Arto Rajala, Prof.

Helsinki School of Economics

2

Outline

What is High Technology?

High Technology in Finland What’s the Difference between High and Low Technology?

What are the Marketing Implications of High Technology?

Identifying & crossing the chasm Building marketing offerings Conclusions High Technology Marketing ar

3

Defining Marketing

Marketing is a business (management) discipline or orientation

”...performance of business activities that direct goods and services from produces to consumer or user (AMA)”

Understanding actual and potential customer needs, by developing/modifying products, facilitating customer access to its offerings, attracting and influencing the market, creating differential advantages (brand) Establishing and maintaining customer relationships Managing 4P’s (Product, Price, Place, Promotion) STP-model (Segmenting – Targeting – Positioning) ar High Technology Marketing

4

Defining Technology (1/2)

Machinery, equipment, tools, artifacts, etc. (tangible) Techniques – specific ways of proceeding or completing instrumental acts and specific arrangements of persons, materials, and tasks (intangible) The science of knowledge to practical purpose (to obtain something useful) Knowledge and skills how to use  – not only to develop but making benefit from technology ar High Technology Marketing

5

Defining High Technology (2/2)

Novelty – advanced compared to the-state-of-the-art Knowledge intensity – based on radical innovation Dependence on R&D and highly educated people R&D investments > 4% of turnover (OECD) usually btw 10% - 20% Intensive development cooperation btw universities and research institutes Long R&D phase – short market existence ar High Technology Marketing

6

Categorisation of Technology

Product Technology embedded in the product itself Process Technology a part of production or delivery system Information Technology a platform that enables communication Management Technology know-how and expertise to run the business tacit vs. explicit knowledge High Technology Marketing ar

High-Tech Characteristics...

7 New technology

Makes the existing technology obsolete very rapidly New products or even new industries emerge

Leading-edge technology

The-state-of-the-art in the field and not widespread acceptance by those working in the field Technology-base is new

Cross-industry characteristics

Ability to create/modify new applications High Technology Marketing ar

… High-Tech Characteristics

8 Developer’s vs. user’s view on technology

Technology adapters = CUSTOMERS Technology providers = SUPPLIERS

Customer perceived value

Added value to customer

Knowledge intensity

Different technology settings

Technology life cycle

From product to process technologies High Technology Marketing ar

A Definition of High Tech …

… from Marketing Point of View

“High-tech is that of the leading-edge technology involving a high level of knowledge intensity , which enhances the value of the product or process to the customer in the sense that it provides better quality, lower costs, or it makes the use of the object easier compared to the old technology”

ar

9

High Technology Marketing

10

High Technology in Finland...

http://tilastokeskus.fi/tk/yr/ttt_huippu.html

& http://www.research.fi/

Turnover of high-tech companies 16 billion euro (1999) Share of high-tech in manufacturing output 27 % [USA 32 %] Average growth of production per year 31 % btw 1995-1999 Employed 42 000 people (1999) [30 500 (-95, + 8 % /year] Number of R&D stuff 68 000 (2000) [47,000 (-91)] 1 203 doctoral dissertations (2001) [524 (-91)] 20,9 % of total export (2001) 10,0 billion euro [6,0 % in 1991] 17,8 % of total import (2001) 6,4 billion euro [12,1 % in 1991] R&D investments (2002) 3,47 % of BNP (4.9 billion euro of which companies accounted for 70,7 %) 3 083 patent applications (-99), 4.6 dom. pat./10 000 Large externalities (other industrial sectors) High Technology Marketing ar

Source: www.research.fi

R&D

Tuotekehitysmenot

in Finland Universities Public sector 11

High Technology Marketing ar

Major High-Tech Sectors in Finland

12

Electronics Telecommunication Data and Office Equipment Scientific Instruments Biotechnology

ICT- Information & Telecommunication Cluster

High technology is a problem from industry classification point of view - no explicit statistic available!

High Technology Marketing ar

Source: www.research.fi

High-technology share of export and import in Finland

Export Import 13

High Technology Marketing ar

Source: Statistics Finland

14

High Technology Marketing ar

Source: Statistics Finland

15

High Technology Marketing ar

16

Factors behind the Finnish Success

Strong technology-base (Forest & Metal/Engineering Industries) High level of R&D investments (public vs. private) Focusing on core capabilities - outsourcing others (Nokia) Technological co-operation between companies, research co-operation between companies and universities - Networking (Technology Villages) Educated labour force (75% of 25-35 years old have a university or vocational training) Rapid globalisation ‘born global’ companies Access to venture capital funding High Technology Marketing ar

