GENE452
Lecture #4
Marketing and Market Research
Definition of business:
“organised effort to produce goods or services in order to sell
them to customers in order to make profit”
This Presupposes: People exist who will buy it.
• Market Research asks “Who are these people?” and “What do they
want/need to buy?”
• The activity of Marketing helps them make the decision to buy
YOUR product or service.
The Better Mousetrap
"Though a man live deep within the woods, if he builds a
better mouse trap, the world will beat a path to his door."
Ralph Waldo Emerson
American poet (1803 – 1882)
Definition of Marketing
“The process of planning and executing the Product concept, the Pricing,
Promotion of and the Place of distribution of goods and services to satisfy
customer needs.”
• In your business plan, you must demonstrate to the reader, that you have
grasped the "marketing concept"
• This is the idea that the whole firm is directed toward satisfying present and
potential customers, while making a profit.
• Marketing is not about “selling them what you've got.” (product/technology
focus)
• Marketing is about “selling them what they want” (customer focus)
Marketing Terms
Market: “a group of individuals, that have needs for a product and
have the ability, willingness and authority to buy them.”
Target Market: ”The specific group for whom the firm develops and
maintains a marketing mix suitable for the specific needs and
preferences of that group.”
Market Segmentation: “The act of dividing a market into
addressable segments.”
Market Segmentation – By Type
The Consumer market (B2C)
• Thousands maybe millions of potential buyers.
• Geographically scattered
• Tends to be low margin / high volume
• Not necessarily sophisticated or knowledgeable. May contain strata
(i.e. “pro-sumers”, DIY)
Industrial markets (B2B)
• Not necessarily a large number of buyers.
• Possibly a specialist, knowledgeable buyer
• Probably, clearly defined buying criteria
Market Segmentation – By Demographics
- age
- gender
- ethnicity
- education
- income
- family status
Market Segmentation – By Geography
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rural or urban
Alberta or Quebec
North American, European, Asian
northern or southern
temperate or extreme
Market Segmentation – By Psychography
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personality - introvert or extrovert
motivation - NAch, NAff, NPow
selfish or altruistic
religious or humanistic
lifestyle - traditional or alternative
lifestyle – healthy or hedonistic
politics - liberal or conservative
Market Segmentation – By Behaviour
• Frequency/volume of purchases
• Benefits desired in product (i.e. full featured vs easy-touse)
• Where/when a product or service is used
• Social settings
Psycho-behavioural - The Technology Adoption Life Cycle1
Market size
Early Market
Mainstream Market
The Chasm
Time
2.5%
Innovators
13.5%
34%
34%
16%
Early
Early
Late
Laggards
Adopters
Majority
Majority
Market Segmentation – By Industry
By Industry (vertical)
• SIC and NAICS codes
• Describes role of entire value chain, or significant portion
• i.e. steel industry, could include mining, smelting, rolling, slitting, fabricating, distributing
By Industry (horizontal)
• functional role in value chain
• i.e. distributors, system integrators, discreet vs process manufacturers
• size of firm
• down a level, could include company position or org chart level – i.e. middle managers, line
executives, CXOs
Market Segmentation – Implications
• Marketing budgets are finite.
• Where do you focus detailed research?
Geoffery Moore – Crossing the Chasm, Marketing and Selling Technology Products to Mainstream
Customers (1999)
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How do you reach potential customers?
When?
Where?
Who are your competitors?
What is the value? (How to “pitch”)
Can segmentation lead to competitive advantage?
Market research
“The process of systematically organising, gathering, and
analysing data concerning a particular marketing problem”
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Helps to confirm and validate and your idea.
Confirms if people perceive a real value in your technology
Helps refine your value proposition into a more attractive proposal
Used to help you refine your technology features by customer ranking
Helps to understand the buying decision
Helps to understand the real competitive advantage
Helps to formulate a more detailed market strategy
Two Flavours of Market Research
Secondary Market Research
Definition:
“Use of sources that already exist, collected by someone else, collected for
another or general problem.”
e.g.:
books, magazines, trade journals, census data, government data,
industry statistics., etc.
