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  • 1. champions of changeScoping the Market OpportunityWorkshopMairi RobertsonMarch 30th 2012
  • 2. Who are we?• Advisory and investment boutique that specialises in innovation and enterprisein TMT sector;• Known as “practitioners that consult”;• We translate between the technologists and the creatives to make the businesscase 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.
  • 3. if you don’t move forward,you’re standing still, or worse.• Transformation. Innovation, Re-engineering, Business Strategy Development.• nmp have been championing change, maximising growth and enhancing returnon 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 andfocus to the table.champions of change
  • 4. So you’ve had a good idea ….What is theproduct/service?Who is thecustomer?How manypeople willbuy it?How much willyou charge?Will they buyit?Who are yourcompetitors?
  • 5. What is the product/ service?• 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 userWhat istheproduct/service?Who is thecustomer?How manypeople willbuy it?How muchwill youcharge?Will theybuy it?Who areyourcompetitors?
  • 6. iPad• “Pick up the new iPad and suddenly, it’s clear. You’re actuallytouching your photos, reading a book, playing the piano. Nothingcomes between you and what you love. To make that hands-onexperience even better, we made the fundamental elements ofiPad better — the display, the camera, the wireless connection. Allof which makes the new, third-generation iPad capable of so muchmore than you ever imagined”
  • 7. Media Composer 6• “Professional editors and producers like you around the worldhave told us what you need to succeed. More efficient and easy-to-use video editing tools. An open platform that enables you towork with everything you want and integrate into any workflow.More power to eliminate bottlenecks, so you can work faster thanever. We listened. We took notes. We made it happen.”
  • 8. Angry Birds• “The survival of the Angry Birds is at stake! Dish out revenge onthe green pigs who stole the Birds’ eggs. Use the uniquedestructive 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 replayvalue. Use logic, skill, and brute force to crush the enemy.”
  • 9. Who is the customer?• Who will buy it?• Who will use it?• Are these different?What istheproduct/service?Who is thecustomer?How manypeople willbuy it?How muchwill youcharge?Will theybuy it?Who areyourcompetitors?
  • 10. Understand your customers, market position & how competitors fitLow cost High costLow performanceHigh performance
  • 11. Why is it important?• Enables you to:– better determine if there is enoughpeople willing to buy yourproduct/service– tailor your offering to better meet theneeds of your potential customer base– target your marketing efforts to reachyour most promising prospects– use the right marketing messages• Defining a target market will notlimit your business• Defining a target market willincrease cost efficiency
  • 12. Common consumer characteristicsTargetcustomersagegenderincome levelbuyinghabitsoccupationor industrymaritalstatusfamily statusgeographiclocationethnic grouppoliticalaffiliationshobbies andinterests
  • 13. Common business characteristicsTargetcustomersindustrynumber ofemployeesamount ofannualsalesgeographiclocationage ofbusinessjob role
  • 14. How many people will buy it?• In simplest terms market potential can be expressed as a functionof:– the number of customers purchasing– amount purchased– frequency of purchase• In other words, market potential = (how many * how much * howoften)What istheproduct/service?Who is thecustomer?How manypeople willbuy it?How muchwill youcharge?Will theybuy it?Who areyourcompetitors?
  • 15. A cautionary note!• Creating a realistic estimate of your addressable market canseem daunting• However, the math behind these calculations should usually berelatively simple• Remember that stakeholders/VCs want to see that you used aneasy to understand and logical methodology to generate theestimate that youre giving them– the easier it is to understand the quicker they can get comfortablewith it and focus on other questions that they might have– building in unnecessary levels of assumptions can generate anunrealistic result – garbage in garbage out!
