12/4/2022

Marketing & Sales

Scaling up the venture

MGMT 415 (WEEK 8)

BERNA BEYHAN

Characteristics of high-
technology markets
High-technology markets are unique because they display a
great degree of uncertainty in customers, technology and
competitors.
Therefore a different set of marketing strategies and tactics is
required to successfully deal with the dynamic nature of high-
tech markets.
The margin of error is much smaller with high-tech companies
therefore execution of the marketing plan should be done very
carefully

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Characteristics of high-
technology markets
Uncertainties:
◦ Market uncertainty: Lack of confidence about customer needs relative to
specific applications of the technology..
◦ Technological uncertainty: Lack of confidence about the product life cycles
◦ Competitive market: uncertainty about the impact of competitors and the
likelihood of emerging competitors
◦ Managing strategic alliances: making sure that strategic partners benefit
from the company’s marketing efforts
◦ Promotion to alleviate customer uncertaity: dealing with the initial
customer resistance to new technology.

Key decisions for technology-

intensive markets
Prior to launching a new product to the market the company
needs to get feedback from innovators or early adopters. They
are continuously seeking new technologies.
They are important because they provide the proof of concept for
later adopters. They demonstrate that the technology works.
They have no fear of purchasing and using the latest technology.
But the enthusiasm of early adoptors may give a wrong sense of
confidence to the entrepreneur.

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Key decisions for technology-

intensive markets

Key decisions for technology-

intensive markets
Innovators are eager to try new innovations. They have an ability to work with
complex and often underdeveloped ideas
Early adopters are more integrated to potential adopters than innovators. They
provide other potential adopters with information and advise. They are
visionaries
The Early Majority adopts a new product just ahead of the average population.
They are pragmatic. It takes time for them to make a purchasing decision. But link
the arly adopters with the bulk of the population.
The Late Majority adopts innovations because of economic necessity and
pressures from peers. They are more conservative and require more evidence of
the value of innovation before adopting it.
Laggards are the last to adopt an innovation. They focus on past experiences and
traditions. They are skeptical when it comes to risking their limited resources on
an innovation.

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Key decisions for technology-

intensive markets

Key decisions for technology-

intensive markets
Between early adopters and mainstream customers there is
“chasm” which is a black hole where enthusiasm on the part of
early adopters is achieved but the mainstream customers are not
yet ready to adopt the technology.
Crossing the chasm is very challenging but essential task for
entrepreneurs.
Sometimes it takes many years from entrepreneurs.
Digital photography stalled at chasm for over a decade (1985-1995).
Lack of computers, high-quality printers, software that manipulate
digital photos influenced the length of this period.

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Key decisions for technology-

intensive markets
Many high-tech products are weak on both compatibility and
complexity.
They are difficult to understand and operate.
The firm offering such products needs to educate the user.
In some cases this education effort is expensive and time consuming.
Innovators try to transfer the cost of learning to users by using manuals
that show how to use a new product. But generally it doesn’t work
well.
So simplicity in design play a critical role in also marketing and making
potential customers to easily adopt an innovation.

Key decisions for technology-

intensive markets
In order to cross the chasm, the new venture needs to attract
different customer niches.
Once the technology has gained acceptance from a few niche it finds
itself in the “bowling alley”.
In bowling alley the aim is to rack up as many niches as possible in
order to reach a critical mass to drive the technology into the
“tornado”.
The tornado is the period of mass-market adoption.
Market massively switches to the new technology.

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Key decisions for technology-

intensive markets
In order to create a tornado effect your production, manufacturing,
product quality and pricing strategy needs to be changed.
After tornoda, the main street period starts. In this period
establishing good customer relationships, after sales services and
keeping customers become important.

Understanding customer
needs
Factors that affect customers purchasing decisions:
◦ Cost/benefit analysis: customers need to know that after paying a
high-price for the new technology it will meet their needs.
◦ Compatability with existing technologies: customer tend to buy
products that do not force them to change their current way of
doing things.
◦ Difficulty of use: how long does it take to learn new technology?
◦ Readily identifiable benefits: customers must be able to see what
are the benefits of purchasing the technology.
◦ Ability of benefits to be observed: are the benefits easily seen by
customers?

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Understanding customers
Analyzing customers needs to address three issues
◦ Differences between products and problems from the perspective of
customers
◦ Differences in customers’ evaluation of new products and of products they
already use, which is called “status quo bias”
◦ Differences between early adopters and mainstream customers

Understanding customers
Differences between products and problems from the perspective of
customers
◦ Entrepreneurs must understand how their product features are translated
into benefits that matter to core customers
◦ Product or service features are characteristics and attributes that deliver
functionality but benefits are outcomes to customers which are delivered by
the features of the product or service.
◦ Storage capacity of a computer is a product feature but for customers, not
being worried about running out of the storage capacity is the benefit of that
product.
◦ If there is an important benefit we can say that that product or service can
create a demand in the market

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Understanding customers
Ways of understanding potential demand in market
◦ Focus groups: The entrepreneurial team brings a small number of individuals
from a relevant customer segment to understand their opinions and
attitudes regarding the product or service that is under development.
◦ Customer surveys: The entrepreneurial team surveys prospective and
current customers about the frequency of usage, preferences regarding to
product features, purchase intent or satisfactions about the current
products.
◦ Letter of intent: The entrepreneurial team invites potential early adopters to
try out its product or service and then asks them to try or buy the proposed
product with specific features once it is ready.
◦ Market trials: The entrepreneurial team tests products or services with a
subset of intended customer base to validate demand and gather feedback
about the features and benefits of the product or service.

