High-tech Products Failure

High-Tech products failure: Lessons learned Chatchai Khunpitiluck

Saturday, September 19, 2009

A car with speedometer

A question from last lecture

Length of the bridge = #ticks on the bridge #times crossed the bridge

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Moore’s Law

“The number of transistors on a chip will double about every two years” - Gordon Moore, co-founder Intel

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Hi-Tech Markets Complex Under rapidly changing technology (short life cycle) Need for rapid decisions Continually evolving expectations of customers

High risk for both customer and producer

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Customer Focus

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Nature of Hi-Tech Markets Difference between the customer’s perspective and the firm’s perspective Specific features of high tech markets that are believed to distinguish them from other product categories Anyone who owns standards win

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“If you build it, he will come” -Movie “Field of Dreams”

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Adopter Categories Innovators

willing to take risks, impersonal and scientific information

Gatekeeper

Early Adopters

accept new ideas early rely on multiple sources of info

Opinion Leaders

Early Majority

risk adverse rely on company-generated promotional information and WOM

Don’t purchase until late growth stge

Late Majority and Laggards

Advantage for require early categories to “test-drive” the companies who enter product during maturity

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Tornado

Main Street

Bowling Alley Source: Moore (1995), Inside the Tornado

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Examples from practice

Technology Marketing or both

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Factors of failure ... Customer expectations not met No innovative advantage perceived Information about product is scarce, unclear, difficult Need for product is not seen Unique attributes not seen Poor selection of target market Poor communication of product benefits Distribution channel selection Saturday, September 19, 2009

Philips’ CD-I (1991)

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CD-Interactive (CD-I), 1991 Entertainment System Game, TV, Audio as family entertainment system Philips counted very heavily on this system Hardware Joint venture on Software with Polygram “Family Entertainment of Tomorrow”

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Target Market Married, with school-aged children, technologically advanced and relatively affluent. Aimed to push product for holiday season 1991 Recognized importance of “innovators” and “early adopters”

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Product

Not all features included in the system in 1991 Operate with TV, but remote control is (perceived) as not good

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Distribution

Sears Circuit City Other game retails

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Promotion

Tag line: “imagination machine” But many features on the list not available Specially trained sales force

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Price Original Retail Price $899 Almost immediately, price dropped to $699 1994: $499

Price skimming

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Lessons learned Must position CD-I as an innovation, not another Super Nintendo or CD players Early adopters are necessary to start WOM Does not appeal to target market Cost cutting in product design & production Ad copy did not match up with the functions and confusing Store selection did not project image of cutting edge Price skimming confuses innovators and early adopters Saturday, September 19, 2009

Apple’s Newton (1992)

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Newton, 1992 John Sculley, CEO Apple wants to enter the PDA market Sold strongly at first, but fell short Revamped and Reintroduced in 1994 “Seamlessly Communicate Anywhere”

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Target Market

Strategy Decision: Mass Techno-philes Apple Fans

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Product Competitors: “EO” and “Zoomer” Compaq, Sony worked on their own versions of PDA Apple didn’t have a complete prototype in May 1992 PDA: wireless electronic communication + file management + handwriting recognition + pocket size

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Not complete “75% of what Apple says it can do” “Not designed to meet the need” “Technology flaw” “Very high price”

Apple’s vision of a revolutionary product has not been shared by the customer.

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Price Sculley set it to $500 Sold at $699 Still too expensive to generate market appeal it wanted Pricing strategy did not fit in the product strategy

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Promotion Apple’s new product launches: Promotional mix One year before launch: “the beginning of the biggest thing Apple has ever done” “this is tremendously exciting for the rest of the world” Apple advertised features prominently and failed to deliver

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Lessons Learned Long on promise, short on fulfillment Product not complete Price point cannot be fulfilled R&D can’t deliver all features “it’ll take 2-3 iterations before these are any good”

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Sony’s BetaMax (1975)

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BetaMax, 1975

InstaVideo (Ampex), 1971 U-Matic (Sony) 1976: Standard Format emerged (JVC’s VHS)

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Target Market Why it is not a success? Introduced before competitor more then one year Market big enough for more than one product Sony does not conduct “market research” RCA did, and waited for the right format

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Product Many experiment with devices to record TV programs Developed from U-Matic, BetaMax was much better BetaMax recorded for upto one hour

Technically superior, wider spectrum, higher SNR VHS, record time is up to 6 hours in LP mode

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Price Confusing announcement: $788 before launch: $2,295 Combo set In Japan: $800 High prices: Luxury Market, Expensive Toys

BetaMax Movie: $79.95 or $89.95 VHS Movie: $29.95 Saturday, September 19, 2009

Place

Matsushita, JVC also an alliance of Sony For Sony, Quality and size is better than playing time Lack partner

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Promotion First in the market Did not go for innovators and early adopters Shrink from 100% to 28% in 6 years

First mover advantage wiped out by Long-Play

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Lessons Learned

Similar mistake done by U-Matic Sony introduced Extended Definition Beta JVC introduced Super VHS

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Sony’s Proprietary Formats

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BetaMax, 1975

Video Cassette Recording (VCR)

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Digital Audio Tape, 1980’s Digital successor to analog cassette tape Technologies from video tape + digital encoding RIAA lobbied to prevent the sell of DAT Expensive players RIP 2005

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Minidisc, 1993 Could be successful Sony added “copy protection” High media prices Expensive player/recorder

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ATRAC Audio Compression, 1993 Developed ATRAC for the Minidisc Near CD-quality, smaller files Nasty, close-minded move by Sony MP3 took off as “open standard”

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SDDS, 1993 Sony Dynamic Digital Sound Dolby Digital 5.1 Digital Theater System (DTS)

SDDS didn’t go very far in home theater segment

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Memory Stick, 1998 Developed for Sony Digital Camerass and Music Players “Proprietary” format, limited to Sony alone Designed as an additional revenue stream Other manufacturers not using it

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Universal Media Disc, 2005

Improving MiniDiscs to a new optical discs Discontinued 2006

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Blu-Ray? Inferior format (MPEG-2, MPEG-4) BluRay movies are “Enhanced Definition” and MPEG-2 Expensive player for DVD capability Problem not on the players, but the discs Not “High Definition” Another camp is Toshiba’s HD-DVD, endorsed by DVD forum BluRay player costs twice as much as HD-DVD’s PS3 Debatable. To be decided by the Movie studios!! Saturday, September 19, 2009

Blu-Ray! WalMart stopped carrying HD-DVD Toshiba withdrew from the battle Blu-Ray won The battle in a much longer war Window of opportunity is short, consumer prolong decision

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Blu-Ray Competitors Do we really want a High Quality Video? Digital Downloading Streaming Video No true winner? Just temporary survivor

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End notes You learned more from failure, not success -A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be. -Wayne Gretzky

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Assignment

Next Week: Summary & Class Presentation

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