1. Copyright © 2008 by Nelson, a division of Thomson Canada Limited ENTREPRENEURSHIP A PROCESS PERSPECTIVE Robert A. Baron Scott A. Shane A. Rebecca Reuber Slides Prepared by: Sandra Malach, University of Calgary

2. Copyright © 2008 by Nelson, a division of Thomson Canada Limited. 10 MARKETING IN A NEW FIRM 1

3. Copyright © 2008 by Nelson, a division of Thomson Canada Limited LEARNING OBJECTIVES 1.Identify a real customer need and explain why an entrepreneur should seek to develop a product or service that meets a real need. 2.Explain why entrepreneurs need marketing information before beginning their ventures, and describe ways they can gather this information. 3.Define perceptual mapping and explain how its results can assist entrepreneurs in designing their products. 4.Explain conjoint analysis and indicate what information it provides for entrepreneurs.

4. Copyright © 2008 by Nelson, a division of Thomson Canada Limited LEARNING OBJECTIVES 5.Explain why entrepreneurs use different techniques to assess customer preferences in new and established markets, and identify those different techniques. 6.Explain how large and growing markets help entrepreneurs. 7.Define the new product S-curve, and explain why it is important for entrepreneurs to understand the relationship between effort and product performance. 8.Describe the typical new product adoption pattern and explain how it influences entrepreneurial action.

5. Copyright © 2008 by Nelson, a division of Thomson Canada Limited LEARNING OBJECTIVES 9.Define “crossing the chasm” and explain why and how entrepreneurs “cross the chasm.” 10.Explain how entrepreneurs should choose the customers on whom to focus their initial efforts. 11.Define a “dominant design” and a “technical standard” and explain how they influence the performance of new ventures. 12.Explain why personal selling is a very important part of entrepreneurs’ marketing strategies. 13.Describe how entrepreneurs price new products.

6. Copyright © 2008 by Nelson, a division of Thomson Canada Limited “Try novelties for salesman’s bait, for novelty wins everyone.” --Goethe, Faust: Part I, 1808

7. Copyright © 2008 by Nelson, a division of Thomson Canada Limited REAL NEED Successful products and services are based on real customer needs. A real need exists when customers have a problem that needs to be solved and no existing products or services can do this. Truly solving unsolved customer problems or offering products or serves that are significantly better than existing ones.

8. Copyright © 2008 by Nelson, a division of Thomson Canada Limited DETERMINING NEED Look for a customer problem. Define a true solution. Evaluate economics. Identify alternatives offered by competitors.

9. Copyright © 2008 by Nelson, a division of Thomson Canada Limited ASSESSING CUSTOMER PREFERENCES Evaluate target market. Companies who focus on a market are more successful Determine the type of new product or service you’re developing. Is your solution to customer needs already understood? Or is it a novel solution?

10. Copyright © 2008 by Nelson, a division of Thomson Canada Limited DIRECT TECNIQUES FOR GATHERING INFORMATION Customer Surveys Compare products & attributes Perceptual Mapping Potential customers perceptions Focus Groups Identify key dimensions Evaluation of product based on key dimensions

11. Copyright © 2008 by Nelson, a division of Thomson Canada Limited CONJOINT ANALYSIS Asks individuals to express preferences for various products that are specially chosen to offer a systematic array of features. Statistical analysis to indicate the relative importance of each variable (features).

12. Copyright © 2008 by Nelson, a division of Thomson Canada Limited PRIMARY & SECONDARY DATA Primary Data is collected specifically for the entrepreneur’s purpose Surveys, Focus Groups, Observation Secondary data has not been collected by the entrepreneur Statistics Canada, Industry Canada

13. Copyright © 2008 by Nelson, a division of Thomson Canada Limited FOR A KNOWN TARGET MARKET OR SOLUTION Use traditional market research methods: Surveys Focus groups

14. Copyright © 2008 by Nelson, a division of Thomson Canada Limited FOR NOVEL MARKETS AND SOLUTIONS Talk with industry experts Create future scenarios Extrapolate trends to determine product and service features

