Bus692r Session Three

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Bus692r - Session Three

• Customers Perspective on New Technology

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Agenda

• Administrative Issues - Poster Session for
  E-Commerce
• Customer Perspective Issues
• Guest Speaker - Gerry Remers
• Discussion Summary
• Next Day

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Critical Issues in Understanding High-Tech
Customers
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Questions For Discussion

• Market orientation - help or hinder?
• Market research techniques - new methods.
• Model of customer adoption?
• Your adoption experience - hurdles breakthroughs

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Textbook Chapters - Key Elements

• Marketing-RD Relationships - Market Orientation
• Market Research Methods - e.g., lead users,
  empathetic, delphi techniques, virtual reality -
  information acceleration, backcasting
• Customer Adoption Cycles - targeting, chasm,
  tornado, upgrades migration

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Aspects of a Market Orientation
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How market-oriented firms use information

• Gather information
• Current and future customers
• Competitive information
• Market trends
• Disseminate information
• Across functions and divisions
• Utilize information
• Across functions and divisions to enhance
  commitment
• Execute decisions in coordinated fashion

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Barriers to Being Market-Oriented

• People hoard information
• Core rigidities can cause people to disparage
  information about/from users
• Tyranny of the served market
• Listening only to current customers
• Users inability to envision new solutions
• Solving problems only with current technologies

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Downside to Being Market-Oriented

• Listening to customers can inhibit innovativeness
• Customers may be inaccurate both in their
  positive endorsement of new products as well as
  in their rejection of new ideas.

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Nature of Marketing/RD Interaction Matched to
Type of Innovation

• Break-through innovations
• Success based on technological (RD) prowess
• Role of marketing To provide market-related
  feedback on
• market opportunity areas,
• market development,
• feedback on product features/engineering
  feasibility

Marketing brings voice of customer and
marketplace into the development process
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Nature of Marketing/RD Interaction Matched to
Type of Innovation (Cont.)

• Incremental Innovations
• Because customers can provide useful feedback for
  product development, role of marketing is
  critical
• Role of RD
• Ensure marketing understands technological
  capabilities
• Assist with marketing efforts
• Assist with understanding customers

RD remains close to the customer
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Barriers to RD/Marketing Interaction

• Corporate culture/core rigidity that is
  technology-driven
• Elevates status of engineering over marketing
  personnel
• Engineering takes on important marketing tasks
• Spatial distance in physical locations of
  marketing and RD

Justifies and institutionalizes disregard for
market-related information/feedback
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High-Tech Marketing Research

• Align marketing research tools with type of
  innovation
• Incremental innovation
• Rely on traditional marketing research tools
• Focus groups, surveys, conjoint analysis, etc.
• Breakthrough products
• Market intuition, future scenarios
• Mid-range
• Empathic design, lead users

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Aligning Market Research with the Type of
Innovation
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Empathic Design

• Because users may be unable to articulate their
  needs, this technique focuses on observations of
  customer behavior to develop a deep understanding
  the users environment.
• Types of insights
• Triggers of Use
• Unarticulated user needs/coping strategies
• New useage situations
• Customization
• Intangible Attributes

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5 Steps in Empathic Design

• 1. Observation
• Who should be observed?
• Who should do the observing?
• What behavior should be observed?
• 2. Capture the Data
• Less focus on words/text more on visual,
  auditory, and other sensory cues
• Via photos, etc.

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5 Steps in Empathic Design (Cont.)

• 3. Reflection and Analysis
• Identify all customers possible problems and
  solutions
• 4. Brainstorm for Solutions
• Transform observations into ideas
• 5. Develop prototypes of solutions
• Tangible representation or role play/simulation
  of ideas

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Use of Empathic Design At Intel

• Success rate based on engineers idea only 20
• Example video phone
• Team of 8 design ethnographers to find how
  technology can help solve user problems
• Salmon industry
• Business owners
• Teenagers

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Lead Users

• Some customers face needs before a majority of
  the market place
• Their needs may be more extreme than typical
  customers
• Ex auto racers and militarys needs for better
  brakes
• They stand to benefit by obtaining solutions to
  their needs sooner rather than later
• They tend to innovate their own solutions to
  their needs (see Table 5-1)

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Lead Users
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Lead Users in Market Research

• The lead user process can create breakthrough
  products by systematically identifying lead users
  and learning from them.

