Today’s Topics Launching a New Product, Review of Course Learnings, and Final Exam Preparation Please fill out the online course assessment survey Written comments are particularly appreciated !! Course Schedule Business objectives Financial measurements (Google) Company analysis; roles & responsibilities (Medtronic) Business & product plans (FHP Wireless) Target customers (DLJdirect) Competitive analysis (Airborne Express) Product decisions (Techsonic) Midterm exam (THINK) The Marketing Function (Lenovo) Sales & Sales Channels (GolfLogix) Internet Marketing & Sales (HubSpot) R&D: Product Development (Guidant) Operations (Crocs) Product Launch (Invisalign) Final exam (Emotiv) Thursday, Dec 15th, 1-4pm, E230 Today’s Agenda Launching a product: Invisalign case Summary of key learnings from the course Review case for final exam (Emotiv) Our Last Assignment: Product Launch Invisalign A new technology ( ~ 2000) for aligning teeth Product Launch Assignment: Align Technology in 2001 Invisalign straightens teeth via a series of clear plastic retainers designed and made specifically for each patient Higher price and higher COGS than traditional metal braces, but “better” Product available for about 2 years Annual revenues ~$50M but OI ~($100M) Adoption rate by orthodontists is insufficient to support future growth Arguably, the product needs to be “re-launched” Assignment Questions Which of the three end-customer (patient) segments identified should be Align’s target? Why? Which of the promotion and sales tasks (promotion, selling, fulfillment, service) should be done by Align? By the dentists? By the orthodontists? What are the orthodontist’s “channel economics” for Invisalign vs. standard braces? What barriers are preventing increased adoption of Invisalign by orthodontists? How should Invisalign be positioned with orthodontists? (write a positioning statement) By what methods should Invisalign be promoted to dentists? To orthodontists? Making Product Decisions Financial Analysis (health, challenges) Market Analysis (customers, needs, market trends) Competitive Analysis (strengths, weaknesses) Decision Criteria: Objectives/Constraints Competitive Adv Decision (SCA) Target Customer Decision (C) Product Decisions (4P’s) Align Technology Income Statement YEAR ENDING; $K Total Revenue Cost of Revenue Gross Profit R&D exp SG&A exp Non Recurring Operating Income 31-Dec-10 31-Dec-08 31-Dec-06 387,126 303,976 206,354 83,709 78,850 64,775 303,417 225,126 141,579 25,997 26,165 18,474 170,137 177,216 146,298 4,549 6,231 14,343 102,734 15,514 -37,536 Invisalign’s Current Channel gold arrow = promotion Invisalign -promotion -salesforce (30) Sales, training, support Orthodontists Dentists -8,500 in US -6,500 trained by Invisalign -120,000 in US referral visit Patients -2M/year in US -35,000 Invisalign patients (<2%) visits Target Customers Current target: adults and adolescents with mild-tomoderate conditions; sensitive to appearance for social/personal/professional reasons Segments identified: Health conscious Prior (braces) users Beauty conscious Selecting Target Customers: considerations Segment size Revenue and margin opportunity Customer benefits Customer interest Customer willingness-to-pay Competition/market coverage Sales channel and associated profit margin Cost to serve Customer loyalty/lock-in Channel Economics --- example List price = $100 Manufacturer channel price COGS = 35 expenses = 20 65 Channel Partner end user price 90 COGS = 65 expenses = 20 gross margin % = 30/65 = 46% gross margin % = 25/90 = 28% OI % = 10/65 = 15% OI % = 5/90 = 6% Pricing: considerations Value/benefit delivered Customer’s ability to pay Competitive alternatives/pricing Product “image” created Initial sales ramp Profitability (short- and long-run) Positioning statement development Who are you positioning yourself “with” ? What do they desire and fear ? Who/what are you positioning “against” ? What are your differentiators/benefits ? Invisalign Positioning with Orthodontists Positioning with = orthodontists Orthodontist desires = ? Orthodontist fears = barriers Positioning against = ? (might depend on target customer) Positioning content = ? Review: Major Course Topics Financials Business Plans Market analysis Competitive analysis Product decisions Marketing Sales & channels R&D Operations Product launch Learning Outcomes: you will learn to … analyze a company’s financial performance and assess its opportunities and challenges for future growth assess the barriers to success in a particular market and select the appropriate target customers identify a company’s competitive advantages by performing a comprehensive analysis of its direct and