J PROD INNOV MANAG 2006;23:498–511 r 2006 Product Development & Management Association
Bringing High Technology to Market: Successful Strategies Employed in the Worldwide Software Industry Chris Easingwood, Steven Moxey, and Henry Capleton
The launch stage can be critical for many new products, but particularly so for technology-intensive ones. This study examines this key stage in a high-tech sector: the worldwide computer software industry. Using a research instrument developed across a number of high-tech sectors, but adapted to the targeted sector, it describes a worldwide telephone-based survey of 300 organizations, resulting in 190 interviews, a response rate of 63%. It shows that five distinct and interpretable strategies are employed: (1) alliance strategy involves forming early strategic alliances as well as tactical alliances at the execution stage together with the development of unique distribution channels; (2) targeted low risk attempts to reduce the risk of adoption among identified segments by producing versions of the product specifically customized to the segments; (3) low-price original equipment manufacturer (OEM) is the only price-driven strategy and combines low price with channel building to OEMs who are looking for attractive price-to-performance ratios; (4) broadly based market preparation is an early-stage strategy that concentrates on educating the market vis-a`-vis the technology and developing channels; and (5) niche-based technological superiority uses a technologically superior product to dominate a niche and corresponds closely to the chasm-crossing strategy expounded by Moore and others. Regarding superior product performance, successful software companies first of all engage in a broadly based preparation of the market but switch to a targeted strategy at the following stages of positioning and execution, built around superior technological performance and reduced risk. A somewhat different mix of strategies is adopted when the objective is superior market development, namely opening up new markets, reaching new customers, and developing new product platforms. Again the mix includes broadly based market preparation, this time along with alliances. This strategy is very much about working with partners. The broadly based market preparation strategy is key for both objectives, is long term in nature, and avoids narrowly defined niches. It seems that starting broad based and narrowing down, perhaps to a niche, only at a later stage when this is clearly the appropriate thing to do, pays dividends.
Introduction
Address correspondence to: Chris Easingwood, Manchester School of Business, Manchester M15 6PB, England. Tel.: þ 44 (0) (161) 2756482. E-mail: c.easingwood@mbs.ac.uk.
I
nnovation is an important determinant of wealth creation and economic growth. Yet innovation in the form of new products and services is for naught unless the new products can be brought to
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market and successfully overcome the inevitable hurdles to change and adoption that exist (Kim and Mauborgne, 2000; McDonald, Corkindale, and Sharp, 2003). That being so, the launch stage is a critical step in this wealth creation process that begins with the generation of an idea for a new product and ends with commercial success. This article looks at the launch of technology-intensive products and identifies some successful launch strategies.
Literature The subject of product launch probably has its origins in the work of Cooper (1975, 1979, 1980), Cooper and Kleinschmidt (1986), and Cooper and de Brentani (1991) on the new product development process, in which launch sometimes featured as one of many variables, from idea generation to concept development to firm synergy, that were included in increasingly comprehensive and detailed surveys to uncover the drivers of new product success (see Montoya-Weiss and Calantone, 1994 for a meta-analysis). In fact, launch was identified early on as one of the most important drivers, probably contributing to it becoming a separate subject for study. Although a few years ago the literature on new product launch might have been said to be relatively sparse (Green et al., 1997), that is not the case now, with the subject currently growing apace with some influen-
BIOGRAPHICAL SKETCHES Dr. Chris Easingwood is professor of marketing at Manchester Business School and head of marketing and strategy. He has a Ph.D. from the Wharton Business School and is an active researcher in a number of areas including services marketing, financial services marketing, marketing of technology, new product development and product marketing. He has published more than 80 articles appearing in leading international journals such as Marketing Science, International Journal of Research in Marketing, Journal of Business Research, Journal of Product Innovation Management, and Business Horizons. Dr. Steven Moxey has a Ph.D. from Oxford University and has held senior marketing positions in technology companies including Cable & Wireless and IBM Software, where he was responsible for the marketing management profession. Dr. Moxey has extensive experience of product development and marketing launch strategies for global software products. He is currently managing director of Serrula Ltd., a technology research and consultancy company with research specialization in technology marketing for the telecommunications and information technology industries. Henry Capleton is an experienced marketing manager from the software industry with international experience in Europe and the United States. He was formerly a marketing planning manager for IBM Software and is now a consultant with research interests in market planning, software product development, and channels.
