Knowing Customers and Markets The weathered high-tech firms that have successfully survived the business whirlwind of this decade are all highly tuned in to the market. Actually, when demand is going down, it is a mat - ter of life or death to know the customers, their needs, expecta - tion, and wants, as thoroughly as possible. Only with this knowledge can a high-tech firm market the right product at the right time to the right client. Those companies have a talent for knowing the customer’s expressed or latent needs before these needs can be transformed into a company’s products and technology. To know their customers inside and out, first companies talk to their customers and ask the right question. A good example is Lou Gestner, the former CEO of IBM, who managed to turn this technology-driven mastodon into a market- sensitive elephant. Unlike previous IBM executives before him, Lou Gestner spent half his time traveling around the globe vis - iting IBM customers. Routinely he asked his customers, “How can I serve you better as a vendor?” [1]. Also, high-tech winners know how important it is to under - stand customer value [2] for a given product. For example, laser discs and the use of digital sound technology have answered the call for a higher quality of sound. The need to communicate generated wireless networks and satellite con - nections. The need for greater reliability and performance in automobile assembly resulted in the use of robots for welding, painting, and manufacturing purposes. According to the manufacturers of electronic measuring instruments, three out of four of their innovations come directly from customers’ insights. In the semiconductor and printed circuit board industry, it is two out of three [3]. However, the high-technology sector is also characterized by an abundance of technical processes derived from research 73 3 Contents 3.1 Determining the customer’s buying behavior 3.2 Estimating demand 3.3 Managing the relationship with customers 3.4 Summary CHAPTER and development laboratories or individual researchers. In this case, a mar - keting manager must therefore be able to help transform these new ideas into products that are suited to the needs of the customer and the market. This preliminary step is necessary to assure the maximum amount of success when launching new products as a result of a newly developed technology in the company. In both cases, a marketing manager must know how to estimate the level of market demand. He or she must have an understanding of the buy - ing behavior of a company’s actual and potential customers in order better to perceive the needs of the market, find ideas for new products, or test the compatibility between the applications of a new technology and the cus - tomers’ needs. A marketer must know not only the needs, but also the wants and the demands of target or potential markets. Needs are the basic human requirements, such as the need for food or shelter, but also the need for communication, entertainment, or education. The needs turn into wants when they are directed to specific categories of products that might ful - fill the need. For entertainment, a male teenager will play with a video game while an adult will look for a movie on network TV, on cable, or even at the nearest video rental store. Wants are driven by different factors, which are detailed in the following section. Demands are wants that can materialize thanks to money and some purchasing power. Many western consumers want broadband with unlimited access to Internet connected to a sophisticated home cinema system. Only a few are able and willing to buy that. 3.1 Determining the customer’s buying behavior The analysis of the principal purchasing factors for high-tech products is not different from the analysis performed by a marketing manager in a more traditional company. The guidelines that are used in perform - ing such an analysis already exist and are used as much in the con - sumer goods and services sector as in the industrial goods and services sector. However, the particular characteristics of high-tech products, especially their newness, make their value often difficult to determine for potential customers (see the following). Consequently, marketers of high-tech prod - ucts must specifically analyze the attitudes of customers regarding innova - tion and risk. 3.1.1 Purchasing factors for high-tech consumer products High-tech consumers [4] can be defined as anyone who buys and consumes innovative products and services as defined in Chapter 1. This includes digi - tal video discs (DVDs), digital cameras, cellular phones, palmtops or video games, as well as broadband and Internet services. 74 Knowing Customers and Markets When someone purchases a high-tech good or service for personal use, he or she is influenced by four classes of factors: sociocultural, psychosocial, personal, and psychological (see Figure 3.1). Let’s take the example of Wi-Fi, the high-speed wireless technology, based on a set of communication standards known as 802.1, which allow users to log on the Internet without cables, using wireless local area net - works (WLAN). Already in place in universities and large and small firms, Wi-Fi is reaching the end-user customer thanks to the growth of public WLAN networks, which provide Internet access within a range of 100m are 3.1 Determining the customer’s buying behavior 75 Back to the Future [5] Frequently changes in mindset trail technology changes. History offers some examples of this, sometimes from some very astute connoisseurs of technology. “What can be more palpably absurd than the prospect held out of locomotives traveling twice as fast as stagecoaches?”