Marketing Research in High-Tech Markets

Paradox of technology marketers Customers cant always articulate what their specific

needs are

High-tech firms need to keep a finger on the pulse of the market in order to enhance their odds of success

Not first develop products

Take risks without ignoring customers

Incorporate customers into product development process Innovation adoption requires customers

Quality and relevant information from relevant source -Successful firms vs competition-

Information enables

Determine specs/pricing of new products

Best target market for the new product

Build the compelling value proposition

Generate ideas for innovations

Gathering Information: HiTech Mktg research tools

Challenging to collect information

Low customer awareness of technology/usefulness

Not even aware of the needs

Firms need short product development cycles idea to market

Market research expenditures and staffing Significant spend for Tech companies

Align market research with innovation type

Incremental innovation

NPD in alignment with current market

Known customer needs

Traditional market research tools

Focus groups

Customer surveys

Concept tests

Conjoint studies

Test markets

Concept Testing o Idea generation

Various observational techniques Brainstorming with CFT Focus groups members of target mkts define different

product/service ideas Depth interviews- non-directive interviews regarding needs and

potential solutions

o Evaluate 1-2 ideas for R&D and marketing resources focus Initial testing- brief concept- potential customers rate on interest,

purchase intent, uniqueness and perceived value Enables eliminate and narrow options Iterative process Representative sample and seek opinions Conjoint analysis in final stages of evaluation

Conjoint Analysis Decide product characteristics, branding strategy, price

point for the sweet spot- maximize revenue and profits Survey research tool- statistically predict combination of

product attributes across various brands and prices customers will prefer to buy.

Tradeoffs and relative importance Focus groups, customer interviews and internal corporate

expertise use to structure sets of attributes and levels. OLS data yields consumer utility function- regression

equation. Company to develop if consumer willingness to pay (WTP)

exceeds cost of development.

Customer Visit Programs

Systematic program with CFT teams to understand customer needs

Face to face communication

Field research

Firsthand knowledge

Interactive conversation

Inclusion of multiple decision makers at the customer location

Maximize value of customer visit programs Get engineers in front of customers

Ensure that corporate culture embraces the value of customer visit program

Visit different kinds of customers

Visit customers in their own settings

Conduct programmatic visits

Offer insights and benefits for hitech product development

Empathic Design Focus understanding user needs through empathy

with the user world.

Empathic design research allows marketer to develop an appreciation of current user environment

To extrapolate the evolution of that environment in future

To imagine the future needs that technology can satisfy

Insights from empathic design Triggers of use

How users cope with imperfect work environments and surfacing of unarticulated user needs

Different usage situations

Customization of products that marketers are unaware of

The unarticulated importance of intangible architectures

Empathic design techniques draw upon companys existing technological capabilities

Empathic design contribute to traditional MR; contribute to the flow of ideas that need to be tested before being taken up as project

Companies develop detailed maps on customer usage and step sequence

Customer scenario planning- HP, IBM, Nokia leverage social scientists, anthropologists and psychologists. Intel hires ethnographers- enable people to feel at ease under observation

Process to conduct Empathic design

Observation

Who should be observed?

Who should be observing?

What behavior should be observed?

Capture the data

Reflection and analysis

Brainstorm for solutions

Develop prototypes of possible solutions

Lead Users

Customers who are ahead of market trends, needs beyond average user and who innovate solutions to their own problems

Marketers can look forward to lead users for insights for innovation

Lead user collects information systematically about needs and solutions where more extreme forms of problems exist- generate breakthrough innovations.

Firm moves from creating breakthrough products to a systematic task of identifying lead users and learning from them. Adapt their ideas and fulfill customer needs.

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Innovations developed by lead users

Steps in lead user process Identify important market/technical trends

Identify and question lead users

Develop the breakthroughs

Project the lead user data onto the larger market

GE healthcare division Luminaries

Lead users may not be from the firm customer base; can be of competitor or some other industry

Quality Function Deployment

QFD an engineering tool that incorporates a customer orientation into design decisions.

