Technology Management

MS 325

Crafting a Deployment Strategy

 Crafting a Deployment Strategy

Deployment Process
Five key elements of the deployment process:
1. Launch Timing
2. Licensing and compatibility
3. Pricing
4. Distribution
5. Marketing
 Crafting a Deployment Strategy

Launch Timing
Strategic Launch Timing:
• A firm can strategically use launch timing to take advantage of business
cycle or seasonal effects, to position its product with respect to previous
generations of related technologies, and to ensure that production capacity
and complementary goods or services are in place.
Optimizing Cash Flow versus Embracing Cannibalization:
• For firms introducing a next generation technology into a market in which
they already compete, entry timing can become a decision about whether
and to what degree to embrace cannibalization.
• Cannibalization is when a firm’s sales of one product (or at one location)
diminish its sales of another of its products (or at another of its locations).
• Traditionally, research on product life cycles has emphasized the
importance of timing new product introduction so as to optimize cash flows
or profits from each generation and minimize cannibalization.
• Delaying the introduction of a next generation product can enable
competitors to achieve a significant technological gap.
 Crafting a Deployment Strategy

Licensing and Compatibility

• Making a technology more open could speed its adoption by enabling
more producers to improve and promote the technology and allowing
complementary goods developers to more easily support the technology.
• However, making a technology completely open poses several risks.
• First, if a firm completely opens its technology, other producers may drive
the price of the technology down to a point at which the firm is unable to
recoup its development expense.
• If competition drives the price down so no producer earns significant
margins on the technology, no producer will have much incentive to
further develop the technology.
• Finally, opening a technology completely may cause its underlying
platform to become fragmented as different producers alter it to their
needs, resulting in loss of compatibility across producers and the possible
erosion of product quality.
 Crafting a Deployment Strategy

Licensing and Compatibility

• In deploying a technological innovation, often a firm must decide how
compatible (or incompatible) to make its technology with that provided by
others or with previous generations of its own technology.
• For example, Producers of IBM-compatible were able to tap IBM’s
installed base and complementary goods advantages by offering
computers that operated identically to those made by IBM.
• If the firm wishes to avoid giving away its own installed base or
complementary goods advantages to others, it may protect them by
ensuring its products are incompatible with those of future entrants.
• Firms must also decide whether or not to make their products backward
compatible with their own previous generations of technology.
• Backward Compatible is when products of a technological generation can
work with products of a previous generation.
• For example, a computer is backward compatible if it can run the same
software as a previous generation of the computer.
 Crafting a Deployment Strategy

Pricing
• Price simultaneously influences the product’s positioning in the
marketplace, its rate of adoption, and the firm’s cash flow.
• Before a firm can determine its pricing strategy, it must determine the
objectives it has for its pricing model.
• Survival, Maximize current profits.
• For new technological innovations, firms often emphasize either a
maximum market skimming objective or a maximum market share
objective.
• Penetration pricing is when the price of a good is set very low (or free) to
maximize the good’s market share.
• Firms in industries characterized by increasing returns (strong learning-
curve effects and/or network externalities) will often use the objective of
maximizing market share and a penetration pricing strategy.
 Crafting a Deployment Strategy

Pricing
• For example, Honda’s first hybrid electric vehicle, the Insight, was
introduced at a price ($20,000) that actually caused Honda to lose money
on each Insight it sold.
• Sometimes firms price below cost because the losses are expected to be
recouped through profits on complementary goods or services.
• For example, when Microsoft launched its Internet Explorer Web browser,
it gave the product away so it could quickly catch up to Netscape’s Web
browser.
• Firms can also influence cash flow and the customers’ perception of costs
through manipulating the timing of when the price of a good is paid. Free
trial (Netflix), pay as they go (Cable television service), “freemium” model
(Dropbox).
• When it is unclear how customers will respond to a particular price point,
firms often use introductory pricing that indicates the pricing is for a
stipulated time.
 Crafting a Deployment Strategy

Distribution
Selling Direct versus Using Intermediaries:
• Firms can sell their products directly to users through their direct sales
force or an online ordering system or mail-order catalog.
• Alternatively, firms can use intermediaries such as manufacturers’
representatives, wholesalers, and retailers.
• Selling direct gives the firm more control over the selling process, pricing,
and service. For example, Tesla Model S.
• In many situations, however, selling direct can be impractical or overly
expensive.
• Intermediaries provide a number of important services that can make
distribution more efficient. First, wholesalers and retailers break bulk.
• Intermediaries also provide a number of other services such as
transporting goods etc.
• Many intermediaries also offer greater convenience for customers by
offering geographically dispersed retail sites.
 Crafting a Deployment Strategy

Distribution
Selling Direct versus Using Intermediaries:
• Original equipment manufacturers (OEMs) (also called value-added
resellers, or VARs) provide an even more crucial role in the distribution
process.
• A company that buys products (or components of products) from other
manufacturers and assembles them or customizes them into a product
that is then sold under the OEM’s own name.
• In some industries, advances in information technology (such as the
Internet) have enabled disintermediation or a reconfiguration in the types
of intermediaries used. For example, online investing services, online
stores like Amazon.com.
 Crafting a Deployment Strategy

