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Marketing challenges of technical industries in developing countries
Marketing Challenges of Technical Industries in Developing Countries Sumit K. Pal and B. Bowonder A rapidly changing technology-based industry such as electronics in the environment of a developing country has many unique problems in organizational marketing. The problems and possible strategies under such conditions are discussed in this article.
Electronics is a high-technology and rapidly changing industry. Electronic products are pervading all the major sectors, including agriculture, manufacturing, education, transportation, health, and mining. It is still a developing industry in India, and its direct contribution to net national product (NNP) of India will be around 1%. Electronics is a labor-intensive industry that is actively being promoted by the government. This is an industry where technology changes are so rapid and frequent that the marketing problems are unique compared to all other industries. So a detailed analysis of the marketing problems has been initiated to evolve integrated market strategies for effective organizational growth. The major problems have been identified and are discussed below after a brief assessment of the current status of this industry. Abbreviations. SSI: small scale integration; MSI: medium scale integration; LSI: large scale integration.
INDIAN ELECTRONICS INDUSTRY: CURRENT STATUS The Indian electronics industry is controlled by three groups; government-owned firms, transnational firms, and private enterprises. These firms manufacture equipment, assemble imported components into finished products, and export these finished products to other developing countries. In the area of components manufacture, these firms lag behind other developed countries. The generation of components manufactured consists only of transistors and integrated chips (mainly SSI and MSI). No firm in India manufactures LSI today. Electronic technology is changing very rapidly in the developed countries, and the electronics industries of the developing countries like India have to import the latest technology. The more rapid growth of electronics in the developed countries has caused the technology gap to widen. This increasing gap has resulted in causing an increased demand for new products from abroad as well as more rapid obsolescence of current Indian technology. To satisfy the increasing demand, the government authorized the establishment of a large number of electronics firms. This step has caused a rush of entrepreneurs into this less capital-intensive and high-profit-oriented industry. The establishment of a large number of new firms and
© Elsevier North-Holland, Inc., 1979 IndustrialMarketing Management 8, 69-74 (1979) 0019-8501/79/01006906501.75
69
the withdrawal of IBM operations from India has caused a number of interesting issues to emerge. There is an intense competition among these firms to introduce new and improved (either indigenously designed or imitated) products. Since the performance:cost ratio of electronic products is increasing by a factor of 10 in every 2½ years, each competitor is trying to win over the customers by introducing new products. This is clearly perceptible in the product lines of calculators, mini-computers, television sets, process-control instruments, communication equipments, and other electronic products. The Government of India channelizes the imports of electronics items through its agencies. Thus there is a restriction on free importing unless the firm is manufacturing for export. Since this is the general structure of the Indian electronics industry, let us consider the specific marketing problems.
New Product Development Since there are a large number of competing firms, it is imperative that new products be introduced at regular intervals to sustain a rapid turnover. As the critical component is the LSI chips and the supply source is open to all firms, it is very difficult to introduce new products. For example, there are five major manufacturers of minicomputers and there is virtual duplication of the products. The major problems are to generate commercially viable new product ideas and to forecast the potential demand for these new products. Even in the advanced countries where the market-research skills are highly developed, it is reported to be very problematic to assess the demand for high-technology products [1]. The state of intense change has not existed previously in any Indian industry, and the enterprises do not have the requisite skills or expertise to overcome these problems in a judicious way.
New Product Introduction The mode of introduction of new products is another major problem area. The firm that introduces the product
SUMIT K. PAL received a Master of Management Science Degree from BITS, Pilani, and works as a systems analyst in Operations Research Group, Baroda. He is presently a member of the Administrative Staff, College of India, Hyderabad. B. BOWONDER has a Ph.D. in Engineering and works as an Assistant Professor at liT, Madras. He is presently a member of the faculty, Administrative Staff, at the College of India in Hyderabad, and has coauthored a book on technological forecasting.
