Marketing for Entreprenuers: Customers

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    Market can be the aggregate sales both past and projected. Adding apples and oranges oscilloscopes sold to doctors and engineers. Open to misinterpreting data, Marketing: taking actions to create, grow, maintain or defend markets. Marketing a reasonable basis for taking actions that will predictably and positively affect company revenues.

    Can you be too customer-driven? Strive for informed by customer input not customer-driven. Also existing customers will only recommend incremental improvements to the existing product architecture. What are the potential drawbacks? Customers are not expert or informed enough to develop solutions, that is the job of R&D. They should only be asked about outcomes. Customers have a limited frame of references (own experiences) and they can’t imagine what they don’t know about. They have a tendency to recommend incremental improvements and ask for missing features. Products that spring from lead users or early adopters and innovators may have limited appeal in the mass market. Functional fixedness causes customers to fixate on the way a product or service is normally used. Customers don’t want new and improved if they have to pay for it. Customers don’t fully understand their needs When/how do you know when the customer is “wrong”? When it leads you to make only incremental improvements in your products along the same architecture trajectory. What do you do in those instances? Observation may help uncover unarticulated needs Plan outcome-based customer interviews. How do you overcome VC pressure? From The Customer is sometimes wrong

    Now lets talk about the Psychology of New Product Adoption. You should have read the article “Eager Sellers & Stony Buyers” by John T. Gourville in the June 22006 Harvard Business Review. We often talk about the importance of filling a consumer need in marketing but Gourville points out that consumers evaluate based on perceived not actual value. They compare new products to existing products. Consumers evaluate new products or investments relative to a reference point, usually the products they currently own or consume. The endowment effect is that people value the products they already have more than those they don’t have. They irrational overvalue the endowed product by a factor of three. They also view improvements relative to this reference point and treat all shortcomings as losses. Loss aversion is the idea that loses have a far greater impact on people than similar size gains. Costs to Consumers: Transaction costs Learning costs Obsolescence costs Switching costs Think about the losses you might face if grocery store shopping was replaced completely with online grocery shopping. Or the things you would miss about hard copy books if all books were online.

    Write chart on page 101 on the white board.

    Four types of products emerged from this research based on the degree of behavior adjustment required and the perceived benefits. They are titled easy sells, sure failures, long hauls and smash hits. Easy sells: Provide limited benefits but require limited adjustments in behavior (toothbrushes with angled heads, improved detergents, cooking with organic materials) Sure failures: Offer few benefits but require significant behavior change. An example of this is the Dvorak keyboard vs QWERTY. The benefits to changing the way we type are perceived to be too small for the behavior change rquired. Long hauls: technological leaps provide significant benefits but also require significant behavior change (satellite radio… once cell phones and Linux operating system) Smash hits: Provide great benefits with minimal behavior change

    Purveyors of new products must be patient and accept initial resistance to new products: Consumers have been slow to adopt TIVO versus DVD player Product developers should strive for 10 times improvement to overcome resistance. MRI versus X-ray One additional way to improve adoption rates is to eliminate the old: Dollar coin hasn’t been adopted in the US because the dollar bill still exists versus Canada. Game companies eventually stop producing games for old game consoles in hopes of improving adoption of the new.

    In conclusion, it is simply not enough to be better than the current product in order for consumers to accept the new product. Product developers must consider the behavioral requirement of products and make behaviorally compatible products. Also they should seek out consumers that have not adopted an existing product. Burton Snowboards for example focused on individuals that did not already own skis to improve the adoption of their product. Finally companies must find believers or early adopters of their products to spread the message that their products are acceptable.

