Marketing of High-Technology Products and Innovations

1. Marketing of High-Technology Products and Innovations Understanding High-Tech Customers

2. Critical Issues in Understanding High-Tech Customers

3. Chapter Outline • Determine Desirable Customers: Choose a Target Market • Market Segmentation Process • Target Market and Positioning • Purchase Decisions: Depend on Adopter Category • Factors Affecting Technology Adoption • Categories of Adopters • The Chasm • Timing of Purchase: Depend on Adopter Category and Customer Strategies to Avoid Obsolescence • Migration/Upgrade Decisions

4. Step 1 in Market Segmentation • Divide market into groups based on different needs across groups and common characteristics within groups • Demographics • Geographics • Psychographics (Values and lifestyles) • Behavioral Variables • Useage Volume • Benefits Sought • Useage Occasion

5. Step 2 in Market Segmentation • Profile (describe) customers in each segment by specifying a typical customer in the segment.

6. Examples of Tech Customer Segments: “Technographics”

7. Examples of Tech Customer Segments: “Technographics” SIDELINED CITIZENS: Not interested in technology

8. Examples of Tech Customer Segments: “Technographics” HAND-SHAKERS: Older consumers – typically managers – who don't touch their computers at work. They leave that to younger assistants. TRADITIONALISTS: Willing to use technology but slow to upgrade. Not convinced upgrades and other add-ons are worth paying for. MEDIA JUNKIES: Seek entertainment and can't find much of it online. Prefer TV and older media.

9. Examples of Tech Customer Segments: “Technographics” TECHNO-STRIVERS: Use technology from cell phones and pagers to online services primarily to gain career edge. DIGITAL HOPEFULS: Families with a limited budget but still interested in new technology. Good candidates for the under-$1000 PC GADGET-GRABBERS: They also favor online entertainment but have less cash to spend on it.

10. Examples of Tech Customer Segments: “Technographics” FAST FORWARDS: These customers are the biggest spenders, and they're early adopters of new technology for individual use. NEW AGE NURTURERS: Also big spenders, but focused on technology for home users such as family PC. MOUSE POTATOES: They like the online world for entertainment and are willing to spend for the latest technotainment.

11. Step 2 in Market Segmentation • Profile (describe) customers in each segment • EX: Couple A: Age: 44 and 46 Job: Secretary/Maintenance Supervisor Children: 2 (11 and 12 years old) PC: 1 (3 years old) Other: - no internet connections - considering upgrades for speedier games Couple B: Age: 46 and 53 Job: Manager/CPA Children: 3 (7-15 years old) PC: 3 Other: - 2 pagers - go on-line for work

12. Steps in Market Segmentation • Evaluate and select a target market: • SWOT analysis for the firm and competitors • How many competitors/which competitors to be analyzed? • Size of segment in terms of sales volume • Growth rate of the segment • Competition within the segment • Ability of firm to effectively meet the needs of the segment

13. Beachhead • Must identify the best “beachhead” • A single target market from which to pursue the mainstream market (starting from the adjacent segments) • Focus on early market or mainstream? • Cannot afford to pursue many segments at once

14. Step 4 of Segmentation Process • Position the product within the segment • Positioning: the act of designing the company’s offering and image to occupy a distinctive place in the mind of the target market. • Consider customer perceptions (perceived benefit (value)/cost) • Position relative to perceived competition (a distinctive place) • Position on important, compelling attributes/benefits • Would the cost of creating such a product be much higher? • Would customers buy this product by paying a lot? • What is the solution in the trade-off of high quality vs. cost? • Strengthening/Grab unoccupied position/De-position and re-position/Exclusive Club

15. Factors Affecting Purchase Decision • Customer FUD: uncertain about the benefits and cost • Relative Advantage • Perceived benefit vs. cost • Compatibility • The extent to which adopting and using the innovation is based on existing ways of doing things • Complexity • The easier, the better/ interface (ex: on-line button, stat sw) • Ability to communicate product benefits (HDTV, CPU) • Observability • How easily the benefits be observed by current customers/other customers

16. Factors Affecting Purchase Decision • An example of Web TV: importance of communicating all unique benefits of a new product • Web TV: a web surfing device (a small box) for TVs • In 1996, internet was exploding/TV is everywhere • Traditional marketing: heavy advertising & dealer training • Problem: target customers didn’t understand the device • Solution: in 1997, an education initiative was launched; customers were explained the benefits of Internet and WebTV • Result: Sales increase 7 times

17. Final Thoughts on Adoption • These factors are crucial hurdles to overcome in effective marketing. • Marketers must provide compelling reasons for adoption, and overcome customers’ fear, uncertainty, and doubt. • Traditional marketing methods (which assumes customers understand the usefulness of the products and know how to evaluate them) are often insufficient. • Often, must focus more on educating potential users about benefits and how to use new product

