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Case synopsis—-quick finish in 4 hours

-This synopsis will be 1-2 pages in length (max 2 pages) capturing what you have learned from cases during the session

-Case synopsis is not supposed to be a simple combination of all four cases. Students are supposed to synthesize the cases in a way that the synopsis could provide a comprehensive picture and deeper insights

24749 Entrepreneurial Marketing Management 2020

Case 1: Life After Lockdown

Instruction: Watch the YouTube video link uploaded on assignment section in Canvas and answer each question based on the interview. 2 pages max.

1. According to the interview, how did Malcolm define entrepreneurship? What entrepreneurial quality do you think is particularly important during the COVID pandemic?

Answer ：For Malcolm, entrepreneurship lies in being prepared to try, persisting and being human when doing something. What’s more, we are in an era of change, which means that entrepreneurs need to keep pace with the times, dynamically cater to the changes of the times, take advantage of the trend, rather than against it. Entrepreneurship is an important source of the core competitiveness of an enterprise. During the pandemic, these entrepreneurial qualities are particularly important: 1. Have an adventurous spirit. Due to the impact of the epidemic, the economy is in a state of depression. At this time, business operators must want to succeed. You must have an adventurous spirit, formulate corporate strategies suitable for the current environment, and develop new markets in accordance with the current market environment, and adjust commodity prices appropriately when necessary. 2. To be tolerant. When changing the previous business model, entrepreneurs need to be good at listening to the opinions of other employees and avoid being arbitrary. 3. Innovative spirit. In the current environment, mature entrepreneurs can discover new opportunities, create new business models, and open up new markets.

2. What businesses were mentioned as having extra difficulty during the pandemic? What businesses would you predict to boom during and after the pandemic?

Answer ：During the pandemic, Australia’s tourism industry and the real economy were hit hard. Due to covid-19, part of Australia’s real economy went bankrupt due to lockdown and border closures. In my opinion，during and after the pandemic, communication services will flourish. For example, high-speed broadband provides extremely convenient video conferencing and company operations during the pandemic. A well-developed Internet, some devices and applications have helped some companies avoid failure due to lockdown during the pandemic. Moreover, during the pandemic, the food delivery and transportation industries dominated due to the inability to eat in restaurant, and people found more convenience in life, and this industry will also flourish.

3. Based on the interview with Malcolm and based on your own experience of pandemic, suggest one business (i.e., a product or service) that does not exist but maybe successful once developed and offered in the market. Describe what it would be, what problem it can solve, and who would be your target customers. Be creative and show your entrepreneurial spirit!

Answer ：In my experience, since I am a person who does not know how to cook and pays attention to keeping in shape, eating and exercising have become my biggest problems during the epidemic. Because of the lockdown, I couldn’t go to the gym, and staying at home all the time made my work and rest chaotic. In my idea, I want to design a service that uses the app to set a daily plan, enter the height and weight on the app, and the system automatically generates a daily exercise plan and diet, and cooperates with professional restaurants to plan for different customers. , Formulate three meals a day and deliver them to customers through take-out. The app also has a community chat service. Many people are bored at home. Using this app not only solves the problem of eating, but also leads to a healthier life. It has a daily diet plan and fitness plan, and can communicate with other customers who use the app. This service will face all millennials who have body shape requirements and can’t cook during the covid-19 pandemic. Millennials are more receptive to new things, and they have the courage to try new things, and millennials are more likely to feel lonely and pay attention to physical health. The audience target of this app is reasonable to choose millennials. Regarding the three meals a day provided in the app, I would like to cooperate with youfoodz. The brand focuses on healthy eating, and the average price of each meal is around $9.98. The price is reasonable and within a controllable range. The app is a membership system, which is a profit channel. When the app gets attention, inserting advertisements will become one of the profit channels.

4. On week 3, we learned several interesting concepts covered in chapter 2 of the textbook. One of the models that we learned was the forecasting trial model. Discuss how each of the three factors in the forecasting trial model may be influenced by COVID crisis. If you think that some of the three factors would not be influenced by COVID, discuss your rationale.