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tial contributions (see particularly Debruyne et al., 2002; Hultink and Hart, 1998; Hultink et al., 1997, 2000; Langerak, Hultink, and Robben, 2004). However, though this general increase in activity is clear, this is not the case for the launch of technologyintensive products (Easingwood and Harrington, 2002). Yet the launch stage for high-tech products is likely to be especially critical. Many high-tech markets are characterized by a winner take most mode, and the eventual winner may not necessarily be the best product but the one that establishes an early lead (Arthur, 1996; Schilling, 1998). Furthermore, the window of opportunity in technology-intensive markets is likely to be narrow as newer technology may be waiting in the wings even as the new technology gets its one chance to establish itself (Mohr, 2000). Fluff that chance, and there may not be another (Easingwood and Koustelos, 2000). Rewards accrue to those who are first to see the shape of the next emerging technological play (Arthur, 1996), such as eBay, the Internet auction site. The present article looks at the launch of technology-intensive products, choosing the computer software environment for its empirical testing. Few attempts have been made to take an overview of the subject of the new product launch, partly because research into launch is scattered and partly because it may be just one of many factors examined. An exception is Hultink et al.’s (2000) comprehensive examination of strategic and tactical launch variables in both consumer and industrial markets. Sometimes the launch event is examined more from the perspective of the incumbent attempting to ward off the new product than from that of the company introducing the new product (see Cespedes, 1994; Kuester, Homburg, and Robertson, 1999). Defending companies take actions in an attempt to protect their own position and to reduce the new product’s impact. A few articles manage to look at both innovator actions and incumbent responses (e.g., Debruyne et al., 2002; Schilling, 2003). For instance, the incumbent’s reaction to the changed situation is dependent on the characteristics of the new product launch (Debruyne et al., 2002). Opinions have not been consistent regarding which variables belong in the launch stage (Hultink and Hart, 1998), but a common approach is to examine the strategies a company employs using a framework based on the marketing mix. Thus, advertising spend may be increased, price may be reduced, or a product may be modified (Hauser and Shugan, 1984). For instance, in fast-moving consumer markets, incumbents with nondominant share should on average reduce
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price and advertising support, whereas those with dominant shares should also reduce price but should increase advertising support (Gruca, Kumar, and Sudharshan, 1992). Marketing mix-based approaches can be helpful, and managers do at one level make adjustments to the components of the marketing mix, but ‘‘in the case of a highly innovative new product, an analysis of the marketing mix adaptations may provide too narrow a perspective’’ (Debruyne et al., 2002, p. 168). Some studies examine the effect of variables that represent the combined effect of a number of factors in summarized form, such as the magnitude of marketing investment or competitive advantage (e.g., Green and Ryans, 1990). Useful as these studies undoubtedly are, it is also useful to take the level of analysis down to consideration of the actions and tactics that managers actually use. An example is the market preparation/targeting/ positioning/execution framework of Easingwood and Koustelos (2000), which is based on interpretation of qualitative work carried out with high-tech marketing and product managers. The launch program is divided into stages: (1) market preparation, in which markets are readied for the product’s arrival; (2) targeting, in which promising sectors are identified; (3) positioning to achieve competitive advantage; and (4) execution, in which the market is attacked and includes direct actions to build sales. Activities undertaken in the first three stages are mostly strategic, in the sense that they involve high commitments of resources, take some time to work through, and are difficult to reverse (Debruyne et al., 2002). They are also strategic in the sense that they largely occur prior to launch (Hultink et al., 2000). Activities undertaken in the final execution stage are mostly tactical in that they belong to the product’s commercialization stage and can be modified at a later stage in the product’s launch (Hultink et al., 1997). High technology is no longer confined to the traditional sectors of computer hardware and software, telecommunications, and consumer electronics but has invaded many other sectors that rely on technology to enable them to deliver improved customer solutions, for instance service industries (Mohr and Shooshtari, 2003).
Purpose
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to secure good performance. It studies the use and effect of a number of tactics employed to launch the new product. It attempts to understand which tactics are natural bedfellows. In other words, which tactics, when used together, can be expected to complement and support one another? In addition, this article looks at the relationship, if any, between the mix of tactics employed and the resulting performance. In summary there are three main objectives: (1) to investigate whether any particular combinations of launch tactics are frequently employed; (2) to examine the launch tactics to see if they reinforce one another, forming strategies with coherent aims—in other words, to identify clearly definable combinations of tactics, called strategies; and (3) to identify strategies associated with enhanced performance. Implicit in this is an examination of the extent to which the stages build or do not build on one another. Thus, a secondary objective is to examine the strategies that emerge to see whether they are formed from tactics from all stages or whether the stages themselves form the strategies. In the present authors’ experience, mangers think in terms of the stages, so it is useful to see if the strategies actually employed conform to this perspective. Companies in the process of bringing new technology to market may have invested considerable resources and time in doing so (Urban and Hauser, 1993); in addition, more just than the financial returns from that single product may be riding on the outcome. Every new product launch by a high-tech company has the potential to consolidate or undermine its reputation for leading-edge work depending on the success enjoyed. For instance, high-tech companies need the ongoing support of their channels of distribution to support their products and services and to present them effectively to end users. Successful launches can increase the levels of support from the channels, and unsuccessful launches can do the opposite. In such cases getting the launch stage right can assume major importance. Deriving a better understanding of the launch strategies that work best would thus seem to be a worthwhile objective.
