DISCUSSION QUESTIONS CHAPTER 1

1. Why is the failure rate of more innovative products higher than the failure rates of new
products in general? What are the implications of these failure rates for high-tech
companies?

Many reasons explain the higher failure rate of high-technology products (compared to new

products in general). The research and development necessary to produce high-tech innovations

is costly and can take many years. Once the product is developed, the consumer must be

educated in the benefits of the product, and then convinced that adopting the new innovation

will provide value. However, many high-tech companies either lack marketing expertise or

relegate marketing to second-class status (beneath the role of engineering or product

development). These factors, when combined, contribute to the failure of more innovative

products.

High-tech companies can improve the odds of commercial success of their innovations by

developing a competence in marketing. Technological superiority alone will not lead to

marketplace success; rather the combination of marketing competencies with technological

superiority maximizes the odds of success.

2. What is the difference between the marketing of high-technology and the use of high-
technology in marketing?

The marketing of high-technology refers to the commercialization of technological

innovations (based on scientific and engineering know-how).

The use of technology in marketing activities refers to the ways in which marketers leverage

technology to market any type of product (be they high-technology innovations or more

standard products). Such marketing technologies can include online advertising, search engine

optimization, paid search, Web 2.0 techniques, such as having a MySpace page for a product,

©2010 Pearson Education, Inc. publishing as Prentice Hall 1

 generating videos for YouTube, adding information to wikipedia, mobile marketing (via text

messaging to mobile phones), and so forth.

The book’s primary focus is on how standard marketing techniques must be adapted and

modified for high-technology products (defined subsequently). Certainly high-tech marketing

tools such as those mentioned in the prior paragraph are part of the tool kit for marketing of

high-technology innovations, and those are addressed primarily in Chapter 11.

3. What is “marketing?” What are the three levels that encompass the scope/domain of
marketing? Provide sufficient detail for each of the three levels to communicate a
sophisticated understanding.

Marketing is the set of activities, processes and decisions to create, communicate, and

deliver products services that offer value to customers, partners, and society at large. More than

a “tool kit” or business function, marketing is a philosophy of doing business that reflects shared

values and beliefs in the company about the importance of creating value for customers by

solving meaningful problems. This can be done only when the company has an intimate

understanding of customer needs and access to market-based information about customers and

competitors (both current and future).

Three levels that encompass the scope of marketing activities are strategic, functional, and

tactical. See Table 1-1.

Strategic decisions proactively chart the firm’s direction in the marketplace, addressing such

issues as what market the company will compete in, what its competitive position will be, and its

value proposition.

The functional area of responsibility include both the functional areas of marketing (product,

price, “place” or distribution, and promotion), as well as cross-functional interactions between

marketing personnel and personnel in other departments. Ensuring consistency in all decisions that

©2010 Pearson Education, Inc. publishing as Prentice Hall 2

support the product’s position in the marketplace is critical. Moreover, ensuring that all personnel

are focused on delivering value to customers in each and every customer interaction (“moment of

truth”) is also key.

The tactical level addresses the actual implementation of the tools defined in the first two

areas, such as the actual development of marketing materials (brochures, collateral, Websites),

attending trade shows, etc. The implementation must be consistent with the strategic and functional

decisions.

Success in high-tech markets comes from understanding the interaction between all three

levels: the proactive consideration of where the best opportunities in the market lie and how to best

develop and position the company’s products; how to facilitate collaborative cross-functional

interaction between all functional areas; and the tactical considerations of how to execute the

marketing plan consistent with the strategic foundation.

4. What are the two approaches governments use to define “high tech?” What are their
strengths/weaknesses?

Government definitions of high technology follow either an input-based or output-based

approach.

Input-based definitions classify high-tech industries based on certain criteria such as the

number of technical employees, the amount of research and development outlays, and the

number of patents filed in a given industry. The Appendix A to the chapter lists the industries

classified as “high tech” based on this approach. The strengths of input-based classifications are

(see Table 1-3):

 Data is easily obtainable

 The classification is objective
 The correlation between input-based classifications is reasonably high for “Level I”
industries (or those with the highest scores on the criteria used, such as five times higher
©2010 Pearson Education, Inc. publishing as Prentice Hall 3
 technical employment than other industries).
 It includes data on the high-tech services sector

The weaknesses are:

 Because thresholds for “high” levels are not obvious, classifications may be deemed
somewhat 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 for Level II and
Level III industries (defined in the text).