Uses voice of customer in NDP process to ensure tight correlation between customer needs and product specifications

Requires close collaboration between mktg., engg., customers

Implementation of QFD is a multi-stage process Collect the voice of customer Collect customer perceptions of competitive products Transform customer insights into specific design

requirements develop house of quality

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The Kano concept

Prototype testing

Meets technical design specs Information Acceleration technique relies on virtual

representation of a new product to assist in product development and forecasting.

Prototype evaluation by customers for feedback and improvement

Virtual prototyping enables addressing several issues for marketers Requisite infrastructure for product usage Technology requirements for future generation of innovation Competitive forecasting of new market entrants Available alternatives to new technology

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Customer Driven Innovation Taps collective wisdom of community for product

improvements and innovations Customer co creation, DIY innovation, feedback

influenced design, peer production, mass production are some of the terms

Drivers Technology tools to facilitate Economics of product development and high failure rates Customers expectations about the role of customers in

business strategy Development and growth of internet and Web 2.0

technologies

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Biomimicry

Emulating or mimicking ideas from natural world

Process of looking for natures advice to solve human challenges

Generates novel insights for disruptive/ breakthrough innovations in many areas-

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Steps in the Biomimicry Process

Identify the problem to be solved Interpret the problem in natures terms Discover the best natural models that answer/resolve the

challenges Abstract from examples in the prior step to identify

patterns and create a taxonomy Emulate nature and apply the ideas and solutions to the

challenge at hand Evaluate how well the proposed ideas/solutions compare to

the successful principles of nature and continue to improve the design by asking another layer of questions

Begin the process anew, with a new identification gap

Biomimcry benefits

Be sustainable

Perform well

Save energy

Cut material costs

Redefine and eliminate waste

Define new product categories and industries

Build a companys brand

Forecasting in Hi-Tech markets

What do we want to forecast? Market demand, company sales, technology trends

Why do need the forecast? New product development investments, mfg capacity

How important is past in predicting the future?

What factors do we have in constructing the future?

What factors could change the forecast?

Aligning Forecasting Type with type of innovation

Qualitative tools The Delphi Method

Interview of experts to gain their views like when a new product will gain widespread acceptance

Experts are interviewed separately. Answers are sent back to participants who refine their own judgments and comment on others

Analogous data Information about a related, similar product- to make inferences about the

new technology. Relevant only when there is a logical connection between the products

similarities of attributes of importance to the consumer in making purchase decisions and in business factors that contribute to product success.

Important attributes include technical support, ease of use and product/form design considerations

Critical business factors include distribution considerations, brand name and model options.

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Quantitative Tools

Bass Model Pre-launch forecasting technique

Model appropriate for forecasting sales of new technology for which there is no competing alternative.

Validated approach for forecasting variety of innovations. Ex Kodak, IBM, RCA, Sears & AT&T

Historical analysis of new product sales curve- S-shaped curve.

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Diffusion of Innovation

Bass model explains this S-shaped curve with diffusion theory Diffusion theory examines why innovations spread

through markets

Bass model assume that new product adopters are influenced by 2 types of communication Mass media Greater impact on early adopters;

greater effect on product launch

Impersonal communication- Greater impact on much larger no of later adopters; greater during later periods of diffusion process

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Model requires marketing managers to develop estimates for first year sales and for total product

lifetime sales. Estimate the coefficient of innovation and coefficient of

imitation referred to as p(mass media) and q(word of mouth).

Can be estimated from data on a similar product (analogous data) or from industry values.

Formula: Nt= (p x Remaining potential adopters) + (q x Adopter

proportion x Remaining potential adopters) Where Nt = the number of adopters at time t(Sales) and p and q are as above.