Methodology Development of the Research Instrument
The present article examines the launch event in a high-tech environment from the perspective of the company introducing the new product and attempting
Based on many discussions with practitioners in technology-based markets, it was concluded that
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managers in technology-based markets think in terms of actions taken (e.g., circulating information in advance, supplying original equipment manufacturers [OEMs], communicating technological advantages, reducing the risk of adoption, running trial programs, working effectively with channel partners). These and others form the bricks of high-tech product launches from which the strategies are constructed. It is therefore sensible to examine the consequences of the actual actions employed. Thus, although others have adopted the marketing mix with success when researching the marketing of new products, a framework that has been customized to the high-tech marketplace would provide a useful perspective. Such a framework already exists composed of a number of launch tactics derived from grounded work with marketing and product managers working in several different high-technology sectors (see Easingwood and Koustelos, 2000) and has been successfully employed across several high-tech sectors—eight different sectors that include pharmaceuticals, computers, automation, and telecommunications. This framework was adopted, although it had first to be adapted to the particular high-tech sector to be researched—the worldwide computer software industry—for a number of reasons: The framework had not been subjected to a second scrutiny by high-tech managers, needed to be updated given the speed with which high-tech sectors evolve, and possibly needed adapting from its general high-tech origins to the specific software sector to which it would be applied. Eight managers from the sponsoring high-technology company agreed to examine the research instrument in detail, five face to face and three over the telephone, which resulting in the following changes: Expansion/clarification: The precision of the terminology used was improved in some statements. For instance, the market preparation option ‘‘educate the market’’ was rephrased as ‘‘educate the market to understand new uses’’; the execution option ‘‘concentrate on a particular application’’ was made clearer as ‘‘concentrate on a niche,’’ which also has the advantage of better expressing the important ‘‘kingpin’’ strategy (Moore, 1998, 1999). Restatement: Some options were thought to be too specific and were reexpressed more generally. For instance, the market preparation option ‘‘cooperation/licensing/alliances’’ was restated as ‘‘form strategic alliances.’’ Some phrasing lacked clarity, so,
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for instance, the positioning option ‘‘emphasize a safe bet’’ was reexpressed as ‘‘emphasize low risk.’’ Combine stages: It was thought that the second and third stages, targeting and positioning, belonged together. Planning the target segment and the claimed position in that targeted segment are normally thought through in one step. Thus, the second and third stages were combined. Removal: Some statements, such as the targeting options ‘‘target competitors,’’ ‘‘customers,’’ and ‘‘target conservatives,’’ were considered to be too specialized for the targeted market and so were dropped. Addition: Three new tactics were added. An often used execution tactic in the software industry known as versioning is to modify the product to suit different segments, expressed as ‘‘offer different versions targeted at different buyers,’’ and this was included. Another option, ‘‘focus on channel partners,’’ was added to the execution options to capture the later stage efforts to motivate the channel partners. Also added to the execution stage was ‘‘use reference sites,’’ as this is a frequently used option in the surveyed market. The outcome was a clearer and more relevant research instrument (Table 1). This modified framework provides the list of measurement items used to identify the launch strategies.
Telephone Survey The high-technology sector chosen for the study was computer software. Software has the characteristics expected of a high-tech sector (Mohr, 2001): a high degree of scientific and technical uncertainty; new technology with the potential to make old technology obsolete and to do so rapidly; high or very high demand for new technologies often from new players; customer uncertainty over the potential value of the innovation; and a high percentage of sales invested in research and development (R&D). Leading players such as Microsoft, IBM, Oracle, and SAP are acknowledged high-tech companies. The research was targeted at software companies throughout the world with the requirement that they develop, produce, and market their own software products. A database, ‘‘Software 500,’’ of the top 500 software companies in the world produced by Software Magazine was obtained. The plan was to produce 200 completed questionnaires.
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Table 1. Launch Tactics Market Preparation MP1: Form strategic alliances MP2: Supply to OEMs to incorporate in other products MP3: Provide clear product information to the market MP3: Educate the market to understand new uses MP4: Create unique distribution channels Targeting and Positioning TP1: Target high-value users TP2: Emphasize low price TP3: Emphasize technology superiority TP4: Emphasize low risk TP5: Offer different versions targeted at different buyers Execution E1: Use opinion leaders E2: Have trial programs (e.g., demonstrations, ‘‘try and buy’’) E3: Concentrate on niches E4: Cultivate a winner image (i.e., winning mindset) E5: Focus on channel partners E6: Exploit tactical alliances E7: Use reference sites
The use of face-to-face interviews was ruled out on the grounds of expense, since the targeted software companies were located throughout the world. Also ruled out was a mailed survey, as it would most likely result in a low level of response. It was therefore decided to use telephone interviews because the research instrument was straightforward enough to be explained over the phone, the cost would be acceptable, and the response rate likely to be high. Telephone interviews would be conducted with senior product, brand, or marketing managers responsible for the marketing of one or more software products. The questionnaire was successfully telephone pretested for clarity, nonambiguity, and completeness with 10 software product managers from the supporting high-tech company. Contact was then made with the software companies by e-mail and telephone to screen the companies as well as seeking cooperation. Excluded from the sample were companies producing software products that are so closely related to proprietary hardware that the marketing and sales of the software is inextricably linked to that of the hardware, for example, proprietary operating systems or disk storage management software. Also excluded from the sample were companies producing software that is individually developed and charged for as part of a service contract—in other words, bespoke software or software that is not packaged and marketed independently.
