Specific purchasing criteria for hightech products

For a consumer, buying the latest laser-video disc player is riskier than buying a traditional hi-fi sound system. For an industrial purchaser, buying the first robot with six degrees of freedom (for manufacturing purposes) that just appeared on the market is riskier than buying a robot with three degrees of freedom, but with technology that has already been in use for a long period of time.

Therefore, because buying a high-tech product as compared to a traditional product often means taking the risk of experiencing the initial problems of a new product, two additional purchasing criteria should be considered: the customer's attitudes toward innovation and risk. Attitude toward innovation

Many studies have been carried out on the new product adoption process, following the leading research by Rogers [8], which defines the diffusion of innovation as "a process that communicates innovation through certain channels overtime among the members of a social system." Various studies deal specifically with the rate of adoption of personal computers [9] software [10], or fax services [11].

These studies show that not all customers (individuals or organizations) react to new products in identical ways, mostly because of their degree of involvement with technology [12]. Certain customers will buy new products immediately, while others will buy them much later.

Building on different adoption and diffusion models, we can distinguish between six classes of customers: the Innovators, the Forerunners, the Mainstream users, the Followers, the Traditionalists, and the Rebels. This typology is not very different from the famous one made by G. Moore [13], a Silicon Valley marketing expert in information technologies, who identifies the Technology Enthusiasts, the Visionaries, the Pragmatists, the Conservatives, and the Skeptics. Moore does not take into consideration people who are opposed to a given technology, while this category may be quite significant for some categories of products, such as the genetically modified organism in Europe.

We can characterize each category of consumers by using psychological traits:

► Innovators enjoy trying new products and are adventuresome. They are those leading-edge customers who are not afraid of the "bleeding edge" of any new technology. Actually some researcher argue that over time technological innovation can encourage a psychological addiction to high technology for some categories of users, either at home or in the work environment [14]. Innovators usually have an enduring involvement based on an "interest or arousal for a given product on a day to day basis" [15].

► Forerunners are often respected opinion leaders, who are more careful than innovators. They consider the ownership of a high-tech product mostly as a status symbol to assert their difference with the rest of the society. In the case of businesses and organizations, Forerunners are lured and motivated by gaining a new or supplementary competitive advantage that will make a difference and will increase profit. Consequently, Forerunners, being consumers or business customers are not very price sensitive. They are ready to pay a premium in order to be special.

► Mainstream users will purchase a product not because it is innovative or different but because it fulfils a need, such as saving time or money, being more practical, or more reliable than the existing solution. Also dubbed as the "early majority" by Rogers and "pragmatists" by Moore, they like to analyze a product before buying it. They are very concerned with bridging the gap between their current solution and any new solutions to their need, and prefer to evolve by finding compatible products, rather than radical innovation. They are the people who did not buy pagers at once when they were launched, but are today heavy users of SMS on their existing cellular phone. They go for the safe and reliable product with a strong performance and security track record. They rely heavily on references and testimonials from actual customers. They try to minimize the risk and usually go for the leader, boosting the external network effects [16] and generating huge increasing return to one company, which becomes a "gorilla" according to Moore's words. In the information sector, they are the customers who bought IBM in the 1970s, Oracle in the 1980s, Microsoft in the beginning of the 1990s, Cisco at the end of the 1990s, and who favor Nokia today.

► Followers, labeled "conservatives" by Moore, go along with the majority, but much later. They are under the influence of the incapacitating FUD (Fear, Uncertainty, and Doubt) factor. Like Saint Thomas, they need to touch and see the solution functioning elsewhere—either at a relative's or friend's house for consumers, otherwise in a customer's or competitor's place of business—before deciding to purchase it. Technology often makes them nervous and they are looking for fully packaged and easy to use high-tech products. The "Wysywyg" (What You See is What You Get) approach works well with them. Because they do not have much interest in technology they are extremely price sensitive. Consequently, because they also are buying a product during the mature phase of its life cycle, they contribute to lower prices and reduced profitability.

For instance, Followers accounted for the bulk of the growth of the prepaid card for cellular phones in Europe from 1999 to 2001. At that time, the cellular telecommunication operators were so anxious to increase their customer base that they offered bargains to reach this category of customer, which was not willing to pay for full-time services. When the telecom market burst in the wake of the Internet crash, the most market-oriented companies quickly figured out that this category of customer was not profitable and companies like Orange, Bouygues Telecom, and others embarked on a program to switch those consumers to full services or to wipe them out of their customer base, by quickly raising the price of prepaid cards.

► Traditionalists are "Skeptics" who do not buy a product until it has become part of tradition. They are technology averse and will buy this category of product only when they do not have any other choices. They are very often old consumer and ancient companies who do not like any kind of change. Usually they tend to adopt a technology solution when it is at the mature or decline phase of its life cycle, in other words, when it is no longer an innovation or even high tech.