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The coefficient p is called the coefficient of innovation, external influence or advertising effect. The coefficient q is called the coefficient of imitation, internal influence or word-of-mouth effect.

Typical values of p and q when time t is measured in years: The average value of p has been found to be 0.03, and

is often less than 0.01 The average value of q has been found to be 0.38,

with a typical range between 0.3 and 0.5

Assumptions underlying Bass model that should be recognized prior to its application The size of the potential market of total number of

adopters remains constant over time There is only one product bought per new adopter The coefficients of innovation and imitation remain

constant over time The new product innovation itself does not change over its

life cycle The innovations sales are confined to a single geographic

area The impact of marketing strategies is adequately captured

by the models parameters

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Understanding Hi-Tech Customers

Six Critical issues in assessing motivation of customers to buy the products that marketing has to address 1. What steps do customers go through in making

technology purchase (adoption) decisions? How do these steps affect marketers strategies?

2. What is the process by which a technological innovation is adopted and diffuse throughout the market? What factors affect customers purchase decisions? Who is likely to buy? Are there categories of customers who are predisposed to adopt innovation earlier than others?

3. What happens when the trajectory of the new technology stalls or falls into a chasm? What strategies can marketers follow to cross the chasm?

4. How can technology markets be segmented?

5. What affects the timing of customers technology migration decisions and upgrades? Are they likely to postpone purchases or bypass new generations of technology in anticipation of better options coming in near future?

6. What are customers paradoxical relationships with technology?

Issues in Understanding Hi-Tech customers

Customer Purchase Decisions

Problem Recognition

Information Search

Evaluate Alternatives

Purchase decisions

Post-Purchase

Evaluation

Basic models of buyer behavior is a useful start point. They need to be augmented and modified for hi-tech environment factors

Need recognition stimulated by internal factors or external stimulus. Information required varies by product category and customer type. Evaluate alternatives using research techniques enables understanding of customer

evaluation. Important role of design in customers product evaluation.

Design Thinking Factors

Design adds value to organization by A differentiator of product, brand or image by

integrating aesthetics into product, marketing and communications

An integrator of internal business processes to deliver a better customer experience and improve organizational performance

A change agent in culture of a company to make it more responsive to opportunities and challenges

Greening technology products

PunyaSticky NoteDiffrentiator of PRodutIntegrator of Internnal bus. proc.change agent

Post purchase evaluation

Was I able to successfully learn how to use the new technology?

Did the technology deliver the promised benefits?

Were there hidden costs to using the new product?

Post purchase issues always a challenge ERP s/w

Companys efforts at CRM for long term

Post adoption usage patterns

Post adoption usage patterns Intense users have a high usage of product in a given time period for

many different applications Specialized users high usage within time period Non-specialized users- High variety of usage but low amount of usage Limited users on both variety and amount of usage

First 3 segments- repeater segment ready to repurchase based on their experience and satisfaction

Communication with others and presence of complementary technologies increases variety of usage Marketers should encourage offline/online user groups

End of life issues; appropriate recycling and disposal; innovation opportunities in recycling areas

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Adoption and Diffusion of Innovations

Factors affecting Customer Purchase Decisions

Relative Advantage The benefits of adopting the new technology compared to the costs and in relation to other alternatives

Compatibility The extent to which adopting and using the innovation is based on existing ways of doing things and standard cultural norms

Complexity The difficulty involved is using the new product

Trialability The extent to which new product can be tried on limited basis

Ability to communicate product benefits The ease and clarity with which benefits of owning and using new product can be communicated with prospective users

Observability The extent that benefits of new product are observable to everyone

Factors affecting adoption of Innovation

Relative advantage customer uncertainty Technology will deliver promised benefits Customer will have skills and capabilities to realize those

benefits

Compatibility- esp. relevant in legacy products interfaces Complexity Very complex products have slower adoption

rate. Complexity in development and communication to customers need to be addressed Customer experience tension between desire to adopt a

product with many features and their ability to learn to use the more complex, feature laden product.

