The Meaning of Marketing for High-Tech Firms

customers’ needs: management was placing too much attention on the

technicalities of flying airplanes and not enough on the quality of the cus

-

tomers’ experiences.

Carlzon said, “We used to think our biggest assets were aircraft, overhaul

stations, and technical resources. But we have only one real asset, and that

is a satisfied customer prepared to come back to SAS and pay for our costs

once more. That’s why assets in our balance sheet should show the number

of satisfied customers who flew SAS during the year and not the number of

airplanes that are not worth one single cent as long as there is no second-

hand market in the world for used aircraft and nobody wants to pay for a

flight in those airplanes” [8].

His philosophy has not lost its validity and has survived other short-lived

management theories. In the high-tech sector, companies such as Cisco,

Dell, DoCoMo, Microsoft, or Nokia have been giving customers the atten

-

tion they deserve for a long time. These companies have built their own suc

-

cess on this state-of-mind marketing.

1.2 What is a high-tech product?

The term “high technology” is a catchall category that includes any product

manufactured with some type of an advanced technology, from razor blades

or athletic shoes, to sports cars, to long-range missiles. Furthermore, high

technology can also apply to many categories of services (see the box: “The

Irresistible Rise of High-Tech Services”).

The literature on this subject contributes to the continuation of certain

confusion, because it rarely gives a clear definition for high-tech products.

In any case, technology is not the only characteristic and discriminating

feature of these products. When asked about the main characteristics of

high-tech products, marketing managers are mostly concerned with some

distinctive characteristics that pertain specifically to high-tech products (see

Figure 1.3, which is based on interviews that I conducted). The three main

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What is marketing

Case: Buy Now, Pay Later. Does It Work the Same Way for

Computers and Cars?

In October 2002, IBM introduced a new financing plan called Total

Usage Financing, designed to stimulate spending for its on-demand com

-

puting services from cash-strapped businesses. The plan spread the cost

of technology purchases over several months and included a revolving

line of credit. Like a pitch from a car manufacturer, IBM announced a

“triple zero” financing package, that offered large and mid-sized busi

-

nesses zero down, zero payments, and zero interest until 2003.

Other technology companies followed suit. The same month, Micro

-

soft unveiled a new program that allowed small businesses to take out

loans to finance software purchases. It also launched a special 24-month

zero-percent financing promotion targeting customers of Microsoft’s

Business Solutions division, which sells enterprise resource planning

and customer relationship management software.

In November 2003, Hewlett-Packard introduced a program offering a

3-month deferral on any large purchase, including hardware, software,

and services.

Question 1: What are the opportunities and threats of such policies?

Question 2: In which case can supply trigger demand

The danger of these three approaches is clear. They focus on the com-

pany and forget that the sales exchange involves two parties. Without cus-

tomers to purchase products, there is no justification for production. On the

contrary, the marketing philosophy centers on the customer; it emphasizes

that the key worth of a product lies in the value that it provides to the user.

A company that concentrates too much on the physical attributes of a prod

-

uct, its logistics, or financial profit risks forgetting that the customer pur

-

chases a product only as a means to resolve or address a problem.

This customer orientation involves all the departments of a company,

because customer satisfaction on all levels, from the product design to its

(after-sale) maintenance, is the final measure of success for the company, as

well as its long-term promise of success.

Being tuned in to customers in order to satisfy them better is more than

a philosophy. It is a discipline that requires an organized and responsive

company, not to mention everyone’s involvement. All members of the

organization, from researchers to CEOs, including switchboard operators

and production workers, are involved and responsible for the quality of cus

-

tomer relations.