Answer ：In the covid-19 pandemic, f1: The proportion of target people who understand new products will increase, because due to the pandemic and lockdown, everyone stays at home and uses the Internet to obtain information about new things, which greatly improves understanding of new products The target population. f2: Due to the pandemic, people can only receive information through the Internet, but the target customers are still unable to perceive the attributes of the new product through touch. This is also due to the impact of the pandemic. f3: For the target customers to purchase products, they have not been affected by the pandemic, because the logistics is very convenient. Customers sometimes encounter shortages when purchasing products offline, but this situation is less likely to occur when buying online.

24749 Entrepreneurial Marketing Management 2020

Case 2: Technologies that Change Entrepreneurial Landscape

1. According to the source 1, Google Duplex demonstrated a seamless natural language understanding capability. In what area other than making reservations do you think this technology could be useful?

Answer：This technology can also be used in some public places for consulting services, replacing human labor and making it more convenient and efficient. For example, in a scenic spot with no ticket sales, this technology can perfectly answer the different needs of different customers and complete the content according to the instructions given. This technology has the flexibility and recognition of human beings, just like everyone’s personal assistant.

2. According to source 2a GPT 3 demonstrates an impressive capability based on its understanding of human language. However, it also has limitations, as shown in source 2b. What are these limitations?

Answer: When asked unrealistic questions, GPT-3 doesn’t say I don’t know, but waffles on the answers. Gpt-3 can answer some obscure questions, but it can’t be as flexible as human beings. In the face of unknown problems, it doesn’t say “I don’t know”, which is a kind of wrong guidance for users.

3. There are various human jobs. AI is predicted to replace many human jobs within the near future. What human jobs, other than building webpage, do you think the current version of GPT 3 could replace effectively? In what human jobs do you think GPT 3 will struggle most?

Answer: GPT-3 can effectively replace human computing work, some data collection work, and some answer-only work, for example, calculation and data both need accurate answers, these refined, systematic work can be entrusted to GPT-3. For GPT-3, jobs that require negotiation are a huge challenge, because negotiation requires not only skill but also flexibility.

4. Week 5’s lecture discusses various concepts and methodologies on PR. How do you think the technologies and devices shown in the sources above would change the manner PR would conducted in the future? Choose one of the following concepts from week 5 lecture and discuss how the chosen concept will be affected.

Answer: In the future, the above AI technology can be used to predict the value of the customer’s life cycle. The use of AI technology can effectively improve efficiency and reduce costs. When a startup sets foot in a new business model, it can seize new market opportunities and occupy market share. CLV depends on three factors: customer acquisition cost, annual interest rate that customers can generate for the enterprise, and the number of years that customers may purchase from the enterprise. Under AI technology, data acquisition will be expanded and analyzed. And through the acquisition of data analysis insights to quickly provide the corresponding services, analysis of the market situation. Predictive data can also be obtained and enterprise and data security can be guaranteed.

24749 Entrepreneurial Marketing Management 2020

Case 3: Sales by AI and Trust in Technology

1. According to the article available in source 1, smart speakers are becoming more and more common and they will be an important vehicle for marketing. For example, Amazon Alexa could make instant product recommendations based on your need. Do you think smart speakers would be more powerful than traditional marketing activities (e.g., advertisement) in the future? Why or why not?

Answer: I think it will be more powerful, because it is now a digital age, and people are relying more and more on high technology. The traditional marketing model is aimed at all customer groups and promoted to everyone, whether he needs it or not. However, smart speakers will be customized to push only the products that customers may need, which greatly improves the efficiency of marketing. Instead of annoying people with overwhelming advertising, the precise recommendation of smart speakers will increase customers’ brand loyalty. More, compared with the traditional marketing model, this marketing model will save more money.

2. Based on your reading of the case 3 source 2 academic article “Artificial Intelligence and Persuasion,” provide 2-3 situations in which an AI’s persuasion would be as effective as a human’s persuasion.

3. According to the radio broadcast available in source 3, the host raises concerns regarding the trust in AI and persuasion by AI. How much do you trust AI? How much do you think people wil trust AI in the future? If there is any, what kind of problem would you predict regarding trusting in AI?

