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Successful Marketing Strategy
for High-Tech Firms
Third Edition
For a listing of recent titles in the Artech House Technology Management and
Professional Development Library, turn to the back of this book.
Successful Marketing Strategy
for High-Tech Firms
Third Edition
Eric Viardot
Artech House
Boston • London
www.artechhouse.com
Library of Congress Cataloging-in-Publication Data
A catalog record for this book is available from the U.S. Library of Congress.
British Library Cataloguing in Publication Data
A catalog record for this book is available from the British Library.
Viardot, Eric
Successful marketing stratagy for high-tech firms.—3rd ed.
—(Artech House technology management library)
1. High technology—Marketing 2. Technological innovations—Marketing
I. Title
620.00688
ISBN 1580537006
Cover design by Gary Ragaglia
© 2004 ARTECH HOUSE, INC.
685 Canton Street
Norwood, MA 02062
All rights reserved. Printed and bound in the United States of America. No part of this book may be reproduced
or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by any
information storage and retrieval system, without permission in writing from the publisher.
All terms mentioned in this book that are known to be trademarks or service marks have been appropriately
capitalized. Artech House cannot attest to the accuracy of this information. Use of a term in this book should not
be regarded as affecting the validity of any trademark or service mark.
International Standard Book Number: 1-58053-700-6
10 9 8 7 6 5 4 3 2 1
Contents
Introduction ............. xi
Acknowledgments ........... xv
1 The Meaning of Marketing for High-Tech Firms . . 1
1.1 What is marketing? 1
1.2 What is a high-tech product? 6
1.2.1 The incorporation of sophisticated technology 7
1.2.2 A short life cycle 10
1.2.3 Innovation: evolution and revolution 12
1.2.4 High investments in research and development 16
1.2.5 Market specificity 20
1.2.6 Product diversity in high technology 20
1.2.7 Government involvement in the high-tech sector 21
1.3 What is high-tech marketing? 23
1.4 Summary 26
References 27
2 Corporate and Marketing Strategies in the High-Tech
Industry . . . . . . . . . . . . . . 31
2.1 The company’s mission and vision in the high-tech industry 32
2.2 The strategic dimensions of technology 34
2.2.1 The technologies’ life cycles 35
2.2.2 The introduction phase of technology: why are companies usually
unable to anticipate the market impact of technologies? 38
2.2.3 The growth phase of technology: how do you establish a
technological standard? 41
2.3 Technology as a strategic resource competence 48
2.3.1 The physical and virtual value chain model 50
v
2.3.2 The technology portfolio 53
2.3.3 Managing technology as a core competence 55
2.4 Developing technology competence through external growth 58
2.4.1 Relabeling 58
2.4.2 Licensing 59
2.4.3 External research contracts 59
2.4.4 Hiring from the industry 60
2.4.5 Alliances 60
2.4.6 Joint ventures 62
2.4.7 Acquisition 63
2.5 Marketing strategy and marketing plan for high-tech products 64
2.5.1 Situation analysis for high-tech firms 65
2.5.2 Targeting market(s) and designing the marketing mix 66
2.5.3 Action programs 66
2.5.4 Monitoring procedures 67
2.6 Summary 68
References 69
3 Knowing Customers and Markets . . . . . . 73
3.1 Determining the customer’s buying behavior 74
3.1.1 Purchasing factors for high-tech consumer products 74
3.1.2 Purchasing factors for high-tech products in business-to-business activities 79
3.1.3 Specific purchasing criteria for high-tech products 85
3.2 Estimating demand 93
3.2.1 Concept tests and prototype tests 94
3.2.2 The opinions of experts 96
3.2.3 Sampling groups and test markets 96
3.2.4 Using a quantitative analysis 97
3.2.5 On-line market research 99
3.3 Managing the relationship with customers 101
3.4 Summary 102
References 103
4 Understanding Competitors . . . . . . . . 107
4.1 Identifying competitors 108
4.1.1 Identification by market and by product 108
4.1.2 Identification of the competitive forces at the industry level 111
4.2 Analyzing a competitor’s strategy 117
4.2.1 Strategic groupings of companies 117
4.2.2 Competitive analysis 118
vi Contents
4.3 Finding information about competitors 121
4.3.1 External sources 121
4.3.2 Internal sources 126
