Marketing of High-Technology

Products and Innovations

Chapter 2:
Strategic Market Planning
In High Tech Firms
Questions to consider
 What is the strategic marketing planning
process in high-tech firms?
 What constitutes competitive advantage in

a high-tech firm?
 How do the four strategy archetypes

interact?
 Why are key metrics important? How are

they reported?

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What is the strategic marketing planning
process in high-tech firms?

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The Objective of Marketing Strategy:
Competitive Advantage
CA exists when the firm possesses resources
and competencies that are valuable, rare,
durable and difficult for competitors to imitate.
 Sources
◦ Tangible assets:
 Products
 Facilities
 Financial Resources
◦ Intangible assets:
 Brands/reputation
 Know-how
 Culture
◦ Competencies:
 Routines
 Processes
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Three Characteristics of
Core Competencies
1. Difficult for competitors to imitate. HP
photo printers
2. Significantly related to benefits end-user
receives. High quality printing
3. Allow access to a wide variety of disparate
product-markets. HP entered digital
photography market with camera, scanner and
printer. HP’s skill in directing tiny droplets of ink
is used to direct tiny droplets of drug with a
patch in the healthcare industry.

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Tree Analogy to Core Competencies: Honda
Branches/canopy
represents the widely different
product markets to which
the core competency has provided access

MOTORCYCLES
SNOWBLOWERS

SMALL LAWN
CARS MOWERS

ENGINES
SMALL
Trunk is the core The core
product, or the physical product must be
embodiment of the significantly related to benefits
core competencies. end-user receives.

SUPERIOR R&D CORPORATE

CULTURE
SUPERIOR
SUPERIOR MARKETING &
MANUFACTURING
KNOWLEDGE OF CUSTOMERS
Roots are underlying skills and capabilities that represent core competencies.

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Implications of Core Competencies in
Strategic Planning
 Resourceallocations may defy
conventional logic
◦ Violate ROI criterion
 High-tech firms’ competencies often
reside in their technological skills
 R&D processes; technical personnel; etc.
◦ They must develop marketing-related
competencies
 The combination of marketing + technological
competencies maximizes the odds of success

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Tests of Superior
Competitive Advantage
 1. Customer Value
◦ Cost-benefit analysis among target market
◦ May be driven either by
 Effectiveness in customer operations (deliver superior benefits)
 Efficiency in customer operations (focus on cost side of value
equation). Green Business Centre, Hyderabad uses 55% less
energy than comparable building.
 2. Resource Rareness
◦ No. of competitors in the industry with the resource is less than
the no. required for the resource to be a commodity
◦ Competitors cannot offer same set of benefits/value. Kyocera
corp. produces ceramic armour that can withstand 140000
pounds of pressure per square inch!

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Tests of Sustainable
Competitive Advantage
 3. Durability
◦ How rapidly valued resources become
obsolete due to competitor innovation
◦ Length depends on the industry
 Slow-cycle: slow rate of change
 Fast-cycle: resources rapidly depreciate Xbox,
Wii, Sony PlayStation
 4. Inimitability
◦ How easily a competitor can copy/obtain valued
resources
◦ Ways to enhance inimitability (next slide)

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Tests of Competitive Advantage (cont.)
Complex org.
 Inimitability routines,
production
Patents, brand processes,
names, corporate interpersonal
reputation, relationships,
specialised assets, culture,
financial reputation
among suppliers
resources,
and customers,
network values ,
externalities, attitudes
supply chain. behaviour
norms and
relationships.

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Requirements for Competitive Advantage
Is the resource/competency:

Valuable Superior to Difficult Competitive

to Buyers Competitors to Imitate Advantage Profitable

No No No Disadvantage No

Yes No No Parity Average

Yes Yes No Temporary Superior

Yes Yes Yes Sustainable Consistently

Superior

Rarity is a variation on superiority.