Once purchased, backlash from overly complex products and would like to have more simple products- true for novices and more experienced product users.

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Fully laden products can cause feature fatigue

Marginal cost of adding features make firm add more

However, negative customer reaction can result

Product proliferation complexity overwhelm customers and complicates operations

Trialability

Ability to communicate customer benefits

Observability

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Categories of Adopters

PunyaSticky NoteInnovators - fiddle with the prod, study intricacies, love to get their hands on latest productsEarly Adopters - bring real money to the table .help to publicize the new innovation.Early Majority - make the bulk of all tech. infra. purchases.they look for productivity enhancements. REVOLUTIONARY NOT EVOLUTIONARYLate Majority - pessimistic about gaining any value from the product.price sensitive, skeptical, highly demandingLaggards - not so much potential.

The Chasm Moore had adapted theory of adoption and diffusion of innovation

for the purchase of high technology products. This results in identification of unique environment where there

is large gap or chasm between the early market (composed of innovators and early adopters) and the mainstream market (early majority, late majority and laggards).

Reasons and specific focus of marketing strategies to cross the chasm Innovators- Technology enthusiasts, gadget lovers Early adopters Visionaries, Revolutionary breakthrough to gain

competitive advantage Early Majority Pragmatists, motivated by evolutionary changes

When it is time to move, let us all move together. Adoption increases rapidly, tornado of demand

When we pick the vendor to lead us to the new paradigm, let us all pick the same. Determines which firm will become market leader.

Once the transition starts the sooner we get over with it, the better.

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Late Majority Conservatives, risk averse; technology shy, very price sensitive and need failsafe solutions

Laggards Skeptics; want to maintain status quo; only way to buy is other alternatives are very poor and cost justification is solid.

Crossing the chasm is the gulf between visionaries (early adopters) and pragmatists (early majority, mainstream market) and derives from critical differences between the two. In some cases, firms will find worthwhile to target the majority

directly in these circumstances: When word of mouth effects are low In consumer product industries (vs B2B) When there is low ratio of innovators to majority users When profit margins decline slowly over time The longer the time period for market acceptance of new products

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Crossing the Chasm: A Beachhead and a Whole Product Solution

Crafting the marketing strategy that specifically addresses the buying motivations of pragmatist customers will allow the firm to cross the chasm.

Moore recommends two pronged approach:

Identify a beachhead, a single target market, from which to pursue the mainstream market. A good beach head has following characteristics: Its customers have a single, compelling, must have

reason to buy that maps fairly closed onto the firm capabilities

The selected beachhead provides adjacencies to enter related contiguous segments.

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Compelling reasons customers adopt technology

Purchase of the new technology provides customer a dramatic competitive advantage in a previously unavailable domain in a critical market This reason to buy is difficult to quantify in terms of costs/benefits Although appealing to visionary, the reason to buy in unpalatable to

pragmatists/conservatives

Purchase of new technology radically improves productivity on an already well understood critical success factor and no other alternative to achieving a comparable result is available. This reason has greatest appeal to pragmatist

Purchase of the new technology visibly, verifiably and significantly reduces current total overall operating costs Will appeal to conservatives

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Bowling Alley market development

Beachhead is the lead pin- adjacent market opportunities are the pins immediately behind the beachhead.

Adjacent pins cane be identified based on either 1. New market segments where the firm can sell its existing

technological solutions 2. Current market segments where the firm can sell its new

technological solutions

Adjacent market segments attributes

Word-of-mouth relationships Similarities in the whole product needs

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Risks Too many market segments at outset Too high pitched about innovation potential Hedge bets against selecting wrong market and hence

launch in several markets Do not learn the industry- (customer-) specific

knowledge and language to be credible Marketing initiatives do not make an impact. Spread resources too thinly

Success in one segment can be a catalyst to succeed in others- Need focused approach

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Develop the whole product

Partner to develop a whole product solution, an integrated, end-to-end solution that allows the customer a seamless experience in buying the companys product. Industry standard to minimize perceived risk

Pragmatist want to see competitor proposals- Hitech companies need to legitimatize their technology by differentiating on benefits, service and traditional positioning tactics.