Output-based approaches define an industry as high-tech if its output embodies new or

leading edge technologies (as determined by a panel of experts). For example, the U.S. Census

Bureau identifies ten major technology areas that produce products embodying new or leading-

edge technologies: biotechnology; life sciences technology; optoelectronics; information and

communications; electronics; flexible manufacturing; advanced materials (semiconductors,

optical fiber cable, for example); aerospace; weapons; and nuclear technology.The strengths of

output-based approaches are:

 Classification tends to have good “face value” (in other words, they make intuitive
sense).
 The correlation between input and output methods for Level I industries (those with the
highest levels of technical employment or R&D expenditures) is relative high.

The weaknesses are:

 Judgments are somewhat subjective

 The classification is generally not as comprehensive as input-based approaches
 Relatively low correlation between input and output methods for Level II and Level III
industries.

5. What are the three characteristics common to high-tech environments? Be sure to provide
detail for each dimension of each characteristic, and an example of each.

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 (The answers to Chapter 7’s Application Questions provide a nice illustration of these

characteristics in the RFID marketplace.)

The three characteristics common to high-tech environments are market uncertainty, technological

uncertainty, and competitive volatility

Market uncertainty: “Ambiguity about the type and extent of customer needs that can be

satisfied by a particular technology” (focuses primarily on issues related to the customer and the

marketplace). Market uncertainty arises from five sub-dimensions:

A. FUD (Fear, Uncertainty, and Doubt) on the part of the consumer about how to use the new
product (see also Question #8 below).

Example: A customer who is contemplating purchasing Wi-Fi technology may wonder if there
will be areas where wireless access is unavailable or doesn’t work, and/or if there are other
components needed to take full advantage of the wireless capability. Such fears can stall
purchase until such issues are more clear to the customer, and easy to address.

B. Customer needs in a high-tech environment change rapidly and unpredictably.

Although Wi-Fi capability received quite a bit of attention in 2003 from business customers
looking to enhance corporate productivity for their “mobile” workers, it could be that these
needs will change in the future, as technology developments make more productivity
enhancements possible with even newer (as yet unknown) technologies.

C. Customer anxiety is perpetuated by the lack of standards for new innovations. (See question
#9 below as well.)

In the Wi-Fi arena, areas where customers can use wireless connections need to have the proper
infrastructure in place. Depending upon the geographic location, and the provider, there are
different technological standards for Wi-Fi technology, leading to the very real concern that
some Wi-Fi “hotspots” may use technology that is incompatible with other Wi-Fi hotspots
(similar to the mobile situation in the US where different carriers cover different parts of the
country and “roaming” fees are charged unless the carriers have established collaborative
agreements. Incompatibilities limit the functionality for users, who are looking for ubiquitous
mobility with their wireless connections.

D. Uncertainty concerning the speed of diffusion of the innovation. (See question #10 below as
well.)

Because high-tech markets are often slow to materialize, some providers of Wi-Fi related
equipment (both infrastructure as well as customer device components) may adopt a wait-and-
see attitude before rolling out a full slate of products that can capitalize on the wireless
©2010 Pearson Education, Inc. publishing as Prentice Hall 5
 capabilities. This wait-and-see attitude can also contribute to even greater uncertainty about the
speed of diffusion of the new innovation in the marketplace.

E. Inability to forecast market size.

At this time, it is unknown how many companies will upgrade their mobile workforce’s
equipment to be wireless enabled, and will pay to develop the requisite “hotspots” and pay for
the wireless service fees. This inability leads to complications in marketing planning, production
planning, etc. and further stalls development of the market.

Technological uncertainty: “not knowing whether the technology, or the company providing

it, can deliver on its promise to meet specific needs;” technological uncertainty includes five sub-

dimensions (see also #11 below):

A. Fear about whether the product will function as promised.

If a customer can overcome the FUD factor noted above, and actually make the requisite
purchases, the issue still remains: will the wireless technology actually work? (Will the
connection be dropped inexplicably at critical times?)

B. Longer development time and uncertainty over development time for high-tech innovations.

Technology providers commonly give customers a “release date”-- when the product will be
available. However, technological complexities and bugs often mean that slippage in those dates
is very common, and release dates are pushed into the future.

C. Consumer concerns about the supplier of the new technology.

Will the supplier provide good customer service? Will any technology problems be fixable? If
the Wi-Fi connections don’t work, how reliable will the customer service be?

D. Concern about unintended consequences.

Will the product actually increase productivity or provide any benefit over the status-quo?

E. Consumers can’t be certain how long the new technology will be viable. Both customers
and companies have concerns over obsolescence.

Competitive volatility: Refers to changes in the competitive situation: who the competitors

are, which products they offer, competitive advantages they might have; comprised of:

A. Uncertainty over who will be future competitors (see also #12 below on “convergence”).

©2010 Pearson Education, Inc. publishing as Prentice Hall 6

 Many providers of Wi-Fi infrastructure are industry newcomers, unknown in the
telecommunications industry prior to this development.