When the company’s organization is turned upside down, the customer

becomes the sturdy base of a long-lasting exchange relation between the

company and its customers (see Figure 1.2). This management philosophy

was made popular by Jan Carlzon, as CEO of Scandinavian Airlines (SAS) in

the beginning of the 1980s. As SAS was losing money while facing a bigger

competitor, Carlzon asserted that the company had lost its focus on

 

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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

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What is marketing

Every company that believes that customers will buy its products if they

are “good” (of good quality and with good performance) automatically has a

product orientation. This implies that customers are able to recognize the

product’s quality and that they are possibly willing to pay more if the prod

-

uct justifies it.

This viewpoint is even stronger for high-technology companies that

favor product development based on performance or state-of-the-art fea

-

tures that are often far from the customer’s needs. From supercomputers to

supersonic jetliners, some companies have conceived technological wonders

at such a high cost that their markets never materialized.

Production orientation refers to the belief that if an acceptable product is

available at a reasonable price, it will be purchased. In other words, if a suffi

-

cient quantity is produced and the logistics department distributes and sup

-

plies the product, the customers will do the rest. This philosophy, which is

usually related to an excess of demand (common in postwar Europe and

today’s developing countries), can also be found in the high-tech sector.

Actually, this infatuation with new technology can be beneficial to a

company that is capable of immediately flooding the market with large

quantities of its product(s). Such a company, however, should beware of the

day when the product no longer pleases the customers and sales suddenly

start to plunge. The production-capacity surplus—the cost of inventory and

distribution—can even kill a company. For instance, Sega had to exit the

videogame hardware business after the failure of its Genesis 32x (called

Mega Drive 32x in Europe) and then its Dreamcast consoles. Those product

were loaded with state of the art technology but were not compatible with

previous Sega models, meaning that the players could not run their existing

videogames. Furthermore, the catalog of games for these new consoles was

not very large at the time they were launched, which frustrates customers

even more. At the same time, Sega had overproduced those models expect

-

ing a big demand, just because of the novelty of the technology. Ultimately,

stuck with huge inventories, upset distributors, and significant financial loss,

Sega walked out of the market leaving more room to Sony and Microsoft.

In order to sell products to customers, other companies have adopted a

third approach, namely, the sales orientation. According to this approach,

for the customer to make a purchase, his or her interest in the product must

be stimulated through price reductions and special large-scale sales promo

-

tions, using gifts and contests or other more aggressive sales techniques such

as high-pressure selling. The objective is to sell quickly by encouraging the

customer to buy a product immediately, even if it does not correspond

exactly to his or her requirements.

This approach is usually indispensable during the start-up stage where

the “professionals-who-sell” [6] approach to customer is made directly by

the founders, or the professionals who have invented a new product or

service. This approach is effective for only a short period of time. First, it

may quickly impede growth if the sales effort is limited to a few major

executives. Second, and not only in the start-up period, it usually backfires.

As a matter of fact, by selling products that do not really meet an actual

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The Meaning of Marketing for High-Tech Firms

Distribution of Farm Product

was first published, and today that seminal work

is considered the first book on general marketing [2].

The definition of the word “marketing” can be found in its etymology.

Marketing means “putting on the market.” Therefore, the purpose of mar

-

keting is to act in such a way that a company places on the market products

that correspond to demand and satisfy the needs and wants of customers at

an acceptable return.

Marketing’s philosophy reverses the traditional perspective toward the

company, its needs, and its production capacity. Marketing considers its

main task to be “determining the needs and wants of the appropriate mar

-

kets and to profitably produce the desired product or services by being more

efficient than the competition” [3]. The following, more detailed definition

has been developed by the American Marketing Organization (AMA):

“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 goals” [4]. Marketing

focuses on making the product available at the right place, at the right time,

and at a price that is acceptable to customers [5].

Given this perspective, marketing complements or replaces short-term

views that give greater importance to the product, the manufacturing

process, or the selling method (see Table 1.1).

