1、Chapter 13 CRAFTING A DEPLOYMENT STRATEGY,Strategic Management of Technological Innovation Melissa Schilling,Deployment Tactics in the U.S. Video Game Industry,1972, Nolan Bushnell founded Atari and introduced the game Pong (http:/www.xnet.se/javaTest/jPong/jPong.html) that was played on a TV set wi
2、th an Atari console. Pong earned $1million revenue in its first year By 1984, video game console and game sales reached $3 billion in the US alone. Console makers did not provide strict security and unauthorized games of poor quality flooded the market. Sales dropped dramatically and by 1985 the vid
3、eo game industry was declared dead. Much to everyones surprise, Nintendo and Sega entered the market with 8-bit systems. They spent $15 million on advertising. Nintendo had a near monopoly from 1985-1989. Nintendo made games in-house and through 3rd part developers with strict licensing policies Lim
4、ited number of titles a licensee could produce Developer had to pre-order a minimum number of cartridges Developer could not make similar games for other consoles Very profitable policies but they were sanctioned by the FTC and alienated distributors and developers,13-2,Deployment Tactics in the U.S
5、. Video Game Industry,In 1989, Sega was able to overthrow Nintendos dominance by introducing the 16-bit Genesis system 1 years before Nintendo. Backward compatible to their 8-bit games Nintendo introduced its 16-bit system in 1991 but Sega had too much of a jump on them and was the market leader Nin
6、tendo did not make it backward compatible In 1995, Sony was able to break into the video game industry by introducing a 32-bit system, investing heavily in game development, and leveraging its massive clout with distributors. By 1996, Sonys installed base was 2.9 million units vs Segas 1.2 million u
7、nits In late 2001, Microsoft entered the video game industry with a 128-bit system. It had an advanced machine, and spent a lot on marketing and games, but Playstation2 (also 128-bit) already had an installed base of 20 million. On the first weekend of PS2 sales (March 4, 2000), 1 million units were
8、 sold. The website had more than 100,000 hits in one minute and had to temporarily shut down,13-3,Deployment Tactics in the U.S. Video Game Industry,In late 2005, Microsoft introduces the Xbox 360, beating the Playstation3 to market. The figures as of 5/4/2008 (http:/ are in the chart below the game
9、 never ends and has now extended into the hand-held market as well.,13-4,Overview,Only part of the value of any technological innovation is determined by what the technology can do. A large part is determined by the degree to which people understand it, access it and integrate it with their lives. A
10、n effective deployment strategy is thus a key element in a technological innovation strategy. It is not just a way for the firm to earn revenues but is a core part of the innovation process itself,13-5,Overview,Deployment strategies can influence the receptivity of customers, distributors and comple
11、mentary goods providers Reduce uncertainty about the product, lower resistance to switching from competitors and accelerate adoption 3DO and Phillips introduced the first two 32-bit systems but they failed because they were priced too high and had few games Segas 32-bit system was priced right but w
12、eak distribution hobbled its deployment Sony, on the other hand, used intense marketing, low prices, strong game availability and aggressive distribution to ensure a very successful launch of the Playstation,13-6,Launch Timing,The timing of a market launch can be an important deployment strategy Nin
13、tendo held back on releasing its 16-bit system for fear of cannibalizing their 8-bit system even though Sega had released Genesis Strategic Launch Timing Firms can use the timing of product launch to take advantage of business cycle or seasonal effects e.g., video game consoles are always launched j
14、ust before Christmas. Timing also signals customers about the generation of technology the product represents. e.g., if a next generation console is launched too soon after a previous generation console, the market may not want to spend money on a new console after having just purchased a previous g
15、eneration console. Xbox next generation but launched too close to PS2s launch Timing must be coordinated with production capacity and complements availability, or launch could be weak.,13-7,Launch Timing,Optimizing Cash Flow versus Embracing Cannibalization Traditionally firms managed product lifecy
16、cles to optimize cash flow and return on investment would not introduce new generation while old generation selling well. However, in industries with increasing returns this is risky Competitors can gain a substantial lead that will be difficult to overcome Often better for firm to invest in continu
17、ous innovation and willingly cannibalize its own products to make it difficult for competitors to gain a technological lead. Cannibalization: when a firms sales of one product (or at one location) diminish its sales of another (or another location). In the late 1980s, Nintendo did not want to cannib
