Taking your Opportunity
to Market
Session #6
Steve Blank and Tom Kosnik
“Companies that create the future do more than
satisfy customers, they constantly amaze them.”
~ Hamel and Prahalad
Copyright © 2008 by the Board of Trustees of the Leland Stanford Junior University and Stanford Technology
Ventures Program (STVP). This document may be reproduced for educational purposes only.
Slide 1
Taking your Opportunity to Market: Objectives
• Define Marketing
• Distinguish Market Analysis from the
Marketing Process
• Identify best-of-class marketing tools that
have been tested in many high tech
companies.
• Encourage you to use those tools in your
cases and OAP.
Slide 2
What is Marketing – NOT!
• A slick salesperson selling you something
you don’t need.
• An overly enthusiastic entrepreneur trying
to get you to bet your career on his risky
new product…
• A brilliant strategy consultant giving a topdown analysis of market potential.
Slide 3
What is Marketing?
Investopedia Says:
Many people believe that marketing is just about
advertising or sales. However, marketing is
everything a company does to acquire customers
and maintain a relationship with them…
The ultimate goal of marketing is to match a
company's products and services to the people who
need and want them, thereby earning a profit.
http://www.answers.com/marketing&r=67
Slide 4
Market Analysis vs. Marketing Process
Step #1: Opportunity Recognition (Market Analysis)
– Identify a Market Need via Customer Discovery
– Examine the Competitive Dynamics of the Industry
– Determine Growth Potential
Step #2: Marketing Process
– Develop Customers while developing products
– Develop a Unique Positioning
– Build a Set of Go-to-Market Strategies (e.g., Distribution, Demand
Creation, Pricing, Whole Product, Alliances and Partnerships)
– Support through Sales and Great Execution
Slide 5
E145’s “Dirty Dozen” Marketing Models
1.
2.
3.
4.
Technology Adoption Life Cycle (TALC) and adopters
The Chasm and Crossing the Chasm
Customer Development Model
Total Available Market, Served Available Market, and Target
Market
5. The “5 C’s” of Marketing
6. Differentiation = competitive separation
7. The Whole Product
8. Positioning and the CRUDE Test
9. Demand Creation
10. The Sales Funnel
11. Marketing Metrics
12. Five Startup Marketing Metrics
Slide 6
Tool 1: Technology Adoption Life Cycle
& Adopters
Pragmatists:
Stick with the herd!
Conservatives:
Hold on!
Visionaries:
Skeptics:
Get ahead of the herd!
No way!
Techies:
Try it!
Innovators
Early Early Majority
Adopters
Late Majority
Laggards
Pragmatists create the dynamics of high-tech market development
Sources: Rogers, E. Diffusion of Innovations (1963, 2004) Moore (2002), Crossing the Chasm
Slide 7
•
•
•
•
Types of Adopters
Each adoption type describes individuals…
With different risk orientations toward
technological innovation…
Who are make decisions about whether and
when to adopt the innovation…
On behalf of:
–
–
–
–
Themselves
The organization where they work
Their family
Their community
Source: Moore, Geoffrey A., Philip Lay, and Lo-Ping Yeh, TCG Advisors. (2004), Life-Cycle Based Market
Development Strategy and Go-to-Market Programs; Section I – Prologue & Principles of High-Tech Market
Dynamics.
