Marketing of Technology Products and Innovations

Introduction to the World of Technology Marketing

Opening vignette: Innovations in Automobiles and Transportation

Jet Pack International Moller SkyCar Aptera Tesla MIT Smart Cities CityCar Tata Nano See also: A Better Place (electric car company using an innovative business model)

Why Do So Many High-Tech Innovations Fail?

Some high-tech companies believe that marketing is superfluous
The role of marketing is downplayed or misunderstood

Marketing for high-tech products is complicated and difficult

Marketing is an after-thought to product development Cross-functional collaboration is difficult High-technology companies are not market-driven

Importance of High-Tech Marketing

Technological superiority alone does not ensure success for high-tech products Combination of technology superiority AND marketing competence maximizes the odds of success.
Requires intimate understanding of customers

Distinction Between Tech Marketing & Marketing of Tech Products

Tech Marketing can mean:

Use of technology for marketing purposes
New media, paid search, online advertising, Web 2.0, etc. Covered primarily in Chapter 11 on Advertising and Promotion

Marketing of tech products/innovations

Primary focus of this book: how standard marketing strategies are adapted/modified for tech products

Lexicon of Marketing
Marketing
Set of activities, processes, and decisions to create, communicate, and deliver products/services that offer value to customers and other stakeholders
A philosophy of doing business that focuses on creating value for customers
Uses market-based information to guide internal decisions Brings the voice of the customer into the firm

Three Levels of Marketing Decisions: Strategic

Strategic: Proactive decisions to chart the companys efforts in the market Segmentation, targeting, positioning
Which markets, which segments?

What value proposition/competitive position?

May include a companys corporate social responsibility initiatives

 When strategic decisions are not made, companys efforts are diffused across market segments and product development projects
Recipe for disaster

Responsibility for strategic decisions must be vested with some department in the company Resources for research must be allocated

 Decisions regarding the 4 Ps of marketing:

Product, Price, Place (distribution), Promotion Consistency across the marketing mix

Requires effective cross-functional collaboration

Common focus for all departments is delivery of superior customer value:
Moments of truth: every interaction a customer has with a company either cements or undermines that customer relationship

4 Ps of Marketing
Product: e.g., new product development process; licensing; intellectual property rights; services; etc.
Develop a stream of products with the right set of features to satisfy customer needs in a compelling yet simple fashion.

Price: Establish prices for the companys product

Consider the cost to produce/manufacturer the goods; margins along the distribution channel; competitors prices; customer value; total cost of ownership; prices for product bundles; and profitability.

 Place: Distribution channels and supply chain management. Promotion:

Advertising (both media and messaging decisions) Sales promotion (price deals, trade incentives, etc.) Personal selling (recruiting, training, compensating sales people) Public relations/publicity (garnering favorable trade press attending trade shows, engaging in cause-related marketing, etc.) The Internet and other new media Collateral materials

 Actual implementation of specific marketing tools

Development of marketing brochures and collateral Website development Decisions about which trade shows to attend Where to place ads

Definitions of Technology
Technology:
Cutting edge, advanced products/processes that rely on scientific/engineering knowledge

Innovations:
Things that are newsome of which are high-tech

Characterizing the Tech Environment: Common Characteristics

Market Uncertainty
Marketing of Tech Products & Innovations

Technological Uncertainty

Competitive Volatility

Ambiguity about the type and extent of customer needs that can be satisfied by a particular technology
Consumer fear, uncertainty and doubt (FUD) Customer needs change rapidly and unpredictably

Customer anxiety over the lack of standards and dominant design

Uncertainty over the pace of adoption Uncertainty over/inability to forecast market size

Not knowing whether the technology or the company can deliver on its promise
Uncertainty over whether the new innovation will function as promised Uncertainty over timetable for new product development Ambiguity over whether the supplier will be able to fix customer problems with the technology Concerns over unanticipated/unintended consequences

Concerns over obsolescence

Changes in competitors, offerings, strategies

Uncertainty over who will be future competitors
Uncertainty over the rules of the game (i.e., competitive strategies and tactics)

Uncertainty over product form competition

Competition between product classes vs. between different brands of the same product

Convergence

 Implications:
Avoid myopia Engage in creative destruction

Three Sources of Marketing Myopia in Tech Markets

Our technology is so new we have no competitors.
But: customer needs are already being solved; entrenched customer habits harder to address than real competition.

The new technology being commercialized by new competitors will not pose a large threat.
But: Youve been amazoned!

That competitor is in a different industry, and its strategies dont/wont affect my business. But: customer needs can be solved using different underlying
technology platforms.

Technology Life Cycles

Evolution in new generations of technology
Moores Law:
Performance of an existing technology doubles every 18 months with no increase in price; Predicts upper limits of a particular generation of technology

Typically embodied in new product forms

Often S-shaped curves (see next slide)
May also be irregular step functions and may not be overlapping in terms of performance levels

Technology Life Cycles (cont.)

