Tse entrepreneurial market_research_2014

Entrepreneurial Market Research

The Smart Entrepreneur

Entrepreneurial Market Research

• Now that you’ve plotted a value chain, it is time to test some of your assumptions regarding your value chain and your target markets. However, in a new venture you don’t have the time or the resources to do extensive research to prove your initial assumptions.

• Entrepreneurial Market Research allows you to learn and discover enough information to make reasonable assessments and take reasonable enough decisions.

• You may research your downstream value chain, but you may also take this opportunity to test your knowledge about your upstream Value Chain (see IE&D Toolbox).

• You may find that some of your early assumptions were incorrect or incomplete, and use research like this at any stage to re-shape your business concept.

Copyright of Bart Clarysse and Sabrina KieferThe Smart Entrepreneur

EMR is also known as “Discovery-based market research”

• Discover a lot in a short time

• Research to learn about your market in generic terms

• Entrepreneurial market research and business development are two sides of the same coin: you can discover possible sales leads while researching customer opinions/preferences

• This type of research falls between: – exhaustive market research, which is expensive and sometimes impossible

for radical innovations– going into the market blind, which is high risk!

• Therefore, this approach is especially suitable for entrepreneurial ventures

“Using preferred witnesses to learn and discover what (NOT) to do”


Why do this exercise?

• Be more efficient by structuring your research, since you don’t have the means or time to do extensive classical market research

• Form a realistic market assumption through analysis and synthesis• Focus your approach, find a suitable niche• Establish some balance with respect to market reports (which are only top-down

and reveal nothing about the market potential for your specific venture; a start-up may not have the same market potential in a particular market as an incumbent)

• Take the first step on a continuous path of getting to know your market• Establish a clear aim as to how, where and when you should enter the market


Entrepreneurial Marketing - steps

1. Start with your perception of the downstream value chain (or your value-added network)

2. Identify possible market segments and product segments » make a product/market matrix – (and sub-segment)

3. Collect qualitative information (from primary sources) about the market segments

4. Collect quantitative information (from a mix of primary and secondary sources)

5. Compare segments on qualitative and quantitative merits

6. Consolidate information to calculate the real market potential for your specific venture» Where is the best product/market fit, which is the most attractive

market segment and how big/valuable is it?


1. Start with your perceived Value chain

Technology Product development

Manufacturing Marketing Distribution

Upstream downstream

designEnd-

clients

N.B.: both these segments may beclients in your market segmentation!

You are here(you think)


• A product market matrix (P/M) is a combination of:– Your product/service segmentation– Your market segmentation

• It structures the questions:– What exactly can we sell to whom?– Where should we start?

• So, list your products/services and then list your possible markets

2. Make a product/market matrix

Market 1 Market 2 Market 3

Product A Product/market segment A1 A2 A3

Product B B1 …

What? – Why? – How? – Example – Conclusion


Factor Consumer markets Industrial markets

What are the characteristics of the customer?

Age, sex, raceIncomeFamily sizeLife cycle stageLocationLifestyle

Vertical industryGeographical locationSize of companyTechnologyProfitabilityStyle/ culture of management

How will the customer purchase/ use the product?

Size/ frequency of purchaseIssues with brand loyaltyPurpose of usePurchasing behaviourImportance of purchaseSource of purchase

Application of productImportance of purchaseVolume of purchasesFrequency of purchasePurchasing procedureDistribution channel

What are the users’ specific needs, and preferences

Similarity to existing purchasesPrice elasticityBrand preferencesDesired featuresQuality

Performance requirementsAssistance from suppliersBrand preferencesDesired featuresQualityService requirements

2A. Possible ways to segment your market


• Large/small

• Core product/supporting services

• Versions/modules

• Components

• Stand alone/co-packaged/bundled

• Core technology/specific applications

2B. Possible ways to segment your product or service offering, e.g.:


P/M Example - Mobixx

• Mobixx is a firm commercialising a mobile internet transcoding technology

• At present, companies wanting a mobile internet presence have to code a different mobile website for every type of handset

• With Mobixx:– A desktop site is automatically transcoded– To fit any given mobile device– Benefit: better mobile internet experience, faster, …

• Mobixx P/M Matrix: – Vertical axis: product and service components– Horizontal axis: possible markets


/MP Example - Mobixx

Mobile Network Operators

Small web designers

Large webdesigners

Corporates - travel

Corporates – FMCG

GovernmentCities…

Technology Platform(just licensingTechnology)

Integrated solution (design, technology,Implementation…)

Hosted solution(idem, but on a Mobixx Server)

Problem Solving(helping firmsdeveloping an inhouse solution)

Product/Servicecompo-nents

Market segments

Product/market segments


3. Collect qualitative information

Look for preferred witnesses

• “Preferred witnesses” or “representative witnesses” are experts or people with experience in a certain product/market segment

Talk to them:

• This will help you understand the true needs of the players in a product/market segment (they may only need a specific part of your offering), and

• this will help you understand a lot of secondary circumstances, eg. sales cycles, decision making power, budgets, urgency, … but also how the Value Chain really works.


