Marketing of High-Technology Products and Innovations

Jakki J. Mohr, Sanjit Sengupta, and Stanley Slater

Chapter 1: Introduction to High-Technology

Technology is Ubiquitous


Examples of traditional high-tech industries:

   

Computers and information technology Biotechnology Telecommunications Internet

Mohr, Sengupta, Slater 2005

Technology is Ubiquitous


Examples of some industries where technological innovation is creating radical changes:

    

Waste management Agriculture Automotive Oil and Gas Consumer Products

Mohr, Sengupta, Slater 2005

Definition of Technology


The stock of relevant knowledge that allows new techniques to be derived



Product technology: ideas embodied in the product and its components Process technology: ideas involved in the manufacture of a product; a manner of accomplishing a task especially using technical processes, methods, or knowledge
Mohr, Sengupta, Slater 2005

Definitions of High-Tech
 

Government perspective Common underlying characteristics perspective

Mohr, Sengupta, Slater 2005

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 and Development, and the National Science Foundation
Mohr, Sengupta, Slater 2005

Level 1 Industries: Technology-Intensive

% of High-Tech Employment 2000 % Change in Employment 2000-2010

Crude petroleum and natural gas operations Cigarettes Industrial inorganic chemicals Plastics materials and synthetics Drugs Soap, cleaners, and toilet goods Paints and allied products Industrial organic chemicals Agricultural chemicals Miscellaneous chemical products Petroleum refining Miscellaneous petroleum and coal products

1.1 0.3 0.9 1.4 2.8 1.4 0.5 1.1 0.5 0.5 0.8 0.4

-22.7% -14.6% -16.3% -15.8% 23.8% 6.0% 7.5% -9.8% 8.9% 2.2% -23.2% 10.7%

Nonferrous rolling and drawing Special industry machinery

1.6 1.5

-1.8% -8.2%

Mohr, Sengupta, Slater 2005

Level 1 Industries: Technology-Intensive (Cont.)

% OF HIGH-TECH EMPLOYMENT 2000 % CHANGE IN EMPLOYMENT 2000-2010

Computer and office equipment Electrical industrial apparatus Communications equipment Electronic components and accessories Motor vehicles and equipment Aircraft and parts Guided missiles, space vehicles, parts Search and navigation equipment Measuring and controlling devices Medical instruments and supplies Photographic equipment and supplies Computer and data-processing services Engineering and architectural services Research and testing services Management and public relations Services, n.e.c.

3.2 1.3 2.4 6.0 8.9 4.1 0.8 1.4 2.7 2.5 0.6 18.5 9.0 0.4 9.6 0.5

-3.2% -15.6% 5.0% 17.3% 8.6% 23.2% -3.9% -9.3% -0.6% 17.4% -21.6% 86.2% 30.8% 37.9% 42.2% 35.9%

n.e.c. Not elsewhere classified Mohr, Sengupta, Slater 2005

Level II Industries: Technology Moderate

% of High-Tech Employment 2000 % Change in Employment 2000-2010

Miscellaneous textile goods Pulp mills Miscellaneous converted paper products Ordnance and accessories, n.e.c. Engines and turbines General industrial machinery Industrial machines, n.e.c. Household audio and video equipment Miscellaneous electrical equipment and supplies Miscellaneous transportation equipment

0.5 1.8 2.1 0.3 0.8 2.2 3.3 0.7 1.3 0.7

6.2% -11.5% 0.0% -8.4% -2.2% 3.5% 10.0% -3.3% 8.6% 19.0%

n.e.c Not elsewhere classified

Mohr, Sengupta, Slater 2005

Shortcomings to the government classification approach:



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


Ex: Cigarettes Ex: Textiles production

May exclude industries who are technology-driven



Some industries with standardized output produced in mass quantities



Ex: Some computing equipment

Mohr, Sengupta, Slater 2005

Definitions of High Technology:

Common, Underlying Characteristics
   

Market Uncertainty Technological Uncertainty Competitive Volatility Other Characteristics

Mohr, Sengupta, Slater 2005

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 and unpredictably Customer anxiety over the lack of standards and dominant design Uncertainty over the pace of adoption Uncertainty over/inability to forecast market size
Mohr, Sengupta, Slater 2005

Technology Uncertainty:
not knowing whether the technology or the company can deliver on its promise


Uncertainty over whether the new innovation will function as promised Uncertainty over timetable for new product development Ambiguity over whether the supplier will be able to fix customer problems with the technology Concerns over unanticipated/unintended consequences Concerns over obsolescence
Mohr, Sengupta, Slater 2005

Competitive Volatility:
changes in competitors, offerings, strategies


Uncertainty over who will be future competitors Uncertainty over the rules of the game (i.e., competitive strategies and tactics) Uncertainty over product form competition


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

Implication: Creative destruction

Mohr, Sengupta, Slater 2005

Characterizing the High-Tech Environment

Market Uncertainty Technological Uncertainty

Marketing of HighTechnology Products & Innovations

Competitive Volatility

Mohr, Sengupta, Slater 2005

Network Externalities


When the value of the product increases as more people adopt it



 

Also called demand-side increasing returns or bandwagon effects Ex: portals on the Internet Metcalf s Law: Value of the network = n2
(where n=# of users)

Mohr, Sengupta, Slater 2005

Implications of Network Externalities



Reliance on strategies to quickly grow the size of the installed base (or customers using the particular product/technology)


May give away products for low price or even free Work to develop industry standards

Mohr, Sengupta, Slater 2005

Development of Industry Standards



Standards create a common, underlying architecture for products offered by different firms in the market.

