Entrepreneurial Marketing

Prof. Marco ProtanoUniversity of Edinburgh

Spring, 2005

Responsiveness to change is the key to survival

“It’s not the strongest of the species that survives, nor the most intelligent but rather the one most responsive to change.”

Darwin

I. Practice of Entrepreneurial Marketing Both a mindset & a process

Mindset: Entrepreneur’s relentless pursuit of both opportunity &

resources required to seize it. Process:

Combines a guiding vision of what customer will want in future with measured, iterative experiments designed to test vision

Stages investments that reveal option values to entrepreneur and proofs by supportive people & partners

II. Definition of Entrepreneurial Marketing

Entrepreneurial Marketing is about gathering the evidence that convinces individuals* surrounding venture to act & react by exploiting breakthroughs & overcoming setbacks

*=People, Partners, Customers & End Users

III. Importance of Marketing for Entrepreneurs 14 Venture Capitalists who backed more

than 200 ventures rated marketing the highest in importance @ 6.7 on a 7.0 scale

Same VC’s concluded that venture failure can be reduced by 60% using pre-venture marketing analysis

CEO’s of the Fortune 500 in 1997 cited as their greatest strength

Marketing Value Helps product be perceived by target as more

valuable vs. competitors

Marketing strategies & tactics guide: Development of products that market wants, Helps target firm’s offering to right customers Gets product to customer Helps insure the customers perceive the incremental

and superior value as well as will pay

Recruiting best talent

Raising capital

IV: What am I selling to whom?

• Distinctive Competence

• Sustainable Competitive Advantage (ideal if unfair)

How should I be positioned?

To which target market(s)?

• Screening ideas

• Product/service development

• Naming the company & products

• Pricing

• Distribution

• Salesforce

• Promotion

• Public relations

• Recruiting

• Raising capital

Important Targeting Questions: Does the target segment want the perceived

value that my positioning is trying to deliver more than other segments?

How efficiently can the segment be reached? How quickly? How big is the demand? Is their growth potential?

What is the competitive SWOT? How will competitors react? What are the environmental conditions? What are the virtual community opportunities?

Be sure to assess: Current size of segment (s) Potential size Benefits sought (needs & goals) Attitudes formed (salient beliefs based) Psychographics Product sales cycle, usage & repeat potential Competitive perceptual positioning & value map Profitability per customer transaction Lifetime value of a customer

Positioning Answers the question:

Why should a member of the target segment buy my product rather than my competitors’?

What are the unique differentiating characteristics of my product as perceived by members of the target segment (s)?

How have the target segment (s) perceived the relative differentiation?

Keys to Positioning Focus differentiators

Few in number Relatively valued Memorable Sustainable

Test bundle of attributes (sum to benefit) with target

Big mistake entrepreneurs make is to position based on features of product vs. competitors. Customers don’t buy features—they buy benefits. Customers buy perceived benefits.

Examples Apple: easiest, most fun to use and

stylishly hip (adding innovative)

Orvis Company Sells “country” clothing, gifts & sporting gear in competition with

L.L. Bean & Eddie Bauer. Sells both retail & mail order Difference:

Perceived as the place to go for all areas of fly-fishing expertise. Perceived as making a very difficult sport “very accessible to a new

generation of anglers.” Since 1968 when sales were $1M, Orvis has been running fly-

fishing schools near retail stores. Annual sales now $350M. Fly-fishing products contribute only a small fraction of sales but

heritage adds cachet to all products offered. Beginner fly fishermen who attend school overwhelmingly become

loyal customers and purchase more profitable clothing & gift lines. CEO says, “Without our fly-fishing heritage, we’d be just another

rag vendor.” Margins are higher at Orvis because of unique positioning. Positioning is defensible because of consistent perception that all

of their operations reinforced since 1968. Differentiation has added $1Billion to Orvis’ brand value.

V. Opportunity Identification

Customer needs or benefits sought are largely independent of the product to be developed What does the product have to do? Not how will it do it?

Gather data from potential customers Interviews, focus groups, surveys Observe similar products in use

Opportunity Identification

Questions to ask: When and why do you use this type of product? Walk us through a typical session using product What do you like/dislike about existing products? What factors were important in purchasing this product? What improvements would you make to this product?