2

The Meaning of Marketing for High-Tech Firms

Table 1.1

From a Product Orientation to a Marketing Orientation

Orientation

Customer

Purchasing Criteria Assumptions

Objectives

Department

Involved

Product

Quality

Customers buy products

for themselves

Find “good”

products

R&D

Product

technology

Customers are able to

identify a product’s

advantages

Produce quality

products

Design

Customers are willing to

pay more if justified by

the product

Explain product

functions

Production

Production Availability and

reasonable prices

Produce sufficient

quantities

Production

Optimize logistics

and distribution

Logistics sales

Sales

Stimulation of

interest

Customers only purchase

what is needed

Customers can be

encouraged to buy more

due to sales techniques

Increase product and

company awareness

Encourage product

purchase

Sales

Marketing

Marketing

Response to needs

and motivations

Customer point of view is

of utmost importance in

long-term sales exchange

Know customer

need’s

Marketing

Customer interest in a

product depends on the

product’s ability to solve a

problem or satisfy a

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The Meaning of Marketing for High-Tech Firms

It is clear that successful marketing strategies have been funda

-

mental for all the high-technology firms that have managed to

survive the technology crash of 2001 and even to thrive after

it.

However, the words “marketing for high-tech firms” often

hide confusion. First, consider the term “marketing.” Regis

Mac-Kenna, a leading marketing specialist who works with

numerous high-tech companies, claims that “Marketing is

everyone’s job, marketing is everything, and everything is

marketing” [1]. This overall view of marketing does not sim-

plify the task of managers who feel the need (some strongly,

others vaguely) to develop an efficient marketing policy.

Second, the label “high tech” or “high technology” refers to

technology that stretches from stoves to nuclear power plants

and from razor blades to satellites. This label has been used

both appropriately and inappropriately and sometimes is noth

-

ing more than an empty phrase.

For the sake of clarity, first we recall the meaning of the

term “marketing” and review its objectives before defining a

high-technology product. We then explore the differences

between the marketing of advanced technology products and

that of traditional products.

1.1 What is marketing?

The practice of marketing is quite ancient. Greek philosophers

such as Plato and Aristotle, medieval church fathers such as St.

Thomas or Martin Luther, and later classical economists such

as Adam Smith and David Ricardo have reflected on marketing

behavior. However, the formal concept of marketing emerged

only 100 years ago at the beginning of the twentieth century.

Indeed, in 1901 the

Report of the Industrial Commission on the

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Acknowledgments

This book is dedicated to all the marketing managers at high-tech companies

who agreed to share with me their professional experiences. I would like to

thank the employees at the following companies for their cooperation:

◗

Accenture

◗

Amadeus

◗

Atos Origin

◗

Bain and Company

◗

BASF France

◗

Boston Consulting Group

◗

Cap Gemini Ernst & Young

◗

Cisco

◗

Conexant

◗

Dassault Systemes

◗

Dell Computer

◗

EDS

◗

Ericsson

◗

France Telecom

◗

Hewlett Packard

◗

IBM

◗

Lucent Technologies

◗

McKinsey

◗

Microsoft

◗

Motorola

◗

Nortel Networks

◗

Oracle

◗

Orange

Philips Semiconductors

◗

Samsung

◗

SAP

◗

Sony

◗

Texas Instruments

◗

Thales

◗

Vodafone

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blinded by the mirage of technological innovation

blinded by the mirage of technological innovation, it is easier to continue

manufacturing a technical masterpiece, even on the brink of bankruptcy.

Moreover, marketing managers of successful high-technology compa

-

nies stress that there is not a large difference between marketing traditional

products and high-tech products. They contend that the customer philoso

-

phy remains the same and that only the specific features of a high-tech

product shape how the company markets it, and give it a distinctive twist.

Such a statement is backed up by their ability to overcome the economic

collapse of the recent years.

While the sky had fallen on the high-tech industry, smart marketing

strategies helped them grow and prosper among the rubble. This book

details some of their approaches, based on my consulting experiences with

some of those firms, as well as on comments and documents from numer

-

ous scholars, consultants, and professionals. This book is addressed to all

who wish to understand, set up, or better apply marketing principles in

order to succeed in this fascinating and exciting world of high technology.

