Marketing of High Technology Products and Innovations Chapter

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

The Objective of Marketing Strategy: Competitive Advantage Sources ◦ Tangible assets: Products Facilities Financial Resources ◦ Intangible assets: Brands/reputation Know-how Culture ◦ Competencies: Routines Processes © 2010 Pearson Education, Inc. publishing as Prentice Hall

Three Characteristics of Core Competencies Difficult for competitors to imitate Significantly related to benefits enduser receives Allow access to a wide variety of disparate product-markets. © 2010 Pearson Education, Inc. publishing as Prentice Hall

Implications of Core Competencies in Strategic Planning Resource allocations 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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

Tests of Superior Competitive Advantage 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) Rareness ◦ Competitors cannot offer same set of benefits/value © 2010 Pearson Education, Inc. publishing as Prentice Hall

Tests of Sustainable Competitive Advantage Durability ◦ How rapidly valued resources become obsolete ◦ Length depends on the industry Slow-cycle: slow rate of change Fast-cycle: resources rapidly depreciate Inimitability ◦ How easily a competitor can copy/obtain valued resources ◦ Ways to enhance inimitability (next slide) © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 No Temporary Superior Yes Yes Sustainable Consistently Superior Rarity is a variation on superiority. Transparency, replicability, and transferability are variations on imitability. © 2010 Pearson Education, Inc. publishing as Prentice Hall

Superior and Sustainable Competitive Advantage Trade off between: ◦ Competence Exploitation Value Appropriation ◦ Competence Exploration Value Creation Interactive effect between them on innovation performance-- © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

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

Market Strategy: Who are Our Customers? Focus on assessing customers’ articulated and unarticulated needs; ◦ Focus less on technology and more on customer value Identify key market segment(s) rather than diluting efforts across multiple segments © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 Search for “blue ocean” strategies ◦ New market space Base-of the-pyramid markets © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 Requires understanding competitors’ value propositions ◦ Look beyond direct competitors ◦ Include competition from outside existing industry boundaries (“product form competition” © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 ◦ “Favorable Points of Difference” Contrasts advantages with competition ◦ “Resonating Focus” Addresses buyer’s key needs AND documents the value explicitly © 2010 Pearson Education, Inc. publishing as Prentice Hall

Market Strategy: How to Create & Deliver Value? Requires: ◦ Right competencies ◦ Appropriate structures/systems ◦ Good decisions in distribution, pricing, and promotion ◦ Flexibility © 2010 Pearson Education, Inc. publishing as Prentice Hall

Four Strategy Types Product Leader ◦ Prospector; Pioneer; First Mover Fast Follower ◦ Analyzer Customer Intimacy ◦ Differentiated Defender Operationally Excellent ◦ Low-Cost Defender © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

Strategy Types: Product Leader PROS CONS Entry barriers Large development costs ◦ Economies of scale Market uncertainty ◦ Experience effects “Wait-and-see” attitude ◦ Reputational effects among consumers ◦ Technological leadership ◦ 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%. © 2010 Pearson Education, Inc. publishing as Prentice Hall

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

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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

Strategy Types: Differentiated Defender Strategy is to focus more narrowly on specific customers/market niches 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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

Strategy Types: Low-Cost Defender Strategy of technological, production, or distribution efficiencies that allow them to offer low prices 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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 Envision new opportunities Paradox: Make serendipity happen Take risks, break rules, be a maverick © 2010 Pearson Education, Inc. publishing as Prentice Hall

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

Strategy Creation: The Formulation Process Formal Planning Approach ◦ Leaders formulate intentions in a written plan ◦ Comprehensive search, evaluation, and selection ◦ Useful for predictable environments where formal controls can be used. Emergent Planning ◦ Improvised ◦ Emergent process from lower levels of the organization; informal entrepreneurialism ◦ Based on trial-and-error learning © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

Strategy Creation: Eight-Step Approach to the Strategic Market Planning Process 1. 2. 3. 4. 5. 6. 7. 8. Define the company’s goals and mission. Choose the arena. Identify potentially attractive opportunities. Make tough strategic choices. Plan key relationships. Complete the winning strategy. Understand the profit dynamic. Implement the chosen strategy. © 2010 Pearson Education, Inc. publishing as Prentice Hall

Strategy Creation: Organizational Structure Hierarchical/functional structure Market-Focused Structure ◦ Formal rules/procedures ◦ Centralized decision making ◦ Appropriate in slow-cycle markets ◦ 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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

Strategy Creation: Marketing Performance Measurement Can’t manage what isn’t measured CEOs in high-tech companies with welldeveloped 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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

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

Marketing Performance Measurement for Customer Intimate Strategy Product/Service Quality Customer Satisfaction Customer Loyalty Financial Results Return Rate % “Very” or “Extremely Satisfied” % of Sales from Existing Customers Sales Growth Reject Rate Satisfaction with Specific Features Duration of Relationship Market Share Perceived Quality Satisfaction with Experience Share of Wallet Profit Growth Time: Order to Delivery Volume of Complaints Sales from Referrals Profit Margin © 2010 Pearson Education, Inc. publishing as Prentice Hall

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

Chapter Features Opening Vignette: Medtronics Technology Expert: IPTV company, Auroras Technology Tidbit: Dignity Toilets End-of-Book Case: Xerox © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

Other Resources Incubators ◦ Facility that offers business support services and access to low-cost facilities ◦ Goal: to successfully “incubate” a new high-tech startup 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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 © 2010 Pearson Education, Inc. publishing as Prentice Hall

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