B. Uncertainty over “the rules of the game” (i.e., competitive strategies and tactics).

If Wi-Fi access is provided “free,” say by city governments or retail locations, how will other
providers compete?

C. Uncertainty over “product form” competition (competition between product classes vs.
between different brands of the same product; see also #13 below).

Wireless technology will compete with land-lines (fiber optics, cable, etc.)

The chapter explores many implications arising from competitive volatility, including the

need for managers to avoid myopia (see #14 below) as well as the need to be willing to pro-actively

develop the next best technology even when it may cannibalize its existing products and make its

sunk investments in prior technology obsolete (“creative destruction,” #17 below). In addition, this

section of the chapter explores tools to help managers chart the evolution of new product forms via

technology life cycles (#15 below) and related concepts (Moore’s Law, #16 below).

6. What are the pros and cons of the various definitions of high tech? Of these definitions,
which do you think is the most useful? Why? Based on that definition, draw a continuum
of low- versus high-tech industries.

As noted previously (#4), government definitions use either input-based approaches (to classify

industries as high tech based on objective, measurable indicators, such as the number of technical

employees, the amount of dollars spent in R&D, and/or the number of patents filed in industry; they

are used by the Bureau of Labor Statistics, Organization for Economic Cooperation and

Development, and the National Science Foundation) or output-based approaches based on whether

the output of an industry embodies leading edge technologies. Both of these approaches are useful

for classifying and measuring economic output and employment activity associated with different

industry sectors; they are “quantifiable.” However, it may lead to misclassifications.

©2010 Pearson Education, Inc. publishing as Prentice Hall 7

 The “common characteristics” approach to defining high technology examines the shared

dimensions in high-tech industries. Two benefits to this approach to defining high technology are:

 it is based on a manager’s assessment of the uncertainty surrounding the

product/service s/he manages;
 it is directly tied to the implications for marketing strategy for high-tech companies.

However, this approach is subjective and it casts a very wide net in terms of how high technology is

defined.

In drawing a continuum of low-tech to high-tech industries, students can work in small

groups to discuss various products/industries, and their possible placement on the continuum.

Understanding why they place certain products at certain places helps tease out, in the course of

discussion, some of the underlying issues/dimension/characteristics, such as:

 Pace of change in new product introductions/new features (and potential obsolescence)

 Percentage of scientific know-how embedded in the product

 Degree of customer learning required to understand/use the product

 Etc.

Additionally, this discussion can help identify the weaknesses in the government definitions,

as well as foreshadow the discussion of technological innovations along the supply chain. For

example, the food we eat today may not have changed much in terms of its basic types (bread,

pasta, fish, corn, for example), how we prepare, and how we eat it. However, in terms of the

underlying “ingredients,” issues such as genetic modification of seeds, technology used to actually

grow the agricultural products, etc. have seen huge injections of technological know-how. Hence,

the “high-tech” component of many of our basic consumer products is embedded at a much higher

level of the supply chain than the level at which the end-users actually buy and use/consume the

product.

©2010 Pearson Education, Inc. publishing as Prentice Hall 8

7. The simultaneous presence of market uncertainty, technological uncertainty, and
competitive volatility characterizes most high-tech environments. Explain.

Although one or two of the three characteristics may be present in some environments, the

simultaneous presence of all three factors characterizes most high-tech environments. The decision

about a purchase may cause anxiety in a customer, but if the decision does not also include a

radically new way of meeting the customer’s needs, it is not considered high-tech. The decision

about a purchase may involve a radical new way of meeting a customer’s needs, but if the

customer’s needs do not change rapidly, the marketing environment is not considered high-tech. If

all three variables don’t exist simultaneously, “then the uniqueness that such an environment poses

for marketers will be less pronounced.” Hence, if all three variables are not present, the industry is

probably not high-tech. This idea is graphically displayed in Figure 1-1 in the text.

8. What is the FUD factor? Why is it a factor in the high-tech environment?

FUD stands for Fear, Uncertainty, and Doubt (coined by Geoffrey Moore in his work on

Crossing the Chasm). The FUD factor is a characteristic of the market uncertainty of the high-tech

environment. The consumer’s fear, uncertainty and doubt about what needs or problems a new

technology will address, as well as how well it will meet those needs, creates a drag on the adoption

process of high-technology products that marketing strategies must overcome (see Chapter 7 on

Crossing the Chasm).

9. What is a dominant design? Why is it important in high-tech markets?

A dominant design is the technological format that emerges as the agreed-upon standard, or

industry leader, when industries have two or more competing formats for the underlying technology

platform.

