Marketing of High-Technology

Products and Innovations

Jakki J. Mohr, Sanjit Sengupta,
and Stanley Slater

Chapter 1:
Introduction to High-Technology
 Technology is Ubiquitous

n Examples of traditional “high-tech”

industries:
n Computers and information technology
n Biotechnology
n Telecommunications
n Internet

© Mohr, Sengupta, Slater 2005

Technology is Ubiquitous
n Examples of some industries where
technological innovation is creating
radical changes:
n Waste management
n Agriculture
n Automotive
n Oil and Gas
n Consumer Products

© Mohr, Sengupta, Slater 2005

 Definition of Technology
n The stock of relevant knowledge that allows
new techniques to be derived
n Product technology: ideas embodied in the
product and its components
n 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”
n Government perspective
n “Common underlying characteristics”
perspective

© Mohr, Sengupta, Slater 2005

Government Perspective:
Defining High-Tech
n Classify industries based on objective,
measurable indicators:
n the number of technical employees
n $ spent on R&D
n # of patents filed in industry
n 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
% Change in
% of High-Tech
Employment
Employment 2000
2000-2010

Crude petroleum and natural gas operations 1.1 -22.7%

Cigarettes 0.3 -14.6%
Industrial inorganic chemicals 0.9 -16.3%
Plastics materials and synthetics 1.4 -15.8%
Drugs 2.8 23.8%
Soap, cleaners, and toilet goods 1.4 6.0%
Paints and allied products 0.5 7.5%
Industrial organic chemicals 1.1 -9.8%
Agricultural chemicals 0.5 8.9%
Miscellaneous chemical products 0.5 2.2%
Petroleum refining 0.8 -23.2%
Miscellaneous petroleum and coal products 0.4 10.7%
Nonferrous rolling and drawing 1.6 -1.8%
Special industry machinery 1.5 -8.2%

© Mohr, Sengupta, Slater 2005

 Level 1 Industries:
Technology-Intensive (Cont.)
% CHANGE IN
% OF HIGH-TECH EMPLOYMENT
EMPLOYMENT 2000 2000-2010

Computer and office equipment 3.2 -3.2%

Electrical industrial apparatus 1.3 -15.6%
Communications equipment 2.4 5.0%
Electronic components and accessories 6.0 17.3%
Motor vehicles and equipment 8.9 8.6%
Aircraft and parts 4.1 23.2%
Guided missiles, space vehicles, parts 0.8 -3.9%
Search and navigation equipment 1.4 -9.3%
Measuring and controlling devices 2.7 -0.6%
Medical instruments and supplies 2.5 17.4%
Photographic equipment and supplies 0.6 -21.6%
Computer and data-processing services 18.5 86.2%
Engineering and architectural services 9.0 30.8%
Research and testing services 0.4 37.9%
Management and public relations 9.6 42.2%
Services, n.e.c. 0.5 35.9%

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

Level II Industries: Technology Moderate
% of High-Tech % Change in
Employment Employment
2000 2000-2010

Miscellaneous textile goods 0.5 6.2%

Pulp mills 1.8 -11.5%
Miscellaneous converted paper products 2.1 0.0%
Ordnance and accessories, n.e.c. 0.3 -8.4%
Engines and turbines 0.8 -2.2%
General industrial machinery 2.2 3.5%
Industrial machines, n.e.c. 3.3 10.0%
Household audio and video equipment 0.7 -3.3%
Miscellaneous electrical equipment and supplies 1.3 8.6%
Miscellaneous transportation equipment 0.7 19.0%

n.e.c Not elsewhere classified

© Mohr, Sengupta, Slater 2005

 Shortcomings to the government
classification approach:
n Some industries are R&D intensive (i.e., high-tech),
but new products are not revolutionary
n Ex: Cigarettes
n May exclude industries who are technology-driven
n Ex: Textiles production
n Some industries with standardized output produced
in mass quantities
n Ex: Some computing equipment

