Contributors to new product success for high-tech markets : market information & integrated market communications.

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Contributors to New

Product Success for

High-Tech Markets

Market Information & Integrated Market

Communications

Basim Ghulam Nabi

UvA Student Number: 10443045

9/14/2013

MBA/MSc. Thesis

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Abstract

The activities that govern the inception, development, launch and management of a new product have become a huge topic of research in the past few decades. This focus is driven by the fact that these activities are increasingly becoming the prime focus for manufacturers and developers. This is seen most obviously in the high-tech market, where the focus of the organization is torn between technological and commercial pursuits.

This paper concerns the commercial activities that govern new products in the high-tech market given that competition is between firms at an almost equal level of technological competence. This paper will present a model that brings together these commercial activities, and will argue how some of them have the most impact on new product outcomes and competitive advantage. However new product outcomes are not only based on internal activities, but market factors as well. The focus of the high-tech market is shifting from inside-out to outside-in; from focus on technological product superiority to value provision to the customer respectively. In this changing environment, this paper presents a case study of a division of an old European multinational in the high-tech industry which faces these very dilemmas. Further, the paper will discuss how incremental and disruptive innovation products are impacted by these commercial activities.

With consideration to the changing market environment, this paper will show that Market Information and Integrated Marketing Communication have the most decisive impact on new product outcomes.

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1. Introduction

ll markets follow certain trends and norms in the way they operate, but within them there are certain segments which operate somewhat differently. This paper focuses on the high-tech market, with a specific focus on the security market. High-tech markets are characterized by a high degree of innovation, shorter cycle times and a high level of uncertainty; new product failure rates are as high as 50%. Not too long ago, high-tech markets used to predominantly follow a push strategy, where engineers and scientists developed new technology, and product launches were focused on the degree of innovation of the product. This led to marketing communication focusing on the technological (functional values) aspects of the product rather than end-user benefits or needs (emotional values) (Winter & Sundqvist, 2008; Lynch, 2004). In this new environment where research and development costs are still very high and firms are competing ceaselessly to bring costs down, the game has essentially changed to being about more than just having the most technologically advanced product. Technology companies are becoming increasingly customer centric and market research intensive, and the role of gathering market information and effective marketing communication has become ever more important (Rosen et al. 1998).

Innovation itself can be competence building or competence destroying; it can build on a firm’s existing competence or force the firm to develop new technological competencies (respectively). In either case, the limits of the older technology are tested but newer technology (for a certain function or need) always replaces the old as long as it can prove itself to be reliable. A case in point is Apple, which exhausted the limits of 8-bit microprocessor technology after competitors launched 16-bit and 32-bit technologies to replace the Apple II (Anderson & Tushman, 1991). The security market can be categorized as largely competence building; technological changes are incremental and backward compatibility can allow products to become mainstream. That being said, the advent of thermal technology into the commercial security market (in addition to visible light camera technology) in the past decade is changing the face of the market. The so called long wave infrared (LWIR) or far infrared (FIR) based security market is predicted to grow at approximately a staggering rate of 40% over the next few years (Yole, 2010). Of course, visible light cameras are not done yet; video quality is the source of competition, with the HD

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barrier only recently breached. Currently, almost all competitors offer visible light and thermal cameras (as well as hybrids), but it is expected that the thermal camera market will eventually match the visible light camera market, if not cannibalize it completely. This paper will demonstrate how in this epoch where the newer technology is at the start of its cycle and the dominant technology is reaching its peak, market information and integrated marketing communication become the sources of competitive advantage for firms in an incremental innovation environment.

This paper will present and discuss a model derived from existing literature and research, and validate the notion that market information (MI) and integrated marketing communication (IMC) are the foremost sources of competitive advantage in high-tech markets. Market information includes customer feedback, market feedback, sales figures and need assessment. The quick and efficient collection and use of this information transforms it from mere fragments of data into what Li and Calantone (1998) call a ‘knowledge competence’.

A crucial stage in the commercialization of a new product is the marketing strategy as it is the mediator between new product definition and development, and the consequent outcome. Apart from corporate strategy decisions affecting the marketing strategy, it’s essential ingredients are the elements of the marketing mix. The marketing mix includes decisions about the product, pricing, promotion, distribution, service and staff. The development of a launch strategy is simultaneous to the marketing mix development, and a number of things between the two overlap. Hultink and Schoormans (1995) present the marketing mix elements as part of tactical launch decisions and launch strategy elements as strategic launch decisions. These include the relative innovativeness, degree of relative forward and backward integration, the production entry scale and the timing of market entry. A thorough look at marketing mix and launch strategy elements reveals that all of the elements are (either strongly or loosely) tied into each other; this is where the potential of IMC is revealed.

IMC advocates having a unified message across all elements and communication, and that having this will result in increased levels of new product success. In addition, Winter and Sundqvist (2008) describe IMC as a response to the decreased faith in mass-media advertising, customer fragmentation and heightened customer sophistication in the high-tech market.

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This paper will effectively investigate the following research question: “What is the role of market information and integrated marketing communication in the commercialization of new high-tech products?”

This question will be answered through an extensive literature review augmented by a case study. The case study will revolve around the launch of a new FIR thermal camera by a high-tech European multinational firm. The case will be discussed primarily through the perspective of Product Management; as this department is the pivot between the purely technical and marketing aspects of new product development. The different stages of the product development and launch as they are relevant to the research question will be investigated. Structured interviews with key personnel at each stage of the process will give further insight into the effectiveness of certain elements (over others). The thermal camera market is unique in that the innovativeness in terms of technology alone is bounded through government regulation; the most technologically advanced thermal products can only be sold to the government. Most competitors hence have products which are comparable in terms of technology, so competitive advantage must be found in other dimensions. The literature reviewed will cover competitive strategy, marketing strategy, new product launch and development, and knowledge competence.

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2. The Product Life Cycle

The traditional view of the well-known product life cycle stipulates that a new product follows an S-shape curve with three inflection points with time and sales on the x and y axes respectively. The four stages of the cycle are introduction, growth, maturity and decline as shown in Figure 2. The flat introductory phase is due to the lack of knowledge and suspicion about the product; this is meant to represent the difficulty of overcoming buyer inertia; in this stage it is the innovators and early adopters who buy the product- roughly 16% of the total market (Kotler, 2001). It can also represent the time it takes for a new product or technology to reach a dominant design.

