Growth Strategies for High Tech Firms
High technology products are new, they are based on new technology, and they often precede a market demand. To market a high tech product, a firm must understand the needs of customers, educate them about the product and its underlying technology, and convince them that the new product represents the best solution to their problems.
The authors propose expanding Ansoff’s Growth Strategy Matrix to identify six separate market conditions, or cells, which represent increasing risk for marketers. The cells range from the most secure environment in which known products are sold to established markets — to the most challenging environment in which high tech products are offered to as-yet undefined markets.
The paper asserts that the significant failure rate among high tech products results from the failure of firms to realize that they are no longer competing in a high tech market environment. It is proposed that firms develop specialized marketing competence in each of the six environments.
New Technologies, New Products, and New Markets
A market-oriented definition of a high tech product would be…a product that is an innovative application of technology to the solution of marketplace problems. High tech products represent a technological solution to a customer’s problem that is not only new but, previously, not even considered. The customer is familiar with neither the product nor its technological foundation while the high tech marketer may be equally unfamiliar with the customer’s problems.
This dilemma is an extension of the conceptualization addressed by Ansoff 30 years ago. There are four distinct growth strategies based on a firm’s familiarity with their products and markets.
Ansoff’s Growth Strategy Matrix
This conceptualization also distinguishes between the risk level of the various growth strategies. The less a firm knows about a business, the more likely it is to fail. Thus the penetration strategy (selling products the firm is familiar with to markets/customers the firm is familar with) has the least risk, while the diversification strategy (selling unfamiliar products to unfamiliar markets) is the riskiest. Consultants frequently refer to the diversification cell in the matrix as the “Suicide Cell.”
Expanding the Growth Strategy Matrix
With some modifications, this Growth Strategy framework demonstrates the strategic dilemma facing high tech firms. The modification is necessary because the Growth Strategy model was based on a premise of customers being familiar with the products (or product category) being offered (even if they are not familiar with the firm who offered the product.) Even without technological innovation, in an expanding market customers will enter the marketplace without product knowledge. This complicates the task of the marketer who must not only learn about the new customer but also educate the customer about the product. The less the customer knows about the product, the more difficult the task facing the marketer.
Taken to the extreme, this lack of knowledge characterizes the problem facing the firm marketing a high tech product where, by definition, the customer is unfamiliar not only with the product but also its underlying technology. To account for this added level of uncertainty and resultant strategic difficulty, the Growth Strategy matrix must be expanded.
Expanded Growth Strategy Matrix
This expanded matrix adds the dimension of new technology, meaning technology new to the marketplace. This new technology factor adds an additional level of risk for the marketing firm because it indicates that the marketing firm will have to educate the customer about the technology before the customer can be shown the benefits of the new product. In the case of old markets (markets the company has experience with) the firm is already familiar with the problems facing the customer.
High Tech Growth and the Better Mousetrap Fallacy
The New Market-New Technology cell, identified as High Tech in this matrix, flows directly from this paper’s definition of “high tech.” It is not coincidental that the high tech cell falls below the diversification (or suicide) cell. It is even riskier. The marketer of a high tech product, as this representation illustrates, is unfamiliar with the market and, therefore, knows little about the problems facing the customer. Yet that high tech marketer must be able to demonstrate how that customer’s problems can be solved by a product and a technology that are new to the customer, difficult to grasp, and represent a high level of buyer uncertainty.
To succeed, before the product is even marketed, the high tech marketer must first learn about the market and then teach that market about the technology. The inability of managers to perceive the marketing challenge facing their firm is the cause of frequent failures among high tech products. Many firms, managed by technically trained personnel with little strategic or marketing management experience, fall victim to the better mousetrap fallacy. They fail because rather than aggressively marketing their product (learning about their customer’s needs and educating that customer about the product and technology) these managers expect their customers to intuitively see the superiority of their product.
High Tech Success Means Intensive Market Research and Customer Education
A firm competing with the High Tech strategy succeeds by combining its technical expertise, its ability to quickly gain knowledge about its customers problems and needs, and its ability to give the customer sufficient technological expertise to evaluate and choose their product. Unfortunately, this is a very transient environment and the skills that resulted in initial successes are likely to become far less important as the market matures.
