High Tech Mktg 400

Three Levels of Marketing Decisions
• Strategic,
• Functional,
• Tactical
4 P’s of Marketing
Product
Price
Place
Promotion
4 P’s of Mktg: Product
e.g., new product development process; licensing; intellectual property rights; services;
– Develop a stream of products with the right set of features to satisfy customer needs in a compelling yet simple fashion.
4 P’s of Mktg: Price
Establish prices for the company’s product
– Consider the cost to produce/manufacturer the goods; margins along the distribution channel; competitor’s prices; customer value; total cost of ownership; prices for product bundles; and profitability.
4 P’s of Mktg: Place
Distribution channels and supply chain management.
4 P’s of Mktg: Promotion
– Advertising (both media and messaging decisions)
– Sales promotion (price deals, trade incentives, etc.)
– Personal selling (recruiting, training, compensating sales people)
– Public relations/publicity (garnering favorable trade press attending trade shows, engaging in cause-related marketing, etc.)
– The Internet and other new media
– Collateral materials
Definitions of High-Technology
High-technology: Cutting edge, “advanced” products/processes that rely on scientific/engineering knowledge

Innovations: Things that are new—some of which are high-tech

Government-Based Classifications of “High-Tech” – INPUT
Based on criteria such as 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
Government-Based Classifications of “High-Tech” – OUTPUT
Based on whether products embody new/leading-edge technologies
– U.S. Census Bureau’s classification
o Biotechnology
o Life sciences technology
o Optoelectronics
o Information and communications technology (ICT)
o Electronics
o Flexible manufacturing
o Advanced materials (semiconductors, fiber optics)
o Aerospace
o Weapons
o Nuclear technology
Gov Def. INPUT strengths
• Data easily obtainable
• Objective
• Effective for Level I* industries
• Includes focus on high-tech service sector
Gov Def. INPUT weaknesses
• Classifications may be deemed arbitrary
• May include industries with products not commonly thought of as high tech
• May omit very new industries
• Different input-based measures will result in different classifications
Gov Def OUTPUT strengths
• Classification tends to have face value
• Relatively good correlation between input and output methods for Level I industries
Gov Def INPUT weaknesses
• Somewhat post-hoc: judgments somewhat subjective
• Generally not as comprehensive as input-based approaches
• Relatively low correlation between input and output methods for Level II and Level IIII industries
Common Characteristics of High-Tech Environment
Market Uncertainty: Ambiguity about the type and extent of customer needs that can be satisfied by a particular technology

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

Competitive Uncertainty: Changes in competitors, offerings, strategies

Other Characteristics of High-Tech Industries
• Unit One Costs: When the cost of producing the first unit is very high relative to the variable costs of reproduction of subsequent units. The ratio of variable costs to fixed costs is very low.
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; social network sites. Based on (driven by) communications and connectivity among users
Types of Innovations
1. Incremental versus breakthrough
2. Product versus process versus organizational
3. Architectural versus modular (component)
4. Sustaining versus disruptive
5. Organizational
Incremental vs. Breakthrough Innovations
INCREMENTAL: Continuations of existing products, methods or practices: Minor improvements made with existing methods and technology.
• Evolutionary as opposed to revolutionary
BREAKTHROUGH: Totally new products: Considerable change in basic technologies and methods. Revolutionary ideas that can create new markets
Product vs. Process Innovations
PRODUCT: New products offering improvements in functional characteristics, technical abilities, ease of use, or other dimensions(incremental or breakthrough)
PROCESS: New techniques of producing goods or services: Improve the effectiveness or efficiency of production processes . Facilitate the discovery of underlying scientific properties of technological domains
• Product innovations of one firm may be used as a process innovation by another and vice versa
Architectural vs. Modular Innovations
ARCHITECTURAL: New foundations or fundamentals of how the various components of a system work together to function. Based on scientific principles. Different from existing technological platforms. May be considered radical.
MODULAR: New parts or materials within the same technological platform. Example: Magnetic tape, floppy disk, and zip disk differ by components or materials, all three based on the platform of magnetic recording
Sustaining vs. Disruptive Innovations
SUSTAINING: Target demanding, high-end customers with improved performance. Typically through incremental innovations. New, simpler, more convenient, less sophisticated and/or less expensive than existing products or services. Appeal to customers at the lower end of the market.
DISRUPTIVE: Low-end disruption: attracts low-end customers initially, moves into more upscale markets over time as the technology improves
• New-market disruption: converts previous non-customers into new customers, thereby creating a new market
Organizational Innovations
Create/alter business structures, practices, and models.
Objective of Marketing Strategy
Competitive Advantage
Sources of Competitive Advantage
Tangible Assets: Products, Facilities, Financial Resources

