Hightech Strategy and Innovation Marketing

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High-tech Strategy and Innovation Marketing
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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

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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

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Common, Underlying Characteristics of High-Tech
Markets Demand Side Perspective

• Market Uncertainty
• Technological Uncertainty
• Competitive Volatility

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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

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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?

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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?

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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.

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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.

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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)

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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

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Final Thoughts on Adoption

• Involve customers in evaluating new product ideas
• Dont base assessment on inventors familiarity
  with, and enthusiasm for, technology.
• Understand who is likely to be an early adopter,
  and how they differ from the mainstream market.

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Categories of Adopters
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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?
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Visionaries vs. Pragmatists

• Pragmatists
• Prudent stay within zone of reasonable, and
  within budget
• Make slow, steady progress
• Think visionaries are dangerous

• Visionaries
• Adventurous
• Think/spend big
• Want to be first in implementing new ideas in
  their industries
• Think pragmatists are pedestrian

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Satisfaction/ Expectations
Who is the buyer?
High
Compels

• Individual
• Company

More is better
-
Performance/ Requirements

Must Have
Low
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Contingency Theory
Type of marketing strategy is contingent upon the
nature of the innovation.
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Examples of Implications of Contingency Theory
Breakthrough Incremental
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Back to the Market

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

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More on dynamic

• Continuous shortening of product (or better
  model) life cycles which if true leads to a
  serious dilemma
• gt High first part costs in innovation phase is
  associated with shorter pay-back cycles!

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How useful is this as a strategic tool?
Performance
Cumulative Development Effort
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Some strategic considerations

• Segmentation
• Timing
• Participation

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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.

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STP

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

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STP

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

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A Preliminary Summary What is Hi-Tech?

• High RD intensity gt watch technology seduction
• Knowledge skill-intensive products/processes
• Short and shrinking development cycles
• But long discovery cycles
• Short pay-back cycles
• Complex products gt 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

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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 RD processes and systematize
  innovation
• Effective marketing !!!