Answer: I have 85% trust in artificial intelligence, because I believe that no matter how intelligent the machine is, it is not as flexible and vivid as human beings. Moreover, the product is created by human beings. Although some scientific and technological algorithms have no problems, human beings can make mistakes, let alone machines created by human beings. In my opinion, with the improvement of technology in the future, artificial intelligence may be popularized more deeply. This will be a historical reform, which will comprehensively change social habits, and people will rely more on artificial intelligence. Artificial intelligence will make people lose their jobs. Besides, artificial intelligence cannot be flexible like human beings. If it is too human, it is afraid that artificial intelligence will completely replace human beings as the main body.

4. Week 6’s lecture discusses various concepts and methodologies on advertisement and promotion. How do you think the technologies and devices shown in the sources above would change the way advertising promotions are conducted. Freely choose one of the concepts discussed in week 6 lecture and discuss how the chosen concept will be affected.

Answer: Smart speakers can only play sound, and cannot give people the actual picture as a reference. In the study of Chapter 6, we learned that viral marketing needs to show the target users a picture, so that they can have a picture to further resonate. Although the form of advertising of smart speakers is based on personal preferences, such sales methods lack diversity, while viral marketing is different. Once the advertisement is released, it will quickly cover the public social network, and it is a geometric multiple of the spread speed.

24749 Entrepreneurial Marketing Management 2020

Case 4: Impact of Robots on Entrepreneurial Landscape

Instruction: use the sources and answer each question (2 pages writing max, not including the questions)

1. In the near future, we will see various robots helping us with diverse tasks, such as cooking, shopping, exercise, social companion, nursing etc. Somalia problem in source 1 raises an important issue regarding the design of robots decision priority. What do you think about your robot prioritizing the common well being of humans over your interest? If robots prioritize the interest of it owner (i.e., you), to what extent do you think it could put your interest over others? Why?

Answer: I think the role of robots in human society is to improve and help humans live better. When the owner spends money to buy a robot, I believe that the owner’s benefit should be greater than the common well-being of human beings. As mentioned in the video, the robot was ordered to complete a lunch, but the robot even said that someone in Somalia starved to death and chose not to execute the instruction. The robot purchased by the user does not meet the needs of the owner, and such a user experience is not good. But on the contrary, if the robot obeys the owner in everything, there will be some anti-social incidents, which is also a bad trend. So in general, I think that since the owner has purchased the robot, the robot must provide services to the owner within the scope of compliance. In the service of robots, priority is given to the owner to create market value. After all, the purchase of robots by humans is a utilitarian demand. If the robots cannot provide services, consumers will not choose to buy.

2. As you see in the source 2, Japan is one of the leading countries in robotics. An interesting example includes a fully automated robot hotel and that was 5 years ago! Choose another “service” industry (not manufacturing business) that you think could be fully automated with robots. Provide your rationale. Then, choose one or two robots from

http://abotdatabase.info/

and explain why you chose the specific robot(s).

Answer: In public hospitals, some patients are not accompanied by their family members and look for doctors everywhere because they do not understand the structure of the hospital, especially some elderly people. If they walk around in the hospital for a long time, it will increase their physical burden. In this way, a MURATA GIRL is arranged in the hospital as a one-to-one guidance robot to guide the patient to the right place. The reason why I chose MURATA GIRL is because the robot has a cute appearance and gives people a very sunny feeling, and the spinning wheelbarrow used for walking is very convenient to operate. It can also idle and stop, and uses super magic waves to make any objects. Respond, keeping the object following at a preset distance These functions greatly reduce the workload of the hospital.

3. Based on the trade-off scenario in source 3, what decision do you think a car should make?

Answer: I think the car should have the function of avoiding obstacles. If there will be an accident, it should avoid a big accident as far as possible. If this feature is used well, it will greatly reveal the functional attributes of the product

4. What is your perspective on the trolley problem? Is it okay to sacrifice a person to save many? Why or why not?

Answer :I don’t think it’s advisable to sacrifice one person to save more people. When the trolley goes out of control and hits more people, I think it’s destiny. What is the other person doing wrong? So I don’t think it’s appropriate to use one person to save a group of people. Moreover, the trolley is going to have to pay the price for the trolley’s failure, and the price is going to be the sacrifice of a group of people, and if it hits another person, the society will become a place where I’m in a crowd, and I’ll be fine, because it’s the individual that’s supposed to die. The individual must save the many. The social atmosphere will also become very bad.

