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Marketing Research in High-Tech

Markets

Paradox of technology marketers


Customers cant always articulate what their specific
needs are
High-tech firms need to keep a finger on the pulse of
the market in order to enhance their odds of success

Not first develop products


Take risks without ignoring customers
Incorporate customers into product development
process Innovation adoption requires
customers

Quality and relevant information from


relevant source -Successful firms vs
competition Information enables
Determine specs/pricing of new products
Best target market for the new product
Build the compelling value proposition
Generate ideas for innovations

Gathering Information: HiTech Mktg


research tools
Challenging to collect information
Low customer awareness of
technology/usefulness
Not even aware of the needs
Firms need short product development cycles
idea to market

Market research expenditures and staffing


Significant spend for Tech companies

Align market research with innovation type

Incremental innovation
NPD in alignment with current market
Known customer needs
Traditional market research tools

Focus groups
Customer surveys
Concept tests
Conjoint studies
Test markets

Concept Testing
o
Idea generation
Various observational techniques
Brainstorming with CFT
Focus groups members of target mkts define different
product/service ideas
Depth interviews- non-directive interviews regarding needs and
potential solutions

o Evaluate 1-2 ideas for R&D and marketing resources focus


Initial testing- brief concept- potential customers rate on interest,
purchase intent, uniqueness and perceived value
Enables eliminate and narrow options
Iterative process
Representative sample and seek opinions
Conjoint analysis in final stages of evaluation

Conjoint Analysis
Decide product characteristics, branding strategy, price
point for the sweet spot- maximize revenue and profits
Survey research tool- statistically predict combination of
product attributes across various brands and prices
customers will prefer to buy.
Tradeoffs and relative importance
Focus groups, customer interviews and internal corporate
expertise use to structure sets of attributes and levels.
OLS data yields consumer utility function- regression
equation.
Company to develop if consumer willingness to pay (WTP)
exceeds cost of development.

Customer Visit Programs


Systematic program with CFT teams to understand
customer needs
Face to face communication
Field research
Firsthand knowledge
Interactive conversation
Inclusion of multiple decision makers at the
customer location

Maximize value of customer visit programs


Get engineers in front of customers
Ensure that corporate culture embraces the value
of customer visit program
Visit different kinds of customers
Visit customers in their own settings
Conduct programmatic visits

Offer insights and benefits for hitech product


development

Empathic Design
Focus understanding user needs through empathy
with the user world.
Empathic design research allows marketer to
develop an appreciation of current user
environment
To extrapolate the evolution of that environment
in future
To imagine the future needs that technology can
satisfy

Insights from empathic design


Triggers of use
How users cope with imperfect work
environments and surfacing of unarticulated user
needs
Different usage situations
Customization of products that marketers are
unaware of
The unarticulated importance of intangible
architectures

Empathic design techniques draw upon


companys existing technological capabilities
Empathic design contribute to traditional MR;
contribute to the flow of ideas that need to be
tested before being taken up as project
Companies develop detailed maps on customer
usage and step sequence
Customer scenario planning- HP, IBM, Nokia
leverage social scientists, anthropologists and
psychologists. Intel hires ethnographers- enable
people to feel at ease under observation

Process to conduct Empathic design


Observation
Who should be observed?
Who should be observing?
What behavior should be observed?

Capture the data


Reflection and analysis
Brainstorm for solutions
Develop prototypes of possible solutions

Lead Users
Customers who are ahead of market trends, needs
beyond average user and who innovate solutions to
their own problems
Marketers can look forward to lead users for insights
for innovation
Lead user collects information systematically about
needs and solutions where more extreme forms of
problems exist- generate breakthrough innovations.
Firm moves from creating breakthrough products to a
systematic task of identifying lead users and learning
from them. Adapt their ideas and fulfill customer
needs.