Time Sales / Growth Era of Substitution Era of Design Change Incremental Change Era of Ferment Next Technological Innovation / Development Introduction Growth Maturity Decline

Figure 1-Overlap of technological discontinuities, the product life cycle and the innovation adoption lifecycle

Industries evolve through technology cycles, each of which is induced by either a competence destroying or enhancing technological discontinuity. Over time, this period of transition is Page 10 of 52

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divided broadly into the ‘era of ferment’ and the ‘era of incremental change’, of which the ‘era of ferment’ divided further into the eras of substitution and design competition. Although it is usually newcomers to the industry who inspire discontinuities, it is the industry veterans who come up with dominant designs. This is because industry veterans have the resources and the clout to produce (or buy) a design that can offer economies of scale and then already have the knowledge and the resources to go through the stages of product development, launch, marketing and even post-sales services from day one (Anderson and Tushman, 1991).

In the growth stage the curve becomes steeper; sales peak as a dominant design is reached- albeit some incremental changes- and sales are made to the early majority (approximately 34% of the overall market). In the maturity stage, economies of scale are reached and profit margins are the greatest. The product acts as a cash cow as the late majority starts contributing to sales (34%). During decline, some of the late majority and the laggards move in as prices atrophy and possibly some new technology begins to move towards the new dominant design.

The product lifecycle itself is not without criticism. Porter (1980) highlights the following: the duration of the stages varies between industries, industry growth often does not follow the S-shape pattern shown, companies can affect the S-shape of the growth curve through innovation, and the nature of the competition is different for each industry and each stage; this affects the curve in an unpredictable manner. The model presented here addresses Porter’s second concern by highlighting that overall technological enhancement within an industry grows in cycles, where the next cycle begins even when the current cycle is running. To answer his other concerns, it is important to consider that the product lifecycle as presented by (Kotler, 2001) considers the life of one single product, and that variations in the time duration of each stage notwithstanding, the majority of product lifecycles (also those in the high-tech industry) do follow the same general shape. Beard and Easingwood (1996) have found that technology product lifecycles are growing shorter every year; at the time of their study a typical cycle was 9 months long. This leads to the failure rates for new products being as high as 30%.

Here, it is crucial to consider that at no one time does the entire potential market become customers in technology markets. For example, at the maturity stage, innovators and early adopters will already move to a newer technology (Rosen et al. 1998). To retain this portion of the market, a technology firm needs to constantly innovate and enter new technology cycles to Page 11 of 52

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retain competitive advantage. In light of this, both incremental and discontinuous innovation is essential; as both kinds appeal to different segments of the consumer base. The model discussed here (figure 1) as it applies to the case study will be discussed in section 4.

3. The Process Model

Market Information Product Definition Product Development Change Management Marketing Strategy New Product Outcomes Corporate Level Strategic Decisions Integrated Marketing Communication Commercialization Feedback

Figure 2- New product process

a. Corporate Level Strategic Decisions

The following model encapsulates the process a new high-tech product goes through: starting from the inception of the idea to the outcome in the market. On the top are ‘Corporate Strategic Decisions’; these refer to the strategic direction at the firm level, and will be called front-end processes in the case study. Foremost, these include setting the mission and vision of the firm, and subsequently communicating and implementing it across the firm. Further, these include identifying success criteria for the firm as a whole, for the workforce and for its products Page 12 of 52

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(Kakati, 2002). On a mid-macro level, corporate strategic decisions also include innovation management, setting innovation roadmaps for product lines and approving product roadmaps. Some success criteria are profit levels, market acceptance/penetration/growth and product performance. Success criteria themselves are fairly obvious; the tricky part for corporate executives is to prioritize these criteria in relation to the product, market and desired impact. These also include organizing and structuring the firm to compete in its relative environment. For high-tech firms this means decentralization to effectively reduce the bureaucratic distance between R&D and top management, and enabling the firm to be nimble and be highly responsive irrespective of its size (Ottum and Moore, 1997).

It is also the responsibility of firm executives to set corporate policies that facilitate a cohesive, responsive and well-managed organizational structure; this incorporates setting and driving policies and initiative on (Li & Calantone, 1998; Ottum and Moore, 1997):

• Firm organization • Firm culture

• Project team organization; choice between purely functional, functional/balanced matrix, project matrix and project team. Balanced matrix or autonomous team organizational structures are seen to be more successful than functional or functional matrix structures • Geographical location; co-location has direct benefits to marketing – engineering – R&D

interfacing

• Workload management; evidence from literature suggests that more than two projects per person diminishes productivity and has a negative impact on process and subsequently new product success

• Use of structured tools; investment and personnel training investment

• Perceived importance of each stage of the process; communication policy to be monitored so that all the stakeholders involved in the process understand and can more effectively contribute to the process.

Finally, while defining the corporate strategy of a firm in the high-tech industry, the biggest tension is between adopting a customer oriented or a product oriented strategy. While customer focus is on features, core values, ease of use, perceived usefulness and unique qualities, product

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focus is on technologically advanced design, cost of production, ease of production, uniqueness of technology and production itself (as opposed to consumption for consumers) (Rosen et al. 1998).

b. Market Information

The process essentially starts off with a benchmarking phase: ‘Market Information’. It is important for firms – and all the stakeholders in this process stage – to understand that market research is not simply asking customers and users what they want, but the development of qualitative and quantitative data on the present and future needs of the market to offset the traditional technological orientation of the high tech industry and move towards a more market-oriented design (Davies and Brush, 1997). As production resources are shifting from the neo-classical idea of consisting only of labor, land and capital to include intangibles like firm knowledge; the gathering, sharing and utilization of market knowledge becomes an important determinant of success (Li and Calantone, 1998; Ottum and Moore, 1997)

i. Evaluation of Information

The market environment information shows the potential of the market; the strength of the five forces in Porter’s (1979) model can be evaluated and can later be used to answer the if, how and when questions about entering (or staying in) the market. As high-tech product markets are usually very global (or at least have the potential to be), substantive information about ones competitors can truly become a source of competitive advantage. High-tech market environments are shifting from being purely competitive to collaborative, so gathering data on competitors is firstly, a source of overall market knowledge. This is not to say that what didn’t work for someone else cannot work for you, but it is nonetheless an opportunity to learn from each other’s mistakes. Secondly, mutually beneficial collaborations and partnerships can be initiated.