—The Quarterly Review, England, 1825 “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value.”—Western Union internal memo, 1876 “The horse is here to stay but the automobile is only a novelty, a fad, a passing fancy.”—A president of the Michigan Savings Bank advising Horace Rackham (Henry Ford’s lawyer) not to invest in the Ford Motor Com - pany, 1903 “While television may be theoretically feasible, commercially and financially I consider it impossibility, a development of which we need waste little time dream- ing.”—Lee DeForest, American radio pioneer, 1926 “There is not the slightest indication that nuclear energy will ever be obtainable. It would mean that the atom would have to be shattered at will.” —Albert Einstein, 1932 “Computers in the future may have only 1,000 vacuum tubes and weigh perhaps 1.5 tons.”—Popular Mechanics, 1949 “There is no reason for any individual to have a computer in their home.”—Ken Olsen, president and founder of Digital Equipment Corporation, 1977 “I see no advantage to the graphical user interface.”—Bill Gates, chairman of Microsoft, 1984 installed in airports, hotels, coffee shops, and even barbershops. In 2003, there were more than 5,000 Wi-Fi hot spots in Europe, and the number is expected to grow exponentially to 90,000 by 2007. As with many other high-tech consumer products, Wi-Fi technology of today derives from military development. During World War II, an Ameri - can composer, George Antheil, and an Austrian engineer turned starlet, Hedy Lamar, came up with the idea of inventing a communication system, which repeatedly changed the signal that guides a torpedo, therefore mak - ing it impossible to jam. This opened the door for WLAN networks, which operate on the same principle. The first Wi-Fi products were developed in the 1980s by NCR, a firm that makes ATM and cash machines, to connect the cash registers to the mainframe computers of large retail companies such as Kmart or Sears. In 1999, Apple paved the way to Wi-Fi consumer 76 Knowing Customers and Markets Status Social class Culture Reference groups Income Psychosocial factors Personal factors Psychological factors FamilyPersonal attitude Perception Motivation Education Age Customer Profession Geography Lifestyle Figure 3.1 Purchasing criteria groups for high-tech consumer products. The lightest shaded areas represent psychosocial factors, the darker shaded areas represent personal factors, and the darkest shaded areas represent psychological factors. applications when it started equipping its laptops with receivers, while launching the AirPort transmitter. Today, Wi-Fi is on the way to become ubiquitous. 3.1.1.1 Sociocultural factors The interest in Wi-Fi only exists because our culture values images and speed, and because we have owned laptops and used the Internet for a sig - nificant amount of time. The product does not have the same attraction for consumers who live in cultures where Internet and information technolo - gies are relatively unfamiliar. Consumption choices vary according to nationality, religion, race, and national origin. This is very true for high-technology products [6]. For instance, 60% of the on-line households in Korea have broadband access and 95% log on to the Internet. In the United States 27% of the on-line households have broadband access, while the share is only 14% in the European Union. In India there were about 2.5 million Internet users in 2002, while more than 33 million people in China were on-line with less than 1% penetration rate for broadband in those two countries, the biggest in the world. The social environment also plays an important role: someone who belongs to a fairly high class spends more money on leisure activities and could be specifically targeted for a new high-tech product. 3.1.1.2 Psychosocial factors Reference groups (such as family, neighbors, friends, and colleagues) have a strong influence on purchases of high-tech products. Purchasing Wi-Fi can be influenced by family pressure, impressionable neighbors and friends, or colleagues who have already bought and are very happy with one. Further - more, Wi-Fi can be perceived as a status symbol that appeals to all consum - ers who buy products for social status reasons. 3.1.1.3 Personal factors Age is an important determining factor. Wi-Fi is mainly of interest to age groups that heavily invest in their leisure activities: singles or young couples without children, as well as older couples (“empty nesters”). For those cate - gories of consumers, one of the main appeals of Wi-Fi is to move music and videos from the various MP3s, digital and video cameras to the home enter - tainment systems, namely, TVs and stereos. Wi-Fi also attracts mobile professionals who need to stay in touch. They will use Wi-Fi at the coffee shop or the barbershop to read e-mail, access databases, or edit video on-line. The consumer’s financial status (level of income and debt) is also impor - tant in the decision to purchase a high-tech product with a price that is initially high, because the research and development costs must be recovered. 