Transparency, replicability, and transferability
are variations on imitability.
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Superior and Sustainable
Competitive Advantage
 Trade off between:
◦ Competence Exploitation
 Value Appropriation (advertising and
marketing to differentiate its offerings)
◦ Competence Exploration
 Value Creation (investing in R&D)

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Competence Exploitation versus
Exploration
 Competence Exploitation
◦ Refine existing skills and resources
◦ Extend existing paradigm into new arenas
◦ Useful for incremental innovation
◦ Advertising and marketing to differentiate
offerings
 Competence Exploration/Value Creation
◦ Invest spending in R&D to acquire new
knowledge and skills
◦ Useful for radical innovation

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Interaction Between Competence
Exploitation and Exploration on Innovation

 To succeed with radical innovation, firm

with exploitation competence must couple it
with exploration competence as well.
◦ Seek out new markets and value for customers

 To reap benefits of competence exploration,

firm must combine with exploitation
◦ Must fully leverage the new knowledge gained
◦ Value creation (R&D spending) must be coupled
with value appropriation activities—such as
marketing

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Market Strategy:
Key Strategy Decisions

What value do
we offer them?
Who are our
customers?

The Strategy
Sweet Spot

How can we create

and deliver that value?

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Market Strategy:
Who are Our Customers?
 Focus on assessing customers’
articulated and unarticulated needs;
◦ Focus less on technology and more on
customer value
 Identifykey market segment(s) rather
than diluting efforts across multiple
segments

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Market Strategy:
Who are Our Customers? (Continued)
 Avoid tyranny of the “served” market
◦ Excessive focus on serving current
customers
 Adopt bifocal vision
◦ Simultaneous focus on current AND future
customers. Wii why do non players not
play video games. Wand. Women, elderly
and young girls instead of males only
 Search for “blue ocean” strategies
◦ New market space
 Base-of the-pyramid markets
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Market Strategy:
What Value?
 Products, services and technologies are mere
vehicles for value creation
◦ They do not have intrinsic value in and of
themselves
 Requires understanding the customer
◦ Value of products, services, and technologies for
customers
 Requires understanding competitors’ value
propositions
◦ Look beyond direct competitors
◦ Include competition from outside existing industry
boundaries (“product form competition”) Coke & _____

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Market Strategy:
What Value? (cont.)

 Value Proposition: Captures the essence of why a

customer should purchase the product
Three types of value propositions:
◦ “All Benefits”
 Articulates customer benefits. Dell flexibility & low cost
◦ “Favorable Points of Difference”. GE MRI more
accuracy, productivity and support over
competition
 Contrasts advantages with competition
◦ “Resonating Focus”
 Addresses buyer’s key needs AND documents the value
explicitly. Key values for the customer over the
competition.

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Market Strategy:
How to Create & Deliver Value?
 Requires:

◦ Right competencies

◦ Appropriate structures/systems

◦ Good decisions in distribution, pricing,

and promotion

◦ Flexibility
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Four Strategy Types
 Product Leader
◦ Prospector; Pioneer; First Mover
 Fast Follower
◦ Analyzer
 Customer Intimacy
◦ Differentiated Defender
 Operationally Excellent
◦ Low-Cost Defender