Limit of Particular Technology

Performance

Time

Some Implications of

Technology Life Cycles

New technologies often come from companies not selling current generation of technology At its initial introduction a new discontinuous technology often underperforms the legacy technology

Incumbents often underestimate viability of new developments

Therefore, new technologies can catch established firms by surprise

 Flurry of new companies ultimately shakes out and industry coalesces around dominant design Performance of new technology takes off and overcomes capability of legacy technology

Creative destruction: new technologies obsolete old technologies creating new winners/losers in the industry

Will a Dominant Design Emerge?

How Long?
Dominant design emerges when:
Company/industry follows open business model Innovation is less radical R&D intensity is high (creates pressure to select dominant design)

Dominant design emerges sooner when:

Value network has large number of firms (creates pressure to know what dominant design will be) De facto process guides development of industry standards (versus imposed by some body)

Other Strategies to Become Industry Standard

Get Big Fast Strategies

Free offerings

License technology to other industry players

Create customer lock-in based on switching costs to a competitive offering
Caveats: Best technology may not win the standards war Companies that are the de facto industry standard are carefully scrutinized for monopolistic behavior Superior technology may not unseat established standards

Types of Innovations
1. Incremental versus breakthrough 2. Product versus process versus organizational 3. Architectural versus modular (component)

4. Sustaining versus disruptive

Types of Innovations:

Incremental vs. Breakthrough

Incremental Innovations

Continuations of existing products, methods or practices

Minor improvements made with existing methods and technology Evolutionary as opposed to revolutionary

Breakthrough Innovations

Totally new products

Considerable change in basic technologies and methods
Revolutionary ideas that can create new markets

Types of Innovations:

Product vs. Process

Product Innovations New products offering improvements in functional characteristics, technical abilities, ease of use, or other dimensions(incremental or breakthrough) Process Innovations New techniques of producing goods or services
Improve the effectiveness or efficiency of production processes Facilitate the discovery of underlying scientific properties of technological domains Product innovations of one firm may be used as a process innovation by another and vice versa

Types of Innovations:

Architectural vs. Modular

Architectural Innovations New foundations or fundamentals of how the various components of a system work together to function
Based on scientific principles Different from existing technological platforms May be considered radical.

Modular Innovations
New parts or materials within the same technological platform
Example: Magnetic tape, floppy disk, and zip disk differ by components or materials, all three based on the platform of magnetic recording

Types of Innovations:

Sustaining vs. Disruptive

Sustaining Innovations Target demanding, high-end customers with improved performance
Typically through incremental innovations

Disruptive Innovations New, simpler, more convenient, less sophisticated and/or less expensive than existing products or services
Appeal to customers at the lower end of the market Low-end disruption: attracts low-end customers initially, moves into more upscale markets over time as the technology improves New-market disruption: converts previous non-customers into new customers, thereby creating a new market

Types of Innovations:

Organizational
Organizational Innovations

Create or alter business structures, practices, and models

Business model (strategy) innovations Change in the way business is done in terms of capturing value
New methods of financial management Innovations aimed at social needs and issues

Innovations in marketing

Continuum of Innovations
Incremental
Extension of existing product or process Product characteristics welldefined Competitive advantage on low cost production Often developed in response to specific market need "Demand-side" market/customer pull

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

Radical vs. Disruptive Innovation

Radical Innovation
Substantially new technology relative to what already exists in the industry

Disruptive Innovation
Increased sophistication of the feature set in product offerings at a faster rate than customers can keep up may lead to a gap in the marketplace. Gap = Opportunities New companies may enter the market with lowerend products, selling to lower-end customers first

Supply Chain for Auto Industry

Suppliers
Car Manufacturers Car Dealers

Customers

-raw materials -components -production equipment -services

-personal consumption -business use (fleets, etc.)

Critical ideas on a Supply Chain Perspective on Technology

Often, technological innovations occur at upstream (i.e., supplier) levels in the supply chain
Such innovations may radically affect the manufacturing process or the inner workings of a product, but

End-user behavior may not be significantly affected

Examples: food, fashion, apparel

Differential Strategies:
Breakthrough vs. Incremental Innovations Companies must be ambidextrous and manage both types of innovation processes Incremental innovations require:
Attention to cost competitiveness, manufacturing, understanding the market

Breakthrough innovations require:

More long term thinking; risk tolerance; ambiguous market information

Contingency Theory of Tech Marketing

Marketing Strategy Type of Innovation
-Breakthrough
-Incremental

New Product Success

Type of marketing strategy is contingent upon the nature of the innovation.

Implications of Contingency Theory: Examples

Breakthrough

Incremental

R&D/Marketing R&D leads; Interaction technology push

Type of Marketing Research Lead users; empathic design

Marketing leads; customer pull

Surveys; focus groups

Role of Primary demand; Selective demand; Advertising customer education build image
Pricing May be premium More competitive