Mohr01

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Marketing of High-TechnologyProducts and Innovations

Jakki J. Mohr, Sanjit Sengupta,and Stanley Slater

Chapter 1:

Introduction to High-Technology



© Mohr, Sengupta, Slater 2005

Technology is Ubiquitous

Examples of traditional high-techindustries:

Computers and information technology

Biotechnology

Telecommunications

Internet




Technology is Ubiquitous Examples of some industries where

technological innovation is creating

radical changes: Waste management

Agriculture

Automotive Oil and Gas

Consumer Products




Definition of Technology The stock of relevant knowledge that allows

new techniques to be derived

Product technology: ideas embodied in theproduct and its components

Process technology: ideas involved in the

manufacture of a product; a manner of accomplishing a task especially using technicalprocesses, methods, or knowledge




Definitions of High-Tech Government perspective

Common underlying characteristicsperspective




Government Perspective:

Defining High-Tech

Classify industries based on objective,measurable indicators:

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 andDevelopment, and the National ScienceFoundation




% of High-Tech

Employment 2000

% Change inEmployment

2000-2010

Crude petroleum and natural gas operations 1.1 -22.7%Cigarettes 0.3 -14.6%

Industrial inorganic chemicals 0.9 -16.3%Plastics materials and synthetics 1.4 -15.8%Drugs 2.8 23.8%Soap, cleaners, and toilet goods 1.4 6.0%Paints and allied products 0.5 7.5%Industrial organic chemicals 1.1 -9.8%

Agricultural chemicals 0.5

Miscellaneous chemical products 0.5 2.2%Petroleum refining 0.8 -23.2%Miscellaneous petroleum and coal products 0.4 10.7%

Nonferrous rolling and drawing 1.6 -1.8%Special industry machinery 1.5 -8.2%

Level 1 Industries:

Technology-Intensive




% OF HIGH-TECHEMPLOYMENT 2000

% CHANGE INEMPLOYMENT

2000-2010

Computer and office equipment 3.2 -3.2%

Electrical industrial apparatus 1.3 -15.6%

Communications equipment 2.4 5.0%

Electronic components and accessories 6.0 17.3%

Motor vehicles and equipment 8.9 8.6%

Aircraft and parts 4.1 23.2

Guided missiles, space vehicles, parts 0.8 -3.9%

Search and navigation equipment 1.4 -9.3%

Measuring and controlling devices 2.7 -0.6%

Medical instruments and supplies 2.5 17.4%

Photographic equipment and supplies 0.6 -21.6%Computer and data-processing services 18.5 86.2%

Engineering and architectural services 9.0 30.8%

Research and testing services 0.4 37.9%

Management and public relations 9.6 42.2%

Services, n.e.c. 0.5 35.9%

Level 1 Industries:

Technology-Intensive (Cont.)

n.e.c. Not elsewhere classified




% of High-Tech

Employment2000

% Change inEmployment

2000-2010

Miscellaneous textile goods 0.5 6.2%

Pulp mills 1.8 -11.5%

Miscellaneous converted paper products 2.1 0.0%Ordnance and accessories, n.e.c. 0.3 -8.4%

Engines and turbines 0.8 -2.2%

General industrial machinery 2.2 3.5%

Industrial machines, n.e.c. 3.3 10.0%

Household audio and video equipment 0.7 -3.3%

Miscellaneous electrical equipment and supplies 1.3 8.6%

Miscellaneous transportation equipment 0.7 19.0%

Level II Industries: Technology Moderate

n.e.c Not elsewhere classified




Shortcomings to the government

classification approach:

Some industries are R&D intensive (i.e., high-tech),but new products are not revolutionary

Ex: Cigarettes

May exclude industries who are technology-driven

Ex: Textiles production

Some industries with standardized output producedin mass quantities

Ex: Some computing equipment




Definitions of High Technology:

