champions of changeScoping the Market OpportunityWorkshopMairi RobertsonMarch 30th 2012
Who are we? • Advisory and investment boutique that specialises in innovation and enterprise in TMT sector; • Known as “practitioners that consult”; • We translate between the technologists and the creatives to make the business case that enables informed decisions to be made; • We work with corporate and venture-backed start-up clients; • Track record in creating successful businesses – bigger, better, faster! • Research and Intelligence Hub coupled with the ability to deliver; • Offices in Glasgow & London; • International perspective.
if you don’t move forward,you’re standing still, or worse. champions of change • Transformation. Innovation, Re-engineering, Business Strategy Development. • nmp have been championing change, maximising growth and enhancing return on investment since 1999 for some very happy clients; like Samsung, Sony, Oracle, Nokia, TeliaSonera, Orange, BBC, ITV and Channel 4. • We operate on the cusp of technology and content, bringing business people, technologists and creative people together and bringing clarity, honesty and focus to the table.
So you’ve had a good idea …. Who are your competitors? What is the product/ service? Will they buy it? Who is the customer? How much will How many you charge? people will buy it?
What is the product/ service? Who are your competitor What is s? the product/ service? Will they buy it? Who is the customer? How much How many will you people will charge? buy it? • This should be the easiest question • Define the product/service in a few sentences • It needs to be jargon free and not focused on technology • It should clearly state what the benefits are to the end user
iPad • “Pick up the new iPad and suddenly, it’s clear. You’re actually touching your photos, reading a book, playing the piano. Nothing comes between you and what you love. To make that hands-on experience even better, we made the fundamental elements of iPad better — the display, the camera, the wireless connection. All of which makes the new, third-generation iPad capable of so much more than you ever imagined”
Media Composer 6 • “Professional editors and producers like you around the world have told us what you need to succeed. More efficient and easy- to-use video editing tools. An open platform that enables you to work with everything you want and integrate into any workflow. More power to eliminate bottlenecks, so you can work faster than ever. We listened. We took notes. We made it happen.”
Angry Birds • “The survival of the Angry Birds is at stake! Dish out revenge on the green pigs who stole the Birds’ eggs. Use the unique destructive powers of the Angry Birds to lay waste to the pigs’ fortified castles. Angry Birds features hours of gameplay, challenging physics-based castle demolition, and lots of replay value. Use logic, skill, and brute force to crush the enemy.”
Who is the customer? Who are your competitor What is s? the product/ service? Will they buy it? Who is the customer? How much How many will you people will charge? buy it? • Who will buy it? • Who will use it? • Are these different?
Understand your customers, market position & how competitors fit High performance Low cost High cost Low performance
Why is it important? • Enables you to: – better determine if there is enough people willing to buy your product/service – tailor your offering to better meet the needs of your potential customer base – target your marketing efforts to reach your most promising prospects – use the right marketing messages • Defining a target market will not limit your business • Defining a target market will increase cost efficiency
Common consumer characteristics age hobbies and gender interests political income level affiliations Target customers buying ethnic group habits geographic occupation location or industry marital family status status
Common business characteristics industry number of job role employees Target customers amount of age of annual business sales geographic location
How many people will buy it? Who are your competitor What is s? the product/ service? Will they buy it? Who is the customer? How much How many will you people will charge? buy it? • In simplest terms market potential can be expressed as a function of: – the number of customers purchasing – amount purchased – frequency of purchase • In other words, market potential = (how many * how much * how often)
A cautionary note! • Creating a realistic estimate of your addressable market can seem daunting • However, the math behind these calculations should usually be relatively simple • Remember that stakeholders/VCs want to see that you used an easy to understand and logical methodology to generate the estimate that youre giving them – the easier it is to understand the quicker they can get comfortable with it and focus on other questions that they might have – building in unnecessary levels of assumptions can generate an unrealistic result – garbage in garbage out!