An important factor defining the high-tech marketing environment is customer anxiety, which is

©2010 Pearson Education, Inc. publishing as Prentice Hall 9

exacerbated by competing, incompatible technological standards. The questions about which format

will become the dominant design in the future delays customers’ purchase, out of fear of making a

“wrong” choice. Moreover, it stalls the development of complementary products as well, further

contributing the delays in adoption and diffusion of high-tech innovations.

10. Explain Geoffrey Moore’s chasm and why it is important to bridge.

The chasm represents the gulf between two major categories of adopters in the adoption and

diffusion process of a high technology product: early adopters/visionaries and majority/pragmatists.

The visionaries are quick to adopt new technologies, but the pragmatists adopt a wait-and-see

attitude. Many high-tech products fail because the companies marketing them do not understand

that marketing successfully to pragmatist adopters requires a different marketing strategy than what

was successful for early market adopter.

It is important to bridge the chasm in order to develop a market for the new technologies. If the

new technologies are not accepted by more than a few visionaries, they will not become financially

viable in the marketplace. Crossing the chasm is a major topic in Chapter 7 on Understanding

High-Tech Customers.

11. What are the five factors giving rise to technological uncertainty? Explain each factor.

The five factors giving rise to technological uncertainty are (see also #5):

1. Whether the new innovation will function as promised. Breakthrough technologies may
be released prematurely and they may not function properly.

2. The timetable for development. Product development often takes longer than expected in
high-tech industries. Vendors may pre-announce products and then fail to deliver the
product on the promised release date, resulting in disadvantages both to the company and
its customers.

3. The ability of the supplier to provide reliable technical support and customer service. If
technical problems occur, vendors may be encountering the problem for the first time and
the solution to the problem may be unclear.
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 4. The concern over unanticipated consequences or side effects. In a new technology’s
promise to solve human problems, it may cause new, unanticipated problems.

5. The uncertainty over how long the new technology will be viable before an even newer
development makes it obsolete. Both vendors and customers must gauge whether the
financial investment in a new technology will pay off before a new development takes its
place.
12. What is “convergence?” How does it contribute to competitive volatility?

Convergence occurs when various functions previously offered in different product technologies

are merged and are offered simultaneously in one product. This means that competition may be

found in new product classes that previously did not compete with a particular technology, but due

to convergence, now offers similar functionality. Established suppliers of a product may not

consider a different technology to be a threat, yet when new suppliers begin to offer the same

functionality in a different product, the competitive environment becomes more complex.

13. What is product form competition? How does it contribute to competitive volatility?

Product form competition refers to different categories of products/technologies that satisfy the

same underlying customer need but with a different approach/technology. Like convergence,

product form competition may not be considered a threat, yet because the different technology

satisfies the same customer need (albeit in a different fashion), the competitive environment

becomes more complex.

14. What is marketing myopia and what are its three sources? Provide an explanation for
each. How does marketing myopia relate to the innovator’s dilemma?
Marketing myopia is the tendency of managers to be narrow-minded or short-sighted in their

views about their industry contexts. Managers suffer from three types of marketing myopia (see

Table 1-4).

“Our technology is so new we have no competitors.” This type of thinking does not accurately

©2010 Pearson Education, Inc. publishing as Prentice Hall 11

reflect the fact that customer needs are typically already being solved, either with an older-

generation technology, or in some cases, by doing nothing. Sometimes entrenched customer habits

are harder to dislodge with a new technology than if a competitor did exist.

“The new technology being commercialized by new competitors will not pose a large threat.”

Underestimating new entrants to the market can prove fatal in the high-tech industry, and the phrase

“you’ve been amazoned” has come to mean established companies being disrupted by industry

newcomers.

“That competitor is in a different industry, and its strategies don’t/won’t affect my business.”

When managers view their industry from a specific product/technology lens rather than from a

customer viewpoint, they forget to acknowledge that customer needs can be solved using different

underlying technology platforms.

The innovator’s dilemma is the conflict a company faces between continuing to allocate

resources to serve current customers with incrementally improved products or allocating resources

to develop new products that might cannibalize a company’s existing revenue stream. A company’s

focus on the incremental improvements may be logical in the short term, but may leave the

company vulnerable in the long-term. Creative destruction, in which a company introduces new

technologies that cannibalize its legacy technology, is generally considered “best practices” in high-

tech industries. Of course, crucial issues are timing of introduction and which new technologies to

pursue.

