When determining one’s marketing strategy, it’s tempting to get ahead of oneself and consider how to sell what you have. Research from the University of Texas-Arlington reminds us that exploring “what to sell” should always come first.
According to Apple’s co-founder Steve Wozniak, the company originally intended to sell circuit boards containing its microprocessor chips. However, when Steve Jobs and Wozniak created the Apple I in 1976, their focus shifted toward personal computers. The release of the Apple II cemented Apple’s position as a pioneer in the personal computer industry.
Knowing what to do
While extensive research has examined the process of developing and commercializing new products, one crucial aspect of technology commercialization has received comparatively little attention: what form should the innovation take when sold in the market? A recent article in Wired explores the need for electric vehicle companies to reconsider their designs and whether they should incorporate modularized batteries.
These companies are revising their designs to address the issue of wasted space and weight caused by modularized batteries. To tackle this challenge, companies like BYD are developing and selling batteries and vehicle components in addition to cars. Meanwhile, CATL, BYD’s main competitor, sells batteries that are integrated into the vehicle chassis.
The “what to sell” question is a crucial consideration for companies and investors, as explored by researchers. This question is often addressed when entrepreneurs pitch their ideas to investors, as both parties must agree on the venture’s focus.
Developing the proposition
In developing products or services, it is essential to decide whether to sell know-how, components, or a system. This product-form strategy (PFS) is integrated into many firms’ commercialization and product development processes.
PFS is reflected in a venture’s revenue model, which is necessary for securing funding or going public. Additionally, PFS is interconnected with other marketing questions, such as identifying direct customers and competitors.
“For a company selling baseball bats embedded with sensor technology with the customers being players, coaches, and clubs, branded bat manufacturers, such as Louisville Slugger, are the direct competitors,” the researchers explain. “On the other hand, if the firm sells the know-how or a component device, branded bat manufacturers could be the customers.”
Go to market
An early-stage venture’s survival can hinge on getting its go-to-market strategy “right” when entering a market for the first time. This involves making the appropriate choices for the product form and associated revenue model.
Through analysis of data from interviews with entrepreneurs and angel investors, investment proposals, Shark Tank pitch transcripts, and experimental investment scenarios, researchers have identified three primary drivers that influence the choice of product-form strategy (PFS):
- The challenge of combining various technologies effectively.
- The availability of marketing capabilities to promote the technology to end-users.
- The difficulty of protecting the know-how from imitation.
“Our research discovers that when technology is difficult to mix-and-match and safeguard, decision-makers will choose to sell systems over components and components over know-how,” the researchers explain. “Marketing capabilities will also increase the likelihood of marketing systems over components and components over know-how. We also find key interactions among these drivers on the product-form decision.”
Getting strategy right
The research suggests that when considering what to sell, it is crucial to assess the technology market and the firm’s ability to safeguard its technology against theft by competitors or supply chain members. Therefore, strategic decision-making must involve evaluations of both the business environment and the firm’s internal capabilities. Unlike much of the existing literature on business models that conflates the “what to sell” and “how to sell” questions, the study highlights that the decision on product-form strategy (PFS) is distinct and should be made before addressing the “how to sell” issue.
For product managers, entrepreneurs, and angel investors, it is essential to consider how alternative product forms might impact costs associated with selling one over another. Entrepreneurs should also evaluate the value that angel investors can provide and utilize these resources to inform their product-form options.
Furthermore, managers of established firms with multiple product lines who are contemplating entering a new technology market should focus their commercialization deliberations at the technology level. They should choose the product form that best suits the new technology, regardless of the positioning of their other product lines.