GENERATING, SCREENING, AND DEVELOPING

IDEAS WITH MARKETING INPUTS

LECTURE

GENERATING, SCREENING, AND DEVELOPING IDEAS

FINDING MORE RECEPTIVE BATTLEFIELDS

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

Source: Hay, Verdin, and Williamson, “Successful New Ventures: Lessons for Entrepreneurs and Investors,” Long Range Planning 2

(5), 1993, 31-41

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GENERATING, SCREENING, AND DEVELOPING IDEAS
FINDING MORE RECEPTIVE BATTLEFIELDS

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

> Source: Hay, Verdin, and Williamson, “Successful New Ventures: Lessons for Entrepreneurs and Investors,” Long Range
Planning 26 (5), 1993, 31-41

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GENERATING, SCREENING, AND DEVELOPING IDEAS

WAYS TO EVALUATE SPECIFIC VENTURE IDEAS

> After the positioning,

Do I have the right offering and positioning?

> Bring the product to market?

− Costly

− Not an efficient way to use 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

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GENERATING, SCREENING, AND DEVELOPING IDEAS
WAYS TO EVALUATE SPECIFIC VENTURE IDEAS

Ways for adaptive testing:

Dry Tests, Crowdfunding, Concept Testing
(& A/B test)

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after you have an idea, before getting into large scale production
–> verify that your ideal will work and people will buy it.

GENERATING, SCREENING, AND DEVELOPING IDEAS

DRY TESTS

> A dry test:

− An order is asked for and a credit card number is obtained

− then inform that the product won’t be ready for a while, and the credit card is
not charged

− Offered some premium to thank buyers for their confidence

> Most valid way of getting real consumer demand without actually sell a
new product or service instantly

− Some ethical issues involved

− Negative feelings

− Negative public impacts (small scale though)

− Prematurely letting their competitors know their new product

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GENERATING, SCREENING, AND DEVELOPING IDEAS

CROWDFUNDING

> Use online platforms (Kickstarter, indiegogo)to sell products in advance of
production.

> The platform accepts the money in advance for the new products but will
only release the funds to the venture after certain goals have been
achieved

− Reduce the risk of many ventures.

− Used to test many aspects of the offering, positioning, and marketing

− One of the most cost-efficient means to perform valuable marketing research

− Limitations?

https://www.kickstarter.com/

https://www.indiegogo.com/

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AUD 70,000 –> AUD $45,000

GENERATING, SCREENING, AND DEVELOPING IDEAS

VICTORIA’S SECRET USES THEIR STORES AS TEST BEDS FOR NEW PRODUCTS AND BRANDS

> Background: Victoria’s Secret (VS) own stores – perfect for testing

> Consumer segmentation study showed a need for a younger line for a
more casual lifestyle – The VS brand Pink

− Introduced in only

representative stores

− Modified to reflect the consumer feedback

− Rolled out to 30 stores, modified again

− Rolled out to 100 stores, modified again

− Rolled out to all stores.

> A $500 million revenue product line in less than two years

− Testing new products is almost always a productive use of the company-
owned distribution channels

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GENERATING, SCREENING, AND DEVELOPING IDEAS

TESTING PURCHASE INTENTION: THE CONCEPT TEST

> If you cannot realistically perform validating of your idea, the next most
valid information to obtain is purchase intention

> Purchase intention: an indication of how likely to buy the product after
being exposed to the concept

> The concept test checks whether a prospective purchaser

− understands the offering

− feels that it answers a need

− would be willing to purchase

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GENERATING, SCREENING, AND DEVELOPING IDEAS

HOW TO DO CONCEPT TESTING?

1. What should be in the concept statement?

2. Who should be exposed to the concept?

3. What kind of information specifically should be collected from
respondents?

4. What are the best modes of data collection?

5. How should the questions be asked?

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venture outline: due 2 weeks

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GENERATING, SCREENING, AND DEVELOPING IDEAS
HOW TO DO CONCEPT TESTING?

> What should be in the concept statement?

− Closely and realistically mimic how the respondent would be exposed to the
product and its attributes

− Look like product brochures, print ads, or web pages.

− Also includes purchase channel and all the benefits.