Innovations developed by lead users

Steps in lead user process


Identify important market/technical trends
Identify and question lead users
Develop the breakthroughs
Project the lead user data onto the larger market

GE healthcare division Luminaries


Lead users may not be from the firm
customer base; can be of competitor or some
other industry

Quality Function Deployment


QFD an engineering tool that incorporates a
customer orientation into design decisions.
Uses voice of customer in NDP process to ensure tight
correlation between customer needs and product
specifications
Requires close collaboration between mktg., engg.,
customers
Implementation of QFD is a multi-stage process
Collect the voice of customer
Collect customer perceptions of competitive products
Transform customer insights into specific design
requirements develop house of quality

The Kano concept

Prototype testing
Meets technical design specs
Information Acceleration technique relies on virtual
representation of a new product to assist in product
development and forecasting.
Prototype evaluation by customers for feedback and
improvement
Virtual prototyping enables addressing several issues for
marketers

Requisite infrastructure for product usage


Technology requirements for future generation of innovation
Competitive forecasting of new market entrants
Available alternatives to new technology

Customer Driven Innovation


Taps collective wisdom of community for product
improvements and innovations
Customer co creation, DIY innovation, feedback
influenced design, peer production, mass production
are some of the terms
Drivers
Technology tools to facilitate
Economics of product development and high failure rates
Customers expectations about the role of customers in
business strategy
Development and growth of internet and Web 2.0
technologies

Biomimicry
Emulating or mimicking ideas from natural
world
Process of looking for natures advice to solve
human challenges
Generates novel insights for disruptive/
breakthrough innovations in many areas-

Steps in the Biomimicry Process

Identify the problem to be solved


Interpret the problem in natures terms
Discover the best natural models that answer/resolve the
challenges
Abstract from examples in the prior step to identify
patterns and create a taxonomy
Emulate nature and apply the ideas and solutions to the
challenge at hand
Evaluate how well the proposed ideas/solutions compare to
the successful principles of nature and continue to improve
the design by asking another layer of questions
Begin the process anew, with a new identification gap

Biomimcry benefits
Be sustainable
Perform well
Save energy
Cut material costs
Redefine and eliminate waste
Define new product categories and industries
Build a companys brand

Forecasting in Hi-Tech markets


What do we want to forecast?
Market demand, company sales, technology trends

Why do need the forecast?


New product development investments, mfg capacity

How important is past in predicting the future?


What factors do we have in constructing the
future?
What factors could change the forecast?

Aligning Forecasting Type with type of


innovation

Qualitative tools
The Delphi Method
Interview of experts to gain their views like when a new product will gain
widespread acceptance
Experts are interviewed separately. Answers are sent back to participants who
refine their own judgments and comment on others

Analogous data
Information about a related, similar product- to make inferences about the
new technology.
Relevant only when there is a logical connection between the products
similarities of attributes of importance to the consumer in making purchase
decisions and in business factors that contribute to product success.
Important attributes include technical support, ease of use and product/form
design considerations
Critical business factors include distribution considerations, brand name and
model options.

Quantitative Tools
Bass Model
Pre-launch forecasting technique
Model appropriate for forecasting sales of new
technology for which there is no competing
alternative.
Validated approach for forecasting variety of
innovations. Ex Kodak, IBM, RCA, Sears & AT&T
Historical analysis of new product sales curve- Sshaped curve.

Diffusion of Innovation

Bass model explains this S-shaped curve with


diffusion theory
Diffusion theory examines why innovations spread
through markets
Bass model assume that new product adopters
are influenced by 2 types of communication
Mass media Greater impact on early adopters;
greater effect on product launch
Impersonal communication- Greater impact on much
larger no of later adopters; greater during later periods
of diffusion process

Model requires marketing managers to


develop estimates for first year sales and for total product
lifetime sales.
Estimate the coefficient of innovation and coefficient of
imitation referred to as p(mass media) and q(word of
mouth).
Can be estimated from data on a similar product
(analogous data) or from industry values.