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first in the market has a relatively greater chance of capturing it, using the market skimming objective. At this stage the competitors improve upon the product and introduce cheaper and more advanced models. In this way the race continues through performance improvements and price reductions. This has caused some buyers to delay their purchase decisions anticipating further price reductions. Frequently, the product that is new to a firm is also new to the market. This necessitates giving advanced product information to the potential customers, which is especially so in a developing country like India. The nature of information communicated to the potential customers has to be properly edited so that potential competitors do not obtain advance information on the firm's new products. This problem is further aggravated by the piracy of the personnel in charge of product development by competitors. This had actually happened in a firm and delayed the introduction of a new product into the market. Customers being exposed to a technologically new product for the first time adds a further dimension to the problem. In a number of cases, inadequate customer education and training have caused the nonutilization of the new product. This problem has been faced by manufacturers of calculators and computers. Not understanding the complete potential of the product has caused the buyers to underestimate its utilization. This problem will be faced increasingly when technologically sophisticated products are introduced in the market in a developing country.
Competition There are four large government-owned firms (ECIL, HAL, BEL, and ITI),~ and one large transnational enterprise, whereas the rest are all small-scale and mediumscale sector units. In three of the government-owned units, there is complete monopoly for the products, and thus only one unit has to face the competition. Two of these three units cater to the defence needs, and the third caters to the communication needs. The competition is thus among one government-owned unit and the multitude of privately owned firms. The government-owned undertakings manage through a governmental support strategy rather than through a proper marketing strategy. This gives the privately owned firms a major advantage, but it is left to these firms to exploit this advantage.
~ECIL: Electronics Corporation of India Ltd.; HAL: Hindustan Aeronautics Ltd.; BEE: Bharat Electronics Ltd.; ITI: Indian Telephone Industries.
India, a developing country, has only a limited potential for these sophisticated electronic items. Although the population is very large, the demand is not commensurate. Further, the low literacy level in the country enforces a limit for accurate prediction of buyer behavior. It is extremely difficult to make the potential buyers aware of the intrinsic merits of the sophisticated products. The much smaller total demand for electronics products compared to that prevalent in the developed countries and the recent policy of the government to promote only a large number of small-scale firms do not allow the manufacturers to take advantage of the economies of scale. This, coupled with the high materials, marketing, and other overhead costs, greatly inflate the prices of electronic products comparable to those available in foreign markets. This state of higher prices for indigenously manufactured products is perceptible in the case of calculators,
new firms entering the market are finding such costs unbearable. The larger electronics firms and other large firms that have diversified into this area from their major business area find their marketing experience an added advantage. Even these firms find the marketing-component overheads to be very high in the electronics area. The same reasons do not enable these firms to undertake extensive market research. The need for closely guarding the new product information strengthens this step of less intensive market research.
Functional Coordination Electronics production is done even now in small units or batches under the Indian environment, and such a production pattern makes it necessary to have perfect coordination among design, R&D, production, finance,
"Changes in demand make export marketing very difficult." computer systems, electronic watches, and processcontrol equipments. All these factors, working in a synergistic way, make it very difficult for the firms to plan the complete marketing strategy. The recurring downward revision of price of the new products subsequent to the introduction of new chips by the major U.S. firms that sell to the Indian firms is another facet of the competition. The marketing managers with no precedence to guide them or in the absence of any systematic methodology, resort to a random pricing strategy. Because of this random pricing policy, the customers find it difficult to make a rational choice and do not have confidence in the firms that introduce the products with a high price strategy in the introduction stage. For example, in the case of minicomputers patient buyers are carefully observing the performance price trend rather than investing in the new systems in the early stages of introduction. In some cases not only the competitors, but also the same firm, have resorted to price reductions, with marketing personnel unable to justify the price reduction for the same product soon after the competitor had reduced the prices. The keen competition prevalent has resulted in increased costs of sales promotion and advertising, and
and marketing. The frequent changes in product technology have made this interaction a very critical function. Marketing and R&D have to have frequent interactions regarding the consumer needs, attitudes, and behavior patterns toward new products that have to be launched, as well as on product development initiated by the feedback on today's products and products of tomorrow. Marketing and production coordination is again very mandatory because new product development requires changes in production pattern, schedule, layout, and material requirements. Similar intense interactions among other functional groups are very essential to the firm because of the rapidly changing technology. The Indian experience in this area has shown that smaller companies with cohesive functional groups are more likely to be successful in product innovation because of the above requirements of strong interactions and frequent feedback.