4.4 Organizing competitive analysis 127
4.4.1 Who performs the competitive analysis? 127
4.4.2 Performing the competitive analysis 128
4.5 Summary 129
References 129
5 Selecting Markets . . . . . . . . . . . 131
5.1 Two market segmentation methods for high-tech products
and services 133
5.1.1 Innovation-driven market segmentation: the customergrouping approach 134
5.1.2 Market-driven market segmentation: the market-breakdown
approach 138
5.2 Evaluating and targeting segments 142
5.3 Positioning of the solution 145
5.4 Segmentation and time 150
5.5 Summary 152
References 153
6 Product Strategy . . . . . . . . . . . 155
6.1 Managing the three product dimensions 156
6.1.1 Managing a product’s essence 156
6.1.2 Managing a product’s physical attributes 157
6.1.3 Managing a product’s shell 170
6.2 Managing a product range 173
6.3 Managing a high-tech product according to its product life
cycle 176
6.3.1 Introduction stage 178
6.3.2 Sales growth stage 181
6.3.3 Maturity and decline stages 183
6.4 Summary 184
References 185
7 Distributing and Selling High-Tech Products . . 189
7.1 Selecting distribution channels for high-tech products 190
7.1.1 Channel-design decisions according to the size of the market 191
7.1.2 Channel-design decisions according to the cost of the
distribution network 193
Contents vii
7.1.3 Channel-design decisions according to the product
characteristics 195
7.1.4 Channel-design decisions according to the degree of control
over a distribution network 196
7.1.5 Channel-design decisions according to the flexibility of the
distribution network 197
7.2 Managing distributors of high-tech products 198
7.3 Selling high-tech products 201
7.3.1 Prospecting: the importance of qualification and probing 203
7.3.2 A teamwork approach 206
7.3.3 Customer follow-up 208
7.3.4 Support activities 209
7.3.5 After-sales market 211
7.4 Summary 213
References 214
8 Communication Strategy for High-Tech Products 217
8.1 Communication for high-tech products 218
8.2 Setting a communication budget 219
8.3 Allocating the advertising budget 221
8.3.1 Sales 221
8.3.2 Trade magazines 222
8.3.3 Trade shows 223
8.3.4 Seminars and presentations 224
8.3.5 Sales communication material 225
8.3.6 Direct marketing, on-line marketing, and SMS marketing 225
8.3.7 Packaging 227
8.3.8 Magazines and newspapers 227
8.3.9 Television 228
8.3.10 Radio 228
8.3.11 Outdoor advertising 229
8.3.12 Communication mixes 229
8.4 Managing promotional tools 231
8.5 Preannouncement in the communication plan for high-tech
products 232
8.6 Corporate advertising, public relations, and viral marketing 233
8.6.1 Corporate advertising 234
8.6.2 Public relations 234
8.6.3 Word-of-mouth and viral marketing 235
8.7 Summary 236
References 237
9 Pricing High-Tech Products . . . . . . . . 239
viii Contents
9.1 Determining price limits 242
9.1.1 Evaluating the price elasticity of demand 242
9.1.2 Estimating the costs’ learning curve 244
9.1.3 Taking competitors into account 247
9.2 Setting the price of high-tech products 249
9.2.1 Cost + profit margin 249
9.2.2 Rate of return and break-even point 250
9.2.3 Market price 251
9.2.4 Bidding price 252
9.2.5 Comparison with substitute products 252
9.2.6 Value perceived by customers 252
9.2.7 Pricing below costs 255
9.3 Adapting a price policy to different types of high-tech products 256
9.4 Integrating the other determinants of price 257
9.4.1 Pricing according to the product range 257
9.4.2 Pricing complementary products and tie-in offers 258
9.4.3 Pricing according to the reactions from other competitive forces in
the market 259
9.5 Managing price 259
9.6 Summary 259
References 260
10 The Position of Marketing Within High-Tech
Companies . . . . . . . . . . . . . 263
10.1 The position of the marketing structure in a high-tech firm 264
10.2 The internal organization of the marketing structure 266
10.3 The necessity for interdepartmental cooperation 270
10.3.1 Collaboration with research and development 270
10.3.2 Collaboration with manufacturing and customer service 275
10.3.3 Organizing cooperation among departments 278
10.4 Summary 280
References 281
A Key Success Factors of a Marketing
Department in a High-Tech Company. . . . . 285
B The Marketing Plan . . . . . . . . . . 289
References 292
About the Author . . . . . . . . . . . 293
Index . . . . . . . . . . . . . . . 295
Contents ix
.