− The price of the product should be an integral part

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GENERATING, SCREENING, AND DEVELOPING IDEAS
HOW TO DO CONCEPT TESTING?
> What should be in the concept statement?

Example: Logo diaper concept statement

Product Concept: Futurewear is a line of designer diapers that feature university and professional sports team
logos. One of the diapers has the University of Pennsylvania “Penn Quaker” logo, both on the tape and bottom
(“tush”) of the diaper. This diaper is made of premium materials and is functionally equivalent to a good
disposable diaper. It is a fun, novelty item, which will typically be purchased as a gift (for example, baby
shower, Christmas) rather than as an everyday item by parents. The diapers will be white, will be packaged in a
very nice gift box of

that also has the Penn Quaker logo, and will be priced at $11.95. The diaper will be
available at most stores that have other University of Pennsylvania logo merchandise, as well as online stores
that sell baby merchandise. What a nice, fun, way to help a loyal Penn alumnus start his or her child showing
their support of Penn! The perfect gift for anyone who is a Penn supporter!

A few more examples similar to a concept statement.

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GENERATING, SCREENING, AND DEVELOPING IDEAS
HOW TO DO CONCEPT TESTING?

> Who Should Be Exposed to the Concept?

− The simple answer is “Your target market”

− The users only?

− How about decision makers and influencers?

− Be inclusive (the cost is typically small compared to the opportunity cost of
missing a market segment)

− Qualitative questioning needed before

• find out how these types of decisions are typically made.

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GENERATING, SCREENING, AND DEVELOPING IDEAS
HOW TO DO CONCEPT TESTING?

> What Kind of Information Specifically Should Be Collected from
Respondents?

− Purchase intention

− People want to “be nice,” risky to interpret absolutely

− Ask intention first before all other questions

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use it conservatively

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“demand effect”

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GENERATING, SCREENING, AND DEVELOPING IDEAS
HOW TO DO CONCEPT TESTING?

> What Are the Best Modes of Data Collection?

− It depends: trade-offs of costs versus validity

− Depending on the segmentation targets

− E.g., Telephone interviews if concepts are easily understood over the phone

− E.g., Contract with a local market research firm

− E.g., Uni students for their group assignments 

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email, app, online survey, visit a mall and find respondents

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GENERATING, SCREENING, AND DEVELOPING IDEAS
HOW TO DO CONCEPT TESTING?

> How Should the Questions Be Asked?

− Single evaluation (monadic testing) or joint evaluation (paired comparison)

• If no particular competitor, little external search needed (SE)

• If a strong/obvious competitor available (JE)

− For a joint comparison the scale used:
definitely prefer A | moderately prefer A | toss-up | moderately prefer B |
definitely prefer B

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GENERATING, SCREENING, AND DEVELOPING IDEAS

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.

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if you are selling a software, B2B, IT, users, purchase dept, CIO, CEO

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GENERATING, SCREENING, AND DEVELOPING IDEAS
BEST PRACTICES AND USES FOR CONCEPT TESTING

> Forecasting Trial

− A 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 f1 × f2 × f3

• f1:the fraction of the target population(s) that will be aware of the new product.

• f2, the fraction of those who are aware understand and perceive the attributes and
benefits of the product

• f3, the odds that members of the target market(s) will be able to easily purchase
the product

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actual sale = f1 x f2 x f2

GENERATING, SCREENING, AND DEVELOPING IDEAS
BEST PRACTICES AND USES FOR CONCEPT TESTING

> Follow-Up Questioning

− After the purchase intent question!

− How well the potential consumer understood the concept

− What they liked and didn’t like about the product

− How interested they are in the product

• High interests – low intent??

− For which 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

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level involvement

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what is the unique value of your product (vs. others)

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$10. $20. $30. $40 –> Not good!

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10 repondents: $10
10 repondents: $10

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10 repondents: $10

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another 10 respondents: $20

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GENERATING, SCREENING, AND DEVELOPING IDEAS
BEST PRACTICES AND USES FOR CONCEPT TESTING

> Using Crowdfunding for Concept Testing

− With real commitments from the market – more valid

− Change price along the process – Price sensitivity

> Caveats 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

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$100 > $120 > $140 > $160

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mainstream

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GENERATING, SCREENING, AND DEVELOPING IDEAS

A/B TESTS

> A/B testing is a method of comparing two versions of a
concept/idea/design against each other to determine which one performs
better

> An experiment where two or more variants of design are shown to users
at random

> Statistical analysis is used to determine which variation performs better

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background color of the app, font style

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GENERATING, SCREENING, AND DEVELOPING IDEAS
A/B TESTS

Why use A/B Test

> A/B testing allows careful changes to concept design and collecting real
data on the results.

