1 Confidential - for classroom use only Review: Commercializing a Technology Technology...

1Confidential - for classroom use only

Review: Commercializing a TechnologyTechnology commercialization is a sequence of distinct subprocesses

1. Imagining a techno-market insight

2. Incubating the technology to define its commercializability

3. Demonstrating it contextually in products and/or processes

4. Promoting the latter’s adoption

5. Sustaining commercialization

Subprocesses are connected by bridges associated with mobilizing stakeholders

– Need to satisfy the stakeholders of the technology at each stage, without whom the technology’s value

does not get recognized, nor is there an impulse to take it further

Bridging the subprocesses is about managing two things:

1. Creating enough value in a predecessor stage to make a technology worth taking further

2. Mobilizing stakeholders concerned with the next stage and convincing them of its future potential

– Inventions sometimes move ahead because they are better at interesting others, reaching out, and

influencing stakeholders and other resource providers

The value the technology represents at a point in time determines whether or not to proceed. This

value consists of two things:

1. The discounted future earnings from whatever has already been sold, such as a license on a particular

facet of the technology that was spun off

2. The option value of the stages further downstreamVijay Jolly, Commercializing New Technologies (Harvard Business School Press: 1997).


Review: Segmenting Markets and Selecting the Target Markets1. Divide the market into groups, based on variables that meaningfully distinguish between customers’

needs, choices, and buying habits, for example– Demographic, geographic, or psychographic variables– Behavioral variables related to the customer’s interaction with respect to the specific product category, such

as frequency of usage, benefits desired, and the usage occasion

2. Describe the customer's profiles within each segment– Usually the “typical” customer within each segment

3. Evaluate the attractiveness of the various segments and select a target market, based on– Size, growth, level of competition, capabilities of firm to serve the needs of that segment– Per Geoffrey Moore, the target customer should have a single, compelling, “must have” reason to buy that

maps fairly closely on to the capabilities of the firm, for example• Purchase of the product provides the customer a dramatic competitive advantage in a previously unavailable domain in a

critical market• Purchase of the product radically improves productivity on an already well-understood critical success factor, and there

is no other alternative to achieving a comparable result• Purchase of the product visibly, verifiably, significantly reduces current total overall operating costs

4. Position the product with the segment selected– Create a meaningful market position for the new product– A market position is the image of the product in the eyes of the customer, relative to competitors, on critical

attributes of importance• A market position is always based on customers’ perceptions• A market position is always relative to competitors• Positioning a product is generally achieved by focusing on how it fits within existing market categories by referencing

the older technology that is being displaced Jakki Mohr, Marketing of High-Technology Products and Innovation, (Prentice Hall: 2001)


Marketing Strategy


Marketing: DefinitionsOld definition per the American Marketing Association,

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to

create exchanges that satisfy individual and organizational objectives.

New definition per the American Marketing Association,

Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for

managing customer relationships in ways that benefit the organization and its stakeholders.

Per Philip Kotler (Northwestern),

"Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating,

offering and exchanging products of value with others."

Per Peter Drucker,

"Marketing and innovation are the two chief functions of business. You get paid for creating a customer, which is marketing. And you get

paid for creating a new dimension of performance, which is innovation. Everything else is a cost center."

Per Brian Norris (a marketing consultant),

"The process of repeatedly moving people closer to making a decision to purchase, use, follow, refer, upload, download, obey, reject,

conform, become complacent to another person's, society's or organization's value. Simply, if it doesn't facilitate a "sale" then

it's not marketing."

Apochryphal:

If the circus is coming to town and you paint a sign saying, "Circus is coming to Fairgrounds Sunday," that's Advertising. If you put the

sign on the back of an elephant and walk him through town, that's a Promotion. If the elephant walks through the Mayor's flower

bed, that's Publicity. If you can get the Mayor to laugh about it, that's Public Relations. And, if you planned the whole thing, that's

Marketing!


What is Marketing?In general terms, marketing refers to what an organization must do to create and exchange value

with customers. In this sense, marketing has a major role to play in setting a firm’s strategic

direction. Successful marketing requires both a deep knowledge of customers, competitors, and

collaborators and great skill in deploying an organization’s capabilities so as to serve customers

profitably.

The central role of marketing in the enterprise stems from the fact that marketing is the process via

which a firm creates value for its chosen customers. Value is created by meeting customer needs.

Thus, a firm must define itself not by the product it sells, but by the customer benefit provided.

Having created the value for its customers, the firm is then entitled to capture a portion of that value

through pricing. To remain a viable concern, the firm must sustain this process of creating and capturing

value over time. Within this framework, the plan by which value is created on a sustained basis is the

firm’s marketing strategy. Marketing strategy involves two major activities: (1) selecting a target

market and determining the desired positioning of the product in target customers’ minds and (2)

specifying the plan for the marketing activities to achieve the desired positioning. In these

activities, positioning is the unique selling proposition for the product.

Alvin J. Silk, What is Marketing? (HBS Press: 2006).


Alvin J. Silk, What is Marketing? (HBS Press: 2006).

As shown, five major areas of analysis underlie marketing decision making. The discussion here begins with analysis of the

five Cs—customers, company, competitors, collaborators, and context. Questions to consider include:

1. Customer needs: What needs does the firm seek to satisfy?

2. Company skills: What special competence does the firm possess to meet those needs?

3. Competition: Who competes with the firm in meeting those needs?

4. Collaborators: Whom should the firm enlist to help it and how can the firm motivate them?

5. Context: Which cultural, technological, and legal factors limit the possibilities?


Marketing is EverythingMarketing's transformation is driven by the enormous power and ubiquitous spread of technology.

So pervasive is technology today that it is virtually meaningless to make distinctions between technology

and non-technology businesses and industries: there are only technology companies.

As technology developed and competition increased, some companies shifted their approach and became

customer driven. These companies expressed a new willingness to change their product to fit customers'

requests - practicing the "tell us what color you want" school of marketing. In the 1990s, successful

companies are becoming market driven, adapting their products to fit their customers' strategies. These

companies will practice "let's figure out together whether and how color matters to your larger goal"

marketing. It is marketing that is oriented toward creating rather than controlling a market; it is based on

developmental education, incremental improvement, and ongoing process rather than on simple market-

share tactics, raw sales, and one-time events. Most important, it draws on the base of knowledge and

experience that exists in the organization.

These two fundamentals, knowledge-based and experience-based marketing, will increasingly

define the capabilities of a successful marketing organization. They will supplant the old approach

to marketing and new product development. The old approach – getting an idea, conducting

traditional market research, developing a product, testing the market, and finally going to market -

is slow, unresponsive, and turf-ridden. Moreover, given the fast-changing marketplace, there is

less and less reason to believe that this traditional approach can keep up with real customer

wishes and demands or with the rigors of competition.

Regis McKenna, Marketing is Everything (Harvard Business Review: Jan-Feb 1991).


Marketing is Everything (contd.)In a time of exploding choice and unpredictable change, marketing - the new marketing - is the answer. With

so much choice for customers, companies face the end of loyalty. To combat that threat, they can add sales

and marketing people, throwing costly resources at the market as a way to retain customers. But the real

solution, of course, is not more marketing but better marketing. And that means marketing that finds a way

to integrate the customer into the company, to create and sustain a relationship between the company

and the customer.

The marketer must be the integrator, both internally – synthesizing technological capability with

market needs – and externally-bringing the customer into the company as a participant in the

development and adaptation of goods and services. It is a fundamental shift in the role and purpose of

marketing: from manipulation of the customer to genuine customer involvement; from telling and selling to

communicating and sharing knowledge; from last-in-line function to corporate-credibility champion.

