Marketing Concepts in Commercialization of High Technology

1
Marketing Concepts in Commercialization of High
Technology

• Session 3
• Situation Analysis
• Customers Markets

2
Please sit with your STC380 teammates
3
Review
Cold Call 5 key learnings from last time
4
Agenda

• Review
• Lecture Buyer Behavior
• Lecture Market Potential/Demand
• Exercise Mkt Potential/Demand
• Lecture House of Quality
• Exercise House of Quality
• Lecture (if time) Conjoint Analysis
• Marketing Plan Drafts 1

5
Session 3 Objectives

• Recognize key concepts in B2B buyer behavior.
• Explain the difference between market potential
  and demand
• Describe the factors affecting new product
  forecasting accuracy
• Explain 3 approaches to determining market
  potential
• Describe the role of attributes in evaluation of
  alternatives and the major components/rationale
  behind the HoQ
• List the needs of RD Institutes as related to
  evaluating proposals

6
I. Executive Summary
II. Marketing Situation Analysis
Customers
Competition/Industry
Company
5 Cs
Collaborators
Context (macroenvironment)
Plus Market Potential and Demand
III. Opportunity and Issue Analysis
IV. Objectives
V. Marketing Strategy
VI. Action Programs
VII. Market Research Next Steps
VIII. Financials
7
Major Influences on Buying Behavior
Customers

• Consumer Products Factors
• Socio-cultural
• Psychosocial
• Personal
• Psychological
• Business-to-Business Factors
• Environmental
• Organizational
• Interpersonal
• Individual
• Attitudes toward Innovation and Risk

8
Individual Buying Decision Process
Recognition Of Need
Information Search
Evaluation of Alternatives
Purchase Decision
Post-Purchase Behavior
For high-involvement purchase
9
OrganizationalBuying Behavior and Decision-Making
Customers

• Buy-Grid Model
• Buy Phase
• Buy-Class
• Buying Roles

10
B-2-BBuy-Grid Model a) Buy-Phase
1. Recognition of Need
Customers
Adapted from Weitz, Castleberry, Tanner, 1995
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Implications?

• What could you do to stimulate the recognition of
  need in a potential stakeholder/customer/licensee?
  
• How might you be of service in helping a
  potential stakeholder/customer/licensee to define
  the type of product/service they might need, or
  to help them in defining their specifications?
• What actions could you take to make sure that
  you, or your organization, or your technology,
  comes to mind when the stakeholder/customer/
  licensee starts a search for qualified suppliers?

12
Customers
B-2-BBuy-Grid Model, cont.

• Buy-Phase
• Buy-Class
• New Buy (or New Task)
• Modified Rebuy
• Straight Rebuy

13
Buying Roles
Customers

• Initiator
• Influencer
• Users
• Decision-makers
• Purchasers
• Gatekeepers

14
Implications?

• In any given organization, how would you find
• Initiators
• Influencers
• Users
• Decision-makers
• Purchasers
• Gate-keepers
• Relationship to Aubuchons Persuasion Process?

15
I. Executive Summary
II. Marketing Situation Analysis
Customers
Competition/Industry
Company
Collaborators
Context (macroenvironment)
Plus Market Potential and Demand
III. Opportunity and Issue Analysis
IV. Objectives
V. Marketing Strategy
VI. Action Programs
VII. Projected Profit-and-Loss
VIII. Controls
16
Definitions

• Market - All actual and potential buyers of a
  product
• Market Demand - Total volume that would be bought
  by
• a defined customer group
• in a defined time period
• in a defined geographic area
• in a defined marketing environment
• under a defined marketing program
• Market potential - The limit approached by market
  demand as industry marketing expenditures
  approach infinity, for a given environment and
  time period.

