Go to Market Issues For HighTech Products

1
Go to Market Issues For High-Tech Products

• Channel, Pricing, Communication Considerations

2
Complexities in Managing High-Tech Channels

• High value of products
• Pressure to minimize inventory in channel
• Rapid pace of market evolution
• Price pressures
• Need to maintain sales/service support
• Problems with pirating
• Complexities with the Internet

3
Channel Considerations in High-Tech Markets
4
Specific High-Tech Channels Issues

• Blurring of Roles
• Distributors/resellers backward integrating into
  assembling products
• Suppliers forward integrating into computer
  manufacturing

5
Specific High-Tech Channels Issues (Cont.)

• New strategies to increase value of indirect
  channels
• Channel assembly
• Customization, speed
• Based on build-to-order model
• Co-location
• Distributors employees work from vendors site
• Customization
• Shift to services

6
Specific High-Tech Channels Issues (Cont.)

• Evolution of high-tech channels
• Shown on next slide
• To cross the chasm
• Direct sales channel useful, but requires volume
  and predictability of revenues
• May need VARs and VADs
• Retail channel useful for mainstream market
  rather than crossing the chasm
• Does not create demand nor deliver whole
  product

7
(No Transcript)
8
Specific High-Tech Channels Issues (Cont.)

• Gray Markets diversion of goods to unauthorized
  distributors, sold at discounted prices
• Causes confusion and channel conflict
• Loss of service incentive with legitimate members
• Intra-brand competition

9
Causes of Gray Markets

• Pricing policies with large volume discounts
• Differential in international exchange rates
• Parallel importing
• Cost differences between different types of
  resellers
• Free-riding of discount outlets on full-service
  outlets
• Selective Distribution
• Lack of intra-brand competition may invited gray
  marketers

10
Causes of Gray Markets (Cont.)

• Producers perform marketing functions
• Reduces customers risk in buying from
  unauthorized distributors
• Incompatible compensation policies
• Volume quotas

11
Solutions to Gray Markets

• Track source of units and cut off gray market
• Signals commitment to legitimate channels
• Mitigates price erosion
• May be burdensome administratively
• One-price policy (no volume discounts)
• Increase coverage in the market
• Institute consistent performance measures

12
Specific High-Tech Channels Issues (Cont.)

• Black Markets Counterfeit goods/piracy
• Especially problematic with unit-one cost
  structures
• Export Restrictions on dual use products
• Ostensibly to protect U.S. security interests

13
Adding New Channels The Internet

• Hybrid channels
• Conflicts between manufacturer and its dealers
  pursuing same customers
• Co-opetition
• Options
• Avoid the Web (and conflict)
• Go to the Web (invite conflict and even mutiny)
• disintermediate
• Click and Brick model

14
Managing Hybrid Channels

• Objectives
• Increase coverage while lowering costs
• Steps
• Identify customer target segments
• Delineate tasks/functions needed by segments
• Allocate most effective/efficiency channel to the
  tasks on a by-segment basis

15
Contingency Model
16
Matching Tasks to Channels, By Segment
17
The High-Tech Pricing Environment

• Need to re-coup RD investments in light of
• Rapid pace of change
• Short, volatile product life cycles
• Price/performance pressures
• Moores law
• Network externalities
• Unit-one costs
• Customer perceptions of costs/benefits

18
The High-Tech Pricing Environment

• Customer perceptions of costs/benefits
• Anxiety
• Balky
• Upgrade considerations
• Competition
• The Internet
• Backward compatability, Derivatives

19
The 3 Cs of Pricing
20
Customer Perceptions of Benefits/Costs

• Benefits
• Functional
• Operational
• Financial
• Personal
• Costs
• Monetary
• Nonmonetary

21
Additional Customer Considerations

• Total Cost of Ownership
• Ex Lifetime cost of owning a corporate PC is
  42,000 (in 1995)
• Purchase price accounts for only 10 of total
  cost
• Implication
• Show total cost of ownership lower than
  competitors, despite higher initial outlay

22
Customer-Oriented Pricing

• How will the customer use the product?
• What are the benefits the customer will receive
  from using the product?
• Calculate customer costs and understand
  customers trade-off between costs and benefits.

23
View from IBMs Technology Expert

• One way to help customer manage risks is through
  financing and leasing
• Assist with upgrades and replacement flexibility
• Creates stepped payment streams allowing customer
  to match results to cash outflow
• Way to capitalize or manage assets
• Allows for scalability.