Playing the integrator requires the marketer to command credibility. In a marketplace characterized by

rapid change and potentially paralyzing choice, credibility becomes the company's sustaining value. The

character of its management, the strength of its financials, the quality of its innovations, the congeniality of its

customer references, the capabilities of its alliances - these are the measures of a company's credibility. They

are measures that, in turn, directly affect its capacity to attract quality people, generate new ideas, and form

quality relationships.

Marketing has shifted from tricking the customer to blaming the customer to satisfying the customer

– and now to integrating the customer systematically. As its next move, marketing must permanently

shed its reputation for hucksterism and image making…. In fact, companies that continue to see marketing as

a bag of tricks will lose out in short order to companies that stress substance and real performance. Regis McKenna, Marketing is Everything (Harvard Business Review: Jan-Feb 1991).


Marketing MyopiaConsumers’ needs and wants are fulfilled through market offerings—some combination of products,

services, information, or experiences offered to a market to satisfy a need or want. Market offerings are not

limited to physical products. They also include services—activities or benefits offered for sale that are essentially

intangible and do not result in the ownership of anything. Examples include banking, airline, hotel, tax preparation,

and home repair services. More broadly, market offerings also include other entities, such as persons, places,

organizations, information, and ideas. For example, beyond promoting its banking services, LaSalle Bank runs ads

asking people to donate used or old winter clothing to the Salvation Army. In this case, the “market offering” is

helping to keep those who are less fortunate warm.

Many sellers make the mistake of paying more attention to the specific products they offer than to the

benefits and experiences produced by these products. These sellers suffer from marketing myopia. They

are so taken with their products that they focus only on existing wants and lose sight of underlying customer

needs. They forget that a product is only a tool to solve a consumer problem. A manufacturer of quarter-inch drill

bits may think that the customer needs a drill bit. But what the customer really needs is a quarter-inch hole. These

sellers will have trouble if a new product comes along that serves the customer’s need better or less expensively.

The customer will have the same need but will want the new product.

Smart marketers look beyond the attributes of the products and services they sell. By orchestrating several

services and products, they create brand experiences for consumers. For example, Walt Disney World is an

experience; so is a ride on a Harley-Davidson motorcycle or a visit to your local Starbucks. “We’re not in the

business of filling bellies,” says Starbucks founder Howard Schultz, “we’re in the business of filling souls.”

Similarly, Hewlett-Packard recognizes that a personal computer is much more than just a collection of wires and

electrical components. It’s an intensely personal user experience: “There is hardly anything that you own that is

more personal. Your personal computer is your backup brain. It’s your life.. .. It’s your astonishing strategy,

staggering proposal, dazzling calculation. It’s your autobiography, written in a thousand daily words.”

Gary Armstrong and Philip Kotler, Marketing (Pearson: 2009).


The Marketing Process


A Simple Model of the Marketing Process

1. Create value for customers and build customer

relationships

a) Understand the marketplace and customer needs and wants

b) Design a customer-driven marketing strategy

c) Construct an integrated marketing program that delivers

superior value

d) Build profitable relationships and create customer delight

2. Capture value from customers in return

a) Capture value from customers to create profits and customer

qualityGary Armstrong and Philip Kotler, Marketing (Pearson: 2009).


Marketing Management OrientationsThe production concept holds that consumers will favor products that are available and highly

affordable. Therefore, management should focus on improving production and distribution efficiency.

The product concept holds that consumers will favor products that offer the most in quality,

performance, and innovative features. Under this concept, marketing strategy focuses on making

continuous product improvements.

Many companies follow the selling concept which holds that consumers will not buy enough of the

firm’s products unless it undertakes large-scale selling and promotion effort. The concept is typically

practiced with unsought goods—those that buyers do not normally think of buying, such as insurance

or blood donations. These industries must be good at tracking down prospects and selling them on

product benefits.

The marketing concept holds that achieving organizational goals depends on knowing the needs

and wants of target markets and delivering the desired satisfactions better than competitors

do. Under the marketing concept, customer focus and value are the paths to sales and profits.

Instead of a product-centered “make and sell” philosophy, the marketing concept is a customer-

centered “sense and respond” philosophy. It views marketing not as “hunting,” but as “gardening.” The

job is not to find the right customers for your product but to find the right products for your customers. Gary Armstrong and Philip Kotler, Marketing (Pearson: 2009).


Marketing is about Building Customer Relationships

The first three steps in the marketing process—understanding the marketplace and customer needs,

designing a customer-driven marketing strategy, and constructing marketing programs—all lead up

to the fourth and most important step: building profitable customer relationships.

Customer relationship management is perhaps the most important concept of modem marketing.

Some marketers define customer relationship management narrowly as a customer data

management activity (a practice called CRM). By this definition, it involves managing detailed

information about individual customers and carefully managing customer “touch points” in order to

maximize customer loyalty.

Most marketers, however, give the concept of customer relationship management a broader meaning.

In this broader sense, customer relationship management is the overall process of building

and maintaining profitable customer relationships by delivering superior customer value and

satisfaction. It deals with all aspects of acquiring, keeping, and growing customers.

Customer satisfaction depends on the product’s perceived performance relative to a buyer’s

expectations.Gary Armstrong and Philip Kotler, Marketing (Pearson: 2009).


The Total Product Concept

Figure 1 represents the “Expected Product” as everything inside the

smallest circle, including the “Generic Product.” This represents

the customer’s minimal expectations. Though these vary by

customers, conditions, industries, and the like, every customer has

minimal purchase conditions that exceed the generic product itself.

When the customer expects more than the generic product, the generic

product can be sold only if those expectations are met. The different

means by which competing sellers seek to fulfill these expectations

distinguish their offerings from one another. In this way, differentiation

follows expectations.

But differentiation is not exhausted merely by giving the customer what he

expects. What he expects may be augmented by offering him more

than what he thinks he needs or has become accustomed to

expect.

The “potential product” consists of everything potentially feasible to

attract and hold customers. Whereas the “augmented product”

means everything that has been or is being done, the “potential

product” refers to what may remain to be done, that is, what is

possible.

What may be possible is not strictly a matter of what is purely imaginable

on the basis of what is known or knowable about customers and

competitors. It generally depends heavily on changing conditions. That

is why people in business so seldom any longer greet each other with

the old rhetorical question, How’s business? Instead they ask the more

substantively information-seeking question, What’s new? That helps

describe what has changed, and this helps define the potential product

with which to compete more effectively under the changed conditions. Theodore Levitt, The Marketing Imagination (The Free Press: 1986).

What a product is in its customer-getting and customer-satisfying

entirety can be managed. But it seldom is. Things just happen,

often entirely too serendipitously. To see how it can be

managed, it is helpful to look in some graphic detail at how it

might be visualized.

The “generic product” is the rudimentary substantive ‘thing”

without which there is no chance to play the game of

market participation. It is the “table stake” of the game. The

customer, a , expects more than the generic product when he

pays, nominally, for that product. Unless his other expectations

are minimally fulfilled, there will be no sale. And if it is not sold,

there is no “it.” Commercially speaking, there is no product when

what there “is” has no takers. The customer expects more.


Differentiation – of Anything There is no such thing as a commodity. All goods and services can be differentiated and usually are. Though the

usual presumption is that this is true more of consumer goods than of industrial goods and services, the

opposite is the actual case.

The only exception to this proposition is in the minds of people who profess that exception. In the market place

differentiation is everywhere. Everybody—whether producer, fabricator, seller, broker, agent, merchant—engages in a

constant effort to distinguish his offering in his favor from all others. This effort to distinguish his offering in in his favor

from all others. This is true even of those who produce, deal in, or buy primary metals, grains, chemicals, plastics, or

money.

In fabricated consumer and industrial goods, competitive distinction is visibly sought via distinctive product features, some

visually or measurably identifiable, some cosmetically implied, and some rhetorically claimed by reference to real or

suggested hidden attributes that promise results or values different from those of competitors. So too with consumer

and industrial services—what I shall call, to be accurate, “intangibles.”