    Each group is defined by their characteristic response to discontinuous innovation. The psychographic profile is a combination of psychology and demographics that makes marketing responses different. Innovators: Technology for technology sake Care about: Truth without any tricks 2. Access to the most technologically knowledgeable person to answer ?’s 3. First to get new stuff (non-disclosure) 4. Cheap. Reach them through the web and direct with e-mail that is factual and contains new information. Market to them if you have 1. The latest and greatest technology 2. Don’t need to make $ 3. If they have access to the big boss. Early adopters: Require an application and are buying a change agent. They are looking for a fundamental breakthrough. See vast potential for the technology they are the least price sensitive. Easy to sell but hard to please. Visionaries like a project orientation. Opportunity to generate a burst of revenue and gain exceptional visibility.

    Most market demand and industry profits arise when members of the early and late majority enter the market. If you fail to attract the early and late majority customers you will go out of business. Page 195 Products are often sold to innovators and early adopters through word of mouth but early majority require mass-market distribution channels and mass-media advertising campaigns. Innovators and early adopters can have a small quantity of a product. To serve mass market a cost leadershIp model critical to ensure quality product can be produced reliably at a low price point. TALK ABOUT KEURIG

    Early market: attracts early adopters (enthusiasts and visionaries) The Chasm: visionaries don’t see it as new but not adopted by pragmatists Pragmatists in pain (niche market) Bowling Alley gaining acceptance in niche markets Tornado: passed the test of usefulness perceived as necessary and standard. Main Street Main Street mature Main Street Declining

    Innovators and early adopters have very different customer needs from the early majority. The Chasm is between early adopters and the early majority. Correctly identify the needs of the first wave of early majority users Alter the business model in response (develop new strategies to redesign products, create distribution channels and marketing strategies to reach the early majority. Alter the value chain and distribution channels to reach the early majority Design the product to meet the needs of the early majority and so that it can be modified and produced or provided at low cost Anticipate the moves of competitors

    Context: Disk Drive industry (1996) Disruptive markets are small and customer needs are poorly defined . Disruptive innovation in embryonic stage and customers are typically innovators and early adopters. We know they are willing to put up with limited performance and poor quality. Product sold to these innovations and early adopter through word of mouth. Overcome the trap by creating organizations that depend exclusively upon resources from the new market. Resource allocation is market driven. Established firms listen too carefully existing customers and resources are allocated to meet their needs stifling the introduction of disruptive innovation. Sustaining innovation may actually be more expensive and risky tech wise but because it serves existing customers …it is pursued. Disruptive technology is straightforward but “risky” because it has a small poorly defined market. The difference or risk is about information clarity. The established organizations marketing competence (beta test innovation using customers sourced via sales staff) may actually inhibit the commercialization of disruptive technology rather than speed its development. How does this compare to Geoffrey Moore’s work where he asserts that established organizations must design innovation that appeal to the early majority not the innovators and early adopters? Will this only result in the development of sustaining innovation? Remember that products have a life cycle too and that disruptive products do not stay disruptive in character. They ultimately shed their disruptive characteristics and become performance competitive. Need to move along that trajectory quickly to overcome the existing innovation. Key issue: Firms have disabilities changing strategy not technology so the Organization Answer: spinning out organizations that were completely independent in terms of customer relationships (organization that was excited about a $50,000 order) Forces of resource dependence work in their favor. Depend exclusively upon resources in the NEW/Different target market. Geographically separate Held accountable for profit/loss Included all functional units within.

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    Marketing for Entreprenuers: Customers - Presentation Transcript