15. What are technology life cycles? Does empirical evidence support the notion of S-shaped
curves in technology development? What are the implications of understanding technology
life cycles?
Technology life cycles are graphical representations of investments in a particular

technology (on the horizontal axis) relative to its price/performance ratio (on the vertical axis),

oftentimes reflected in S-shaped curves. As a new technology is introduced, its performance

©2010 Pearson Education, Inc. publishing as Prentice Hall 12
capacity generally improves slowly, because the fundamentals of the new technology are not yet

well understood. As the understanding of the technology improves and additional expenditures in

R&D are made, the new technology’s performance reaches a critical inflection point, where its

performance rapidly accelerates. In time, another inflection point is reached, where despite further

R&D investments, diminishing returns set in and performance improvements taper off.

Empirical evidence suggests that not all technology developments follow this S-shaped

curve. Rather, they evolve through some irregular step functions with long periods of no

performance improvement interspersed with jumps of performance.

The technology life cycle demonstrates that one can’t rely solely on economic signals to

determine when obsolescence might occur. Based on incremental improvements, the revenue of the

current technology can reach a peak even after a new technology is introduced. Relying only on

economic signals may result in the firm moving too late into the new technology, and the

competition will have established a stronghold. Rather, diminishing performance returns to

increasing investments in current-generation technology are a key indicator of potential end-of-life.

16. What is Moore’s Law?

Moore’s Law, named after Gordon Moore, co-founder of Intel, states that semiconductor

performance doubles every eighteen months, with no increase in price. Stated differently, every

eighteen months or so, improvements in technology cut price in half for the same level of

performance. Moore’s Law is introduced in Chapter 1 in conjunction with technology life cycles

(performance improvements and potential end-of-life concerns for the existing technology

platform).

17. What is creative destruction?

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 Creative destruction is the notion that in order to remain viable, a firm must be willing to

destroy the basis of its current success. If a firm doesn’t constantly innovate and reinvent itself, it

will find its market share eroded by new competitors who are willing to do so. Stated differently, a

company must be willing to cannibalize its own products in order to remain viable and grow.

18. Define and give an example of each of the following: unit-costs, tradability problems, and
knowledge spillovers.
See Table 1-5, which describes these other characteristics many high-tech products share.

Unit-one costs. When the cost of producing the first unit is very high relative to the cost of

reproduction. This type of cost structure is likely to exist when know-how, or knowledge embedded

in the design of the product, represents a substantial portion of the value of the products and

services. This is particularly the situation when the variable costs of production are low or

nonexistent (as in distribution of software over the Internet). (Unit-one costs are less influential

where variable costs comprise a non-trivial portion of the cost-of-goods-sold.)

Example: The costs of pressing and distributing a CD-ROM are trivial compared to the cost of
hiring programmers and content specialists to develop the code recorded on it (vs. the
variable costs of all the components needed to manufacture a personal computer).

Tradability Problems. Many exchanges involving technology require valuation of the

underlying technological knowledge used in the product (i.e., licensing decisions). However,

because it is difficult to value the knowledge, especially when it is tacit and resides in people and

organizational routines, tradability problems arise.

Example: Say a scientist has developed a new way to use nanotechnology to put digital
images on paper (e.g., micro-electronic mechanical systems –MEMS), but she doesn’t want
to actually develop products or manufacture components to sell to OEM manufacturers in
the printing industry/market. The question is: how much is this invention worth?
Tradability problems mean that the inventor and potential customers of the invention may
have very different ideas about the value of this invention, and as a result, may be unable to
come to an agreement about selling the idea/know-how/process.

©2010 Pearson Education, Inc. publishing as Prentice Hall 14

 Knowledge Spillovers. When spillovers in the creation and distribution of know-how further

enrich a related stock of knowledge. Simply, every innovation creates the opportunity for a greater

number of innovations.

Example: It was once projected that the Human Genome Project (used to map all human
genes) would take at least 40 years, but it will take only a fraction of that time, due to
knowledge building upon knowledge.

19. What are network externalities (both direct and indirect)?

Network externalities are also called demand-side increasing returns or a bandwagon effect.

Direct network effects exist when the value of the product an individual user receives increases as

more users adopt that product—which is often true for products that are used for communication

and connectivity between users. In other words, the utility received from an innovation is a function

of the number of users. See Figure 1-4. Indirect network externalities arise from the fact that as

more users adopt a particular product, developers of related goods are more likely to create

complementary products, which in turn, creates even greater value for the customer, developing a

positive feedback loop.

20. How does Metcalfe’s Law apply to firms who are willing to give their products away for
free?
Metcalfe’s Law illustrates the power that comes from the number of users who have adopted a

particular technology, also known as its installed base. According to Metcalfe’s law, as the number

of users doubles, the value of the network quadruples. In other words, the utility received from an

innovation is a function of the square of the number users; the rapid take off is where the value of

the innovation increases exponentially because a critical mass of users has adopted it. This explains

why some high-tech firms are willing to give their products away for free – the installed base will

grow rapidly, thereby increasing the value of the innovation and the ability to leverage that installed

base for other revenue opportunities.