3.1 Determining the customer’s buying behavior 77 Lifestyle also determines consumption choices. According to the lifestyle definitions by CCA, a major French market research company specializing in consumers’ lifestyle analysis, Wi-Fi more often attracts forerunners, who are interested in new technologies and have an adventurous mind, than the traditionalists, who glorify the past. 3.1.1.4 Psychological factors Many psychologists, the most notable of which are Sigmund Freud, Abra - ham Maslow, and Frederick Herzberg, have stressed the importance of motivation. Their conclusions have important ramifications for the market - ing of high-technology products. Freudian theory emphasizes the psychological dimensions of a product: that outside of its functional aspect, a buyer of Wi-Fi takes into considera - tion more than just the product’s performance and main benefit. For instance, Hewlett-Packard and Philips have launched devices that use Wi-Fi to connect computers with TVs and stereos, a major catch for consumers. But even so the buyer of such devices is also sensitive to other aspects of the product like its size, shape, weight, color, and even the aesthetic quality of its buttons. These elements can trigger emotions that will reinforce a cus- tomer’s attraction to a product or, on the contrary, will keep her or him from purchasing it. Therefore, a company must carefully consider all exte- rior aspects (such as packaging) during a product’s design and manufactur- ing phases. In the computer business, Apple is well known for its unique ability to offer very attractive products with shiny colors, round and sensual design, and inimitable artistic form, such as the iMac or the iPod. Maslow developed an analysis grid that is divided into five categories of needs: physiological, safety, love, esteem, and self-actualization. The pur- chase of Wi-Fi can therefore respond to many motives, which correspond to diverse needs, such as reassurance and belonging to a group (by imitating people who already own Wi-Fi), being respected (by differentiating from others who cannot afford Wi-Fi), or treating oneself (by buying a high- performance item). Herzberg differentiates between the two states of satisfaction and dissat - isfaction that exist in each person. The practical consequence is that a com - pany must absolutely avoid dissatisfying elements and must carefully list the satisfying elements for the consumer, so that these elements can be added to the product. One of the major drawback of Wi-Fi systems today is that it drains a computer’s battery power very quickly, and that may result in cus - tomer dissatisfaction. On the other hand, an extraordinarily easy access to Internet services or e-mail from a place like a coffee shop, a barbershop or even a doctor’s waiting room, can evoke the consumer’s satisfaction and enthusiasm, and lead him or her to purchase the product. The purchase of a product also depends on the perception that people have of the product. Someone who wants to buy a Wi-Fi system will notice all the advertising for Wi-Fi, but will ignore advertising for GPRS or 3G cell phones. Also, such a person will pay more attention to laptops with Wi-Fi in stores than to new 3G cell phones on display. 78 Knowing Customers and Markets Perception is complicated by two phenomena: selective distortion and selective retention. Selective distortion makes someone “adjust” informa - tion so that it corresponds to his or her wants. For example, in Europe, someone who likes Orange products will have a tendency to idealize the advantages and reduce the disadvantages when examining an Orange Wi-Fi offer. Selective retention inclines the customer to remember information that reinforces his or her beliefs, and the belief will predict the attitude about the product [7]. For instance, a Vodafone advocate will more easily remember the advantages of a Vodafone Wi-Fi and the disadvantages of a T-Com Wi-Fi than vice versa. Past experiences also play a large role in the purchasing decision process. These experiences can be ascribed to behavioral learning. Someone who is unhappy with a high-tech product after purchasing it will have a future ten - dency to reject this type of product and instead consider more traditional products. In addition, a buyer who is satisfied with his or her Orange cell phone will most likely prefer an Orange Wi-Fi. This preference goes to a brand with which a customer is already familiar. Finally, one’s attitudes toward a product are important. Opinions and tendencies lead or curb certain behaviors. Everyone has a certain attitude toward almost every element of society: politics, art, education, and food. These attitudes allow for a coherent response to many diverse subjects. An attitude creates a positive or negative environment for a product. Someone who believes that mobile operators have greater service quality than Inter- net service providers or fixed-network operators, and that “Vodafone always has the best communications services,” has an attitude that rein- forces his or her intentions to purchase a Vodafone Wi-Fi. Finally, a consumer who chooses to buy a high-tech product for personal use is influenced by many factors. Accordingly, a marketing manager must identify all the factors that lead to a purchase and should take these factors into account during product development, price setting, distribution selec - tion, and sales promotion. 