    1. The Customer of the Future Entrepreneurial Marketing 445
    2. Review: Market
      • Prospective buyers, individuals or organizations, willing and able to purchase the organizations existing or potential offering.
      • Segments/Markets
        • Common set of needs and wants
        • Reference each other when making a buying decision.
        • Single isolable object of action
        • Focus of marketing
    3. Traditional Customer Roles
      • User
        • What do they want? (voice of the customer)
      • Buyer
        • How do they want it?
        • How much will they pay?
        • How much will they buy?
        • Are they satisfied?
      • Referral
        • Are they influential?
        • Will they tell their friends and colleagues?
        • How can we encourage them?
      • Seeking to understand customer motivations by asking them to react to our communications / activities.
    4. Emerging Customer Roles
      • Advisor
        • Active, on-going input to NPD process
      • Co-Innovator
        • Active stake in developing custom solutions
      • Co-Producer
        • Active stake in producing their own custom solutions
      • These roles ask customers to become partners to share the risks and benefits of innovation.
      • Potential Competitor
        • Customers won’t innovate for you for free; what’s in it for them?
    5. Identifying / Targeting Customers
      • How do we identify potential customers?
      • How do we understand their needs / wants / motivations?
      • What criteria should we use to segment and pick customer segments?
    6. Being Customer-Driven
      • Can you be too customer-driven?
      • What are the potential drawbacks?
      • When / how do you know when the customer is “wrong”?
      • What do you do in those instances?
    7. Psychology of New Product Adoption
      • Fill a need? Gains and Losses
      • Consumers evaluate based on perceived not actual value
      • Evaluate innovation relative to reference point (product currently own) (Endowment Effect: overweight the current product’s benefits by a factor of three)
      • View improvements relative to reference point and view all shortcomings as loses.
      • “ Loss aversion” Loses have far greater impact on people than similar size gains.
    8. Psychology of New Product Adoption
      • Gains and Loses Discussion
    9. Psychology of New Product Adoption
      • Capturing Value from Innovations
        • Easy Sells
        • Sure Failures
        • Long Hauls
        • Smash Hits
    10. Psychology of New Product Adoption
      • Accepting Resistance
      • Be patient
      • Strive for 10x improvement
      • Eliminate the old
    11. Psychology of New Product Adoption
      • Show evidence of new product acceptance
      • Not enough to simply be better!
      • Make behaviorally compatible products
      • Seek out the unendowed (Burton Snowboards)
      • Find believers
    12. Technology Adoption Life Cycle: Technology is absorbed into any given community in stages corresponding to the psychological and social profiles of various segments within that community.
    13. Psychographic Profiles
      • Innovators: Technologists who pursue new products aggressively. Endorsement is important to reassure others that the product works.
      • Early adopters: Buy into new product concepts very early in their life cycle. Product as change agent. Application to the non technologist.
      • Early majority: Driven by a strong sense of practicality but can use technology. Product as productivity improvement. Want well-established references.
      • Late majority: Not comfortable with their ability to handle a tech product. Product must be easier.
      • Laggards: Don’t want anything to do with technology. Not worth pursuing on any basis.
    14. Know the Differences in Customers at Stages of Market Development
      • Innovators and early adopters are technologically sophisticated and will tolerate engineering imperfections (the early majority value ease and reliability)
      • Innovators and early adopters are typically reached through specialized distribution channels (the early majority need mass-media)
      • Innovators and early adopters are relatively few in number and not particularly price sensitive (the early majority are not)
      • Early majority want productivity improvements and minimal discontinuity. Technology enhance ways of doing things not overthrow.
    15. The Market Development Life Cycle Source: “Darwin and the Demon: Innovating Within Established Enterprises” ,Geoffrey A. Moore. Harvard Business Review. July-August 2004
    16. Strategic Implications: Crossing the Chasm
      • Correctly identify the needs of the first wave of early majority users
      • Alter the business model in response
      • Alter the value chain and distribution channels to reach the early majority
      • Design the product to meet the needs of the early majority and so that it can be modified and produced or provided at low cost
      • Value proposition that can predictably be delivered to a targetable set of customers at a reasonable price.
    17. Customer Power… (Christensen and Bower)
      • Incumbent firms excel at being market-driven / responsive to existing customer needs
      • Innovation projects targeted to emerging (initially small) markets typically have a difficult time receiving resources and support
      • Existing customers typically shun these innovations
      • As a result, firms can fail to introduce radical / discontinuous innovations because the firms are too market-driven / beholden to their existing customers and maintaining market share
      • How did some incumbent firms overcome this trap?
    18. Teams: Values, Baggage and Goals
      • Work on your assignment in your teams.
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