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Guest Lecture by Murray HurpsEvents Critical to Founding a Start-ups (Startups.uts.edu) Identifying a compelling opportunity  Solving a problem  Having a supportive partner or spouseMarketing-Driven Entrepreneurial StrategiesGetting the Strategy Right Before the TacticsPositioning All start-ups ...

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Guest Lecture by Murray Hurps Events Critical to Founding a Start-ups (Startups.uts.edu.au)   

Identifying a compelling opportunity Solving a problem Having a supportive partner or spouse

Marketing-Driven Entrepreneurial Strategies Getting the Strategy Right Before the Tactics

Positioning      

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All start-ups need to answer – ‘What am I selling to whom, and why will they buy?’ Positioning = segmentation and targeting + differentiation Foundation to build all marketing activities Helps identify and reach a segment, and ensure a strong value proposition Value proposition – the promise of perceived intrinsic worth Three dimensions of value: - Perceived performance value - Perceived price value (low cost) - Perceived relational value Segmentation and targeting - Segmentation – partition a firm’s market into submarkets o Responses to marketing activities vary across a lot of segments but have little variability within a segment - Segmentation criteria and technique o B2C – demographics and socioeconomics, geographic, life stage, usage, benefits sought, psychographics, behavioural, tribal, context

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o B2B – industry sector, organisation style and structure, company or industry maturity o Data analytics can help - Targeting – answers four questions 1. Does the segment want the PV that my differentiation is delivering? 2. How can the segment be reached and how quickly? 3. How big is the segment? 4. What are the impacts of current and future environmental changes and competitions? - Segmentation and targeting can be applied to communications, brand, products/services, innovation, pricing and customer care Entrepreneurial Segmentation Audit = checklist - E.g.

 Differentiation - A new product may have multiple “unique” characteristics o Humans cannot perceive more than 2 or 3 o Entrepreneurs isolate the most important differentiating attributes o Concept testing or market research - Based on technical features Or based on perceived benefits - Differentiating attribute  sustainable competitive advantage - Via technology (patents and trade secrets), design, customer service, reputations, business model  Names and slogans - Names connotes the positioning  E.g. Teplo (from KickStarter) - Competitors = T2/teabag companies, as well as teapot/kettle companies - Unique features  benefits if the features - Targeting and differentiation – niche market due to expense and features Generating, Screening and Developing Ideas with Marketing Inputs Finding More Receptive Battlefields 

The impact of product and market characteristics on the survival of independent start-ups

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The impact of product and market characteristics on the survival of corporate ventures

Ways to Evaluate Specific Venture Ideas   

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After the positioning – Do I have the right offering and positioning? Bringing the product to market = costly and ineffective use of resources Adaptive testing - Try options before committing to one - Commit scarce resources in the best way possible - Used in all aspects of marketing and marketing tactics Ways for adaptive testing - Dry Tests o An order is asked for and credit card number is obtained  then inform that the product won’t be ready for a while  credit card is not charged  offered some premium to thank buyers for confidence o Most valid way of getting real consumer demand without actually selling a new product or service instantly o Some ethical issues involved o Negative public impacts (small scale though) o Prematurely letting their competitors know their new product - Crowdfunding o Use online platforms to sell products in advance production o E.g. Kickstarter, Indiegogo o The platform accepts the money in advance for the new products but will only release funds after achieving certain goals o Used to test many aspects of the offering, positioning, and marketing o Cost-efficient means to perform valuable marketing research - Concept Testing o Indicates how likely the consumer is to buy the product after being exposed to the concept o Concept tests check whether a prospective buyer understands the offering and would be willing to purchase it o How to do concept testing? 1. What should be in the concept statement?  Realistically mimic how the respondent would be exposed to the product and its attributes  Look like product brochures, print ads, or web pages  Include purchase channel and all the benefits  Integral part = price of the product

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E.g. Logo diaper concept statement