Understanding customers
New product vs the status quo
◦ Customers usually evaluate new products by comparing them with the
products/services they currently use.
◦ Existing products are the reference points to evaluate the gains and losses
from a new product.
◦ Therefore understanding the status quo bias and their behavioral
implications is essential for entrepreneurs.
◦ Entrepreneurs should ask some questions to understand such bias:
◦ What changes this potential customer must make to adopt our product? Is the
opportunity big enough (problem is important enough) to justify these changes?
◦ Can we quantify the added benefits the customer will receive in return for making the
changes?
◦ Can we demonstrate the value of switching to our product and thus convince the
customer to do so?

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Understanding customers
Early adopters vs main stream customers
◦ Early adopters are a subset of customers who value the benefits that are
provided by the features of a product/service and they are willing to buy this
product/service before it is proven in the market.
◦ An overly narrow focus on early adopters prevent start-ups from creating
and marketing a product/service to mainstream customers.

Why selling is important

Selling is essential for gaining what a new venture needs:
◦ Customers
◦ Cash and
◦ Market credibility

In early stages of new venture selling is the best way of collecting

information about customers and opportunities

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Integrating selling and

marketing
Selling and marketing cannot be separated in new ventures
Because information to design marketing activities are collected
through selling
New ventures know their customers and products well while they are
selling
Also information collected from customer during sales influence the
design of the business, such as channels, customer relations, pricing,
etc.
Salespeople are the boundaries between new ventures and their
prospective customers
They translate demands of customers to the entrepreneurial team and
the product/service features and benefits to customers.

Market entry
The aim of entrepreneurial companies is to enter into an industry or
market
But enter into an industry or market is not always easy. Because there
are market entry barriers.
These barriers make it costly for companies to enter an industry.
The greater the costs that potential firms must pay to enter an industry,
the greater are the barriers to entry.

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Market entry
Potential market entry barriers:
◦ Economies of scale: occurs in industries where the cost of
production decreases with production volume.
◦ Cost advantages independent of scale (learning curve
advantages, relationship with suppliers, etc.)
◦ Customer loyalty
◦ Government regulations
◦ Switching costs are the costs to the customer to switch from the
product of an existing company to the product of the new
entrant.

Market entry
◦ While profitability and growth may attract new companies , entry
barriers will deter them
◦ Example: telecommunication industry with its high growth rate and
profitability
◦ BUT
◦ To enter into this industry, a new entrant firm must pay the price
for the high start up and infrastructure costs and also need to have
a license from government.

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Timing of entry
Entrants can be divided into three on the basis of timing:
◦ First movers are the first entrants to sell in a new product or service
category (“pioneers”)
◦ Early followers are early to market but not first.
◦ Late entrants do not enter the market until the product begins to
penetrate the mass market or later.

Market entry strategy

Being first mover company provides a number of advantages and
also disadvantages.

Source: Entrepreneurship, 9th Edition, 2013, Robert Hisrich, Michael Peters and Dean Shepherd, McGraw Hill Education

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Risk reduction in market entry

Strategies can be adopted to reduce some or all of these
uncertainities.
Two strategies can be used
◦ Market scope strategy
◦ Imitation strategy

Source: Entrepreneurship, 9th Edition, 2013, Robert Hisrich, Michael Peters and Dean Shepherd, McGraw Hill Education

Risk reduction in market entry

Market scope strategy: These are strategies related to which customer
groups in the market will be served and how they will be served.
◦ Narrow scope strategy
◦ Broad scope strategy

Source: Entrepreneurship, 9th Edition, 2013, Robert Hisrich, Michael Peters and Dean Shepherd, McGraw Hill Education

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Risk reduction in market entry

◦ Narrow scope strategy
◦ Narrow scope strategy offers a small product range to small group of
customers.
◦ Firm produce customized products for a specific group of customers.
◦ This strategy sometimes reduce risks because it reduces the risk of
competition.
◦ It is sometimes risky because it is like having all the eggs in the same basket.

Source: Entrepreneurship, 9th Edition, 2013, Robert Hisrich, Michael Peters and Dean Shepherd, McGraw Hill Education

Risk reduction in market entry

◦ Broad scope strategy
◦ Broad scope strategy offers a range of products across many different
market segments.
◦ An entrepreneur can gain understanding of the whole market and select
which product is successful in which segment.
◦ It decreases the risks associated with market uncertainities. But, for example
narrow scope strategy increases the risk associated with market
uncertainities.
◦ In broad scope strategy the risk of competition is also increases.