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Steps in Lead User Research

• 1. Identify important trend
• Via standard environmental scanning
• 3M identified trend of detecting small features
  via medical imaging, which required
  higher-quality high-resolution images

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Steps in Lead User Research

• 2. Identify and question lead users
• Personal contacts with customers, surveys,
  networking with experts, empathic design
• Respect possible sensitivity of information
• Ex
• 3M identified radiologists working on most
  challenging medical problems, who had developed
  imaging innovations to meet their needs
• Networking to other fields in pattern recognition
  (the military) and semiconductors

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Steps in Lead User Research

• 3. Develop the breakthrough product(s)
• Host a workshop for experts and lead users to
  brainstorm
• Ex medical imaging, experts in high-resolution
  imaging, and pattern recognition developed ideas
• 4. Assess how well lead user data and
  experiences apply to more typical users
• Gather market research from typical users

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Benefits of the Lead User Process

• New insights from gathering and using information
  in new ways
• Cross-functional in nature
• Collaboration with innovative customers
• Requires corporate support, skilled teams, time.

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Quality Function Deployment

• What A tool that provides a bridge between the
  voice of the customer and product design
• Purpose Ensure tight correlation between
  customer needs and product specifications.
• Requirement Close collaboration between
  marketing, engineers, and customers

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QFD Process

• Collect the voice of the customer
• Identify customer needs regarding desired product
  benefits via customer visits or empathic design
• Weight or prioritize desired benefits/attributes
• Collect customer perceptions of competitive
  products
• Transform data into design requirements
• Customer requirements deployment identify
  product attributes that will meet customer needs
• House of quality a planning approach that
  links customer requirements, design parameters
  and competitive data.

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QFDUsing the Kano Concept
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QFD3 Types of Attributes

• 1. One-dimensional quality
• Increases in level of attribute linearly related
  to customer satisfaction
• Typically known attributes identified by
  customer
• EX battery life in lap tops

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QFD3 Types of Attributes (Cont.)

• 2. Must-be quality
• Increases in level of attribute has negligible
  effect on customer satisfaction
• However, decreases in attribute has strong
  negative effect on customer satisfaction
• Because they are so basic to product
  functionality, they are typically unspoken
  attributes customer expects product to deliver
  these
• EX ability of laptop to handle bumps and rough
  handling

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QFD3 Types of Attributes (Cont.)

• Attractive Quality
• Increases in level of attribute associated with
  exponential increase in customer satisfaction
• But, because attribute is one that delights the
  customer, its absence does not necessarily lead
  to dissatisfaction
• Typically unknown to customer at conscious level
• Ex decompressable/expandable laptop

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QFD Summary

• Firmly grounds product design in customer needs
• Allows product development team to develop common
  understanding of design issues and trade-offs
• Reveals friction points and enhances
  collaboration

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QFD and Total Quality Management

• TQM grounded in customer knowledge and ability to
  deliver customer value, which is enhanced by
• Customer excellence
• Cycle-time excellence
• Cost excellence
• Cultural excellence

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Competitive Intelligence

• What Information about competitors
• Why Provides information for better decision
  making and improved strategies
• An early warning system

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Effective Competitive Intelligence Programs

• Affect decisions of top managers
• Are proactive in reading the market
• Look beyond existing market boundaries
• Utilize the Web
• Gauge potential for misleading signals

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Forecasting Customer Demand for High-Tech
Innovations

• Who the hell wants to hear actors talk?
• Harry M. Warner (1927) reacting to addition of
  audio technology to silent movies
• Television wont be able to hold on to any
  market it captures after the first six months.
  People will soon get tired of staring at a
  plywood box every night.
• Darryl Zanuck, 20th Century Fox Films, 1946 
• There is little reason for any individual to
  have a computer in their home.
• Ken Olsen, president and founder of the DEC
  Corporation,1977

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Qualitative Forecasting Tools

• Delphi method
• Rely on a panel of experts
• Analogous data
• Rely on similar products
• Information Acceleration
• Use virtual prototypes to obtain customer
  feedback