It is precisely when the generic product is undifferentiated that the “offered” product makes the difference in

getting customers, and the “delivered” product in keeping them.

The usual presumption about so-called undifferentiated commodities is that they are exceedingly price sensitive.

A fractionally lower price gets the business. That’s seldom true except in the imaginary world of economics

textbooks. In the actual world of real markets, nothing is exempt from other considerations, even when price

competition is virulent. The fact that price differences are, prima facie, measurable becomes the usual, and

usually false, basis for asserting their powerful primacy.

Price is, of course, powerful. But to be powerful is not automatically to be sufficient, no matter how narrowly price

negotiations get hardened or to what minuscule fractions price bids are driven. Theodore Levitt, The Marketing Imagination (The Free Press: 1986).


Differentiation – of Anything (contd.) During periods of sustained surplus, excess capacity, or unrelieved price wars, when all attention seems firmly

riveted on nothing but price, it is precisely because price is so visibly objective (i.e., measurable) and so

potentially devastating in its effects that it deflects attention from the possibilities for successful extrication from

ravaging price competition. So compelling are the price pressures that other possibilities get proportionately

slighted. Nor are these “other possibilities,” even in the short run, confined simply to “non-price competition,” such

as harder personal selling, intensified or enhanced advertising, or what’s loosely called more or better “services.”

To see fully what these “other possibilities” are, it is useful first to remind ourselves more firmly exactly what a

product is. People buy products (whether purely tangible products, purely intangible products, or hybrids of the

two) in order to solve problems. Products are problem-solving tools.

A product is, to the potential buyer, a complex cluster of value satisfactions. The generic “thing” or

“essence” is not itself the product. It is merely, as in poker, the table stake, the minimum necessary at the

outset to allow its producer into the game. But it’s only a “chance,” only a right to enter play. Once entry

is actually attained, the outcome depends on a great many other things. Mostly it depends on how the

entrant plays the game, rather than on the table stake (the generic product) that entitles one to play. In

business, as in poker, there is competition, but in business it is for the patronage of solvent customers.

Customers attach value to products in proportion to the perceived ability of those products to help solve

their problems. Hence a product has meaning only from the viewpoint of the buyer or the ultimate user.

All else is derivative. Only the buyer or user can assign value, because value can reside only in the

benefits he wants or perceives.

Theodore Levitt, The Marketing Imagination (The Free Press: 1986).


The Marketing ImaginationThe marketing imagination is the starting point of success in marketing. It is distinguished from other forms of imagination

by the unique insights it brings to understanding customers, their problems, and the means to capture their attention and

their custom. By asserting that people don’t buy things but buy solutions to problems, the marketing imagination makes an

inspired leap from the obvious to the meaningful. “Meaning” resides in its implied suggestion as to what to do—in this case, find out

what problems people are trying to solve. It is represented by Charles Revson’s famous distinction regarding the business of

Revlon, Inc.: “In the factory we make cosmetics. In the store we sell hope.” It is characterized by Leo McGinneva’s clarification

about why people buy quarter-inch drills: “They don’t want quarter-inch bits. They want quarter inch holes.” It leads to Professor

Raymond A. Bauer’s famous point that when buyers select a known vendor or known brand over another it is more meaningful to

think of the choice as an act of risk reduction rather than as the expression of a brand preference.

Each of these reconceptualizations found a deeper meaning in customer behavior, thus causing marketing programs to be reshaped in

ways better to attract and hold customers. To attract a customer, you are asking him to do something different from what he

would have done in the absence of the programs you direct at him. He has to change his mind and his actions. The customer

must shift his behavior in the direction advocated by the seller. Hence the seller must distinguish himself and his offering from those

of others so that people will want, or at least prefer, to do business with him. The search for meaningful distinction is a central part

of the marketing effort. If marketing is about anything, it is about achieving customer-getting distinction by differentiating

what you do and how you operate. Distinction by differentiating what you do and how you operate. All else is derivative of

that and only that.

Differentiation represents an imaginative response to the existence of potential customers in such a way as to give them

compelling reasons to want to do business with the originating supplier. To differentiate an offering effectively requires

knowing what drives and attracts customers. It requires knowing how customers differ from one another and how those

differences can be clustered into commercially meaningful segments.

If you’re not thinking segments, you’re not thinking. To think segments means you have to think about what drives

customers, customer groups, and the choices that are or might be available to them. To think segments means to think beyond

what’s obviously out there to see. Theodore Levitt, The Marketing Imagination (The Free Press: 1986).


Summary: The Marketing ImaginationPer Theodore Levitt ,

Marketing is about

– gaining differential advantage over competitors

– getting and keeping customers in some acceptable proportion relative to competitors

But getting a customer means he has to do something different than he otherwise would

have done

– The key is differentiation and segmentation

– Because people do not buy things, they buy solutions to problems

Your competitors are likely to know the same things as you

– The key is being able to take differential advantage of your knowledge

– Therefore, you must know your customers, your industry, your business


Branding


BrandsPer Philip Kotler,

“A name, term, sign, symbol, or design intended to distinguish the goods and services of one seller from another and to differentiate them from those of competitors.”

Per The Dictionary of Business and Management:

"a name, sign or symbol used to identify items or services of the seller(s) and to differentiate them from goods of competitors.”

Per Walter Landor, an advertising industry executive:

"Simply put, a brand is a promise. By identifying and authenticating a product or service it delivers a pledge of satisfaction and quality.“

In his book Building Strong Brands, David Aaker suggests the brand is a 'mental box' and defines brand equity as:

"A set of assets (or liabilities) linked to a brand's name and symbol that adds to (or subtracts from) the value provided by a product or service…"

Per the website Building Brands:

"A brand is a collection of perceptions in the mind of the consumer.“

– This definition makes it absolutely clear that a brand is very different from a product or service. A brand is intangible and exists in the mind of the consumer.

– This definition helps in understanding the ideas of brand loyalty and the 'loyalty ladder'. Different people have different perceptions of a product or service, which places them at different points on the loyalty ladder.

– This definition makes it clear how to build a brand. A brand is built not only through effective communications or appealing logos. A brand is built through the total experience that it offers.Adapted from http://www.buildingbrands.com/definitions/02_brand_definition.php


Basic Brand ConceptsBrand experience: An experiential aspect consisting of the sum of all points of contact with the brand.

Brand loyalty: The extent to which consumers buy a product; the extent to which the purchase is habitual.

Brand association: The degree to which consumers link the brand to other favorable images

Brand image: A psychological aspect, a symbolic construct created within the minds of people and

consisting of all the information and expectations associated with a product or service.

– Marketers engaged in branding seek to develop or align the expectations behind the brand experience, creating the

impression that a brand associated with a product or service has certain qualities or characteristics that make it special

or unique.

Brand recognition: Where a brand which is widely known in the marketplace.

– Where brand recognition builds up to a point where a brand enjoys a critical mass of positive sentiment in the

marketplace, it is said to have achieved brand franchise. One goal in brand recognition is the identification of a brand

without the name of the company present. For example, Coca-Cola in any language.

Brand equity: Measures the total value of the brand to the brand owner, and reflects the extent of brand

franchise.

– In this context a "brand name" constitutes a type of trademark, if the brand name exclusively identifies the brand owner

as the commercial source of products or services. A brand owner may seek to protect proprietary rights in relation to a

brand name through trademark registration.

Brand personality: A brand image may be developed by attributing a "personality" to or associating an

"image" with a product or service, whereby the personality or image is "branded" into the consciousness of

consumers.

– A brand is therefore one of the most valuable elements in an advertising theme, as it demonstrates what the brand

owner is able to offer in the marketplace. The art of creating and maintaining a brand is called brand management. Adapted from Philip Kotler and Waldemar Pfoertsch, B2B Brand Management (Springer: 2006).


