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Marketing of High-Technology Products and Innovations

Mohr, Sengupta, and Slater

Chapter 6: Understanding High-Tech Customers

Chapter Outline

Customer Purchase Decisions
  

Factors Affecting Technology Adoption Categories of Adopters The Chasm Market Segmentation Process Migration/Upgrade Decisions
Mohr, Sengupta, Slater © 2005

Choosing A Customer Target

Customer Strategies to Avoid Obsolescence

Critical Issues in Understanding High-Tech Customers
Factors that determine who desirable customers are. Factors that affect purchase decision

High Tech Customer

Factors that affect timing of purchase decision
Mohr, Sengupta, Slater © 2005

Stages in the Purchase Process

Problem

Recognition

Information

Search

Evaluate

Alternatives

Purchase Decision

Post-purchase
Evaluation

Mohr, Sengupta, Slater © 2005

Explaining Rate of Adoption

Perceived Attributes
1. 2.

3.
4. 5. 6.

Relative advantage Compatibility Complexity Trialability Ability to communicate product benefits Observability/visibility
Mohr, Sengupta, Slater © 2005

Adoption and Diffusion of Innovation: Factors Affecting Rate of Adoption   Relative Advantage  Benefits of adopting the new technology compared to the costs. P/P ratio  Implication: Marketers must understand customer perceptions of benefits vs. costs Compatibility  Similarity/familiarity to existing ways of doing things  Compatibility with cultural norms  Implication: Marketers must educate customers if compatibility is low Mohr. Sengupta.e. Slater © 2005 . i..

Implication: Design products as independent modules or offer on trial basis. Mohr. offer training and education The extent to which a new product can be tried on a limited basis. Sengupta.Factors Affecting Rate of Adoption (Cont. Slater © 2005  Trialability    . easier to learn.)  Complexity   Difficulty of use of new product Implication: Try to simplify use. Reduces perceived risk.

Slater © 2005  Observability    .Factors Affecting Rate of Adoption (Cont. adoption will be slow.)  Ability to communicate product benefits   Ease and clarity of communicating benefits to prospective customers Implication: Talk in terms customers understand and that meaningfully convey the compelling reason to own the new technology Customer’s ability to assess benefits Ability of others to observe customer’s benefits obtained from using new product Implication: If benefits are elusive to both the users and theirMohr. Sengupta. friends.

and overcome customers’ fears. Sengupta. uncertainties. Traditional marketing methods (which assumes customers understand the usefulness of the products and know how to evaluate them) are often insufficient.Final Thoughts on Adoption    These six factors are crucial hurdles to overcome in effective marketing. Marketers must provide compelling reasons for adoption. and doubts. Slater © 2005 .  Often. must focus more on educating potential users about benefits and how to use new product Mohr.

Sengupta. Understand who is likely to be an early adopter and how they differ from the mainstream market.Final Thoughts on Adoption    Involve customers in evaluating new product ideas Don’t base assessment on inventor’s familiarity with. Mohr. Slater © 2005 . and enthusiasm for. technology.

842 Million (2005) Mohr. Slater © 2005 .Marketing Hi-Tech Products      Demonstrable advantage Reduce risk Secure testimonials from early adopters Price to create value Patience! How does TiVo stack up? Net Income -$79. Sengupta.

Slater © 2005 .TiVo DVD Personal Video Recoder Competitors: Intel Viiv CPU platform aligned with Microsoft Window XP Media Center Edition (MCE) Mohr. Sengupta.

5% Early Adopters 34% Early Majority 34% Late Majority 16% Laggards { { Technology Enthusiasts Visionaries Pragmatists Mohr.Categories of Adopters -2σ -σ The Chasm! +σ 2.5% Innovators 13. Slater © 2005 { Conservatives { { Skeptics The Chasm . Sengupta.