18、alize their 8-bit system despite Segas launch of a 16-bit system and thus lost market share,13-8,Licensing and Compatibility,Protecting a technology too little can result in low quality complements and clones, a fragmented market and little revenue for the developer Protecting too much may impede de
19、velopment of complements. Firm must carefully decide: How compatible to be with products of others If firm is dominant, generally prefers incompatibility with others platforms but may use controlled licensing for complements. If firm is at installed base disadvantage, generally prefers some compatib
20、ility with others and aggressive licensing for complements. Whether to make product backward compatible If installed base and complements are important, backward compatibility usually best leverages installed base and complements of previous generation, and links generations together. Can be combine
21、d with incentives to upgrade. Sony did this with PS2 which gave incentive to current customer base to upgrade and not forfeit existing games they own from previous generation of console Microsoft does this with Windows; backward compatible with major s/w applications developed for previous generatio
22、ns,13-9,Pricing,Price simultaneously influences product positioning, rate of adoption, and cash flow. In order to determine a pricing strategy, a firm has to decide on its objectives Industry has intense price competition and/or overcapacity objective short-run strategy may be simply survival Cover
23、variable and some fixed costs In the long-run the firm will want to create additional with a strategy of maximizing current profits Firm estimates costs and demand and then sets the price to maximize cash flow or rate of return on investment For new technological innovations, firms often emphasize m
24、aximum market skimming or maximum market share Market skimming strategy (high initial prices) Signals market that innovation is significant Recoup development expenses (assuming theres demand) Attracts competitors, may slow adoption,13-10,Pricing,When seeking high volume, firms will emphasize maximu
25、m market share objective Penetration Pricing is used to achieve this goal (very low price or free) Accelerates adoption, driving up volume, build installed base, attract developers of complementary goods Requires large production capacity be established early Risky; may lose money on each unit in sh
26、ort run Common strategy when competing for dominant design Honda priced the hybrid car Insight below cost because believed it would be profitable in the long run and presented Honda as a “green” car company Video console developers have sold their consoles at or below cost but profit from game sales
27、 and licensing royalties,13-11,Pricing,Can manipulate customers perception of price Free initial trial or introductory pricing enables consumer to overcome uncertainty about the new technology, become familiar with the technology and appreciate the benefits Initial product free but pay for monthly s
28、ervice Cable television model Firms also use introductory pricing for a stipulated amount of time to test the markets response without committing to a long-term pricing structure,13-12,Distribution,Selling Direct versus Using Intermediaries Selling direct Gives firm great control over selling proces
29、s, price and service Firm can capture more information about customers and can facilitate the customization of products Can be expensive and/or impractical Intermediaries may include: Manufacturers representatives: independent agents that may promote and sell the product lines of one or a few manufa
30、cturers. Useful for direct selling when its impractical for manufacturer to have own direct sales force for all markets. Wholesalers: firms that buy manufacturers products in bulk then resell them (typically in smaller, more diverse bundles) Provide bulk breaking and carry inventory. Handles transac
31、tions with retailers and provides transportation.,13-13,Distribution,Retailers: firms that sell goods to public Provide convenience for customers Enable on-site examination and service Original equipment manufacturers (OEMs): A company that buys products (or components) from other manufacturers and
32、assembles them or customizes them and sells under its own brand name. E.g., Dell Computer Aggregates components from multiple manufacturers Provides single point-of-contact and service for customer Also called Value Added Resellers (VARs) In some industries, information technology has enabled disint
33、ermediation or reconfiguration of intermediaries. Digital product may be delivered directly to the consumer over the Internet E.g., online investing enables customers to bypass brokers; online bookselling requires retailer to provide delivery services, online grocery shopping shifts “the last mile”
34、from the consumer to grocer,13-14,Distribution,These factors help determine whether and what types of intermediaries the firm should use: How does the new product fit with the distribution requirements of firms existing product lines? Is there is an existing distribution channel and does the new pro