Intangible Assets: Brands/reputation, Know-how, Culture

Competencies: Routines, Processes

3 Characteristics of Core Competencies
• Difficult for competitors to imitate
• Significantly related to benefits end-user receives
• Allow access to a wide variety of disparate product-markets.
Tests of Superior Competitive Advantage
• Customer Value, Cost-benefit analysis among target market
• Effectiveness in customer operations (deliver superior benefits), Efficiency in customer operations (focus on cost side of value equation),
• Rareness: Competitors cannot offer same set of benefits/value
Tests of Sustainable Competitive Advantage
• Durability: How rapidly valued resources become obsolete, Length depends on the industry; Slow-cycle: slow rate of change; Fast-cycle: resources rapidly depreciate
• Inimitability: How easily a competitor can copy/obtain valued resources, Ways to enhance inimitability
Competence Exploitation vs. Exploration
Competence Exploitation: Refine existing skills and resources, Extend existing paradigm into new arenas, Useful for incremental innovation
Competence Exploration/Value Creation: Invest spending in R&D to acquire new knowledge and skills, Useful for radical innovation
Four Strategy Types
1. Product Leader
2. Fast Follower
3. Differentiated Defender
4. Low-Cost Defender
Strategy Type: Product Leader
• Complications for Pioneers in High-Tech Industries
• Risks of pioneering greater for incremental innovations in markets with network externalities, Customers take a “wait-and-see” attitude, Delays revenue stream, Later entrants gain disproportionately because of the larger network effects that exist later in the market’s development
• Risks of pioneering lower with incremental innovations than radical innovations,
• “First to market with radical innovation is first to fail,” Unless market is characterized by network effects—Then pioneering a radical innovation may succeed.
Strategy Type: Fast Follower
• Relative to Product Leaders, Fast Followers: Grow faster, Have higher market share.
Strategy Type: Differentiated Defender
• Strategy is to focus more narrowly on specific customers/market niches
• Successful Differentiated Defenders/Customer Intimate: Target early and late majority customers, Emphasize long term relationships, Exhibit intimate customer knowledge, Deliver superior customer service, Follow appropriate “tiering” of customers.
Strategy Type: Low-Cost Defender
• Strategy of technological, production, or distribution efficiencies that allow them to offer low prices
• Successful Low-Cost Defenders/Operationally Excellent: Target early and late majority customers, Offer superior combination of quality, price, and ease of purchase, Aggressively protect their market with cost leadership in their value chain
High-Tech Culture
Set of organizational values and beliefs that guide behavior, Hard to change
High-Tech Climate
Set of expected behaviors, Observable manifestation of culture
Facilitators of Innovativeness
Top Management Attention
Creative Destruction
Manager’s Willingness to Cannibalize
Product Champions
Skunk Works
Learning Orientation
Unlearning
Corporate Imagination
Expeditionary Marketing
Risk Tolerance
Compensation for Innovation
Facilitators of Innovativeness: Top Management Attention
• Top managers have a strong influence in innovation
• Set example for values and beliefs
• Successful NPD efforts have CEO that is intimately involved with every aspect of the process
• Completely back the project
• Exhibit a future focus
• Exhibit an external (market/customer) focus
Facilitators of Innovativeness: Creative Destruction
• Process of developing/commercializing breakthrough product, service, or model that obsolete or cannibalize existing products
• Current technology made obsolete by proactively developing next-generation technology
• May be the antidote to the Innovator’s Dilemma if it overcomes internal rigidity
Facilitators of Innovativeness: Manager’s Willingness to Cannibalize
• Use fear of obsolescence as motivation to engage in creative destruction
• Drivers: SBUs compete internally for resources, Product champions carry strong role, Focus on future markets more than current markets
Facilitators of Innovativeness: Product Champions
• People who assume significant risks to see their innovative ideas succeed
• Product champions are characterized by: Rule-breaking and risk-taking, Political astuteness, Technical competency, Aggressiveness
• Product champions in more innovative firms wield more influence than those in less innovative firms, They have power to make ideas happen, Reward system and top management support them
• Product champions in less innovative firms wield less influence, Are frustrated and demoralized
Facilitators of Innovativeness: Skunk Works
• Isolate new venture groups outside the normal organizational hierarchy
• Pros: More creativity, unfettered by existing corporate protocols
• Cons: Signals impediments to innovation, Isolates the creative process
Facilitators of Innovativeness: Learning Orientation
• Actively facilitating the development of new knowledge and insights that influence the company’s strategy
• Facilitated by: Top management support, Decentralized/market-based approach to planning, Market orientation – firm’s ability to actively monitor customer/ competitor trends
• A competency-based source of competitive advantage
Facilitators of Innovativeness: Unlearning
• Abandon conventional wisdom, “Unlearn” traditional but detrimental practices
Facilitators of Innovativeness: Corporate Imagination
• Create a vision of the future based on “markets that do not yet exist” and unconfined by existing industry boundaries
• Challenge the status quo, Overturn price/performance assumptions, Escape the “tyranny of the served market”, Use new sources of ideas for innovation, Get out in front of customers
• Engage in creativity exercises
Facilitators of Innovativeness: Expeditionary Marketing
Frequent fast-paced market incursions, Based on “times at bat” rather than one home run