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Table 2a. Country Location of Respondent Distrbution of Respondents by Country Frequency
Percent
Cumulative Percent
United States United Kingdom Canada France Germany Israel Sweden
130 48 4 3 2 2 1
68.4 25.3 2.1 1.6 1.1 1.1 0.5
68.4 93.7 95.8 97.4 98.4 99.5 100.0
Total
190
100.0
Table 2b. Scope of Responsibility of Interviewee Frequency
Percent
Worldwide Region Country
113 36 41
59.5 18.9 21.6
Total
190
100.0
A total of 190 interviews were completed out of 300 organizations contacted, which gave a response rate of 63%. The high response rate figure was credited to three factors: the high reputation in the sector of the research company employed to do the interviews; the efforts made to secure full participation; and the high interest in the topic under investigation. The majority of cooperating companies was based in the United States, followed by the United Kingdom (Table 2a). Some European and American firms were contacted at the U.K. office; all interviews were conducted in English. Checks on the types of company, on size, on geographic distribution, and on standard industry classification (SIC) categories indicated that the sample could be considered representative of the top 500 companies in the software industry. Most respondents held a worldwide responsibility for the marketing of their products (Table 2b). Information was sought on the number of products marketed by the business unit in question. Then the interviewees were asked if they managed more than one product. If so, they were asked to declare which recently launched product or product family is the most important to their organization in terms of current and potential sales and profits. The remainder of the questionnaire was then focused on that one product. Thus, only one product, or product family, was investigated per interview even if the interviewee had broader responsibility. The respondents were
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asked to indicate the importance of each tactic in the launch of the selected software product on a 1 to 5 scale, with 1 being of no importance and 5 being very important. Also collected was information on the success of the product using five measures of financial and sales success. However, the knowledge and experience gathered during the new product development process can be as important as the project itself (Bowen et al., 1994), including the platform created for subsequent new products, perhaps even families of products (Meyer and Utterback, 1993). Companies that do not develop new products and reinforce their core competencies soon fall behind the technology frontier (Schilling, 1998). Therefore, in addition to the five financial measures, four measures of success were added to capture the follow-on benefits of the new product project: (1) platform for further new products; (2) opening up access to new markets; (3) impact on image; and (4) attracting new customers (see Griffin and Page, 1993, for a review of success and failure product development measures). In addition, some background information was collected.
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Results Launch Strategies The data on the importance of each tactic in the marketing of the software products were then subjected to principal components factor analysis: varimax rotation and Kaiser normalization (Table 3). The scree plot for the eigenvalues has a longish tail; accordingly a cut-off level of 1.1 was set for the eigenvalues to prevent the inclusion of too many factors. This resulted in five factors explaining 52% of the original variance, each one a particular combination of launch tactics. The first factor has high loadings on those tactics that involve working closely with other players involved in bringing technology-based products to market. Particularly important are creating formal alliances, both strategic at the market preparation stage and tactical at the execution stage; creating unique distribution channels at the preparation stage and then focusing efforts on the channel partners at the execution stage; and developing
Table 3. Marketing Tactics and Factor Loadings Rotated Factor Loadingsa Factor 1: Alliances MP1: Form strategic alliances MP5: Create unique distribution channels E5: Focus on channel partners E6: Exploit tactical alliances E7: Use reference sites
.730 .483 .724 .831 .409
Factor 2: Targeted Low Risk TP4: Emphasize Low Risk TP5: Offer different versions targeted at different buyers E1: Use opinion leaders E2: Have trial programs (e.g., demonstrations, ‘‘try and buy’’) E4: Cultivate a winner image (winning mindset)
.492 .633 .536 .575 .448
Factor 3: Low-Price OEM MP2: Supply to OEMs to incorporate in other products MP5: Create unique distribution channels TP1: Target high-value users TP2: Emphasize low price
.419 .519 .548 .704
Factor 4: Broadly Based Market Preparation MP2: Supply to OEMs to incorporate in other products MP3: Provide clear product information to the market MP4: Educate the market to understand new uses
.549 .676 .723
Factor 5: Niche-Based Technological Superiority TP3: Emphasize technology superiority E3: Concentrate on niches
.774 .565
a
Cut-offs: 0.4.