Mohr. Slater © 2005 .Innovators: Technology Enthusiasts        Appreciate technology for its own sake Motivated by idea of being a change agent Will tolerate initial glitches Will develop make-shift solutions Willing to alpha/beta test and work with technical personnel in compensation with lower pricing Provide early revenue for marketers—but not a large group Importance: They are the gatekeeper to the next group of adopters. Sengupta.

Early Adopters: “Visionaries”   Want to revolutionize competitive rules in their industry Attracted by high-risk/high-reward projects (in returns of psychological and substantive benefits)   Not necessarily very price sensitive Demand customized solutions and intensive tech support  Will supply missing elements of total solution   Product Form Competition: Between categories of solutions (determinates of standard/dominant design)  Early adopters communicate horizontally (across industry boundaries) Opinion leaders. Slater © 2005 . change agents Mohr. Sengupta.

in order to gain productivity enhancements Risk aversion to disruptions in their operations Want proven applications. Sengupta. Slater © 2005 . reliable service Seek the convenient “whole product” design  A total solution provided at once  Buy only with a reference from trusted colleague in same industry Mohr.Early Majority: “Pragmatists”     Comfortable with only evolutionary changes in business practices.

They want to pick the same technology solution (avoid risk). Once they make a decision. Sengupta.  Requires industry standards Mohr. Slater © 2005 .Pragmatists (Cont.)  This group is the bulwark of the mainstream market:    They want to move together (herd mentality). they want to implement it quickly (high visibility of performance).

trusted advisor Mohr. technology shy Very price sensitive Require completely pre-assembled. bulletproof (reliable performance) solutions Motivated only by need to keep up with competitors in their industry Rely on single.Late Majority: “Conservatives”      Risk averse. Sengupta. Slater © 2005 .

Sengupta. Slater © 2005 .Laggards: “Skeptics”   Want to maintain status quo Technology is a hindrance to operations  Luddites (the guys resist to the technological progress)  Buy only if all other alternatives worse Mohr.

   Low ratio of innovators to majority users Profit margins decline slowly with time Long time period for market acceptance (the danger of chasm!) Mohr.Target Innovators or the Early Majority?  Target the majority when:   Word of mouth effects are low Consumer products industries business users) (vs. b-to-b i. Slater © 2005 . Sengupta..e.

Mohr. Marketing that was successful with visionaries simply is not effective with pragmatists.What is the “Chasm?”  Gap between early market and mainstream market—  Visionaries vs. Pragmatists   Visionary market is saturated. Sengupta. but mainstream not yet ready to buy. Slater © 2005 .

Sengupta.Visionaries vs. steady progress Think visionaries are dangerous Psychological vision.” and within budget Make slow. revolutionary ideal state    Want to be first in implementing new ideas in their industries Think pragmatists are pedestrian © 2005  These two groups want no part of each other! Mohr. stay within zone of “reasonable. Pragmatists  Visionaries    Pragmatists  Adventurous Think/spend big  Prudent. Slater .

Sengupta. a self-contradictory. circular logic) because this is the initial source of revenue. Slater © 2005 .e.. Focus on developing the best possible solution. it’s a catch-22 (i. brilliance is rewarded. Mohr.Early Market Strategies: Marketing to Visionaries  High level of customized tech support given to visionaries pulls firm in too many directions— costly  Yet.    Products sometimes released too early Vendor goal: Establish reputation Exciting time!   Engineering drives.

Mohr. Idle growth damage! Early market becomes saturated. Cannot take on more custom projects. Sengupta. and revenue growth tapers off or declines Key personnel become disillusioned VC well (venture capital stock) begins to runs dry Marketing strategies that lead to success in selling to visionaries actually hinder success in selling to pragmatists. but no pragmatists ready to buy.The Chasm Cost too much!       Firm takes on more visionaries than it can handle. Slater © 2005 .

(Establishing reputation quickly) R&D must:  build interfaces to legacy systems (linking to the compatible standard as credible reliable technology)   work with partners (for gathering complements) ride the line between service and engineering Mohr.Goal: Minimize time in the Chasm    Look to the new strategies necessary to reach the mainstream market. Slater © 2005 . Sengupta. Pick a single target market with specific application.

