Entrepreneurial Marketing

- What distinguishes entrepreneurial marketing from generic product marketing?

- How to define the market and positioning for sustainable competitive advantage

- Why is the “probe-and-learn” strategy important?

- Is time-to-market more or less important than “getting it right”?

- Why are early reference accounts and key influencers important?

Dimensions of Entrepreneurial Marketing

- Proactive orientation

- Opportunity-driven

- Customer focus

- Innovation focus

- Limited resources - resource leveraging

- Risk / vulnerability management

- Success of product directly determines firm’s valuation

What an Entrepreneur is Marketing andWho It Is Marketed To

Customers

Influencers

Investors

Supply Chain andChannel Partners,Strategic Allies

Employees

Products &Services Equity Image

What Do Startups Need To Define?

- Who is the target customer

- What is the complete product/service offering

- How the target customer will perceive the offering in relation to the competition (positioning)

- Why the offering as positioned will meet the customer’s needs (value proposition)

- How the offering will be priced

- How best to reach the target customer (channel strategy)

TargetCustomer

CompleteOffering

Positioning

ValueProposition

Pricing

ChannelStrategy

Opportunity Driven Adaptive Learning:The “Probe-and-Learn” Strategy

Defining the Complete Offering

- Concept test or in-market test as early as possible … Do not assume your instincts are correct … Use the “probe-and-learn” strategy – leverage your ability to react quickly (a typical strength of startups)

- What is a complete offering? … Fully addresses the customer’s needs … Includes the entire system or experience … Channel, service, support, app, network, content, etc.

Defining the Complete Offering- Balancing time-to-market vs. “getting it right” … “Probe-and-learn” strategy – do both at the same time … “The best is the enemy of the good” … Startup capital is finite – know your funders’ time horizon … Know your competition!

- What if there is a need for stealth? … Non-disclosure agreements

- Above all – do not expend all your resources on the first market entry; plan for iterations!

Implementing the Complete Offering

- What can be outsourced or implemented thru strategic alliances or channel partnerships? … Expend resources only on what will build sustainable competitive advantage and leverage your distinctive competences

- Distinctive competence = your “secret sauce”

- Foundation for exit

Sustainable Competitive Advantage

- Competitive advantage = something unique and valuable to customers beyond a lower price

- Typical sources … Value impressions = product features that signify value … Strong distribution channels … Excellent product quality … Excellent service or support … Brand name or image

- Sustainable competitive advantage = cannot be copied … Basis for valuation!

Repositories of Sustainable CompetitiveAdvantage

- Patents, copyrights and trade secrets

- Technology … Product … Process

- Locations

- Service and support depth

- Organizational culture and know-how

- Exclusive relationships

Low

Low High

High

Value forEstablishingSustainableCompetitiveAdvantage

Degree of Leverage of Distinctive Competence

Core / LeverageIn-source or find Strategic Partnerand co-develop

CoreIn-source – establish / maintainCore Competenciesfor competitiveadvantage

Non-CoreOutsource or obtainthrough ChannelPartnerships

Non-Core / LeverageConsider co-develop-ment with StrategicPartner and/or “OpenSource” strategy

Implementing the Complete Offering:Strategic Analysis

Defining Positioning- Key question: “Why should a member of the target customer segment buy my product or service vs. the competition’s?”

- Identify unique differentiating characteristics of the complete offering as perceived by the target segment … Max 2 or 3 attributes … Articulate benefits, not just features or functions

- Initially rely on: … Market research analytics … Entrepreneurs’ market knowledge

- Hone and test before going public the first time! … Extremely difficult to change once out in the market

10

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80

$98 $127 $141 $160

RelativeNumberof ABLEFaucetsPreferred

ABLE Price

Results of First ABLE Faucets Concept Test

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$98 $127 $141 $160

RelativeNumberof ABLEFaucetsPreferred

ABLE Price

Results of Second ABLE Faucets Concept Test

= Benefits

= Features

Defining Why the Offering Will Meet theCustomer’s Needs: The Value Proposition

- “Does the customer want the perceived value that positioning is trying to deliver?”

- Customers value benefits, not features or functions

- Look for variations in how customers use the product/service (or the alternatives) … Heavy users … Different uses … Criticality of uses

Pricing

- Price according to value

- Integrate pricing with concept testing and in-market testing … Don’t leave pricing decisions to the end just before launch

- Understand the price sensitivity of the customer

Less sensitive More sensitive

Significant savings Cost = big % of total expense 3rd party bears cost Customer bears cost High switching cost Low switching cost Easy comparison shopping Difficult comparison shopping Service/support important Service/support unimportant

Low

Low High

High

Value Derived by Customer

PriceSensitivityofCustomer

Avoid – Reposition product

Re-segment –Attempt to focuson customers where relationshipis important, etc.

Sweet Spot – Focus on channel strategy and on sustainablecomp. advantage

Re-segment – Attempt to focuson customers with critical or“stickier” usage

Implementing the Value Pricing and MarketPositioning Strategy: Analysis

Channels- Align channel strategy with positioning … What aspects of complete offering should channel provide?

- Investigate during concept testing!