  • 16. Bottom Up or Top Down• A top down approach starts with market and industry data.Based on a geographic market area, customer profile and theirpropensity to buy your products and services– Start with the whole pie, the whole market. Narrow it down by variousmeans to get to the number that you’ll sell• A bottom up starts with your customers. How much and often dothey buy? What is their profile? How many potential customers doyou have in the market based on your customer profiles? Howcan you reach them?– Instead of subtracting things from a hypothetical pie, youmultiply these assumptions to determine the market potential
  • 17. Top down example – new entrant mobile operator010,00020,00030,00040,00050,00060,00070,00080,00090,0002005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Population of UK
  • 18. Target market010,00020,00030,00040,00050,00060,00070,00080,00090,0002005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Population of UK
  • 19. Addressable market010,00020,00030,00040,00050,00060,00070,00080,00090,0002005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Population of UK Mobile subscribersin UK
  • 20. Market share0%10%20%30%40%50%60%70%80%90%100%2005 2006 2007 2008 2009 20103UKEverything Everywhere(inc. Virgin)T-Mobile(inc. Virgin)OrangeO2 (inc. Tesco)Vodafone
  • 21. Total customers010,00020,00030,00040,00050,00060,00070,00080,00090,0002005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Population of UK Mobile subscribersin UK New entrantsubscribers
  • 22. Price-501001502002502005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Average revenue per subscriber
  • 23. Revenue-200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,0002011 2012 2013 2014 2015 2016
  • 24. Bottom upNew prepaysubscribersExisting prepaysubscribersChurned prepaysubscribersPrepay subscribersNew contractsubscribersExisting contractsubscribersChurned contractsubscribersContract subscribers
  • 25. Bottom upPrepay subscribersContract subscribersAverage minutes permonthAverage SMS permonthAverage data usageper monthAverage minutes permonthAverage SMS permonthAverage data usageper monthAnnual prepayminutesAnnual prepay SMSAnnual prepay datausageAnnual contractminutesAnnual contractSMSAnnual contract datausage
  • 26. Bottom upAnnual prepayminutesAnnual prepay SMSAnnual prepay datausageAnnual contractminutesAnnual contractSMSAnnual contract datausagePrice per prepayminutePrice per prepaySMSPrice per prepaydata usagePrice per contractminutePrice per contractSMSPrice per contractdata usageRevenue fromprepay voiceRevenue fromprepay SMSRevenue fromprepay data usageRevenue fromcontract voiceRevenue fromcontract SMSRevenue fromcontract data usage
  • 27. Bottom upRevenue fromprepay voiceRevenue fromprepay SMSRevenue fromprepay data usageRevenue fromcontract voiceRevenue fromcontract SMSRevenue fromcontract data usageRevenue fromprepayRevenue fromcontractTotal Revenue
  • 28. 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 fordetermine costs, profitability and cash flow• Top-down financial projections often don’t consider the rightmarket– available figures may not be for the right region, target customer orpart of the value chain you are addressing– it doesn’t include the operational assumptions or metrics describinghow those sales will be accomplished – can be risky when building afull business plan
  • 29. Advice• Remember it is a forecast – it will never be correct. Howevermake 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 thesize 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 twoapproaches yield a somewhat similar number
  • 30. How much will you charge?• What is the business model• How will you charge?• How is it calculated?• Does it stack up?What istheproduct/service?Who is thecustomer?How manypeople willbuy it?How muchwill youcharge?Will theybuy it?Who areyourcompetitors?
  • 31. Business model examplesBusinessmodelsThe Add-Onmodel.TheAdvertisingmodelThe AffiliatemodelThe AuctionmodelThe Bait andHook modelThe DirectSales modelThe FranchisemodelThe FreemiummodelThe InternetBubble modelThe Low-CostmodelThe Pay asYou Go modelTheSubscriptionmodel
  • 32. Pricing principles• No matter what type ofproduct you sell, the price youcharge your customers orclients will have a directinfluence on whether yourbusiness succeeds• Some key principles– all prices must cover costsand profits.– the most effective way tolower prices is to lower costs• Do not set prices once and"hope for the best.“ It’s time toreview your costs when:– you introduce a new product– Your costs change;– you decide to enter a newmarket;– your competitors changetheir prices;– the economy experienceseither inflation or recession;– your sales strategy changes;– your customers are makingmore money because of yourproduct or service
  • 33. 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 resultsin purchasing at a lower unit price– difficult for new products as need to be able to correctly calculatebeforehand what price will generate the optimum relation of profit tovolume