Requires:
• Accurate learning of customer needs
• Recalibration of market offerings
• “Light and fast”
• Shorten time between market learning and product launch

Facilitators of Innovativeness: Risk Tolerance
• Tolerate “mistakes”
• Learn from mistakes
• “Mistake” may prove to be next success
• Reward risk taking
Facilitators of Innovativeness: Compensation for Innovation
• Appropriate reward system
• Long term perspective
Impact of Market Orientation on Firm Performance
• Superior sales growth and profitability
• Effects of market orientation on performance may be stronger in dynamic (high-tech) markets
• Firms with a strong R&D base gain the most from a strong marketing capability
• Proactive, market-oriented firms generate more innovative products
Market Orientation
1. Intelligence Generation
2. Intelligence Dissemination
3. Intelligence Integration
4. Coordinated Action
Market Orientation: 1. Intelligence Generation
• Market intelligence: useful information about market trends/stakeholders,
• Current and future customer needs
• Competitors’ capabilities and strategies
• Emerging technologies across industries
Responsive Market Orientation
responding to current intelligence
• Customers articulate their needs (difficult in high-tech market)
• Can result in marketing myopia and the tyranny of the served market
• Reacting to existing threats means the firm is always behind
Proactive Market Orientation
gather anticipatory intelligence (latent needs, future trends)
• Bifocal vision: current and future customer needs
• Marketing driving firms seek to:
• Redefine market structure
• Introduce an innovative value proposition
• Focus on multiple stakeholders
• Market driving can be risky (high risk/high reward)
Market Orientation: 2. Intelligence Dissemination
• Disseminate information: actively encourage information sharing
• Obstacle: knowledge hoarders
• Create a “boundary-less” organization
• Cultivate a team orientation
Market Orientation: 3. Intelligence Integration
• Integrate intelligence: shared interpretation of the information
• Debate, discuss, disagree, & dialogue
• Create an organizational memory to retain knowledge
• Explicit knowledge: can be documented
• Tacit knowledge: not easily recorded
• Knowledge Management
• Practices used to document, preserve, store, & disperse “knowledge assets”
• Creates an organizational memory
• Associated with a learning orientation
Market Orientation: 4. Coordinated Action
• Execute: implement decisions through coordinated actions
• Requires cross-functional (interfunctional & interdivisional) integration
• Barriers
• Culture that disregards marketing input
• Organizational politics
• “Coopetition”
Cross Functional Interaction: R&D – Marketing Interactions
• Cross-functional Marketing and R & D collaboration particularly important in high-tech firms
• Associated with greater new product success
• Need for R&D-Marketing integration greater when: Innovations are complex, Environmental uncertainty is higher, Product development is in the early “fuzzy front end”
• Rivalry between R&D and Marketing: Reduces the use of information, Contributes to failure
• Roles: Marketing brings the voice of the customer into the development process, R&D brings the knowledge of what is technically feasible, Both participate in customer visit programs, etc.