Slide 8
Innovators - Technology Enthusiasts
• Primary Motivation
– Learn about new technologies for their own sake
• Key Characteristics
– Strong aptitude for technical information
– Like to alpha test new products
– Can ignore the missing elements
– Do whatever they can to help
• Challenges
– Want unrestricted access to top technical people
– Want no-profit pricing (preferably free)
Text Source: Moore, Geoffrey A., Philip Lay, and Lo-Ping Yeh, TCG Advisors. (2004), Life-Cycle Based
Market Development Strategy and Go-to-Market Programs; Section I – Prologue & Principles of High-Tech
Market Dynamics. Pictures of cats are photos in public domain circulated on the internet
Slide 9
Early Adopters - The Visionaries
• Primary Motivation
– Gain dramatic competitive advantage via
revolutionary breakthrough
• Key Characteristics
– Great imaginations for strategic applications
– Attracted by high-risk, high-reward
propositions
– Focused on gains — so not price-sensitive
• Challenges
– Want rapid time-to-market
– Demand high degree of customization and
support
Slide 10
Early Majority - Pragmatists
• Primary Motivation
– Gain productivity improvements via
evolutionary change
• Key Characteristics
– Manage mission-critical applications
– Want proven solutions
– Like to go with the market leader
• Challenges
– Insist on good references from trusted
colleagues
– Want to see the solution in production at
the reference site
Slide 11
Late Majority - Conservatives
• Primary Motivation
– Just stay even with the competition
• Key Characteristics
– Better with people than technology
– Risk averse
– Price-sensitive
– Reliant on a single, trusted advisor
• Challenges
– Need pre-assembled solutions
– Would benefit from value-added services.
Do not want to pay for them
Slide 12
Laggards - Skeptics
• Primary Motivation
– Maintain status quo
• Key Characteristics
– Good at debunking marketing hype
– Disbelieve productivity-improvement
arguments
– Believe in the law of unintended
consequences
– Block purchases of new technology
• Challenges
– Not a customer
– Can be formidable opposition to early
adoption
Slide 13
Tool 2: The Chasm and Crossing the Chasm
Tornado
Main Street
rds
a
gg
La
te
La rity
y Majo
l
r
Ea rity
jo
Ma
rly s
a
E ter
s
r dop
o
t
A
va
o
n
Source:
In
Name a
Discontinuous
Innovation (or
Disruptive
Technology)
Where Do You Fit
When It Comes to
that Technology?
Bowling Alley
Moore (1995), Inside the Tornado
Slide 14
Tool 3: Customer Development
Customer Development
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
Slide 1515
Tool 4: Total Available Market, Served Available Market,
Target Market
Total
Available
Served
Market
Available
Market
Target
Market
Slide 1616
An Example of the Power of
Segmentation and Target Marketing:
Pedigree Petfoods in UK
Dog’s Role
Segment
Brand
Price/100 gr.
Dog as a substitute child?
Super Premium
Dog as a family member
Premium
Chum
8.7 pence
Dog as a companion
Moderate
Pal and Bounce
6.4 & 7.9 pence
Dog as an animal
Economy
Chappie
6.3 pence
Reference: A. Ryans
Slide 17
Segmentation and the UK Dog Food Market:
Pedigree’s Super Premium Strategy
• Target Market? Intense relationships, own smaller dogs, older and urban
females
• Benefits? Very best product that can be bought, reassurance, confidence,
leads to an enhanced relationship
• Name? Mr. Dog (later Caesar)
• Product? Very high quality ingredients, wide variety of flavors, special
packaging
• Price? 17.7 to 30.7 pence per 100 grams
• Advertising? Dog bringing newspaper, slippers, etc.
Results: Fours years later, it had a 10% share of the total dog food
market. The total super premium segment of the market was about
15% -- about 10% coming from dog food brands and about 5%
coming from fresh foods. In addition, Pedigree's premium brand
retained its market share.
Slide 18
Exercise: Total Available Market, Served Available Market,
Target Market for iPhone?