2. Who should be exposed to the concept?  Target market  Be inclusive (the cost is typically small compared to the opportunity cost of missing a market segment)  Qualitative questioning needed before 3. What kind of information should be collected from respondents?  Ask purchase intention first before other questions  People want to ‘be nice’ – risky to interpret 4. What are the best modes of data?  Depends on the segmentation targets  Trade-offs of costs vs. validity  E.g. Telephone interviews if concepts are easily understood over the phone  E.g. Contract with a local market research firm 5. How should the questions be asked?  Single evaluation (monadic testing) – used if no particular competitors, or little external search needed  Joint evaluation (paired comparison) – used if a strong/obvious competitor is available  For a joint comparison, the scale used: definitely prefer A | moderately prefer A | toss-up | moderately prefer B | definitely prefer B o Best practices and uses for concept testing  Concept screening  Testing on influencers to help screen candidate product ideas  Card sorting and evaluation  Avoiding the “nice bias”  Include a concept that describes the existing product in the same form  The purchase intent scores on the existing product can then be a base from which to compare the intent scores on the new product  Forecasting trial  Formula for predicted trial from the concept test intent

70% of the “top box” (definitely would buy) purchase intent and add it to 20% of the second box (probably would buy)  Multiplied by the f1 x f2 x f3 i. f1 = the fraction of the target market population (s) that will be aware of the new product ii. f2 = the fraction of those who are aware, understand and perceive the attributes and benefits of the product iii. f3 = the odds that members of the target market(s) will be able to easily purchase the product  Follow-up questioning  After the purchase intent question  Likes/dislikes of the product  Interest in the product  Situations the respondent sees the product as useful  Problems the product might solve  Price testing  Varying price – see effects on intention  Each respondent is exposed to only one price  Using crowdfunding for concept testing  With real commitments from the market – more valid  Change price along the process – price sensitivity  Warnings/limitations for concept testing  Products have to deliver the benefits stated (disconfirmation paradigm)  Changes in the product  changes in intentions  “Nice Bias”  Can only predict initial purchase o A/B Tests  Two or more variants of a design shown to users at random  Statistical analysis used to determine which performs better  Why use A/B tests:  Allows careful changes to concept design and collecting real data on the results  To learn better why certain elements impact customer responses  To continually improve a given concept/idea  Testing one change at a time helps pinpoint which changes had an effect  Steps  Identify objective – purchase intention or behaviour  Generate hypothesis – variations better than the current version  list of ideas  Create variations 

Run experiments – customer randomly assigned to either the control or one variation  Analyse the results Case Study on Concept Testing – How concept testing helped Obama twice 

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Obama 2008 - Before 2008 he was a little-known Senator with only 2 years of experience - He was taking on Hilary Clinton - He sought to be America’s first African American President - Obama’s campaign has a website as the main entry to voting - Webpage design – media and sign up button (2 elements) - Media can be an image or video – 6 different media types - Four types of buttons – ‘Join Us Now’, ‘Learn More’, ‘Sign Up Now’, ‘Sign Up’ - A/B testing – when visitors arrive, visitors are randomly assigned to 1 of the 24 version of the webpage Lessons learned: - Every visitor is an opportunity – take advantage through concept testing - Question intuitions – everyone on the campaign loved the videos. All the videos ended up doing worse than the images - Experiment early and often Obama 2012 - Over 20 months, the team executed about 500 A/B tests that increased donation conversion by 49% and sign-up conversions by 161% - Adding an image increased the rate of sign up by 6.9% - Broke up and simplified donation form on website – increased sign-up by 5% - Helped the campaign to raise tens of millions of dollars

Example – Victoria’s Secret (VS)     

Used their stores as test beds for new products and brands Consumer segmentation showed a need for a younger line for a more casual lifestyle The VS brand ‘Pink’ – they introduced 10 representative stores, then modified to reflect customer feedback  repeated until all VS stores stoked Pink $500m revenue product line in less than 2 years Testing new products is almost always a productive use of the company-owned distribution channels Entrepreneurial Pricing