Direct feedback on technical and marketing elements of the product from internal sources such as sales and marketing executives, sales staff, technical support staff, procurement, R&D personnel and higher management executives, and external sources such as distributors and end users has a number of benefits. First, it gives an idea of where the product and the firm stand currently. This influences future direction on (just to name a few) incremental improvements or a complete overhaul for the new product, what features are appreciated and which are under-appreciated, which provide value and which destroy it. Second, it gives an idea of how the Page 14 of 52

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product is perceived. It is part of the product manager’s job to make decisions on ambiguous choices; it’s not that it’s ambiguous due to lack of information, but that there is always a certain degree of uncertainty around the impact of every big and small decision about a product, and that uncertainty is transformed into fact only after a product reaches the market. Third, price benchmarking can help shape strategy on price positioning. Finally, it can support IMC and portfolio managers by giving feedback on the message the product delivers.

ii. Customer Need Assessment

The Customer Need Assessment process is defined by Karkkainen et al. (2001) as consisting of 6 stages: defining the starting situation, gathering customer needs data, structuring and analyzing this data, gathering data on the competitive situation, setting development targets for the product (or product line) and managing development in achieving these targets. Karkkainen et al. (2001) also stipulate that the Customer Need Assessment process runs in parallel to the product development process and that there are two way links between the consequent stages of both processes. The customer need assessment process should fulfill the following six core objectives: defining existing position, gathering customer need data, structuring and analyzing of data, gathering of competitive data, setting product roadmap, and managing development. The table in appendix B shows the tools that can be used to fulfill these objectives. Customer feedback is considered to be highly influential in idea generation (inception); Kotler (2001) posits that in the current industrial market, the highest percentage of ideas for new products originate directly from customers and many of the best incremental innovations spring forth from customer feedback.

iii. Transference to Build Competence

While we are talking about information, it is also vital to consider how the collected information is consolidated and presented to relevant personnel; the subjectivity of information is an important factor to consider. Barney (1991) talks about the idea of resources being a source of competitive advantage for firms as long as they fit into the VRIO framework: valuable, rare, inimitable and organized (Prahalad & Hamel, 1990; Li & Calantone, 1998). It is easy to see that tacit knowledge embedded within the human resource of the firm through their own learning as well as intra-firm transfer of information is the kind of resource that can provide firms with a source of competitive advantage. Of the success factors defined earlier for the case in question, Page 15 of 52

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one is time to market. Lynn et al. (1999) finds support for the idea that increases in team learning have a positive impact on time to market and also that there is a positive correlation between speed to market and new product success, and so we can safely consider that increased team learning has a positive impact on new product success. Within-team learning is positively impacted by information acquisition and implementation. The practices that support within-team learning are recording, filing and reviewing of information, goal clarity and stability, vision support, and the NPD process; this will be discussed in the next section (Lynn et al. 1999).

Li and Calantone (1998) operationalize Barney’s knowledge based views by categorizing the knowledge processes that need to be carried out for a firm to build its market knowledge competence:

• Customer knowledge process: the acquisition, interpretation, sharing and integration of information (Ottum & Moore, 1997)

• Competitor knowledge process: the acquisition, interpretation, sharing and integration of information to evaluate the firms competitive position between inferiority, parity or superiority in terms of functions/features, form and performance. This helps greatly in setting product policy (product policy will be discussed in more detail when elaborating on marketing mix)

• Marketing – engineering – R&D interface/integration; here, interface/integration represents the degree of cooperation and cohesion between these departments. Effective interface and integration reduces mismatches between departmental goals, increases the quality of the processes and of the products being developed (by effectively employing tools such as Quality Function Deployment, QFD) and hence reduces time to market by approximately 40% and cost by as much as 60% (Griffin & Hauser, 1992). This in turn enhances new product acceptance and diffusion, which are direct determinants of product success.

c. Product Definition, Development and the Management of Change

Bacon et al. (1994) describe the product definition process as consisting of four somewhat simultaneous stages: customer and user need data, competitor information, technology risks and opportunities and regulatory/standards environment. All four of these are covered under market

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information in the previous section, but in accordance with Karkkainen et al. (2001) and Bacon et al. (1994), it makes sense that the market information stage runs simultaneous to, and has feedback links with the product definition and development processes. This is essentially the management of change. Market reviews suggest that although managing change during the product definition process is much harder than to freeze or lock in the definition at some point; projects that failed to identify a need for change have frequently failed (Bacon et al., 1994). Change management is a vast and important topic on its own, but will not be extensively discussed further as it is not the focus of this paper.

d. Marketing Strategy

i. The Marketing Mix

Strategic marketing is essentially the marketing design focused on fulfilling certain predefined objectives in accordance with corporate and business level strategy. A comprehensive marketing strategy should cover these crucial considerations: should the strategy by global or multidomestic, should a primary or secondary demand strategy be used, push or pull strategy (or both), skimming or penetration, and differentiation or segmentation. The essential elements of a marketing strategy are covered in what is popularly called a marketing mix. Conventionally, these are the elements of a marketing mix (Borden, 1964):

1. Product planning; product lines, markets and R&D programs 2. Pricing; price levels and maintenance

3. Branding; trademarks and unified brand message 4. Distribution channels

5. Personal selling

6. Advertising; budget and platform 7. Promotions

8. Packaging

9. Display; merchandising 10. Servicing

11. Physical handling; warehousing, transportation and inventories 12. Fact finding and analysis

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The elements presented by Borden (1964) are very extensive and cover finance, operations and sales functions as well. In addition, Borden’s (1964) mix is much more focused on consumer markets. A more high-tech market focused marketing mix is provided by Davies and Brush (1997) which is more specific, customer focused and incorporates globalization pressures:

1. Market research

2. Product policy; defines what products to market, where to market which, how to market them and to whom it needs to be marketed to. In addition, product policy also gives guidelines for procurement and upgrade/ new release frequency and timing (Kotler, 2001).

3. Product requirements (and features); are set based on market research and product policy. To strike a balance between inside-out and outside-in design, this process should include both marketing and engineering executives.

4. Quality requirements and control; include product performance, life expectancy, acceptable fault levels, backward compatibility, network integration levels and standards compliance levels.

5. Pricing; should be reflective of and support the product policy, quality requirements and firm image. This mix element also includes decisions on international pricing, policies on price determination, and return and restocking policy.