Total
Available
Served
Market
Available
Market
Target
Market
Slide 1919
Tool 5: The “5 C’s of Marketing “B to C” Innovations
Company:
Channel
Partners:
Distributors
Customers:
Retailers
Buying Roles
Buying Roles
Buying Roles
Customers’
Customers
User
Decision Maker
Decision Maker
Decision Maker
Influencer
Influencer
Influencer
Buyer
User
User
User
Gatekeeper
Gatekeeper
Gatekeeper
Coach
Coach
Coach
Admirer
Slide 20
Tool 5: The “5 C’s of Marketing “B to B” Innovations
Customers:
Channel
3rd party SW, Customers’
Partners:
Systems
Customers:
Company:
OEMs
Integrators
Enterprises
Buying Roles
Buying Roles
Buying Roles
Buying Roles
Decision Maker
Decision Maker
Decision Maker
Decision Maker
Influencer
Influencer
Influencer
Influencer
User
User
User
User
Gatekeeper
Gatekeeper
Gatekeeper
Gatekeeper
Coach
Coach
Coach
Coach
Slide 21
Tools 6: Differentiation = Competitive Separation
E
R
CO
*
Competitor 1
*
Competitor 2
*
YOU
*
Competitor 3
Competitive Set
*
Amplify a specific
vector of innovation
Gain bargaining
power by
differentiation that
achieves competitive
separation
Failure to differentiate
means low to no return
on your innovation
Darwin and the Demon ©
2004, TCG Advisors LLC
October 7, 2008
Slide 22
Tool 7: Whole Product. Definition
For a given target customer
With a compelling reason to buy
The whole product is:
the complete set of products and services needed
To fulfill that reason to buy
•
•
•
•
•
•
•
•
•
•
•
The Motorcycle
The leathers
The customization
Warranty
Service
Replacement Parts
The license
The insurance
Gasoline & Oil
An open road
What else?
Slide 23
Tool 7: Whole Product – Information Technology Example
Consulting Hardware
Complementary
Services
Post-sales
service
& support
Pre-sales
services
Software
Complementary
Products
The
Product
Peripherals
Legacy
interfaces Connectivity
Key Decisions:
Who delivers
each piece?
The whole product is the minimum set of products and services
needed to fulfill the target customer's compelling reason to buy.
Source: High-Tech Marketing © 2005, TCG Advisors LLC
Slide 24
Exercise
• Think about your OAP… Pick any opportunity
• Who is your target customer?
– Identify the players using the “Five C’s”
• What is their compelling reason to buy?
• What is your Whole Product?
• Who will deliver each piece of the whole product?
–
–
–
–
Our company
Channel Partners
Customers
Customers’ Customers
Slide 25
Customers, Marketing and the Sales Funnel
• Positioning matters
Demand
Creation
Total
Available
Served
Market
Available
Market
Leads
Target
Market
Paying
Customers
$
Slide 2626
Positioning Happens Before
Demand Creation
Demand
Creation
Slide 2727
Tool 8: Positioning and the CRUD2E Test
Create Your Positioning
The CRUD2E Test:
Is Your Positioning…
• For: (Target Segment)
• Who: (Need Statement)
• The (Product Name)
• Is a (Product Category)
Credible?
Relevant?
Unique?
• That (Key Benefit)
Durable…AND Dynamic?
Emotionally Appealing?
• Unlike (Primary Competitor)
= The CRUD2E Test
• Our Product (Differentiation)
Sources: Moore (2002) Crossing the Chasm, and Kosnik (2007) “Dynamic Positioning”
Slide 28
Positioning Exercise: Apple iPhone
• It’s 2007: Apple has to identify the target market for
its new iPhone.
• The whole product will combine the best of an iPod
and a Smartphone. Customers can:
– Listen to music
–
–
–
–
–
–
–
–
Watch Youtube, Movies, Music Videos
Talk on the phone
Keep your calendar/appointment book
Send and receive email, IM, SMS
Take and Store Photos
Play games
Surf the web
And more
Write a Positioning Statement for iPhone
Slide 29
Positioning Example: The iPhone in 2007 –
Positioned for iPod Owners.
For music lovers who want to travel in style
who love to communicate and mix work and play,
anywhere, anytime
the iPhone is a smart phone AND an iPod,
that offers Apple’s legendary ease-of-use,
elegance, intuitive integration, and cool.
Unlike Blackberries, Treos and other smart-phones
Apple iPhone offers great quality phone calls,
faster browsing, music and movies, photos that
come to life, all on the big screen in the palm of
your hand.