©2010 Pearson Education, Inc. publishing as Prentice Hall 15

21. What are two critical success factors in markets characterized by network externalities?

Two critical success factors in industries characterized by network externalities are how quickly

a firm can grow its installed base of customers and the establishment of industry standards.

The introduction of industry standards allows customers to gain compatibility across the various

components of a product and across product choices in an industry. As a result, customers will be

more likely to purchase the product.

22. Explain why standards are important to both marketers and customers. Explain the self-
reinforcing nature of industry standards, and some of their implications.

A lack of an accepted industry standard can inhibit adoption of a new technology. In a new

industry, rival formats with different technical standards can lead to questions about the dominant

design of the future; as a result, buyers delay purchase in order to minimize the odds of making a

“wrong” choice. Because of the need to garner a large number of adopters quickly, having an

agreed-upon industry standard can be particularly important for products that exhibit network

externalities. Indeed, the rapid take-off of adoption can contribute to the development of de facto

monopolies. Hence, the first company to have its technology widely adopted may well set the

technology standard. So, the benefits of an industry standard include:

For customers:

 Reduced fear, uncertainty, and doubt

 Compatibility across various components of a product, various competitive offerings in an
industry, as well as complementary products
 Generation of network externalities.

For marketers:

 Larger installed base of customers

 Leverage with other industry players, including providers of complementary products and
competitive offerings.

©2010 Pearson Education, Inc. publishing as Prentice Hall 16

 These benefits imply that attempts to coalesce disparate product development efforts around a

common standard can be quite beneficial for marketers of high-tech products. This can reduce the

perceived risk for customers, serving as a catalyst for adoptions.

Industry standards become self-reinforcing when they raise the compatibility of products for

customers. This in turn lowers fear, uncertainty and doubt in the consumer, increasing the likelihood

of adoption. The number of users increases, thereby increasing the value to each user (due to direct

network effects) or increasing incentives for developers of complementary products, which in turn

increases the value to each user (due to indirect network effects). The increased value to each user

increases the likelihood of adoption, thereby increasing the number of users. See Figure 1.5.

Competitors of new technologies can find it difficult to unseat the incumbent because the new

technology must provide a level of superior benefits that is not just superior to the existing

technology but also overcomes the established network effect.

23. What are the factors that affect how long an industry will take to coalesce around a
dominant design?
The factors affecting the speed of emergence of a dominant design in an industry are:

 The company engages in a relatively open business model, sharing know-how that
allows a dominant design to emerge;
 New products are less radical;
 High R&D intensity – higher investments in the category provide necessary variation
and knowledge spillovers that creates pressure to select dominant design;
 A large number of firms are in the “value network”;
 Standards emerge from a de facto process.

24. Why do companies in some high-tech markets pursue a “get big fast” strategy?

Because the first company to have its technology widely adopted may well become the de facto

standard in the industry, some firms adopt a “get big fast” strategy. The strategy can be based on

low price or even free offerings to stimulate adoptions, licensing of underlying technology to other
©2010 Pearson Education, Inc. publishing as Prentice Hall 17
industry players so that more companies rely on the same platform, or other strategies intended to

grow the installed base to a critical mass, where the technology becomes the standard. Such a

situation can create “lock-in” in which customers are not likely to switch to a competing technology

even if it offers superior benefits.

25. Given the importance of industry standards, why do companies find it hard to establish
agreed-upon standards?
Companies must overcome four factors in order to agree on an industry standard. They are
(see Table 1-6):

“It’s my way or the high-way.” One company fervently believes that its technology is far
superior to the other, competing technologies that are also available. So, it is willing to adopt a
go-it-alone strategy because it believes that superior technology will prevail in the marketplace.

“We shall overcome!” Even if a company doesn’t believe its technology is superior, it may
believe that it can overcome, through sheer power, effort, and resources, market forces to
become the dominant design.

“But it’s mine!” Coming to terms with respect to industry standards typically requires sharing
proprietary information. Yet, a company’s intellectual property and underlying know-how forms
the basis of its competitive advantage in the marketplace. Hence, it is unwilling to share such
knowledge with other industry players, which is oftentimes required for using a common
industry platform.

“I deserve more!” Even if a company can accept the idea of sharing its intellectual property, the
issue of how it should be compensated for doing so can rear its ugly head. Known as “tradability
problems,” technological innovations based on know-how are notoriously difficult to valuate in
an economic/financial sense, and as a result, frequently partners cannot come to terms regarding
licensing fees, royalties, or revenue sharing.

