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Arto Rajala, Prof. Helsinki School of Economics

High-tech Marketing. Arto Rajala, Prof. Helsinki School of Economics. Outline. What is High Technology? High Technology in Finland What’s the Difference between High and Low Technology? What are the Marketing Implications of High Technology? Identifying & crossing the chasm

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Arto Rajala, Prof. Helsinki School of Economics

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  1. High-tech Marketing Arto Rajala, Prof. Helsinki School of Economics

  2. Outline • What is High Technology? • High Technology in Finland • What’s the Difference between High and Low Technology? • What are the Marketing Implications of High Technology? • Identifying & crossing the chasm • Building marketing offerings • Conclusions High Technology Marketing

  3. Defining Marketing • Marketing is a business (management) discipline or orientation ”...performance of business activities that direct goods and services from produces to consumer or user (AMA)” • Understanding actual and potential customer needs, by • developing/modifying products, facilitating customer access to its offerings, attracting and influencing the market, creating differential advantages (brand) • Establishing and maintaining customer relationships • Managing 4P’s (Product, Price, Place, Promotion) • STP-model (Segmenting – Targeting – Positioning) High Technology Marketing

  4. Defining Technology (1/2) • Machinery, equipment, tools, artifacts, etc. (tangible) • Techniques – specific ways of proceeding or completing instrumental acts and specific arrangements of persons, materials, and tasks (intangible) • The science of knowledge to practical purpose (to obtain something useful) • Knowledge and skills – not only to develop but how to use  making benefit from technology High Technology Marketing

  5. Defining High Technology (2/2) • Novelty – advanced compared to the-state-of-the-art • Knowledge intensity – based on radical innovation • Dependence on R&D and highly educated people • R&D investments > 4% of turnover (OECD) • usually btw 10% - 20% • Intensive development cooperation btw universities and research institutes • Long R&D phase – short market existence High Technology Marketing

  6. Categorisation of Technology • Product Technology • embedded in the product itself • Process Technology • a part of production or delivery system • Information Technology • a platform that enables communication • Management Technology • know-how and expertise to run the business • tacit vs. explicit knowledge High Technology Marketing

  7. High-Tech Characteristics... • New technology • Makes the existing technology obsolete very rapidly • New products or even new industries emerge • Leading-edge technology • The-state-of-the-art in the field and not widespread acceptance by those working in the field • Technology-base is new • Cross-industry characteristics • Ability to create/modify new applications High Technology Marketing

  8. … High-Tech Characteristics • Developer’s vs. user’s view on technology • Technology adapters = CUSTOMERS • Technology providers = SUPPLIERS • Customer perceived value • Added value to customer • Knowledge intensity • Different technology settings • Technology life cycle • From product to process technologies High Technology Marketing

  9. A Definition of High-Tech …… from Marketing Point of View “High-tech is that of the leading-edge technology involving a high level of knowledge intensity, which enhances the value of the product or process to the customer in the sense that it provides better quality, lower costs, or it makes the use of the object easier compared to the old technology” High Technology Marketing

  10. High Technology in Finland...http://tilastokeskus.fi/tk/yr/ttt_huippu.html & http://www.research.fi/ • Turnover of high-tech companies 16 billion euro (1999) • Share of high-tech in manufacturing output 27 % [USA 32 %] • Average growth of production per year 31 % btw 1995-1999 • Employed 42 000 people (1999) [30 500 (-95, + 8 % /year] • Number of R&D stuff 68 000 (2000) [47,000 (-91)] • 1 203 doctoral dissertations (2001) [524 (-91)] • 20,9 % of total export (2001) 10,0 billion euro [6,0 % in 1991] • 17,8 % of total import (2001)6,4 billion euro [12,1 % in 1991] • R&D investments (2002) 3,47 % of BNP (4.9 billion euro of which companies accounted for 70,7 %) • 3 083 patent applications (-99), 4.6 dom. pat./10 000 • Large externalities (other industrial sectors) High Technology Marketing