Product Servicing The significance of this function has been grossly underestimated by most of the competing firms. In India, a vast country with a small number of distributed urbandemand pockets and limited availability of service tech71
nicians for sophisticated products, firms find the service function to be much more critical than anticipated. This situation becomes much more significant as the products move along the product life cycle. For example, a television-manufacturing firm that was keeping well ahead of its competitors because of its superior product quality found itself relegated to the background as time progressed. This was mainly due to the lack of support for their product with an efficient and effective sales-service network. The significance of the servicing function as the product moves along the product life cycle has not been discussed by the marketing professionals or academics. For example, Kotler [2] considers the service function as the least critical prior to the saturation stage of the product life cycle, but this is not valid in the case of a hightechnology product in a developing country. The major problem areas are service mix, training of service personnel in the wake of frequent new product introductions, stock policy for spares, specification of contact points for customers, and optimization of breakdowns and maintenance repairs. The wide geographic distribution of the customers, the lack of skilled technicians, the lack of spares availability for old products, and the frequent new product introductions with complete new technology complicate the effective management of the service function. The decisions on organizational
ment personnel have to be exposed to these managerial functions apart from their regular technical functions. Further, if the firm introduces a very advanced product, it may not find acceptance in the Indian market, but if the product is not sufficiently sophisticated it will become obsolete very quickly. In general, R&D personnel are technically very specialized, and their failure to consider the market needs, price, and competition through intensive interactions with the marketing group will result in product failures. This brings another problem to the forefront. If the R&D group is very open, the chances of new product information leakages to the competitors are high and if the group is closed, it will not be able to generate sufficient new product ideas to embark upon. The skills of R&D personnel for such firms have to be more diverse than the conventional R&D type. The updating of the existing products that have already been sold is one of the conditions of the buyers because of their anticipating product improvements. This requires the R&D personnel to go frequently to the already established units along with the service personnel to incorporate the necessary improvements. This may require a generalist in R&D with sufficient systems knowledge. But keeping a large number of such personnel for various products is a very costly proposition. Other major organizational problems are keeping the
"Not understanding the complete potential of the product has caused underestimation of its utilization." linkages of servicing with sales or marketing and the functional reporting structure are, unfortunately, taken on intuitive grounds.
Research and Development As it is a technology-oriented area, R&D is vital for introducing new products at frequent intervals. The firms with strong R&D groups are making a greater impact than large capital-intensive units. Here again the effective long-range planning, resource allocation, integration with marketing, introducing new product at early dates, and identifying new product areas for diversification are some of the major problems. Research and develop72
highly skilled R&D personnel within the firm for a long time rather than losing them to the competitors and also keeping these R&D people ahead of obsolescence. For example, a given firm, A, is to produce bionic equipments, and they have employed a number of personnel trained from abroad. The competing firm, B, makes repeated attempts at snatching these people with the bait of higher remuneration, compelling firm A to raise the salary levels to retain their personnel. Further, the technology in this area is changing so rapidly that firm A has to hire newer personnel within 2 years, specially trained abroad in the latest technologies to introduce new products. At this stage of employing a newer set of personnel,
firm A benefits only very marginally from the first set of R&D personnel, and they may even find it more profitable to give them away to firm B. In case firm A should have a long-term manpower policy, the obsolescence of the earlier recruited personnel has to be overcome by regular training. All these factors working in unison makes the management of R&D function very dynamic and challenging.
Export Marketing In the case of exports, the main problem is that these firms can sell mainly products of tomorrow. The sales of yesterday's products usually show very sharp declines, and today's products will also decrease gradually in sales turnover. These changes in demand, coupled with the exposure of new and advanced products in foreign markets by other countries, make export marketing very difficult. Export marketing requires a very efficient information system on the needs as well as the sensitivity of the needs of the market. Foreign markets usually show very fluctuating demands, and if these have to be smoothened, the firms require immediate market feedback, necessitating a very large marketing network. Most of the firms of the developing countries do not have such efficient marketing systems to support such export-marketing ventures. Having identified the major problems, let us consider the possible strategies to be adopted in such an environment.
Strategies Table 1 summarizes the product profile and the strategic implications of various functional alternatives. New product development requires a large number of ideas from the beginning. The generation of this can be achieved probably through techniques of technological forecasting. In fact, some of the firms have initiated such systematic procedures for new product-idea generation. In these, the needs of the potential consumers, the demands, the technologies available, the skills available, and the resources are to be matched to select the potential products. The marketing strategies to be adopted are: 1. Increased sales-marketing efforts compared to the conventional products. Robertson [3] has identified the lack of this effort as a major reason for new product failures. 2. The potential of the new products are to be widely disseminated to educate the users [4]. 3. More rapid feedback systems to introduce the changes needed by the buyers are to be incorporated. 4. Comprehensive efforts to understand the user problems should be undertaken, especially in the initial stages. 5. Market skimming can be a major strategy in new product introduction.