Common, Underlying Characteristics

Market Uncertainty

Technological Uncertainty Competitive Volatility

Other Characteristics




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 andunpredictably

Customer anxiety over the lack of standardsand dominant design

Uncertainty over the pace of adoption Uncertainty over/inability to forecast market

size




Technology Uncertainty:not knowing whether the technology or the

company can deliver on its promise

Uncertainty over whether the new innovationwill function as promised

Uncertainty over timetable for new product development

Ambiguity over whether the supplier will beable to fix customer problems with the

technology Concerns over unanticipated/unintended

consequences

Concerns over obsolescence




Competitive Volatility:changes in competitors, offerings, strategies

Uncertainty over who will be futurecompetitors

Uncertainty over the rules of the game (i.e.,competitive strategies and tactics)

Uncertainty over product form competition

competition between product classes vs. betweendifferent brands of the same product

Implication: Creative destruction




MarketUncertainty

TechnologicalUncertainty

Competitive

Volatility

Marketing of High-

TechnologyProducts &Innovations

Characterizing the High-Tech

Environment




Network Externalities When the value of the product increases

as more people adopt it

Also called demand-side increasingreturns or bandwagon effects

Ex: portals on the Internet

Metcalfs Law: Value of the network = n2

(where n=# of users)




Implications of Network

Externalities Reliance on strategies to quickly grow

the size of the installed base (orcustomers using the particularproduct/technology)

May give away products for low price or

even free Work to develop industry standards




Development of Industry

Standards Standards create a common, underlying

architecture for products offered bydifferent firms in the market.




Why are industry standards

important? Customers gain compatibility

Lowers their perceived risk (FUD factorfear,uncertainty, and doubt)

Allows for seamless interface of product components.

Due to network externalities, standards canincrease the value a customer receives

(when more customers adopt/use productssharing a common standard).




Why are industry standards

important? (Cont.) Availability of complementary products

determined by the size of the installedbase of a given product.

Therefore, standards help ensure greateravailability of complementary products by

helping to ensure a larger size of the installedbase.

Customers get more value from the baseproduct as more complementary products are

available.




Self-reinforcing Nature of

Standards

STANDARDS

Reducecustomer

fear,uncertainty,

& doubt

Largerinstalled

base

Morecomplementary

productsdeveloped

Increasedcustomer

value

Increaseddemand for

product




Implications from Standards Originator of new technology can set

standards Even when technology standard may be

inferior Ex: QWERTY keyboards

Critical success factor: Grow installed base quickly

Antitrust implications when de factostandards become near monopolies




Strategies to Set Industry

Standards (1) Licensing/OEM Agreements

Pros: Can ensure initial wide distribution Can co-ops competitors from developing competing

technology Limits customer confusion over competing standards Sends signal to complementors that installed base may

be significant, stimulating development of ancillaryproducts

Cons: Licensees may attempt minor technological alterations

to bypass need to pay licensing fees Original developer creates competitors




Strategies to Set

Industry Standards (Cont.) (2) Strategic Alliances to jointly sponsor development

of a particular technological standard

Pros: Same four pros as the prior strategy, plus:

By combining skills, alliances may produce superiortechnologies than a single company could.

Cons: Partner might access and misuse other firms

proprietary information

Need for close attention to structure and

management of the alliance




Strategies to Set

Industry Standards (Cont.) (3) Product Diversification: Create a standard

by developing the necessary complementary

products to create more value for customers. Pros:

Can jump-start the market when no installed baseof customers exists and complementors have noincentive to develop products

Diversifies revenue base of the firm

Cons: Commitment of resources

Potential incompatibility with core competencies




Strategies to Set

Industry Standards (Cont.) (4) Aggressive Product Positioning via

penetration pricing, product proliferation, and

wide distribution. Requires investments in production capacity,

product development, and building market share

Costs of failure are very high




Conditions That Affect the Choice

of Standards-Setting Strategy: Barriers to imitation

Via patents or copyrights, for example

Skills and resources

in technology, manufacturing, marketing,finances, and firm reputation

Existence of capable competitors

Potential suppliers of complementaryproducts




Which Strategy

Under Which Conditions? Aggressive Sole Provider when:

