Marketing Strategy in High-Tech Markets I

1. Marketing Strategy in High-Tech Markets I

2. 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 (IM)

3. 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

4. Common, Underlying Characteristics of High-Tech Markets: Demand Side Perspective • Market Uncertainty • Technological Uncertainty • Competitive Volatility

5. 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

6. 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?

7. 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?

8. 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, technologies, 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.”

9. 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.

10. 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

11. Value: Perceived Need-Perceived Price • Variables essential to the successful uptake of technology: • Providing an infrastructure • Providing a function • Providing the right price point • Providing a compelling need to buy (make it a necessity).

12. Telegraph! Faster than Phone…Why? • Morse presented prototype of the electric telegraph to the US Congress in 1838 • by 1873 Western Union had carried more than twelve million messages • creation of the infrastructure which supported it. • cheap and predictable rates. • a shared language (global communication).

13. What is a disruptive technology? • Disruptive technologies typically have worse performance, at least in the near term. • But: They have features that a few fringe and generally new customers value and which represent a key source of competitive value in the future. • Products based on them are typically cheaper, simpler, smaller and frequently more convenient to use - often representing a new product architecture, design, and even market (category). • They often bring a new and different value proposition. • See Christensen: “The Innovator's Dilemma”

14. Examples: • Muskets • Steam ships • Automobiles • PCs • Digital photography

15. Continuum of Innovations Incremental Radical • Extension of existing product or process • Product characteristics well-defined • Competitive advantage on low cost production • Often developed in response to specific market need • "Demand-side" market • 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

16. Supplier vs. Customer Perceptions of Nature of Innovation

17. Contingency Theory Type of marketing strategy is contingent upon the nature of the innovation.

18. Examples of Implications of Contingency Theory: Breakthrough Incremental