Percent Variance Explained
Eigenvalues
13.977
2.376
9.984
1.697
9.970
1.695
9.789
1.664
7.924
1.347
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mutually beneficial relationships with customers who then provide reference sites for the new products. This combination of tactics is thus named the alliance strategy. The second factor represents a later stage strategy, with no market preparation activities. It has two components. The first is an attempt at lowering the customer’s perceived risk of adoption using a number of tactics: emphasizing low risk; attempting to be seen as the winner, which, if it is successful, convinces customers that the software is safe to adopt; offering trials so customers can test the product for themselves; offering guarantees; and gaining the support of influential opinion leaders whose recommendations are seen as proof the product is adoptable. The second component of the strategy involves targeting, particularly by producing versions of the product that have been prepared specifically for the targeted sectors. This strategy is thus summarized simply as targeted low risk. The third strategy has a clear, narrowly defined profile. It is built around low price and places more emphasis on this tactic than any of the other strategies. There is an emphasis on supplying OEMs and on creating unique distribution strategies. Consistent with its low price stance, it is very much not about serving high-value users. This is a low-price OEM strategy. The fourth strategy is very much based on an emphasis on the early-stage tactics of market preparation. It concentrates on providing the market with information and indeed on educating the market, which can be a long-term task. It seeks to develop unique channels particularly to OEMs and is broad based in the sense that it avoids narrowly defined niches. This strategy is thus dubbed broadly based market preparation. The fifth strategy is tightly built around a superior technological advantage aimed at well-defined niches and is thus called a niche-based technological superiority strategy. Five distinct launch strategies have been identified. The first two objectives of this work are accomplished namely demonstrating that software companies use distinct combinations of launch tactics that are clearly defined and highly interpretable and hence are deserving to be called strategies. The frequency of use of each strategy was estimated by counting the number of times each strategy enjoyed the highest score among all strategies for each firm (Table 4). The strategies were fairly uniformly
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Table 4. Launch Strategy Frequency Highest Scoring Launch Strategy
Count
Percent
Alliances Targeted Low Risk Low-Price/OEM Broad-Based Market Preparation Niche Technological Superiority
35 38 47 30 40 190
18.42 20.00 24.74 15.79 21.05 100.00
popular, with the low-price OEM strategy heading the list, followed by niche-based technology superiority.
Performance To address the final objective it was necessary to introduce one or more measures of success. As explained, respondents were asked to estimate the chosen product’s performance on nine measures using a 1–5 scale. The data were subjected to a principal components factor analysis, yielding a two-factor solution, explaining 28% and 21%, respectively, of the variance (Table 5). As can be seen, two distinct factors emerge: product performance, composed of sales, share, and profitability measures; and market development, which emphasizes longer-term development variables such as new markets, image, and new product platforms. Product performance. To investigate how the five factors influence product performance, the cases were divided into three equal groups based on the product performance measure of success. The high scoring group was then contrasted with the low scoring group, a commonly used practice (e.g., Hultink and Hart, 1998), using discriminant analysis, or stepwise variable selection using Wilks’s Lambda. The discriminant function is 0:047 þ 0:519 targeted low risk þ0:397 broadly based market prep þ0:418 niche- based technological superiority: Table 6 shows the percentage of cases correctly classified using this function and also using the crossvalidation approach; each case is classified by the function derived from all cases other than that case. A total of 66.9% of the original grouped cases and 65.4% of cross-validated grouped cases were correctly classified. Lehmann’s one-tailed test statistic z is significant at the 1% level, confirming this is not a random assignment.
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Table 5. Measuring Product Success and Factor Loadings Rotated Factor Loadingsb Factor 1: Product Performance Your products’ growth rate exceeds objectives. Your product’s growth rate exceeds the market growth. Total sales of the product are very high. The product has large market share. The profitability of the product exceeds objectives.
b
Cumulative Percent Variance Explained
28.2
28.2
21.1
49.3
.741 .680 .760 .601 .699
Factor 2: Market Development The product has helped open up new markets. The product has attracted significant new customers to the company. The product and its performance has positive impact on the image of the company. The product gives the company a platform on which to introduce new products. a
Percent Variance Explained
.740 .734 .706 .416
Cronbach’s alpha: factor 1 5 0.76; factor 2 5 0.64. Cut-offs: 0.4.
The third objective was to see if particular combinations of strategies deliver enhanced performance. For product performance it seems that this is the case. To secure product performance—that is, product sales, growth, share, and profitability—it seems that successful software companies first of all engage in a broadly based preparation of the market but switch to a targeted strategy at the following stages of positioning and execution built around superior technological performance and risk reduction. Market development. In the same way as product performance, the sample was divided into three equal groups based on the market development performance scores, and the high and low groups were compared. The discriminant function is 1:573 þ 0:713 alliance þ 0:623 broadly based market preparation:
Table 7 shows the percentage of cases correctly classified. The discriminant function correctly classifies 73.5% of the cases, with 72.1% of cross-validated grouped cases correctly classified. Lehmann’s onetailed test statistic z is significant at the 1% level. The question posed by the third objective is whether particular combinations of launch strategies deliver superior performance. The answer, as for product performance, appears also to be in the affirmative for market development. Market development with its focus on opening up new markets, reaching new customers, improving image, and managing one new product launch so as to increase the likelihood of further launches is long term in its orientation. It seems that the potential for market development is driven by alliances and broadly based market preparation, which is also significant for product performance. This strategy is very much about working with
Table 6. Discriminant Analysis for Product Performance
Table 7. Discriminant Analysis for Market Development
Predicted Group Membership
Predicted Group Membership
Low
High
Total
Low
High
Total
Original
Count Low High Percent Low High
42 19 61.8 27.9
26 49 38.2 72.1
68 68 100.0 100.0
Original
Count Low High Percent Low High
50 18 73.5 26.5
18 50 26.5 73.5
68 68 100.0 100.0
Cross-Validated
Count Low High Percent Low High
42 21 61.8 30.9
26 47 38.2 69.1
68 68 100.0 100.0
Cross-Validated
Count Low High Percent Low High
48 18 70.6 26.5
20 50 29.4 73.5
68 68 100.0 100.0
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partners: strategic alliances, OEMs, unique distribution channels, channel partners, and tactical partners at the execution stage. And a key part of working with these partners is that of informing and educating them. It was considered possible that some other variables might affect the employment of the launch strategies. Therefore the effects of three independent variables were investigated: newness of market served, innovativeness of technology, and level of competition. The procedure used was to classify the sample into low and high groups according to the independent variable and then to use an independent samples t-test to look for significant differences in the mean launch factor score for each group.