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High-Tech Forecasting Hazards

• Lack of historical data
• Difficult for customers to articulate preferences
  
• Inflated projects from over-enthusiasm
• Competition from incumbent technologies
• Dont confuse confidence in the forecast with
  quality of the information

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Customer Related Issues

• Customer Purchase Decisions
• Factors Affecting Technology Adoption
• Categories of Adopters
• The Chasm
• Choosing A Customer Target
• Market Segmentation Process
• Customer Strategies to Avoid Obsolescence
• Migration/Upgrade Decisions

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Differences Developer Adopter Perspectives

• Enthusiasm skepticism
• Innovator risk avoider
• New/change same/inertia
• Features costs
• Saviour - devil

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Factors Affecting Rate of Adoption

• Relative advantage
• Compatibility - learning
• Infrastructure requirements
• Complexity
• Communication ease
• Observable benefits

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Adoption and Diffusion of Innovation Factors
Affecting Rate of Adoption

• Relative Advantage
• Benefits of adopting the new technology compared
  to the costs
• Implication Marketers must understand customer
  perceptions of benefits vs. costs
• Compatibility
• Similarity to existing ways of doing things
• Compatability with cultural norms
• Implication Marketers must educate customers if
  compatibility is low

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Factors Affecting Rate of Adoption (Cont.)

• Complexity
• Difficulty of use of new product
• Implication Try to simplify use offer training
  and education
• Ability to communicate product benefits
• Ease and clarity of communicating benefits to
  prospective customers
• Implication Talk in terms customers understand
  and that meaningfully convey the compelling
  reason to own the new technology

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Factors Affecting Rate of Adoption (Cont.)

• Observability
• Customers ability to assess benefits
• Ability of others to observe customers benefits
  obtained from using new product
• Implication If benefits are elusive to both the
  users and their friends, rate of adoption will be
  slow.

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Final Thoughts on Adoption

• These five factors are crucial hurdles to
  overcome in effective marketing.
• Marketers must provide compelling reasons for
  adoption, and overcome customers fear,
  uncertainty, and doubt.
• Traditional marketing methods (which assumes
  customers understand the usefulness of the
  products and know how to evaluate them) are often
  insufficient.
• Often, must focus more on educating potential
  users about benefits and how to use new product

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Final Thoughts on Adoption

• Involve customers in evaluating new product ideas
• Dont base assessment on inventors familiarity
  with, and enthusiasm for, technology.
• Understand who is likely to be an early adopter,
  and how they differ from the mainstream market.

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Categories of Adopters
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Technology Market Model
Main Street
Tornado
Paging in 98
Wireless email in 98
Bowling Alley
Chasm
Typical Customer
Innovators
Late Majority
Laggards
Early Adopters
Early Majority
Source Geoffrey Moore, Crossing the Chasm
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Innovators Technology Enthusiasts

• Appreciate technology for its own sake
• Motivated by idea of being a change agent
• Will tolerate initial glitches
• Will develop make-shift solutions
• Willing to alpha/beta test and work with
  technical personnel
• Provide early revenue for marketersbut not a
  large group
• Importance They are the gatekeeper to the next
  group of adopters

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Early Adopters Visionaries

• Want to revolutionize competitive rules in their
  industry
• Attracted by high-risk/high-reward projects
• Not necessarily very price sensitive
• Demand customized solutions and intensive tech
  support
• Will supply missing elements of total solution
• Product Form Competition Between categories of
  solutions
• Early adopters communicate horizontally (across
  industry boundaries)

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Early Majority Pragmatists

• Comfortable with only evolutionary changes in
  business practices, in order to gain productivity
  enhancements
• Averse to disruptions in their operations
• Want proven applications, reliable service
• Buy only with a reference from trusted colleague
  in same industry

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Pragmatists (Cont.)

• This groups is the bulwark of the mainstream
  market
• They want to move together (herd mentality)
• They want to pick the same technology solution
  (avoid risk)
• Once they make a decision, they want to implement
  it quickly.
• Requires industry standards

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Late Majority Conservatives

• Risk averse, technology shy
• Very price sensitive
• Require completely pre-assembled, bullet-proof
  solutions
• Motivated only by need to keep up with
  competitors in their industry
• Rely on single, trusted advisor

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Laggards Skeptics

• Want to maintain status quo
• Technology is a hindrance to operations
• Luddites
• Buy only if all other alternatives worse

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Target Innovators or the Early Majority?