In today’s technologically intensive environment, marketplaces evolve rapidly. The life cycles of products shorten and innovations diffuse rapidly. While the High Tech marketer is learning about the market…key customers (the opinion leaders) are becoming familiar with both the technology and the product. Even more important, the product and technological uniqueness that helped compensate for the marketer’s strategic ineptitude early in its life cycle is lost as new, and sometimes superior, products enter the market. To succeed in this market the firm must realize that it is no longer competing in a high tech market but in a “penetration” strategic environment and must change its strategy accordingly.
A company embarking on a high tech strategy must, simultaneously, be learning about their market for the first time and teaching that market about an emerging technology. The learning component of this strategy should result in the high tech marketer investing heavily in market research to understand the structure and the needs of the market they are entering.
The teaching component should result in a communications strategy that adopts a missionary role. Advertising and promotional materials will need to explain not only the product and its benefits but the appropriateness of the underlying technology. Sales personnel will need to be technologically sophisticated to allow them to help the customer apply and integrate this high technology product into their current set of acceptable solutions to their problems.
Because the high tech product provides performance benefits that allow it to substitute for other products and technologies, and because direct competition is likely to be low, premium pricing strategies are appropriate. While this high tech strategy is being implemented the marketer must be preparing for the inevitable transition to a penetration strategy.
The change to a penetration strategy requires changes in most marketing activities. Market research should shift from basic learning to competitive monitoring. Advertising and communications will focus more on differentiation and the role of personal sales will change. The sales person will focus more on providing service to the customer (rather than education) and providing market intelligence. Pricing will become a competitive weapon and distributors and other channel intermediaries are likely to be employed.
How Software Arts Lost Marketshare to Lotus
Software Arts invented the concept of PC spreadsheet analysis with its VisiCalc program. VisiCalc may well have been the better mousetrap that the market sought out. Unfortunately, the company continued to compete as though it was the best (and only) mousetrap. When Lotus introduced its integrated software 123 to the market, VisiCalc was left by the wayside. Software Arts never modified the fundamentals of their marketing strategy and continued to compete as though the product they offered was unique and market leading. Sales declined until 1985 when they were acquired by Lotus.
Lotus 123 was a brilliant technological success. In fact, the product’s success quickly drove it out of the high tech strategic cell and into a penetration strategy. Lotus was responsive and flexible enough to adapt to the penetration strategy. Aggressive retail merchandising established high market visibility. Aggressive pricing and site licensing programs helped the company retain competitive position. All of these strategic steps indicate Lotus’s realization that it was no longer competing in a high tech environment.
Too often, the change in the high tech marketer’s strategic environment goes unnoticed by the firm. Even worse, the change may be noticed but ignored because acknowledging the change would require strategic change. In some high tech companies, the need to seem distinct from conventional firms is so great that management refuses to acknowledge environmental change fearing that to accept the change would require the company to become more conventional in its business practices.
Specialized Marketing Teams for Each of the Six Cells
The object of this paper is not to suggest that high tech firms cannot succeed. These firms clearly have significant potential because of their ability to offer radically new solutions for customers problems. However, unless these firms are remarkable lucky, they are doomed to fail without marketing and strategy guiding them through the marketplace.
Even those firms that can survive the first pressures of the marketplace cannot be sure of long term success because that market will change and, if the firm is to remain vital and viable, its strategy must change. Part of the change will occur as firms move from the single product strategy characteristic of high tech “startup” firms to the multiproduct portfolio strategy of stable and mature firms. It is unlikely that the managerial skills needed for success in the high tech strategy will readily transfer readily to other strategies. This can be seen in the departure of the founders of both Apple Computer and Lotus Development Corporations to be replaced by managers more skilled in traditional marketing strategies.
The firm best positioned for long term success need not abandon its high tech innovators. Instead it needs to have different strategic teams ready to pick up a product as it evolves into their area of strategic expertise. The successful firm will have not just one marketing group (which is one more than many high tech firms have today) they will have a separate marketing group for each of the six cells in the Expanded Growth Strategy Matrix.
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