Company must simplify features to cross the chasm and address mainstream market.

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Role of partnerships

In early market (enthusiasts & visionaries), power belongs to technology providers and SI

In crossing the chasm to mainstream pragmatists- Power is centralized in hands of company that picked the target (beachhead) customers, understand why they buy and design the whole product

In the pragmatist market, the market leader and its partners have the power

In later mainstream conservatives market, power is with distribution channels or companies that provide superior distribution of the product.

Inside the Tornado

Unless the firm establishes itself in the mainstream market, they do not have staying power. Moores book , Inside the Tornado , explains this in 3 distinct phases: The bowling alley : A period during which the new

product gains acceptance in the niche markets within the mainstream market but has yet to achieve general widespread adoption. During the bowling alley stage of market development,

market typically not large enough to support multiple players.

Successful firm establishes itself as dominant market leader.

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The tornado : The tornado is a period when the general marketplace switches over to the new technology. Developed by a killer app or an application of the technology that is

based on universal architecture, appealing to the mass market and can be made and delivered at attractive price points.

Massive number of customers entering the chain can swamp companys supply chain.

An important caveat: Do not bet on preventing a tornado. If a market leader begins to develop, even if it is not your company, it is important to switch the efforts to follow the emerging leader.

Competing effectively in tornado requires effective partnering skills and sustained innovation. Also, ability to stay out of the market leaders reach.

Main Street: Period when tremendous growth in the early majority/ pragmatists stabilizes.

Base infrastructure of products underlying technology has been deployed.

Rather than focus on generating sales from new customers, companies must sell extensions of their products to their current customer base to be competitive.

Important to emphasize operational excellence and customer intimacy rather than product leadership.

Finally, for continued success in mainstream market, the high tech firm will also need to reach out to the conservative market

Requires making product even simpler, cheaper, more reliable and convenient and possibly splitting product into simpler components

Summary Crossing the chasm requires different type of marketing strategies

used in early market Select the beachhead and develop a whole product solution are CSFs

in crossing the chasm and reaching mainstream Bringing whole product together is time consuming and expensive Targeting only one market segment is risky However, firm must make a decision about what one key market to

put its resources behind and focus its efforts there.

The Choice of customer target market : Segmentation, Targeting and Positioning

Important issue choice of initial target market to pursue with promising new technologies

Intel never thought of making a PC

Segmenting markets and selecting a target

To identify group of customers who share similar needs and buyer behavior characteristics and who are responsive to the firms offering

Steps in segmentation process

1. Divide possible customers into groups. For consumer marketing, traditional bases of segmentation- Demographic variables such as age, income, gender,

occupation and so forth. Geographic variables such as geographic location,

rural vs urban, etc. Psychographic variables or consumer values and

beliefs that affect their lifestyles and hence purchasing behavior- healthy lifestyle, technologically current or environmental

friendly

Behavioral variables related to customers behavior with respect to the specific product category such as: Frequency/volume usage of a product ( heavy/light users,

80/20 rule)

The benefits desired in a product (ie ease of use)

The usage occasion (such as use of work vs home)

Hi-tech companies marketing strategies focus on women in technology products Style focus rather than just price as found by Best Buy

Women oriented media / improved customer service used by Dell

Samsung tests its products with female user groups

For B-to-B marketing- industry classification standards as SIC codes; Horizontal market and Vertical market segments Horizontal segments frequently use

A specific technology application to automate a business process or function

Customers across industries share a common approach to use or benefits in adopting technology

Vertical segments Identify particular industries or verticals that would receive

disproportionate benefit from adoption of technology. Customer user varies by industry and they require different value

propositions. While vertical market segment appears to have smaller potential, high tech company can garner a large share of market within the segment, and exploit the leadership position

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2. Profile the customers in each segment Focus on hi-tech buyers approaches

3. Evaluate and Select a Target Market

Size:

80/20 rule, volume of customers in the market rather than purchasing volume.