6. Naming; is a relatively underrated but nevertheless important marketing tool. Naming issues include unbranded or private-label sale, product line reflective or individual naming, and choice between identifying, descriptive or promotional. The product name should be reflective of the product, portfolio and company policy.

7. Packaging; usually refers to the container a product is sold in, but for the high-tech market it is about how the product requirements are delivered to the customer. Hence- in addition- it includes all the tangible and intangible property components of the product: handbooks, licenses, software and tech-support.

8. Advertising; concerns can be divided between quantitative and qualitative; the former concerns budgeting and the latter concerns choices between push or pull, product specific or corporate generic, and coordination and control of global advertising.

9. Collaterals; the media used to support the advertising effort.

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10. Selling; choices between direct sales and telemarketing, or distributor sales forces, definition of selling structure.

11. Promotion and public relations

12. Distribution; strategy issues relating to the distributor relationship to the firm (subsidiary, strategic alliance or arm’s length), and tactical issues like technical competence, reputation and commitment

13. Tech-support; decisions related to the quantity and quality of technical support.

The marketing mix elements as presented by Davies and Brush (1997) overlap the market information and new product definition and development stages outlined in figure 2. Looking at it in more detail, of the marketing mix elements described above- which are presented in the most likely chronological order- 1 to 5 overlap with previous stages and the rest are purely part of the marketing strategy mix albeit a few feedback links to earlier and future stages/ processes. Elements 1 to 5 are absolutely necessary to consider when going through the product definition and development stage. Careful consideration of these elements will also facilitate in change management. The overlap is also necessary based on our earlier consideration that new product development is supposed to incorporate the possibility of incremental change (Bacon et al., 1994). Further, this effectively validates the causal links presented in the model in figure 1 and subsequently the model itself.

i. Marketing Tactics

Creating product awareness in the introduction phase offers a very narrow window of opportunity for high tech markets considering the fast moving environment of the industry. Also considering the high development costs and low profits at this stage, Kotler (2001) advocates offering a basic product and start with focusing on raising awareness among the early adopters. Introducing product trials would help catch the attention of the industry experts and build ties with the distributors.

Beard and Easingwood (1996) on the other hand identify speed as critical to success in the high tech markets. The sooner you break into the market, the sooner you identify what works and find possible ways to innovate before your competitors hit the market. Easingwood’s approach is aggressive and differs from those advocating the inside-out market orientation because they emphasize the use of certain tactics to shape the overall marketing strategy. The technological Page 19 of 52

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vision and marketing tactics (with each tactic supporting a fixed objective) take precedence over business strategy. These tactics are often ad-hoc depending on the awareness of the market and degree of technological maturity. Short time to market and small, highly focused, project teams are the key to success in high tech ventures. Another way is to see this as a technology-led rather than marketing-led approach to the overall strategy. This overall approach is divided into four phases: market preparation, targeting, positioning, and attack. Contrary to what Kotler (2001) and Hultink (1999) suggest, Beard and Easingwood (1996) argue that success in high-tech markets do not seem to be related to any conventional idea of strategy but to the marketer’s ability to modify the product mix as the product is marketed.

Licensing is one of the four main tactics which can be used to set standards in the technology

market while introducing your product. It helps retain the ownership of the product while giving company the freedom to sell product to Other Equipment Manufacturers (OEM). Licensing considerably reduces the risk which comes with the investment in R&D costs. Supplying to

OEMs can help increase sales volumes and explore more avenues without directly taking the risk

of going into unfamiliar markets. Creating awareness prior to launch is also critical to the success in high-tech market where there’s always a brief time period to make an impact.

Educating the market, giving information to media, holding demonstrations of the product, and

even publishing white papers is instrumental in engaging the right people/organizations for future success of the product. Langerak (2004) and Hultink (1999) consider these as a part of launch strategy and market testing while using the outside-in approach to market. In either case, both approaches, outside-in and inside-out, agree on marinating the market as pivotal to success of the product. The advantages of these market preparation tactics are manifold however, the use of one instead of the other, depends on the technological priorities of the marketer and how it aligns with the overall goals of the company.

The next phase after setting the stage for the market is to identify which market to target at various stages of the product life cycle. Targeting innovators is the best bet for new technological products and high success is observed by applying the push approach advocated by Beard and Easingwood (1996). Market research should be done to tailor advertising to these innovators, which is beneficial as these innovators are usually experts in the field. These innovators are quick to explore and adopt new products and can have a potential influence on Page 20 of 52

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early adopters. Identifying innovators and making the right pitch to them can make or break your product especially for small firms which do not have enough resources or relevant experience. The early adopters are usually large organizations which rely on the expert opinion of innovators. Creating a buy-in for the early adopters through direct marketing efforts, conferences, and good product support will expand the customer base and set a standard for your product. These early adopting organizations, usually, only want to retain or improve competitiveness and therefore looking to adopt new technologies.

Targeting late adopters is helpful when the product market has saturated to a certain degree and certain organizations have already established themselves as technological leaders. An important thing to notice here is that establishing a technological lead is not enough to realize the full commercial potential of the product and reiterating an earlier point: producers that are successful in reaching the late adopters are usually different from those reaching the innovator and early adopting sections of the market. (Beard & Easingwood, 1996)

By the time it comes to late adopters the product is in its most refined form. Looking at it from the BCG matrix point of view, this is the point where the product has effectively moved from being a question mark to a cash cow. Commodity marketing techniques can be used since producers don’t need to do anything specific; late adopters don’t have any specific needs since the product has become a standard and producers only need to generate larger sales. It’s best to employ wider channels of distribution since at this stage another new technology is going to be around the corner.

Targeting existing customers is another tactic used in the case where advanced technologies are quickly changing and producers need to retain a relationship of trust with their customers. Using price discount, special product support, and reciprocating the customers’ loyalty via emails, newsletters and brochures can help develop a mutual trust between buyer and supplier.

Another tactic is to target competitors’ customers. This is used to draw in new customers by differentiating your product from what your competitor is offering. While this tactic can emphasize improvements to an existing product it can also undermine the credibility of the entire technology if pursued aggressively.