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Secondary market research answers the question: “Is there evidence that a
market exists for this kind of product?”
Do Secondary Market Research First
It is quick.
It is cheap.
The general problem may already have been solved.
Primary Market Research
“Data collected or research conducted, by or for you.”
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Designed to answer your specific questions.
Solve your particular problem.
Should answer questions:
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Is there market for our product?
At our price?
Secondary Market Research
Secondary Market Research provides general market information
Uses existing reference sources that have been collected by someone else,
usually for another or general problem or to provide overall statistical
information
Research will answer questions such as:
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How many people are current buying this product or a similar product?
What is the total dollars spent per annum by users?
How do competitor products stack up and how d they sell their features?
How is this product currently sold?
How large is the current market and is it growing?
Current industry trends and regulations.
Design of this market research is equally important as there is so much data
available, that you have to chose from hundreds of sources and find that which
is most relevant. You then have to justify why you have selected this data to
other partners and decide what this information shows you.
Things that are you might to learn (provided you select the right sources)
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Current view of the problem
Alternative solutions
Current price points
Potential market size
Current distribution strategies.
The real market opportunity
Sources of this data include:
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Web sites, industry association, published market reports, magazines, trade
journals, census data, government data, industry statistics., etc.
Primary Market Research
Primary Market Research provides specific customer feedback
Obtained on your value proposition, designed to answer your specific questions,
such as:
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Will customers pay $X for this product or service?
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What percentage of potential customers are likely to buy it?
What are the most important features of this product?
Who do potential customers view as competitors?
Where will customers purchase the product?
Design of this market research is very important as it is very
expensive to undertake and may provide some very important
feedback on key issues affecting the likelihood of success.
Things that are you likely to learn (if you listen hard enough)
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Real problem new technology addresses for the customer
Whether or not customers are likely to pay for this solution
Why they will buy it from a new venture (like yours) or
wait until there are other players in the market.
The rate of expansion of the business (S curve)
May find a real customer
Market research techniques 1
Primary Market Research Techniques:
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Mail / e-mail / website questionnaire
man-in street surveys
telephone survey
in-depth interview
focus groups
Two kinds of data: Quantitative vs. Qualitative
Quantitative:
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Statistically analysable
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Generally requires large sample size
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limited depth
Qualitative:
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Subjective, softer, more nuanced
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Can generate hypotheses or ideas to be subsequently tested thru quantitative
research
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May involve smaller sample size
Market research techniques 2
Two ways to collect data: Observation vs. Communication
Observation
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Only applicable if the product/service already exists.
No interviewer bias.
Answers "what", but not "why“
Communication
• Researcher and respondent interact (directly or indirectly).
• Risk of interviewer bias.
• Opportunity to sell.
• Opportunity to “chain” questions and dig deeper, discover unexpected patterns
Principal Market Research Techniques - Advantages
and Disadvantages - 1
Mail Survey
Advantages
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Relatively low cost
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Wide geographic coverage
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No interviewer bias
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Respondent has time to think
Disadvantages
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Poor response rate and doesn't ensure qualified response
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Little flexibility and Inability to probe
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Poor turnaround time
Tips:
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S.A.E.
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Phone follow up
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2 pages max
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offer incentives
Internet Survey (email or website):
Advantages
• Quick
• Very low cost
• Good for B2B research
• Can tailor to push (email) or pull (website)
Disadvantages
• Skewed demographic sample
• Questionable quality of mailing lists
• Little ability to probe (but better than mail – can use adaptive questions)
• Spam filters
Tips:
• Phone follow up
• Keep screen changes to a minimum
• offer incentives
Principal Market Research Techniques - Advantages
and Disadvantages – 2
Telephone Surveys
Advantages
• Ensures qualified respondent
• Relatively wide geographical Coverage
• Ability to probe
• Good turnaround time (quick) and good response rate
Disadvantages
• Medium cost
• No time to think
• Voice mail / Receptionist
• Labour intensive and can't be too personal
Tips:
• Develop script for consistency and test it out
• Let people know how long it will take upfront (be honest)
Man in Street Surveys
Advantages
• Quick way to get sizeable sample and good response rate
• Can see respondent, gives some flexibility/ability to probe
• Easy demographic identification
Disadvantages
• Limited geographic scope
• Doesn't ensure qualified response
• Respondents have no time to think
• Very labour intensive/high cost and possible Interviewer bias
Tips:
• Use 2 or 3 different locations to avoid geographical bias
Principal Market Research Techniques - Advantages
and Disadvantages - 3
In-Depth one-on-one Interview
Key is to ensure respondent is well informed, knowledgeable, representative.