Establish relative importance of customers’ needs

VI. Pricing in B2B Must understand perceived customer value

“Customers spend more effort to know supplier’s costs than suppliers spend to know customers’ values.” Irwin Goss Penn State

Typical components that make up perceived customer value:

1. Product value (product delivered only)2. Supplier value (supplier not product)3. Switching investments (from current to alternate)

Attributes Affecting Perceived Customer Value Immediate Product:

Product Performance Durability Serviceability Downstream

Performance Current Risks

Immediate Supplier: Supplier Performance

(delivery tech, sales, services, etc.)

Promotional values

Expected Product: Innovation Product Flexibility Follow-on products Long-run risks

Expected Supplier: Relationship Tech access Security of supply Strategic value Supplier Power

VII. Estimating demand for a product can be broken into:1. Whether product will have demand (assuming

price is in competitive range)a) Exploration of preferences & educability of consumers

in light of technical feasibility

2. What range of price will make the product economically attractive to buyers

3. What sales volumes can be expected at various points in this price range

4. What reaction will price produce in manufacturers and sellers of competition & displaced substitutes

VIII. Communications

Names & Slogans Many entrepreneurs miss positioning opportunities when

name products

Without mega marketing resources, name is important contributor to positioning

Assists in deepening the awareness & interest in the mind

1-800-FLOWERS, 1-800-MATTRESS, Netflix, Blockbuster Slogans add to the mindshare potential:

BMW: The Ultimate Driving Machine At Avis, we are #2 so we have to try harder.

Key is brevity, simplicity, relevancy, memorability, consistency

Public Relations & Publicity Unpaid publicity for your product

Get public especially target (s) to hear about your firm and product

Can be extremely valuable because can be perceived as more credible than advertising

Creation of “buzz” that you are a winner

Gaining the Perception of Leadership Target the information gatekeepers

Trusted sources of information in the data gathering process prior to judging & deciding

Newsletters, media reports, celebrity recognition

Eventually you need to reach those gatekeepers who have access to:

Gurus in industry Key trade & business press, respected experts, innovators,

experienced users Decision makers Naysayers Mass buyers

Spokesperson/Evangelists Have at least 1 or 2 (e.g. CEO) who are

charismatic and passionate to: Woo and Develop relationships with influencers

Press tours, working with beta testers, public speaking at conferences, talk show circuit, white papers

Linkage with Financing Raising debt & capital also helps the

product be perceived and perform as a winner

Publicize financing when commitment received

PR Agencies Caveat emptor Instead hire staff to work within company Key skills:

Creative Execution Networking Dedicated Perseverance

PR Timing Need to be in advance of market (a/l/a

Hollywood movie premiere marketing) But beware of not being able to deliver

(e.g. www.Boo.com) Also beware: Loose lips sink ships.

IX: Entrepreneurial Distribution Channel Decisions Technology has had a mega impact on

access to the customer/consumer

Includes all activities that need to be performed so that product’s offering bundle is transferred to the customer

Entrepreneurial Distribution Channel Decisions

Logistics: Right place? Right time? Right quantities?

The right perceived offering bundle?

To the right target segment (s)?

Customer Impact:

Which products?

Which time period?

Alternatives:

Direct to customer?

Indirect? Exclusive? Selective? Intensive?

Distribution Exclusivity Exclusive:

1. Possible easier sell in2. Higher control3. Higher margins for all4. Less competition at

point of sale5. More push to end

consumer6. Less coverage7. More association with

channel members’ attributes

8. Possible guaranteed minimum sales

Selective: Resellers compete Less reseller loyalty

Intensive:1. High coverage2. Convenience3. Lower control4. Less push to end consumer5. More mass pull needed6. More coverage7. Faster sales cycle possible

Franchising Accelerate revenue growth Enables rapid expansion without large

investments by entrepreneur Lease a portion of the business and receives the

franchisee’s capital, energy and entrepreneurship Take advantage of scale economies Local entrepreneur recruits, trains & develops HR

which is a challenge in a tight job market Need controls to guarantee consistency of brand

experience

Channel Conflict Need to define roles for each channel member

that are understood and not conflicting

Benefits added by different channel partners will not be valued the same by all of target segments.