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The third phase is positioning the product to appeal to various market segments according to the stages of the product life cycle. Product positioning can be based on tangible (technological) or intangible (image building etc.) characteristics. In high-tech industrial markets positioning is seen to be done mostly on the basis of tangible rather than intangible characteristics. Although if the market is not technologically informed or the benefits of new technologically cannot be easily differentiated from the existing ones it is a good idea to position on the basis of intangible characteristics (Beard & Easingwood, 1996). These characteristics communicate a certain image of the producer and make a value proposition to make a distinctive position in the minds of the customers (Kotler, 2001). In order to appeal to the innovators (which most small firms usually do), producers emphasize exclusivity and technological superiority. Here, the pricing strategy also comes into play; in some cases the low prices may create barriers to entry while in others, instead of creating barriers, the price may reflect the superiority of the product. It eventually comes down to the choice of the marketer to decide which aspects to play on after a thorough market research. While the technology is rapidly changing, it may appeal to reason to position the product on the basis of technological superiority, but in some cases, this level of technological knowledge may not be present in the market and may deter customers from taking advantage of the genuine, everyday benefits of the product. In such case, it may be effective to position based on utility and benefits of the product rather than on the basis of technological features. This approach often helps to capture the early adopters market as some of these early adopters may be nontechnical customers looking for application specific products.

Another tactic that can benefit established producers looking to tap into the late adopters market is to position the product as a safe bet. The ‘safe bet’ tactic may not work for small high tech firms so building an image of exclusivity and charging premium price can help reap future rewards.

The final stage in devising the marketing strategy is determining the attack tactics. These tactics are closely tied to the objectives of the launch and commercialization of the product. These tactics may vary depending upon the technology being introduced; some will focus on the general benefits of the technology but if this technology specific market is already saturated the tactics will focus more on establishing the brand name and competitive advantage. Samsung electronics is an example where it has used its established reputation as manufacturer of Page 22 of 52

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components for clients such as Apple, Sony, HTC, Nokia etc and recently expanded by diversifying into consumer markets for mobile phones and tablet computers.

Using experts, opinion leaders, and celebrity endorsements can be an effective tool for communicating your product/brand image. For a developed technology, reference sites are a common means of communicating the product benefits to the customer. These customers agree to provide feedback which help with bug-testing and refining the product.

Market education is another tactic which was discussed earlier as a part of launch and promotion strategy to create awareness in case of a new technology. The strategy is more direct and often goes beyond creating awareness of the product to communicate a vision about the technological future.

Establishing a ‘winner image’ is a tactic which has been widely known for its shotgun approach to establishing a new product. Used by Compaq and Apple, this tactic entails large resources devoted to a huge media campaign usually communicating a preordained success of the product. For this tactic to succeed the producer must focus on developing the image/hype on a high priority basis than to developing a superior technology (Beard and Easingwood, 1996).

Lending/ leasing product trials are another means for building credibility of the product by encouraging a beneficial change in behavior. This tactic also gives the producer a chance to gauge the market response and invest in the product accordingly.

e. Integrated Marketing Communication

i. The Integrated Marketing Perspective

Referring back to the process model presented earlier in figure 2, we can see that integrated marketing communication acts as a mediating catalyst between marketing strategy and commercialization, and positively impacts new product outcomes through this mechanism. Integrated marketing communication (IMC) or what we can call the integrated marketing perspective (IMP) advocates the integration of various functions and stages in the process to enable the transference of one unified message to all stakeholders of the process and product; internal and external (Lynch & De Chernatony, 2004; Kotler, 2001). IMC should be a cluster of – functional and emotional – product and brand values which are strategically consistent with Page 23 of 52

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corporate, marketing and commercialization strategies. This would require a smooth flow of a large volume of discrete information within the firm as well as outside of it; this flow of information should not simply be in the form of persuasion, which is to say it should not be a one-way communication process but it should be a two-way interaction process (Duncan & Moriarty, 1998).

Traditional views on IMC suggest that it is the responsibility of managers and executives to enforce corporate strategy objectives across the firm; this is somewhat close to the gist of IMC. For effective IMC, Duncan and Moriarty (1998) suggest interaction – the two-way flow of information – rather than persuasion. More recent and developed views on IMC strongly advocate a focus on stakeholders rather than just customers as the receivers of communication. Through interactive communications, everyone involved in the new product development (NPD) process should be made a partner in the outcomes of the new product (Duncan & Moriarty, 1998; Winter & Sundqvist, 2008).

IMC is also seen as a solution to: the decreasing impact and faith in traditional mass media advertising, media fragmentation, audience fragmentation, growing consumer and market sophistication, reduced barriers to entry, and globalization in the high-tech market (Winter & Sundqvist, 2008). IMC facilitates relationship building, which is important in the contemporary high-tech marketing environment because of ever shortening product lifecycles (PLC’s). Technologies and products keep changing, but perceived product and firm values, relationships, interaction value and brand remain as they are more robust and unique to the firm, and hence harder to imitate (Barney, 1991; Gronroos, 2004). Not only does IMC help unify all the products of a firm under one unique message, it gives each new product a sustained competitive advantage right from its concept inception. Effectively, the marketing impact exceeds the sum of its parts by creating and building synergy (Naik & Raman, 2003).

ii. Values transference

Traditional views on how high-tech markets operate suggest that customers make rational, calculated and informed choices and that the product (and firm) values that should be projected in media communications need only be functional. However, contemporary research provides evidence that shows that this is not the case; rather, a balance must be struck between functional and emotional values.

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Emotional values like trust, reassurance, reputation and image are more durable in stakeholder’s minds and are less likely to erode because of external competitive forces as they appeal more to people’s core values. By having these elements in the message, it effectively humanizes the product and the firm, hence entrenching more firmly in the mind of the customer (Lynch & De Chernatony, 2004). Keeping in mind that IMC contributes directly to brand building, the effectiveness of communicating both functional and emotional values can be further augmented by looking at the customer based brand equity (CBBE) model in figure 3. Here we see that new product success can be facilitated if resonance with the firm brand and its products is achieved. Functional values correspond to the left half of the pyramid and emotional values correspond to the right; and only through developing and communicating a consistent, clear, positive and balanced message proposition can resonance be achieved.

Figure 3 – CBBE pyramid (Keller, 1993) iii. Consumer adoption process

New product adopters move through 5 stages: awareness, interest, evaluation, trial and eventually adoption. These stages in the diffusion cover the spread of the new idea from the source to its target market (Kotler, 2001). Through IMC, awareness and interest in the new

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product are extant even before the product is released, and are bolstered as long as communication through the product development and launch processes remains reflective of the original message.