Slide 30
One Marketing Job: Demand Creation to feed
the Sales Funnel
Demand
Creation
Leads
Paying
Customers
$
Slide 3131
Tool 9: Demand Creation Toolkit
Slide 32
Tool 9: Demand Creation
Example– Web Virtual World
Demand
Creation
• Search Engine Marketing
(SEM)
• Search Engine Optimization
(SEO)
• Viral marketing
• E-mail marketing
• Affiliate Marketing
• Bannering
• Communities
Slide 3333
Tool 9: Demand Creation
Example – Enterprise Software
Demand
Creation
• Print Advertising
• Direct Mail
• Viral marketing
• E-mail marketing
• Blogs
• Communities
• SEM/SEO
Slide 3434
Tool 10: The Sales Funnel
Leads
Paying
Customers
$
Slide 3535
The Sales Funnel
Enterprise Software
Leads
Qualified Lead
First Sales Call
Demonstration
Feasibility
Proposal
Paying
Customers
Purchase Order
$
Slide 3636
The Sales Funnel
IMVU’s Web Funnel
Leads
Registered
Log in
First Conversation
5 Conversations
Paid Once
Paying
Customers
Subscription
$
Slide 3737
Customer Acquisition Cost
How much do you have
Demand
to spend here
Creation
To get one
customer here
Leads
Paying
Customers
$
Slide 3838
Analyze The Funnel Over Time
100%
90%
Registered but didn’t login
52.7%
80%
42.5%
43.3%
48.5%
48.2%
47.3%
46.4%
44.7%
47.6%
42.2%
43.7%
43.8%
15.5%
15.7%
52.9%
49.2%
70%
Registered but didn't
60%
50%
20.0%
Login but no conversation
16.1%
15.4%
13.8%
14.9%
16.6%
16.4%
14.2%
16.8%
15.7%
Logged in but didn't have
convo
40%
19.3%
19.1%
30%
12.6%
16.9%
20.3%
16.3%
16.6%
16.8%
17.5%
19.5%
19.5%
13.2%
15.1%
Had one convo but not five
Had 1 conversation but not 5
17.0%
18.1%
16.7%
16.3%
20%
Had five convos but didn't pay
20.7%
10%
19.5%
19.1%
18.1%
18.4%
20.9%
20.9%
19.3%
21.2%
19.7%
20.0%
19.7%
Had 5 conversations but didn’t pay
Paid
0%
1.5%
Jan-06
1.3%
Feb-06
1.2%
Mar-06
1.1%
Apr-06
1.3%
May-06
1.2%
Jun-06
1.0%
Jul-06
0.6%
Aug-06
0.9%
Sep-06
1.0%
Oct-06
1.2%
Nov-06
1.4%
Dec-06
1.0%
Jan-07
0.8%
Feb-07
Slide 3939
Cohort Analysis of the Funnel
50%
Retention of active
users who
registered 30-60
days ago
45%
Retention of active
users who
registered 60-90
days ago
40%
Retention of active
users who
registered 90-120
days ago
35%
30%
25%
This plot measures retention by
calculating the fraction of 'active'
users who had a conversation in
the preceding 30 days. Active
users are defined as having had
at least 5 conversations total.
20%
15%
10%
5%
0%
1/1/06
1/31/06
3/2/06
4/1/06
5/1/06
5/31/06
6/30/06
7/30/06
8/29/06
9/28/06
10/28/06
11/27/06
12/27/06
Slide 4040
Tool 11: Marketing Metrics
Employee
Retention
Employee
Satisfaction
Entrepreneurial
Company’s
SelfActualizing
Culture
Faster Cycle Time
Higher quality
Lower costs
Market Cap
and
PE Ratio
Value of
our Whole
Product
Vs.
Competitors
Margins,
Market
Share,
Growth,
Volatility,
& ROI
Customer
Satisfaction
Customer
Trust
Customer Loyalty =
Repeat Purchases
Higher Prices
Referrals and Viral Marketing
Market Intelligence
Co-creation of new products
Adapted from Heskett, Jones, Loveman, Sasser, and Schlesinger (1994),“Putting
the Service-Profit Chain to Work,” HBR, and Maslow on Management (1998).
Slide 41
Demand Creation on the Web is Different
• Search engine marketing (SEM) i.e. keyword advertising, paid search, etc.
– your ad in a search engine. Paid for on a per-click-basis (PPC - pay per click)
• Search engine optimization (SEO)
– free traffic by optimizing your website for readability by the search engines
• Viral marketing
– Spreads your message by your users/customer. i.e. Hotmail email tag line
• Affiliate management
– Partners that promote your product or service on their web own page. They earn
money by selling your product.