  11. Source: www.research.fi R&D Expenditures in Finland Tuotekehitysmenot Universities Public sector Companies Companies High Technology Marketing

  12. Major High-Tech Sectors in Finland • Electronics • Telecommunication • Data and Office Equipment • Scientific Instruments • Biotechnology High technology is a problem from industry classification point of view - no explicit statistic available! ICT- Information & Telecommunication Cluster High Technology Marketing

  13. Source: www.research.fi High-technology share of export and import in Finland Export Import High Technology Marketing

  14. Source: Statistics Finland High Technology Marketing

  15. Source: Statistics Finland High Technology Marketing

  16. Factors behind the Finnish Success • Strong technology-base (Forest & Metal/Engineering Industries) • High level of R&D investments (public vs. private) • Focusing on core capabilities - outsourcing others (Nokia) • Technological co-operation between companies, research co-operation between companies and universities - Networking (Technology Villages) • Educated labour force (75% of 25-35 years old have a university or vocational training) • Rapid globalisation - ‘born global’ companies • Access to venture capital funding High Technology Marketing

  17. Source: Statistics Finland High Technology Marketing

  18. Innovations – core of high techonology http://tilastokeskus.fi/tk/yr/ttinno1.html Innovation ~ a totally new, or a remarkable enhanced, product, service or production system/process EU innovation research 2000 • Posted in Finland to 3 462 companies – 50% answered • Highest level of innovation activities in telecom (73 %), electrotechnical industry (67 %) and chemical industry (63 %) • Innovation expenditures (2000) was estimated 4.9 billion € • Innovation activities had the highest impact on expanding product or service offering, enhancing quality, market expansion or increase in market share • The most important source of innovation was the company itself (90%) • About 2/3 of companies involved in innovation activities were confronted with difficulties to implement them • Economical factors such as too high a risk, increasing costs, and the lack of suitable source of funding and competence personnel were the worst bottlenecks for innovation activities High Technology Marketing

  19. Technology Life-Cycle High Technology Marketing

  20. Nature of High Tech Markets • Why are high-tech markets different ? • HIGH-TECH  high uncertainty about technology and market • Market uncertainty • Ambiguity about the type and extent of customer needs that can be satisfied by the technology • Technological uncertainty • Not knowing whether the technology - or the company providing it - can deliver on its promise to meet needs , once they have been articulated High Technology Marketing

  21. Sources of Uncertainties How will needs change in the future? Will the new product function as promised? Will the market adapt industry standard? Will there be side effects of technology ? How fast willthe innovation spread? High-TechMarketing Will delivery timetables be met? TechnologyUncertainty Market Uncertainty How large isthe potentialmarket? Will the vendor give high-quality service? What needs can be met by new technology? Will new high-tech make ours obsolete? Based on: Moriarty & Kosnik (1989) High Technology Marketing

  22. Taxonomy of Marketing Situations Market Uncertainty Low High BetterMousetrapMarketing High TechMarketing High TechnologicalUncertainty High FashionMarketing Low TechMarketing Low Based on: Moriarty & Kosnik (1989) High Technology Marketing

  23. Challenges for Marketing • New designs must win market share • Role of distribution channel • Customer perceptions • Competition • From higher performance to lower costs and differentiation through minor design variations and strategic positioning tactics • incremental changes take place • Segmenting - Targeting - Positioning High Technology Marketing

  24. Commercialising High-Tech Products (1/2) Identifying and Crossing the Chasm

  25. Key Issues • Why so many excellent products fail? • 90-95 % of new product ideas newer reach market • 30-50 % of introduced products seem to fail on the market • Are there differences between high-tech and low-tech product concerning the commercialisation process? • Critical issue: Time-to-Market • Using the ‘Market Development Model’ High Technology Marketing

  26. Pragmatists: Stick with the herd! Conservatives: Hold on! Visionaries: Skeptics: Get ahead of the herd! No way! Techies: 33% 33% Try it! 16,5% 14% 2,5% Innovators Early Early Majority Late Majority Laggards Adopters Technology Adoption Life-Cycle Pragmatists create the dynamics of high-tech market development. Source: Moore (1998) High Technology Marketing