Discussion Strategies The current research identified five distinct strategies consistently employed by companies in this high-tech sector. The first strategy, alliances, is hardly a surprise given that it is widely practiced in many sectors (Vyas, Shelburn, and Rogers, 1995), with the top 500 global businesses averaging 60 major strategic alliances each (Dale, Kale, and Singh, 2001). Strategic alliances are not relationships at arms’ length but instead involve a ‘‘commitment to cooperation along some important competitive dimension’’ (Hill, 1997, p. 12). They are particularly prevalent among technology-led companies looking for complementary technologies as well as leveraging marketing resources and attempting to establish industry standards. Alliances help companies reduce the technological uncertainty that is characteristic of high-tech markets and may reduce potential confusion in the market place (Moriarty and Kosnik, 1989), are particularly appropriate when faced by highly capable competitors (Hill, 1997), and are extensively used in spite of the associated risks (Doz and Hamel, 1998). They are sometimes formed when a competitor is also at a fairly advanced stage in developing a competing technology (Hill, 1997). Companies try to establish industry standards by licensing technology to try to create the platform around which product categories can be built (Cusumano and Gawer, 2004). Famously this is what Microsoft did with Windows. Sony made it relatively easy for developers to produce games for Playstation, leading to a primary position in the video game console market (Schilling, 2003). A platform
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enables others to add value to the product category and to create network effects so that nonadopters are distinctly disadvantaged. Nearly a quarter of Amazon’s sales are now generated on behalf of third-party sellers (Nuttal and Waters, 2004, p. 17). High-tech products rarely stand alone but instead exist in miniecologies that ‘‘support and enhance them’’ (Arthur, 1996, p. 105). Companies should offer attractive licensing and distribution policies to attract third-party developers and distributors and also should ensure that all partners receive a fair reward for their participation (Schilling, 2003). As the strategy indicates, alliances are also forged with the channels of distribution, who, given a stake in the future of the technology, may support the technology more actively than otherwise they would. The second strategy, targeted low risk, attempts to reduce the risk of adoption in several ways for a targeted segment. It is the strategy that places most emphasis on versioning and is likely to be attractive to large companies that have made a significant investment in an existing product platform and need to leverage that investment. They have the resources and expertise that allows them to tune the product through a series of new versions; good examples are Microsoft Windows products, Oracle database software, and IBM WebSphere. The rationale also is that larger companies have established market positions and customer bases that are susceptible to this kind of incremental marketing strategy. Smaller companies, with smaller investments and assets, might be more likely to create a number product in response to an opportunity. The hypothesis that larger companies are more likely to benefit from the versioning strategy than smaller companies is tested in Table 8, which compares the prevalence of low and high use of the versioning strategy against company size. The chi square test shows a significant relationship at a 5% confidence interval. Therefore, as
Table 8. Use of Versioning Strategy by Software Company Size Versioning Strategy Company Size Number of Employees
Total
Low Use (%) High Use (%) o100 100–500 501–5000 4 5 5001
56.30 27.40 32.60 30.80
43.80 72.60 67.40 69.20
35.30
64.70
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hypothesized, larger companies (i.e., more than 100 employees) are more likely than smaller companies (i.e., less than 100 employees) to favor the versioning strategy. Products that have been modified to meet the needs of the served market are expected to win higher market share (Langerak, Hultink, and Robben, 2004; Ryans, 1988). Creating an early winner image through the use of heavy initial support and advertising is one way to help create the perception of a high-installed base leading to a rapid growth in sales and high actual installed base (Schilling, 2003). Purchasers seek the reassurance of buying the accepted product. Bundling a new high-technology product with existing technology may reduce perceived risk (Sarin, Sego, and Chanvarasuth, 2003). The third strategy, low-price OEM, has a clear profile. It is the only price-driven strategy and combines price with channel building to OEMs, who carefully manage the quality and price of all components. Essentially OEMs are looking for attractive price-toperformance ratios; hence, the high emphasis is on low price. This is a specialized OEM strategy and is most often number one among the sample companies (Table 4). This may not be a typical finding for some other technology markets. For instance for successful products in industrial markets, often with a technologically based product advantage, a skimming price is more typical (Hultink et al., 2000), as it is also for products with high advantage (Hultink and Hart, 1998). However, discounting is also used (Arthur, 1996, p. 105): For instance, it may sometimes pay firms to offer products at or even below cost at the time of launch to accelerate adoption in the expectation that there will be compensating increased sales of either the core technology or of complementary goods once the technology is established, as in the video game market (Schilling, 2003, p. 22). The fourth strategy, broadly based market preparation, is longer term in nature. It attempts to educate the market, which can take time and is expensive. In addition, it seeks to develop unique channels, which is not normally accomplished rapidly. By adopting a broad-based outlook, in the sense that it avoids narrowly defined niches, this also fits in with a longerterm orientation: Start broad based, and narrow down only when this is clearly the appropriate thing to do. Niche orientation comes later (Millier, 1999). Long-term market preparation is normally seen as the preserve of companies that have dominant positions and market share. They may then be in a posi-
