technological solutions. The first uses of biotechnology were beer making,
wine making, cheese creation, and bread production. Today biotechnology
is used to create antibiotics, insulin, and interferon. Biotechnology is widely
used to manufacture simple chemical compounds, such as lysine and gluta
-
mate, or more complex compounds, such as antibiotics (microbiologists
have discovered more than 5,000 substances with antibiotic activities),
enzymes, vitamins, or hormones. Biotechnology is also becoming a big part
of the agriculture industry, inasmuch as it is used to engineer new catego
-
ries of agrochemicals or seeds.
Biotechnology has recently materialized as an exceptionally important
part of the world economy, though it was close to nothing as a technology
10 years ago. In 2001, 179,000 people were employed in 1,379 biotechnolo
-
gies companies, which were investing $15.7 billion on R&D. There are fewer
companies in Europe, about 800 (mostly in the United Kingdom, Germany,
and France), which were spending $1.33 billion on R&D in 1999, according
to an Ernst and Young survey. In 2001, a report by the U.K. government
estimated the size of the biotechnology market at £30 billion (i.e., $51 bil
-
lion). In America alone, the biotechnology industry has more than tripled in
size since 1992, with revenues increasing from $8 billion in 1992 to $27.6
billion in 2001 [33].
18
The Meaning of Marketing for High-Tech Firms
0
Pharmaceuticals
Electronics
Electrical equipment
Aerospace
Telecom services
Food
Media/communication
Telecom equipment
Computer
Automotive
Utilities
Consumer goods
Oil
4
2
68
12
10
14
Figure 1.8
Percentage of turnover spent on R&D by industry. (
Source:
LIR, 2003.)
Telecom equipment and information technologies (IT—including hard
-
ware, software, and services) certainly are the most visible of all high-tech
industries. IT spending was estimated at $436 billion in the United States
and at $161 billion in Asia, while total worldwide IT spending was estimated
at about $981 billion in 2002 [34]. The global telecommunication market is
about the same size as the global IT market.
These figures reflect the growing demand for more abundant, more
flexible, and more adaptable communication and information. Many com
-
panies use large or small interconnected computers running computer-
aided design (CAD) software, artificial intelligence (AI) applications, and
relational databases (RDBs). Many of these computers are connected to net
-
works that will eventually communicate with robots, programmable tools,
and sophisticated measuring instruments. At the same time, successive tech
-
nological revolutions have led to constant improvements in the price-
performance ratio.
Increasingly, technology is moving beyond the business arena and has
reached consumer markets, which is causing significant changes in the mar
-
keting strategy of many IT firms, as we will see later on. Today the general
public owns technology products as diverse as personal computers, laser
disks, cable television, and portable telephones.
The electrical equipment industry consists of firms mainly engaged in
manufacturing electric motors, generators, electricity transmission or distri-
bution equipment, switchgear, transformers or other electrical machinery,
equipment, supplies or components. With the growing use of intelligent sys-
tems such as Programmable Logic Controllers (PLCs) and Industrial Control
and Automation Systems, the industry uses a great deal of technology. Key
companies include ABB, Siemens, Schneider, Mitsubishi Electric, Hitachi,
General Electric, Legrand, Toshiba, Alstom, Eaton, and Cooper Industries.
The global electric power equipment industry generated $62 billion in reve
-
nues in 2002.
More and more the automotive industry is moving in the high-tech
arena, as reflected by the relative and absolute value of its investment in
R&D. Today’s automobiles are being referred to as “smart cars.” With one or
more on-board computers on current model vehicles, automobiles, SUVs,
trucks, and vans have become very sophisticated pieces of equipment. Elec
-
tronic devices now control 85% of all vehicle functions including fuel man
-
agement, ignition, electric shift transmissions, ABS brakes, and climate
control, to mention a few. According to one manager of STMicroelectronics,
a leading European semiconductor manufacturer, the VW Golf contained
about $70 of semiconductors in the mid-1990s while by 2003, it had more
than $220, three times more, and tomorrow, steering and braking will be
fully electronic, using techniques pioneered in fly-by-wire aircraft cockpits.
Furthermore, with the development of more environmentally friendly cars,
all the major carmakers have embarked on developing new technologies,
such as fuel cells like those used in the orbiting space station.
The estimated output for the aerospace industry in 2001 was about $142
billion in the United States, employing about 500,000 people. Besides the
1.2 What is a high-tech product?
19
traditional business of military and civil airplanes, recent industry develop
-
ments of late within the United States have been the International Space
Station, new generations of rockets such as the Evolved Expendable Launch
Vehicle in the United States and Ariane 5 in Europe, and various communi
-
cations, environmental, and military observation satellites.