3.1.2 Purchasing factors for high-tech products in business-to-business activities Typically, high-tech industrial markets are smaller than consumer markets. In 2002, the worldwide market for photoresist, a chemical material used in manufacturing semiconductors, was $820 million, while the market for semiconductors was over $150 billion. Similarly, the market for the plasma material used in the flat panel display (FPD) was only $900 million while the global FPD market was over $25 billion. As a consequence, the limited size of business-to-business markets makes them easier to identify, analyze, and understand. The purchase of industrial goods and services rarely depends upon a sin - gle person but rather usually on a group. In such a group, there are the fol - lowing participants: the user, who needs a good or service and prepares the 3.1 Determining the customer’s buying behavior 79 80 Knowing Customers and Markets Case: Global Results of Tech Marketing Study The Tech-Savvy Consumer of Today … and Tomorrow A new study of tech-savvy consumers around the world provides a can - did global portrait of digital living and draws insightful implications for marketing to the “Netizens” of tomorrow. The study, “Wired & Wireless: High-Tech Capitals Now and Next,” was conducted by Euro RSCG Worldwide, one of the world’s leading advertising and communications networks. The study queried consumers in 19 cities around the world with heavy penetrations of wired Internet usage and/or mobile, wireless devices, as well as in emerging markets with rapidly rising technology usage rates. One of the most sobering conclusions drawn from the study results is that advertising and point-of-sale promotion fall flat when it comes to disseminating information and stirring consumer desire for technology. Just 13% of the total sample said they get most of their information about technology products from advertising, and a mere 1% said they get it from stores. The Internet seems to be doing a better job of getting the word out: 20% of respondents overall said they get tech information from Web sites. However, the most relied-upon source of high-tech product information is word of mouth: 20% of respondents turn to col- leagues at work, 11% call upon their friends, and 3% rely on family members. The survey identifies also a paradox between Home Tech and Work Tech. On one hand, the gap is narrowing between home, workplace, and the social arena. According to respondents, technology is on the brink of creating an all-in-one digital lifestyle, blurring the lines between work, entertainment, and family life. Alternatively, the findings suggest that the respondents are making a conscious effort to maintain some separation between work and home. Even though 91% of respondents have a computer at home, 60% do not have a space they define as a home office. Actually economic and cul - tural reason play into this variable: Tokyo respondents were least likely to have a home office, probably owing both to space limitations and to their culture’s rigid concept of work as something to be done at the office; San Francisco respondents were most likely to have one, thanks to their early adoption of the 24/7 tech lifestyle and high levels of entre - preneurship and freelance/contract work. Finally, just 15% of the total sample agreed completely that technol - ogy is a threat to personal privacy, while another 31% agreed some - what, and 25% disagreed completely or somewhat. The respondents seemed to have made their peace with this side effect of progress. This seems to indicate that marketers needn’t take extraordinary measures to gain consumers’ trust. They must simply be straightforward. Users want to know what information is being gathered and how it will be utilized. specifications; the go-between, who puts the user in contact with an outside supplier; the adviser, who is usually the subject specialist (for example, in computers and robotics); the purchasing agent, who chooses the suppliers; and the decision maker, who signs the purchasing contract. The price of a particular high-tech product strongly determines the number of participants in a purchasing group. A computer workstation, worth thousands of dollars, can be bought directly by a development engi- neer, but an investment in robotics equipment for a manufacturing line with a total value near several million dollars will be carefully scrutinized before a member of the executive board signs the purchasing contract. Therefore, a marketing manager must analyze the principal determining factors for industrial purchases. These factors can be divided into three classes according to their relation to the environment, to the organization of the purchasing company, and to the decision maker (see Figure 3.2). 