• Target the majority when
• Word of mouth effects are low
• Consumer products industries (vs. b-to-b)
• Low ratio of innovators to majority users
• Profit margins decline slowly with time
• Long time period for market acceptance

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What is the Chasm?

• Gap between early market and mainstream market
• Visionaries vs. Pragmatists
• Visionary market is saturated, but mainstream not
  yet ready to buy.
• Marketing that was successful with visionaries
  simply is not effective with pragmatists

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Visionaries vs. Pragmatists

• Pragmatists
• Prudent stay within zone of reasonable, and
  within budget
• Make slow, steady progress
• Think visionaries are dangerous

• Visionaries
• Adventurous
• Think/spend big
• Want to be first in implementing new ideas in
  their industries
• Think pragmatists are pedestrian

These two groups want no part of each other!
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Early Market Strategies Marketing to Visionaries

• High level of customized tech support given to
  visionaries pulls firm in too many
  directions--costly
• Yet, its a catch-22, because this is the initial
  source of revenue
• Products sometimes released too early
• Vendor goal Establish reputation
• Exciting time!
• Engineering drives, brilliance is rewarded.
• Focus on developing the best possible solution

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The Chasm

• Firm takes on more visionaries than it can
  handle.
• Cannot take on more custom projects, but no
  pragmatists ready to buy.
• Early market becomes saturated, and revenue
  growth tapers off or declines
• Key personnel become disillusioned
• VC well begins to runs dry
• Marketing strategies that lead to success in
  selling to visionaries actually hinder success in
  selling to pragmatists

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Goal Minimize time in the Chasm

• Look to the new strategies necessary to reach the
  mainstream market
• Pick a single target market with specific
  application
• RD must
• build interfaces to legacy systems
• work with partners
• ride the line between service and engineering

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Marketing to Pragmatists

• Vendor must assume total responsibility for
  complete, end-to-end solution (whole product)
• Hardware, software, connectivity, training,
  support, etc.
• Requires significant work with partners
• Develop standards and compatibility
• Customer service vital
• Focus on best solution possible
• (rather than best possible solution)
• Simplify complex product features

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Marketing to Pragmatists (Cont.)

• Brand Competition between vendors of different
  brands of the new technology
• A sign of legitimacy for the new technology
• Complement strong technological skills with
  strong partnering skills
• Find partners to round out product offering
• Partner power changes with market evolution

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Marketing to Conservatives

• Make product simpler, cheaper, more reliable,
  convenient

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Crossing the Chasm Summary

• The whole product is the critical success factor
• Until a high-tech firm has established itself in
  the mainstream market, it has not proven itself.
  
• To manage the mainstream market effectively, firm
  must work with partners in a disciplined fashion
  (that prioritizes partners)

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More on the Mainstream Market Inside the
Tornado

• Firms that are successful in crossing the chasm
  typically experience dramatic sales increases
  when they enter the mainstream (pragmatist)
  market.

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Three phases in the tornado of growth

• 1. The Bowling Alley
• New product gains acceptance from niches within
  the mainstream market
• Each niche requires expertise in that vertical
  market, and potentially leads to access to
  related markets.

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Three phases in the tornado of growth

• 2. The Tornado
• Period of mass-market adoption when the general
  marketplace switches over to the new technology
• Driven by application that provides compelling
  benefits to mass market the killer app
• Requires strong operational excellence to keep up
  with demand

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Three phases in the tornado of growth

• 3. Main Street
• Market growth stabilizes
• Focus on cross-selling and upgrading to existing
  customers

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Selecting a Market Segment

• Must identify the best beachhead
• A single target market from which to pursue the
  mainstream market
• Cannot afford to pursue many segments at once

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Steps in Market Segmentation

• 1. Divide market into groups based on common
  characteristics
• Demographics
• Geographics
• Psychographics (Values and lifestyles)
• Behavioral Variables
• Useage Volume
• Benefits Sought
• Useage Occasion