17
Exercise Coming

• Work in your STC380 teams for 20 minutes
• Choose one of your technologies (2 min)
• Identify one market segment that might be
  interested in that technology (3 min)
• Discuss which methods you might use to determine
  potential for that one segment. (15 min)
• Will ask some teams to share with group

18
Steps in Assessing Market Potential or Demand

• Define a market segment to target.
• Analyze customer behavior
• Define externalities (Industry/Competition/Macroen
  vironment)
• Declare and use several sets of assumptions
• Optimistic/Most Likely/Pessimistic
• Use more than one method and triangulate
• Expert opinion, trend analysis, market build-up,
  analogy, chain ratio

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Potential vs. Demand
Not Affordable
Lacks Benefits
Unable to Use
Not Available
Not Aware
Sales
Hint Another ways to say potential is to say
maximum market demand.
Adapted from Best (2000) p. 61
20
Scenario Analysis - Assessing Mkt
Potential Building Scenarios

• 1. Define a market segment to target.
• e.g., all businesses in U.S.
• vs. all businesses in U.S. in SIC Code 1234
• vs. all businesses in U.S. in SIC Code 1234,
  with
• 100-500 employees

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Scenario Analysis - Assessing Mkt
Potential Building Scenarios

• 2. Analyze Customer Behavior
• e.g., for innovative products, will customers
  perceive it to be a truly innovative product?
  (leading to rapid introduction vs. treating it as
  just another product.)
• gives guidelines as to which growth rates are
  appropriate

22
Scenario Analysis - Assessing Mkt
Potential Building Scenarios

• 3. Define Externalities
• What outside factors could have an effect?
• Government regulations
• Support industries will develop related products
• e.g., Macintosh computers - software products for
  Macintosh

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Scenario Analysis - Assessing Mkt
Potential Building Scenarios
Declare and Use Several Sets of Assumptions
4.
Optimistic
Most Likely
Pessimistic
Develop forecasts based on each
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Scenario Analysis - Assessing Mkt
Potential Building Scenarios
Use various methods and triangulate
5.

• Market Research(concept tests test markets)
• Expert opinion
• Trend analysis
• Market build-up method
• Method of analogy
• Chain ratio method

e.g., concept tests but often not practical
25
Scenario Analysis- Expert Opinion

• Discussion groups
• Synthesis of individuals opinions
• Delphi method

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Scenario Analysis- Trend Analysis

• Historical data
• sales history
• penetration history on similar new products
• Analyze
• Regression Analysis
• Compound Annual Growth Rate (CAGR)
• Make assumption
• e.g., growth rate will continue into the future
• Use rate to project into future

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Sales, ABC Widget Company(000s of widgets)
1995 1996 1997 1998 1999
115 127 124 137 150
Good?. . . . . Or Bad?
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Sales, ABC Widget Company(000s of widgets)
1995 1996 1997 1998 1999
115 127 124 137 150
Change New-Old Change
Old Old
127-115 12 10.4 115 115
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Sales, ABC Widget Company(000s of widgets)
1995 1996 1997 1998 1999
115 127 124 137 150
10.4 -2.4 10.5 9.5
Good?. . . . . . . . Or Bad?
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Sales, ABC Widget Company(000s of widgets)
1995 1996 1997 1998 1999
Total Widget Market (purchases) 1,050 1,090 1,270
1,500 1,850 3.8 16.5 18.1
23.3
TRENDS?
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Share of Market

• Purchases from Our Company vs. Total Market
  Purchases (000s units)

8
27
20
45
Total Market Purchases 1,850,000
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ABC Widget Company
1995 1996 1997 1998 1999
Widget Industry (000s units) 1,050 1,090 1,270 1,
500 1,850 3.8 16.5 18.1
23.3
ABC Widget - Share of Market (Units) 10.9
11.7 9.8 9.1 8.1
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Sales, ABC Widget Company(000s of widgets)
Recall Percent Change
1995 1996 1997 1998 1999
115 127 124 137 150
10.4 -2.4 10.5 9.5
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Compound Annual Growth Rate (CAGR)

• More precise than percent change if
• Dont have data for every year
• Want average yearly rate for projection purposes