TABLE 1 Product Profile and Strategic Implications
Product Profile Strategy Critical function Nature of turnover with time Penalties for mistakes Advertising and sales promotion Customer education and training Service function and spares policy Competition monitoring Scope for exporting Integration of marketing with other functions
Yesterday's products
Today's products
Tomorrow's products
Sharp decline Very high
Product development Limited life High
New product assessment Growth potential maximum Can be compensated
To push the demand to the maximum Limited efforts Very important
To maintain the demand at an increasing rate Increased efforts Important
Not very critical Minimum
Keep a watch To other developing countries Interaction with production, finance, and sales
To pull the potential demand to the highest possible value Vigorous efforts Increased importance An alert lookout Joint ventures with developed countries Active interaction with R&D
Marketing
Active interaction with production
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6. Intensive customer training and user orientation are needed. The Honeywell Corporation entered the market through this step [5]. 7. Pricing has to be medium-term oriented rather than short-term oriented. 8. Instead of long-term-drawn market research, initiate expeditious market-assessment methods. Many authors have suggested a strategy similar to this [6-8]. 9. Proper assessment of the strength of the competitors has to be undertaken. Lack of this has been another reason for the new product sales to be far below the targets [9]. 10. Pure imitation products are to be avoided. 11. Allow healthy transnational competition for the introduction of the latest technologies. 12. The systems management concept and matrix organization have to be adopted for better functional coordination. 13. The servicing function has to be given far more importance, with updating of the skills of the servicing personnel. A service cadre as a line function has to be initiated with the terotechnology concept. Setting up of an optimum number of service-contact points with a proper spares delivery system has to be adopted. Pricing of spare parts and peripherals has to be done in an integrated way along with the maintenance system. 14. Advanced R&D should be initiated for "leap frogging" generations of technologies, mainly to reduce the ever-increasing technology gap. The bought R&D should be assimilated and then adopted. Small companies not capable of supporting large R&D groups can have cooperative R&D units. Research and development without market orientation will not be commercially successful. Tiles and McFarlan [10] have identified that the matching of technical development with consumer needs is critical in successful market development. Marketing and R&D should have stronger linkages. The human-resources management approach should be extended to the R&D function.
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15. For exporting to less developed countries, joint ventures with developed countries can be initiated to utilize the low labor costs prevailing in India. Firms catering to the export markets have to further strengthen their marketing systems.
CONCLUSIONS In the electronics industry, the marketing function is very differently oriented when compared to other industries, as has been shown in this study. The marketing function has to be strengthened, and proper coordination with other functions, including a technology monitoring or a long-range production forecasting system, has to be developed. Strengths, weaknesses, opportunities, and threats (SWOT) analysis of the marketing system within the firm has to be initiated and a constant assessment of the performance target gap is necessary.
REFERENCES 1. Cowell, D. W. and Blois, K. J., Conducting Market Research for High Technology Products, Industrial Marketing Management 6, 329-336 (1977). 2. Kotler, P., Marketing Decision Making: A Model Building Approach, Holt, Rinehart and Winston, New York, 1971, pp. 62-63. 3. Robertson, A., The Marketing Factor in Successful Industrial Innovation, Industrial Marketing Management 2, 369-374 (1973). 4. McNeal, J. U., Consumer Education as a Competitive Strategy, Business Horizons 21, 50-56 (1978). 5. Herbert, Evan, What happens when you invade a high technology market in Dealing with Technological Change, selected essays from Innovation, Auerback Publishers, Princeton, N. J., 197l, pp. 181-192. 6. Roberts, E. B., Technology Strategy for the European Firm, Industrial Marketing Management 4, 193-198 (1975). 7. Tayverm, E. M., How Market Research Discourages Major Innovation, Business Horizons 17, 22-26 (1974). 8. Sands, S. and Warwick, K. M., Successful Business Innovation, California Management Review 20, 5-16 (1977). 9. Cooper, R. G., Why New Industrial Products Fail, Industrial Marketing Management 4, 315-326 (1975). 10. Tilles, S. and McFarlan, R. R., Strategic Planning in a Dynamic Technol o g y - T h e Electronics Industry, in Long Range Planning for Marketing and Diversification, B. Taylor, and G. Wills, eds., Bradford University Press, Crosby-Lockwood, London, 1971, pp. 363-384.