> To learn better why certain elements impact customer responses

> Can be used consistently to continually improve a given concept or idea

> Testing one change at a time helps pinpoint which changes had an effect

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GENERATING, SCREENING, AND DEVELOPING IDEAS
A/B TESTS

Steps

> Identify Objective:

− Purchase intention or behaviour

> Generate Hypothesis

− Variations better than the current version a list of ideas

> Create Variations

> Run Experiments

− Customers randomly assigned to either the control or one variation

> Analyse Results

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hypothesis: app design A for social context

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after 1 week, you analyze in what context they used A and B

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GENERATING, SCREENING, AND DEVELOPING IDEAS

SUMMARY

> After positioning

> Finding More Receptive Battlefields

> Evaluate Specific Venture Ideas

− Dry Tests

− Crowdfunding

− Concept Testing

− A/B Test

> In Tutorial 3 (week 4) you will have a chance to design a concept test

> You also need to create and conduct a concept test for your group
assignment

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ENTREPRENEURIAL PRICING

LECTURE

ENTREPRENEURIAL PRICING

AN EXAMPLE – WARBY PARKER

Neil Blumenthal, CEO and cofounder of Warby Parker presented to Professor
Jagmohan Raju, a pricing expert:

The value proposition was very stylish, hip, prescription glasses sold over
the Internet, with free try-ons of up to five different frames at home,
delivered with excellent customer service, and donation by the company of
one pair of glasses to a needy person for each pair purchased. The price
was $4

per pair of glasses. With his forecasted costs, the business would
be solidly profitable with that price (similar glasses at any neighborhood
optometrist would cost much more than $45).

ENTREPRENEURIAL PRICING
AN EXAMPLE – WARBY PARKER

Responses from Professor Raju, a pricing expert:

> First, the glasses would probably cost more to make and sell and deliver
than they forecasted.

> Second, the glasses might be too inexpensive, causing people to question
how good they could be at such a low price.

> Third, they could make a lot more money at higher prices.

> Finally, they should test alternative prices to see how they impact revenue
and consumer perception.

ENTREPRENEURIAL PRICING
AN EXAMPLE – WARBY PARKER

The team listened to Professor Raju and tested alternative prices.

The Results:
− A $

5 price was actually more attractive than a $45 price because $45 was not

credible to many people

− Costs were actually higher than they forecasted, but the doubling of the
pricing gave them plenty of room to remain solidly profitable

− In

, Warby Parker have raised more than $

5 million in venture capital
funding to fuel their rapid growth.

ENTREPRENEURIAL PRICING

PRICING – THE TRADITIONAL MODELS

> Pricing – most difficult marketing decision but probably the most important
one as well

> Managers use comfortable, precise rules for pricing:
− Markup rules

− Competitive matching rules

> Traditional “rules”
− Easy to make the pricing decision

− Leave lots of money on the table

ENTREPRENEURIAL PRICING

GETTING PRICE RIGHT EARLY

> Lower a price — no one will complain
Raise a price significantly — it is not fair!

> Important to have your initial price set at a very good level

> First customers want (and deserve) special pricing treatment !

> Prices should be structured as charter customer discounts or introductory
discounts from a regular price

> You may never charge the regular price !!!

> Ok, then how to do pricing?

> Value-Pricing Thermometer

ENTREPRENEURIAL PRICING

THE ESSENCE OF VALUE-BASED PRICING – VALUE-PRICING THERMOMETER

Adapted from “Principles of Pricing,” Robert J. Dolan, HBS 2009.

ENTREPRENEURIAL PRICING

PRICE CAN CHANGE PERCEIVED VALUE TOO

> Example: MINIVAC 601, priced at $79.95
Educational kit machines to help people understand how the binary logic and arithmetic of computers
worked

> Three target market segments
− Home hobbyists

− High schools and colleges

− Computer and technology companies

> Changes:
− Switches upgraded to higher tolerances

− Machine colour changed from blue and red to gunmetal grey

− $79.95  $479

It’s just a toy!