26. Explain the following types of innovations: incremental versus breakthrough; product
versus process; architectural (platform) versus component (modular); sustaining versus
disruptive; organizational innovations.
See Table 1-7.

Incremental innovations are continuations of existing methods or practices; they may involve

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extensions of products already on the market. The product features are typically well-defined and

understood by customers. Breakthrough innovations, however, are so radical that they cannot be

compared with any existing practices or perceptions. The technology is so new that it creates a new

product class; customers may find it hard to understand the new technology and its uses. Because

customers did not ask for or articulate a need for the breakthrough innovation, these are sometimes

referred to as technology-push or supply-side markets (see #27 below).

Product innovations offer improvements in functional characteristics, technical abilities,

ease of use, or other dimensions that are embodied in a company’s outputs, the goods and services it

sells on the market. Process innovations are new techniques for producing goods or services, often

oriented toward improving the effectiveness or efficiency of production processes. The product

innovations of one firm may be used as a process innovation by another and vice versa.

Architectural innovations are foundations or fundamentals of how the various components

of a system work together to function. These innovations are typically based on scientific principles

that make the new architecture different from existing technological platforms. Component

innovations are new parts or materials within the same technological platform. These modular

innovations can take place within an existing architecture.

Sustaining innovations are targeted towards demanding, high-end customers. This customer

base is sustained by providing them improved performance, either through incremental innovations,

or breakthrough innovations. Disruptive innovations are products or services that are simpler, more

convenient, less sophisticated and/or less expensive than existing products. These innovations

typically appeal to customers at the lower end of the market. See also #28 below.

Organizational innovations refer to the creation or alteration of business structures,

practices, and models. They may include innovations in business models and business strategies,

and marketing.

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27. What is a technology-push situation?

Technology-push occurs when radical innovations are developed by scientists prior to any

concerns about commercial (i.e., revenue-generating) market applications. The technology is

“pushed” into the market to see where it might best be utilized. These situations are also known as

supply-side markets; the specific commercial applications or target markets are considered only

after the innovation is developed.

28. Explain disruptive innovation. How does it differ from radical or breakthrough
innovation? How do incumbents frequently respond to disruption? How should they
respond?
Disruptive innovation is a type of innovation that appeals to a low-end or emerging customer

segment, rather than mainstream customers. These innovations are initially based on a feature that

existing customers do not find attractive and may appear crude and simplistic to established

companies. However, disruptive innovations become just that—disruptive—when further

developments improve the innovation’s performance and mainstream customers begin to be

attracted to the price/performance value, which disrupts the incumbents’ existing business models.

Disruptive innovation is different from radical innovation in that radical innovations are so new

they cannot be compared with any existing practices or perceptions; they typically create a new

product class. Some disruptive innovations may do this, but not all. Similarly, some radical

innovations may be disruptive, but not necessarily.

Incumbents who see the firms introducing new technologies as a credible threat may respond by

attempting to acquire the start-up company that developed the technology, sometimes with the

intent of “burying” it within the walls of their own corporation. Or they may respond by threatening

legal action, citing patent infringement or some other infraction, with the intent to either stifle the

new innovation or to burn up the start-up’s cash resources.

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 Rather than responding to disruptive innovation in a defensive manner, the incumbent should

establish an organizational culture which stimulates a willingness to engage in their own creative

destruction. In this way, the incumbent develops the next-generation technology, even if it is at the

expense of another revenue stream. The logic is that it is better to amazon oneself than be

amazoned by another company.

29. What is a base-of-the-pyramid market? Why are they frequently the source of disruptive
innovations?
A base-of-the-pyramid market refers to the largest but poorest socio-economic group, the four

billion people in the world who live on less than $2 per day. This is in contrast to the top of the

pyramid, comprised of a small but relatively affluent segment of the global population. “Bottom of

the pyramid” business strategies and technological innovations are designed to deliberately target

impoverished customers in order to offer goods and services that provide real value (benefits to

price/affordability). Disruptive innovations are often designed with a lower price/performance ratio

in mind to appeal to low-end or emerging customers. This topic is covered extensively in Chapter

13.

30. What is corporate social responsibility?

Corporate social responsibility (CSR) is a business initiative that melds economic objectives

with social welfare. In other words, it is a philosophy that businesses can simultaneously pursue

economic profit and solving social problems. This can be achieved by developing strategies to

further sustainability, or “green” business practices, cause marketing in which a company partners

with an organization to address issues such as hunger, abuse, poverty, etc., and development of

technologies and business models to solve problems in base-of-the-pyramid markets. Corporate

social responsibility has become a standard in best-practices marketing and business strategies, and

is the topic of Chapter 13.