Sengupta. Slater © 2005  Simplify complex product features .Marketing to Pragmatists  Vendor must assume total responsibility for complete. connectivity. end-to-end solution (“whole” product)    Hardware. training. software. etc. Requires significant work with partners Develop standards and compatibility   Customer services vital (seeking the useful applications) Focus on best solution possible  (rather than best possible solution) Mohr. support.

Marketing to Pragmatists (Cont.)  Brand Competition: between vendors of different brands of the new technology  A sign of legitimacy for the new technology through competition  Complement strong technological skills with strong partnering skills   Find partners to complete product offerings Leverage partner power changes with market evolution Mohr. Slater © 2005 . Sengupta.

more reliable. Slater © 2005 .Marketing to Conservatives  Make product simpler. cheaper. convenient Mohr. Sengupta.

firm must work with partners in a disciplined fashion (that prioritizes partners). To manage the mainstream market effectively. Slater © 2005 . Mohr. Sengupta. it has not proven itself.Crossing the Chasm Summary  The whole product is the critical success   factor Until a high-tech firm has established itself in the mainstream market.

Sengupta.Stages to Crossing the Chasm Main Street The Tornado The Bowling Alley Innovators Early Adopters The Chasm Early Majority Late Majority Laggards { { Technology Enthusiasts Visionaries Pragmatists Mohr. Slater © 2005 { Conservatives { Skeptics { .

More on the Mainstream Market: Inside the Tornado  Firms that are successful in crossing the chasm typically experience dramatic sales increases when they enter the mainstream (pragmatist) market. Sengupta. Slater © 2005 . Mohr.

Sengupta. Market coverage propagates neighborly and develop the complete product lines  Externalities & bandwagon effects emerge among several related markets Mohr. The Bowling Alley:  New product gains acceptance from niches within the mainstream market and extends easily through developing a common platform  Each niche requires expertise in that vertical market. and potentially leads to access to related markets. Slater © 2005 .Three phases in the “tornado” of growth  1.

Slater © 2005 Seg 2 App 2 Seg 1 App 2 Seg 1 App 3 Whole Product Customer References .Bowling Alley Market Development Seg 3 App 1 Seg 2 App 1 Seg 1 App 1 The Beachhead Mohr. Sengupta.

Sengupta.Engagement with customers: A solution provider perspective from SAP    The first movers vs. the followers As a trusted advisor Engagement through       Discovery (awareness). Continuous improvement (fine tune existing solutions) Product modifications for future releases (satisfy the majority) Mohr. Slater © 2005 . Evaluation (customer-specific). Implementation (reliable & minimize risk). Operations (stable & convenient).

The Tornado:    Period of mass-market adoption when the general marketplace switches over to the new technology Driven by application that provides compelling benefits to mass market: the “killer app” Requires strong operational excellence to keep up with demand Mohr. Slater © 2005 .Three phases in the “tornado” of growth  2. Sengupta.

Post-Tornado Market Share Gorilla Chimp 1 Chimp 2 Monkeys Moore refers to the dominant. The rest of the market is accounted for by numerous niche competitors. post-tornado competitor as the Gorilla. Mohr. Slater © 2005 . Sengupta. the Chimps. the Monkeys. there are two other major competitors. Typically.

“Main Street”   Market growth stabilizes Focus on cross-selling and upgrading to existing customers Mohr. Slater © 2005 .Three phases in the “tornado” of growth  3. Sengupta.

Slater © 2005 . Mohr.Selecting a Market Segment  Must identify the best “beachhead”   A single target market from which to pursue the mainstream market Cannot afford to pursue many segments at once Starting point / Igniting the fire Make offering simple and valuable without costing much. Sengupta.