Bottom Up or Top Down • A top down approach starts with market and industry data. Based on a geographic market area, customer profile and their propensity to buy your products and services – Start with the whole pie, the whole market. Narrow it down by various means to get to the number that you’ll sell • A bottom up starts with your customers. How much and often do they buy? What is their profile? How many potential customers do you have in the market based on your customer profiles? How can you reach them? – Instead of subtracting things from a hypothetical pie, you multiply these assumptions to determine the market potential
Top down example – new entrant mobile operator 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Population of UK
Target market 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Population of UK
Addressable market 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Population of UK Mobile subscribers in UK
Total customers 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Population of UK Mobile subscribers in UK New entrant subscribers
Bottom up New prepay subscribers Existing prepay Prepay subscribers subscribers Churned prepay subscribers New contract subscribers Existing contract Contract subscribers subscribers Churned contract subscribers
Bottom up Average minutes per Annual prepay month minutes Prepay subscribers Average SMS per Annual prepay SMS month Average data usage Annual prepay data per month usage Average minutes per Annual contract month minutes Contract subscribers Average SMS per Annual contract month SMS Average data usage Annual contract data per month usage
Bottom up Annual prepay Price per prepay Revenue from minutes minute prepay voice Annual prepay SMS Price per prepay Revenue from SMS prepay SMS Annual prepay data Price per prepay Revenue from usage data usage prepay data usage Annual contract Price per contract Revenue from minutes minute contract voice Annual contract Price per contract Revenue from SMS SMS contract SMS Annual contract data Price per contract Revenue from usage data usage contract data usage
Bottom up Revenue from prepay voice Revenue from Revenue from prepay SMS prepay Revenue from prepay data usage Total Revenue Revenue from contract voice Revenue from Revenue from contract SMS contract Revenue from contract data usage
Which to use? • The bottom-up method is generally considered more robust – less likely to include non-addressable revenue – starting point for financial projections and operational planning – identifies key drivers, such as the number of customers, essential for determine costs, profitability and cash flow • Top-down financial projections often don’t consider the right market – available figures may not be for the right region, target customer or part of the value chain you are addressing – it doesn’t include the operational assumptions or metrics describing how those sales will be accomplished – can be risky when building a full business plan
Advice • Remember it is a forecast – it will never be correct. However make sure you have identified the key profit/loss parameters • Where you have assumptions that are less reliable use scenarios (low and a high version of the estimate) to provide a range for the size of the addressable market • Consider estimating the market size in more than one way – bottom-up estimate and top down to make sure that the two approaches yield a somewhat similar number
How much will you charge? Who are your competitor What is s? the product/ service? Will they buy it? Who is the customer? How much How many will you people will charge? buy it? • What is the business model • How will you charge? • How is it calculated? • Does it stack up?
Business model examples The The The Add-On Subscription Advertising model. model model The Pay as The Affiliate You Go model model Business The Low-Cost models The Auction model model The Internet The Bait and Bubble model Hook model The Freemium The Direct model The Franchise Sales model model
Pricing principles • No matter what type of • Do not set prices once and product you sell, the price you "hope for the best.“ It’s time to charge your customers or review your costs when: clients will have a direct – you introduce a new product influence on whether your – Your costs change; business succeeds – you decide to enter a new market; • Some key principles – your competitors change – all prices must cover costs their prices; and profits. – the economy experiences – the most effective way to either inflation or recession; lower prices is to lower costs – your sales strategy changes; – your customers are making more money because of your product or service
Types of pricing methodologies • Cost-Plus Pricing – mostly used by manufacturers – based on all overhead costs + percentage of profit – essential overhead figure is accurate • Demand Price – optimum combination of volume and profit – products usually sold through different sources at different prices • E.g. wholesaler might buy greater quantities than a retailer, which results in purchasing at a lower unit price – difficult for new products as need to be able to correctly calculate beforehand what price will generate the optimum relation of profit to volume
Classic price elasticity questions • Best done on a large scale survey • Present the overall concept – where possible making comparisons to existing or similar products to give a benchmark, bringing out the core USPs of the product – At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive) – At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap) – At what price would you consider the product starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side) – At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)