Which witnesses?

Witnesses without prejudice (the more radical the innovation is compared with your core business, the less likely that your existing customers will be suitable witnesses), eg.:

• Common mistake: if you ask your existing salesforce to propose a radical innovation to your existing customers, most likely your salespeople will come back saying “nobody wants it”

Direct or indirect witnesses: witnesses can be, but are not necessarily (working inside) target firms.

• They can be operating upstream or downstream in the value chain, they could be ex-employees, government bodies, federations, consultants, …

• Direct witnesses: A selection of potential stakeholders within customer organisation who are representative for each of your segments, e.g. Talk to Coca cola, Unilever and Procter & Gamble when you want to discover the need for your innovation in FMCG

• Indirect witnesses: people who have regular contact with your customers, such as:» Vendors, Retailers, Wholesalers, ... » Professionals/practitioners, consultants, government bodies, federations, e.g.:

For medical product – doctors, nurses, pharmacists, etc. For safety products – police, fire brigade, etc. And so on


Direct witness research is similar to ‘Strategic selling’

When approaching direct witnesses you need to consider the target organisation’s different decision levels:

– Economic buyer– Technical buyer– User buyer

• You can also use a “Coach” to obtain information or to help you open doors! – see further ahead

• As with a good sales approach, you need to get to know your potential

customers and show that you want to understand and satisfy their priorities.

Source: R. B. Miller and S.E. Heiman, 2005


Economic (Buyer) (EB)

Characteristics:

• Gives ‘go’ to buy (e.g. makes procurement decisions)

What drives the EB’s decision/opinion?

• Bottom-line return or savings

Challenges

• Finding out which person has this role in a complex organisation

• Getting this person’s attention

Is the EB always the general manager?

This depends on:

• the value of the deal

• the deal’s impact on the organisation : is this product critical or on the fringe of operations?

• any former experience the organisation has with your company

Don’t: just talk about the features of the product, e.g. user friendliness, without indicating clearly the impact on the organisation (benefits: save money, make more profit)


The User (Buyer) (UB)

Characteristics• Will consider immediate effect on own job/life• Can stop you or pass on incorrect information if feel

threatened• Can help you if s/he faces a real problem that you

can solveWhat drives the UB’s decision/opinion?

• Can it make my job easier, without undermining my credibility?

Challenges:• Most users are subjective and conservative• You cannot pass them by, they will boycott• Trying to convince them can slow down your process

Don’t: neglect them ‘because

they have nothing to say’


The Technical (Buyer) (TB)

Characteristics:• Skeptical

What drives the TB’s decision/opinion?• Only tangible and measurable criteria

Challenges:• May VETO your proposal > if he says no,

his veto will not often be overruled by the economic buyer; the economic buyer tends to trust the TB’s negative judgment more than his own positive one

• The ‘Not invented here’ syndrome Don’t: take his enthusiasm as a “go” for the whole organisation, because the economic decision maker may use different criteria


http://images.google.be/imgres?imgurl=http://www.mybloodyourblood.org/images/hs_images/researcher%25204.gif&imgrefurl=http://www.mybloodyourblood.org/hs_research.htm&h=1118&w=1506&sz=908&hl=nl&start=7&um=1&tbnid=Ohjxfn1fkhMlKM:&tbnh=111&tbnw=150&prev=/images%3Fq%3Dresearcher%26um%3D1%26hl%3Dnl%26rlz%3D1T4GGLR_en___BE204%26sa%3DN

The Coach > can help you to get in the door!

Characteristics• Someone who regards you highly• Has credibility with the client• Believes in you and wants you to be successful

Where do you find the Coach?• Within the customer’s company• Within your own company • On your board of directors• Consultant• In some cases, the Technical or User Buyer

may become a Coach

Caveat/Challenge• If you get help from a coach, make sure that

you handle the relationship with care: informing them of the outcomes, keeping them up to date, etc.

The coach is someone willing to share information with you


Further considerations about market segments:

• The more that decision makers in a certain market segment overlap (e.g. Economic and Technical Buyer could be the same person), the simpler (and shorter and less expensive) the future sales process will be in that segment

• In the case of large international corporates with many decision makers or decision centres (perhaps in different countries), or where there is a high manager turnover, it is more difficult for a small firm to make a direct approach, identify appropriate contacts and create momentum.