35、duct fit into it? How numerous and dispersed are customers, and how much product education or service will they require? Is installation or customization required? Customers dispersed but require little training use mail order or online ordering Customers dispersed and require moderate training or s
36、ervice use intermediaries Customers not dispersed but require extensive training or service may need to provide this directly How are competing products or substitutes sold? The sales channel can influence the customers perception of the product,13-15,Distribution,Strategies for Accelerating Distrib
37、ution Alliances with distributors Providing distributor with stake in products success or exclusivity contract can motivate them to promote more. Sega had limited distribution for its Saturn launch, Nintendo had unlimited distribution for Nintendo-64 and Sony had unlimited distribution and extensive
38、 experience negotiating with retailing giants such as Wal-Mart Bundling relationships Sell in tandem with product already in wide use. MS Windows on almost all PCs, MS IE via AOL,13-16,Distribution,Contracts and sponsorship Provide price discounts, special service contracts or advertising assistance
39、 to distributors, complementary goods providers or large and influential end users. New medical technology is donated or lent to large teaching hospitals so that the benefits can be seen first hand by doctors and administrators which increases future purchases Guarantees and consignment When there i
40、s uncertainty about a product, distributors can be given guarantees to take back unsold stock thereby reducing the risk to intermediaries and complements providers. Distributors were reluctant to carry Nintendos NES after crash of video-game market in the 1980s. Nintendo agreed to accept payment for
41、 sold consoles rather than require up front payment,13-17,Marketing,Major marketing methods include advertising, promotions, and publicity/public relations. Advertising Requires effective message Requires media that conveys message to appropriate target market Varies in match to audience, richness,
42、reach, and cost. Must strike appropriate balance between entertainment or aesthetics (to make memorable) versus information content (to make useful),13-18,Marketing,Advantages and Disadvantages of Advertising Media,13-19,Marketing,Promotions Temporary selling tactics that include: Samples or free tr
43、ial Cash rebates after purchase Including an additional product (a “premium”) with purchase Incentives for repeat purchase Sales bonuses to distributor or retailer sales representatives Cross promotions between two or more non-competing products to increase pulling power Point-of-purchase displays t
44、o demonstrate the products features Publicity and Public Relations Attempt to generate free publicity and word-of-mouth (e.g., mention in articles, television programs, etc.) Produce own internally generated publications Sponsor special events,13-20,Theory In Action,Generating Awareness for Domoseda
45、n Farmos wanted to build awareness of its new innovation in animal painkillers. Asked university professors and advanced practitioners to help with testing process for drug acted as premarketing tool. Drug was featured in conferences, articles, dissertations. Farmos also hosted a large dinner party
46、for all practicing veterinarians at the drugs launch. Domosedan was adopted rapidly around the world and became a commercial success.,13-21,Marketing,Tailoring the Marketing Plan to Intended Adopters Innovators and Early Adopters respond to marketing that offers significant technical content and emp
47、hasizes leading-edge nature of product. Need media with high content and selective reach Early Majority responds to marketing emphasizing products completeness, ease o fuse, consistency with customers life, and legitimacy. Need media with high reach and high credibility Late Majority and Laggards re
48、spond to marketing emphasizing reliability, simplicity, and cost-effectiveness. Need media with high reach, high credibility, but low cost.,13-22,Marketing,Often hard to transition from selling to early adopters to early majority, resulting in “chasm.”,13-23,Marketing,Using Marketing to Shape Percep
49、tions and Expectations Perceptions and expectations of value can be as important as actual value. To influence, can use: Preannouncements and press releases Can build “mind share” in advance of actual market share Can forestall purchases of competitors products Reputation Provides signal to market o
50、f likelihood of success Credible commitments Substantial irreversible investments can convince market of firms confidence and determination,13-24,Research Brief,Creating an Information Epidemic Gladwell notes that some individuals have a disproportionate impact on marketplace behavior: Connectors Ha
51、ve exceptionally large and diverse circle of acquaintances Knack for remembering names and important dates Mavens Driven to obtain and disseminate knowledge about one or more of their interests Will track prices, tend to be consumer activists Take great pleasure in helping other consumers Salespersons Naturally talented persuaders Acute ability to send and respond to nonverbal cues; can infect others with their mood!,