Appropriate for industrial market
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Best for sophisticated product
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Best for qualitative data
Advantages
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Ensure qualified respondent
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Ability to probe
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Good response rate
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Good qualitative data
Disadvantages
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Interviewer bias
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Poor turnaround time
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High cost
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Limited geographic scope
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Focus group
• In depth but unstructured interview with medium size sample of the target market
• Assemble 6 - 10 interested parties: experts / target market / suppliers
• Use conference or "round table" setting
• Use moderator / facilitator to introduce and "shepherd" discussion
• Create an "open-end discussion" atmosphere
• Take notes, video tape, or record participants‘ comments
• Focus group works like a channelled "brain storming" session
Advantages
• Great qualitative data
• New, unexpected data
• Can avoid interviewer bias (if done properly)
Disadvantages
• Time consuming
• Labour intensive
• Can be expensive
• Technique/art required
Tips:
• This will impress the Prof.
Grocery Gateway
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- How big will its revenue be in five years?
Current revenue $100,000 25 customers
Average grocery order $60
Charge $6 delivery charge
Webvan (US) has market capitalization of $6 billion, forecasting
annual revenues of $1 billion
Why do Venture Capitalists require it?
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Easy to obtain
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AND very expensive to fix if wrong
“Missionary sale”: dreaded words
Market risk is - worse than:
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Financing Risk
Management Risk
Technical Risk
Market Research requirement
… expensive to fix:
• Astra Zeneca’s new statin – Crestor must displace some of Pfizer’s Lipitor
market share
• Analysts expect AZ to spend over $500 million in promotion, pre-launch
through first year in US
• What if promotion does not work?
$500 million down the drain.
Poor market research is very expensive
Why not let potential VCs do it themselves?
• They will either be familiar with your market and (a) think it’s a good
opportunity (if YOU know the market too, you look good)
• OR be familiar with your market and (b) think it’s a bad one (you
need to convince them they are wrong)
• OR be unfamiliar with your market and therefore less likely to be
interested (lack of time)
Don’t give them that excuse to say no. Be prepared.
Sources of Market Research
Sales of secondary research on the web
. www.mindbranch.com
. www.marketresearch.com
. www.ecnext.com
Specialized journals, like those published by Windhover, also
searchable online (www.windhover.com -- do have teasers)
Specialize in healthcare business intelligence
Market Research Do I HAVE to do it?
YES
• Why waste your own time developing a product with no
possible market?
• Knowing the market BEFORE you develop will affect sales
• Knowing the market will probably land you funding.
Market Research
Not only can it tell you comparable sales growth and
approximate market size..
It can help you understand pricing and comparable profit
margins
It can also lead you to likely funders in your industry……
Market Research
• So which is it? Specific or Optimistic?
It sounds as if:
• 1) better be specific as possible
• 2) but also look at the largest potential
YES – be specific so (1) you know what to tell funders, honestly,
and (2) focus
– but imagine the larger market, and plan strategically
Market Research: competition
Company
NewcoBos
Sandico
YOUR CO
Founded
1999
1998
2004
No. Employees
20
35
5
Revenues
$12 million
$150 million
N/A
Product name
Ok seller
Best seller
Super Drug
Product price
$1,000/year
$700/year
$500/year
Benefit A
NO
YES
YES
Benefit B
NO
NO
YES
Benefit C
NO
NO
YES
Location
Boston
San Diego
Baltimore
Funders
ATV, Sutter
Domain
Bio Ventures