  27. Innovators - Technology Enthusiasts • Primary Motivation: • Learn about new technologies for their own sake • Key Characteristics: • Strong aptitude for technical information • Like to alpha test new products • Can ignore the missing elements • Do whatever they can to help • Challenges: • Want unrestricted access to top technical people • Want no-profit pricing (preferably free) High Technology Marketing

  28. Early Adopters - The Visionaries • Primary Motivation: • Gain dramatic competitive advantage via revolutionary breakthrough • Key Characteristics: • Great imaginations for strategic applications • Attracted by high-risk, high-reward propositions • Will commit to supply the missing elements • Perceive order-of-magnitude gains — so not price-sensitive • Challenges: • Want rapid time-to-market • Demand high degree of customization and support High Technology Marketing

  29. Early Majority - Pragmatists • Primary Motivation: • Gain productivity improvements via evolutionary change • Key Characteristics: • Astute managers of mission-critical applications • Understand real-world issues and tradeoffs • Focus on proven applications • Like to go with the market leader • Challenges: • Insist on good references from trusted colleagues • Want to see the solution in production at the reference site High Technology Marketing

  30. Late Majority - Conservatives • Primary Motivation: • Just stay even with the competition. • Key Characteristics: • Better with people than technology • Risk averse • Price-sensitive • Highly reliant on a single, trusted advisor • Challenges: • Need completely pre-assembled solutions • Would benefit from value-added services but do not want to pay for them High Technology Marketing

  31. Laggards - Skeptics • Primary Motivation: • Maintain status quo. • Key Characteristics: • Good at debunking marketing hype • Disbelieve productivity-improvement arguments • Believe in the law of unintended consequences • Seek to block purchases of new technology • Challenges: • Not a customer • Can be formidable opposition to early adoption High Technology Marketing

  32. The Logic of Commercialising High-Tech Products • Seeding new products to Techis • Techis help and educate Visionaries • Visionaries serve good references for the Pragmatists • Becoming the market leader by serving Pragmatists and setting standards • Leverage success - generate sufficient volume & experience -- reliable products which are also cheap enough to Conservatives • Leaving Sceptics to their on devices High Technology Marketing

  33. Chasm Early Market Mainstream Market Discovering the Chasm • High-tech products are warmly welcome in an early market (techies & visionaries) but then will fall into a chasm (sales will falter and often plummet) • Visionaries don’t see enough of a head start • Pragmatists see no reason to start yet • Crossing the chasm gaining the acceptance within a mainstream market - becomes and organisational imperative … but very few high-tech products cross these chasms Source: Moore (1998) High Technology Marketing

  34. Crossing the Chasm • Product vendor’s problem • 80% of many solutions—100% of none • Pragmatists won't buy 80% solutions • Most common vendor mistake: • Committing to the most common enhancement requests • Never finishing any one customer's wish-list • Solution • Focus on a single beachhead • Accelerate formation of that segment's whole product Source: Moore (1998) High Technology Marketing

  35. Successful Crossing • Considering the difference between visionaries and pragmatists • the former is willing to bet ‘on the come’ • the latter want to see the solutions in production (i.e. see the whole product before they by it)’ • Many high-tech companies are not willing to commit to develop any ‘whole product’ • they focus on four to five likely candidate segments • risk for having everything for nobody • Putting all eggs in one basket is the only safe way to cross the chasm - Why? (Focus & Globalisation) High Technology Marketing

  36. Commercialising High-Tech Products (2/2) On the Mainstream Market

  37. Market Development Model Main Street Tornado Total Assimilation EarlyMarket Chasm BowlingAlley Mainstream Market Source: Moore (1998) High Technology Marketing

