Professor Ran KivetzColumbia Business School

Spring 2007

High Technology Marketing and Entrepreneurship

THE ROLE OF MARKETING (& “Can this High-tech Product Sell

Itself”)

The Role of Marketing - Agenda

• Overview of RIDE Model

• Marketing communications and promotions

• Matching RIDE strategies with marketing communications & promotion tactics

• “Can Visual Motion 2.0 sell itself”

• Conclusion of case discussion: “The role of marketing in high-technology firms”

The R I D E Model_

RMarket Tech.(vs. Execution)

IInfo Industrial

economics

DElastic Inelastic

EHomogenous Heterogeneous

Externalities

Copyright © 2001, Professor Ran Kivetz

The RIDE Model

RISKTechnological Risk Market Risk• Demand - preferences are ill-defined and labile - adoption and diffusion are hard to predict - market measurement is difficult - capacity-setting is risky

• Standards & Compatibility • Competition - abundant & fast - 1st mover & “unfair” advantages - sometimes: “winner-take-all” dynamics

• Value & Supply Chain - partners, competitors, suppliers, customers, &

channels involve risk and change - frequent power conflicts

• Environment - uncertain and changing business environment

(e.g., financial markets; regulation)

• Functionality & Delivery - concern re feasibility & performance

- concerns re delivery timetables

- problems with service & “experience”

• Obsolescence - changing standards

- dominating innovations

- leapfrogging technologies

• Side Effects - malice: e.g., cyber-crime, viruses &

attacks, access violations

- privacy & trust concerns

- intellectual property (IP) issues

Time

Technology

Levelrequiredby massmarket

Chasm

Technology isinsufficient for

the mass market

Product becomes morecomplex than necessary

for the mass market

Buyers are theEarly Adopters

Buyers are the Mass Market

- Technology-centered- Feature-driven

- Application-centered- Usability-driven

Technological Risk Market Risk

The type of RISK (& focus/opportunities) shifts over time

Information versus Industrial Products

Total Industrial Good Cost

Volume

Total Information Good Cost

Volume

•Variable costs are low relative to fixed costs•Decreasing average cost, no capacity limits:

Substantial economies of scale•Sunk Costs•Information commodity markets don’t work•Potential Market Structures

•Differentiated product (personalize) OR

•Cost Leadership•First Mover Advantages:

•Aggressive Pricing•Competitive signal, threat

•Pricing:•Personalized & value pricing•Versioning•Market Segment pricing

•Experience goods

Demand Typology:

• Heterogeneous vs. homogeneous Demand

• Demand for high-tech products can often be extreme

varies from remarkably elastic to remarkably inelastic

• Dependence on unit of analysis (e.g., company vs. consumer; “between” vs. “within” product categories) and product life-

cycle

• Demand type has implications for customization, “versioning,” branding, bundling, and marketing communications

When thinking Externalities think about...

• Network Externalities

• Chicken & Egg Externalities

• Other externalities & dependencies in value chain

• Standards & Compatibility

• Switching costs & Exit barriers

• Lock-in

• Speed and path dependencies

    

Technology has the largest Installed Base of Users

Technology is Attractive ToNew Buyers

Technology gets large share of new purchases

Installed base grows

Positive Feedback

    

Apple’s Market Share

  

   

 

   

4.9%

14.7%14.1%

7.8%

5.5%

1994 1995 1996 1997 1998

(first quarter)

Key Strategies for Dealing with Network Externalities

• Positive Feedback, path dependencies, and “snowball” effects can lead to extreme outcomes

• Try to predict the (unpredictable, stochastic) future landscape

• Race to reach critical mass; fast growth & installed base are key

• Manage customer expectations and create sense of inevitability

• Razorblade & seeding strategies may be required when chicken & egg externalities exist

• Viral marketing, evangelism, and buzz

Key Strategies for Dealing with Network Externalities

• Focus on partnerships and nurturing the network

• Often need to overcome collective switching costs

• Chose between “evolution via compatibility” and “revolution via performance”

• Chose between openness (maximizing the network) and control (maximizing your brand share-of-network)

Can This High-Tech Product Sell Itself?

The Role of Marketing - Lessons

• How do you promote a new high-technology product?

• Marketing communications & promotions tactics must match the strategic situation of the company (RIDE analysis)

• Being a marketer in a high-technology firm is not easy...