Factors that influence the adoption process are relative advantage, compatibility, technological newness, communicability and personal influence. But of course, adopters at different stages of the product lifecycle (PLC) follow different information processing routes as is posited by the elaboration likelihood model (ELM), and hence focus on different elements of the message. Highly motivated customers follow the central route and focus on the core elements of the message like product quality, functions and technological superiority; these are the innovators and early adopters. Low motivation customers follow the peripheral route and focus on contextual elements like visual imagery and price; these are the late adopters and laggards (Lynch & De Chernatony, 2004; Kotler, 2001; Beard and Easingwood, 1996; Rosen et al. 1998). So the message transferred should contain elements and transfer values that appeal to all different kinds of adopters while remaining consistent to the unique value proposition of the product and firm (Duncan and Moriarty, 1998).

iv. Internal stakeholders

Different terms can have different meanings for different people; this is related to perception as well as focus. In the same way, different product parameters can convey different concerns to different departments involved in the process. For example, quality of the product can be viewed in terms of conformance quality; how the product conforms to various industry and trade standards, and perception quality; how the quality of the product is perceived by the customers; conformance and perception quality are the responsibility of the production and marketing departments respectively. For there to be no discrepancies in the output from both these departments it is necessary for the two to communicate with each other, but that alone is not enough (Duncan and Moriarty, 1998).

It is the responsibility of the corporate function and the marketing department to enable employee understanding and commitment to the firm’s mission and vision, and to the unified message conveyed through IMC. This can be done by linking various departments to the delivery of the unified message; by conveying that they are stakeholders themselves, and that the responsibility of communicating the message rests with them as well, albeit through different Page 26 of 52

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devices. Common devices of dissemination include organizational culture (values, beliefs and norms; these positively impact performance, motivation and communication within the workforce as well), internal communication media and sales force training (Lynch & De Chernatony, 2004).

v. Steps involved

The steps in developing an IMC program are outlined below (Kotler, 2001):

1. Target audience identification. The target audience of a comprehensive IMC program needs to cover all stakeholders, but adhering to the objectives of the IMC program, specific groups like customers, shareholders or the public can be targeted. A benchmarking phase needs to be completed to assess the current image and the level of involvement of the target group.

2. Communication objectives. In setting these, it should be considered what kind of psychological response needs to be elicited (cognitive, affective or behavioral), and the levels of involvement and differentiation of the recipients.

3. Message design. What a good message needs is AIDA: to gain attention, hold interest, arouse desire and to elicit action. Important considerations are:

a. Content. This represents the appeal, theme, idea or unique selling proposition b. Structure. Here the choice is between one-sided or two-sided arguments.

Research backed practice involving high-tech products is to use two-sided arguments as consumers are more knowledgeable on average (as compared to consumer markets).

c. Format. This represents the visual imagery of the structured content; colors, themes, font, sights and sounds etc.

d. Source credibility. For the high-tech market, source credibility is usually achieved by listing or displaying the local and international industry standards the product conforms to.

4. Channel selection. A choice needs to be made here between a personal or impersonal

channel depending on the message design and communication objectives.

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5. Budgeting. This decision needs to be made depending on firstly, the objective that needs

to be achieved and secondly, the amount of money available. Common methods include affordable, percentage of sales, and competitive parity.

6. Communication mix. Table 1 lists and categorizes the various tools that can be utilized.

A mix should be made that meets objectives and budgeting.

7. Measurement of results. Measurement criteria need to be set, and feedback protocols put

in place.

8. Management of the IMC process. It is important to understand the IMC program can never be a constant process with locked-in protocols. The feedback protocols set in step 7 are to be used to constantly refine the process in terms of getting the results desired and also to incorporate any shift in objectives.

Messages _{Absence of}

Communication Planned Product Service Unplanned

Mass Communication Usefulness Interactions Word-of-mouth Silence after negative perceptions Brochures Design Deliveries Referrals

Direct Response Appearance Invoicing References

Sales Mat. Sourcing Claims Handling News Stories _{Lack of} information on new developments Web Presence Production Prod. Documentation Gossip

Certifications Processes Help Centre Services Social Media

Table 1- Sources of Communication Messages (Gronroos, 2004)

f. Commercialization

Commercialization is the culmination of all the efforts that go into the actual launch of the product. It is the last stage of the new product development process and includes launch activities such as manufacturing and marketing planning (discussed in previous section), ramping up production and product promotion and advertising. It is also the most individually costly function in the whole process; and where success is directly correlated with money, it also becomes one of the most important (Swink & Song, 2007; Kotler, 2001).

The commercialization process starts when firstly; the project team reaches a decision on the timing of the introduction. The market environment, the stage at which the current technology is and the possibilities of cannibalization of current products need to be considered in the timing decision. Secondly, when the product policy is sufficiently defined (Davies and Brush, 1997; Jolly, 1997).

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Due to marketing and manufacturing activities running in parallel, it makes sense that the close coordination and integration of these activities should provide a positive impact. There is evidence in literature that provides support to marketing-manufacturing integration (MMI) at this stage as it leads to product competitive advantage and reduced lead-time (Swink & Song, 2007; Griffin & Hauser, 1992).

g. New Product Outcomes

Several attempts have been made by researchers to study the impact of managerial decisions and launch strategies on the new product performance but no fixed criteria has been established so far. The reason for this is that measuring product performance is a multidimensional construct and the outcomes are heavily dependent on variables that keep changing with industries, product and timing.

Kotler (2001) measures the outcomes of the new product in terms of costs. Absolute project

failure is considered if the project loses money. In case the project loses money but sales are able

to cover variable and some fixed costs as well, the project is considered to be a partial success. However, if there is profit but it doesn’t meet expectation then the product is considered to be a

relative success. Rosen et al. (1998) also offer the same opinion as Kotler, measuring the

outcomes mostly along the elements that constitute financial success of the product. One distinguishing perspective offered which is highly relevant in high-tech markets is the market knowledge and learning gained from platform projects. This knowledge may prove to be extremely beneficial in the high-tech market where time to market is short and products are refined on the go.

A more comprehensive understanding of new product outcomes is given by the study conducted by Hultink and Robben (2003). Their study suggests two dimensions to measuring new product outcomes, namely, market acceptance and product performance. The market acceptance measures the product’s position and sales whereas the product performance refers to quality and technical performance level of the product. These two dimensions are judged on the basis of launch strategies tied to the product. This combination of the financial and non-financial measures enhances the understanding of the actual performance of the product in market.