Brand EvolutionStage 1: Unbranded GoodsIn the first stage, goods are treated as commodities and most are unbranded. This stage is usually characterized by an excess of demand over supply. It is most closely approximated by developing economies and the former soviet block countries, and is rarely seen in developed economies. Producers make little effort to distinguish/brand their goods with the result that the consumer’s perception of goods is utilitarian.

Stage 2: Brand as ReferenceIn the second stage, competitive pressures stimulate producers to differentiate their goods from the output of other manufacturers. Differentiation is achieved primarily through changes in physical product attributes (gets clothes cleaner). Consumers’ memory networks expand beyond recognition of the basic product category to include other product information in order to evaluate goods on the bases of consistency and quality. They begin to use brand names based on their image of the brand as a heuristic device in decision making. Even so, consumers primarily value brands for their utilitarian value, the pleasure derived from owning or using the object.

Stage 3: Brand as PersonalityBy this stage, differentiation among brands on rational/functional attributes becomes exceedingly difficult as many producers make the same claim. Therefore, marketers begin to give their brands personalities. An example is Ivory soap. By creating the personality of the caring mother, the marketer injects emotion into the consumer’s learning and valuing process. Doing so brings the brand closer to the consumer through an emotional bond as mothers who want to perceived as caring, use Ivory soap.

In the previous two stages, there was a distinction between the consumer and the brand. The brand was an object at some distance and was removed from the consumer. Incorporation of personal characteristics into the brand makes it more appealing to consumers who are more likely to affiliate with brands possessing desirable personalities. Thus, the personalities of the consumer and the brand begin to merge and the value of the brand has become self-expression.

Social constructionism explains the symbolic nature of brands. All individuals share in a process of transmitting, reproducing and transforming the social meaning of objects. As consumers, individuals within a social group interpret marketer-sponsored information such as advertising and use brands to send signals to others about themselves. Other individuals interpret these signals to form images of and attitudes toward the brand’s user. If the user does not get the anticipated reaction, he or she may re-consider use of the brand. This process of decoding the meaning and value of brands and using brands correctly is active involvement of the consumer in the brand’s image.

Products and brands are used by cultures to express cultural principles and establish cultural categories. Individuals can be classified on the basis of brands. For example, the affluent drive Rolls Royces and the less affluent drive Fords. When products and brands cross cultural boundaries, confusion can result as goods may not be valued for the same reasons in other cultures. Thus, the values communicated by products and brands must be consistent within the group and the culture.

McEnally, Martha R. and L. de Chernatony. 1999. "The Evolving Nature of Branding: Consumer and Managerial Considerations,.," Academy of Marketing Science Review [Online] 1999 (2) Available: http://www.amsreview.org/articles/mcenally02-1999.pdf


Brand Evolution (contd.)Stage 4: Brand as IconIn this stage, the brand is "owned by consumers". They have extensive knowledge about the brand – frequently world-wide-- and use it to create their self identity. An example is the Marlboro cowboy who is recognized around the world. The cowboy is rugged, a man against the odds, but he is not crude and lacking in sophistication. Consumers who want to be perceived as strong, rugged or loners might smoke Marlboro cigarettes. The cowboy is a symbol or icon of a set of values.

To be well-entrenched in the consumer’s mind, the icon must have many associations—both primary (about the product) and secondary. For example, Air Jordan shoes have primary associations with Michael Jordan’s athletic prowess and secondary associations with the Chicago Bulls and winning. The more associations a brand has, the greater its network in the consumer’s memory and the more likely it is to be recalled. Thus, management of these brands must continually find associations that strengthen the iconic stature of their brand.

Stage 5: Brand as CompanyThis stage marks the change to postmodern marketing. Here, the brand has a complex identity and there are many points of contact between the consumer and the brand. Because the brand equals the company, all stakeholders must perceive the brand (company) in the same fashion. The company can no longer present one image to the media and another to stockholders or consumers. Communications from the firm must be integrated throughout all of their operations. Communication is not, however, unidirectional. It flows from the consumer to the firm as well as from the firm to the consumer so that a dialog is established between the two.

In stage five, consumers become more actively involved in the brand creation process. They are willing to interact with the product or service in order to create additional value. Examples of this are the use of ATM machines and patronage of stores such as IKEA. In the ATM example, the consumer adds value to the banking process by determining when and where the transaction will occur. Customers at IKEA are willing to be involved in the product design process by designing their own kitchen cabinets from modular units, choosing fabrics for their upholstered furniture and by transporting goods home and assembling the product themselves. This interaction strengthens the relationship that consumers feel with the firm.

Stage 6: Brand as PolicyFew companies to date have entered this stage which is distinguished by an alignment of company with ethical, social and political causes. Prime examples of this stage are The Body Shop and Benetton. Consumers commit to the firms that support the causes favored by the company by purchasing from the firm. Through their commitment, consumers are said to own the brand.

McEnally, Martha R. and L. de Chernatony. 1999. "The Evolving Nature of Branding: Consumer and Managerial Considerations,.," Academy of Marketing Science Review [Online] 1999 (2) Available: http://www.amsreview.org/articles/mcenally02-1999.pdf


Digression:Market Segments and the

Job-to-Be-DoneClayton M. Christensen, et. al. The Innovator’s Prescription

(McGraw-Hill: 2009)


Market Segments and the Job-to-Be-DoneThe way in which companies choose to define market segments is a crucial strategic decision, because it

influences which products they develop, drives the features of those products, and shapes how they are taken

to market.

Most marketers divide their markets into categories based on the characteristics of their products or customers.

Automakers, for example, segment their markets by product characteristics. There are subcompacts, compacts,

midsize and full-size cars; minivans, SUVs, luxury vehicles, and sports cars. They can tell you exactly how large

each segment is and which competitor has what share. With this framing of the market’s structure, they try to beat

the competitors in their segments by adding more features faster and at the lowest cost. Meanwhile, other

companies segment their markets based on the characteristics of their customers. There are low-, middle-, and high-

income segments; the segment of 18- to 34-year-old women; and so on. Or, in the business-to-business world,

they’ll segment by small, medium, and large enterprises. Industry verticals, and so on. Almost all managers frame

their market’s structure by product category and/or customer category because if you’re in the company

looking out on the market, this is indeed how things appear to be structured.

The problem with segmentation schemes such as these is that this is not at all what the world looks like to

customers. Stuff just happens to customers. Jobs arise in their lives that they need to do, and they hire products or

services to do these jobs. Marketers who seek to connect with their customers need to see the world through

their eyes—to understand the jobs that arise in customers’ lives for which their products might be hired. The

job, and not the customer or the product, should be the fundamental unit of marketing analysis.

As Peter Drucker said, “The customer rarely buys what the company thinks it is selling him.” Which brings us to an

important point: job-defined markets are generally much larger than product category-defined markets .

Marketers who are stuck in the mental trap that equates market size with product categories don’t understand who

they are competing against or how to enhance value of their product, from the customer’s point of view.


Market Segments and the Job-to-Be-Done: Example

Before it understood the job for which its milkshake was being hired in the morning, the

company had thought it was integrated. It sold a dizzying array of sandwiches, side

dishes, salads, drinks, and desserts. But this integration simply helped it to do anything

anyone, and not very well. This mode of integration simply pitted its plethora of products

into a product-for-product competition—against bananas, doughnuts, bagels, breakfast

drinks, coffee, diet cola, and other fast-food products. But once it understood the morning

commute job, the restaurant chain could integrate differently—linking together an

optimized product, a delivery mechanism, and a payments system that together did the

job perfectly—in a way most makers of the competing products couldn’t replicate

because they didn’t see the rationale. Proprietary integration of the company’s

resources, processes, and profit formula in order to do a job that the customer is

trying to do is the essence of competitive advantage.