Distribution
Selling Direct versus Using Intermediaries:
• To determine whether to use intermediaries and what type of
intermediaries would be appropriate, the firm should answer the following
questions:
1. How does the new product fit with the distribution requirements of the
firm’s existing product lines?
2. How numerous and dispersed are customers, and how much product
education or service will customers require? Is prepurchase trial
necessary or desirable? Is installation or customization required?
3. How are competing products or substitutes sold?
 Crafting a Deployment Strategy

Distribution
Strategies for Accelerating Distribution:
The firm can use a variety of strategies to accelerate distribution.
1. Alliances with Distributors:
• Firms introducing a technological innovation can use strategic alliances or
exclusivity contracts to encourage distributors to carry and promote their
goods.
• By providing a distributor a stake in the success of the new technology, the
firm may be able to persuade the distributor to carry and promote the
new technology aggressively.
• For example, Sega Saturn, Nintendo 64 and PlayStation.
 Crafting a Deployment Strategy

Distribution
2. Bundling Relationships:
• Firms can also accelerate distribution of a new technology by bundling it
with another product that is already in wide use.
• Bundling enables the new technology to piggyback on the success of
another product that already has a large installed base.
• Once customers acquire the new product in tandem with something else
that they already use, switching costs may prevent customers from
changing to a different product, even if the different product might have
initially been preferred.
• Bundling arrangements have proven to be a very successful way for firms
to build their installed base and ensure provision of complementary goods.
• For example, Windows with PCs, Microsoft’s Internet Explorer with
America Online the largest internet service provider.
 Crafting a Deployment Strategy

Distribution
3. Contracts and Sponsorship:
• Firms can also set up contractual arrangements with distributors,
complementary goods providers, and even large end users (such as
universities or government agencies) to ensure that the technology is used
in exchange for price discounts, special service contracts, advertising
assistance, or other inducements.
• For example, when medical equipment manufacturers introduce
significantly new medical devices such as new ultrasound equipment, they
will often donate or lend a number of these machines to large teaching
hospitals.
4. Guarantees and Consignment:
• If there is considerable market uncertainty about the new product or
service, the firm can encourage distributors to carry the product by
offering them guarantees (such as promising to take back unsold stock) or
agreeing to sell the product on consignment.
 Crafting a Deployment Strategy

Distribution
• For example, Nintendo introducing Nintendo Entertainment System.
• A similar argument can be made for offering guarantees to
complementary goods producers. The firm can guarantee particular
quantities of complementary goods will be purchased, or it can provide
the capital for production.
 Crafting a Deployment Strategy

Marketing
The marketing strategy for a technological innovation must consider both the
nature of the target market and the nature of the innovation.
Major Marketing Methods:
The three most commonly used marketing methods,
1. Advertising
2. Promotions
3. Publicity and Public Relations
 Crafting a Deployment Strategy

Marketing
1. Advertising:
• Many firms use advertising to build public awareness of their technological
innovation.
• Doing so requires that the firm craft an effective advertising message and
choose advertising media that can convey this message to the appropriate
target market.
• In crafting an advertising message, firms often attempt to strike a balance
between achieving an entertaining and memorable message versus
providing a significant quantity of informative content.
• The media used are generally chosen based on their match to the target
audience, the richness of information or sensory detail they can convey,
their reach (the number of people exposed), and their cost per exposure.
Crafting a Deployment Strategy
 Crafting a Deployment Strategy

Marketing
2. Promotions:
Firms can also use promotions at the distributor or customer level to
stimulate purchase or trial. Promotions are usually temporary selling tactics
that might include:
• Offering samples or free trial.
• Offering cash rebates after purchase.
• Including an additional product (a “premium”) with purchase.
• Offering incentives for repeat purchase.
• Offering sales bonuses to distributor or retailer sales representatives.
• Using cross-promotions between two or more noncompeting products to
increase pulling power.
• Using point-of-purchase displays to demonstrate the product’s features.
 Crafting a Deployment Strategy

Marketing
3. Publicity and Public Relations:
• Many firms use free publicity (such as articles that appear in a newspaper
or magazine about the company or its product) to effectively generate
word of mouth.
• Other firms rely on internally generated publications (e.g., annual reports,
press releases, articles written by employees for trade magazines or other
media) to reach and influence target markets.
• Viral marketing is an attempt to capitalize on the social networks of
individuals to stimulate word-of-mouth advertising.
• Firms may also sponsor special events (e.g., sporting events, competitions,
conferences), contribute to good causes (e.g., charities), exhibit at trade
associations, or encourage online consumer reviews to generate public
awareness and goodwill.
 Crafting a Deployment Strategy

Marketing
Tailoring the Marketing Plan to Intended Adopters:
• Innovators (in the very early stages)
• Early adopters (cause adoption to accelerate)
• Early majority (the innovation penetrates the mass market)
• Late majority (the innovation penetrates the mass market)
• Laggards (the innovation approaches saturation)
 Crafting a Deployment Strategy

Marketing
Using Marketing to Shape Perceptions and Expectations:

• Preannouncements and Press Releases

• Reputation

• Credible Commitments
 Crafting a Deployment Strategy

Discussion Questions
1. Identify one or more circumstances when a company might wish
to delay introducing its product.

2. What factors will (or should) influence a firm’s pricing strategy?

3. Pick a product you know well. What intermediaries do you think

are used in bringing this product to market? What valuable
services do you think these intermediaries provide?

4. What marketing strategies are used by the producers of the

product you identified for Question 3? What are the advantages
and disadvantages of these marketing strategies?