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There are three broad categories which were benchmarked for measuring the financial success of the product. The first is the revenue growth achieved by the company after the launch of the new product. This revenue growth also depends on the stage in the product life cycle and the relative performance of the competitors. Product life cycles are shorter in the case of high-tech markets and the success also relies heavily on the speed to market. Next come the unit sales of the product and the market share gained. The results of the study by Hultink and Robben suggest that a more innovative product, early timing, broader product assortment, not using a new brand name, and penetration pricing positively impact the financial success of the product. These variables, however, do not seem to be very strongly associated with the product performance which is measured against quality guidelines, number of complaints, callbacks etc. Product performance seems to be more strongly tied to efficient product development process and engineering rather than as a result of an appropriate launch strategy and market conditions.

Cooper (1984) laid emphasis on three independent aspects to measure new product performance: financial performance, success rate, and market impact. In the study conducted by Hultink and Schoormans (1995), they use an overall measure of product success in addition to the three criteria proposed by Cooper. They use ‘expectations’ about the overall success instead of actual overall success measure. It was found that the manager’s perception regarding the performance correlated more strongly with the objective performance criteria. The reason for advocating this point of view is that measuring a product success in hindsight may not be reliable criteria because firstly, managers often don’t remember exactly what strategy was used for the product and secondly, it is uncertain whether the outcome of the new product is because of the launch strategy or external factors which occurred between launch and measurement of success.

4. Case study: market, company and NP process

a. Market

i. Characteristics

The case in point here is the launch of a new camera product in the high-tech security surveillance market. The two dominant camera technologies present are the visible-light camera and the thermal camera. The two things leading to competitive technological advantage are the Page 30 of 52

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camera module itself, and the image processing technology. The market, as one would expect is fast-moving, expensive in terms of R&D costs, dominated by mostly big companies, and quite global.

The two broadest categories of the customer are military and private. An interesting characteristic of the market is that customer literacy of the product is very high for military and presently quite low for private. Also, because impetus for technology development in this field comes from the military segment, there are certain trade restrictions (imposed mainly by the US) in the market to restrict the sale of the most technologically advanced products to the military and only a very limited segment of the private market. As a result of the aforementioned, the technology available to sell to the private market is relatively quite imitable. Also, the number of module manufacturers is much lower than the final camera product manufacturers. These two reasons put all competitors – old and new – on a somewhat similar footing in terms of camera module technology. In terms of competitive advantage, competitors have to focus on image processing, and sales and marketing approaches to get ahead.

Even so, some firms make the explicit decision not to sell to the military, as is the case with the firm which is the subject of this case study (and which shall henceforth be referred to as company A). This decision results in automatically removing oneself from a big potential market, but on the other hand gives the firm the freedom to conduct business without the influence of a local or foreign military client. It also allows the firm to focus on the private market (which includes the government sector), and develop and use the competencies discussed in earlier sections in this paper.

ii. Growth

The visible-light camera market is mature; growth is slow, standards are set and the market is huge. Thermal camera technology, more simple stated as FIR (far infrared), is the newer technology in the market. Hence, growth is fast, most standards are still not set (or in the process of being set), and the market is relatively small. Within the visible light camera market, there is a notable shift from analog to network based (IP) cameras.

Technological advancement in the visible-light camera segment mostly relates to image quality; the newest products have begun to offer high-definition video (1080p), higher frame rates, and Page 31 of 52

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have the capability to operate in extremely low levels of light intensity. Thermal cameras on the other hand offer the benefits of operating over very long distances (as much as 7 kilometers), and being able to operate in zero-light conditions. Apart from the camera itself, a comprehensive security solution also contains digital video recorders (DVR’s), alarm systems and software solutions (such as IVA: intelligent video analytics).

b. Company

Company A is a huge, global multinational engineering and electronics company headquartered in Germany. The firm has grown both internally, and through mergers and acquisition, and now employs over 300,000 people over 60 countries with revenues of 52.3 billion Euros in 2012. Its ownership structure consists of ownership partly by the founding family and the remaining by a charitable trust. The majority of the voting rights are held by an industrial trust and the remaining by the founding family. Company A’s core products were for the automotive industry, but they have now expanded to include power tools, security systems, communication systems and home appliances. Company A was founded in the 1880’s and their Security Systems division has been around since the early 2000’s. With manufacturing sites in America, Asia and Europe the security systems division sells to over 150 countries with sales of around 1.5 billion Euros in 2012.

c. Process

Within company A, the most relevant processes to this study are the so-named Product Engineering Process (PEP) and the Product Introduction Process (PIP). The product manager is responsible for initiating the development of a new product, which they do through the presentation of a project charter to their relevant business unit (BU) steering committee. This project charter is drafted by a project manager, an architect and possibly also a project manager. The BU steering committee usually consists of senior personnel; directors, portfolio managers, branding managers and regional heads. This project charter contains a concrete technical justification for the product and a well defined set of product objectives. By using this approach, company A manages to implement company and product policies through a common mechanism. Company A’s cornerstone values are Quality and Innovation, and it is through this initial screening process that all new product ideas are judged against a consistent quality and innovation based design philosophy.

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Business Unit Management Team (Steering Committee) Project Manager (PjM) Purchasing Responsible (PR) Quality Responsible (QR) Engineering Responsible (ER) Logistics Responsible (LR) Service Responsible (SR) Product Manager (PM) Manufacturing Responsible (MR) Industrialization Team Prod. Introduction Team Service Organization Engineering Team Product Marketing Manager Marketing Comm. Manager PEP Core Team Sub-Teams/ Links PIT

Figure 4 - NPD team organization

After the project charter is approved, the BU steering committee then assigns a project manager (PjM) to the project and a team of usually 4 or 5 people which fill all the roles in the PEP core team as shown above in figure 4. Here, one person may fill more than one role. The project, from start to close covers 6 stages; these stages and the PEP and PIP functions performed in them are shown below in figure 5.