Another ExampleVery often, customers will tell market researchers, “Sure, I’d buy that product,” and then they don’t.

Why? A second case history provides some clues.

In the past decade the college textbook companies together have spent several billion dollars creating

Web sites where students can explore more deeply topics that can be covered at only a cursory level

in the textbook. In a geography textbook, for example, only about 10 pages can be allocated to the

Amazon rain forest because there is so much other geography to cover. But thank goodness for the

Internet. At the end of the text on the Amazon rain forest is a Web site address, which students can

visit to get almost limitless additional information about the rain forest. Overwhelmingly, students

and their professors indicated during market research interviews that they would love to have that

capability.

It has turned out, however, that very few students ever click on those links. Why? What most students

really are trying to get done in their lives (as evidenced by what they do, rather than what they say)

is simply to pass the course without having to read the boring textbook at all. They should have a

limitless appetite or learning—but they don’t.

So what’s the solution? Face the facts. When you help customers do more affordably, conveniently,

and effectively a job that they have been trying to get done, they will pay a premium price, digest

all kinds of instructions, and change lots of habits in order to get the job done better and faster. But

when your product helps them do a job that they’ve not been trying to do, selling your product is

akin to an uphill death march through knee-deep mud.


Another Example (contd.)

This doesn’t mean that the idea of online or electronic books is dead. It simply means that if textbook

companies wanted students to start using their Internet-based learning materials, they need to package

them in a way that helps college students do the job that they’re trying to do. In this case, you’d create a

facility called Cram.com with the objective of helping college students cram for their exams more

effectively, with less effort, later in the semester. These customers would be willing to pay steep prices

for this assistance. The stereotypical student would feverishly log on to Cram.com two days before his

final. The screen would ask, “What course are you trying to cram for?” The student would click on

“College Algebra.” The next page would ask, “Which of these textbooks did your old professor think

you’d have read by now?” After he clicked on the title, the next page would ask, “Now, which of these

problems is giving you a hard time?” The student would click on the one that is vexing him, and the next

pages would nurse him through the problem, giving him tricks and methods for solving it.

Next year, like any disruptive company, Cram.com would need to improve its products—to make it even

easier to cram even later in the semester, with even better results. Within a few years, you might see a

couple of students in their college bookstore anguishing over whether they should really pay $129 for a

textbook. Another student, walking by, would notice their pain and offer, “I wouldn’t by the book. I took

that course last semester, and I just used Cram.com from the beginning—and it worked great.” Bingo.

The disruption of a horrifically expensive industry would be underway. Clayton M. Christensen, et. al. The Innovator’s Prescription (McGraw-Hill: 2009).


Three Levels in the Architecture of Every JobThe graveyard of failed products and services is populated by things that people should have wanted—if only they could

have been convinced those things were good for them. The home-run products in the marketing hall of fame, in contrast,

are concepts that helped people more affordably, effortlessly, swiftly, and effectively do what they already had been trying

to get done.

Understanding the job that customers are trying to do is a major issue in every healthcare innovation. Many wellness

programs that seek to ameliorate or stave off the onset of certain chronic diseases stumble, for example, because for a great

many people who are obese are addicted to tobacco, or who suffer from coronary artery disease, becoming healthier isn’t a

job that they’re prioritizing— until they become sick. Indeed, for certain patients, financial health is a much more pressing

job-to-be-done than physical health. Our analysis explains he reason why health savings accounts have been adopted more

slowly than expected: because they’re being marketed into a product category, and not positioned to fulfill a job-to-be-done.

There are three levels in the architecture of every job. The highest level is the job itself—the basic, root problem facing

the customer, the result he or she needs to achieve. Once innovators understand the job, they can then burrow into the

second level of the architecture: What functional, social, and emotional experiences in purchasing and using the

product do we need to provide the customer in order to get the job done perfectly? Knowing what these experiences

need to be gives product designers and marketers a sense of “true north” as they delve into the detail at the third level of

the architecture: the specific characteristics, features, and technologies that comprise the product and how it is sold

and used. If a feature helps provide one of the experiences that is required to get the job done perfectly, it will enhance the

product’s success. If not, then it will add cost and complexity to the product that customers don’t value. Understanding the

job to be done provides a sense of “true north” to innovators.


Three Levels in the Architecture of Every Job (contd.)

What this means is that convenience and cost are not jobs. Convenience is an

experience that must be provided to get some, but not all, jobs done well. And cost,

likewise, is a feature of products that customers will assess when deciding what product

to hire to do a job.

Jobs exist independently of a market for products that can be hired to do them. By

illustration, since the days of Julius Caesar there’s been an I-need-to-get-this-from-here-

to-there-with perfect-certainty-as-fast-as-possible job. Caesar’s only option was to put

someone he trusted in a chariot pulled by a fast horse and order him to go like crazy.

When FedEx came along, a huge new was created—but the job had always been there.

And the job exists independently of customers as well. Not every person has this job to

do, and those who find themselves needing to do this job don’t need to do it every day.


Generic Market Strategies


Reminder: the Five C’s of Marketing

Five major areas of analysis underlie marketing decision making:

1. Customer needs: What needs does the firm seek to satisfy?

2. Company skills: What special competence does the firm possess to meet those needs?

3. Competition: Who competes with the firm in meeting those needs?

4. Collaborators: Whom should the firm enlist to help it and how can the firm motivate

them’*

5. Context: Which cultural, technological, and legal factors limit the possibilities?

The absolute importance of target market selection and positioning is well conveyed in a

best-selling marketing textbook: “The advantage of solving the positioning problem is that it

enables the company to solve the marketing mix problem. The marketing mix— product,

price, place, and promotion—is essentially the working out of the tactical details of the

positioning strategy. Alvin J. Silk, What is Marketing? (HBS Press: 2006).


Summary: Strategies for New MarketsThe key question – is it better to be a pioneer or a follower?

The Pioneer has some potential advantages including

– high switching costs for early adopters

– the chance to define the rules of the game

– the possibility of positive network effects – like the first fax machine

– influence on consumer choices and attitudes

– and the possibility of pre-empting scarce resources, such as patents

BUT, not all pioneers execute successfully and reap the benefit of these potential advantages. There are three

generic approaches for a Pioneer:

1. Mass market penetration: the idea is to capture and maintain a commanding market share and establish a

large base of loyal customers through high product and service quality and economies of scale

2. Niche penetration: focus is on a single market segment

3. Skimming and early withdrawal: occurs where prices and margins drop dramatically when other

competitors enter the market

The advantages of being a Close Follower include the ability to take advantage of Pioneer’s positioning,

product, and marketing mistakes; and the ability to take advantage of Pioneer’s limited resources

Late Entrants usually focus on a peripheral target market or a profitable niche Orville C. Walker, et.al., Marketing Strategy (McGraw-Hill Irwin: 2003).


Summary: Strategies for Growth MarketsThe primary objective of the early share leader, usually the market pioneer, in a growth market is share maintenance. Strategies include:

Fortress: increase satisfaction and loyalty by building on current strengths

Flanker: protect against loss of specific segments by building secondary product offerings

Confrontation: protect against loss of specific segments by going head to head against competitors

Market expansion: attract new customers by adding new products or product extensions

Contraction or strategic withdrawal: focus resources on high-growth segments

Challengers seek to grow market share using strategies such as:

Frontal attack: take customers away from competitors by offering lower price or more attractive features

Leapfrog: induce customers to switch brands with a superior product offering

Flank attack: develop product offering to attract customers in one major segment whose needs are different from the early customers

Encirclement: develop product offerings for a variety of small segments

Guerilla attack: capture a small number of repeat customers in major segments

Growth markets present attractive opportunities for future profits because

– it is easier to gain share when the market is growing

– share gains are worth more in a growing market than in a mature market

– price competition is likely to be less intense

– allows a firm to stay current with technology

Maintaining an early advantage is difficult because of

– increasing number of competitors

– fragmentation of market segments

– the threat of product innovation from both internal and external industry playersOrville C. Walker, et.al., Marketing Strategy (McGraw-Hill Irwin: 2003).