© Mohr, Sengupta, Slater 2005

Definitions of High Technology:
Common, Underlying Characteristics
n Market Uncertainty
n Technological Uncertainty
n Competitive Volatility
n 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

n Consumer fear, uncertainty and doubt (FUD)

n Customer needs change rapidly and
unpredictably
n Customer anxiety over the lack of standards
and dominant design
n Uncertainty over the pace of adoption
n 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

n Uncertainty over whether the new innovation

will function as promised
n Uncertainty over timetable for new product
development
n Ambiguity over whether the supplier will be
able to fix customer problems with the
technology
n Concerns over unanticipated/unintended
consequences
n Concerns over obsolescence
© Mohr, Sengupta, Slater 2005
Competitive Volatility:
changes in competitors, offerings, strategies

n Uncertainty over who will be future

competitors
n Uncertainty over “the rules of the game” (i.e.,
competitive strategies and tactics)
n Uncertainty over “product form” competition
n competition between product classes vs. between
different brands of the same product
n Implication: Creative destruction

© Mohr, Sengupta, Slater 2005

Characterizing the High-Tech
Environment

Market Technological
Uncertainty Uncertainty
Marketing of
High-
Technology
Products &
Innovations

Competitive
Volatility

© Mohr, Sengupta, Slater 2005

Network Externalities
n When the value of the product increases
as more people adopt it
n Also called demand-side increasing
returns or bandwagon effects
n Ex: portals on the Internet
n Metcalf’s Law: Value of the network = n2
(where n=# of users)

© Mohr, Sengupta, Slater 2005

Implications of Network
Externalities
n Reliance on strategies to quickly grow
the size of the “installed base” (or
customers using the particular
product/technology)
n May give away products for low price or
even free
n Work to develop industry standards

© Mohr, Sengupta, Slater 2005

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

© Mohr, Sengupta, Slater 2005

 Why are industry standards
important?
n Customers gain compatibility
n Lowers their perceived risk (FUD factor—fear,
uncertainty, and doubt)
n Allows for seamless interface of product
components.
n Due to network externalities, standards can
increase the value a customer receives
n (when more customers adopt/use products
sharing a common standard).
© Mohr, Sengupta, Slater 2005
 Why are industry standards
important? (Cont.)
n Availability of complementary products
determined by the size of the “installed
base” of a given product.
n Therefore, standards help ensure greater
availability of complementary products by
helping to ensure a larger size of the installed
base.
n 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, Larger
uncertainty, installed
& doubt base
STANDARDS

Increased
demand for
product

More
complementary
products
developed
Increased
customer
value
© Mohr, Sengupta, Slater 2005
 Implications from Standards
n Originator of new technology can set
standards—
n Even when technology standard may be
inferior
n Ex: QWERTY keyboards
n Critical success factor:
n Grow installed base quickly
n Antitrust implications when de facto
standards become near monopolies
© Mohr, Sengupta, Slater 2005
 Strategies to Set Industry
Standards
n (1) Licensing/OEM Agreements
n Pros:

n Can ensure initial wide distribution

n Can co-ops competitors from developing competing

technology
n Limits customer confusion over competing standards

n Sends signal to complementors that installed base may

be significant, stimulating development of ancillary
products
n Cons:
n Licensees may attempt minor technological alterations
to bypass need to pay licensing fees
n Original developer “creates” competitors
© Mohr, Sengupta, Slater 2005
 Strategies to Set
Industry Standards (Cont.)
n (2) Strategic Alliances to jointly sponsor development
of a particular technological standard
n Pros:

n Same four “pros” as the prior strategy, plus:

n By combining skills, alliances may produce superior

technologies than a single company could.

n Cons:
n Partner might access and misuse other firm’s

proprietary information
n Need for close attention to structure and

management of the alliance

© Mohr, Sengupta, Slater 2005
 Strategies to Set
Industry Standards (Cont.)
n (3) Product Diversification: Create a standard
by developing the necessary complementary
products to create more value for customers.
n Pros:

n Can “jump-start” the market when no installed base

of customers exists and complementors have no
incentive to develop products
n Diversifies revenue base of the firm
n Cons:
n Commitment of resources
n Potential incompatibility with core competencies
© Mohr, Sengupta, Slater 2005
Strategies to Set
Industry Standards (Cont.)
n (4) Aggressive Product Positioning via
penetration pricing, product proliferation, and
wide distribution.
n Requires investments in production capacity,
product development, and building market
share
n Costs of failure are very high