In utilities, we must give special consideration to the nuclear industry
and the solar industry, which are investing heavily in technology. Now
mostly a maturing sector with no more development of nuclear power
plants, the nuclear industry works on recycling and nuclear reprocessing, as
well as the treatment of uranium. Closer to the final consumer, the first
equipment using solar energy (for heating and road signals) has slowly
started to appear. It is estimated than the size of the energy market is from
$3 to $5 trillion annually. According to the World Energy Council, in 2003
solar sources provided around 10% of the energy used worldwide, while
nuclear power was supplying 16% of the world’s total electricity.
1.2.5 Market specificity
A certain number of marketing managers also indicate that when dealing
with an advanced technology product, specific markets should be
approached first, particularly, markets that consider performance to be the
most important criterion when purchasing a product. This is valid for sev-
eral industries from aeronautics to defense; they are always looking for
innovations to improve performance or spur the development of new fea-
tures. Furthermore, this massive transfer of technology has fueled a specific
market for licensing out patents whose value was estimated at $170 billion
in 2003. Recently these industries have increased their valuation of R&D,
mostly by licensing technology. IBM’s licensing program generates more
than $1 billion a year, and other companies are trying to extract more value
from their R&D efforts [35]. A key success factor on this market is to use
marketing strategy actively to leverage their intellectual properties and pat
-
ents, as we will see later on.
What is true in business markets is also valid for consumer markets.
Some categories of customers are only interested in innovation and in
increased performance for calculations, communication, or sound, what
-
ever the price (see Chapter 3). As we will see later, however, these specific
markets only represent part of the potential target market.
1.2.6 Product diversity in high technology
Finally, some of the managers we interviewed underlined that all high-tech
products are not identical by nature. First, components should be distin
-
guished from systems. Components are just raw materials that contribute to
the building of other products. This is the case with components that are
integrated in washing machines, automobile engines, and children’s toys.
Systems are finished products in which the technology is clearly obvious
and that are sold directly to the final user. Examples include robots and AI
programs.
20
The Meaning of Marketing for High-Tech Firms
current technology available will become obsolete quickly; all are always
postponing their decision.
Let’s take the example of genetically modified products. It certainly looks
great from the producers’ viewpoint, in terms of greater pest resistance and
bigger yields. However, a lot of consumers are anxious to purchase products
that seem no longer natural, but completely artificial. Because genetics is a
very complex science, very few will read about DNA splicing before shop
-
ping at the supermarket. They are going to wait for the next generation that
may provide the consumer with a solid benefit, but the next generation of
products will never happen if the current generation is stopped. Ultimately,
it comes down to marketing to explain this new technology, so that the peo
-
ple can make an educated choice [40].
What is true for consumers is also true for organizations. Many manag
-
ers fret about innovative solutions and use various strategies to reduce risks
in purchasing high-technology products. They try to assess the balance
on the risk/return relationship of such investment much more than
24
The Meaning of Marketing for High-Tech Firms
10 0
20
40
60
80
100 %
Don’t
kn
o
w
of responses
Yes
No
Figure 1.9
Tabulation of responses to the question: Do you believe that your
objectives are different from those of a marketing manager for more standard,
traditional products?
Tendency to worry customers
Cooperation with R&D
Change in market conditions
Efficient time management
Figure 1.10
The four distinctive characteristics of high-tech products.
considering the novelty of a technology [41]. The role of marketing is to
educate consumers to innovation, to make them more comfortable with
technology and to help them to figure out precisely the return on their
investment.
Second, the short product life cycle requires efficient time management
(development of schedules, marketing time limits). Today, the average life
cycle of a personal computer, a mobile phone, and many consumer elec
-
tronics, is under 1 year while the number of models or SKUs (short for Stock
Keeping Unit) is increasing dramatically. In a way the consumer high-tech
business is similar to the fashion business, where more than 90% of SKUs
change every 6 months [42]. Consequently operational excellence and agil
-
ity becomes a priority, not only in development and manufacturing, but also
in marketing. Missing a sale means dropping a contribution margin from
25% to 30% of the producer’s sale price in the mobile phones industry. In
the mid-1990s Apple underestimated demand for two of its best-selling
products; by the time it could gear up supply, it had lost around $300 mil
-
lion in potential sales. Worse still, the market for these products had disap
-
peared. Apple learned the lesson and today it can now make and deliver a
computer ordered on-line within 3 days.
More recently, in 2001, the European telecommunications operator
Orange seriously underestimated demand for “Charlie’s Angels” Nokia’s
handsets. The phone, modelled in the film
Charlie’s Angels
, had huge sales
before Christmas, leaving stock warehouses empty. Supplies of Nokia’s 8210
were severely depleted and the delay cost Orange a fortune in customers
(and dealers) goodwill. Orange certainly did lose customers and credibility
because of this shortage.