Formula:
Nt= (p x Remaining potential adopters) + (q x Adopter
proportion x Remaining potential adopters)
Where Nt = the number of adopters at time t(Sales) and p
and q are as above.

The coefficient p is called the coefficient of


innovation, external influence or advertising
effect. The coefficient q is called the coefficient of
imitation, internal influence or word-of-mouth
effect.
Typical values of p and q when time t is measured
in years:
The average value of p has been found to be 0.03, and
is often less than 0.01
The average value of q has been found to be 0.38,
with a typical range between 0.3 and 0.5

Assumptions underlying Bass model that should be


recognized prior to its application
The size of the potential market of total number of
adopters remains constant over time
There is only one product bought per new adopter
The coefficients of innovation and imitation remain
constant over time
The new product innovation itself does not change over its
life cycle
The innovations sales are confined to a single geographic
area
The impact of marketing strategies is adequately captured
by the models parameters

Understanding Hi-Tech Customers

Six Critical issues in assessing motivation of


customers to buy the products that marketing
has to address
1. What steps do customers go through in making
technology purchase (adoption) decisions? How do
these steps affect marketers strategies?
2. What is the process by which a technological
innovation is adopted and diffuse throughout the
market? What factors affect customers purchase
decisions? Who is likely to buy? Are there categories
of customers who are predisposed to adopt
innovation earlier than others?

3. What happens when the trajectory of the new


technology stalls or falls into a chasm? What strategies
can marketers follow to cross the chasm?
4. How can technology markets be segmented?
5. What affects the timing of customers technology
migration decisions and upgrades? Are they likely to
postpone purchases or bypass new generations of
technology in anticipation of better options coming in
near future?
6. What are customers paradoxical relationships with
technology?

Issues in Understanding Hi-Tech customers

Customer Purchase Decisions


Basic models of buyer behavior is a useful start point. They need to be
augmented and modified for hi-tech environment factors

Problem
Recognition

Information
Search

Evaluate
Alternatives

Purchase
decisions

PostPurchase
Evaluation

Need recognition stimulated by internal factors or external stimulus.


Information required varies by product category and customer type.
Evaluate alternatives using research techniques enables understanding of customer
evaluation.
Important role of design in customers product evaluation.

Design Thinking Factors

Design adds value to organization by


A differentiator of product, brand or image by
integrating aesthetics into product, marketing and
communications
An integrator of internal business processes to
deliver a better customer experience and improve
organizational performance
A change agent in culture of a company to make it
more responsive to opportunities and challenges
Greening technology products

Post purchase evaluation


Was I able to successfully learn how to use the
new technology?
Did the technology deliver the promised benefits?
Were there hidden costs to using the new
product?
Post purchase issues always a challenge ERP s/w
Companys efforts at CRM for long term
Post adoption usage patterns

Post adoption usage patterns


Intense users have a high usage of product in a given time period for
many different applications
Specialized users high usage within time period
Non-specialized users- High variety of usage but low amount of usage
Limited users on both variety and amount of usage

First 3 segments- repeater segment ready to repurchase based on


their experience and satisfaction
Communication with others and presence of complementary
technologies increases variety of usage
Marketers should encourage offline/online user groups

End of life issues; appropriate recycling and disposal; innovation


opportunities in recycling areas

Adoption and Diffusion of Innovations


Factors affecting Customer Purchase Decisions
Relative Advantage

The benefits of adopting the new


technology compared to the costs and in
relation to other alternatives

Compatibility

The extent to which adopting and using the


innovation is based on existing ways of
doing things and standard cultural norms

Complexity

The difficulty involved is using the new


product

Trialability

The extent to which new product can be


tried on limited basis

Ability to communicate product benefits

The ease and clarity with which benefits of


owning and using new product can be
communicated with prospective users

Observability

The extent that benefits of new product


are observable to everyone

Factors affecting adoption of


Innovation
Relative advantage customer uncertainty
Technology will deliver promised benefits
Customer will have skills and capabilities to realize those
benefits

Compatibility- esp. relevant in legacy products interfaces


Complexity Very complex products have slower adoption
rate. Complexity in development and communication to
customers need to be addressed
Customer experience tension between desire to adopt a
product with many features and their ability to learn to use the
more complex, feature laden product.
Once purchased, backlash from overly complex products and
would like to have more simple products- true for novices and
more experienced product users.