References

[1] Murphy, M.,

Every Investor’s Guide to High-Tech Stocks and Mutual Funds

, 3rd ed.,

New York: Broadway Books, 2000.

[2] http://newsroom.cisco.com/dlls/innovators/mario_mazzola_qa.html,

November 2003.

[3] Dell’Osso, F., “Defending a Dominant Position in a Technology Led

Environment,”

Business Strategy Review

, Vol. 1, Issue 2, 1990, pp. 77–87.

[4] Chesbrough, H. W.,

Open Innovation: The New Imperative for Creating and Profiting

from Technology

, Boston, MA: Harvard Business School Press, 2003.

[5] Nevers, M., G. Summe, and B. Uttel, “Commercializing Technology: What the

Best Companies Do,”

Harvard Business Review

, Vol. 68, Issue 3, May/June 1990,

pp. 154–164.

[6] Pandya, M., et al.,

Knowledge@Wharton on Building Corporate Value

, New York:

John Wiley & Sons, 2003.

[7] Temporal, P., and K. C. Lee,

Hi-Tech Hi-Touch Branding

, New York: John Wiley &

Sons, 2001.

[8] Hamel, G., and L. Välikangas, “The Quest for Resilience,”

Harvard Business Review

,

Vol. 81, Issue 9, September 2003, pp. 52–64.

[9] IBM Annual report, 2002.

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The pressure to keep on being successful is only increasing

The pressure to keep on being successful is only increasing. In 1993, for

example, the typical company in the high-tech top 100 (as measured by

market value) of the

Financial Times

stayed there for 7 years; by the end of

the decade, the average tenure had dropped to 3 years. A similar turnover in

market leadership continues today.

Successful high-technology companies do share some key factors of

success [5]. They tend to market two or three times as many new prod

-

ucts as their competitors, and incorporate two to three times more techni

-

cal innovations into each new product bringing actual value to their

customers. Also, they introduce their products to the market two times

faster than their competitors thanks to operational excellence [6], one of the

main weaknesses of so many dot-coms that underestimated the importance

of manufacturing and logistics. This helps them to adapt their business

model quickly whenever there is a significant change in the environment.

In addition, the geographical size of their markets is double that of their

competitors. They have also created and leveraged great brands, which are

reflected in everything the company does, especially those that impact the

consumer [7].

Overall, these companies make marketing their main objective. They

know their customers intimately and track their demand in real time. Their

main concern is the market and not the product; this is the key to their suc-

cess. All research and development activities, manufacturing, sales, and

after-sales services aim to satisfy customers better and faster. Their other

common characteristic is that they aim for profit. They invest wisely even

when they spend money on marketing-oriented programs. They do not

fund their customers in order to boost their sales, for instance, and always

make sure that any major marketing program will have a positive impact on

the bottom line. By keeping budgets tight and controlling cash, they never

face bankruptcy.

Marketing plays a fundamental role in this process. Actually, its goal is to

determine the needs of the market and to assure that the products manufac

-

tured by the company correspond precisely to these needs with a competi

-

tive advantage and at a profit.

This is probably the ultimate key to success and resilience [8] as testified

by IBM, one of the oldest high-tech firms on the market. Pondering the abil

-

ity of IBM to reinvent itself over and over again, its current CEO Samuel

Palmisano reflects that “we never defined ourselves as a clock and scale

company, or a mainframe company, or a typewriter maker, even when we

were the undisputed leader in those markets. We simply committed our

-

selves to being the leader in inventing state-of-the-art technology and help

-

ing customers apply it to solve their problems. When technology and the

nature of customer problems change, we do, too” [9].

Some claim that high-technology products are so specific that the classic

rules of marketing used for selling detergents or yogurt cannot be applied. In

reality, this argument is often used to justify the absence of actual strategies

oriented toward markets and customer needs. For certain companies

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