  38. Beyond the Chasm - Assessing Mass Market The Bowling Alley • a period of niche-based adoption in advance of the general marketplace, driven by compelling customer needs and the willingness of vendors to craft niche-specific whole products The Tornado • a period of mass-market adoption, when the general marketplace switches over to the new infrastructure paradigm Main Street • a period of aftermarket development, when the base infrastructure has been deployed and the goal now is to flesh out its potential End of Life • wholly new paradigms (technology) come to market High Technology Marketing

  39. Market share is converted into served installed base here Market share is captured here Product Category Life Cycle (Ongoing sales) Technology vs. Category Life Cycles Technology Adoption Life Cycle (First time adopters) Source: Moore (1998) High Technology Marketing

  40. Four Marketing Frameworks 1 on 1 Marketing Mass Marketing Deal Driven Niche Marketing Source: Moore (1998) High Technology Marketing

  41. Application Systems Core Products Aftermarket Products • Photography • Color printing • Wireless telephony • Word processing • Internetworking • Worldwide Web • Cameras • Inkjet printers • Cell phones • Word processors • Routers, switches • Browsers/servers • Film, lenses • Cartridges, paper trays • Batteries, modems • Suite upgrades • Performance tools • Plug-ins Product Mix Offerings Source: Moore (1998) High Technology Marketing

  42. Professional Distribution Services Transaction Services Services • Consultative selling • Business process reengineering • Systems integration • Project management • Custom training • System conversion • Contract management • Competitive selling • System configuration • Implementation support • Train-the-trainers • Customer service • Technical support • Warranty • Order processing • Maintenance • Facilities management • Outsourcing • Upgrade management • Broadcast data feeds • Proprietary database access privileges Service Mix Offerings Source: Moore (1998) High Technology Marketing

  43. Managing Marketing Offerings in High-Tech Firms Are the 4 P’s still relevant?

  44. Product Platform • Product platform is a collection of common elements, particularly the underlying technology elements, implemented across a range of products. • It is primarily a definition for planning, decision making, and strategic thinking. • Especially important in high-tech firms in which multiple products are related by common technology. • Platform defines the cost structure, capabilities, and differentiation of the resulting products. • Separating product platform strategy from product line and individual product strategy, a company can concentrate on its most important strategic issues. High Technology Marketing

  45. Product Platform Product 3 Segment III Product 1b Product 4 Segment II Product 1 Product 1a Uniqueproductelements Product 2 Segment I Element C Commonplatformelements Element B Element A Source: McGrath (2000, 55) High Technology Marketing

  46. Main Characteristics • Product platform is NOT a product! • ... but the lowest common determinator of relevant technology in a set of products or product line • Product failures in high-tech firms often caused by incomplete product platform strategy • Nature of product platforms varies across industries • e.g. in PC it consists of the microprocessor combined with its operating system, packaging, power supply, memory, disk drives, monitors, and interfaces • e.g. it can be a chemical compound combined with with the manufacturing process High Technology Marketing

  47. Core strategic vision • Where are we going? • How will we get there? • Why will we be successful? Core strategic vision Product platform strategy • Market platform plans • Defining technology • Platform architecture • Product line plans • Platform management Product line strategy New product development Market Platform Plan (MPP) • MPP integrates knowledge about the market and knowledge about the product and its defining technology Source: McGrath (2000) High Technology Marketing

  48. The Market Platform Plan Framework • Enables companies to translate platform strategy into a practicable ’attack plan’ for a target market • Characterize & prioritize customer segments • Define the basis of customer value & differentiation • Define the offerings to the customers • Define monitoring plan to sense environment • Establish economic metrics for measuring success in the market High Technology Marketing

  49. Managing High-Tech Products… • Distinctive nature of high-tech products create certain challenges for product managers • dependence on R&D • risky business • global nature of markets • long development cycle - but short economic life cycle • What is the role of pricing decisions • Implications of Product Life Cycle Model High Technology Marketing

  50. Core product Installation Actual product Packaging Augmented product Brandname Features Corebenefit orservice Aftersales services Deliveryand credit Potential product Styling Quality Warranty What is a product? High Technology Marketing

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