indirect competition define the “whole product” and decide on appropriate product differentiators And, you will learn to… select appropriate sales/distribution channels and promotional messages and methods identify best practices in new product development and the challenges in integrating the marketing, operations and product development functions understand how technical people interact with marketing, sales and operations personnel, and how they contribute to resolution of business issues understand how business issues impact technical work …because you’ll understand and apply these Concepts (13) Definition of product success Whole product Product plan: key success factors Differentiation Market attractiveness Target customers Competitive advantage Marketing mix (C+4P) Product positioning Sales functions Channel options Channel value-added Operations balance … and you’ll be able to use these Methods/Tools (13) Income statement analysis Financial benchmarks Target customer description Target customer selection 5 Forces analysis Competitive analysis (10 dimensions) Identifying competitive options Decision criteria Product decisions Product competitive positioning Channel economics Process dimensions Product development best practices The Basics…… Companies try to maximize the wealth of their owners --- Stock price and the ability to pay dividends are driven by market cap (stock price) plus dividends earnings, and beliefs about future earnings growth Individual products and services are successful iff they contribute targeted amounts to earnings/ earnings growth Earnings growth (ultimately) requires revenue growth Firms use financial statements to develop plans, and measure/analyze/report on their performance …..and, in terms of business objectives….. A company’s basic financial objective is to grow its earnings quickly and sustainably, in order to raise its stock price and have the ability to pay its owners dividends Products are successful if and only if they attain their targeted contribution to corporate earnings The Income Statement Revenues - Cost of Goods Sold (COGS) = Gross Margin (gross profit) - M&S expense - R&D expense - G&A expense = Operating income (EBIT) - Interest - Taxes = Net income (earnings) Key Financial Concepts Operations vs. total/net (e.g., OI vs. NI) Normalizing results: return measures (e.g., OI as % of revenue; operating return on assets) Knowing what “good” results are: benchmarks; general and industry-specific Recognizing cash vs. non-cash - Measures (e.g., OI vs. NOCF) - Capital goods: depreciation/amortization - Working capital: inventory, accounts rec’bl. Method: How to analyze an Income Statement (First, compute “the percentages”) Operating income vs. net income In-period operating performance: costs and expenses as a % of revenue; compare to benchmarks Cross-period performance (trends): relative change in rev, costs, expenses, earnings… improvements vs. deteriorations, and why Going-forward opportunities and challenges/risks for each line item “Good” Operating Returns in the Business Market Sold direct Higher GM % Higher R&D % Sold indirect Software 27% 23% Hardware 18% 12% Service 15% - Lower GM % Lower M&S % “Good” Operating Returns in the Consumer Market Sold direct Higher GM % Higher R&D % Sold indirect Software 20% 16% Hardware 11% 7% Service 9% Lower GM % Lower M&S % - Business/Product Plan Learnings Content/scope of a business/product plan Critical aspects of a “winning” plan Differentiation: importance, definition, identification Start-ups: success factors, funding requirements, success profiles Critical Aspects of a Winning Plan Company: people, skills, resources Product: “whole” product & its benefits Market: attractiveness & target customers Competition: differentiation !! Sales and marketing plan: channels Operations plan: mfg, logistics, service Financials: investor liquidity Markets/Customers Learnings Market attractiveness: the five forces model The concept of target customers How to describe target end-customers: groups, demographics, psychographics, needs Target customer selection method/process (DLJdirect) Competition Learnings Competitive advantage, and its relationship to differentiation How companies create value; “added value” as a measure of competitive advantage Performing a competitive analysis (method/dimensions: Airborne Express) Making business decisions based on competitive analysis results; competitive options framework Definitions Differentiator = a dimension of the “whole product” that is unique or best compared to competitive offerings (as measured by the value assessed by the targeted customers); examples = best service, first-to-market