Summary: Strategies for Mature Markets

Primary marketing strategies include

1. Maintain current market share

2. Growth extension strategies

Increased penetration: convert nonusers in target segments into users

Extended use: increase the amount of product used by the average customer

Market expansion: expand the number of users by targeting underdeveloped segments

Market events

Shakeout

─ A shakeout occurs during the transition from a growth market to a mature market

─ The weaker firms in the industry fail, withdraw, or are acquired

Strategic traps

─ The failure to anticipate the transition to a mature industry

─ The failure to establish a clear competitive advantage

─ The assumption that an early-mover advantage will insulate the company from price or

service competition

─ The sacrifice of market share for short-run profitOrville C. Walker, et.al., Marketing Strategy (McGraw-Hill Irwin: 2003).


Summary: Strategies for Declining Markets

Market attractiveness is affected by

1. Conditions of demand

• the rate and level of certainty in the decline in demand

2. Exit barriers

• the ease with which weaker competitors can leave a market

3. Future competitive rivalry

• the desire to avoid intense competitive rivalry

Generic strategies include

Harvesting: maximizing short-term cash flow at the expense of market share

Maintenance: maintaining market share in the short-term at the expense of margins

Profitable survivor: increasing share of the declining market by forcing weaker competitors

to exit

Niche: focusing on strengthening position in a small profitable segment that is likely to have a

future Orville C. Walker, et.al., Marketing Strategy (McGraw-Hill Irwin: 2003).


Market Entry Strategies for New Ventures


Market Entry Strategies for New Ventures Should the market entry attempt to rapidly seize significant market position or seek stealthy penetration?

– A universal component of marketing strategy is its content: details such as pricing, marketing mix, distribution channels,

packaging, and target markets, which are affected by the characteristics of the product, costs, the situation, market size and

growth rate, industry characteristics and perhaps most important of all, the strategic marketing objectives that are sought.

There are two additional features of entry strategy:

1. Aggressiveness of entry. This refers to the force applied—the power, strength and velocity of effort and amount of resources

committed.

2. The focus of the entry effort—the extent to which the effort is sharply focused or on a broad front.

– Research has demonstrated a high correlation between venture performance and aggressiveness of entry (here performance was

measured by market share achieved).

– The evidence is quite strong that new product and new venture performance on a firm-wide basis is greatly affected and perhaps

fundamentally determined not by the percentage of successful entries but rather by the losses of expensive failures, which dilute

and dissipate the gains of successes. This indicates a need for effective damage control of potential failures, so they do not

cripple the chances for success.

Aggressiveness can be applied not only in the sales and marketing effort through expenditure on advertising and

promotion, the size of the sales and marketing organization, pricing practices, discounting, deals, and publicity, but

also through investment in production facilities, inventories, training of personnel in advance of entry, and number

and dispersion of plant and office locations.

Given the potential for big wins and for equally big losses associated with massive-scale market entry we have

described it is clear that management faces some real dilemmas in deciding whether to be aggressive and/or focused

in the entry strategy. All the combinations of force and focus have their advantages and disadvantages, but we

suggest that some clues as to what is the most appropriate entry strategy can be derived from looking at the nature of

the market environment that the firm wishes to enter.Gerald E. Hills, ed., Marketing and Entrepreneurship (Quorum: 1994). http://knowledge.wharton.upenn.edu/papers/195.pdf


Market Factors that Shape Entry Strategy 1 There are two market variables that have a tremendous impact on the strategy chosen for entry of a new product

– the market can either be munificent or sparse, hostile or benign.

Munificence describes the structure, size, and nature of the market being entered, whereas hostility captures the structure and nature of the firms competing for that market.

Clearly, the degree of munificence of a market is closely related to market size, but judging the market size for a new venture can be confusing. It is one thing to examine an existing market, for example, for detergents, to identify the players, determine their share, review the rate of growth of the market, determine the cost of achieving and holding share, and make some reasonable assumptions based on competitive and marketing history as a basis for entry planning

It is quite another to examine an unfulfilled market need, to calculate a potential if the need is met with the proposed new product entry, and then to estimate what the rate of market development will be. And in addition, what competitors will do and when they will do it. Traditional market research is not very useful for this purpose. The more innovative a product is, the more difficult it is to estimate the rate of market development.

Under these circumstances, feel, intuition, and direct personal contact with prospective customers and the market by the new venture champion may be more revealing than existing data about a nonexistent market. This is one area where the individual entrepreneur with a vision has an advantage over the objective market researchers of the corporation who may only measure whether there is a market, and if so, how large. The entrepreneur adds the dimension of a vision of a future market and through personal immersion seeks a way to alter, modify, and adapt in order to fill the need that has been perceived. The fundamental difference, however, between the market analyst and the entrepreneur lies in the ability of the entrepreneur to see what is possible rather than current reality alone—to see future relationships between factors that add value, opportunities, the essence of the entrepreneurial act. An important part of the entrepreneur’s view of the market in relationship to the business concept is the continuous adaptation and modification of the concept to attempt to fit concept or product to what is being learned from immersion in and contact with the market.

Gerald E. Hills, ed., Marketing and Entrepreneurship (Quorum: 1994). http://knowledge.wharton.upenn.edu/papers/195.pdf


Market Factors that Shape Entry Strategy 2

For making the munificence judgment, three important characteristics besides existing size and growth

rate must be examined in addition to market size:

1. customer risk: the level of consumer risk attached to purchasing the new product

2. technology turbulence: rapid change of technology can reconfigure the market, thus, a critical question about

munificence is how long will the munificence last

3. category life cycle: opportunities for success are higher quality for first movers with products in the early stages

of their life cycle because of potential munificence and lack of hostility

Competition is the principal key to determining the hostility of the market. If the market is crowded with

competitors and the business is crucial to their success, the market will be very hostile. If there arc no

competitors, or the competition is highly fragmented and no clear market leadership is present, the market

may be effectively benign.

In addition to market share, the salience of the product to each competitor will determine the strength of

competitive response. If the competitor is highly dependent on the product for the firm’s success, then an

aggressive fight can be expected against a new entrant.

Market hostility is also affected by industry capacity compared with market size. When capacity is greater

than the market size, competitive action will be more intense, and may indeed suggest that the entry strategy

to be followed is not to enter at all or to enter through acquisition of existing capacity at low cost.Gerald E. Hills, ed., Marketing and Entrepreneurship (Quorum: 1994). http://knowledge.wharton.upenn.edu/papers/195.pdf


Making the Entry Strategy Decision

Although the degrees of aggressiveness and focus are a continuum, for purposes of clarity

and simplicity we choose two levels for each: relatively aggressive and non-aggressive and

relatively focused and broad-front.

– The activities to which varying force or aggressiveness can be applied are amount and type of

advertising and sales promotion, size of the sales and marketing organization, pricing,

investment in production facilities, amount of service supplied to customers, level of

discounting, introductory deals, inventory levels held for minimum delivery time, and, not the

least, publicity.

– Increased aggressiveness may be reflected in the timing of these activities as well as in the amount

of money spent. For example, the opening of regional sales offices and employment and training of

sales and marketing people can be initiated and timed for operation to coincide with the anticipated

availability of product from a plant that is in the process of being built, rather than waiting for

assurance of availability of product.