Channel members make most money if they are matched with segments that value the channel member’s benefits the highest.

e.g virtualvineyards.com sold direct to consumers and its vineyard suppliers ran afoul of local wine merchants in states with distributorships

X. Entrepreneurial Salesforce Issues

Positioning (Segmentation + Differentiation)

Role of Salesforce in Marketing Mix

Rep vs. Direct => Experimentation?

Personal vs. Telemarketing => Experimentation

Size

Deployment

Compensation

Recruiting

Training

XI. Promotion & Viral Marketing Promotion gets product in front of:

Customers Channel intermediaries COI’s & press

Provides temporary incentive to act (e.g. try or buy)

Paid activities or events that provide incentive to do something Direct Marketing Push & Pull Promotions Viral Marketing Event Marketing Guerilla Marketing

Tactics--Free Beware of giving away product as

diminishes perceived value

However, some good models of free usage:

Adobe Viewer Google Yahoo Internet Explorer

Tactics--Viral Marketing Each user tells his/her

Family Friends Colleagues Neighbors

To do something that will benefit relationship (e.g. easier communication, working together)

Examples: Get Free Email with Hotmail or GMail Accounts ICQ (I seek you)

1 million users downloaded & used product in Year 1 15 million by Year 3 AOL purchased parent for $300M

“Infects” contacts with product and exponential growth achieved

When Viral Marketing Works Best

1. Low product cost2. Low switching cost3. Easy distribution4. Relatively high lifetime customer value

Tactics—Event Marketing Excitement of event can:

Ignite positive emotions about firm & product Lead to articles & interviews in media Lead to buzz

Needs to be well-planned & executed flawlessly Goal is to have press use media space to promote product

vs. paid advertising Helps convince skeptical consumers to consider & try Examples:

Virgin’s Richie Branson piloting a tank down Broadway in New York launching Virgin Cola;

Macy’s Thanksgiving Parade; Volvo’s Tennis Classic Industry Conferences & Conventions (CES in Las Vegas, MAC

World)

Tactics—Small Giveaways Small giveaways to impart a frequent

memory booster Aflac stuffed duck toy Starbucks coffee mug T-shirts, key chains, sports bottles, desk pads,

pens, bags, frisbees, logoed Swiss Army knife

Goal is to remind target of brand name, tag line, superior value derived at strategic inflection points (e.g. mouse pads when online)

XI. Entrepreneurial Advertising Decisions Most misused and misunderstood marketing

tactic by entrepreneurs

Can be one of the most efficient buys if allocate scarce capital resources to maximize value to venture

Need to compare returns for targeted reach and incremental pull (sales response)

If creative and media used effective, pull can be on average of 18% increase in sales volume for over 2 years and fast (within 6 hours to 6 months depending on product sales cycle).

Advertising Questions1. Budget: How much should I spend?2. Media Planning: Where and when should

I place the advertising?3. Copy: What should I say?4. Payback: What will my incremental

return be?

Example: Priceline uses overlooked and cheap radio with hasbeen star—William Shatner who took options.

XIII: Mindset of an Entrepreneurial Marketer by Buskirk & Lavik

Visionary Creative Focused Passionate Driven Perseverance Opportunistic

Problem Solver Self-disciplined Frugal Empathetic Socially responsible Spiritual Good timer Lucky

The Rule of Opportunity

Resist the impulse to relax

Be alert to opportunity, and don’t be terribly particular about distinguishing one opportunity from another

The opportunities you fail to capitalize on BECOME THE OPPORTUNITIES – and properties – OF SOMEONE ELSE, USUALLY INSTANTLY. Alan Axelrod

Author, “Everything I know about business I learned from monopoly”

Acknowledgements The author wishes to thank the extensive support

of: Lodish, Morgan & Kallianpur, Entrepreneurial Marketing,

John Wiley Publishers, 2001. Tellis & Golder, Will and Vision, McGraw Hill, 2002. Lassiter, “Entrepreneurial Marketing,” Harvard Business

School Publishing, October 2002. Tyebjee, Bruno & McIntyre, “Growing Ventures can

Anticipate Marketing Stages,” HBSP, January, 1983. Dean, “Pricing Policies for New Products,” HBSP, 1976. Czepiel, Competitive Marketing Strategy, Pearson, 1988.