Competitive advantage = a capability, competency, process, skill or position of a company that enables creation of one or more differentiators; examples = marketing expertise, large customer base Differentiation from Competitors’ Products Whole product differentiation is the answer to: Why do customers choose your product instead of somebody else’s ? (or buying nothing at all?) Product differentiators are the things that are unique or best about the whole product, compared to the customers’ other alternatives Potential areas for differentiation = dimensions of the whole product (product features, price, sales, marketing, customer service/support, brand, etc) Identifying Competitive Options Products Current products Current Position Current target customers Customers Therefore… Competitive Options Protect & defend current customer/product segment Increase market share in current segment Selectively extend (whole) product offerings Selectively extend target customer set Become a broad-line supplier Making Product Decisions Financial Analysis (health, challenges) Market Analysis (customers, needs, market trends) Competitive Analysis (strengths, weaknesses) Decision Criteria: Objectives/Constraints Competitive Adv Decision (SCA) Target Customer Decision (C) Product Decisions (4P’s) Decision Criteria Address… Revenues COGS/gross margin Expenses Profits (usually, operating income) Timeframe for results Risk tolerance Constraints (financial and other resources) Marketing: Learnings Elements of the Marketing Mix (C+4P) Basis of mix decisions: market & financial objectives and competitive advantage(s) Importance of product positioning Positioning factors: - positioning with? (target customers) - positioning against? (relevant competitors) - desires & fears of positioning target - key positioning content (esp. differentiators and benefits) Promotion (marcomm): choosing the vehicle(s)/ media that provides best and most cost-effective access to the target Sales Channels: Learnings The basic sales functions: (promotion/marcomm); selling, fulfillment, and service Channel value-added: Higher and lower value-added channels; value-added functions Specific channel options: direct (multiple types), OEM, integrator, VAR/VAD, distributor, dealer/retailer/reseller, etc Channel decision criteria: considerations in matching products, customers, and channels Channel economics: channel margin, profit Channel conflict: coordinating multiple channels Channel Economics --- example List price = $100 Manufacturer channel price COGS = 35 expenses = 20 65 Channel Partner end user price 90 COGS = 65 expenses = 20 gross margin % = 30/65 = 46% gross margin % = 25/90 = 28% OI % = 10/65 = 15% OI % = 5/90 = 6% Learnings: R&D Characteristics of market-focused new product development processes……best practices Process dimensions: What? How? How well? (objectives, structure/discipline, execution quality) Marketing/R&D integration: aspects, desired vs. actual integration, barriers Learnings: Operations Operations functions: manufacturing, logistics & service Characteristics of world-class operations processes The Operations Balance Impacts on operations: marketing, sales, R&D The Operations Balance COGS Inventory Customer Service Final Exam Thursday, Dec 15th 1 – 4pm E 230 Process for final exam Handwritten; no laptops or other communicating devices Open book, open note; all materials on paper Question sheet must be returned Stevens Honor Code applies Typical Grade Distribution individual semesters vary considerably D/F C B A homework 0+ 10% 10% 80+% class participation 0+ 30% 45% 25% 5% 3(12%) 35% 8(31%) 40% 14(54%) 20% 1(4%) final exam out of 26 students 0+ 25% 6.5 50% 13 25% 6.5 course grade 0+ 15% 60% 25% mid-term exam actual grades Final Exam Case Emotiv Systems: It’s the Thoughts That Count Brain-computer interface (BCI) technologies Emotiv Systems in 2007 Emotiv’s EEG-based product can sense 30 mental states (12 expressive, 6 affective, 12 cognitive) Currently targeting the video game market, but other application markets are possible (medical, military, market research, etc) Decisions to make before 2008 product launch: - console or PC games? - distribution channels - pricing - game development? Potential Exam Topics Income statement analysis Decision criteria (objectives, outcomes) Market attractiveness (5 Forces) Competitive analysis Competitive advantage Target customer selection/description Differentiation (whole product) Product decisions (pos-and-neg’s) Channel economics Channel choice (pos-and-neg’s) Product positioning Pricing Promotion Please fill out the online course assessment survey Written comments are particularly appreciated !!