Electronics is a high-technology and rapidly changing industry. Electronic products are pervading all the major sectors, including agriculture, manufacturing, education, transportation, health, and mining. It is still a developing industry in India, and its direct contribution to net national product (NNP) of India will be around 1%. Electronics is a labor-intensive industry that is actively being promoted by the government. This is an industry where technology changes are so rapid and frequent that the marketing problems are unique compared to all other industries. So a detailed analysis of the marketing problems has been initiated to evolve integrated market strategies for effective organizational growth. The major problems have been identified and are discussed below after a brief assessment of the current status of this industry. Abbreviations. SSI: small scale integration; MSI: medium scale integration; LSI: large scale integration.
INDIAN ELECTRONICS INDUSTRY: CURRENT STATUS The Indian electronics industry is controlled by three groups; government-owned firms, transnational firms, and private enterprises. These firms manufacture equipment, assemble imported components into finished products, and export these finished products to other developing countries. In the area of components manufacture, these firms lag behind other developed countries. The generation of components manufactured consists only of transistors and integrated chips (mainly SSI and MSI). No firm in India manufactures LSI today. Electronic technology is changing very rapidly in the developed countries, and the electronics industries of the developing countries like India have to import the latest technology. The more rapid growth of electronics in the developed countries has caused the technology gap to widen. This increasing gap has resulted in causing an increased demand for new products from abroad as well as more rapid obsolescence of current Indian technology. To satisfy the increasing demand, the government authorized the establishment of a large number of electronics firms. This step has caused a rush of entrepreneurs into this less capital-intensive and high-profit-oriented industry. The establishment of a large number of new firms and
© Elsevier North-Holland, Inc., 1979 IndustrialMarketing Management 8, 69-74 (1979) 0019-8501/79/01006906501.75
69
the withdrawal of IBM operations from India has caused a number of interesting issues to emerge. There is an intense competition among these firms to introduce new and improved (either indigenously designed or imitated) products. Since the performance:cost ratio of electronic products is increasing by a factor of 10 in every 2½ years, each competitor is trying to win over the customers by introducing new products. This is clearly perceptible in the product lines of calculators, mini-computers, television sets, process-control instruments, communication equipments, and other electronic products. The Government of India channelizes the imports of electronics items through its agencies. Thus there is a restriction on free importing unless the firm is manufacturing for export. Since this is the general structure of the Indian electronics industry, let us consider the specific marketing problems.
New Product Development Since there are a large number of competing firms, it is imperative that new products be introduced at regular intervals to sustain a rapid turnover. As the critical component is the LSI chips and the supply source is open to all firms, it is very difficult to introduce new products. For example, there are five major manufacturers of minicomputers and there is virtual duplication of the products. The major problems are to generate commercially viable new product ideas and to forecast the potential demand for these new products. Even in the advanced countries where the market-research skills are highly developed, it is reported to be very problematic to assess the demand for high-technology products [1]. The state of intense change has not existed previously in any Indian industry, and the enterprises do not have the requisite skills or expertise to overcome these problems in a judicious way.
New Product Introduction The mode of introduction of new products is another major problem area. The firm that introduces the product
SUMIT K. PAL received a Master of Management Science Degree from BITS, Pilani, and works as a systems analyst in Operations Research Group, Baroda. He is presently a member of the Administrative Staff, College of India, Hyderabad. B. BOWONDER has a Ph.D. in Engineering and works as an Assistant Professor at liT, Madras. He is presently a member of the faculty, Administrative Staff, at the College of India in Hyderabad, and has coauthored a book on technological forecasting.
70
first in the market has a relatively greater chance of capturing it, using the market skimming objective. At this stage the competitors improve upon the product and introduce cheaper and more advanced models. In this way the race continues through performance improvements and price reductions. This has caused some buyers to delay their purchase decisions anticipating further price reductions. Frequently, the product that is new to a firm is also new to the market. This necessitates giving advanced product information to the potential customers, which is especially so in a developing country like India. The nature of information communicated to the potential customers has to be properly edited so that potential competitors do not obtain advance information on the firm's new products. This problem is further aggravated by the piracy of the personnel in charge of product development by competitors. This had actually happened in a firm and delayed the introduction of a new product into the market. Customers being exposed to a technologically new product for the first time adds a further dimension to the problem. In a number of cases, inadequate customer education and training have caused the nonutilization of the new product. This problem has been faced by manufacturers of calculators and computers. Not understanding the complete potential of the product has caused the buyers to underestimate its utilization. This problem will be faced increasingly when technologically sophisticated products are introduced in the market in a developing country.