• If you can only meet or see certain decision makers, some guesswork/interpretation of the information will be necessary!

– Eg. suppose you only get to talk to the technical person. If he is positive, this means the opportunity still stands, but until you confirm this with an Economic Buyer, you cannot be sure…


How many witnesses?

Interview as many witnesses as needed:

• Until you learn nothing new;

• Until you can explain the reasons behind any and all contradictory information received from different witnesses within a segment.

• E.g.: If witnesses at four different pharmaceutical companies tell you that sales cycles for new packaging standards are 2 to 3 years because the sector aims for a unified solution, there is no reason to contact 15 other pharmaceutical companies.

• If three witnesses give you similar answers to a question but a fourth tells you something different, you need to continue interviewing until you can explain the reasons for differences in this segment (thus identifying further sub-segments).


How do you find Witnesses?

Look at your product/market segmentation

• Ignore segments in which you see no benefit for obvious natural reasons ( e.g. they can’t afford that product or application or it doesn’t pertain to their business…)

• Do desktop research to identify companies in segments presumed relevant and suitable witnesses within these companies.

• Can you indicate segments where you have spoken to preferred witnesses already?

• Can you indicate segments where you could make contact from your own personal network (organisations, people)?

• Brainstorm: how to obtain contacts in the other segments? Use your network, family, friends, LinkedIn, peers/colleagues, etc.

• Try to find at least 3 to 5 possible organisations + contacts per segment.

• Use anyone with credibility as a coach!


Example - Mobixx

Operators Small web designers

Large webdesigners

Corporates - travel

Corp - FMCG GovernmentCities…

Technology Platform

Vodaphone NO BENEFIT The Reference…

KLMBritish Railways…

- -

Integrated solution +/- NO BENEFIT +/- InbevCoca colaP&GUnilever

Hosted solution - 400 in Belgium??

+/-

…

Talk to a former colleagueGo via Linked In

Talk to a former client

Look in yellow pages

Use a board

member

Ask your dad

if necessary!


Be persistent...

Explore all your resources and do what it takes to obtain the necessary information!!


What do you need to discover from your witnesses and how to interpret?

1. What level of Need and Urgency for your offering? • Witnesses who have an urgent problem

=> the first one proposing a solution wins the customer (so you may get a deal while just doing research!)

• Your solution means a real possibility for growth for the target segment=> there may be competition in this segment > you will need a competitive strategy

• There is a growth possibility or problem in the future => manage the time you invest with this segment; they have no urgency to decide => the sale could slide now > this may be a segment to take on later

• Witnesses who don’t realise they have a problem => how can you make your client see he has a problem, or he is missing out on possible growth? > beware you don’t become a Don Quixote in this segment, preaching forever but never making business


What do you need to discover... cont.

2. Can you establish a Win/win proposition? :• Win for a Company: ROI, lower cost, image building, …• Personal win for decision makers: for the EB, UB and TB individually >

think about that! If it makes your interface person redundant…

• Example: When a person shows both a personal and a company interest, the chance of doing business with this P/M segment is bigger.

» E.g.: when you talk to 5 facility managers in large firms about implementing a facility management software solution, the best attitude to encounter is: ‘I have to realise the same objectives with half of the manpower; having a software solution would enable me to do that. I would realise my personal objectives and this would be great for my company too’.

» A worse scenario would be: ‘this might be great for the company, but when as a result my team shrinks, I will look like a less important manager myself…’

» Worst-case scenario: “I just bought one.”


What do you need to discover... cont.

3. Also consider:

• the decision making structure and parties involved, eg.: To get a sale at one company, you would need to make sure to be in the next official budget and you need to talk at least 5 times to different departments. Or you might talk to an SME owner who can decide right here and right now.

• Compatibility and flexibility: are potential customers willing to make related investments to adopt your product or service? E.g.: will they change a production line, or train people in a new process?


How to prepare well?

• Important: don’t waste time asking questions to which you can find answers by other means (such as the company website, press articles …)

• Prepare well and try to show that you have prepared professionally

• Ask the right questions to the right person: a technical person or a financial person do not speak the same language! A direct or an indirect witness also requires an adapted approach.

• Structure your interviews clearly and consistently, so you can benchmark and compare

Tip:Meetings can be the most interesting format, butalso the most time consuming for both parties.So Qualify your witness first (i.e. gauge their interest in and relevance to your proposal) by telephone!