24
View from IBMs Technology Expert

• Advantages
• Forms long-term relationship
• Avoids commodity trap
• Caveat
• Must understand customer risks and value
  components

25
Implications of Customer-Oriented Pricing

• Pricing decisions are part of product design
  decisions
• Different segments value the product differently
• Therefore, different customers yield differential
  profitability

26
Analyzing customers for profitability
27
Analyzing customers for profitability

• Carriage Trade Pay top dollar require much
  service
• i.e., customers with customized products and high
  service level willing to pay
• Cost-plus pricing may a simple solution for these
  customers

28
Analyzing customers for profitability (Cont.)

• Bargain Basement price sensitive dont require
  many services
• Aggressive demand high services and low prices
  simultaneously
• Might be large and important to firm and
  powerful

• Aggressive and Bargain Basement customers should
  be screened through central office to ensure
  profitability

29
Analyzing customers for profitability (Cont.)

• Passive Customers accept high prices, dont
  require much service
• Product might be crucial to operations
• Customer might face high switching costs
• Very profitable if price based on value

30
Analyzing customers for profitability (Cont.)

• Implications
• Must track costs on a per customer, or per
  segment basis via accounting
• Might decide NOT to serve some customers.

31
Technology Paradox

• Rapid pace of price declines
• At the extreme, technology is free and
  companies literally give products away.
• How can businesses thrive when their prices are
  falling?
• Requires exponential growth of market to be
  faster than the exponential decline of prices
• Requires new skills ingenuity, agility, and
  speed

32
Possible Solutions to the Technology Paradox

• Keep costs falling faster than prices
• Innovate?
• Make products easy to use, exciting, or both
• Two extremes
• Market domination own the standards and charge
  a premium for them
• Intel and Microsoft
• Sell a commodity and hope for volume
• Middle-of-the-road Learn new tricks

33
Middle of the Road Solutions to the Technology
Paradox

• Try to avoid making commodity goods
• Provide value beyond competition
• Mass Customize?
• Agility and Speed
• Focus on best possible solution (vs. best
  solution possible)
• Find new uses for products
• Collaborate with complementary providers

34
Middle of the Road Solutions to the Technology
Paradox

• Develop long-term relationships with customers
  with low/free pricing
• Goal is life-time value rather than margin
• Establish a market-hold to grab mind share
  (eyeballs personalized customer knowledge)
• Capitalize on that knowledge as a form of
  switching cost
• Establish an installed customer base to sell
  ancillary products and services
• Captive product pricing
• Offer complete solution (end-to-end whole
  product)
• Rely on advertising and marketing revenue

35
Drawbacks to Low-Price Strategies

• Devalues brand equity/perceived value
• Antitrust considerations
• Line between predatory pricing and effective
  pricing?
• Infer intent and examine impact on prices
• Large firms scrutinized more carefully because of
  their greater market power.

36
Effect of Internet on Pricing

• Cost Transparency
• Solutions
• Pricing lining/versioning
• Innovate

37
Additional Pricing Considerationsfrom Embedded
Nature of Know-How

• Outright Sale of Knowledge vs. Licensing
• With high levels of technological uncertainty,
  easier to valuate know-how in the short-term
• Leads to more licensing rather than outright sale
  
• One-time/single Use vs. Multiple Users
• Depends on customers cost of sharing the product
  relative to the manufacturers cost
• If easy for customer, then price (higher) for
  site licenses (multiple users)
• If difficult, then price (lower) for individual
  use

38
Additional Pricing Considerations

• Pay-Per-Use vs. Subscription Pricing
• Network externalities favor subscription pricing
• Generate more users to increase the value of the
  network
• Technological uncertainty favors subscription
  pricing
• Risk averse customers prefer flat rates to avoid
  uncertainty

39
More on Leasing to Finance Purchase of Technology
Infrastructure

• Can generate savings through tax benefits
• Can minimize balance sheet impacts
• Can maintain operating flexibility with respect
  to equipment
• Can attract investors with residual value of
  leased assets

40
Advertising and Promotion Pyramid
41
Branding in High-Tech Markets

• Advantages of strong brands to firms
• Command premium prices
• Have credibility which can be leveraged in new
  markets
• Can lower customer acquisition costs
• Reduces risks with new product introductions
• Advantages of strong brands to customers
• Signal of a safe choice trustworthy and
  long-lived
• Decision-making heuristic

42
Branding in High-Tech Markets

• Short product life cycle and customer fear,
  uncertainty, and doubt put a premium on having
  strong brand names.