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tion to benefit from patient nurturing of the market. A company facing an erosion of its dominant position is likely to find that the time available for market preparation between product announcement and product availability will have to shorten or demand will tend to be filled by competition. Finally, the fifth strategy, niche-based technological superiority, uses a technologically superior product to dominate a niche. This strategy places the most emphasis on technological superiority. Competition at the early stages of high-growth markets is more likely to be technologically based than marketing based (Kuester, Homberg, and Robertson, 1999). This is the route to the creation of new products that are technologically differentiated, that have no direct customers, and that stake out fundamentally new market space (Kim and Mauborgne, 1999). Radical technological innovation is the recommended route to break into an industry dominated by an entrenched standard (Schilling, 2003). Niche strategies are more likely to be used where the levels of product advantage are high (Hultink and Hart, 1998). It has also been noted that technologies that ultimately became widely diffused were first incubated in a relatively isolated niche (Adner and Levinthal, 2002). This strategy can be compared to the strategy proposed by Moore (1998, 1999) for new technology introduction. He argued that initial sales might be promising as some visionaries adopt, but this can be deceptive as sales then start to languish. They hit the chasm. The situation is rescued by developing a complete product for a key segment or niche, resulting in sales lift-off and domination of the chosen niche. The fifth strategy, with its emphasis on the development of a product with superior benefits for a targeted niche, exactly represents the chasm strategy—possibly the first time it has been identified empirically in a large sample of companies. (Moore’s books are said to be required reading in high-tech companies [Dhebar, 2001]). Neither is the fifth strategy incompatible with strategies used for disruptive technologies, namely ones that offer a different and initially less-attractive mix of attributes than those of prevailing technologies (Bower and Christensen, 1995; Christensen, 1997). Disruptive technologies are likely to be rejected by mainstream customers, and so companies must turn to selected niche segments that are prepared to respond to the new mix of attributes (Dhebar, 2001). The chasm strategy to escape the chasm, or saddle, results in a strong position in the first segment, which
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provides the platform—resources, experience, investment in R&D—to attack a related segment in exactly the same way so that a strong position is also achieved in that segment. This provides a stronger platform for further success (Easingwood and Harrington, 2002; Goldenberg, Libai, and Muller, 2002). This is also what happens with disruptive strategies. Domination of the outsider segment provides the platform from which to base a return to attack, the mainstream markets that initially so readily rejected the disruptive technology (Bower and Christensen, 1995), this time with improved or lower-priced technology. It has been shown that new industrial products are more likely to be targeted at niches than are new consumer products (Hultink et al., 2000) and that industrial niche innovators enjoy above-average success (Hultink et al., 1997). In addition, a niche strategy for a new industrial product is less likely to elicit a competitive reaction than a more broadly based strategy (Debruyne et al., 2002). Notice that two of the strategies—targeted low risk and niche-based technological superiority—are focused or targeted strategies supporting one of the core ideas of the high-tech literature (Adner and Levinthal, 2002; Moore, 1998; Moriarty and Kosnik, 1989); only one strategy is broadly based—strategy four—broadly based market preparation—but this is at the initial market preparation stage when many companies will try to retain as wide a range of options as is possible.
Performance: Product Performance The combinations of strategies associated with superior product performance are targeted low risk, broadly based market preparation, and niche-based technological superiority. This can be summarized as a strategy for a technologically superior product that begins with preparation of the market followed by targeting one or more niches, customizing the product to those niches, and making adoption easy by reducing the risk of adoption. Moore (1998) advocates a similar change from a broad marketing strategy to a niche strategy to successfully cross the chasm. Firms must target specific niche segments and focus effort to deliver the complete solutions to make sales. This strategy deemphasizes the creation of new distribution channels, which is associated with the alliance and targeted low risk strategies. This is a
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low-risk, sound strategy, not adventurous or even conservative. It is not inconsistent with the strategic launch strategy found by Hultink et al. (2000) to increase the chances of a successful introduction of a new industrial product. They found that industrial firms actually achieve more success when they use innovation to increase penetration of existing markets rather than by adopting more adventurous strategies that try to use innovation to open up new markets, as companies are sometimes prone to do. Neither is this strategy short term only, because the intention is to use the success in the targeted segments to achieve success across wider swathes of the market (Adner and Levinthal, 2002). The sales, share, and profitability achieved in a relatively narrowly defined part of the entire market provide the basis for more broadly defined success over the longer term.