Source: Statistics Finland

17

High Technology Marketing ar

18

Innovations – core of high techonology

http://tilastokeskus.fi/tk/yr/ttinno1.html

Innovation ~ a totally new, or a remarkable enhanced, product, service or production system/process EU innovation research 2000 Posted in Finland to 3 462 companies – 50% answered Highest level of innovation activities in telecom (73 %), electrotechnical industry (67 %) and chemical industry (63 %) Innovation expenditures (2000) was estimated 4.9 billion € Innovation activities had the highest impact on expanding product or service offering, enhancing quality, market expansion or increase in market share The most important source of innovation was the company itself (90%) About 2/3 of companies involved in innovation activities were confronted with difficulties to implement them Economical factors such as too high a risk, increasing costs, and the lack of suitable source of funding and competence personnel were the worst bottlenecks for innovation activities

High Technology Marketing ar

Technology Life-Cycle

Era of Ferment

 Design Competition  Substitution

Era of Incremental Change

 Elaboration of Dominant Design Technological Discontinuity 1 Dominant Design 1 Time Technological Discontinuity 2

19

High Technology Marketing ar

Nature of High Tech Markets

20

Why are high-tech markets different ?

• HIGH-TECH  high uncertainty about technology and market Market uncertainty • Ambiguity about the type and extent of customer needs that can be satisfied by the technology Technological uncertainty • Not knowing whether the technology - or the company providing it - can deliver on its promise to meet needs , once they have been articulated ar High Technology Marketing

Sources of Uncertainties

Will the market adapt industry standard?

How will needs change in the future?

Will the new product function as promised?

Will there be side effects of technology ?

How fast will the innovation spread?

Market Uncertainty

High-Tech Marketing

Technology Uncertainty Will delivery timetables be met?

21

How large is the potential market?

What needs can be met by new technology?

High Technology Marketing Will new high-tech make ours obsolete?

Will the vendor give high quality service?

Based on: Moriarty & Kosnik (1989)

ar

Taxonomy of Marketing Situations

22 Market Uncertainty Low High High Better Mousetrap Marketing Technological Uncertainty Low Low Tech Marketing High Tech Marketing High Fashion Marketing

High Technology Marketing

Based on: Moriarty & Kosnik (1989)

ar

23

Challenges for Marketing New designs must win market share

Role of distribution channel Customer perceptions

Competition

From higher performance to lower costs and differentiation through minor design variations and strategic positioning tactics • incremental changes take place

Segmenting - Targeting - Positioning

ar High Technology Marketing

Commercialising High-Tech Products (1/2)

Identifying and Crossing the Chasm

25

Key Issues

Why so many excellent products fail?

90-95 % of new product ideas newer reach market 30-50 % of introduced products seem to fail on the market Are there differences between high-tech and low-tech product concerning the commercialisation process?

Critical issue: Time-to-Market Using the ‘Market Development Model’ ar High Technology Marketing

26

Technology Adoption Life-Cycle

Pragmatists: Stick with the herd!

Conservatives: Hold on!

Visionaries: Get ahead of the herd!

Skeptics: No way!

Techies: Try it!

33% 33% 2,5% 14% 16,5%

Innovators Early Adopters Early Majority Late Majority Laggards

Pragmatists create the dynamics of high-tech market development.

High Technology Marketing Source: Moore (1998) ar

27

Innovators - Technology Enthusiasts

Primary Motivation: Learn about new technologies for their own sake Key Characteristics: Strong aptitude for technical information Like to alpha test new products Can ignore the missing elements Do whatever they can to help Challenges: Want unrestricted access to top technical people Want no-profit pricing (preferably free) High Technology Marketing ar

28

Early Adopters - The Visionaries

Primary Motivation: Gain dramatic competitive advantage via

revolutionary

breakthrough Key Characteristics: Great imaginations for strategic applications Attracted by high-risk, high-reward propositions Will commit to supply the missing elements Perceive order-of-magnitude gains — so not price sensitive Challenges: Want rapid time-to-market Demand high degree of customization and support High Technology Marketing ar

29

Early Majority - Pragmatists

Primary Motivation: Gain productivity improvements via

evolutionary

change Key Characteristics: Astute managers of mission-critical applications Understand real-world issues and tradeoffs Focus on proven applications Like to go with the market leader Challenges: Insist on good references from trusted colleagues Want to see the solution in production at the reference site High Technology Marketing ar

30

Late Majority - Conservatives

Primary Motivation: Just stay even with the competition.

Key Characteristics: Better with people than technology Risk averse Price-sensitive Highly reliant on a single, trusted advisor Challenges: Need completely pre-assembled solutions Would benefit from value-added services but do not want to pay for them ar High Technology Marketing

Laggards - Skeptics

Primary Motivation: Maintain status quo.