Questionnaire tips

• I am …• You are …, responsible for …• “x” said I should call you because …• Product specification (positive and negative!)• Verify your assumptions about the upstream and

downstream value chain: ‘Is it true that…?’• Do you experience certain problems?/ How do you

deal with this today?• How much do you spend in this field today?• Are you satisfied with the solution?• If this or that solution would be possible, do you see

profitable applications in your business?• When evaluating an alternative, what are your

criteria and standards? E.g. price, quality, speed, shape, compatibility, just-in-time delivery? Anything else?

• Would you consider working with a small company?

Determine:

• Who would be involved in the decision making process?

• What is the decision cycle?

• Compatibility problems? Can existing installation and processes remain unchanged, and if not, how flexible is the client or partner in changing these?

• List of competing solutions (also simple substitutes)

If you are talking to an indirect witness, such as a ‘Coach’, you will adapt the questions accordingly


4. Collect quantitative data

• You have validated your VAC• You now have qualitative info on the

product/market segments you defined• You have a clearer perception of the

segments that offer better prospects or a better fit with your venture

Now what do you do next?

Find some quantitative information about the more attractive markets and segments you identified, via desktop research, reports, etc. …


Quantitative data: Secondary sources include:

• Journals/ publications• National press• Websites• Databases – including gov’t and NGO open data sites• Analysts’ reports• Patent searches• www.google.co.uk

(Check resources in ‘Further Reading and Links’ section of Trend Analysis Tool in the IE&D Toolbox)


http://www.google.co.uk/

Example: MobixxMobile Network Operators

Small web designers

Large webdesigners

Corporates - travel

Corp - FMCG GovernmentCities…

Technology Platform

VodaphoneOrange…

NO BENEFIT The Reference…

KLMBritish Railways…

- NO BENEFIT

Integrated solution

+/- NO BENEFIT +/- InbevCoca colaP&GUnilever

Hosted solution - 400 in Belgium??

+/-

…

There are 100 European cities of over 300,000 residents– See wikipedia

5 operators and 14 virtual ones in the UKSee Wikipedia too > subscribers included


5. Compare segments

Question: what are the most attractive segments for us?How big is each market segment > see quantitative dataCan customers be identified easily > did you manage to draw up a contact list? Is the segment growing? > see trend analysis Is there an unmet market need? How many players in the segment could be

estimated to have a substantial interest in this type of solution, in view of the answers in the qualitative research? > see preferred witnesses

How many would go for your solution, service or product? > idemHow strong are competitors or competing solutions? > Refer back to info from

preferred witnesses and see Activity on ‘Competitive analysis’Compatibility? > refer back to preferred witnessesStandards and regulations: do they help or work against us? > desktop research

+ witnessesWhat is the Decision cycle and micro-value chain in this segment? > witnesses

Now make a final selection of best segments• Using judgment based on all your research findings


6. Calculate real market potential

• Now only look at the relevant segments you selected

• Consolidate the market potential

Is this method 100% error proof? No!

But… when you consolidate the relevant segments in this way, the marketpotential will be much more accurate and your focus much clearer.


Market calculation Example – Brand protection with conductive ink

• Product: an application of Conductive ink technology to be printed on packaging

• Based on an innovative polymer, the ink can conduct electronic signals• The conductive ink is transparent, but can be detected using an electronic

reading device

• Among other applications, the technology can work like RFID, enabling you to distinguish authentic products from counterfeited ones


Segmentation based on several articles and reports about sectors that suffer most from counterfeiting

Segment the brand protection market

Brand protection

Tobacco

Music & film

Industrial parts

Apparel

Pharma

Cosmetics

ICT

Food & beverages

Toys


Insights from interviews

Interviews with: Scapa, Esprit, Levi’s, Mexx, Procter & Gamble, Coca-cola, UCB, J&J,Philip Morris, HP…

• Apparel: not a lot of interest detected, they do not see the problem and count on customs and reactive legal action

• Pharma: are discovering the problem, will shop for a solution, sales cycle takes 2 years

• Cosmetics: interest/benefit depends on product value• Tobacco: a likely lead user, but already developing an in-house solution; secretive,

unlikely to co-develop a product. Too late to approach this segment.• Food & beverages: intends to integrate brand protection as an add-on when

developing future new supply chain with RFID: too low product value for stand-alone solution, too long lead time (~10 years)

Other qualitative information from indirect witnesses: HP, Microsoft, Sony• ICT segment: constantly looking for protection (mostly interested in a solution that

is also visible to the end user)• Video/audio: intensive co-development, e.g. Sony-Philips