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Strategy Types:
Product Leader
 Strategy is first to market with innovative new
products
 Successful Product Leaders:
◦ Target innovator and early adopter customers
◦ Are creative and use novel sources of information
◦ Exhibit a culture of innovativeness
◦ Have technological foresight
◦ Commercialize ideas quickly—engineered for speed
◦ Willing to “leapfrog” their own products
◦ Have marketing acumen
◦ Understand competitors’ strengths and weaknesses
◦ Benefit from a bit o’luck
◦ Gore-Tex ePTFE dental floss, guitar strings, fuel cells
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Strategy Types: Product Leader
PROS CONS
 Entry barriers  Large development costs
◦ Economies of scale  Market uncertainty
◦ Experience effects
 “Wait-and-see” attitude
◦ Reputational effects
◦ Technological leadership among consumers
◦ Buyer switching costs
◦ Higher profits and higher
share
◦ Define product exemplar
◦ Higher consumer
awareness
Failure rate of pioneers is 47%, with an average
market share of 10%.
Failure rate of Fast Followers is 8%, with an average
market share of 28%.
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Complications for Pioneers in High-
Tech Industries
 Risks of pioneering greater for incremental
innovations in markets with network
externalities
◦ Customers take a “wait-and-see” attitude
◦ Delays revenue stream.
◦ Later entrants gain disproportionately because of the
larger network effects that exist later in the market’s
development
 Risks of pioneering lower with incremental
innovations than radical innovations
◦ “First to market with radical innovation is first to fail”
 Unless market is characterized by network effects—
Then pioneering a radical innovation may succeed.

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An Additional Benefit of Being A Product Leader

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Strategy Types: Fast Follower
 Strategy is to imitate Product Leader, with
some key improvement
 Successful Fast Follower/Analyzers

◦ Target early adopter and early majority

customers
◦ Identify overlooked product position
 Innovate superior products
 Undercut the leader on prices
 Out-advertise or out-distribute
 Innovate business/marketing strategies
that change the rules of the game
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Strategy Types: Fast Follower
 Relative to Product Leaders, Fast Followers:
◦ Grow faster
◦ Have higher market share

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An Advantage of Being A Follower

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Strategy Types: Differentiated Defender
 Strategy is to focus more narrowly on specific
customers/market niches. Intuit Tax software
 Successful Differentiated Defenders/Customer

Intimate:
◦ Target early and late majority customers
◦ Emphasize long term relationships
◦ Exhibit intimate customer knowledge
◦ Deliver superior customer service
◦ Follow appropriate “tiering” of customers/
distinguishing profitable customers from
unprofitable ones.

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Strategy Types: Low-Cost Defender
 Strategy of technological, production, or
distribution efficiencies that allow them to
offer low prices: Dell
 Successful Low-Cost

Defenders/Operationally Excellent
◦ Target early and late majority customers
◦ Offer superior combination of quality, price, and
ease of purchase
◦ Aggressively protect their market with cost
leadership in their value chain

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Caveat on Strategy Types
 Most successful companies have a dominant
strategy type and one or two supporting
types. P&G is a dominant innovator and also
known for product/service quality.

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Creating Innovation in Business
Strategy: Approaches and Structures
 Strategy creation process itself is a
deeply embedded skill
 Seek new, unique, and innovative

perspectives to customer-value creation

 Change the basis of industry competition

to create new wealth: Intel obsoletes its

own products with better ones.
 Envision new opportunities
 Paradox: Make serendipity happen
 Take risks, break rules, be a maverick

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Creating Innovation in Business Strategy:
Approaches and Structures (Cont.)
 Foster new connections inside and
outside of the company
 Exude passion for discovery and novelty
 Experiment, take risks, and learn!
 Maintain a flexible strategic posture
◦ Don’t create strategy-making processes that
are more complex than the high-tech market
situation itself.
◦ Planning processes must be simple, fast,
iterative, integrated in high-tech industries.

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Strategy Creation:
The Formulation Process
 Formal Planning Approach (for customer
intimate and operationally excellent firms)
◦ Leaders formulate intentions in a written plan
◦ Comprehensive search, evaluation, and selection
◦ Useful for predictable environments where formal
controls can be used.
 Emergent Planning (for Product leaders)
◦ Improvised Apple iPod.
◦ Emergent process from lower levels of the
organization; informal entrepreneurialism
◦ Based on trial-and-error learning

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Strategy Creation:
The Formulation Process
 Which is best: formal or emergent planning
processes?
◦ False choice:
 Both types of processes must exist
 Complement each other
◦ Depends upon the strategy type:
 Product Leaders – more emergent
 Operationally Excellent and Customer Intimate – more
formal
◦ High-tech companies must have fairly systematic
planning

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Strategy Creation:
Eight-Step Approach to the Strategic Market Planning
Process (Table 2.3 p.69

1. Define the company’s goals and mission.

2. Choose the arena.
3. Identify potentially attractive opportunities.
4. Make tough strategic choices.
5. Plan key relationships.
6. Complete the winning strategy.
7. Understand the profit dynamic.
8. Implement the chosen strategy.