© Mohr, Sengupta, Slater 2005

 Conditions That Affect the Choice
of Standards-Setting Strategy:
n Barriers to imitation
n Via patents or copyrights, for example
n Skills and resources
n in technology, manufacturing, marketing,
finances, and firm reputation
n Existence of capable competitors
n Potential suppliers of complementary
products
© Mohr, Sengupta, Slater 2005
 Which Strategy
Under Which Conditions?
n Aggressive Sole Provider when:
n Barriers to imitation are high
n Firm possesses required skills and resources
n Suppliers of complementary products exist
n Apparent absence of capable competitors
n Passive Multiple Licensing when:
n Barriers to imitation are low
n Firms lacks required skills and resources
n Presence of many capable competitors
© Mohr, Sengupta, Slater 2005
 Which Strategy
Under Which Conditions? (Cont)
n Aggressive Multiple Licensing (combines
licensing with aggressive positioning) when:
n Firm possesses needed skills and resources
n Barriers to imitation are low
n Presence of many capable competitors
n Selective Partnering when:
n High barriers to imitation
n Firm lacks needed skills and resources
n Presence of capable competitors
© Mohr, Sengupta, Slater 2005
 Other Characteristics Common
to High-Tech Markets:

n Unit-one” costs:
n when the cost of producing the first unit is
very high relative to the costs of reproduction
n Ex: development vs. reproduction of software

© Mohr, Sengupta, Slater 2005

 Other Characteristics Common
to High-Tech Markets: (Cont.)
n Tradability problems
n Arise because it is difficult to value the
know-how which forms the basis of the
underlying technology
n 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.)
n Knowledge spillover:
n Technological developments in one domain
spur new developments and innovations in
other areas.
n 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 personal

-
consumption
-components
-production equipment -business use
(fleets, etc.)
-services

© Mohr, Sengupta, Slater 2005

 Critical ideas on a Supply Chain
Perspective on Technology
n Often, technological innovations occur at
upstream (i.e., supplier) levels in the supply
chain
n Such innovations may radically affect the
manufacturing process or the inner workings
of a product, but
n End-user behavior may not be significantly
affected
n Examples: cars, food, computing, hair styling,
Internet

© Mohr, Sengupta, Slater 2005

 Continuum of Innovations
Incremental
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/customer pull
© Mohr, Sengupta, Slater 2005
Radical
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
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

R&D/Marketing R&D leads; Marketing leads;

Interaction “technology push” “customer pull”

Type of Marketing Lead users; Surveys; focus

Research empathic design groups

Role of Primary demand; Selective demand;

Advertising customer education build image

Pricing May be premium More competitive

© Mohr, Sengupta, Slater 2005

 Framework for High-Tech
Marketing Decisions
Marketing – 4Ps (Ch. 7-10) and the Internet (Ch 11)

High-Tech Firm

Strategy Formation

Funding Considerations
Market Orientation
Relationship Marketing
}
Internal Considerations (Ch. 2, 3, 4)

Core Competencies/Core Rigidities

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

Societal, Ethical, and Regulatory Concerns (Ch.12)

© Mohr, Sengupta, Slater 2005

Job Opportunities in
High-Tech
n For non-technical backgrounds:
n Find temporary work or internships to
develop knowledge and language
n Read industry publications; join industry
trade groups
n Work for high-tech company customers or
suppliers

© Mohr, Sengupta, Slater 2005

Appendix: Outline of a
Marketing Plan
n Executive Summary
n Market Analysis
n Company Analysis
n Objectives & Positioning
n Value Proposition
n Marketing Strategy
n Budgeting and Control
© Mohr, Sengupta, Slater 2005