Introduction
Since 2001, when the tech slowdown hit countries in the West, high-tech
industries have experienced one of their most economically depressed periods. An upturn in all sectors began in late 2003, but the telecom industry
and the computer industry were still lagging behind; their profitability
owing more to cost cutting than to revenue expansion. The technology
recovery is far from being solid and in any case, the projections of unlimited
growth are over. Famous firms at the beginning of this decade, such as
WorldCom, Qwest, Marconi, or NTL, or stellar dot-com companies, such as
WebVan, 360networks, or Boo.com, have filed for Chapter 11 bankruptcy
or imploded while thousands of lesser-known companies have disappeared
from the market altogether. More or less, all of those high-tech companies
had forgotten about the reality of the market and of their customers.
Obsessed with technology, especially the Internet, they had unrealistic
expectations about the market’s acceptance of their products. Their business
plans anticipated revenues and costs that were far too high for any company
to attain or sustain. When sales failed to materialize, these high-tech firms
were not able to cover their costs, and soon folded.
At the same time, many customers, notably large corporations, have
started to take their revenge on high-tech vendors. They no longer accept
innovations or updates like they did in the 1990s. Now they wait to replace
existing equipment in an effort to reduce their investment in technology.
Consequently, life has become very tough for a large majority of hightech companies, whose revenues, profits, and number of employees have
plummeted.
However, in the middle of this economic storm, some firms have managed to survive and even thrive by exploiting their competitors’ failures.
Companies such as Nokia, IBM, Cisco Systems, Samsung, SAP, Yahoo,
Vodafone, Amazon, eBay, and many others are stronger and in some cases
even more profitable than before the Internet crash and the following
downturn. The third edition of this book explains to the reader how these
companies managed to survive and to grow in this hostile economic environment. To put it briefly, those successful high-technology companies do
xi
not necessarily have the best product, but they do have the best marketing
strategy.
With the burst of the technological bubble, the majority has been more
concerned with cost control than expansion. Successful companies know
that their future lies in the ability to create new wealth through innovation,
entrepreneurialism, and development of new markets. In order to maintain
profitability they need to have some special edge, either through significant
patents, a very fertile R&D program, or an overwhelming market position [1]. Ultimately the key factor for achieving success is to grow and keep
a loyal base of customers through an efficient marketing strategy.
Many high-tech companies consider their technology and product to
be the absolute best around, but this is not enough to make it in the
marketplace. In order for a new technological innovation to make a significant impact, it should identify and satisfy a specific human need in a
new and cost-effective way. According to Mario Mazzola, Cisco Systems
chief development officer: “Innovation is more than just a new idea—it is
about taking a new idea and developing it into customer value and positive
business impact” [2].
This is not a new concept. After all, Marconi invented the technology for
wireless communication, but it was in the 1920s while leading RCA that
David Sarnoff, an untaught immigrant, imagined how the new technology
could be applied to transmit news, music, and other kinds of entertainment.
However, the high-tech industry has a cemetery full of companies that
thought they could win the world with their innovations. They failed
because they did not have the marketing ability to connect their innovative
offer with the actual needs of the markets. Just consider some examples of
famous failures of high-tech firms, years before the Internet crash:
◗ EMI, one of Britain’s leading defense companies, discovered the computer tomography technology that was the basis for a revolutionary
medical tool, the CAT scanner, but EMI failed to protect its technology; archrival General Electric was able to produce this medical tool at
lower cost and used superior marketing to develop strong connections
with hospitals, the chief users of the technology. Between 1977 and
1979, EMI had a cumulative loss on computer tomography equipment and eventually withdrew from the market, selling its CAT scanner business to General Electric [3].
◗ In the 1980s the R&D division of Xerox invented ground-breaking
technology, such as the graphical user interface and the laser printer
[4]. However, Xerox lacked the marketing skills to make them a market
success, which Apple did with the former and Hewlett-Packard with
the latter.
◗ In the 1990s AMD created the K6 a faster chip than the one produced
by Intel, but failed to penetrate Intel’s market share because of being
short of marketing and manufacturing skills.
xii Introduction
The pressure to keep on being successful is only increasing. In 1993, for
example, the typical company in the high-tech top 100 (as measured by
market value) of the Financial Times stayed there for 7 years; by the end of
the decade, the average tenure had dropped to 3 years. A similar turnover in
market leadership continues today.