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Strategy Creation:
Organizational Structure
 Hierarchical/functional structure
◦ Formal rules/procedures
◦ Centralized decision making
◦ Appropriate in slow-cycle markets
 Market-Focused Structure
◦ More appropriate in high-tech markets
◦ Multi-dimensional focus on customers,
flexibility and speed
◦ Shift away from product-focused to
customer-centered
◦ Decentralized decision making
◦ Informal coordination among departments
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Strategy Creation:
Marketing Performance Measurement
 Can’t manage what isn’t measured
 CEOs in high-tech companies with well-

developed marketing performance measurement

realize superior performance and greater
satisfaction with the marketing function
 Marketing Metrics

◦ Financial accountability of marketing activities

◦ Link investments/decisions to measurable outcomes

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Strategy Creation:
Marketing Performance Measurement
 Marketing Dashboard
◦ Multidimensional report card for performance
◦ Often automated with software and databases
◦ Specific metrics must tie to marketing strategy
focus
◦ Leading and lagging indicators of market success
◦ Sample dashboard for Customer Intimate Company
(next slide)

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Marketing Performance Measurement for Customer
Intimate Strategy

Product/Service Customer Customer Financial

Quality Satisfaction Loyalty Results

% “Very” or
% of Sales from
Return Rate “Extremely Sales Growth
Existing Customers
Satisfied”

Satisfaction with Duration of

Reject Rate Market Share
Specific Features Relationship

Satisfaction with
Perceived Quality Share of Wallet Profit Growth
Experience

Time: Order to Volume of Sales from

Profit Margin
Delivery Complaints Referrals

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Strategy Creation:
Marketing Performance Measurement

Examples of Salesforce.com Dashboards

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Measuring Innovation Performance
 Metrics include innovation’s usefulness,
quality, speed to market, sales/sales takeoff
 Compares attained performance not only to

the company’s objectives, but also to the

possibilities
◦ What is the record of innovation in the industry?
How does ours compare? Did we miss important
opportunities? Why? Do we successfully convert
R&D spending into commercial product?

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Chapter Features
 Opening Vignette: Medtronics
 Technology Expert: IPTV company, Auroras
 Technology Tidbit: Dignity Toilets
 End-of-Book Case: Xerox

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Appendix: Resource Issues for Small
High-Tech Start-ups
 Funding options:
◦ Friends & Family
 (Also referred to as “friends, family, and fools”)
◦ Bootstrapping:
 Fund business through early customer revenues
 Slow, but founders retain ownership
◦ Grants, Loans, etc.
◦ Venture Capitalists
 Formal VCs – professional investors
 Seek high rate of return
 Informal: Angels

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What Venture Capitalists Look For
 Management experience
 Marketing
 Technology/product
 Anticipated ROI

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Other Resources
 Incubators
◦ Facility that offers business support services and access
to low-cost facilities
◦ Goal: to successfully “incubate” a new high-tech start-
up so that it can survive on its own in a competitive
market
◦ Economic development tool
◦ Can be run by private companies, or
local/regional/federal agencies
◦ Success factors (next slide)
 Other:
◦ US-based: SCORE, SBA, US Dept. of Commerce, NIST
◦ Partnerships

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Incubators
 Mixed rate of success
 Successful programs:

◦ Access to educated work force/talent

◦ Access to financing
◦ Support of local business community/experienced
business people
◦ Culture of innovation and risk taking

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