35
Sales, ABC Widget Company(000s of widgets)
Recall Percent Change
1995 1999
What if you don t have numbers for every year
(e.g., study conducted every 5 years)
115 150
36
Compound Annual Growth Rate (CAGR)

• Provides annual rate across a number of years.
• Formula

Where L last value in the series (the last,
or final, year) F first value in the series
(the first year) P number of growth periods
(the number of years)
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Sales, ABC Widget Company(000s of widgets)
1995 1999
115 150
Excel Formula ((150/115)(1/4)-1)
.06868 6.9
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Sales, ABC Widget Company(000s of widgets)
1999 Sales 150 Assume 6.9 increase per year
into future
---------------------------Projections------------
------------- 2000 2001 2002 2003 2004
?? ?? ?? ?? ??

1501.069
1601.069
160
171
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Scenario Analysis- Market Build-Up Method

• Identify all potential buyers in each market
• Add up the estimated potential purchases of each

Total Purchasers

Total Purchases
100 each
125 each

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Scenario Analysis- Method of Analogy

• Pick a market (country) at a similar stage of
  development as the one of interest
• Assume the ratio between various products will be
  the same.

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Method of Analogy
e.g., VCR's in Poland vs. Hungary
?? VCR Demand Poland VCR Demand
Hungary Color TV Demand Poland Color
TV Demand Hungary
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Sales VCR (000s)
Annual Retail Color TV (000s)
Hungary Poland
455 177 634 ???
Est. VCR Demand P (Annual Retail Sales)
634 (177/455) 246,600
Source European Marketing Data Statistics,
1992 (London Euromonitor, 1992), Table
1416 Kotable Helsen, 1998, p. 167
43
Scenario Analysis - Chain Ratio Method

• Start with a rough base number as an estimate for
  market size (e.g., the entire population of a
  market/country)
• Systematically fine-tune it by applying a "chain"
  of percentages to get to a meaningful estimate of
  total market potential.

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e.g., a firm makes baby monitors and is
considering expansion into China and/or India.
China
India
Total Population (millions) 1,207.4 921.5
A
Urbanization Rate 30.3 26.8 B
Urban Population (millions) 365.8 247.0
C A x B
Birth Rates per 1000 17.8 28.4
D Population (annual)
Market Potential Estimate 6.5 M 7.0 M E
C x D
Source International Marketing Data and
Statistics, 1997 - various tables. Kotable
Helsen, 1998, p. 167
45
Steps in Assessing Market Potential or Demand

• Define a market segment to target.
• Analyze customer behavior
• Define externalities (Industry/Competition/Macroen
  vironment)
• Declare and use several sets of assumptions
• Optimistic/Most Likely/Pessimistic
• Use more than one method and triangulate
• Expert opinion, trend analysis, market build-up,
  analogy, chain ratio

46
Common Errors in Market Sizing

• Defining the market too broadly.
• Using the dollar value for an industry and using
  it to represent the size of your market.
• Not updating assumptions

NIST, 2000
47
Factors Affecting Forecasting Accuracy

• Recognizing importance making commitment to be
  accurate ()
• Selecting data sources closer to customer
• Using more than one method
• Anticipating
• Volatility of market
• Behavior of buyers

Gartner Thomas, 1993
48
BREAK
49
Exercise 1

• Work in your STC380 teams for 20 minutes
• Choose one of your technologies
• Identify one market segment that might be
  interested in that technology
• Discuss which methods you might use to determine
  potential for that one segment.
• Will ask some teams to share with group

50
Attributes

• Characteristics of an idea/good/service that are
  of interest to the customer.
• Cameras
• picture sharpness, speed, close-up distance ,
  ruggedness, size, price
• Tires
• tread life, safety, ride quality, price
• Air travel
• departure time, speed, aircraft, preflight
  service, inflight service, price

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Intangible Attributes

• Psychological
• Examples
• Credibility/Reputation
• System growth
• Vendors who understand your environment
• Continuous development by supplier

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Understanding CustomersSome Tools