Successful high-technology companies do share some key factors of
success [5]. They tend to market two or three times as many new products as their competitors, and incorporate two to three times more technical innovations into each new product bringing actual value to their
customers. Also, they introduce their products to the market two times
faster than their competitors thanks to operational excellence [6], one of the
main weaknesses of so many dot-coms that underestimated the importance
of manufacturing and logistics. This helps them to adapt their business
model quickly whenever there is a significant change in the environment.
In addition, the geographical size of their markets is double that of their
competitors. They have also created and leveraged great brands, which are
reflected in everything the company does, especially those that impact the
consumer [7].
Overall, these companies make marketing their main objective. They
know their customers intimately and track their demand in real time. Their
main concern is the market and not the product; this is the key to their success. All research and development activities, manufacturing, sales, and
after-sales services aim to satisfy customers better and faster. Their other
common characteristic is that they aim for profit. They invest wisely even
when they spend money on marketing-oriented programs. They do not
fund their customers in order to boost their sales, for instance, and always
make sure that any major marketing program will have a positive impact on
the bottom line. By keeping budgets tight and controlling cash, they never
face bankruptcy.
Marketing plays a fundamental role in this process. Actually, its goal is to
determine the needs of the market and to assure that the products manufactured by the company correspond precisely to these needs with a competitive advantage and at a profit.
This is probably the ultimate key to success and resilience [8] as testified
by IBM, one of the oldest high-tech firms on the market. Pondering the ability of IBM to reinvent itself over and over again, its current CEO Samuel
Palmisano reflects that “we never defined ourselves as a clock and scale
company, or a mainframe company, or a typewriter maker, even when we
were the undisputed leader in those markets. We simply committed ourselves to being the leader in inventing state-of-the-art technology and helping customers apply it to solve their problems. When technology and the
nature of customer problems change, we do, too” [9].
Some claim that high-technology products are so specific that the classic
rules of marketing used for selling detergents or yogurt cannot be applied. In
reality, this argument is often used to justify the absence of actual strategies
oriented toward markets and customer needs. For certain companies,
Introduction xiii
blinded by the mirage of technological innovation, it is easier to continue
manufacturing a technical masterpiece, even on the brink of bankruptcy.
Moreover, marketing managers of successful high-technology companies stress that there is not a large difference between marketing traditional
products and high-tech products. They contend that the customer philosophy remains the same and that only the specific features of a high-tech
product shape how the company markets it, and give it a distinctive twist.
Such a statement is backed up by their ability to overcome the economic
collapse of the recent years.
While the sky had fallen on the high-tech industry, smart marketing
strategies helped them grow and prosper among the rubble. This book
details some of their approaches, based on my consulting experiences with
some of those firms, as well as on comments and documents from numerous scholars, consultants, and professionals. This book is addressed to all
who wish to understand, set up, or better apply marketing principles in
order to succeed in this fascinating and exciting world of high technology.
References
[1] Murphy, M., Every Investor’s Guide to High-Tech Stocks and Mutual Funds, 3rd ed.,
New York: Broadway Books, 2000.
[2] http://newsroom.cisco.com/dlls/innovators/mario_mazzola_qa.html,
November 2003.
[3] Dell’Osso, F., “Defending a Dominant Position in a Technology Led
Environment,” Business Strategy Review, Vol. 1, Issue 2, 1990, pp. 77–87.
[4] Chesbrough, H. W., Open Innovation: The New Imperative for Creating and Profiting
from Technology, Boston, MA: Harvard Business School Press, 2003.
[5] Nevers, M., G. Summe, and B. Uttel, “Commercializing Technology: What the
Best Companies Do,” Harvard Business Review, Vol. 68, Issue 3, May/June 1990,
pp. 154–164.
[6] Pandya, M., et al., Knowledge@Wharton on Building Corporate Value, New York:
John Wiley & Sons, 2003.
[7] Temporal, P., and K. C. Lee, Hi-Tech Hi-Touch Branding, New York: John Wiley &
Sons, 2001.
[8] Hamel, G., and L. Välikangas, “The Quest for Resilience,” Harvard Business Review,
Vol. 81, Issue 9, September 2003, pp. 52–64.
[9] IBM Annual report, 2002.
xiv Introduction