NPD Stages PEP activities PIP activities Project Charter Prod. Req. Specs Feasibility and Production

Testing Launch Mass

Production

Orientation NP Def NP Dev Launch

Release Delivery Release Project Close PIT formation

Delivery of Materials and Training to Sales Offices & Technical Trainings

Training of Tech Support, Cust Service and Pre-Sales MarCom Planning & Materials 0 1 2 3 4 5

Figure 5 - Project Phases

These stages are referred to as ‘quality gates’ within the company and this is in line with the overall message of quality and innovation that the company tries to communicate and strengthen. These so-called quality gates ensure that every new product that is developed is complete in all Page 33 of 52

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aspects by the time it is launched. This process has been refined over decades, and all employees understand the process and their roles within it quite well. Albeit uncontrollable variables such as inter and intra-team dynamics and fluctuating market environments, employees know that although following this step by step process may seem tedious and even unnecessary at times, the ultimate benefits of it are much higher.

The different sub-teams interact with the core team on various different NPD stages. The interaction between the NPD core team and the PIT are shown in figure 5. The length between stages is roughly indicative of the relative time that is to be spent on each stage. The person who fills the Quality Responsible (QR) role in the core PEP team is directly responsible for checking and ensuring that all deliverables needed to pass each stage are in order; that they are properly reviewed, approved and filed.

Stage 2 – the space between 1 and 2 – is undoubtedly the most costly in the process. It is here that there is maximum interaction between all the different teams involved. The product is defined before stage 1, and is developed in this stage. In addition, as is shown in figure 5, the launch and marketing communication strategies are developed almost in accordance with the methods mentioned in this paper. While the overall marketing communication of the company revolves around a general theme of quality, innovativeness and stability, we can gather from theory that there are a number of different considerations while developing an IMC program such as the market characteristics, target audience, communication objectives, message design etc. Even within the security systems market, there are a lot of different industries with varying needs; a market share overview is shown below.

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Figure 6 – Market segments in the security systems market - 2012

As these customers are all from a very diverse range of industries, their requirements from the same product may be significantly distinct. Each type of customer shown here is looking for a solution to their problem rather than a product which simply produces, records or displays an image. Developed products are sold to the end customers either directly or through a distributor or installer. Figures show that 85.5% of sales are made to distributors, installers or integrators, and the remaining sold directly to end customers (Cropley & Woodhouse, 2013). This presents an interesting challenge for marketing communication managers; they have to develop marketing communication strategies aimed at all the stakeholders in the decision to buy the product. This challenge becomes more complicated when we consider the fact that the sales department is incentivized through the number of unit sales they make of each kind of product, and not on their implicit - and difficult to measure - effort in the implementation of the marketing communication elements. Airports 6% Banking & Finance 1% Casinos & Gaming

4% City Surveillanc e 11% Commercial 13% Data Centres 1% Education 7% Government 10% Healthcare 3% Manufacturing & Industrial 4% Ports 4% Railways 8% Residential 3% Retail 12% Sports & Leisure

3%

Traffic Monitoring 6%

Utilities & Energy 5%

Security Market Segments - 2012

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In terms of the NPD process from figure 5, corporate influence was represented in the making and ensuring compliance with the 6 stage model itself, as well as in so-called front end processes which typically preceded the 6 stage model of figure 5. These front end processes included product portfolio and technology planning, and innovation management. Members of the steering committee were typically in-charge of these front-end processes. Portfolio management consists of maintaining the ‘look and feel’ of the product line. Technology planning consists on upgrading proprietary technology, and having a watchful eye on the overall technology environment and seeing what should be developed, and when. Innovation management is done through sponsoring platform projects; these are usually stopped on stage 3. Platform projects are to test the feasibility and workability of new technologies and often to test the limits of a certain technology. Their purpose is not commercial, so they’re stopped before the launch stage.

5. Results

In addition to the extensive literature review in section 3, interviews were conducted with managers at different stages to better understand the inside-out perception on MI and IMC. A basic summary of results is shown below in Table 2.

Interviews were conducted using the framework attached in appendix A. The discussion was mostly unstructured, but was driven in a way that all items mentioned in the questionnaire were touched upon. All respondents were shown the process model in figure 2, and all of them agreed that it was an ideal and valid model. Some expressed concern as to why IMC was shown as a mediator between marketing strategy and commercialization, instead of being part of the chain. It was hence necessary to clarify that marketing communication alone was considered part of commercialization in the process model, and that IMC is a different concept.

General opinion on the role of corporate strategic direction/decision on individual NPD processes was that it was weak. When asked, the senior engineering manager emphasized the innovation philosophy of the company as being traditionally inside-out. He felt that corporate focus on customer orientation was not well communicated within the firm and as a result, what can broadly be referred to as the technical and commercial divisions did not complement each other’s work anymore.

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Respondent Market Information

(Integrated) Marketing Communication

Inside-out vs.

Outside-in General Comments

Product Manager

Extremely important, should be an ongoing process

Special focus not required; unified innovation and quality message already present inside and outside the company

Outside-in focus imperative: customers want their questions answered by experts

Not enough incentive for intra-firm focus on innovation when innovation is extremely important in this market Purchasing Manager Extremely important. There should also be a strong focus on information sharing. Certain benefits to be had in centralizing the flow of information

Strong image/message already present, but is built be performance of older businesses in the firm. Security business should contribute to that message as well Outside-in technology driven focus: OEM/supplier information crucial to product innovation TTM becoming one of the most important determinants of success

Sr.

Engineering Mgr.

Not unimportant, but company should focus on innovation from within the organization Strong message already present Inside-out. Focusing on the contemporary outside-in trend would put the company at risk of becoming a strict follower

Company size has a direct effect: too much time spent on organizational and administrative tasks Marketing Comm. Mgr. Very Important. Transference of team learning between teams should be better implemented

Extremely important. Marketing

communications department should have absolute decision power over its functions

Outside-in There should be effort from the corporate level to mould company culture according to company values Prod Marketing Mgr.

Very important. Flow of information between departments need to be approved; tools available, but not used due to adoption inertia

Obvious benefits to IMC as long as the message delivered is well thought out in coordination with all departments

Should be a balance between the two

Different business units need to be treated differently Sales Manager Very important. Customer need assessment is crucial in NPD success IMC definitely important. IMC policies updated periodically, but not applied properly.

Outside-in focus is the need of the current market

Feedback should be drawn from all departments when IMC plan is made

Process Manager

Quite important. Strong unified message already present

Should be a balance between the two

TTM and process lead times most important. Innovation and sales oriented projects should be separated and dealt with differently Table 2- Summary of Interview Responses

Contributors to new product success for high-tech markets : market information & integrated market communications.