Competition There are four large government-owned firms (ECIL, HAL, BEL, and ITI),~ and one large transnational enterprise, whereas the rest are all small-scale and mediumscale sector units. In three of the government-owned units, there is complete monopoly for the products, and thus only one unit has to face the competition. Two of these three units cater to the defence needs, and the third caters to the communication needs. The competition is thus among one government-owned unit and the multitude of privately owned firms. The government-owned undertakings manage through a governmental support strategy rather than through a proper marketing strategy. This gives the privately owned firms a major advantage, but it is left to these firms to exploit this advantage.
~ECIL: Electronics Corporation of India Ltd.; HAL: Hindustan Aeronautics Ltd.; BEE: Bharat Electronics Ltd.; ITI: Indian Telephone Industries.
India, a developing country, has only a limited potential for these sophisticated electronic items. Although the population is very large, the demand is not commensurate. Further, the low literacy level in the country enforces a limit for accurate prediction of buyer behavior. It is extremely difficult to make the potential buyers aware of the intrinsic merits of the sophisticated products. The much smaller total demand for electronics products compared to that prevalent in the developed countries and the recent policy of the government to promote only a large number of small-scale firms do not allow the manufacturers to take advantage of the economies of scale. This, coupled with the high materials, marketing, and other overhead costs, greatly inflate the prices of electronic products comparable to those available in foreign markets. This state of higher prices for indigenously manufactured products is perceptible in the case of calculators,
new firms entering the market are finding such costs unbearable. The larger electronics firms and other large firms that have diversified into this area from their major business area find their marketing experience an added advantage. Even these firms find the marketing-component overheads to be very high in the electronics area. The same reasons do not enable these firms to undertake extensive market research. The need for closely guarding the new product information strengthens this step of less intensive market research.
Functional Coordination Electronics production is done even now in small units or batches under the Indian environment, and such a production pattern makes it necessary to have perfect coordination among design, R&D, production, finance,
"Changes in demand make export marketing very difficult." computer systems, electronic watches, and processcontrol equipments. All these factors, working in a synergistic way, make it very difficult for the firms to plan the complete marketing strategy. The recurring downward revision of price of the new products subsequent to the introduction of new chips by the major U.S. firms that sell to the Indian firms is another facet of the competition. The marketing managers with no precedence to guide them or in the absence of any systematic methodology, resort to a random pricing strategy. Because of this random pricing policy, the customers find it difficult to make a rational choice and do not have confidence in the firms that introduce the products with a high price strategy in the introduction stage. For example, in the case of minicomputers patient buyers are carefully observing the performance price trend rather than investing in the new systems in the early stages of introduction. In some cases not only the competitors, but also the same firm, have resorted to price reductions, with marketing personnel unable to justify the price reduction for the same product soon after the competitor had reduced the prices. The keen competition prevalent has resulted in increased costs of sales promotion and advertising, and
and marketing. The frequent changes in product technology have made this interaction a very critical function. Marketing and R&D have to have frequent interactions regarding the consumer needs, attitudes, and behavior patterns toward new products that have to be launched, as well as on product development initiated by the feedback on today's products and products of tomorrow. Marketing and production coordination is again very mandatory because new product development requires changes in production pattern, schedule, layout, and material requirements. Similar intense interactions among other functional groups are very essential to the firm because of the rapidly changing technology. The Indian experience in this area has shown that smaller companies with cohesive functional groups are more likely to be successful in product innovation because of the above requirements of strong interactions and frequent feedback.