• Bannering i.e. skyscrapers, superbanners, content ads, flash layers, etc.
– Buy space on other websites on a PPC (pay per click) or CPM (cost per million.)
Your banners displayed in predefined spaces.
Slide 4242
Demand Creation on the Web
You Pay
For These
(SEM)
These are Free
(SEO)
Slide 4343
Tool 12: AARRR = Web Marketing Metrics
• Acquisition: users come to site from various
channels
• Activation: users enjoy 1st visit: "happy” experience
• Retention: users come back, visit site multiple times
• Referral: users like product enough to refer others
• Revenue: users conduct some monetization
behavior
Slide 44
AARRR!: Web Marketing Metrics
Social
Networks
SEO
SEM
Blogs
Apps &
Widgets
PR
Campaigns,
Contests
Biz Dev
Affiliates
Direct, Tel,
TV
Email
Domains
ACQUISITION
Emails &
Alerts
Blogs, RSS,
News Feeds
on
i
t
n
Rete
Website.com
$$
ee $$$$
eennuu
Reevv
System Events &
Time-based Features
Ads, Lead Gen,
Subscriptions,
ECommerce
Biz Dev
Slide 45
Exercise
• Stay in your teams
• What tasks will you do in the customer
development process on your OAP?
• What metrics will you use to measure the
return on marketing investments?
Slide 46
Where can you learn more?
•
•
Stanford Technology Ventures Program:
http://stvp.stanford.edu
•
•
STVP Educators Corner
http://edcorner.stanford.edu/
•
•
Business Association of Stanford Engineering Students
http://bases.stanford.edu
•
•
Global Entrepreneurial Marketing (GEM)
http://gem.stanford.edu
•
•
DFJ Entrepreneurial Thought Leaders (ETL) Program
http://etl.stanford.edu
•
•
NUS Enterprise:
http://www.enterprise.nus.edu.sg/
Slide 47
Appendix
• We will not use these slides in class
Slide 48
The Market –Technology Matrix:
Technological
Uncertainty
High
Low
Better
Mousetrap
Marketing
Low Tech
Marketing
High Tech
Marketing
Fad &
Fashion
Marketing
Low
High
Market Uncertainty
Source: Moriarty, Rowland T. and Kosnik, Thomas J., (1989) “High-
Tech Marketing: Concepts, Continuity, and Change," Sloan
Management Review, (Summer).
Slide 49
The Market –Technology Matrix:
Examples of products in each quadrant
Technological
Uncertainty
High
Low
A Cure for Cancer
Fountain of Youth
Wizards’ Wands
Toothpaste
Toilet Paper
Tax returns
AIDS Vaccine
Commercial
Space Travel
Movies
Music
Fads & Fashion
Low
High
Market Uncertainty
Source: Moriarty, Rowland T. and Kosnik, Thomas J., (1989) “High-
Tech Marketing: Concepts, Continuity, and Change," Sloan
Management Review, (Summer).
Slide 50
Questions to determine where your products are in
the matrix
Technological Uncertainty:
•Will the technology deliver the benefits?
•What are the unintended side effects?
•When the technology fails, how fast can we
recover?
•How compatible is the new technology with
current practices?
•How soon will the new technology become
obsolete?
Market Uncertainty
•How large is latent demand in a market
that does not yet exist?
•What % of customers have ambiguous or
conflicting needs?
•How will positive & negative word-ofmouth affect adoption?
•How loyal – or fickle - are the customers
(repeat purchases)?
•What price will customers pay today?
Next month? Next year?
Adapted from: Moriarty, Rowland T. and Kosnik, Thomas J., (1989)
“High-Tech Marketing: Concepts, Continuity, and Change," Sloan
Management Review, (Summer).
Slide 51
The Market –Technology Matrix:
Place your OAP Opportunity in the matrix.
Technological
Uncertainty
High
Low
Low
High
Market Uncertainty
Source: Moriarty, Rowland T. and Kosnik, Thomas J., (1989) “High-
Tech Marketing: Concepts, Continuity, and Change," Sloan
Management Review, (Summer).
Slide 52