Fully laden products can cause feature fatigue


Marginal cost of adding features make firm add
more
However, negative customer reaction can result
Product proliferation complexity overwhelm
customers and complicates operations

Trialability
Ability to communicate customer benefits
Observability

Categories of Adopters

The Chasm
Moore had adapted theory of adoption and diffusion of innovation
for the purchase of high technology products.
This results in identification of unique environment where there
is large gap or chasm between the early market (composed of
innovators and early adopters) and the mainstream market (early
majority, late majority and laggards).
Reasons and specific focus of marketing strategies to cross the
chasm
Innovators- Technology enthusiasts, gadget lovers
Early adopters Visionaries, Revolutionary breakthrough to gain
competitive advantage
Early Majority Pragmatists, motivated by evolutionary changes
When it is time to move, let us all move together. Adoption increases rapidly,
tornado of demand
When we pick the vendor to lead us to the new paradigm, let us all pick the
same. Determines which firm will become market leader.
Once the transition starts the sooner we get over with it, the better.

Late Majority Conservatives, risk averse; technology shy, very price


sensitive and need failsafe solutions
Laggards Skeptics; want to maintain status quo; only way to buy is
other alternatives are very poor and cost justification is solid.

Crossing the chasm is the gulf between visionaries (early adopters)


and pragmatists (early majority, mainstream market) and derives from
critical differences between the two.
In some cases, firms will find worthwhile to target the majority
directly in these circumstances:

When word of mouth effects are low


In consumer product industries (vs B2B)
When there is low ratio of innovators to majority users
When profit margins decline slowly over time
The longer the time period for market acceptance of new products

Crossing the Chasm: A Beachhead and a Whole Product Solution

Crafting the marketing strategy that specifically


addresses the buying motivations of pragmatist
customers will allow the firm to cross the chasm.
Moore recommends two pronged approach:
Identify a beachhead, a single target market, from
which to pursue the mainstream market. A good
beach head has following characteristics:
Its customers have a single, compelling, must have
reason to buy that maps fairly closed onto the firm
capabilities
The selected beachhead provides adjacencies to
enter related contiguous segments.

Compelling reasons customers adopt technology


Purchase of the new technology provides customer a dramatic
competitive advantage in a previously unavailable domain in a
critical market
This reason to buy is difficult to quantify in terms of costs/benefits
Although appealing to visionary, the reason to buy in unpalatable to
pragmatists/conservatives

Purchase of new technology radically improves productivity on an


already well understood critical success factor and no other
alternative to achieving a comparable result is available.
This reason has greatest appeal to pragmatist

Purchase of the new technology visibly, verifiably and significantly


reduces current total overall operating costs
Will appeal to conservatives

Bowling Alley market development

Beachhead is the lead pin- adjacent market


opportunities are the pins immediately behind the
beachhead.
Adjacent pins cane be identified based on either
1. New market segments where the firm can sell its existing
technological solutions
2. Current market segments where the firm can sell its new
technological solutions

Adjacent market segments attributes


Word-of-mouth relationships
Similarities in the whole product needs

Risks
Too many market segments at outset
Too high pitched about innovation potential
Hedge bets against selecting wrong market and hence
launch in several markets
Do not learn the industry- (customer-) specific
knowledge and language to be credible
Marketing initiatives do not make an impact.
Spread resources too thinly

Success in one segment can be a catalyst to


succeed in others- Need focused approach

Develop the whole product


Partner to develop a whole product solution, an
integrated, end-to-end solution that allows the
customer a seamless experience in buying the
companys product.
Industry standard to minimize perceived risk
Pragmatist want to see competitor proposals- Hitech
companies need to legitimatize their technology by
differentiating on benefits, service and traditional
positioning tactics.
Company must simplify features to cross the chasm
and address mainstream market.