Example – Warby Parker 

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Neil Blumenthal, CEO and cofounder of Warby Parker presented to a pricing expert: - Value proposition = stylish prescription glasses sold over the Internet, with free try-ons, delivered with excellent customer service, and the company makes donations per pair purchased, $45 per pair They tested alternative prices to see impact on revenue and consumer perception

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The results: - A $95 price was actually more attractive – the $45 pair seemed too inexpensive, causing people to question quality - Costs were actually higher than forecasted, but the doubling of the pricing gave them plenty of room to remain profitable - In 2015, Warby Parker raised more than $115m in venture capital funding to fuel their rapid growth

Pricing – The Traditional Models 

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Managers use comfortable, precise rules for pricing - Mark-up rules - Competitive matching rules Traditional “rules” - Easy to make the pricing decision - Leave lots of money on the table

Getting the Price Right Early    

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Lower a price – no one will complain Important to have your initial price set at a very good level Prices should be structures as charter customer discounts or introductory discounts from a regular price Value-Pricing Thermometer:

Price can change perceived value - E.g. MINIVAC 601, priced at $79.95 – educational kit machine to help people understand the binary logic and arithmetic of computers - Three target market segments: 1. Home hobbyists 2. High schools and colleges 3. Computer and technology companies - Changes: o Switches upgraded to higher tolerances and machine colour changed from blue and red to gunmetal grey o $79.95  $479

Perceived Value in B2B Contexts

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Market new products and services to businesses – customers perceive that they will be more profitable if they adopt new g/s The best pricing situation = pricing as close to “customer perceived value” Customer value – the hypothetical price for a supplier’s offering at which a particular customer would be at overall economic break-even relative to the best available alternative to the customer for performing a set of functions Customer perceived value –customer's perception of his/her own "customer value” - Customer perceived value = product value + supplier value – switching investments

E.g. The SAS Institute, Inc – provides business analytics software and services to target markets in business, government, and education - The SAS pricing model = pay a first-year license fee and an annual fee after - Traditional software firms = a software purchase (a big lump sum) along with a (low) maintenance contract - SAS model is better – customer receive increasing value over time - Microsoft has adopted this model

Pricing of Intellectual Property  

Intellectual property has no/minimum costs associated with additional copies Pricing models: - Subscription pricing (e.g. The Wall Street Journal online) - Free + cross selling (e.g. The New York Times + Whole Foods) - Free + advertising incomes (e.g. Google) - Free + upsell users to a premium version (e.g. LinkedIn)

Customer-Determined Pricing  

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Customers have a different utility for money than the vendor Let the customer set the price - eBay’s Auction Model - The Priceline Model Lane Hawk system: 1. Full capital cost up front + monthly maintenance 2. Monthly rental 3. Sharing the savings from loss prevention

Determining Revenue at Alternative Price Levels – Example 

If the products cost $1 per unit, and I sell them for $2/unit, a doubling mark-up

Determining Revenue – Premarket Methods 

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Use concept testing - Multiple versions with different prices - Each customer only sees one version – biases would be constant E.g. ABLE Faucets – a small, non-US manufacturer of faucets for kitchen sinks - Wanted to see if they could convince the retailer to change the retail from $98 to a higher price, enabling ABLE to raise the wholesale price to the retailer - The concept testing on consumers and the results:

o It would not make sense to raise the faucet’s price - Revisit the concept statement – feature information not benefits:

Determining Revenue – In-Market Methods

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A very valid predictor Not always practical – if one market participant finds out that another bought what they perceived as the same product bundle at a better price, they will feel cheated Possible when: - Customised products - Personal sales - Complex with multiple components

Determining Revenue – Using Internet 

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Purchasing is done individually on the Internet, and each person can be exposed to a different, customized website, the Internet can be an extremely effective and valid inmarket price-testing device E.g. utility.com – a provider of deregulated electric power in a number of states across the United States - Offered 15% off in order to get customers to switch from existing suppliers - They tested offers of 5%–15% off, each leading to a page that offered 0%–5% additional if you signed up right away

o The results were not really intuitive – the best combined action came from a 7% offer to get visitors to the site, where they were offered 3% off for immediate sign-up—a total of 10% off