43
Strategies to Develop Strong Brands

• Supply steady stream of innovations that deliver
  value
• Emphasize traditional media advertising and PR
  tools rather than sales promotion
• Influence the influencers to credibly stimulate
  word-of-mouth via opinion leaders

44
Strategies to Develop Strong Brands (Cont.)

• Brand the company, platform, or idea (rather than
  the individual product)
• Rely on symbols and imagery to create brand
  personality
• Effectively manage all points of customer contact
• Work with partners in co-branding
• Effectively use the Internet

45
The Internet as a Branding Tool

• Use when Internet is part-and-parcel of the
  companys value proposition
• Accounts for the viewers active role (vs.
  passive viewing)
• Focuses on the customer experience at the Web
  site
• Rational branding emotion meaningful
  experience

46
Branding Strategies for On-Line Companies

• Brands very important where switching is easy.
• Make customer experience meaningful
• Understand importance of speed and response time
• Deliver on their promise

47
Ingredient Branding
Dealers
Suppliers
OEM/Manufacturers
Customers
-personal consumption -business use
-raw materials -components -production
equipment -services
48
Ingredient Branding

• Stimulates derived demand
• Rely on cooperative advertising

49
Pros/Cons of Ingredient Branding
50
Pros/Cons of New Product Preannouncements
51
Tactical Considerations in PreAnnouncements

• Timing
• Function of the innovativeness, complexity,
  customer buying considerations, timing of product
  design decisions

52
Timing of PreAnnouncements

• Use EARLIER preannouncements when
• Product complements are needed
• Products are novel or complex (engender buyer
  uncertainty)
• Long buying process
• High buyer switching costs

53
Timing of PreAnnouncements

• Use LATER preannouncements when
• Need to keep development information from
  competitors
• Product features not known till late in the
  product development process
• Want to minimize risks of cannibalization
• Time preannouncements to coincide with purchase
  cycle of customers

54
Tactical Considerations in PreAnnouncements

• Nature and Amount of Information
• Reveal product attributes?
• Reveal how product works?
• Reveal how it compares to existing products?
• Reveal pricing/delivery?

55
Tactical Considerations in PreAnnouncements

• Communication Vehicles
• Trade shows
• Advertisements
• Press releases/press conferences

56
Tactical Considerations in PreAnnouncements

• Target audiences
• Customers
• Competitors
• Distributors
• Partners
• Shareholders
• Employees
• Industry Experts

57
PreAnnouncements Useful When

• Firm has low market dominance
• Faces lower cannibalization risks
• Faces fewer antitrust concerns
• Firm believes competitors not likely to respond
• Ex specialized technology/patent protection
• To advance the customer decision process
• Product requires customer learning or customers
  face switching costs

58
Avoid PreAnnouncements When

• Cannibalization might be high
• Firm has strong portfolio of products
• Customers would postpone current purchases
• Firm is large and might be accused of predatory
  intent

59
Customer Relationship Marketing

• Use database marketing to categorize customers on
  volume and profitability and/or on share of
  customer purchases and consumption level
• Rely on customer relationship management software
• Tailor marketing communications appropriately

60
Categories of Customers

• Low share of purchases/Low consumption in
  category
• Absent compelling reason, avoid the customers
• The Strategic Power of Saying No
• Risk of alienating wrong customers

61
Categories of Customers (Cont.)

• High share of purchases/Low consumption in
  category
• Reasonably profitable, but not compelling
• Sustain with occasional offers
• Low share of purchases/High consumption in
  category
• Major opportunity
• Grow firms share of business
• Aggressive marketing

62
Categories of Customers (Cont.)

• High share of purchases/High consumption in
  category
• Bread and butter customers
• Attractive to competitors!
• Dont be complacent

63
Other Strategies for CRM

• Capture the customer
• Event oriented prospecting
• Extended organization
• Manage by wire
• Mass customization
• Yield management

64
CRM Software

• Front office software to
• Automate the sales force
• Track accounts and prospects
• Automate call centers
• Create customer profiles
• Provide scripts
• Cross-sell
• Coordinate communication

65
CRM Software (Cont.)

• Analyze customer purchase history
• Design targeted campaigns
• Measure results
• Develop Web interface
• Product catalog, shopping cart, credit-card
  purchases
• Web configurator, for custom products
• Web analysis of cookies

66
Summary

• Newness creates challenges in terms of
  establishing channels, pricing, communications
• Dynamics also add complexity to these marketing
  elements
• Ownership to market development is required -
  implications for organizational skills talent
• Conditioning of market players helps