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Steps in Market Segmentation

• 2. Profile (describe) customers in each segment

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Examples of Tech Customer Segments
Technographics
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Examples of Tech Customer Segments
Technographics
SIDELINED CITIZENS Not interested in
technology
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Examples of Tech Customer Segments
Technographics
HAND-SHAKERS Older consumers typically
managers who don't touch their computers at
work. They leave that to younger assistants.
TRADITIONALISTS Willing to use technology but
slow to upgrade. Not convinced upgrades and
other add-ons are worth paying for.
MEDIA JUNKIES Seek entertainment and can't find
much of it online. Prefer TV and older media.
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Examples of Tech Customer Segments
Technographics
TECHNO-STRIVERS Use technology from cell phones
and pagers to online services primarily to gain
career edge.
DIGITAL HOPEFULS Families with a limited budget
but still interested in new technology. Good
candidates for the under-1000 PC
GADGET-GRABBERS They also favor online
entertainment but have less cash to spend on it.
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Examples of Tech Customer Segments
Technographics
FAST FORWARDS These customers are the biggest
spenders, and they're early adopters of new
technology for individual use.
NEW AGE NURTURERS Also big spenders, but focused
on technology for home users such as family PC.
MOUSE POTATOES They like the online world for
entertainment and are willing to spend for the
latest technotainment.
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Steps in Market Segmentation

• 3. Evaluate and select a target market
• Size of segment in terms of sales volume
• Growth rate of the segment
• Competition within the segment
• Ability of firm to effectively meet the needs of
  the segment

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What makes a good beachhead?

• Provides adjacencies to other segments
• Word of mouth
• Similarities in whole product needs
• Customers have a single, compelling, must-have
  reason to buy.
• Purchase of new technology radically improves
  productivity on an already well-understood
  critical success factor
• Firm must be able to dominate segment, with a
  whole product, capturable in short period of time

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Compelling Customer Needs

• New technology provides dramatic improvement in
  customer firms competitive advantage in its
  industry.
• Difficult to quantify a priori
• Therefore, unpalatable to pragmatists
• New technology improves firms productivity
• Easier to quantify
• Compelling to a pragmatisttherefore best for
  crossing the chasm
• New technology verifiably reduces operating costs
• May appeal to conservative, BUT
• May be risky and supporting infrastructure may
  not be sufficiently developed

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Key in Selecting Target(s)

• Must not spread resources too thinly across
  multiple segments

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Step 4 of Segmentation Process

• 4. Position the product within the segment
• Consider customer perceptions
• Position relative to perceived competition
• Position on important, compelling
  attributes/benefits

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Customer Strategies to Avoid Obsolescence

• Basic Issue Tension between adopting newest
  generations of technology and obsoleting
  investments in prior generations.
• Marketing implication Firms must manage a
  migration path for customers to the new
  generation.

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What Affects Customers Migration Decision?

• Expectations about pace of improvements relative
  to price
• Expectation about magnitude of improvements
  relative to price

The greater the anticipated product
improvements and/or expected price declines, the
greater the customers propensity to delay
purchase.
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Implication

• High-tech firms must provide upgrades that allow
  firms to take advantage of new technology without
  scrapping investments in the prior generation.
• A migration path is a series of upgrades to
  help transition the customer to new generations.

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Managing a Migration Path
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Managing A Migration Path

• When customers expect a rapid pace in technology
  advancement
• They will be willing to wait for price declines
• Migration assistance (i.e., trade-ins, etc.)
  mitigates against customer stalling and
  leapfrogging.

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Managing A Migration Path

• When customers expect significant magnitude of
  improvement
• They realize smooth upgrading is unlikely
• Waiting for price declines may result in
  purchasing an obsolete product
• Therefore, migration path is less crucial, as it
  is meaningless, to a certain extent

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Managing A Migration Path

• When customers have uncertainty about
  expectations
• Migration path makes sense
• Sell old and new simultaneously

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Summary

• Market orientation is important butdifferent for
  high-tech
• Building marketing capacity and capabilities - a
  challenge
• Customer perspective is critical
• Different research techniques required
• Rate of Adoption factors - implications
• Crossing the chasm beyond