Key Characteristics: Good at debunking marketing hype Disbelieve productivity-improvement arguments Believe in

the law of unintended consequences

Seek to block purchases of new technology Challenges: Not a customer Can be formidable opposition to early adoption

31

High Technology Marketing ar

32

The Logic of Commercialising High Tech Products

Seeding new products to Techis Techis help and educate Visionaries Visionaries serve good references for the Pragmatists Becoming the market leader by serving Pragmatists and setting standards Leverage success - generate sufficient volume & experience -- reliable products which are also cheap enough to Conservatives Leaving Sceptics to their on devices High Technology Marketing ar

Discovering the Chasm

Chasm 33 Early Market Mainstream Market

High-tech products are warmly welcome in an early market (techies & visionaries) but then will fall into a chasm (sales will falter and often plummet) Visionaries don’t see enough of a head start Pragmatists see no reason to start yet Crossing the chasm  gaining the acceptance within a mainstream market becomes and organisational imperative … but very few high-tech products cross these chasms Source: Moore (1998) High Technology Marketing ar

Crossing the Chasm

34

Product vendor’s problem 80% of many solutions —100% of none Pragmatists won't buy 80% solutions Most common vendor mistake: Committing to the most common enhancement requests Never

finishing

any one customer's wish-list Solution Focus on a single beachhead Accelerate formation of that segment's whole product Source: Moore (1998) High Technology Marketing ar

35

Successful Crossing

Considering the difference between visionaries and pragmatists the former is willing to bet ‘on the come’ the latter want to see the solutions in production (i.e. see the whole product before they by it)’ Many high-tech companies are not willing to commit to develop any ‘whole product’ they focus on four to five likely candidate segments risk for having everything for nobody Putting all eggs in one basket is the only safe way to cross the chasm - Why? (Focus & Globalisation) ar High Technology Marketing

Commercialising High-Tech Products (2/2)

On the Mainstream Market

37

Market Development Model

Main Street Tornado Early Market Total Assimilation Chasm Bowling Alley

High Technology Marketing

Mainstream Market

Source: Moore (1998) ar

38

Beyond the Chasm - Assessing Mass Market

The Bowling Alley a period of niche-based adoption in advance of the general marketplace, driven by compelling customer needs and the willingness of vendors to craft niche specific whole products The Tornado a period of mass-market adoption, when the general marketplace switches over to the new infrastructure paradigm Main Street a period of aftermarket development, when the base infrastructure has been deployed and the goal now is to flesh out its potential End of Life wholly new paradigms (technology) come to market High Technology Marketing ar

Technology vs. Category Life Cycles

Market share is converted into served installed base here Market share is captured here Product Category Life Cycle

(Ongoing sales)

39 Technology Adoption Life Cycle

(First time adopters) High Technology Marketing Source: Moore (1998) ar

40

Four Marketing Frameworks

1 on 1 Marketing Deal Driven Mass Marketing Niche Marketing

High Technology Marketing Source: Moore (1998) ar

Product Mix Offerings

41 Application Systems

• Photography • Color printing • Wireless telephony • Word processing • Internetworking • Worldwide Web

Core Products

• Cameras • Inkjet printers • Cell phones • Word processors • Routers, switches • Browsers/servers High Technology Marketing

Aftermarket Products

• Film, lenses • Cartridges, paper trays • Batteries, modems • Suite upgrades • Performance tools • Plug-ins Source: Moore (1998) ar

Service Mix Offerings

42 Distribution Services

• Competitive selling • System configuration • Implementation support • Train-the-trainers • Customer service • Technical support • Warranty High Technology Marketing

Transaction Services

• Order processing • Maintenance • Facilities management • Outsourcing • Upgrade management • Broadcast data feeds • Proprietary database access privileges

Professional Services

• Consultative selling • Business process reengineering • Systems integration • Project management • Custom training • System conversion • Contract management Source: Moore (1998) ar

Managing Marketing Offerings in High-Tech Firms

Are the 4 P’s still relevant?

44

Product Platform

Product platform is a

collection of common elements, particularly the underlying technology elements, implemented across a range of products

.

It is primarily a definition for planning, decision making, and strategic thinking.

Especially important in high-tech firms in which multiple products are related by common technology.

Platform defines the cost structure, capabilities, and differentiation of the resulting products.

Separating product platform strategy from product line and individual product strategy, a company can concentrate on its most important strategic issues.

High Technology Marketing ar

Product Platform

45

Segment III Segment II Product 1 Segment I Product 3 Product 1b Product 1a Product 2 Product 4 Unique product elements Element C Element B Element A Common platform elements High Technology Marketing Source: McGrath (2000, 55) ar

46

Main Characteristics

Product platform is NOT a product!