Barriers to imitation are high

Firm possesses required skills and resources

Suppliers of complementary products exist

Apparent absence of capable competitors

Passive Multiple Licensing when: Barriers to imitation are low

Firms lacks required skills and resources

Presence of many capable competitors




Which Strategy

Under Which Conditions? (Cont) Aggressive Multiple Licensing (combines

licensing with aggressive positioning) when:

Firm possesses needed skills and resources

Barriers to imitation are low

Presence of many capable competitors

Selective Partnering when: High barriers to imitation

Firm lacks needed skills and resources

Presence of capable competitors




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





to High-Tech Markets: (Cont.) Tradability problems

Arise because it is difficult to value theknow-how which forms the basis of theunderlying technology

Ex: How much to charge for licensing therights to a waste-eating microbe?

The perceived problem and valuationPricing on tangible goods vs. intangible goods





to High-Tech Markets: (Cont.) Knowledge spillover:

Technological developments in one domainspur new developments and innovations inother areas.

Ex: Human Genome Project




A Supply Chain Perspective ofTechnologya case of Auto Industry

Su ppliers Car Man uf acturers Car Dealers Customers

-raw materials-components

-production equipment-services

- personalconsumption

-bu

sinessu

se(f leets, etc.)

Interwoven impacts on facing innovation




Critical ideas on a Supply Chain

Perspective on Technology Often, technological innovations occur at

upstream (i.e., supplier) levels in the supplychain

Such innovations may radically affect themanufacturing process or the inner workingsof a product, but

End-user behavior may not be significantly

affected Examples: cars, food, computing, hair styling,

Internet




Continuum of Innovations

Incremental Radical

Extension of existing product or process

Product characteristics well-

def ined

Competitive advantage on low

cost production

Of ten developed in response tospecif ic market need

"Demand-side" market/customer pull

New technology creates newmarket

R&D invention in the lab

Su perior functional per f ormance

over "old" technology

S peci

f ic market opport

unity or need of only secondary concern

"Su pply-side" market/technology

push




Supplier vs. Customer Perceptionsof Nature of Innovation

Mismatch:

Delusion

IncrementalBreakthrough

Mismatch:Shadow




Contingency Theory

Type of marketing strategy is contingent upon the nature of the innovation.

Marketing Strategy New Product Success

Type of Innovation

-Breakthrough

-Incremental




Examples of Implications of Contingency Theory:

R&D/MarketingInteraction

R&D leads; technology push

Marketing leads; customer pull

Type of MarketingResearch

Lead users;empathic design

Surveys; focusgroups

Role of AdvertisingPrimary demand;customer education Selective demand;build image

Pricing May be premium More competitive

Breakthrough Incremental




Framework for High-Tech

Marketing Decisions

Marketing ± 4Ps (Ch. 7-10) and the Internet (Ch 11)

High-Tech Firm

Internal Considerations (Ch. 2, 3, 4)

Strategy Formation

Core Competencies/Core Rigidities

Funding Considerations

Market Orientation

Relationship Marketing

R&D/Marketing Interactions

Customers

Understanding Customers (Ch. 5,6)

High-tech Research

Forecasting

Customer Decision-Making

Adoption Diffusion of InnovationsTarget Marketing

Societal, Ethical, and Regulatory Concerns (Ch.12)




Job Opportunities in

High-Tech For non-technical backgrounds:

Find temporary work or internships to

develop knowledge and language

Read industry publications; join industrytrade groups

Work for high-tech company customers orsuppliers




Appendix: Outline of a

Marketing Plan Executive Summary

Market Analysis

Company Analysis

Objectives & Positioning

Value Proposition Marketing Strategy

Budgeting and Control

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