The degree of focus is reflected by the number of market segments initially addressed,

the extent of geographical dispersion, and the size and variety of the product or

service line offered. Gerald E. Hills, ed., Marketing and Entrepreneurship (Quorum: 1994). http://knowledge.wharton.upenn.edu/papers/195.pdf


Four Entry Strategies

1. The Blitzkrieg– This is a highly aggressive, broad-front strategy using all forces over a wide scope of geography and market segments for

the purpose of establishing a strong, widespread market position as early as possible.– Because this strategy requires rapid market penetration, it probably would not be appropriate in a situation where there is not

a munificent market—existing or clearly potential. This approach might, however, be taken even in a hostile market, provided internal commitment and resources are great enough to overcome competition over an unpredictable but necessary time.

2. The Cavalry Charge – This strategy is highly aggressive and focused. All the elements that can be aggressive might be used, that is, advertising,

public relations, sales force intensity, and aggressive pricing, and they are concentrated on a market segment and/or a limited geographical area. This strategy is not uncommon for new consumer products. In building a new business around a technology, a cavalry charge would select one application, rather than many, focusing all effort in a concentrated fashion to achieve early success.

– The cavalry charge requires a market that is munificent but not so hostile that the market segments into which entry is deferred are lost to competition.

3. The Strike Force Approach – This strategy is non-aggressive and focused. It is a low-key, calculated entry into a narrowly defined market. It uses

relatively fewer resources than other approaches and demands less of a commitment from the firm. – This non-aggressive and focused strategy might be appropriate for a market at is hostile and sparse. The venture can quietly

enter the market and establish laying the groundwork for further expansion. In a particularly hostile market, this back door entry can give the firm a foothold without alarming competitors.

4. Guerrilla Tactics – A guerrilla approach calls for a non-aggressive but wider scope of entry characterized by the use of relatively low

resources used to strike where they can be most effective in establishing a position in a market.– A guerrilla approach is appropriate in a market that is munificent but hostile. The breadth of market will support a broad entry,

but the presence of major competitors calls for a less aggressive approach. It is also appropriate for exploration to determine the markets to focus on later without generating strong competitive interest or counteraction. Gerald E. Hills, ed., Marketing and Entrepreneurship (Quorum: 1994).

http://knowledge.wharton.upenn.edu/papers/195.pdf


Market Entry Strategies

Factor Blitzkrieg Cavalry Charge Strike Force Guerilla Tactics

Market ConditionsHostile + - + +Benign + + - -Munificent + + - +Sparse - - + -

Firm ResourcesAmple + + - -Restricted - + + +Critical Mass Needed to Start + + - -

DiversityGreat (poor fit) - - + NSmall (good fit) + + - N

Corporate CultureRisk Averse (non-experimental) - - + +Supports Experimentation + + + +

Market Life Cycle StageEarly - - + +Developed + + N NMature - - + +

Salience to Entry FirmHigh + + N NLow - - + +

Threat to Existing CustomersLow + + N NHigh - - + -

Proprietary ProtectionStrong + + + +Weak** - - - -

(-) means that the stategy is less appropriate, or not necessary(+) means that the stategy is appropriate or necessary(N) means that the variable does not have any major effect on the appropriateness of the strategy** Salience and resource avaialbility will override this negative if the market is munificent


Summary: Entry StrategiesPer William Bygrave,

Winning strategies include some combination of the following attributes: better, cheaper,

and faster.

– However, more often than not, your competitive advantage will be complemented by the tacit

knowledge held by the people within your company.

– The most difficult aspects of a firm’s strategy to imitate are the people and the execution of the

strategy.

Successful launches are iterative.

– Benchmark competitors and learn “best practices” from firms that operate inside and outside your

industry of interest. Create a simple matrix that identifies the firm, its margins), major cost

categories, and any other elements that you think might be useful.

– You can devise your initial market test once you have a strong understanding of the competition.

– Developing a market test schedule not only guides your learning, but helps you understand when,

how, and how much it will cost to achieve the next milestone.

– The concept of escalating market tests is powerful. While you can visualize and plan for your

business in great detail over a long period of time, you never truly learn whether it is a viable

business until you make a sale.

– The goal is to create a platform on which to grow your businessWilliam Bygrave and Andrew Zacharakis, Entrepreneurship, (John Wiley & Sons, Inc.: 2008).


Crossing the Chasm


The Chasm

Scott A. Shane, Finding Fertile Ground (FT Press: 2004)


Adoption of New TechnologiesWithout selling to the mainstream of the market, you are not going to be able to obtain sufficient

sales volume to take advantage of economies of scale in production and distribution, making

your cost structure uncompetitive in many contexts.

…a small portion of the market is technologically savvy enough to see the value of new products and

services with little information, and so adopts very quickly.

A second group of customers, called the majority, follow the innovators. This group of customers is

larger than the initial group of innovators. Why? Because more people are willing to purchase new

products and services as information about their value becomes known and their uncertainty

declines. The adoption of new technology products and services by the innovators generates

information about the value of the new products and services, making it easier for potential

customers to obtain the information that they need to make the adoption decision.

…innovators do not account for a large volume of business. As a result, you need to figure out how

to transition to the majority of the market if you want to be a successful technology entrepreneur.

Unfortunately, most entrepreneurs find it very difficult to transition from sales to innovators to

sales to the majority of the market….


Confidential – For Classroom Use Only 48

Five Factors of Innovation

1. Relative Advantage: The degree to which an innovation is

perceived as being better than the idea it supersedes. This

advantage may be economic (e.g. greater productivity, lower

price), social (e.g. offers prestige for the user), or some other

benefit. In short, if the product offers a perceived advantage

over the existing alternative (for at least some portion of the

population), it should diffuse more rapidly than if it does not.

Both perceived and actual benefits will contribute to relative

advantage.

2. Compatibility: The degree to which an innovation is

perceived as consistent with existing values and experiences

of the potential adopter. If a new product in compatible with

exiting concepts, habits, and experiences, adoption should

be faster that if it is not.

Everett Rogers, Diffusion of Innovations, 5th ed. (Free Press: 2003).

3. Complexity: The degree to which an innovation is perceived as relatively difficult to understand and use. Do

consumers “get it?” The easier an innovation is to understand and use, the faster and broader the adoption.

4. Trialability: The degree to which an innovation may be experimented with on a limited basis. Can consumers

try the product before committing to purchase? If so, adoption will be enhanced. Note that trial ability may be

more important for early adopters, as early adopters will have fewer reference customers from which to gain

product data.

5. Observability: The degree to which the results of an innovation are visible to others. For most products, the

greater the observability, the faster the rate of product adoption.

The diffusion of innovations according to Rogers. With successive groups of consumers adopting the new technology (shown in blue), its market share (yellow) will eventually reach the saturation level.


Adoption of Innovative Products

People differ greatly in their readiness to try

new products. In each product area, there are

“consumption pioneers” and early adopters.

Other individuals adopt new products much

later. People can be classified into adopter

categories. After a slow start, an increasing

number of people adopt the new product. The

number of adopters reaches a peak and then

drops off as fewer non-adopters remain.

Innovators are defined as the first 2.5 percent

of the buyers to adopt a new idea (those

beyond two standard deviations from mean

adoption time); the early adopters are the

next 13.5 percent (between one and two

standard deviations); and so forth.

Looking at adoption of high tech innovation, the focus is on

adopter categories:

innovators 2.5%

early adopters 13.5%

early majority 34%

late majority 34%

laggards 16%

Moore's key insight is that the groups adopt

innovations for different reasons. Early adopters are

technology enthusiasts looking for a radical shift,

where the early majority want a "productivity

improvement". The latter group want a whole

product, where the earlier group only needs the core

product, and has the technical competence, and

financial resources to make the rest themselves.