• For gaining an understanding of customers
• Fishbeins Multi-attribute Model
• Conjoint Analysis
• For converting understanding into action
• House of Quality

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Fishbeins Multiattribute Model
Evaluation of Product Attributes
Overall Brand Evaluations
Intention to Buy
Brand Beliefs
Behavior
(ei) (bi) (Ao) (BI) (B)
Ao ? biei
Fishbein, M. 1963
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Overall Brand Evaluation (Ao)

• Beliefs about whether it will provide desired
  Attributes or Benefits (b)
• Merchandise quality
• Variety of stores
• Parking
• Prices

• Evaluation of Product Attributes (e)
• Importance of attributes or benefits

Ao ? biei
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Measurement
1. Consumers are asked to rate (evaluate) the
value (importance) of each attribute Indicate how
important each of the following are when choosing
a shopping mall
Unimportant Very
Important Merchandise Quality
_1___2___3___4___5___6__ Variety of
Stores _1___2___3___4___5___6__

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2. Consumers are asked about their beliefs
regarding product alternatives Rate
each of the local shopping malls on the
following Arboretum Poor Merchandise
Excellent Merchandise
Quality
_-3__-2___-1___1___2___3__ Quality
Limited Variety of Extensive
Variety of Stores _-3__-2___-1___1__
_2___3__ Stores
Westgate Mall
etc.
57
(No Transcript)
58
Implications?

• What would be some of the important customer
  attributes for laptop computers?
• What would the questions look like to get at e
  (evaluation/importance of attributes)?
• What would the questions look like to get at b
  (customer beliefs about alternatives)?

59
Exercise Coming

• Teams of 4 Students
• Develop a rough House of Quality for a cordless
  drill
• Discuss

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House of Quality
61
House of Quality
Relative Importance
Customer Attributes
Easy to close door
7
What do customers want? What is most important?
Stays open on hill
5
3
Easy to open from outside
etc.
Doesn't leak in rain
3
No road noise
2
etc.
100
Adapted from Hauser Clausing, 1988
62
House of Quality
Customer Perceptions
- Our product A - Competitor A B - Competitor B
1 2 3 4 5

A
B
Easy to close door
7
A
B
Door

Stays open on hill
5
3
Easy to open from outside
etc.
A
B

Doesn't leak in rain
3

A
B
Isolation
No road noise
2
100
Adapted from Hauser Clausing, 1988
63
Engineering Characteristics
House of Quality
How can we change the product?
Measurable Terms
Adapted from Hauser Clausing, 1988
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House of Quality
Engineering- Attribute Relationships
1 2 3 4 5

A
Strong positive Medium positive --
Strong negative - Medium negative
B

B
A

B
A

A
B

B
A
Relationships
Adapted from Hauser Clausing, 1988
65
House of Quality
Check force on 10 degree hill
Check force on level ground
Road noise reduction
Door seal resistance
- Energy to close door
-

Easy to close door
7


Stays open on hill
5
Door
3
Easy to open from outside
etc.

Objective Measures Our product vs. Competition
Doesn't leak in rain
3


Isolation
No road noise
2
Measurement Units
lb/ft
db
ft-lb
lb
lb
Our car door
A's car door
B's car door
Adapted from Hauser Clausing, 1988
66
Relationships Among Engineering Characteristics
-
-
-


Strong positive Medium positive --
Strong negative - Medium negative
Check force on 10 degree hill
Check force on level ground
- Energy to close door
Road noise reduction
Door seal resistance
-






Objective Measures
Adapted from Hauser Clausing, 1988
67
-
-

-

Check force on 10 degree hill
Check force on level ground
Additional Measurements
Road noise reduction
Door seal resistance
- Energy to close door
-

• Other Measures
• Tech. Difficulty
• Importance ()
• Est. Cost ()
• Targets

Easy to close door
7


5
Stays open on hill
Door
3
Easy to open from outside
etc.

Doesn't leak in rain
3


Isolation
No road noise
2
Objective Measures
Other measures
Adapted from Hauser Clausing, 1988
68
House of Quality, in sum

• Structured method to translate customer desires
  into engineering specifications
• Examines interactions among engineering
  characteristics and their impact on customer
  desires
• Examines, in a concrete, measurable way,
  differences vs. competitors and the importance of
  these differences to customers.