3.1.2.1 Environmental factors Environmental factors that can be found outside of business customers are political context, economic situation, demand level, competition, and tech - nological evolution. This last dimension is, of course, fundamental in the high-technology sector. For instance, when the marketing manager of Arianespace analyzes the needs of some of its clients, such as the telecommunication companies, the civilian governments or the 30 biggest military forces in the world (see Figure 3.3), he or she must evaluate the position of rocket launchers in rela - tion to other technologies, such as radio links, electromagnetic waves, or fiber optics, that will strongly determine the demand for satellite launching. He or she must also study: ◗ The position of current competitors, Lockheed Martin and Boeing (At which price will Lockheed Martin offer its new rockets? Have 3.1 Determining the customer’s buying behavior 81 (Continued) The study was conducted in April and May 2001, and consisted of four parts: a 100-question e-poll (1,830 respondents); a 40-question, self- administered written survey (108 respondents); videography and photo documentation of the digital lifestyle in each market; and extensive sec - ondary research. In addition to the 108 self-administered interviews in the target markets, Euro RSCG received survey responses from approxi - mately 50 respondents elsewhere in the world (ranging from New York City to Bangalore, India), which served to inform the regional analysis. Question 1: What are the marketing implications of the main results of this survey? Question 2: What do you think of the methodology? Is the sample representative? To what extent must a marketer consider the validity of the outputs? Boeing’s Delta rockets launch problems been fixed?), as well as new entrants (What about the viability of a new venture such as the Sea Launch platform, an oil rig redesigned as a launch pad, which floats near the equator? How frequently and reliably can this system send rockets into space? What is the business potential of the old Russian ballistic missiles, decommissioned at the end of the Cold War, to become actual competitors?); ◗ The overall economic situation (for example: What impact will the tele - communication slowdown have on the projects of private telecommu - nication companies regarding the launching of satellites?); ◗ The political situation (What are the projects of China and India? So far they have achieved successful launches, but only of small 82 Knowing Customers and Markets Objectives Interest rate Economic situation Political context Purchasing process Technological evolution Environmental factors Organizational factors Personal factors Competition Buyer Personal attitude Perception Revenues Education Structure Figure 3.2 Purchasing criteria groups for high-tech industrial products. The lightest shaded areas represent environmental factors, the darker shaded areas represent organizational factors, and the darkest shaded areas represent personal factors. [...]... 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 high-tech product 86 Knowing Customers and Markets 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... 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) 90 Knowing Customers and Markets The importance of understanding the needs of innovators and forerunners is illustrated by another example... tools can be divided into four categories: concept tests and prototype tests, opinions of experts, sample groups and test markets, and quantitative analysis 3.2.1 Concept tests and prototype tests Performed on existing or potential groups of customers, concept and prototype tests allow for a conceptual evaluation of a new product or a prototype and its features These tests measure the product’s appropriateness... 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. .. buyers 92 Knowing Customers and Markets 0 Cost of product or service 10% 20% 30% Percentage of responses Confidence in selling organization Product performance Product quality Service Figure 3.5 Purchasing criteria for high-technology goods and services Tabulation of responses to the question: Which are the deciding factors that influence your customers in a purchasing decision? With this in mind, customers. .. 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 88 Knowing Customers and Markets Percentage of people adopting the innovation 34% 34% 13.5% 13.5% 2.5% Innovators Figure 3.4 2.5%... distributors The main point is to know the customer and to get as much information as possible about that customer Consequently, all the CRM programs rely extensively on the set up and the manipulation of a customer database where all the information stored in a data warehouse are then sorted and analyzed through data mining software 102 Knowing Customers and Markets The CRM approach has proven very effective... Relative anonymity Interviewer bias Engaged line and no answer can be significant Face-to-face interviews Very flexible: respondents can be shown visual materials and helped to answer questionnaires Interviewer bias Refusals may be lowered by a positive attitude from interviewers Expensive Observation provides more quality data 98 Knowing Customers and Markets quantitative analysis often involves working... overestimate the level of demand and the rate at which demand will develop This was the case for the evaluation of the PC homeconsumer market, as well as for the system integration business-to-business market Conversely, AT&T and other telecommunication operators underestimated the market for cellular phones and none expected the World Wide Web to explode like it has Those two markets have grown at such . phones, palmtops or video games, as well as broadband and Internet services. 74 Knowing Customers and Markets When someone purchases a high-tech good or. figured out that 86 Knowing Customers and Markets this category of customer was not profitable and companies like Orange, Bouygues Telecom, and others embarked