Pricing based on Van Westendorp principles • Optimum Pricing Point is the price at which the number of customers who see the product as too cheap is equal to the number who see the product as too expensive – typically the recommended price • The range of prices between the Point of Marginal Cheapness and the Point of Marginal Expensiveness is the range of acceptable prices for a product – in established markets, few competitive products are priced outside this range
Types of pricing methodologies • Competitive Pricing – used when an established market price for a particular product or service – often in markets where there is a major market player that will set the price that other, smaller companies will be compelled to follow – benchmark prices of each competitor then figure out your optimum price and decide, based on direct comparison, whether you can defend the prices youve set • If higher than competitors you must offer something extra like superior customer service or added features – difficult for service businesses as services vary widely from one firm to another • you can charge a higher fee for a superior service and still be considered competitive within your market
Might want to consider trade off techniques • Product is described in terms A B of attributes and levels in order to see what is being traded off Analysers 3 5 • An attribute is a general feature Languages C C+ Java of a product– say size, colour, speed, delivery time. … … … – Each attribute is then made up of specific levels. So for the Price £500 £1000 attribute colour, levels might be red, green, blue and so on • Conjoint analysis takes these Attributes could be based on different commercial options or competitor attribute and level descriptions products of products and uses them ask Again it should emphasis the USP of people to make a number of the product choices between different products • For instance would you choose product A or product B
Will they buy it? Who are your competitor What is s? the product/ service? Will they buy it? Who is the customer? How much How many will you people will charge? buy it? • What do the potential users think? • This should be done before you have a product to sell!! Arguably should be the first step
Use the right techniques Secondary Brainstorming Focus Group research Survey Workshop Interview Use cases Observation Prototyping
Ask the right questions • I’m developing a new oven • What issues do you have – Do you want it be gas or cooking food? electric? – “It takes too long – I want to – Does it need a separate grill? cook food in 5 mins rather – Etc … than an hour” • Answer – A slightly improved oven • Answer – Microwave Issues: What are the end user’s unmet needs when doing a task? Demand: How important are they? Differentiator: How close do your/competitor’s products get to meeting the unmet needs?
Continue to listen to your customers • They can help you to innovate and focus your next developments • Find out your customers concerns and try and work out ways to address these concerns without any significant increase cost • Sometimes providing additional features that are not essential but attractive can just give you the edge
Who are your competitors? Who are your competitor What is s? the product/ service? Will they buy it? Who is the customer? How much How many will you people will charge? buy it? • How does your product compare to your competitors? • What is your competitive advantage or USP? • How long can you sustain this?
Competitive advantage • Anything that helps your business attract more customers than your competitors is a competitive advantage – most are only temporary • Start by thinking about the features of the product or service that you want to promote – then how the customer will use the product or service – how is what you offer better than your customers product or service – translate features into a benefit to the customer • If you think there is a number of benefits you may want to prioritise for specific customer groups in terms of importance for your marketing messages
Potential areas of competitive advantage • Cost (short term solution) • Quality value for money is a longer term strategy that works. Building a reputation for quality in your field is very important, because people won’t mind paying a bit more for something that they’re sure will be a good buy • Service – people appreciate and will pay for excellent customer service • Innovation - by adding improved and unique features will you be able to create a separate identity for your business
Your USP can be anywhere across the value chain 10 types of innovation (Source http://www.doblin.com/)
Why they are the success they are • Facebook • Apple – interface very simple one and the design is plain and easy to – the engineers at Apple use. Clean and uncluttered understand what people want - – Facebook promotes interaction designs of Apple products are between its users through simple, clean and elegant many features including the Like feature, the Comments – dynamic Product Line that feature and the Sharing keeps customers coming back features (all of which were for more innovative at time of release) – marketing campaigns that – broad target market - something for everyone focus on the benefits - show (critical mass) how the gadget can make your – people have full control over life easier their profile and what they choose to display – continual revamp and development