69
BREAK
70
Exercise 2
Hint http//www.consumersearch.com/www/house_and
_home

• Teams of at least 3 students divide and conquer
• Develop a rough House of Quality for a cordless
  drill.
• Time 30 minutes will ask some teams to present
  
• Step 1 List and Rank customer attributes
• Step 2 Check out the competition and assume the
  identity of one of them.
• Step 3 Decide how you might improve vs.
  competition
• Step 4 What are some of the related engineering
  characteristics?
• Step 5 What are some of the measurable factors
  for those?
• Step 6 Look at the roof. Would any of your
  recommended changes be incompatible with each
  other?

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Final Thought

• Research is used to guide judgment, it doesnt
  provide the answers.

72
Purpose Mktg Plan Draft 1

• Gain experience in developing Marketing
  Situation Analyses for marketing plans
• Gain experience in
• conducting research
• summarizing the findings
• identifying implications

73
Team Marketing Plan Drafts 1 (Due 7/21/01)
Read the Instructions!

• Conduct 3-4 interviews each for two technologies
  in your team
• Write 6-8 page report for each of the two
  technologies
• Use the marketing plan format described in the
  instructions.
• Executive Summary (Section I in Template)
• Situation Analysis (Sections IIa, b, c, f)
• Market Research Next Steps (Section VII)
• Appendices (Interviewees, References)

74
The Marketing Plan
I. Executive Summary
II. Current Marketing Situation
Customers
Competition/Industry
Collaborators
Company
Context (macroenvironment)
III. Opportunity and Issue Analysis
IV. Objectives
V. Marketing Strategy
VI. Action Programs
VII. Projected Profit-and-Loss
VIII. Controls
75
Review/Wrap-Up

• Understanding customers includes
• Influences on buying behavior (Social, Psy, Env.
  etc.)
• Buy-Grid Model
• Buy-Phase (Buyer decision-making processes)
• Buy-Class (New, Modified, Straight)
• Determining market potential and demand
• Attributes Tangible/Intangible
• Tools for gaining understanding of customers
• Fishbeins Multi-attribute Model
• (Conjoint (Trade-Off) Analysis)
• Tool to turn understanding into action
• House of Quality

Remember Feedback Survey
76
Next Time

• Topics Competition/Macro-environment/O/I
  Analysis
• Assignments
• Reading
• Text/Packet/Crossing the Chasm chapters
• Prepare/discuss study questions in Discussion
  Board Session 4
• Brighton Micro-Chips Case Study Discussion
• Marketing Plan Draft. 1
• Instructions Documents gt Marketing Plan
  Templates, Samples, and Instructions

77
IF TIME follow here after Fishbein Analysis
slides

• Otherwise, feel free to read on your own. Notes
  have been included in the Notes section of these
  slides

78
But . . .

• No sense of the trade-offs customers are willing
  to make

79
Conjoint Analysis

• Determine key attributes and values
• Construct hypothetical product profiles
• Contact customers to determine preferences
• Use statistical analysis to determine
  utilities.
• Determine attribute importance
• Determine share of preference

80
Conjoint Analysis (Trade-off Analysis)
1. Determine key attributes and values for your
target. e.g. Laptop Computers a) Weight
(pounds) (lt2, 2-5, gt5) b) Battery Life
(hrs) (1, 2, 4, 8 ) c) Resolution Quality
(lt Avg., Avg, gt Avg.) d) Price (1000,
2000, 3000)
Adapted from Dolan, R.J., 1990
81
Conjoint Analysis (Trade-off Analysis)
2. Construct (hypothetical) product profiles.
. . . etc.
Adapted from Dolan, R.J., 1990
82
Conjoint Analysis (Trade-off Analysis)

• 3. Contact customers and ask for preferences
  (or intention to buy) for each product.
• e.g. rank from most to least preferred
• 4. Use statistical analysis to determine the
  "utilities".