Product Servicing The significance of this function has been grossly underestimated by most of the competing firms. In India, a vast country with a small number of distributed urbandemand pockets and limited availability of service tech71
nicians for sophisticated products, firms find the service function to be much more critical than anticipated. This situation becomes much more significant as the products move along the product life cycle. For example, a television-manufacturing firm that was keeping well ahead of its competitors because of its superior product quality found itself relegated to the background as time progressed. This was mainly due to the lack of support for their product with an efficient and effective sales-service network. The significance of the servicing function as the product moves along the product life cycle has not been discussed by the marketing professionals or academics. For example, Kotler [2] considers the service function as the least critical prior to the saturation stage of the product life cycle, but this is not valid in the case of a hightechnology product in a developing country. The major problem areas are service mix, training of service personnel in the wake of frequent new product introductions, stock policy for spares, specification of contact points for customers, and optimization of breakdowns and maintenance repairs. The wide geographic distribution of the customers, the lack of skilled technicians, the lack of spares availability for old products, and the frequent new product introductions with complete new technology complicate the effective management of the service function. The decisions on organizational
ment personnel have to be exposed to these managerial functions apart from their regular technical functions. Further, if the firm introduces a very advanced product, it may not find acceptance in the Indian market, but if the product is not sufficiently sophisticated it will become obsolete very quickly. In general, R&D personnel are technically very specialized, and their failure to consider the market needs, price, and competition through intensive interactions with the marketing group will result in product failures. This brings another problem to the forefront. If the R&D group is very open, the chances of new product information leakages to the competitors are high and if the group is closed, it will not be able to generate sufficient new product ideas to embark upon. The skills of R&D personnel for such firms have to be more diverse than the conventional R&D type. The updating of the existing products that have already been sold is one of the conditions of the buyers because of their anticipating product improvements. This requires the R&D personnel to go frequently to the already established units along with the service personnel to incorporate the necessary improvements. This may require a generalist in R&D with sufficient systems knowledge. But keeping a large number of such personnel for various products is a very costly proposition. Other major organizational problems are keeping the
"Not understanding the complete potential of the product has caused underestimation of its utilization." linkages of servicing with sales or marketing and the functional reporting structure are, unfortunately, taken on intuitive grounds.
Research and Development As it is a technology-oriented area, R&D is vital for introducing new products at frequent intervals. The firms with strong R&D groups are making a greater impact than large capital-intensive units. Here again the effective long-range planning, resource allocation, integration with marketing, introducing new product at early dates, and identifying new product areas for diversification are some of the major problems. Research and develop72
highly skilled R&D personnel within the firm for a long time rather than losing them to the competitors and also keeping these R&D people ahead of obsolescence. For example, a given firm, A, is to produce bionic equipments, and they have employed a number of personnel trained from abroad. The competing firm, B, makes repeated attempts at snatching these people with the bait of higher remuneration, compelling firm A to raise the salary levels to retain their personnel. Further, the technology in this area is changing so rapidly that firm A has to hire newer personnel within 2 years, specially trained abroad in the latest technologies to introduce new products. At this stage of employing a newer set of personnel,
firm A benefits only very marginally from the first set of R&D personnel, and they may even find it more profitable to give them away to firm B. In case firm A should have a long-term manpower policy, the obsolescence of the earlier recruited personnel has to be overcome by regular training. All these factors working in unison makes the management of R&D function very dynamic and challenging.
Export Marketing In the case of exports, the main problem is that these firms can sell mainly products of tomorrow. The sales of yesterday's products usually show very sharp declines, and today's products will also decrease gradually in sales turnover. These changes in demand, coupled with the exposure of new and advanced products in foreign markets by other countries, make export marketing very difficult. Export marketing requires a very efficient information system on the needs as well as the sensitivity of the needs of the market. Foreign markets usually show very fluctuating demands, and if these have to be smoothened, the firms require immediate market feedback, necessitating a very large marketing network. Most of the firms of the developing countries do not have such efficient marketing systems to support such export-marketing ventures. Having identified the major problems, let us consider the possible strategies to be adopted in such an environment.
Strategies Table 1 summarizes the product profile and the strategic implications of various functional alternatives. New product development requires a large number of ideas from the beginning. The generation of this can be achieved probably through techniques of technological forecasting. In fact, some of the firms have initiated such systematic procedures for new product-idea generation. In these, the needs of the potential consumers, the demands, the technologies available, the skills available, and the resources are to be matched to select the potential products. The marketing strategies to be adopted are: 1. Increased sales-marketing efforts compared to the conventional products. Robertson [3] has identified the lack of this effort as a major reason for new product failures. 2. The potential of the new products are to be widely disseminated to educate the users [4]. 3. More rapid feedback systems to introduce the changes needed by the buyers are to be incorporated. 4. Comprehensive efforts to understand the user problems should be undertaken, especially in the initial stages. 5. Market skimming can be a major strategy in new product introduction.