  • 34. Classic price elasticity questions• Best done on a large scale survey• Present the overall concept – where possible makingcomparisons 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 thatyou would not consider buying it? (Too expensive)– At what price would you consider the product to be priced so low thatyou would feel the quality couldn’t be very good? (Too cheap)– At what price would you consider the product starting to getexpensive, so that it is not out of the question, but you would have togive some thought to buying it? (Expensive/High Side)– At what price would you consider the product to be a bargain—agreat buy for the money? (Cheap/Good Value)
  • 35. Pricing based on Van Westendorp principles• Optimum Pricing Point is theprice at which the number ofcustomers who see the productas too cheap is equal to thenumber who see the product astoo expensive– typically the recommendedprice• The range of prices betweenthe Point of MarginalCheapness and the Point ofMarginal Expensiveness is therange of acceptable prices for aproduct– in established markets, fewcompetitive products arepriced outside this range
  • 36. Types of pricing methodologies• Competitive Pricing– used when an established market price for a particular product orservice– often in markets where there is a major market player that will set theprice that other, smaller companies will be compelled to follow– benchmark prices of each competitor then figure out your optimumprice and decide, based on direct comparison, whether you candefend the prices youve set• If higher than competitors you must offer something extra like superiorcustomer service or added features– difficult for service businesses as services vary widely from one firmto another• you can charge a higher fee for a superior service and still be consideredcompetitive within your market
  • 37. Might want to consider trade off techniques• Product is described in termsof attributes and levels in orderto see what is being traded off• An attribute is a general featureof a product– say size, colour,speed, delivery time.– Each attribute is then made upof specific levels. So for theattribute colour, levels might bered, green, blue and so on• Conjoint analysis takes theseattribute and level descriptionsof products and uses them askpeople to make a number ofchoices between differentproducts• For instance would you chooseproduct A or product BA BAnalysers 3 5Languages C C+ Java… … …Price £500 £1000Attributes could be based on differentcommercial options or competitorproductsAgain it should emphasis the USP ofthe product
  • 38. Will they buy it?• What do the potential users think?• This should be done before you have a product to sell!! Arguablyshould be the first stepWhat istheproduct/service?Who is thecustomer?How manypeople willbuy it?How muchwill youcharge?Will theybuy it?Who areyourcompetitors?
  • 39. Use the right techniquesBrainstormingSecondaryresearchFocus GroupSurvey Workshop InterviewUse cases Observation Prototyping
  • 40. Where do you customers hang out online?
  • 41. Ask the right questions• I’m developing a new oven– Do you want it be gas orelectric?– Does it need a separate grill?– Etc …• Answer– A slightly improved oven• What issues do you havecooking food?– “It takes too long – I want tocook food in 5 mins ratherthan an hour”• Answer– MicrowaveIssues: What are the end user’s unmet needs when doing atask?Demand: How important are they?Differentiator: How close do your/competitor’s products getto meeting the unmet needs?
  • 42. 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 toaddress these concerns without any significant increase cost• Sometimes providing additional features that are not essential butattractive can just give you the edge
  • 43. Who are your competitors?• How does your product compare to your competitors?• What is your competitive advantage or USP?• How long can you sustain this?What istheproduct/service?Who is thecustomer?How manypeople willbuy it?How muchwill youcharge?Will theybuy it?Who areyourcompetitors?
  • 44. Competitive advantage• Anything that helps your business attract more customers thanyour competitors is a competitive advantage– most are only temporary• Start by thinking about the features of the product or service thatyou 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 toprioritise for specific customer groups in terms of importance foryour marketing messages
  • 45. 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 thatthey’re sure will be a good buy• Service – people appreciate and will pay for excellent customerservice• Innovation - by adding improved and unique features will you beable to create a separate identity for your business
  • 46. Your USP can be anywhere across the value chain10 types of innovation (Source http://www.doblin.com/)
  • 47. Why they are the success they are• Facebook– interface very simple one andthe design is plain and easy touse. Clean and uncluttered– Facebook promotes interactionbetween its users throughmany features including theLike feature, the Commentsfeature and the Sharingfeatures (all of which wereinnovative at time of release)– broad target market -something for everyone(critical mass)– people have full control overtheir profile and what theychoose to display– continual revamp anddevelopment• Apple– the engineers at Appleunderstand what people want -designs of Apple products aresimple, clean and elegant– dynamic Product Line thatkeeps customers coming backfor more– marketing campaigns thatfocus on the benefits - showhow the gadget can make yourlife easier