High-Tech Products Failure

High-Tech products failure: Lessons learnedChatchai Khunpitiluck

Saturday, September 19, 2009

A car with speedometer

A question from last lecture

Length of the bridge = #ticks on the bridge

#times crossed the bridge


Moore’s Law

“The number of transistors on a chip will double about every two years”

- Gordon Moore, co-founder Intel


Hi-Tech Markets

Complex

Under rapidly changing technology (short life cycle)

Need for rapid decisions

Continually evolving expectations of customers

High risk for both customer and producer


Customer Focus


Nature of Hi-Tech Markets

Difference between the customer’s perspective and the firm’s perspective

Specific features of high tech markets that are believed to distinguish them from other product categories

Anyone who owns standards win


“If you build it, he will come”

-Movie “Field of Dreams”


Adopter Categories

Innovators willing to take risks, impersonal and scientific information

Gatekeeper

Early Adopters

accept new ideas earlyrely on multiple sources of info Opinion Leaders

Early Majorityrisk adverse

rely on company-generated promotional information and WOM

Don’t purchase until late growth stge

Late Majority and Laggards

require early categories to “test-drive” the product

Advantage for companies who enter

during maturity


Bowling Alley

Main Street Tornado

Source: Moore (1995), Inside the Tornado


Examples from practice

Technology

Marketing

or both


Factors of failure ...

Customer expectations not met

No innovative advantage perceived

Information about product is scarce, unclear, difficult

Need for product is not seen

Unique attributes not seen

Poor selection of target market

Poor communication of product benefits

Distribution channel selection

Pricing problemsSaturday, September 19, 2009

Philips’ CD-I (1991)


CD-Interactive (CD-I), 1991

Entertainment System

Game, TV, Audio as family entertainment system

Philips counted very heavily on this system

Hardware

Joint venture on Software with Polygram

“Family Entertainment of Tomorrow”


Target Market

Married, with school-aged children, technologically advanced and relatively affluent.

Aimed to push product for holiday season 1991

Recognized importance of “innovators” and “early adopters”


Product

Not all features included in the system in 1991

Operate with TV, but remote control is (perceived) as not good


Distribution

Sears

Circuit City

Other game retails


Promotion

Tag line: “imagination machine”

But many features on the list not available

Specially trained sales force


Price

Original Retail Price $899

Almost immediately, price dropped to $699

1994: $499

Price skimming


Lessons learned

Must position CD-I as an innovation, not another Super Nintendo or CD players

Early adopters are necessary to start WOM

Does not appeal to target market

Cost cutting in product design & production

Ad copy did not match up with the functions and confusing

Store selection did not project image of cutting edge

Price skimming confuses innovators and early adoptersSaturday, September 19, 2009

Apple’s Newton (1992)


Newton, 1992

John Sculley, CEO

Apple wants to enter the PDA market

Sold strongly at first, but fell short

Revamped and Reintroduced in 1994

“Seamlessly Communicate Anywhere”


Target Market

Strategy Decision: Mass

Techno-philes

Apple Fans


Product

Competitors: “EO” and “Zoomer”

Compaq, Sony worked on their own versions of PDA

Apple didn’t have a complete prototype in May 1992

PDA: wireless electronic communication + file management + handwriting recognition + pocket size


Not complete

“75% of what Apple says it can do”

“Not designed to meet the need”

“Technology flaw”

“Very high price”

Apple’s vision of a revolutionary product has not been shared by the customer.


Price

Sculley set it to $500

Sold at $699

Still too expensive to generate market appeal it wanted

Pricing strategy did not fit in the product strategy


Promotion

Apple’s new product launches: Promotional mix

One year before launch:

“the beginning of the biggest thing Apple has ever done”

“this is tremendously exciting for the rest of the world”

Apple advertised features prominently and failed to deliver


Lessons Learned

Long on promise, short on fulfillment

Product not complete

Price point cannot be fulfilled

R&D can’t deliver all features

“it’ll take 2-3 iterations before these are any good”


Sony’s BetaMax (1975)



BetaMax, 1975

InstaVideo (Ampex), 1971

U-Matic (Sony)

1976: Standard Format emerged (JVC’s VHS)


Target Market

Why it is not a success?

Introduced before competitor more then one year

Market big enough for more than one product

Sony does not conduct “market research”

RCA did, and waited for the right format


Product

Many experiment with devices to record TV programs

Developed from U-Matic, BetaMax was much better

BetaMax recorded for upto one hour

Technically superior, wider spectrum, higher SNR

VHS, record time is up to 6 hours in LP mode


Price

Confusing

announcement: $788

before launch: $2,295 Combo set

In Japan: $800

High prices: Luxury Market, Expensive Toys

BetaMax Movie: $79.95 or $89.95

VHS Movie: $29.95Saturday, September 19, 2009

Place

Matsushita, JVC also an alliance of Sony

For Sony, Quality and size is better than playing time

Lack partner


Promotion

First in the market

Did not go for innovators and early adopters

Shrink from 100% to 28% in 6 years

First mover advantage wiped out by Long-Play


Lessons Learned

Similar mistake done by U-Matic

Sony introduced Extended Definition Beta

JVC introduced Super VHS


Sony’s Proprietary Formats


BetaMax, 1975

Video Cassette Recording (VCR)


Digital Audio Tape, 1980’s

Digital successor to analog cassette tape

Technologies from video tape + digital encoding

RIAA lobbied to prevent the sell of DAT

Expensive players

RIP 2005


Minidisc, 1993

Could be successful

Sony added “copy protection”

High media prices

Expensive player/recorder


ATRAC Audio Compression, 1993

Developed ATRAC for the Minidisc

Near CD-quality, smaller files

Nasty, close-minded move by Sony

MP3 took off as “open standard”


SDDS, 1993

Sony Dynamic Digital Sound

Dolby Digital 5.1

Digital Theater System (DTS)

SDDS didn’t go very far in home theater segment


Memory Stick, 1998

Developed for Sony Digital Camerass and Music Players

“Proprietary” format, limited to Sony alone

Designed as an additional revenue stream

Other manufacturers not using it


Universal Media Disc, 2005

Improving MiniDiscs to a new optical discs

Discontinued 2006


Blu-Ray?Inferior format (MPEG-2, MPEG-4)

BluRay movies are “Enhanced Definition” and MPEG-2

Expensive player for DVD capability

Problem not on the players, but the discs

Not “High Definition”

Another camp is Toshiba’s HD-DVD, endorsed by DVD forum

BluRay player costs twice as much as HD-DVD’s

PS3

Debatable. To be decided by the Movie studios!!Saturday, September 19, 2009

Blu-Ray!

WalMart stopped carrying HD-DVD

Toshiba withdrew from the battle

Blu-Ray won

The battle in a much longer war

Window of opportunity is short, consumer prolong decision


Blu-Ray Competitors

Do we really want a High Quality Video?

Digital Downloading

Streaming Video

No true winner? Just temporary survivor


End notes

You learned more from failure, not success--

A good hockey player plays where the puck is.A great hockey player plays where the puck is going to be.

-Wayne Gretzky


Assignment

Next Week: Summary & Class Presentation


Documents

High-Tech Products Failure