Steps in Market Segmentation  1. Divide market into groups based on common characteristics     Demographics Geographics Psychographics (Values and lifestyles) Behavioral Variables    Usage Volume (heavy or light users Benefits Sought (ease or functionality) Usage Occasion Mohr. Sengupta. Slater © 2005 .

Sengupta. Slater © 2005 . Profile (describe) typical customers in each segment Significantly different between segments Mohr.Steps in Market Segmentation  2.

Slater © 2005 . Sengupta. ENTERTAINMENT Mohr.Examples of Tech Customer Segments: “Technographics” THE PESSIMISTS… MORE AFFLUENT LESS AFFLUENT LESS AFFLUENT … AND THE OPTIMISTS MORE AFFLUENT SIDELINED CITIZENS: HANDSHAKERS: TECHNOSTRIVERS: FAST FORWARDS: BUSINESS TRADITIONALISTS: DIGITAL HOPEFULS: NEW AGE NURTURERS: FAMILY MEDIA JUNKIES: GADGETGRABBERS: MOUSE POTATOES: .

Sengupta. ENTERTAINMENT Mohr.Examples of Tech Customer Segments: “Technographics” THE PESSIMISTS… MORE AFFLUENT LESS AFFLUENT LESS AFFLUENT … AND THE OPTIMISTS MORE AFFLUENT SIDELINED CITIZENS: HANDSHAKERS: TECHNOSTRIVERS: SIDELINED CITIZENS: FAST FORWARDS: BUSINESS Not interested in technology TRADITIONDIGITAL ALISTS: HOPEFULS: MEDIA JUNKIES: NEW AGE NURTURERS: FAMILY GADGETGRABBERS: MOUSE POTATOES: . Slater © 2005 .

Not convinced HOPEFULS: upgrades and other add-ons are worth paying for. MOUSE GADGETPOTATOES: . STRIVERS: BUSINESS TRADITIONALISTS: MEDIA JUNKIES: Mohr. FAMILY ENTERTAINMENT . MEDIA JUNKIES: GRABBERS: Seek entertainment and can't find much of it online.Examples of Tech Customer Segments: “Technographics” THE PESSIMISTS… MORE AFFLUENT LESS AFFLUENT SIDELINED CITIZENS: HANDSHAKERS: … AND THE OPTIMISTS HAND-SHAKERS: MORE AFFLUENT Older consumers – typically LESS AFFLUENT managers – who don't touch their computers at work. Prefer TV and older media. Sengupta. Slater © 2005 TRADITIONALISTS: NEW AGE Willing to use technology but slow DIGITAL NURTURERS: to upgrade. They FAST leave that TECHNOFORWARDS: to younger assistants.

still interested in new technology Good candidates for the under$1000 PC MEDIA JUNKIES: GADGET-GRABBERS: They also favor online entertainment but have less cash to spend on it. SHAKERS: … AND THE OPTIMISTS MORE AFFLUENT LESS AFFLUENT DIGITAL HOPEFULS: Families with a limited budget but TRADITIONALISTS: . Sengupta. Slater © 2005 .Examples of Tech Customer Segments: “Technographics” THE PESSIMISTS… TECHNO-STRIVERS: AFFLUENT Use technology from MORE cell phones LESS AFFLUENT and pagers to online services HANDprimarily to gain career edge . ENTERTAINMENT Mohr. SIDELINED CITIZENS: TECHNOSTRIVERS: FAST FORWARDS: BUSINESS DIGITAL HOPEFULS: NEW AGE NURTURERS: FAMILY GADGETGRABBERS: MOUSE POTATOES: .