Growth :

Firms will be able to capitalize on customers needs and grow with the market

Firms can capture new customers coming in the market

Level of competition

Entrenched competition from powerful players

Expensive to pursue the segment despite superior technology

4. Capabilities to serve the needs of that segment

Firm should focus on core competencies and strengths

PunyaSticky Note1. Divide customers into groups. based on various variables.2. Profile customers in each segment.3. Evaluate and Select a Target Market ( Size, Growth, Level of Competition)4. Capabilities to serve the needs of that segment

Positioning the product within the Segment Companys positioning is the image of the product in

the eyes of customer, relative to competitors, on critical attributes of importance.

Positioning is based on customers perceptions.

Companys positioning is always relative to competitors

Positioning is generally achieved by how new technology fits the existing market categories by referencing older technology that is being displaced. (product form competition).

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2 tools that can assist company with its positioning strategies

Multi-attribute models

Collects data from sample of customers about the relative importance of attributes (product features and benefits) in their technology purchase decision

Assess how well the company and its competitors stack up on these features

This will provide the strengths and gaps and provide insights on positioning

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Example of a Multi-attribute model

Communication s/w solution for emergency

Perceptual Map uses similar data. Consolidates multiple attributes into two higher level attributes using statistical techniques (factor analysis or multi-dimension scaling)

Provides a simple visual graphic of companys offering vs competition

Display what customers ideal preferences.

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Perceptual Map for smart phones

Customer Migration Decisions

High-tech markets are blessed(cursed?) with fast and significant improvements, which result in inflection points and technological discontinuities in market place.

The customers must make important decisions about if and when to adopt a new technology.

Customer investments in prior-generation, outdated legacy systems create a core rigidity acting as an inhibitor to purchase of new generations.

Business customers often face a gap between products useful life (

Upgrades of business are particularly important in driving growth in technology spending.

The motivation of buying round of another technology would be influenced by the real technological breakthrough or an application that compels the buyers to spend.

Customers expectations and fears of obsolescence require that the firm carefully balance introducing new, state of the art technology and maintaining interface to the legacy systems.

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Customer migration decisions Customer expectations about the pace and magnitude of

performance improvements and price play a big role in their adoption decisions.

The customer must balance the value of existing products against the new offerings and even future arrivals.

When products improve rapidly and significantly, the strategy to start with high price and then lowering price to entice later purchasers may not work.

In general, the greater the anticipated product improvement or expected price decline, the greater is the customers propensity to delay purchase.

In extreme, customers may leapfrog- detrimental to the sales.

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Marketers migration options The options along the migration path offered by the

marketers are based on degree to which customers options in the transition are more constrained vs enlarged

Withdraw the older generation as soon as the new one is launched with no assistance to the installed base

Withdraw the older generation when the new one is launched but offer migration assistance

Sell old and new generation together for a period of time Sell both generations as long as the market desires them

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Migration considerations and options

Customer Perceptions Implication for customer Behaviour

Implication for Migration Path

Customers expect rapid pace in technology advancements

Willing to wait for price declines

Marketer should provide migration assistance

Customers expect large magnitude of change in technology advancements

Recognize smooth upgrading is unlikely; therefore, waiting to purchase an older model at a lower price may result in obsolescence

Migration path less crucial; because the latest technology effectively obsoletes any path that was available

Customers have anxiety about making a decision

Need to feel that their decisions are safe

Marketer should provide migration path possibly selling old and new models together for a period of time.

Customers paradoxical relationship with technology and unintended consequences