... but the lowest common determinator of relevant technology in a set of products or product line Product failures in high-tech firms often caused by incomplete product platform strategy Nature of product platforms varies across industries e.g. in PC it consists of the microprocessor combined with its operating system, packaging, power supply, memory, disk drives, monitors, and interfaces e.g. it can be a chemical compound combined with with the manufacturing process ar High Technology Marketing

47

Market Platform Plan (MPP)

MPP

integrates knowledge about the market and knowledge about the product and its defining technology

Core strategic vision Product platform strategy Product line strategy New product development High Technology Marketing

Core strategic vision

•Where are we going?

•How will we get there?

•Why will we be successful?

Market platform plans

•Defining technology •Platform architecture •Product line plans •Platform management Source: McGrath (2000) ar

48

The Market Platform Plan Framework

Enables companies to translate platform strategy into a practicable ’attack plan’ for a target market Characterize & prioritize customer segments Define the basis of customer value & differentiation Define the offerings to the customers Define monitoring plan to sense environment Establish economic metrics for measuring success in the market ar High Technology Marketing

49

Managing High Tech Products…

Distinctive nature of high-tech products create certain challenges for product managers dependence on R&D risky business global nature of markets long development cycle - but short economic life cycle What is the role of pricing decisions Implications of Product Life Cycle Model High Technology Marketing ar

50

What is a product?

Core product

Installation

Actual product

Packaging Delivery Brand name and credit

Core benefit or service

Quality Features Styling After sales services

Augmented product Potential product

Warranty ar High Technology Marketing

51

… Managing High-Tech Products

Are prices and costs really related?

… yes, but not so directly as we usually think keep in mind PLC when making pricing decisions  most high-tech products evolve into commodities emphasising the role of internal costs • risk of overlooking what happens in the market -- what price customers are willing to pay

Surprisingly ... small differences in costs and margin objectives can have dramatic effects on the price a company must command in the market place

High Technology Marketing ar

Evolution of the Whole Product

52 Mostly custom work Plug & play some customization Fully integrated Mass customized

Source: Moore (1998)

Different whole product priorities at different stages of the life cycle.

High Technology Marketing ar

Conclusions

What have we learned?

54

‘Current Wisdom’ on High-Tech Marketing

Interaction between marketing and R&D Coping with the high levels of technological and market uncertainty Marketing capabilities & business competencies Product development processes Rapid changes in technology and market settings Shortening the ‘breakthrough-time’ Market offering and product platform approaches Increasing importance of services Emphasise technical support and after sales service Differentiating from competitors Building strong relationships with suppliers, channels and customers Analysing value systems  Networks, strategic alliances, partnerships Rely on qualitative rather than quantitative approaches for market research What the customers really value?

High Technology Marketing ar

55

What does this mean?

The ‘High-Tech’ label is not ‘once and for all’, so today’s hot new technologies becomes tomorrow’s basic technology Surprisingly, high-tech marketing is not so different from that of low tech as often claimed … … but there is a special need for more marketing focus in high-tech context because ...

Customer’s view is easily overlooked • To avoid developing a product which are ‘engineer's dilemma but marketer’s nightmare’ Knowing competitors well enough Global view of high-tech business Cross-industry effects and convergence of different technologies Focusing more and more on services High Technology Marketing ar

56 Lähteitä High Technology in Finland

2001 (also 1999, 1997, 1995, 1993, 1991), Finnish Academies of Technology

.

McGrath, Michel E.

(2001), Product Strategy for High-Technology Companies: Accelerateing Your Business to Web Speed. N.Y: McGrew Hill.

Mohr, J. J.

(2001), Marketing of High-Technology Products and Innovations. Upper Saddle River, N.J: Prentice Hall.

Moore, G.

(1995), Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers. New York: HarperCollins Publishers.

Moore, G

. (1998), Inside the Tornado: Marketing Strategies from Silicon Valley’s Cutting Edge.

Moore, J

.

F.

(1997), The Death of Competition: Leadership & Strategy in the Age of Business Ecosystems. N.Y.: HarperCollins Publisher.

Paija, L.

(2001), Finnish ICT Cluster in the Digital Economy, Helsinki: Taloustieto Oy.

Simon, H.

(1996), Hidden Champions: Lessons for 500 of the World’s Best Unknown Companies. Boston, Mass: Harvard Business School Press.

Tapscott, D.

(1999), Creating Value in the Network Economy. A Harvard Business Review Book.

Tidd, Joe, John Bessant

and

Keith Pavitt

(1997),

Managing Innovation: Integrating Technological, Market and Organizational Change

. Chichester, UK: John Wiley & Sons High Technology Marketing ar