MEDIA MOUSE POTATOES: GADGETJUNKIES: They like the online world for GRABBERS: entertainment and are willing to spend for the latest technotainment.Examples of Tech Customer Segments: “Technographics” THE PESSIMISTS… LESS AFFLUENT SIDELINED CITIZENS: … AND THE OPTIMISTS FAST FORWARDS: MORE AFFLUENT MORE AFFLUENT These customers are the biggest LESS AFFLUENT spenders. ENTERTAINMENT Mohr. STRIVERS: BUSINESS NEW AGE NURTURERS: TRADITIONAlso big spenders. Slater © 2005 . but DIGITAL focused on ALISTS: technology for homeHOPEFULS: users such as family PC. NEW AGE NURTURERS: FAMILY MOUSE POTATOES: . and they're early HAND.of new technology for FAST adopters TECHNOSHAKERS: FORWARDS: individual use. Sengupta.

Sengupta.Steps in Market Segmentation  3. Evaluate and select a target market:     Size of segment in terms of sales volume Growth rate of the segment Competition within the segment Ability of firm to effectively meet the needs of the segment Mohr. Slater © 2005 .

“must-have” reason to buy. with a whole product. Slater © 2005 . compelling.  Purchase of new technology radically improves productivity on an already well-understood critical success factor  Firm must be able to dominate segment. Sengupta. and harvest in short period of time Mohr.What makes a good “beachhead”?  Provides “adjacencies” to other segments   Word of mouth Similarities in whole product needs  Customers have a single.

Slater sufficiently developed © 2005 . Sengupta.    New technology improves firm’s productivity   Difficult to quantify a priori Therefore. BUT:  May be still risky and supporting infrastructure may not be Mohr. unpalatable to pragmatists Easier to quantify  New technology verifiably reduces operating costs  Compelling to a pragmatist—therefore best for crossing the chasm May appeal to conservative.Compelling Customer Needs  New technology provides dramatic improvement in customer firm’s competitive advantage in its industry.

Slater © 2005 . Sengupta.Key in Selecting Target(s)  Must not spread resources too thinly across multiple segments Mohr.

Slater © 2005 .Step 4 of Segmentation Process  4. “Who is the user?” Mohr. Sengupta. Position the product within the segment     Consider customer perceptions Position relative to perceived competition Position on important. compelling attributes/benefits Question in each targeted segment  “Who is the buyer?” vs.

Slater © 2005 . Marketing implication: Firms must manage a migration path for customers to the new generation.Customer Strategies to Avoid Obsolescence   Basic Issue: Tension between adopting newest generations of technology and obsolete investments in prior generations. Mohr. Sengupta.

Slater © 2005 . Sengupta. the greater the customer’s propensity to delay purchase. Wait and watch out! Mohr.What Affects Customer’s Migration Decision?   Expectations about pace of improvements relative to price Expectation about magnitude of improvements relative to price ** The greater the anticipated product improvements and/or expected price declines.

Slater © 2005 GSMGPRSEDGE WCDMAHSPDA cdmaOnecdma2000cdma2000 1xEV-DO .Implication:   High-tech firms must provide upgrades that allow firms to take advantage of new technology without scrapping investments in the prior generation. Sengupta. Mohr. A “migration path” is a series of upgrades to help transition the customer to new generations.

Managing a Migration Path Withdraw older generation immediately No migration assistance Offer migration assistance Sell old & new generations Sell simultaneously for brief periods Indefinitely CUSTOMER OPTIONS: Constrained Enlarged Cannibalizing totally One-way compatibility Mohr. Sengupta. Slater © 2005 .

Sengupta..) mitigates against customer stalling and leapfrogging. trade-ins.e. Slater © 2005 .Managing A Migration Path  When customers expect a rapid pace in technology advancement:   They will be willing to wait for price declines Migration assistance (i. Mohr. etc.

as it is meaningless. Sengupta. Slater © 2005 .Managing A Migration Path  When customers expect significant magnitude of improvement    They realize smooth upgrading is unlikely Waiting for price declines may result in purchasing an obsolete product Therefore. migration path is less crucial. to a certain extent Wait for the extreme finality/ the definite evolution Mohr.

Sengupta. Slater © 2005 .Managing A Migration Path  When customers have uncertainty about expectations:   Migration path makes sense Sell old and new simultaneously Mohr.