The latest New Ventures BC Seminar is on Market Research and Product Marketing, by Dave Thomas of Rocket Builders.

Dave Thomas, Rocket Builders
This is one of the earlier seminars because it talks about where you’re going to go to market as they journey on their way to becoming a larger company.

Many companies can describe where they want to be in 5 years, but less can describe what they’re going to do to achieve this in the next year and a half.

You may not succeed with your first product — look at RIM: Blackberry was their 6th product — “and you don’t want to hear about the other five…”

Market research — you can try to understand the market in different ways, but need to be cognizant of the data you’re putting into your various models (eg. LinkedIn polls used for market research may be less than useful with only nine responses).

Learning Objectives Today

1. Taking time for market research
2. Understand concepts of technology adoption cycles
3. Understand product positioning
4. Understand how pricing is determined

Market Research
In 2004, we did a survey looking for key milestones in helping us succeed. Every one of the respondents said understanding the marketplace really early (even before they developed the product) was a key to success. Line up your ducks in a row!

There are evolutionary products and revolutionary products.

Most entrepreneurs search for a market niche rather than going head to head with an established giant. After focusing on one market and succeeding, this makes it easier to move organically into other markets later.

Begin with the end in mind!

Example of photocopiers as a case study. For photocopying, first there was Xerox. IBM tried to replicate them, followed by Canon. IBM was less successful, but Canon figured out the niche markets — they fit where Xerox was weakest, focusing on specific products. Today, Canon does not make a full suite of photocopiers because they didn’t want to be Xerox Number 2. That’s why they met success.

Markets, Pains and Requirements

How big is the marketplace? Is it growing? What are the trends? How do you divide the segments?

What is the customer pain? What is the value chain pain?

Customer requirements and Channel requirements. How do people normally buy things? Challenge, can I get the product into the customer’s hands?

Key Market Research Questions

  • What is your target market?
  • How big is it?
  • Who buys your product? (Financial buyer and technical buyer are two different people!)
  • Why do they need it? (Eg. Is there a significant problem you’re solving? People will pay a lot more for a painkiller than a vitamin).
  • Who pays for it?
  • Who uses it?
  • How does the customer fix the business problem you are addressing today?
  • How much are they willing to pay?
  • Why would they buy from you? (Sometimes you may need to partner with companies to reduce perceived risk. Example, no one ever got fired for buying Microsoft Office. Look reliable or find reliable-looking partners)
  • What business problems are more important to them than this one?

Market Segmentation

Revolutionary Products. Eg. iPod. When it came on, it defined its own market.

Evolutionary Products. Refines, improves an existing offering. You need a better widget that’s easy to get hold of.

Why Segment?

  • Focuses scarce marketing and development resources on a target customer group
  • Narrows whole product definition
  • Limits real competitors
  • Leverages past successes into other segments
  • Allows the benefits of market leadership to develop more quickly

What’s the margin like? Look at market share that’s possible.

Dominant player in any marketplace is usually 30 per cent of market share. If you say you’re going to dominate a market and you’re aiming for 100 per cent market share, your credibility with investors will suffer.

Bowling Alley Model
Target a single niche market segment with a must-have value proposition. Win market share leadership in that segment and then leverage your leadership position to move into other markets.

Market Research can be done in two ways: primary research and secondary research.

Primary Research. Actually talk to potential customers, warm calls, cold calls and retail customer survey tools.
Secondary Research. Cruising the Internet and reading white papers, social networking sites and corporate reports.

Primary research methods are key features of effective marketing.

Customer Interviews – Calls, Meetings

  • Have a product positioning “straw man” to describe your product to customers
  • Develop a consistent set of questions
  • Trade shows are a great place to do research and make contacts. You don’t necessarily need a booth. Just walk around and meet people.

Social Networking Sites

Why Join? It helps build profile and gives access to groups for targeted discussion. LinkedIn can be very good for that.

What is a reasonable market share?

Build a bottom-up market plan. How much is each customer going to pay me? A very small percentage is quite normal. iPhone is in a very specific category. Compared with cell phones.

Sometimes there will be an incredible lag between when a product comes on the market and is adopted widely.

Social media is not a sustainable market when it offers stuff for free. 50 per cent of nothing (if you’re offering something for free) is still nothing. You have to charge something to be profitable. Not just about market share.

How to model interview questions?

Keep the questions simple.

Technology Adoption Cycle
Early adopters – tech enthusiasts
Early adopters – visionaries
Early majority – pragmatists
Late majority – followers
Late adopters – laggards

If you sell on the Internet, there’s almost invariably a couple of people who want to buy exactly what you sell. But they may be early adopters — there may not be hundreds of thousands like your first few customers. How do you cross the chasm from early buy-in to a mass following?

Visionaries vs. Pragmatists: These two groups are not compatible. Visionaries must lead the way.

Chasm Scenario

Early market saturated, revenue growth slows. Credible references for pragmatists aren’t apparent. How wide and deep is the chasm?

Eg. If you’re building the latest and greatest iPhone app, it may be obsolete a year from now.

How to Cross the Chasm

  • Segment – vertical applications
  • Redefine and understand target customer’s whole problem and give them a more compelling reason to buy.
  • Define and develop the WHOLE product (and how can you do it better than the competition?
  • Develop a marketing plan

Challenge scenario — a technology company that sells technology that works with software in effect has to sell the hardware, plus the software, plus the product — and it only gets paid for one.

