Rajala (HSE)

30. Commercialising High-Tech Products (2/2) On the Mainstream Market

31. Market Development Model Main Street Tornado Total Assimilation EarlyMarket Chasm BowlingAlley Mainstream Market Source: Moore (1998) High-tech Marketing - Arto Rajala (HSE)

32. Beyond the Chasm ~ Assessing Mass Market The Bowling Alley • a period of niche-based adoption in advance of the general marketplace, driven by compelling customer needs and the willingness of vendors to craft niche-specific whole products The Tornado • a period of mass-market adoption, when the general marketplace switches over to the new infrastructure paradigm Main Street • a period of aftermarket development, when the base infrastructure has been deployed and the goal now is to flesh out its potential End of Life • wholly new paradigms (technology) come to market High-tech Marketing - Arto Rajala (HSE)

33. Market share is converted into served installed base here Market share is captured here Product Category Life Cycle (Ongoing sales) Technology vs. Category Life Cycles Technology Adoption Life Cycle (First time adopters) Source: Moore (1998) High-tech Marketing - Arto Rajala (HSE)

34. Four Marketing Frameworks 1 on 1 Marketing Mass Marketing Deal Driven Niche Marketing Source: Moore (1998) High-tech Marketing - Arto Rajala (HSE)

35. Application Systems Core Products Aftermarket Products • Photography • Color printing • Wireless telephony • Word processing • Internetworking • Worldwide Web • Cameras • Inkjet printers • Cell phones • Word processors • Routers, switches • Browsers/servers • Film, lenses • Cartridges, paper trays • Batteries, modems • Suite upgrades • Performance tools • Plug-ins Product Mix Offerings Source: Moore (1998) High-tech Marketing - Arto Rajala (HSE)

36. Professional Distribution Services Transaction Services Services • Consultative selling • Business process reengineering • Systems integration • Project management • Custom training • System conversion • Contract management • Competitive selling • System configuration • Implementation support • Train-the-trainers • Customer service • Technical support • Warranty • Order processing • Maintenance • Facilities management • Outsourcing • Upgrade management • Broadcast data feeds • Proprietary database access privileges Service Mix Offerings Source: Moore (1998) High-tech Marketing - Arto Rajala (HSE)

37. Managing Marketing Offerings in High-Tech Firms Are the 4 P’s still relevant?

38. Corebenefit orservice What is a product? Core product Installation Actual product Packaging Augmented product Brandname Features Aftersales services Deliveryand credit Potential product Styling Quality Warranty High-tech Marketing - Arto Rajala (HSE)

39. Mostlycustomwork Plug & playsomecustomization Fullyintegrated Masscustomized Evolution of the Whole Product Source: Moore (1998) Different whole product priorities at different stages of the life cycle. High-tech Marketing - Arto Rajala (HSE)

40. What is a Marketing Offering? • Problems of (business) customers are often complex and can rarely be solved by a physical product alone • Call for marketer’s problem solving abilities and advice • Ability to make promises  value proposition • e.g. each € spent on the purchase of ERP (Enterprise Resource Planning) software  further 5 € are spent on service and consulting in the choice and implementation of the system • Offerings often related to quality  misused term • Five elements of a Marketing Offering ... • Product, Services, Logistics, Advice, and Adaptation • Offerings also depend on the customer’s demand ability !!! High-tech Marketing - Arto Rajala (HSE)

41. Product Service Logistics Advice Adaptation Elements of an Offering Source: Ford et al. (2002) High-tech Marketing - Arto Rajala (HSE)

42. Products • A physical part of the offering – what customers see and feel after the purchase • Products are often wrongly considered by many customers and suppliers to be the most important element, but... • ... usually the product element is relatively unimportant • Does not itself have intrinsic value ... • ”There is no market for quarter inch drills, but there is an enormous market for quarter inch holes.” High-tech Marketing - Arto Rajala (HSE)

43. Services • Are often the major part of the offerings, because ... • products have little value without the associated services (e.g. paper machine & automation software) • customers purchase a service instead of a product (e.g. leasing vs. buying cars) • companies are depended on ’external’ technologies (e.g. outsourcing design activities in automotive and fashion industries; contract manufacturing in electronic and telecommunication sectors; maintenance in aircraft industry) High-tech Marketing - Arto Rajala (HSE)

44. Logistics • Are not just the ways in which the other elements of the offering are delivered, but... • often the most vital element of an offering for competitive success  DIFFERENTIATION (JIT, zero-inventory, MRO – maintenance, repair & operations in-plant • Important also to advertising agencies, accountants, trainers, and consultants • Relationships with competitors to advice and service clients in other countries High-tech Marketing - Arto Rajala (HSE)

45. Advice • Concerns all the activities which are aimed at increasing the customer’s understanding •  reducing the perceived uncertainty of the customers • Suppliers skills in communication its offering and influencing its customers • Two-way process in business relationships • Reducing supplier’s uncertainties – how the customer will use the offering High-tech Marketing - Arto Rajala (HSE)

46. Adaptation • Occurs when a supplier makes a change to any element of its offering that it would not normally do for other customers • Important to demonstrate commitment to a relationship • Results in considerable costs & disruption to a company’s operations • Translating customer problems into offerings that can provide solutions for different customers with the maximum commonality  Need for close internal coordination High-tech Marketing - Arto Rajala (HSE)

47. Matching Offerings to Problems • Offering < Problem • Only a part of the problem is solved by the offering • Technological, resource or cost problems (supplier) • Poor diagnostics of the problem (customer or supplier) • Offering = Problem • Solution exactly solves the problem • Optimal quality – contractual • Offering > Problem • Offering does more than solve the original problem Customer delight • Demonstrating commitment & building a relationship • Offering <> Problem • Solution exceeds the problem in some aspects but fails to meet requirements in others (e.g. over-standardization, poor communication) High-tech Marketing - Arto Rajala (HSE)

48. Product Platform • Product platform is a collection of common elements, particularly the underlying technology elements, implemented across a range of products. • It is primarily a definition for planning, decision making, and strategic thinking. • Especially important in high-tech firms in which multiple products are related by common technology. • Platform defines the cost structure, capabilities, and differentiation of the resulting products. • Separating product platform strategy from product line and individual product strategy, a company can concentrate on its most important strategic issues. High-tech Marketing - Arto Rajala (HSE)

49. Product Platform Product 3 Segment III Product 1b Product 4 Segment II Product 1 Product 1a Uniqueproductelements Product 2 Segment I Element C Commonplatformelements Element B Element A Source: McGrath (2000, 55) High-tech Marketing - Arto Rajala (HSE)

50. Main Characteristics • Product platform is NOT a product! • ... but the lowest common determinator of relevant technology in a set of products or product line • Product failures in high-tech firms often caused by incomplete product platform strategy • Nature of product platforms varies across industries • e.g. in PC it consists of the microprocessor combined with its operating system, packaging, power supply, memory, disk drives, monitors, and interfaces • e.g. it can be a chemical compound combined with with the manufacturing process High-tech Marketing - Arto Rajala (HSE)