Mohr, Sengupta, Slater 2005

Why are industry standards important?



Customers gain compatibility



Lowers their perceived risk (FUD factor fear, uncertainty, and doubt) Allows for seamless interface of product components.

Due to network externalities, standards can increase the value a customer receives


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

Mohr, Sengupta, Slater 2005

Why are industry standards important? (Cont.)



Availability of complementary products determined by the size of the installed base of a given product.


Therefore, standards help ensure greater availability of complementary products by helping to ensure a larger size of the installed base. Customers get more value from the base product as more complementary products are available. Mohr, Sengupta, Slater 2005

Self-reinforcing Nature of Standards

Reduce customer fear, uncertainty, & doubt
STANDARDS

Larger installed base

Increased demand for product More complementary products developed Increased customer value
Mohr, Sengupta, Slater 2005

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 facto standards become near monopolies

Mohr, Sengupta, Slater 2005

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 ancillary products  Cons:  Licensees may attempt minor technological alterations to bypass need to pay licensing fees  Original developer creates competitors
Mohr, Sengupta, Slater 2005

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 superior technologies than a single company could. Cons:  Partner might access and misuse other firm s proprietary information  Need for close attention to structure and management of the alliance


Mohr, Sengupta, Slater 2005

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 base of customers exists and complementors have no incentive to develop products Diversifies revenue base of the firm Commitment of resources Potential incompatibility with core competencies
Mohr, Sengupta, Slater 2005

Cons:
 

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

Mohr, Sengupta, Slater 2005

Conditions That Affect the Choice of Standards-Setting Strategy:



Barriers to imitation


Via patents or copyrights, for example in technology, manufacturing, marketing, finances, and firm reputation

Skills and resources



 

Existence of capable competitors Potential suppliers of complementary products

Mohr, Sengupta, Slater 2005

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 Barriers to imitation are low Firms lacks required skills and resources Presence of many capable competitors
Mohr, Sengupta, Slater 2005

Passive Multiple Licensing when:

  

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 High barriers to imitation Firm lacks needed skills and resources Presence of capable competitors
Mohr, Sengupta, Slater 2005

Selective Partnering when:

  

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

Mohr, Sengupta, Slater 2005

Other Characteristics Common to High-Tech Markets: (Cont.)



Tradability 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?
The perceived problem and valuation Pricing on tangible goods vs. intangible goods
Mohr, Sengupta, Slater 2005

Other Characteristics Common to High-Tech Markets: (Cont.)



Knowledge spillover:


Technological developments in one domain spur new developments and innovations in other areas. Ex: Human Genome Project

Mohr, Sengupta, Slater 2005

A Supply Chain Perspective of Technology a case of Auto Industry

Interwoven impacts on facing innovation

Suppliers

Car Manufacturers

Car Dealers

Customers

-raw materials -components -production equipment -services

personal consumption
-

-business use (fleets, etc.)

Mohr, Sengupta, Slater 2005

Critical ideas on a Supply Chain Perspective on Technology



Often, technological innovations occur at upstream (i.e., supplier) levels in the supply chain Such innovations may radically affect the manufacturing process or the inner workings of a product, but End-user behavior may not be significantly affected Examples: cars, food, computing, hair styling, Internet
Mohr, Sengupta, Slater 2005

Continuum of Innovations
Incremental Radical Extension of existing product or process Product characteristics welldefined Competitive advantage on low cost production Often developed in response to specific market need "Demand-side" market/customer pull New 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

Mohr, Sengupta, Slater 2005

Supplier vs. Customer Perceptions of Nature of Innovation

Mismatch: Delusion Breakthrough Incremental

Mismatch: Shadow

Mohr, Sengupta, Slater 2005

Contingency Theory
Marketing Strategy New Product Success

Type of Innovation -Breakthrough -Incremental

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

Mohr, Sengupta, Slater 2005

Examples of Implications of Contingency Theory:

Breakthrough Incremental
Marketing leads; customer pull Surveys; focus groups

R&D/Marketing Interaction

R&D leads; technology push

Type of Marketing Lead users; empathic design Research

Role of Advertising Pricing

Primary demand; Selective demand; customer education build image May be premium
Mohr, Sengupta, Slater 2005

More competitive

Framework for High-Tech Marketing Decisions

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

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Mohr, Sengupta, Slater 2005

High-Tech Firm

Customers
Understanding Customers (Ch. 5,6) High-tech Research Forecasting Customer Decision-Making Adoption Diffusion of Innovations Target Marketing

Internal Considerations (Ch. 2, 3, 4) Strategy Formation Core Competencies/Core Rigidities Funding Considerations Market Orientation Relationship Marketing R&D/Marketing Interactions

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 industry trade groups Work for high-tech company customers or suppliers

Mohr, Sengupta, Slater 2005

Appendix: Outline of a Marketing Plan

      

Executive Summary Market Analysis Company Analysis Objectives & Positioning Value Proposition Marketing Strategy Budgeting and Control
Mohr, Sengupta, Slater 2005