Example – TiVo 1999. Sold to early adopters initially after understanding their marketplace and early adopter behavior, but has expanded its marketplace because customers are now comfortable with multi-component systems and fee-paid service plans. This has taken TiVo 10 years.

Early Adopters Today, according to In-Stat Poll
More people consider themselves to be early adopters now.

New end user segmentation: Power, social and passive users.

What is the Whole Product?
Not just the physical product, but all of the associated factors such as services, partners, warranties, guarantees, image, training, etc.

For instance, if I’m buying a Blackberry and can get a good price on one in a little shop outside of a factory in China, is that a smart move? What about the value of service, warranty, etc?

The Whole Product Concept

  • Determines which pieces the company intends to provide (If you want to build EVERYTHING, if will take you forever).
  • Remaining areas must be filled in by partners
  • Provides focus on customer requirements
  • Improves time to market acceptance

Whole Product Questions

  • What complementary services must be acquired with your product?
  • What additional hardware or software must be purchased to deploy your product?
  • Will customers achieve ROI without complementary products or services? How will total cost of ownership affect your sales process and customer satisfaction?

How do you market the whole product?

  • Manage and demonstrate evidence of a whole product solution
  • Manage the evidence of whole product solution
  • Build reference base

One real problem with marketing: if the company won’t even tell you who they are, there’s a problem. Why don’t more companies have an email or phone number clearly on their site? What’s the product differentiator for Fresh Books? “We have a phone and we actually pick it up when our customers call us.”

Exercise: Ad-Hoc Whole Product Audit

  • What complementary services must be acquired with your product?
  • What additional hardware or software must be purchased to deploy your product?
  • Will customers achieve ROI without complementary products or services? Sales process? Customer satisfaction?

Why will they buy from us vs. the competition?
Positioning = Managing the product and its presentation to fit a predetermined place in the mind of the customer.

Positioning equals market plus competitive segmentation differentiation.

If you sell a product to someone who doesn’t need it, this is going to be a problem for a long time. Sell the product that matches the customer’s needs.

Positioning Process
Understand, choose, differentiate, test, put a stake in the ground, reinforce in the market

Product Positioning

  • Who do we sell to?
  • What need do we solve?
  • What could we do to sell the product?
  • How are we different?
  • What else is needed to get a solution to the problem?
  • Positioning statement development

Positioning Statement (eg. iPod — below is the original statement. But it has changed since then…).

  • For (target customer). Mobile, high income individuals.
  • Who (compelling reason to buy). Who need a way to listen to their entire music collection in different settings.
  • Our product is a (product category).
  • That (key benefit). iPod offers elegance of design, the ability to store an entire music collection.
  • Unlike (main competitor). Flash mp3 players
  • the product (key differentiator) stores an entire music library and is integrated into a digital service to purchase new digital music.

iTunes defined why the iPod worked. People overpay for music just because of the service.

Starbucks is another good example. Their positioning statement isn’t even so much about the product (coffee) but is about offering a lifestyle.

Product positioning exercise:

  • FOR (target customer segment)
  • Who wants/needs (solution to problem)
  • The (product name) is a (product category)
  • That provides (compelling reason to buy from vendor)
  • Unlike (main competitor)
  • The (product name (key differentiator)

Elements of great positioning

Every time I go to a small company website and I see “we’re a world leader”, that’s a bad sign…

Acid Test for Product Positioning

Can competitor’s product name be substituted? If so, you haven’t differentiated yourself.

Pricing — common pricing issues

What are some common price objections you hear? Is your price too high or twoo low?

How does your pricing model compare with the industry and competition?

Price constraints

  • Price Ceiling
  • Channel
  • Competitive Pressures
  • Customer Buying Restrictions
  • Value Proposition
  • Reputation of Seller
  • Total cost of ownership

As you move along through the phase of technology adoption, you can raise the price… until the product becomes a commodity. Then the price will go down and stay down.

Other common problems.

Unsure about what customer is willing to pay. They’ll always lowball if you ask them. Certain segments cannot or will not pay the premium price. But sometimes, customers are willing to pay more. Sometimes, you can infer from what other products the customers are buying.

If you’re the low-cost provider, you may be perceived as having the lower value. It can be hard to increase your price after that. If you’re significantly cheaper, you may not be trusted at all. If someone came around and started selling cars for $6,000 in Canada, we’d all be suspicious of what they’re really offering.

You can pick your price higher and offer discounts and inducements.

Pricing strategies

  • Cost-plus pricing – set the price at production cost plus a certain profit margin
  • Target return pricing
  • Value-based pricing
  • Psychological pricing – base the product on factors such as signals of product quality, popular price points and what the consumer perceives to be fair.

Exercise: Ad-Hoc Pricing Audit

  • What are some common price objections you hear?
  • How does your pricing model compare with your industry?
  • Do you offer promotional pricing?
  • What licensing alternatives do you offer?
  • What discounts do you provide to resellers?

So long as you can differentiate yourself and provide value, you’re going to be fine.

Do a self assessment with true/false statements. Eg. Our product positioning is consistent in all marketing materials. Our pricing is well understood by sales prospects. Consistent with the market.

Companies advancing to Round 2 in 2010 Competition