Marketing of High-Technology Products and Innovations

Jakki J. Mohr

Chapter 1: Introduction to High-Technology

Technology is ubiquitous

Examples of traditional high-tech industries:

Computers and information technology Biotechnology Telecommunications Internet

Examples of some industries where technological innovation is creating radical changes:

Waste management Agriculture Automotive Oil and Gas Consumer Products

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The New Economy

Substitution of knowledge and information for physical assets Massive investments in information technology Enhanced productivity Falling prices for technology Faster growth and lower inflation at the same time
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Drawbacks to Technology Impact on Economy

Volatile Relies on constant stream of innovation Dot-com crashes Stock market effects Global effects

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Definitions of High-Tech

Government perspective Common underlying characteristics perspective

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Definitions of Technology:

the practical application of knowledge especially in a particular area (e.g., engineering) a manner of accomplishing a task especially using technical processes, methods, or knowledge (e.g., new technologies for information storage) scientific technology involving the production or use of advanced or sophisticated devices (as in computers or electronics)
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Definitions of Technology:
Government Perspective

Classify industries based on objective, measurable indicators:

the number of technical employees $ spent on R&D # of patents filed in industry

Used by the Bureau of Labor Statistics, Organization for Economic Cooperation and Development, and the National Science Foundation
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Level 1 Industries: Technology-Intensive

SIC code Industry
Total......................................................................................................... 1 Level 1 industries ................................................................................ Crude petroleum and natural gas operations........................................... Cigarettes ................................................................................................ Industrial inorganic chemicals.................................................................. Plastics materials and synthetics ............................................................. Drugs ....................................................................................................... Soap, cleaners, and toilet goods.............................................................. Paints and allied products........................................................................ Industrial organic chemicals..................................................................... Agricultural chemicals .............................................................................. Miscellaneous chemical products ............................................................ Petroleum refining.................................................................................... Miscellaneous petroleum and coal products ............................................ Nonferrous rolling and drawing ................................................................ Special industry machinery ......................................................................

Percent research and development employment

100.00 86.5 1.9 .4 1.3 1.8 2.3 1.6 .6 1.5 .5 1.0 1.2 .1 1.8 1.6

131 211 281 282 283 284 285 286 287 289 291 299 335 355

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Level 1 Industries (Cont) Technology-Intensive

SIC code
357 362 366 367 371 372 376 381 382 384 386 737 871 873 874 899

Industry
Computer and office equipment............................................................... Electrical industrial apparatus.................................................................. Communications equipment .................................................................... Electronic components and accessories.................................................. Motor vehicles and equipment................................................................. Aircraft and parts ..................................................................................... Guided missiles, space vehicles, parts .................................................... Search and navigation equipment ........................................................... Measuring and controlling devices........................................................... Medical instruments and supplies............................................................ Photographic equipment and supplies..................................................... Computer and data-processing services ................................................. Engineering and architectural services .................................................... Research and testing services................................................................. Management and public relations ............................................................ 2 Services, n.e.c. ......................................................................................

Percent research and development employment

4.5 1.8 2.7 6.1 8.5 7.1 1.9 3.0 3.3 2.4 1.0 7.3 7.7 5.3 5.8 .4

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Level II Industries: Technology Moderate

SIC code
229 261 267 348 351 356 359 365 369 379

Industry
Level II industries .................................................................................. Miscellaneous textile goods ..................................................................... Pulp mills ................................................................................................. Miscellaneous converted paper products ................................................ 2 Ordnance and accessories, n.e.c. .......................................................... Engines and turbines ............................................................................... General industrial machinery ................................................................... 2 Industrial machines, n.e.c. ..................................................................... Household audio and video equipment.................................................... Miscellaneous electrical equipment and supplies .................................... Miscellaneous transportation equipment .................................................

Percent research and development employment

13.4 .5 .2 2.4 .8 .9 2.4 3.2 .9 1.7 .5

1 See text for definition of Level I and Level II industries. 2 n.e.c. = not elsewhere classified

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Shortcomings to the classification approach:

Some industries are R&D intensive (i.e., hightech), but new products are not revolutionary

Ex: Cigarettes

May exclude industries who are technologydriven

Ex: Textiles production

Some industries with standardized output produced in mass quantities

Ex: Some computing equipment

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Definitions of Technology:

Common, Underlying Characteristics

Market Uncertainty Technological Uncertainty Competitive Volatility Other Characteristics

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Market Uncertainty:

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
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Technology Uncertainty:

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
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Competitive Volatility:

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

Implication: Creative destruction

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Characterizing the High-Tech Environment

Market Uncertainty
Marketing of High-Technology Products & Innovations

Technological Uncertainty

Competitive Volatility

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Other Characteristics Common to High-Tech Markets:

Unit-one costs: when the cost of producing

the first unit is very high relative to the costs of reproduction

Ex: development vs. reproduction of software

Demand-side increasing returns: When the

value of the product increases as more people adopt it

Also called network externalities and bandwagon effects Ex: portals on the Internet Implications: may give away products for free
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Other Characteristics Common to High-Tech Markets: (Cont.)

Tradeability problems arise because it is difficult to

value the know-how which forms the basis of the underlying technology

Ex: How much to charge for licensing the rights to a wasteeating microbe?

Knowledge spillover: Another type of externality

that arises from the fact that technological developments in one domain spur new developments and innovations in other areas.

Ex: Human Genome Project

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Supply Chain for Auto Industry

Suppliers

Car Manufacturers

Car Dealers

Customers

-raw materials -components -production equipment -services

personal consumption
-

-business use (fleets, etc.)

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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: cars, food, computing, hair styling, Internet
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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

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
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Supplier vs. Customer Perceptions of Nature of Innovation

Mismatch: Delusion Breakthrough Incremental

Mismatch: Shadow

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Contingency Theory
Marketing Strategy New Product Success

Type of Innovation -Breakthrough -Incremental

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

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Examples of Implications of Contingency Theory:

Breakthrough Incremental

R&D/Marketing Interaction
Type of Marketing Research

R&D leads; technology

push

Lead users; empathic design

Primary demand; customer education

Marketing leads; customer pull Surveys; focus groups

Role of Advertising Pricing

Selective demand; build image May be premium More competitive Jakki Mohr, 2001

Framework for High-Tech Marketing Decisions

Marketing 4Ps and the Internet (Ch. 7-11)

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High-Tech Firm
Internal Considerations (Ch. 2, 3, 4) Core Competencies/Core Rigidities Funding Considerations Market Orientation Relationship Marketing R&D/Marketing Interactions Planning Process (Ch. 12)

Customers
Understanding Customers (Ch. 5,6) High-tech Research Forecasting Customer Decision-Making Adoption Diffusion of Innovations Target Marketing

Societal, Ethical, and Regulatory Concerns (Ch.12)

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