Public Relations for Start-Up Ventures Introduction to Demand-Generation and Sales   

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Marketing strategy, positioning, and targeting establish the goals and objectives Marketing activities attract the largest number of customers and purchases in a costeffective manner (demand-generation) Fundamental premise of entrepreneurial marketing - Direct scarce resources to the most effective marketing activities that yield the greatest results and secure customers for a long period of time - Both the short-term survival and long-term development Customer lifetime value (CLV) = total revenue contributed to your venture by a customer over the length of their relationship with your venture CLV is dependent upon three factors: 1. Customer acquisition cost (CAC), the total cost to secure that customer 2. Annual profits a customer generates for your venture (M)

3. Number of years the customer is likely to purchase from your venture (L)

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CLV = M x L – CAC Entrepreneurial marketer must consider each marketing activity in terms of its ability to reach customers with the highest CLV at the lowest CAC to capture the greatest value for your venture Most effective way = map the adoption process - The movement of information, influence, goods and services, benefits and value, and money Each marketing activity should move your customer closer to purchase

Every marketing tactic must have a clear sense of: - Audience - Objective - Call-to-action - Measurable outcome

An Example – PayMyBills.com   

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It provides personal bill management services that frees consumers from the headache of bill paying via their website The cofounders were brought out to Idealab and given 60 days to launch The Alexander Ogilvy agency was hired to get a fast-track product launch - An interview schedule for trade press, business press, and radio - Meetings held with the Wall Street Journal, LA Times, PC Magazine - Spot radio advertising in several cities - The two competitors, PayTrust and CyberBills, had been in existence much longer but were staying in stealth mode The website tilted the playing field and gained 50,000 customers in less than a year

Being the Known Winner 

Entrepreneurs wants to: - Drive awareness - Have the perceptual edge

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- Have proper use of public relations o Drive publicity o Provide this “winner” feeling far faster and at a much lower cost Key driver to quickly gaining leadership in a new category = creation of "buzz" E.g. When Google first released its Chrome browser - Competing products already successful in the marketplace - PR campaign got tremendous coverage in the trade press – declared Chrome as the browser to beat and Chrome soon gained overwhelming market share How to achieve perceptual edge? - Understand how most users make their decision - Key = influence the influencers, or gatekeepers - Gatekeepers get their knowledge from a smaller set of trusted influencers You need the following groups: - Gurus – key industry insiders - Influencers – key trade and business press; industry analysis - Decision makers – key bellwether buyers; those who can say yes - Naysayers – people who can say no - Mass buyers – the masses who mainly follow the winning trend

Influencer Marketing 

Types of influencers: 1. Celebrities o Pros  Wide reach  High engagement rates  Messages resonate with fan base o Cons  Cost more to work with  Hard to connect with fans genuinely  Hard to approach for a campaign 2. Macro influencers o Pros  Reach the masses  Professional quality (tools to execute)  Easier to coordinate – less work to find/organise o Cons  Higher budget requirements  Agencies controlling campaign can lead to less authenticity  Less peer to peer relationship with activated audience 3. Rising creators o Pros  A blend of macro and micro attributes  Eager, authentic and willing with work with brands  Large enough audience to be influential but not too big o Cons

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 Cost is higher than micro influencers because of experience and social presence  The individual lack the size of the following to influence large masses of people 4. Micro influencers o Pros  Niche topic experts (not public figures)  Lower overall cost per campaign  Peer to peer level with engagers  Perceived as more trust worthy o Cons  Lower overall reach; tough to influence the masses  Harder to find perfect partner among a larger # of influencers  Less experience working with brands  More work to organise multiple influencers for campaign How to choose? - Efficiency o Does this influencer efficiently drive engagement/activity? o Metrics to consider:  % active audience  Average engagement (%) - Virality o Does the content have pass-along value?  Shares (total)  Shares/ret...