- Main categories of channel strategies … Direct: Sell to end customer with no intermediary … Indirect: Resellers exist between you and end customer * Exclusive: One or a few carefully selected channel partners have territories where only they have sales rights * Selective: Multiple authorized non-exclusive resellers * Intensive: Blow out everywhere possible … Franchising: License resellers as independent startups in return for contract payments; resellers invest capital

Characteristics of Channels

Indirect Direct

Cost to startup Variable Fixed

Focus on Product Shared w/others Exclusive

Efficiency per Higher LowerAccount

Control per Lower HigherAccount

Account Coverage Broad coverage Targeted coverage

Account Less customized More customizedCustomization

Risk Lower Higher

Channel Strategy – Value Added Resellers (VARs)

- A form of selective distribution … Perform more functions than distributors … Typically want higher margins or other compensation … Understand VARs’ needs, provide more perceived value to them than competitors … VARs may become almost like a form of customer

Multiple Channel Strategies and ManagingChannel Conflict

- If there are different target segments and a different channel is used for each segment, the potential conflict among the channels must be managed … High-end, high-service channels do not want the same products they carry to be in low-end, low-service channels … Low-end, low-service channels do want the same products they carry to be in high-end, high-service channels

- Most startups should avoid multiple channel strategies initially

Managing Market Entry – Initial ReferenceAccounts

- Often nothing in the market launch is more important … Credibility … Press spokespeople … Examples for ads and PR … Help debug the product (beta testing) … Help define the complete offering

- Especially for products/services that are highly priced, mission critical or perceived as risky … Examples: Enterprise software, medtech

- Selecting the right initial reference accounts is critical … Leaders in field, representative of segment, willing to take risk … Must see great value in your complete product offering

Managing Market Entry – Initial Reference Accounts

- Markets have hierarchical structures of reputation/influence … Target top of hierarchy

- Once identified, get introduced to the accounts, and make a compelling offer … Sources of introductions: Law firms, VCs, CPAs, bankers, personal networking

Managing Market Entry - Initial Reference Accounts

- What is a compelling offer? … Demonstrates enough value to overcome risk aversion … Reduced or even zero pricing (at least for initial period) … More training, support and service than later customers get

- Personally engage even if an indirect channel strategy is used … Feedback is critical; keeping the accounts happy is essential … Escalation process

Managing Market Entry - Initial Reference Accounts

- Commit initial reference accounts to: … Joint press release … Use of the account’s name … Participation in a case study highlighting benefits of the product … Reasonable participation in trade shows, seminars, etc. … Take calls from press and other prospective customers

Managing Market Entry – Key Influencers- Examples: Walter Mossberg of The Wall Street Journal in personal electronics products; the Gartner Group in IT

- Industry conferences and trade shows … Example: CES in consumer electronics

- Introduce your offering while still in development (under non-disclosure if necessary) to get launch coverage

Summary

- Entrepreneurial marketing is a 3-D chess game

- Rigorously focus on what will build enterprise value … Strategic partners are exit strategy candidates

- Probe-and-learn strategy solves the issue of time-to-market vs. “doing it right” … Plan for iteration – don’t expend all resources on initial entry

- Proper attention to concept testing and marketing analysis should enable pricing according to value

- Research channel strategy during concept testing

- Initial reference accounts are key

Resource Leveraging

- Stretching resources further than originally thought possible

- Using others’ resources for one’s own purposes … Strategic alliances … Channel partnerships … Key early customers

- Complementing one resource with another to create greater value

- Using some resources to obtain others (hopefully larger)

Defining How To Reach the Customer- Investigate channel strategy during concept testing … Where or how purchased can affect the perceived value of the complete offering … Exclusive or selective distribution strategies become important if value is sensitive to channel choice

Characteristics of Channels –Indirect Distribution

Exclusive Selective IntensiveResellers don’t compete Resellers may compete Resellers competeCoverage limited Coverage varies Broadest possible coverageHigher control Control varies Lower controlHigher margins for all Intermediate margins Lower margins for allMore reseller loyalty Less reseller loyalty “No” reseller loyaltyMore push in channel Less push in channel “No” push in channelLess mass pull needed More mass pull needed Mass pull essentialMore possibility of Some possibility of All segments buy from incorporating channel incorporating channel everywhere members’ attributes as members’ attributes Possibility of faster part of complete product as part of complete sales cycle offering product offeringPossibility of guaranteed Possibility of multiple minimum sales channels for different segments

Concept Testing and Channel Strategy- Concept testing with selected channel partners is very important … Expose channel to offering concept as early as practicable … Test concept as realistically as with end users – similar stimuli (drawings, mockups, simulations, etc.) … Describe functions to be performed by you and channel … Show tentative pricing and channel mark-ups … Early customer concept testing results may be shared

- Will channel work with you with given pricing and functions?

Multiple Channel Strategies and ManagingChannel Conflict

- Providing channels with differential services or elements of value outside the product itself can also mitigate conflict … Idea is to compensate channels differentially for carrying the product … Must beware of arbitrage – members of one channel dumping overstock into another channel at a profit

- Example: VAR plans in the computer electronics industry … VARs carry the same products that are on sale in Fry’s … VARs get extra “market development funds” (MDF), co-op ad funds, etc. from vendors in addition to product margins

Multiple Channel Strategies and ManagingChannel Conflict

- Creating different products for different channels can help to minimize conflict … Requires active product development program to keep channels refreshed with constant stream of products

- Example: Consumer electronics … High-end channel: Specialty audio/video stores catering to “prosumers,” hobbyists, audio/videophiles … Low-end channels: Fry’s, Costco, Best Buy, etc. … Existing products moved from high-end to low-end channels when new products introduced into high-end channels