18. Categories of Adopters: Different Characteristics Early Market Chasm Mainstream • Technology-Lover • Test Product • Alternative Solution • Change Agent • Gate Keeper • Competitive Advantage • Revolutionary Product • High Risk/ High Reward • Risk Seeking • High Price • Intensive S&S • Productivity Enhancement • Evolutionary • Reliable Service • Move Together • Industry Standard • Implement Quickly • Risk Averse • Price Sensitive • Bullet-proof Solution • Adopt for Matching Competitors • Don’t Believe in Technology • Remain Status Quo • Adopt When All Other Alternatives Are Worse & Cost Justification Are Absolutely Solid 34% 16% 2.5% 13.5% 34% Time

19. Innovators: Technology Enthusiasts • Appreciate technology for its own sake (won’t care too much on benefit/cost) • Motivated by idea of being a change agent in the reference group • Will tolerate initial glitches • Will develop make-shift (alternative) solutions • Willing to alpha/beta test and work with technical personnel • Provide early revenue for marketers—but not a large group • Importance: They are the gatekeeper to the next group of adopters

20. Early Adopters: “Visionaries” • Focus on gaining competitive advantage • Want to revolutionize competitive rules in their industry • Attracted by high-risk/high-reward projects • Not necessarily very price sensitive • Demand customized solutions and intensive tech support • Will supply missing elements of total solution • Product Form Competition: Between categories of solutions (ex: DVD vs. VCD) • Early adopters communicate horizontally (across industry boundaries)

21. Early Majority: “Pragmatists” • Comfortable with only evolutionary changes in business practices, in order to gain productivity enhancements • Averse to disruptions in their operations • Want proven applications, reliable service • Buy only with a reference from trusted colleague in same industry

22. Pragmatists (Cont.) • This groups is the bulwark of the mainstream market: • They want to move together (herd mentality) • They want to pick the same technology solution (avoid risk) • Once they make a decision, they want to implement it quickly. • Requires industry standards

23. Late Majority: “Conservatives” • Risk averse, technology shy • Very price sensitive • Require completely pre-assembled, bullet-proof solutions • Motivated only by need to keep up with competitors in their industry • Rely on single, trusted advisor

24. Laggards: “Skeptics” • Want to maintain status quo (current condition) • Technology is a hindrance to operations • Buy only if all other alternatives worse and cost justification is absolutely solid

25. Target Innovators or the Early Majority? • Target the majority when: • Word of mouth effects are low • Consumer products industries (vs. b-to-b) • Low ratio of innovators to majority users (a lot more in majority category) • Profit margins decline slowly with time (still profitable in majority category) • Long time period for market acceptance (longer to cross chasm)

26. What is the “Chasm?” • Gap between early market and mainstream market— • Visionaries vs. Pragmatists • Visionary market is saturated, but mainstream not yet ready to buy. • Marketing that was successful with visionaries simply is not effective with pragmatists • Intensive services vs. reliable products • Advanced technology vs. complete product package • Customized features vs. simplifying usage

27. Goal: Minimize time in the Chasm • Look to the new strategies necessary to reach the mainstream market • Pick a single target market with specific application • R&D must: • build interfaces to legacy systems • work with partners • ride the line between service and engineering

28. Crossing the Chasm Summary • The whole product is the critical success factor • Until a high-tech firm has established itself in the mainstream market, it has not proven itself. • To manage the mainstream market effectively, firm must work with partners in a disciplined fashion (that prioritizes partners so as to provide a “whole” product, including hardware, software, connection, and training,..)

29. Factors Affecting Rate of Adoption: Customer Strategies to Avoid Obsolescence • Basic Issue: Tension between adopting newest generations of technology and obsoleting investments in prior generations. • Marketing implication: Firms must manage a migration path for customers to the new generation.

30. What Affects Customer’s Migration Decision? • Expectations about pace of improvements relative to price • A “migration path” is a series of upgrades to help transition the customer to new generations. • Expectation about magnitude of improvements relative to price ** The greater the anticipated product improvements and/or expected price declines, the greater the customer’s propensity to delay purchase. **

31. Implication: • High-tech firms must provide upgrades that allow firms to take advantage of new technology without scrapping investments in the prior generation.

32. Managing a Migration Path

33. Managing A Migration Path • When customers expect a rapid pace in technology advancement: • They will be willing to wait for price declines • Migration assistance (i.e., trade-ins, etc.) mitigates against customer stalling and leapfrogging.

34. Managing A Migration Path • When customers expect significant magnitude of improvement • They realize smooth upgrading is unlikely • Waiting for price declines may result in purchasing an obsolete product • Therefore, migration path is less crucial, as it is meaningless, to a certain extent

35. Managing A Migration Path • When customers have uncertainty about expectations: • Migration path makes sense • Sell old and new simultaneously

36. Cross-Selling • The strategy of pushing new products to current customers based on their past purchases. Cross-selling is designed to widen the customer's reliance on the company and decrease the likelihood of the customer switching to a competitor. • Cross-selling (selling additional products to existing customers) deepens the relationship and improves customer retention, both of which are important for market ownership. Cross-selling prevents competitors from taking customers, and is much cheaper than advertising and searching for new customers.