15. Copyright © 2008 by Nelson, a division of Thomson Canada Limited FOR A NEW MARKET OR SOLUTION When either the target market or solution is known, but the other is not, blend traditional market research with futurist approaches. Anthropological expeditions In-depth interviews with early adopters Partnerships with customers to develop products

16. Copyright © 2008 by Nelson, a division of Thomson Canada Limited THE MARKET DETERMINES RESEARCH TECHNIQUES EXISTING MARKET NEW MARKET Philosophy of market research Deductive data analysis Intuition Techniques for gathering customer information Focus groups, surveys, mall studies Industry experts, trend extrapolation, future scenarios

17. Copyright © 2008 by Nelson, a division of Thomson Canada Limited THE ENTREPRENEUR’S DISADVANTAGE When markets or new products are known, existing companies have the advantage with An existing customer base A large amount of information about customer preferences

18. Copyright © 2008 by Nelson, a division of Thomson Canada Limited THE ENTREPRENEUR’S ADVANTAGE When the market or solution is novel, existing companies face three major disadvantages: Core rigidities Tyranny of the current market User myopia

19. Copyright © 2008 by Nelson, a division of Thomson Canada Limited THE LESSON Entrepreneurs do better when they launch products based on novel solutions to customer needs in new markets.

20. Copyright © 2008 by Nelson, a division of Thomson Canada Limited MARKET DYNAMICS All markets are not equal. They vary in Size Rate of growth Evolution (stage in life cycle)

21. Copyright © 2008 by Nelson, a division of Thomson Canada Limited MARKET SIZE The size of the market determines: Ease of recouping start-up costs Ability to go in “under the radar”

22. Copyright © 2008 by Nelson, a division of Thomson Canada Limited MARKET GROWTH The rate of market growth determines: Ease of capturing new customers Potential volume of customers Benefits of volume purchasing and scale economies

23. Copyright © 2008 by Nelson, a division of Thomson Canada Limited THE S-CURVE Initially, improvement is slow Improvements come faster Improvements slow down again

24. Copyright © 2008 by Nelson, a division of Thomson Canada Limited TIMING THE MARKET Implications of the S-Curve: Capital is required to sustain early product development New product development is a function of effort, not time Point of acceleration is critical for future planning

25. Copyright © 2008 by Nelson, a division of Thomson Canada Limited ADOPTION PATTERNS Innovators Early adopters Early majority Late majority Laggards

26. Copyright © 2008 by Nelson, a division of Thomson Canada Limited TYPICAL PATTERN OF NEW PRODUCT ADOPTION

27. Copyright © 2008 by Nelson, a division of Thomson Canada Limited TO CROSS THE CHASM Build a complete customer solution to customer needs Focus on a single niche Communicate clearly to customers

28. Copyright © 2008 by Nelson, a division of Thomson Canada Limited CHOOSING TARGET CUSTOMERS Customers have a compelling reason to buy if the product or service Improves their productivity Reduces their costs Gives them something they couldn’t have before

29. Copyright © 2008 by Nelson, a division of Thomson Canada Limited DOMINANT DESIGN All companies producing a product choose a common way of bringing together the different parts of a product or service. New firms have an advantage in periods of radical breakthrough.

30. Copyright © 2008 by Nelson, a division of Thomson Canada Limited SETTING THE TECHNICAL STANDARD Discount prices when product is introduced Build relationships with producers of complementary products Get to the market quickly

31. Copyright © 2008 by Nelson, a division of Thomson Canada Limited PERSONAL SELLING Generate customer interest Identify customer requirements Overcome customer objections Close the sale

32. Copyright © 2008 by Nelson, a division of Thomson Canada Limited PRICING NEW PRODUCTS Determine fixed and variable costs to set a price that generates a profit Assess market conditions to ensure the price isn’t too high or low Understand how customers trade off attributes and price Factor in hidden costs or discounting