Performance: Market Development The strategies associated with the market development of new opportunities are alliances and broadly based market preparation. It seems that the way to develop new opportunities (e.g. new markets, new customers) is to form alliances—early and strategic, late and tactical—and to focus on all market development activities. This strategy is very much about working with and informing and educating partners (e.g. strategic alliances, OEMs, channel partners). It is a powerful example of what has been called the third-party model of business, in which business is driven by the company’s channels and its partners (High, 2005). Win the channels, and inform and educate them; the likelihood is that opportunities will materialize. This is the long-term view of market opportunities. The company with a good position in the channel will be strongly positioned to participate in the longer-term development of the market. Notice that the strategy low-price OEM is not associated with either product performance or market development success. It seems that, for software, this kind of low-price strategy does not normally lead to success, which must be disappointing, given it is the most popular strategy.
Conclusions The exploratory work reported here has identified five launch strategies used in a high-tech environment.
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These strategies are defined, uniquely for the launch literature, in terms of the actual actions employed. Yet this is what high-tech companies do. Furthermore, the identified strategies are, to varying extents, mixtures of both tactical and strategic actions. This seems to offer empirical support for treating strategies in this way. Launch strategies do have both tactical and strategic components. Certainly when tactical and strategic launch actions were treated separately in one study, the effects they had on performance were less clear cut. Launch tactics were found to be associated with performance but launch strategies were not (Langerak, Hultink, and Robben, 2004). An important question is to what extent do launch stages build on one another? Four of the five strategies identified combine tactics from more than one stage. Only one strategy, broadly based market preparation, is composed of tactics from one stage: the preparation stage. Thus, although managers think in terms of stages, they actually seem to put together selections of tactics from different stages to produce effective strategies. Logic suggests that tactics selected from the different stages will be employed sequentially, though this theory has not been explicitly tested. The software industry is well known for its occasional use of vaporware strategies—notorious strategies in which a company announces a product that does not currently exist and that sometimes does not even have any product development plans. The purpose of the vaporware strategy is to hold off competition until real products can be readied for market. Where, if anywhere, do vaporware strategies fit among the five proposed strategies? This strategy is surely an extreme example of market preparation by early announcement. It is an attempt to mold market opinion. Most commentators would not regard vaporware strategies as legitimate. They should perhaps be labeled as market deception strategies rather than market preparation strategies. The approach used has been at the product level in one sector: the worldwide software market. The study sample represents nearly 40% of the total population of firms in the Software 500. Given the concentrated nature of the software industry this is an even larger proportion by revenue. The factor analysis described here is exploratory, but given the large sample size it is reasonable to assume that the results and conclusions are confirmed for the Software industry. It would clearly be useful to repeat this study across other industries such as life sciences, telecommunications, and information technology hard-
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ware to test the wider validity of the theory across the entire high-technology sector. As a result, findings are not likely to be skewed by cross-industry factors. However, there are limitations. First, the work uses a telephone survey methodology with one key respondent and is thus subject to problems such as post-hoc rationalization, social desirability answering, and common method variance problems, since both the dependent and independent variables are being measured from the same respondent. The fact that telephone interviews were used, not a mailed survey, carried out by experienced researchers in technologybased markets did in part help reduce the impact of these potential biases. The problem of common method variance, which is ubiquitous, can be only partially addressed by statistical methods; it is far better to look for procedural or design remedies (Podsakoff and Organ, 1986). However, collection of information on the dependent variables from another source would have significantly increased the cost or reduced the sample size and would not necessarily have been effective, as the second source would have been drawn from the same management group as the first. In addition, the research did not attempt to incorporate the intricacies of action and counteraction. Instead it focused on building up strategies formed from the basic building blocks of management action, showing how these strategies correspond to consistent programs of action and are correlated with measures of performance. Future work should attempt to retain this level of detail and also should address some of the competitive issues, for although the intention may be to create entirely new market space (Kim and Mauborgne, 1999) many new products do not. Two thirds of new industrial products can expect to face a response by existing companies (Debruyne et al., 2002). Thus, most new products will come up against incumbents and can expect them to act to protect market share and profits. Kuester, Homburg, and Robertson (1999) found that 93% of companies reacted in some way to the entry of a new competitor; Gatignon, Robertson, and Fein (1997) found that 90% reacted, although it is encouraging to note that the more innovative the new entry, the longer it takes for an incumbent to retaliate (Kuester, Homburg, and Robertson, 1999). The implication of this latter observation is that innovative companies must create a culture of product innovation so that competitors are constantly trying to catch up (Chandy and Tellis, 2000; Chandy, Prabhu, and Kersi, 2003).
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