The Meaning of Marketing for High-Tech Firms

need, a company risks sacrificing its credibility. The product quickly disap

-

pears to a shelf, and the disappointed customer promises never to be taken

again. This approach is even worse for services, because if a service is over

-

sold in the first place, it will never be used again.

Finally a “sale approach” may jeopardize the bottom line by flooding the

market with too many products at a time. In some cases the situation may

even get worse when “sales oriented” companies overfinance some custom

-

ers in order to facilitate the sales.

Such was the case during the boom of the telecom market when compa

-

nies like Lucent and Nortel Networks expanded their vendor financing at

nearly triple-digit compound annual growth rates (see Figure 1.1). In 2000,

the books of the nine global telecom giants were loaded with about $26 bil

-

lion worth of loans: Alcatel, Cisco, Ericsson, Lucent, Motorola, Nokia,

Nortel, Qualcomm, and Siemens. About one-third of this credit has gone to

telecom and dot-com start-ups, many of them now bankrupted. Conse

-

quently, the high rates of default had a substantial impact on the vendors’

financial performance, most notably Lucent and Nortel [7].

Not only did most companies manage to recover only a small share of

the original loan when debts went bad, but recovering the unpaid-for

equipment hardly made up for the losses, since its value had considerably

depreciated in the meantime. For instance, in 2001 a Cisco 7500 Series

router, sold originally for $150,000 new and for $11,000 after being refur-

bished could be bought on the second-hand market for less than $2,000.

Furthermore, as one would expect, the flood of used equipment on the

market depresses sales of new equipment and drives the price down more

substantially.

4

The Meaning of Marketing for High-Tech Firms

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1

99

7

Lucent

Nortel

$ million

1998

1999

2000

Cagr = 1.50

Cagr = 1.58

Figure 1.1

Vendors credits given out by some telecommunication hardware

suppliers during the Internet boom. (

After:

[7] and analysis compiled by Eric Viardot