Industrial products also have a short-term life cycle. In application soft-
ware, the life-cycle duration is at most 2 years. Similarly, in the firewall
market, a new product can become obsolete in as little as 12 months, and
that makes time to market a critical issue for any firewall vendor, such as
Cisco Systems, Nokia, IBM, and others.
Third, product innovation requires direct cooperation between research
and development and other services. Numerous studies by academics and
practitioners have explored the R&D-marketing interface and its role in the
new product development (NPD) process. Their main conclusion is that the
integration of R&D and marketing have a significant impact on the success
or failure of NPD projects, both at the project and the company levels [43].
But this close collaboration is not limited to the development of new prod
-
ucts. It is also of primary importance in all the different stages of product
management, from the launch to its exit from the market, as well as in the
management of the different components of operational marketing. Actu
-
ally, some academics [44] and practitioners believe that the most important
driver of a high-tech firm’s performance is the interaction of marketing and
R&D capabilities.
Finally, sometimes technology will drastically change the conditions of a
market by creating an exceptional attraction for a product. For instance,
consider broadband technology. Consulting firm McKinsey estimates that
1.3 What is high-tech marketing?
25
on a worldwide basis in 2003, more than 40 million households and busi
-
nesses had subscribed to broadband, and more than 100 million people
around the world had access to it. In the United States, at the current pace
of growth, broadband will achieve 25% penetration within 6 years of its
commercial launch. PCs reached this level in 15 years, mobile telephones in
13 years, and the World Wide Web in 7 years [45], but this is nothing com
-
pared to radio or television. According to Bob Coen, a senior VP at the
advertising agency McCann-Erickson, in 1925, only one in 10 households
had a radio, but by 1930 more than 45% of households were tuning in. In
1950, slightly fewer than 10% of U.S. households had a TV, but scarcely 5
years later that number jumped to 65%.
Interestingly, one has to notice, that the marketing of high tech products
crosses the boundaries of B2B and B2C. Some people tend to believe that
the marketing of technology is essentially important for market organiza
-
tions. The truth is that technology is penetrating the consumer markets
extremely rapidly, as well, mostly through the adoption of information
technologies, such as the personal computer, the cellular phone, and the
Internet. This is also apparent in the strategic moves of the largest high-tech
firms. Companies such as HP, IBM, Microsoft, and Nokia are marketing
solutions both for business customers and consumers. Some B2B companies
have managed to enter the consumer market very successfully, like HP with
its digital cameras or Samsung, which is today the second leading producer
of cell phone handset. Other firms have come from the other side of the
technology bridge, like Microsoft or more recently Dell Computer, which
have made substantial inroads into the professional markets.
Finally, it appears that traditional marketing concepts and tools should
be adapted to the specific requirements imposed by high-tech products. This
adaptation also applies to marketing strategy (Chapters 2 to 6), its applica
-
tion (Chapters 7 to 10), and the organization of the marketing department
(Chapter 11).
1.4 Summary
The purpose of marketing is to act in such a way that a company puts prod
-
ucts on the market that correspond to demand, that is, satisfy the needs and
wants of its customers with a significant and sustainable competitive advan
-
tage and at a profit. This approach complements and replaces short-term
approaches that favor the product, the manufacturing method, or the sales
method. By relying on long-term customer satisfaction and by allowing the
company to organize itself so that it can respond to this long-term satisfac
-
tion, marketing contributes to the company’s success and its longevity.
Marketing managers in high-tech companies confirm that marketing
plays this role and emphasize that their objectives are not different from
those of their colleagues who work with less technologically sophisticated
products in both mass consumption and in industrial goods and services.
The differences appear mainly in the operational management of marketing
26
The Meaning of Marketing for High-Tech Firms
and, in addition, in risk evaluation due to the specific characteristics of
high-tech products.
These products—which may be either goods or services—are character
-
ized by the incorporation of a sophisticated technology, a high rate of devel
-
opment and improvement (i.e., a short life cycle), as well as a high
innovation value for the market. For these reasons, high-tech products
require large investments in research and development, and are often
intended for specific markets. These products belong mostly to six industries:
biology, telecom equipment and information, electrical equipment, automo
-
tive, aerospace, and energy. Products should also be differentiated as simple
components or complex systems and according to their degree of standardi
-
zation or customization. One last characteristic of high technology to notice
is the strong influence of the public sector, either directly, through govern
-
mental research programs, or indirectly, through the military budgets.
In any case, the technological dimension is only an addition (to its
value); a high-tech product is above all—depending on the case—a con
-
sumer good, an industrial product, or a service. However, the marketing
strategy has to take into account the four distinctive characteristics of high-
tech products, namely, a tendency to worry many customers, the need for
efficient time management, the direct cooperation with the R&D depart-
ment, and the ever-changing conditions of the markets.
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