Segmentation and time

One of the most significant characteristics of high-technology products is the rapid rate of change. This means that segmentation criteria also change very quickly. For instance, in the mid-1980s when Sun Microsystems successfully introduced workstations using standard Unix software, Unix compatibility became an important segmentation criterion that was used to analyze the market for workstations. Traditional manufacturers had previously segmented the market according to performance and application criteria. As a consequence, some manufacturers had to adapt—or outsource—their supply of workstations in order to offer Unix products. The same story was replayed at the beginning of this decade with the rise of Linux as a new operating system. Suddenly offering Linux-based (or open source) solutions became a significant criterion for purchasing computers and the major vendors, such as IBM, HP, and Dell had to adapt.

Every marketing manager should therefore regularly reevaluate his or her segmentation criteria while continuously examining the markets. On the other hand, developing segments is costly and time consuming. This development requires, for instance, analysis tools, lengthy and frequent interviews, and several meetings with a company's departments. This process must be adapted to the particular situation.

Certain high-technology products are launched on a very long-term basis. In the biotech industry, only one drug out of 5,000 screened manages to get to the market, and it can take between 7 to 12 years before putting a new medicine on the market. Similarly, it took more than 20 years for the Japanese firms to develop successfully a VCR for the consumer market. The first development of VCR started at end of the 1950s, mostly to fulfill the needs of the large American TV networks, and landed in the consumer mass market at the end of the 1970s—with the first VCR by Sony (1975), followed by JVC (1976) [31]. Consequently, a thorough segmentation is both necessary and possible for the evaluation of the market in this time frame.

In the aerospace industry, a company like Arianespace must know its market 10 years in advance, to develop rocket launchers that meet customer needs. It defines its segments on the basis of technical needs, economic resources, and the political ambition of different customers. All these criteria are measured and projected into the future to estimate the type of the market that is needed when performing technical studies.

Other sectors move along very short time frames, sometimes within less than 1 year. The computer industry is a good example. In this sector, the boundaries continue to change according to new product announcements for even better performing products—between mainframes and super minicomputers, between super mini-computers and minicomputers, between minicomputers and workstations, between workstations and microcomputers, between professional microcomputers and personal desktop PCs, between personal desktop PCs and laptops, between laptop and handheld PCs, and now between handheld PCs and smart cellular phones.

In such industries, even without access to perfect information, a delay in the market introduction of a product can be very costly. In less than 3 years, Wang computers, which specialized in office automation, was swept away because Wang did not know how to change fast enough to satisfy its markets, so its niche was invaded by microcomputers with word-processing capabilities. Similarly in the fast moving mobile phone handset market, Ericsson was not able to keep pace with archrival Nokia and stopped manufacturing in 2000. While Ericsson failed to release new models in a timely fashion, and was also stuck with poor designs, Nokia had superior phones, and rapid turnover of new models: Nokia shipped from 20 million units in 1997 to over 140 million units in 2001 introducing 14 new models on an almost quarterly basis.

However, working hastily is never the answer [32], as a product should not be launched if it does not respond to customer needs [33]. So monitoring customers on a permanent basis (using consumer panels, distributors, and vendors) and reevaluating the segmentation criteria on a regular basis are both necessary in continuously updating the market's expectations. Indeed, the ever-changing market demand can never be considered as definitive. Lastly, the marketing manager must always complement this market demand with his or her own foresight of the market. He or she must also be willing to take certain risks when proposing the launch of a new product and a corresponding marketing strategy.

5.5 Summary

High-technology companies must segment their markets in order to optimize their resources and to correctly respond to customer needs. A segment regroups customers who have the same demands and the same buying habits or other significant characteristic.

Two segmentation methods exist in the marketing of high-technology products. The first method concerns technologically innovative products. The business value of the new product should be determined for some key customers using test prototype. If this step is successful, that is, if the new product fulfills a need, then all the potential customers are clustered in various segments. Then the product has to be positioned in the minds of the target customers on each segment.

The second, more traditional, approach concerns incremental innovations or updated versions of what was once a radically innovative solution. This method defines the segmentation criteria in order to divide the market according to homogeneous categories. Then market surveys and research define the segments that need to be evaluated and selected. Targeting the segment that needs to be reached depends upon the potential and the accessibility of each segment, as well as the company's technical possibilities and overall strategy. Then the marketing manager has to choose a "positioning" of the new product in order to ensure that it is well perceived, identified, and recognized by the customers of the key selected segments. Positioning is the creation of a product's perceived image in customers' minds. The positioning is also the keystone of the marketing mix and must be reflected in all the components of the marketing mix.

Finally, since the high-technology field is in constant movement, marketers must reevaluate their segmentation criteria on a regular basis and continuously examine the markets. In addition, marketers must also know how to adjust the demand analysis according to the appropriate time frame of their industry.

References

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