TABLE 1 Product Profile and Strategic Implications
Product Profile Strategy Critical function Nature of turnover with time Penalties for mistakes Advertising and sales promotion Customer education and training Service function and spares policy Competition monitoring Scope for exporting Integration of marketing with other functions
Yesterday's products
Today's products
Tomorrow's products
Sharp decline Very high
Product development Limited life High
New product assessment Growth potential maximum Can be compensated
To push the demand to the maximum Limited efforts Very important
To maintain the demand at an increasing rate Increased efforts Important
Not very critical Minimum
Keep a watch To other developing countries Interaction with production, finance, and sales
To pull the potential demand to the highest possible value Vigorous efforts Increased importance An alert lookout Joint ventures with developed countries Active interaction with R&D
Marketing
Active interaction with production
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6. Intensive customer training and user orientation are needed. The Honeywell Corporation entered the market through this step [5]. 7. Pricing has to be medium-term oriented rather than short-term oriented. 8. Instead of long-term-drawn market research, initiate expeditious market-assessment methods. Many authors have suggested a strategy similar to this [6-8]. 9. Proper assessment of the strength of the competitors has to be undertaken. Lack of this has been another reason for the new product sales to be far below the targets [9]. 10. Pure imitation products are to be avoided. 11. Allow healthy transnational competition for the introduction of the latest technologies. 12. The systems management concept and matrix organization have to be adopted for better functional coordination. 13. The servicing function has to be given far more importance, with updating of the skills of the servicing personnel. A service cadre as a line function has to be initiated with the terotechnology concept. Setting up of an optimum number of service-contact points with a proper spares delivery system has to be adopted. Pricing of spare parts and peripherals has to be done in an integrated way along with the maintenance system. 14. Advanced R&D should be initiated for "leap frogging" generations of technologies, mainly to reduce the ever-increasing technology gap. The bought R&D should be assimilated and then adopted. Small companies not capable of supporting large R&D groups can have cooperative R&D units. Research and development without market orientation will not be commercially successful. Tiles and McFarlan [10] have identified that the matching of technical development with consumer needs is critical in successful market development. Marketing and R&D should have stronger linkages. The human-resources management approach should be extended to the R&D function.
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15. For exporting to less developed countries, joint ventures with developed countries can be initiated to utilize the low labor costs prevailing in India. Firms catering to the export markets have to further strengthen their marketing systems.
CONCLUSIONS In the electronics industry, the marketing function is very differently oriented when compared to other industries, as has been shown in this study. The marketing function has to be strengthened, and proper coordination with other functions, including a technology monitoring or a long-range production forecasting system, has to be developed. Strengths, weaknesses, opportunities, and threats (SWOT) analysis of the marketing system within the firm has to be initiated and a constant assessment of the performance target gap is necessary.
REFERENCES 1. Cowell, D. W. and Blois, K. J., Conducting Market Research for High Technology Products, Industrial Marketing Management 6, 329-336 (1977). 2. Kotler, P., Marketing Decision Making: A Model Building Approach, Holt, Rinehart and Winston, New York, 1971, pp. 62-63. 3. Robertson, A., The Marketing Factor in Successful Industrial Innovation, Industrial Marketing Management 2, 369-374 (1973). 4. McNeal, J. U., Consumer Education as a Competitive Strategy, Business Horizons 21, 50-56 (1978). 5. Herbert, Evan, What happens when you invade a high technology market in Dealing with Technological Change, selected essays from Innovation, Auerback Publishers, Princeton, N. J., 197l, pp. 181-192. 6. Roberts, E. B., Technology Strategy for the European Firm, Industrial Marketing Management 4, 193-198 (1975). 7. Tayverm, E. M., How Market Research Discourages Major Innovation, Business Horizons 17, 22-26 (1974). 8. Sands, S. and Warwick, K. M., Successful Business Innovation, California Management Review 20, 5-16 (1977). 9. Cooper, R. G., Why New Industrial Products Fail, Industrial Marketing Management 4, 315-326 (1975). 10. Tilles, S. and McFarlan, R. R., Strategic Planning in a Dynamic Technol o g y - T h e Electronics Industry, in Long Range Planning for Marketing and Diversification, B. Taylor, and G. Wills, eds., Bradford University Press, Crosby-Lockwood, London, 1971, pp. 363-384.