Source: Entrepreneurship, 9th Edition, 2013, Robert Hisrich, Michael Peters and Dean Shepherd, McGraw Hill Education

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Risk reduction in market entry

Imitation strategy:
◦ Imitation involves copying the practices of other firms. Those firms might
be in the same industry or in other industries.
◦ Imitation of successful firms provide many advantages to firms.
◦ Because entrepreneurs have to make decisions under information
uncertainty they can benefit from the imitation of the decisions of other
firms.
◦ Imitation help entrepreneurial firms to develop necessary skills and
capabilities.
◦ Imitation migt decrease customer uncertainities, provide prestige and
status to the entrepreneurial firm.

Source: Entrepreneurship, 9th Edition, 2013, Robert Hisrich, Michael Peters and Dean Shepherd, McGraw Hill Education

Customer segmentation &

Market Research
Define the product and its unique selling proposition.
Identify the customer segment.
Develop a set of questions that will provide the necessary data on
customer preferences and behavior.
Collect the data using surveys, published sources, focus groups,
interviews, and other means.
Analyze and interpret the data to determine if the product meets the
needs or wants of the customers and determine whether they will pay
the selected price.
Draw conclusions about the customers and their needs, preferences,
and behavior.
Source: Entrepreneurship, 9th Edition, 2013, Robert Hisrich, Michael Peters and Dean Shepherd, McGraw Hill Education

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Marketing Mix

Source: Textbook
(Technology Entrepreneurship, 2nd
Ed.)

Product Mix
A product or service is anything (tangible and intangible) offered for
consumption or use.
It includes many different components: functions, activities, benefits, or
satisfaction
Even though it is a technical product the service component can be the
most important component to sell this product.
The core product needs to provide the benefits sought by the customer
in solving the problem.
These are the products’ unique selling propositions, which help ensure
the success of a technical product.

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Pricing
◦ For innovations, 2 main objectives for pricing strategy
◦ Maximum market skimming objective
◦ Maximum market share objective
◦ In the maximum skimming objective, firms first set higher prices on new
products
◦ High price may signal the market that the new product is a significant
innovation
◦ The high price can also help firm to meet the initial development expenses
◦ High initial prices can also attract competitors to the market.
◦ But high prices can slow adoption

Pricing
◦ If achieving high volume is important the firm emphasizes a maximum
market share objective.
◦ In that case the firm often use penetration pricing.
◦ The firm sets the lowest price possible to rapidly attract customers.
◦ For the penetration price, the firm must have large production capacity in
advance of demand.
◦ Firms in industries characterized by increasing returns (strong learning curve
and network effect externalities) often use the objective of maximizing
market share.

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Selling an innovation
In new ventures, at early months, selling the innovation is much more
important than marketing activities
It generates revenues for start-up
It is the evidence of product-market fit and the existence of a real
market need.
Word-of-mouth marketing can be initiated by sales.
It is a useful tool to collect feedback from customers, to know your
customers well, to find ways of approaching them and pleasing them.

Selling an innovation
Direct sales or forming a sales team VS. intermediaries or distributors.
Advantages of direct sales
◦ Know your customers very well and collect feedbacks
◦ Since you know your product better you can educate your customers well
and explain the benefits of the product better
◦ Easy to manage and internal sales team

Disadvantage of direct sales

◦ High costs
◦ Low geographic dispersion
◦ Required time for selling activities.

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High-tech marketing
Market preparation
◦ Building awareness in the market: because the product / service is not
well known in the market
◦ A company can increase awareness through
◦ Pre-launch information: information released before the launch of a new product/service
(e.g. Published informative articles in journal and magazines; using tv programmes, etc.)
◦ Educate the market: it is a form of pre-launch information but log-term (e.g. Providing 1-2
days training programs for professionals, software companies prepare such programs)
◦ Create special distribution arrangements: strategic alliances with other companies to
distribute the product (e.g. Arrangement between a GSM operator and a mobile phone
company for the distribution of a new product)

High-tech marketing
Targeting (targeted customers)
Clearly targeted high-tech products diffuse in the market more rapidly than
non-targeted products.
High-tech companies should make the targeting on the basis of technology-
adoption behavior of customers.
◦ Target innovative customers /early adopters
◦ Target the pragmatists
◦ Pragmatists are the large group of adopters following technologies
◦ They have a clear need to adopt a technology but they wait until a technology has become used by other
customers. They are not early adopters.
◦ Target conservatives and late adopters
◦ Target current customers
◦ Target competitors’ customers

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High-tech marketing

Positioning
◦ It can be based on tangible (technological) or intangible
characteristics (brand/product image)
◦ Where the market is not technologically well informed or the
benefits of technology are not easily differentiated from competitors
positioning is based on brand/product image

High-tech marketing

Positioning can be achieved through

◦ Emphasizing exclusivity: to differentiate the product emphasize on
how exclusive the product is
◦ Emphasize low price
◦ Emphasize technological superiority
◦ Emphasize a safe bet:
◦ Emphasize the product’s credibility; reduce the associated risk of
moving to a new technology.

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High-tech marketing

Execution
◦ It includes activities which trigger a positive purchase decision
◦ Use opinion leaders
◦ Reduce the risk of adoption
◦ Cultivate a winner image

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