► Rebels will always reject a product, because of its very nature. Such an aversion to technology arises from cultural or religious reasons, like in the case of the well-known Amish in the United States. In that case, the numbers are not important. But sometimes, the rejection of technology may be based on security reasons and may create a significant number of rebels. In the biotechnology industry, the rejection of the Genetically Modified Organisms by the majority of the European consumers is a notorious example. Less known is the number of people who are restraining themselves from buying cell phones because of the health risks, especially for the brain, which may be created by using cell phones. Similarly, a significant number of prospective buyers of Wi-Fi solutions in Europe worry about the potential health problems related to the massive use of electric radiation.

For simplification, all six classes can be theoretically divided along a normal distribution curve (see Figure 3.4), though in reality their distribution may vary significantly according to the very nature of each market. For instance, in the case of cable TV pay-per-view services in the United States, 20% of households account for 80% of all purchases. Similarly, in the cases of video rentals in the United States and United Kingdom, 20% of households with VCRs generate 80% of the total demand.

The attitude toward innovation may also vary from one country to another. Consider, for example, the case of the penetration rate of broadband in western countries. According to the consulting firm McKinsey, in Italy, the United Kingdom, Australia, France, Spain, Germany, and Japan less than 10% of households are equipped with broadband (emerging markets) in 2003;in the Netherlands, United States, Belgium, and Sweden, the adoption rate is between 10% and 14% (growing markets);while in Canada the penetration rate is 25% and in South Korea over 50% of households use broadband (mature markets).

This analysis is important when marketing innovative products with a potential short life. In fact, to optimize the introduction of a new high-tech product, a company should first identify innovators and forerunners. These two groups of potential customers will give the product its acceptance and win over other customer groups. However, one should not think that this is

Percentage of people adopting the innovation

Innovators Early Early Late adopters majority majority

Laggards Rebels Time needed for adopting the innovation

Innovators Early Early Late adopters majority majority

Laggards Rebels Time needed for adopting the innovation

Figure 3.4 Market sensitivity to innovation (segmentation according to attitude).

the recipe of success. Actually, if one may consider that the high-tech industry has a cemetery [17] full of companies with less than one product out of ten making it on the market, it is because usually companies cannot expand beyond those two first categories of customers. They have difficulties crossing the "chasm" between forerunners and mainstream users. That is the real marketing challenge. But before reaching this chasm, a marketer needs to capture innovators and forerunners, therefore they are a necessary condition to succeed on the market, but not a sufficient one in and of itself.

Savvy marketing companies will identify Innovators and Forerunners. For instance, when he started Siebel Systems in 1993, Thomas M. Siebel deliberately went after prospects that fully understood the need for Customer Relationship Management (CRM) systems from the get-go. "We were looking for people who understood the need and wanted to do it" [18].

The innovators are very often "lead users" companies, organizations, or individuals that are well ahead of market trends and have needs that go far beyond those of the "average user" according to E. Von Hippel [19] who first coined the concept of "lead user."

For instance, in 2002, Microsoft singled out 10,000 "hard-core gamers"—from more than 100,000 volunteers—to test its new on-line gaming service and they came back with some useful suggestions. For example, the microphone/headsets that Microsoft provides with the Xbox Live service allows players to change the sound of their voice and assume a different identity.

Networking is the most effective way to find lead users, because people who are interested in a topic tend to be familiar with others who know more. So, one can start with the individual who seems to have a degree of expertise on the subject, and then ask for a referral to someone who has even more appropriate knowledge. Ultimately, one can reach the lead users at the forefront of the market. Then the marketers can scrutinize the behavior of those lead users and interview them to get a better understanding of their needs, wants, and desires. They can also giving lead users the opportunity to test various prototypes. Actually, it has been shown that when individuals play a part in the design of the technology their degree of involvement increases [20] and their response more positive, adding to the need for and value of the technology [21]. Subsequently, with all that information and feedback, a company can elaborately design and market a product that will appeal to innovators. Mostly, it has to be introduced to the market with a lot of technical information, always a must for the innovators, and then relayed by the network of lead users and technology experts.

This solution can also attract the forerunner, but will have to be marketed differently, because individuals or organizations that fall in this category are looking for something innovative but mostly different. To attract them to the product requires a specific type of communication, as well as the capacity to customize the solution, as much as possible, and to offer specific services, including technical support.

For example, before introducing the Macintosh computer in 1984, Apple carefully prepared its potential market by building fruitful relationships with six different types of people: third-party developers;dealers;financial ana-lysts;trade, business, and general press;most critical Apple customers;and "luminaries." This last group represented about 50 creative people and decision makers such as Ted Turner, Lee Iacocca, and Andy Warhol. These famous people were all opinion leaders who were ready to make the Macintosh a new phenomenon and would pass on their passion for the Macintosh computer to an audience of "up-to-date" innovators and early adopters.