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31. What is a supply chain? Why do many innovations arise at the upstream levels of a supply
chain? Think of some examples in which low-tech industries have been transformed by
high-tech innovations. Where in the supply chain have these innovations originated?
A supply chain depicts the flow of a product from the producer to the consumer. See Figure 1-7.

Many innovations occur at the upstream, or supplier, level of the supply chain. The innovations may

be radical to the developer (involve totally new technologies), but because the consumers’ behavior

in adopting and using the technology is unchanged, the innovation is only incremental from their

perspective.

Examples of “low-tech” industries that have been transformed by high-tech innovations at the

upstream supply level in the supply chain include (but are not limited to) industries such as

automobiles, oil and gas, and consumer foods. For example, electric and hybrid autos incorporate

major changes from traditional autos (including the power source, battery innovations, engine

functioning, etc), all of which have occurred at levels in the supply chain that are far removed from

the end user. Consumers still drive a 4-wheeled vehicle on the ground (in contrast to the jet pack

from the chapter’s opening vignette.) Similarly, genetic modifications in seed stock have radically

changed the nature of the agricultural business, but people still shop and eat in a fashion that is

relatively unchanged.

32. What are the implications for a company’s strategy in terms of pursuing incremental
versus breakthrough innovations?
Many established companies excel at developing incremental innovations that allow them to

gain improvements in operational efficiencies in their manufacturing processes. However, this can

come at the expense of true innovation that transforms industries. Indeed, research findings show

that the processes firms have adopted so well for incremental innovations are not only applicable,

but in fact may be detrimental to the management of radical innovation. The firm’s challenge is to

manage both types of innovation simultaneously, because both are needed for the long-term health

of the organization. To remain successful over the long haul, firms must be adept at managing both
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incremental and radical innovation. Because managing for these two types of innovation differ

widely and call for different tools and practices, the contingency theory of high-tech marketing

explicitly acknowledges this need and develops a framework to match the different needs to the

different marketing strategies.

33. What is the contingency theory of high-technology marketing? What marketing tools are
appropriately used for incremental innovations? What marketing tools are appropriately
used for radical innovations?

The contingency theory states that the appropriate marketing strategy is contingent upon the

type of innovation (breakthrough or incremental). In other words, by matching the type of strategy

to the type of innovation, a company can enhance its odds of success in the market. See Figure 1-8.

Market planning should recognize and account for distinctions between market-driven (incremental)

and innovation-driven (breakthrough) innovations.

Many marketing implications arise from the differences between breakthrough and

incremental innovations.

For incremental innovations, the role of marketing is critical. Consumers should play a role

in product development (“customer pull”). Firms should use standard marketing research to find

customer needs and wants, and give that information to R&D to facilitate product development.

Advertising is used to build selective demand, frequently positioned in image. Pricing is

competitive.

On the other hand, for more radical innovations, R&D takes the lead over marketing. In

supply-driven markets, the technological development process is critical (“technology push”). Once

the product is developed, marketing searches for a market to sell to. Marketing research relies on

tools such as empathic design and lead users. Advertising is used to build primary demand and to

educate customers (to overcome the FUD factor). Pricing might either be at a premium for the new

innovations. Or, if the network externalities exist, it might be at a very low – even free – price point.
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34. Does high-tech marketing need to be different from marketing of traditional products?
Why? How?
It is not universally agreed upon that high-tech marketing strategies are different from marketing

of traditional products. It is a useful class exercise to have student work in teams to prepare a debate

for the two sides of the issue.

On the one hand, high-tech marketing must follow basic marketing precepts: High-tech firms

must be able to execute basic marketing strategies flawlessly, including the process of strategic

planning, market segmentation, position, competitive analysis, customer analysis, a solid

understanding of the 4 Ps, and effective reliance on partners.

On the other hand, due to the high degree of uncertainty inherent in high-tech industries, these

fundamentals must be tailored to be effective in the high-tech arena. Indeed, the discussion of the

three characteristics underlying high-tech industries highlights the fact that the uniqueness in the

high-tech environment call for focused attention on issues such as the development of industry

standards, network externalities, overcoming customer fear, uncertainty and doubt.

More specifically, when conducting marketing research for innovations, different research tools

may have to be utilized. These include empathic design and lead users. These tools will help

alleviate shortcomings in research due to lack of product knowledge on the part of the consumer.

Also, product development and management may not follow standard operating procedures. Due to

market uncertainty and competitive volatility, the use of different diagnostics and methods to

manage high-tech products are required. These differences are more fully fleshed out in subsequent

chapters.

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