Gary Armstrong and Philip Kotler, Marketing (Prentice Hall: 2000).

http://en.wikipedia.org/wiki/Geoffrey_Moore


Categories of Adopters

Innovators

– Composed of technology enthusiasts, people who appreciate technology for its own sake and are motivated by the idea of being a change agent in

their reference group

– They are willing to tolerate initial glitches and problems and are willing to develop makeshift solutions to such problems

– They generally want low pricing in return for alpha and beta testing new products, and they have no money

Early Adopters

– Visionaries in their market, looking to adopt and use new technology to achieve a revolutionary breakthrough to gain dramatic competitive

advantage in their industries

– Attracted by high-risk/high-reward projects, and because they envision treat gains in competitive advantage they are not very price sensitive, but

also the first group to bring real money to the table

– They tend to demand personalized solutions and quick-response, highly qualified sales and support

Early majority

– Pragmatists, motivated by evolutionary changes to gain productivity enhancements, not revolutionary changes

– Most likely in charge of a company’s mission critical systems, averse to disruptions in the operations and thus want proven applications, reliable

service, and results

– Want to reduce risk in the adoption of the new technology and therefore will only buy with a reference from a trusted colleague who is also a

pragmatist, and thus a catch-22

– But if it happens, it happens quickly – they are the bulwark of the mainstream market and make the bulk of all technology infrastructure purchases

Late Majority

– Conservatives who are risk averse and technology shy, highly skeptical and very demanding

– Very price sensitive and need completely pre-assembled, bulletproof solutions

– Motivated to buy technology just to stay even with the competition and often rely on a single, trusted advisor

Laggards

– Technology skeptics who want only to maintain the status quo

– They tend not to believe that technology can enhance productivity and are likely to block new technology purchasesGeoffrey Moore, “Crossing the Chasm – and Beyond”, in Strategic Management of Technology and Innovation, ed. Burgelman et. al., (McGraw-Hill, 2004).


The ChasmLinked together, these five profiles makeup the Technology Adoption Life Cycle

– The market was supposed to develop by working from one profile to the next

– The problem occurred in making the transition from the visionaries (the first two profiles) to the pragmatists

– Although adjacent on the adoption life cycle, these two groups are so different in terms of underlying values as to

make communication between them almost impossible

The idea of the chasm is simple

– It says that whenever truly innovative high tech products are first brought to market, they will initially enjoy a

warm welcome in an early market made up of technology enthusiasts and visionaries but then will fall into a

chasm, during which sales will falter and often plummet

– If the products can successfully cross this chasm, they will gain acceptance within a mainstream market dominated

by pragmatists and conservatives

– For product-oriented enterprises, virtually all high tech wealth comes from this third phase of market development

The main difference between the visionaries and the pragmatists in the mainstream is that the former are

willing to bet “on the come” whereas the latter want to see solutions “in production” before they buy

– Pragmatists want to see the “whole product,” defined as the minimum set of products and services necessary to

ensure that the target customer will achieve his or her compelling reason to buyGeoffrey Moore, “Crossing the Chasm – and Beyond”, in Strategic Management of Technology and Innovation, ed. Burgelman et. al., (McGraw-Hill, 2004).


Crossing the Chasm

The chasm – the time when the early market’s interest is waning but the

mainstream market is still not comfortable with the immaturity of the solutions

available

The only safe way to cross the chasm is to put all your eggs into one basket

Target customers should be based on these criteria:

1. Is the target customer well funded and are they readily accessible to our sales force?

2. Do they have a compelling reason to buy?

3. Can we today, with the help of partners, deliver a whole product to fulfill that reason

to buy?

4. Is there no entrenched competition that could prevent us from getting a fair shot at

this business?

5. If we win this segment, can we leverage it to enter additional segments?Geoffrey Moore, “Crossing the Chasm – and Beyond”, in Strategic Management of Technology and Innovation, ed. Burgelman et. al., (McGraw-Hill, 2004).


Again, How do you Cross the Chasm?

…you will have to concentrate on a single niche of the market when you transition to

selling to the majority of the market, lest your resources be spread too thinly across

many activities.

The idea that you must concentrate on a single market niche at the time when you transition

to serving the majority of the market begs the question: which segment should you

focus on first? The answer lies in figuring out which customers have the greatest

need for your new product or service. You should target market segments that have

the greatest need when you transition to the majority of the market because the ability to

demonstrate the value of the new product or service to the customer will be greatest for

the segment of the market with the greatest need

When is a customer need for a new product or service large? Generally, if the new

product or service improves customers' productivity, cuts their costs, or allows

them to do something that they otherwise could not do.



Diffusion Patterns

The nature of the new product or service has an effect on diffusion.

1. New products or services that are based on discrete technologies—they do not depend on the

development of complementary technologies—diffuse faster than systemic technologies because

systemic technologies can only diffuse as fast as their slowest diffusing component.

2. Products and services based on more costly technologies are slower to diffuse than products or services

based on less expensive technologies because people are slower at adopting things that cost more money.

3. New products and services based on easier to understand technologies diffuse faster than those that are

based on more difficult to understand technologies

The characteristics of the target market matter.

4. Wealthier people and organizations adopt technology more readily because wealth provides a cushion

that facilitates adoption.

5. Certain types of psychological characteristics among potential adopters, such as tolerance of uncertainty,

speed diffusion because they make people more open to the idea of a new product or service.

6. The adoption of new products and services occurs faster in target markets with greater interconnection

of potential adopters because such markets have greater levels of communication between adopters and

potential adopters, which facilitates the transfer of information from existing adopters necessary for

potential adopters to make the adoption decision.Scott A. Shane, Finding Fertile Ground (FT Press: 2004)


Appendix:Determining Customer Value


Customer Value AnalysisAn integral part of market segmentation as the central criteria for selecting

profitable market segments

As developed by GE:– The goal is full retention for the customer of the usefulness and aesthetic functions

of the product while identifying and removing unnecessary cost and thus improving value without reducing quality, safety, life, reliability, dependability, and the features of attractiveness that the customer wants

The most profitable strategy for the firm to pursue is to align its resources to provide superior customer value to only those segments most attracted to that unique value– Customers will pay premium prices for superior customer value– Leveraging the firm’s existing strengths offers a cost-effective route to providing

customer value– Word-of-mouth advertising is the cheapest yet more valuable method to growing

profitable market share– Superior customer value will protect the firm from losing its most valuable assets

through customer defection


A Model of Customer Value

Product Attributes

Service Attributes

Transaction Cost

Life Cycle Cost

Risk

Expected Customer Value

Perceived Benefits

Perceived Sacrifice

Customer value is a combination of expected benefits and costs:

Transaction costs: up-front costs for the product or service

Life cycle costs: additional costs incurred by the customer over the total span of ownership of the product or service

Risk: incurred by the customer when actual costs are higher than expected costs; usually higher when the span of ownership is long


Example of Customer Value Map 1

Market Perceived Quality

Attributes

Weight

2

Us

3

Average Competitor

4

Ratio

5=3/4

Weight Times Ratio

6=2x5

Taste 30 9 8 1.125 33.75

Location 10 8 7 1.143 11.43

Service 30 5 7 0.714 21.42

Cleanliness 30 6 8 0.750 22.50

Total 100 89.10

Implications:We are weaker in quality by a margin of 0.891 : 1 than our average competitorAlthough we are slightly stronger in some categories, we are much weaker in others

Columns 3 and 4 are on a ten point scale


Example of Customer Value Map 2

Market Specific Customer Value Map – Luxury Cars

0.8 1.0 1.2

Market Perceived Quality Ratio

Rel

ativ

e P

rice

0.

8

1.0

1.2

Fair value line

Superior customer value

Inferior customer value

Acura Legend

Lexus LS400

BMW 5-Series

Lincoln Continental

Firms with positions below and to the right of the fair value line will be in the best place to increase market share at their current price level

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