high-tech marketing a guided tour through the product life cycle
eitan muller
Technological markets, innovative on-line services, and durable products of hi-tech nature are all characterized by growth patterns that are not only different from one market to the next but also contain a high degree of uncertainty. Such chaotic phenomena are difficult to investigate and present a challenge for forecasting market potentials and market shares. In this course we will examine the structure and growth patterns of such markets. We will witness the unbearable slowness of new product growth, appreciate why main market consumers aren't impressed with early market technophiles, diligently compute the value of the customers of E*Trade and Ameritrade, breathlessly watch the bandwagon wheezing by, and wistfully remember products such as WordPerfect, Lotus 123 and floppy discs.
The course is divided into the following main sections:
1)diffusion and adoption of new products
diffusion and adoption of new products2)the chasm and saddle phenomena
the chasm and saddle phenomena3)diffusion of services and valuation of customers
diffusion of services and valuation of customers4)bandwagon effects and network goods
bandwagon effects and network goods5)technological substitution and growth
technological substitution and growth In several meetings we will use Excel programs in order to explain and empirically predict the growth of new innovations as well as technological substitution between different generations of the base technology. Small-World networks will also be used to demonstrate the power of networks as the means of spreading word-of-mouth to accelerate product growth. While the more technical aspects of the empirical work will be explained in details, students' general familiarity with Excel is assumed. Some of the articles are available for downloading at this site. Additional papers using complex systems analysis are available for downloading at the complex markets site.
1) diffusion and adoption of new products
will it ever fly?
We will construct the mechanism that describes and predicts the growth and diffusion of new hi-tech and consumer electronic products. In particular we will discuss the power of imitation and word-of-mouth in the diffusion of innovative products. We will look at examples of such growth patterns in the US and Europe, understand why the process is inherently slow and discuss the possibilities facing executives who wish to accelerate sales of these products.
Vijay Mahajan, Eitan Muller and Jerry Wind, New Product Diffusion Models, Kluwer Academic Publishers, 2000.
Vijay Mahajan, Eitan Muller and Frank Bass, "New Product Growth Models in Marketing: A Review and Directions for Research," Journal of Marketing, 1990.
Vijay Mahajan, Eitan Muller and Rajendra Srivastava, "Determination of Adopter Categories Using Innovation Diffusion Models," Journal of Marketing Research, 1990.
Peter Golder and Gerard Tellis, "Will it Ever Fly? Modeling the Takeoff of Really New Consumer Durables,"
Marketing Science, 1997.
2) the chasm and saddle phenomena
main market consumers aren't impressed with early market technophiles
We will discuss the phenomenon of a temporary but deep decline in sales during the growth stage of the product-life-cycle, and look at examples in the US consumer electronic market such as VCR's, Cordless Phones, CB Radios and DBS systems. We will understand why this sales pattern is a direct result of the dual market phenomenon that treats the early market adopters and main market adopters as sufficiently different to warrant differential treatment as two separate markets for marketing purposes. Methods of dealing with this growth pattern will also be discussed.
Geoffrey A. Moore, Crossing the Chasm, New York: HarperBusiness, 1991.
Vijay Mahajan and Eitan Muller, "When is it Worthwhile Targeting the Majority Instead of the Innovators in a New Product Launch?" Journal of Marketing Research, 1998.
Jacob Goldenberg, Barak Libai and Eitan Muller, "Riding the Saddle: How Cross-Communications Can Create a Major Slump in Sales," Journal of Marketing, 2002.
Eitan Muller and Guy Yogev, "When Does the Majority Become a Majority? Empirical analysis of the time at which main market adopters purchase the bulk of our sales," Technological Forecasting and Social Change, 2006.
Peter Golder and Gerard Tellis, "Growing, Growing, Gone: Cascades, diffusion, and turning points in the product life cycle," Marketing Science, 2004
3) diffusion of services and valuation of customers
can you put a dollar value on your customers?
The growth of the Internet drove the offering of many new services, among them online banking, instant messaging, shopping portals, or online brokerage services. Yet, different from durables, service customers and providers are often engaged in continuous relationships, a crucial aspect of which is customer attrition. We will introduce customer attrition and defection into the growth structure of services and use this knowledge to estimate customer lifetime value (CLV) and of the long range customer equity of firms such as E*Trade, Ameritrade, eBay and Amazon.com.
Sunil Gupta, Donald R. Lehmann and Jennifer Ames Stuart, “Valuing Customers,” Journal of Marketing Research, 2004.
Barak Libai, Eitan Muller and Renana Peres, "The Diffusion of Services," Journal of Marketing Research, 2008.
4) bandwagon effects and network goods
if you see the bandwagon - it's too late
Network goods are products that generate network externalities, or bandwagon effects, by causing the utility of the consumer who uses the the product to increase as more consumers adopt the new product. We will see that contrary to common wisdom, bandwagon effects do not cause the acceleration of the growth process, but rather are a major factor holding it back. Fax Machines, DVD Players, CD Players and CB Radios will serve as examples to the pattern of growth of network goods. We will also discuss the tools executives could use to reduce this delay and why advertising in particular is a powerful tool in such cases.
Stefan Stremersch, Gerard Tellis, Philip Franses and Jeroen Binken, "Indirect Network Effects in New Product Growth," Journal of Marketing, 2007.
Jeffrey Rohlfs, Bandwagon Effects in High Technology Industries, Cambridge: MIT Press, 2001.
5) technological substitution and growth
will it ever die?
Old products don't die. They are just replaced by a new generation of the technology that satisfies the same consumer needs more efficiently. We will highlight the difference between diffusion of the base technology and substitution of different generations of that technology. We will demonstrate these principles on four generations of IBM mainframes in the US. The failure of the Iridium satellites system as an upgrade to the terrestrial cellular system will also be discussed. This will lead us to the discussion on the major issue of optimal timing of the release of a new generation of a hi-tech product.
Christophe Van den Bulte, "New Product Diffusion Acceleration: Measurement and Analysis," Marketing Science, 2000.
John Norton and Frank Bass, "A Diffusion Theory Model of Adoption and Substitution for Successive Generations of High Technology Products," Management Science, 1987.
John Norton and Frank Bass, "Evolution of Technological Generations: The Law of Capture,"
Sloan Management Review, 1992.
Vijay Mahajan and Eitan Muller, "Timing, Diffusion and Substitution of Technological Innovations: The IBM Mainframe Case," Technological Forecasting and Social Change, 1996.