Role of partnerships
In early market (enthusiasts & visionaries), power
belongs to technology providers and SI
In crossing the chasm to mainstream pragmatistsPower is centralized in hands of company that picked
the target (beachhead) customers, understand why
they buy and design the whole product
In the pragmatist market, the market leader and its
partners have the power
In later mainstream conservatives market, power is
with distribution channels or companies that provide
superior distribution of the product.

Inside the Tornado


Unless the firm establishes itself in the mainstream
market, they do not have staying power. Moores book ,
Inside the Tornado , explains this in 3 distinct phases:
The bowling alley : A period during which the new
product gains acceptance in the niche markets within
the mainstream market but has yet to achieve general
widespread adoption.
During the bowling alley stage of market development,
market typically not large enough to support multiple
players.
Successful firm establishes itself as dominant market
leader.

The tornado : The tornado is a period when the general


marketplace switches over to the new technology.
Developed by a killer app or an application of the technology that is
based on universal architecture, appealing to the mass market and can
be made and delivered at attractive price points.
Massive number of customers entering the chain can swamp
companys supply chain.

An important caveat: Do not bet on preventing a tornado. If a


market leader begins to develop, even if it is not your company, it is
important to switch the efforts to follow the emerging leader.
Competing effectively in tornado requires effective partnering skills
and sustained innovation. Also, ability to stay out of the market
leaders reach.

Main Street: Period when tremendous growth in


the early majority/ pragmatists stabilizes.
Base infrastructure of products underlying
technology has been deployed.
Rather than focus on generating sales from new
customers, companies must sell extensions of their
products to their current customer base to be
competitive.
Important to emphasize operational excellence and
customer intimacy rather than product leadership.

Finally, for continued success in mainstream market, the high tech


firm will also need to reach out to the conservative market
Requires making product even simpler, cheaper, more reliable and
convenient and possibly splitting product into simpler components
Summary
Crossing the chasm requires different type of marketing strategies
used in early market
Select the beachhead and develop a whole product solution are CSFs
in crossing the chasm and reaching mainstream
Bringing whole product together is time consuming and expensive
Targeting only one market segment is risky
However, firm must make a decision about what one key market to
put its resources behind and focus its efforts there.

The Choice of customer target market :


Segmentation, Targeting and Positioning
Important issue choice of initial target
market to pursue with promising new
technologies
Intel never thought of making a PC

Segmenting markets and selecting a target


To identify group of customers who share similar
needs and buyer behavior characteristics and who
are responsive to the firms offering

Steps in segmentation process


1. Divide possible customers into groups. For
consumer marketing, traditional bases of
segmentation Demographic variables such as age, income, gender,
occupation and so forth.
Geographic variables such as geographic location,
rural vs urban, etc.
Psychographic variables or consumer values and
beliefs that affect their lifestyles and hence
purchasing behavior

healthy lifestyle, technologically current or environmental


friendly

Behavioral variables related to customers behavior


with respect to the specific product category such as:
Frequency/volume usage of a product ( heavy/light users,
80/20 rule)
The benefits desired in a product (ie ease of use)
The usage occasion (such as use of work vs home)

Hi-tech companies marketing strategies focus on


women in technology products
Style focus rather than just price as found by Best Buy
Women oriented media / improved customer service used
by Dell
Samsung tests its products with female user groups

For B-to-B marketing- industry classification standards as


SIC codes; Horizontal market and Vertical market segments
Horizontal segments frequently use
A specific technology application to automate a business process or
function
Customers across industries share a common approach to use or
benefits in adopting technology

Vertical segments
Identify particular industries or verticals that would receive
disproportionate benefit from adoption of technology.
Customer user varies by industry and they require different value
propositions.
While vertical market segment appears to have smaller potential, high
tech company can garner a large share of market within the segment,
and exploit the leadership position