Relevant segments

Sector's interest in brand protection

Sector's fit with Newco's ink solution

tobacco High interest generally, but in-house development

music & film Medium interest, but co-developement already established

industrial parts Low interest overall

apparel Low interest overall

pharma High interest, but long-term and complex

cosmetics Product Value too low

ICT High interest and open for new solutions

food & bev Medium interest as part of Supply Chain innovation, so too long term

toys Low interest overall

High attractionMedium attractionLow attraction


Brand protection - Calculation of market potential

Quantitative top down information – desktop research

General Trends:• About 5% or more of the world’s economy is traded in counterfeit goods

(B. Kaiser, CTO, KeyMaster Technologies, Inc. in press release on 20 May 2002)• Losses by firms and governments from counterfeiting and diversion are estimated at

between $300 billion and $1 trillion annually (source: UK Counterfeit Intelligence Bureau)

Actual Market size for brand protection: • about $25 billion for documents and products, or 5% to 6% of total estimated losses

due to counterfeiting (Security Solution Consultancy, 1999);

Brand protection consumes 1% - 5% of sales and marketing budgets of large firms (Harley Lewin - expert).


Quantitative vs. qualitative calculations

SEGMENTATION (PM/Matrix) Order USA yearestimated budget brand protection

number of companies in top 500

total budget counterfeiting top

500

Most counterfeited products fortune 500 exemples mkg & sales budget 5%

tobacco 38% RJ Reynolds Tobacco holdings inc 345.000.000 2002 17.250.000 2,00 34.500.000

music & f ilm 30% Integrity Media inc 13.897.000 2002 694.850 4,00 2.779.400

industrial 10% harley davidson 213.000.000 2002 10.650.000 42,00 447.300.000

apperal 9% levi's 307.100.000 2002 15.355.000 4,00 61.420.000

pharma 6% Pfizer 6.474.600.000 2002 323.730.000 10,00 3.237.300.000

cosmetics 5% estee lauder 1.425.600.000 2003 71.280.000 4,00 285.120.000

ICT 5% oracle 2.072.000.000 103.600.000 19,00 1.968.400.000

food & bev 1% the coca cola company 3.200.000.000 2002 160.000.000 21,00 3.360.000.000

toys 1% Matell 553.000.000 2001 27.650.000 2,00 55.300.000

730.209.850 108,00 9.452.119.400

Preferred Witness

% of segment likely to w ant

% likely to w ant % price ink EU+US = 1,82*US

brand protection

New co ink solution?

in total solution ratio for total

Philip Morris 100% 10.0% 2.0% 125,580

Sony 50% 0.1% 2.0% 51

caterpillar 20% 5.0% 2.0% 162,817

Scapa, Mexx, … 5% 5.0% 2.0% 5,589

johnson & johnson, UCB 100% 5.0% 2.0% 5,891,886

P&G 5% 5.0% 2.0% 25,946

HP, microsoft 100% 5.0% 2.0% 3,582,488

Coca Cola 50% 0.1% 2.0% 61,152

Mattel 20% 5.0% 2.0% 20,129

9,875,638

Information from reports

Top 500 companies – examplesfrom relevant industries

Information from company yearly accounts = public info

% applied from expert info

=Quanti-tativeData

= quali-tativedata

Interpretation of qualitative info from interviews Copyright of Bart Clarysse and Sabrina KieferThe Smart Entrepreneur

Comparison of data

Conclusion: if you want to sell a lot of conductive ink…Brand protection is not your market – the value is too small

If you compare the estimate from your quantitative research with the refined result of your qualitative research:

€ 9 bn vs € 9 mn

Big difference!


Conclusions and deliverables

Through your market research you have:• Tested your assumptions about target markets and industries• Possibly reshaped your initial concept or approach• Narrowed your market focus down to the more promising segments for your

venture

This gives you a clear focus for:• Market testing in specific segments

» Prototyping, lead users, focus groups

It will also provide input for:• Marketing/sales plan: which customers to approach, how and when;• Operational Plan: the exact features, applications, versions needed for your

product/service, and the people and competences needed;(see Roadmap in IE&D Toolbox)

• Input for your Financial assumptions: size of market, price points, sales lead time and its effect on cash flow, etc. (See ‘Financial Viability’ in Business Model tool and Financial Planning tool)


Sources and suggested further reading

• Clarysse, B. and Kiefer, S., 2011. The Smart Entrepreneur. London: Elliot & Thompson, Ch. 4.

• Miller, R.B. and Heiman, S.E., 2005. The New Strategic Selling. New York: Grand Central Publishing (Hachette USA).


Tse entrepreneurial market_research_2014

Business

Transcript of Tse entrepreneurial market_research_2014