Long before introducing the Macintosh to the market, Apple had already informed the six aforementioned reference groups about the product so that these people would be inclined to make favorable comments because they already knew the product well. Apple gave almost 60 individual 7-hour presentations to financial analysts and journalists in the computer industry, 16 demonstrations for groups of 10 people or less, and training sessions for 40,000 retailers in the 3 months before introducing the Macintosh to the market.

Microsoft even went further to dramatically multiply the number of testers. When it rolled out Windows 2000 Beta 3, not only did it send the operating system to its usual core of 250,000 evaluators, but it opened up the beta-testing process through its Windows 2000 Corporate Preview Program (CPP), for a nominal fee with telephone support from either Microsoft or a solution provider during their evaluation. Demand exceeded 350,000 with all categories of companies from car rental agencies to network solutions providers and more, the highest number of customer previews of any product in the company's history (see also Section 6.3.1).

The importance of understanding the needs of innovators and forerunners is illustrated by another example in the on-line services business, where first users seem to value the communication abilities of networks, rather than their content. However, when Prodigy entered the on-line services business, its management postulated that its central value would be to give consumers access to various kinds of published content—such as news, weather reports, sports scores, and economic data—as and when required. Very soon subscribers appeared to be much more interested in communicating with one another. Unfortunately for Prodigy, its architecture was designed to facilitate access to published content, rather than connection among users.

That flaw left a window of opportunity for America Online (AOL). Prodigy's competitor developed a different architecture that allowed users to communicate either in real time through chat rooms or at any time through bulletin boards where they could post and receive or read messages. While Prodigy's growth stagnated, users rushed to AOL, especially after it introduced specialized chat rooms and bulletin boards for users who shared a particular interest or a similar lifestyle, like teenagers.

Targeting first innovators is also a sound business-to-business marketing strategy, because they may create a snowball effect that will expand in the whole market. For instance, Shinko, a Japanese semiconductor packaging manufacturer, decided to target Intel as a key customer, because of Intel's leadership in the semiconductor business. Shinko managed to meet Intel's packaging design requirements for different chip forms and became its first supplier. When other semiconductor manufacturers such as Texas Instruments and IBM switched to the same technology as Intel's, Shinko was already there to provide leading-edge solutions. As a result, Shinko increased sales at an annual growth rate of 18% from $68 million in 1980 to $726 million in 1994.

Similarly, Hashimoto Chemical first targeted Sony as a customer and managed to achieve a 90% market share by establishing a de facto standard in electrolyte-related materials for lithium ion batteries. Another Japanese chemical company, Tanaka Chemical, first targeted Matsushita and ultimately won 80% of the market of active material for hybrid battery cathode.

Furthermore, studies show that the more complex an innovation, the more time it will take for customers to accept the innovative product [22]. For any new product, the more important the extensive retraining required, the higher the risk to be rejected because of the high switching costs [23].

Consumers, especially mainstream users and followers, of high-technology products usually want to be able to transfer the product/usage skills that they developed with one product to another original product. If this is not the case, they may decide not to learn how to use the new product [24]. A classic example is the QWERTY typewriter keyboard that has persisted as a standard for years, despite the availability of superior alterna-tives;a contemporary example is the de facto Lotus 1-2-3 standard for spreadsheet software due to the proliferation of the electronic spreadsheet in the workplace and the extended period of training needed to use them efficiently [25]. In the mid-1990s, Excel replaced 1-2-3 as a best seller, but one must note that it adopted a design similar to 1-2-3 in order to ease the switch for 1-2-3 users. Even popular products such as Windows 95 or Pentium microprocessors are not as widely adopted, as one would imagine, given their image of being the "standard" solution. A recent survey in June 1997 revealed that the Pentium was used by only 40% of the American households equipped with PCs, while the other 60% relied on x86-based computers (or even older). Similarly, only 48% of the American PC household users were using Windows 95;the others used older operating systems. In 2002, Microsoft was still selling 110,000 copies of the Windows 98 upgrade compared to 230,000 copies of Windows XP upgrades;in fact, Windows 98 sales increased from the fourth quarter of 2002.

In essence, a company can accelerate the market penetration of a new product by informing and educating as many potential customers as possible, so that they will know the product, will be able to measure its superiority over other existing products, and will feel capable of describing the advantages of the innovation to other people. Sun Microsystems has even set up an organization of technology evangelists, a group of about 15 top guru engineers whose main role and job are to share the passion of technologies with developers around the world and to inform them about the latest developments by Sun.

Another reason why innovation may take many years to replace an established technology is because of the investments made in the previous technologies that can still be productive. A case in point is the introduction rate of electricity on the American industrial market. In 1910, only 25% of U.S. factories used electric power mostly for new plants or new activities. In more mature industries, the replacement of water or steam by electricity as the source of power had to await the depreciation of existing plants. Twenty years later, 75% of firms were using electricity. This trend is not confined to businesses;it applies to consumers, as well. For instance, the market success of the DVD is largely correlated to the consumers' value of their current VCR system. The higher the value, the less they will be inclined to invest in a new image recording system.

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