Profile the customers in each segment

Focus on hi-tech buyers approaches

3. Evaluate and Select a Target Market


Size:
80/20 rule, volume of customers in the market rather than purchasing
volume.
Growth :
Firms will be able to capitalize on customers needs and grow with the market
Firms can capture new customers coming in the market
Level of competition
Entrenched competition from powerful players
Expensive to pursue the segment despite superior technology
4. Capabilities to serve the needs of that segment
Firm should focus on core competencies and strengths

Positioning the product within the Segment


Companys positioning is the image of the product in
the eyes of customer, relative to competitors, on
critical attributes of importance.
Positioning is based on customers perceptions.
Companys positioning is always relative to
competitors
Positioning is generally achieved by how new
technology fits the existing market categories by
referencing older technology that is being displaced.
(product form competition).

2 tools that can assist company with its


positioning strategies
Multi-attribute models
Collects data from sample of customers about the
relative importance of attributes (product features and
benefits) in their technology purchase decision
Assess how well the company and its competitors stack
up on these features
This will provide the strengths and gaps and provide
insights on positioning

Example of a Multi-attribute model


Communication s/w solution for emergency

Perceptual Map uses similar data. Consolidates


multiple attributes into two higher level attributes
using statistical techniques (factor analysis or
multi-dimension scaling)
Provides a simple visual graphic of companys
offering vs competition
Display what customers ideal preferences.

Perceptual Map for smart phones

Customer Migration Decisions


High-tech markets are blessed(cursed?) with fast and significant
improvements, which result in inflection points and technological
discontinuities in market place.
The customers must make important decisions about if and when
to adopt a new technology.
Customer investments in prior-generation, outdated legacy systems
create a core rigidity acting as an inhibitor to purchase of new
generations.
Business customers often face a gap between products useful life
(<3 years in many cases) and its accounting life. As a result, they are
interested in upgrades that allow them to protect their investments
in technology by providing benefits of new and improved without
scrapping the old version entirely.

Upgrades of business are particularly important


in driving growth in technology spending.
The motivation of buying round of another
technology would be influenced by the real
technological breakthrough or an application that
compels the buyers to spend.
Customers expectations and fears of
obsolescence require that the firm carefully
balance introducing new, state of the art
technology and maintaining interface to the
legacy systems.

Customer migration decisions


Customer expectations about the pace and magnitude of
performance improvements and price play a big role in their
adoption decisions.
The customer must balance the value of existing products against
the new offerings and even future arrivals.
When products improve rapidly and significantly, the strategy to
start with high price and then lowering price to entice later
purchasers may not work.
In general, the greater the anticipated product improvement or
expected price decline, the greater is the customers propensity to
delay purchase.
In extreme, customers may leapfrog- detrimental to the sales.

Marketers migration options


The options along the migration path offered by the
marketers are based on degree to which customers
options in the transition are more constrained vs enlarged
Withdraw the older generation as soon as the new one is
launched with no assistance to the installed base
Withdraw the older generation when the new one is
launched but offer migration assistance
Sell old and new generation together for a period of time
Sell both generations as long as the market desires them

Migration considerations and options


Customer Perceptions

Implication for customer


Behaviour

Implication for Migration


Path

Customers expect rapid


pace in technology
advancements

Willing to wait for price


declines

Marketer should provide


migration assistance

Customers expect large


magnitude of change in
technology advancements

Recognize smooth
upgrading is unlikely;
therefore, waiting to
purchase an older model at
a lower price may result in
obsolescence

Migration path less crucial;


because the latest
technology effectively
obsoletes any path that
was available

Customers have anxiety


about making a decision

Need to feel that their


decisions are safe

Marketer should provide


migration path possibly
selling old and new models
together for a period of
time.

Customers paradoxical relationship with


technology and unintended consequences