Adapted from Dolan, R.J., 1990
83
Conjoint Analysis (Trade-off Analysis)

Adapted from Dolan, R.J., 1990
84
Conjoint Analysis (Trade-off Analysis)

• 5. Analyze Data - Determine Attribute
  Importance
• Relative range of attributes indicates the
  importance
• Range of Range
• Weight 0 to 1.2 28.6
• Battery Life 0 to 1.5 35.7
• Resolution Quality 0 to .5 11.9
• Price 0 to 1.0
  23.8
• Total Range 4.2 100

Adapted from Dolan, R.J., 1990
85
Conjoint Analysis (Trade-off Analysis)
Product Product Product A
B C Weight 2 lbs 5 lbs
5 lbs Utility 1.2 0.0 0.0
Battery Life 1 hr 4 hrs 8 hrs
Utility 0.0 1.5 1.5 Resolution
ltAvg Avg Avg Quality Utility
0.0 0.4 0.4 Price 2000 3000
1000 Utility 0.5 0.0
1.0 Total Utility 1.7 1.9 2.9
Adapted from Dolan, R.J., 1990
86
Conjoint Analysis (Trade-off Analysis)

• 5. Analyze Data - Determine "Share of Preference"
• Sum the "utilities" of the attributes for each
  product.
• Divide by "utility" of each product to determine
  its share of preference (or, probability of
  purchase).

Adapted from Dolan, R.J., 1990
87
Conjoint Analysis (Trade-off Analysis)
Est. Market Share Average probability of
purchase across all subjects in the study
Adapted from Dolan, R.J., 1990
88
Conjoint Analysis (Trade-off Analysis)

• In Sum - a method to
• determine importance of attributes
• determine trade-off among attributes
• estimate share of preference and, from there,
  share of market for a new product/service

Adapted from Dolan, R.J., 1990
89
References

• Best, R. J. (2000). Market-Based Management.
  Upper Saddle River, New Jersey Prentice Hall.
• Dolan, R.J. (1990). Conjoint Analysis A
  Managers Guide. Harvard Business School Note
  9-590-059.
• Dwyer, F. R. Tanner, J.F., Jr. (1999).
  Business Marketing Connecting Strategy,
  Relationships, and Learning. Boston
  Irwin/McGraw-Hill.
• Fishbein, M. (1963). An investigation of the
  relationships between beliefs about an object and
  the attitude toward that object, Human
  Relations, 16, pp. 233-240. For a good review of
  multi-attribute models, see W.L. Wilkie E.A.
  Pessemier, Issues in Marketings Use of
  Multi-Attribute Models, in Journal of Marketing
  Research, 10, (November, 1983), pp. 428-441.
• Fishbein, M. (1967). Attitudes and the
  Prediction of Behavior, in Martin Fishbein, ed.,
  Readings in Attribute Theory and Measurement, NY
  John Wiley, pp. 477-492.
• Hauser, J.R. Clausing, D. (1988). The House of
  Quality. Harvard Business Review, May-June.
• Kotabe, M. Helsen, K. (1998). Global Marketing
  Management. New York John Wiley Sons.
• Lilien G.L. Rangaswamy, A. (1998) Marketing
  Engineering, Reading, MA Addison-Wesley.
• National Institute of Standards and Technology
  (2000). Advanced Technology Programs
  Commercialization and Business Planning Guide in
  the Post-Award Period. Rochester, NY
  Dawnbreaker Press.
• Thomas, R.J. (1993). New Product Development
  Managing and Forecasting for Strategic Success.
  New York John Wiley Sons.
• Weitz, B.A., Castleberry, S.B. Tanner, J.F., Jr
  (1995). Selling Building Partnerships. 2nd
  Edition, Burr Ridge, IL Irwin/McGraw-Hill.

90
Figure 3.3Personal Computer Market Development
Best, p. 64