Yes!

Yes!
Yes!

ENTREPRENEURIAL PRICING

PERCEIVED VALUE IN BUSINESS-TO-BUSINESS CONTEXTS

> Market new products and services to businesses
− Customers perceived that they will be more profitable if they adopt the new

product or service

− Using common measures to indicate improvements

> 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: a customer’s perception of his/her own
“customer value.”

> The best pricing situation: pricing as close to “Customer Perceived Value” as
possible without exceeding it

ENTREPRENEURIAL PRICING
PERCEIVED VALUE IN BUSINESS-TO-BUSINESS CONTEXTS

> Perceived customer value =
product value + supplier value – switching investments

ENTREPRENEURIAL PRICING
PERCEIVED VALUE IN BUSINESS-TO-BUSINESS CONTEXTS

> An example: The SAS Institute, Inc
The Institute 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

> What is the difference? Which is better?
− Customers receive increasing value over time…

− SAS Model is better !

> Microsoft has adopted this model

https://youtu.be/Ae-eDpOffD0

ENTREPRENEURIAL PRICING

PRICING OF INTELLECTUAL PROPERTY

> Intellectual property: essentially 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)

ENTREPRENEURIAL PRICING
PRICING OF INTELLECTUAL PROPERTY

ENTREPRENEURIAL PRICING

CUSTOMER-DETERMINED PRICING

> Customers have a different utility for money than the vendor

> Let the customer set the price
− eBay’s Auction Model

− The Priceline Model (Priceline.com)

− Multiple pricing choices
• LaneHawk system:

1. Full capital cost up front + monthly maintenance
2. Monthly rental
3. Sharing the savings from loss prevention

https://www.priceline.com/

ENTREPRENEURIAL PRICING

DETERMINING REVENUE AT ALTERNATIVE PRICE LEVELS

ENTREPRENEURIAL PRICING
DETERMINING REVENUE AT ALTERNATIVE PRICE LEVELS

If the products cost $1 per unit, and I sell them for $2/unit, a doubling
markup.

Am I happy as an entrepreneur?

Of all the possible prices I can charge for my widgets, which price will
maximize my profitability over my planning horizon?

What would happen to my units sold if I charged other prices than $2?

You can run some tests…

ENTREPRENEURIAL PRICING

DETERMINING REVENUE – PREMARKET METHODS

> Use concept testing
− Multiple versions with different prices

− Each customer only sees one version

− Biases of the concept test would be constant over different prices, the relative
differences in response of one price versus another will usually be quite valid

> Example: ABLE Faucets
A small, non-U.S. manufacturer of faucets for kitchen sinks

− Wanted to see if they could convince the retailer to change the retail price from
$98 to a higher price, enabling ABLE to raise the wholesale price to the retailer

ENTREPRENEURIAL PRICING
DETERMINING REVENUE – PREMARKET METHODS

> The concept testing on consumers

ENTREPRENEURIAL PRICING
DETERMINING REVENUE – PREMARKET METHODS

> Results:

> It would not make sense to raise the faucet’s price …

ENTREPRENEURIAL PRICING
DETERMINING REVENUE – PREMARKET METHODS

> Revisit the concept statement:

> Feature info not benefits …

ENTREPRENEURIAL PRICING
DETERMINING REVENUE – PREMARKET METHODS

> New Results when redo with benefit statement:

> At $141 with the redesigned box, the concept test shows a true win-win-win
situation.

ENTREPRENEURIAL PRICING

DETERMINING REVENUE – IN-MARKET METHODS

> A very valid predictor

> Not always practical
− If one market participant finds out that another participant 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

ENTREPRENEURIAL PRICING

DETERMINING REVENUE – USING INTERNET

> 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 in-market price-testing device.

> An example: utility.com
a provider of deregulated electric power in a number of states across the United States

− The VP of marketing thought they needed to offer 15% off in order to get
customers to switch from their existing suppliers

− Maybe get away with only 10% off if they chose “green” (environmentally clean)
power?

− Need a test…

ENTREPRENEURIAL PRICING
DETERMINING REVENUE – USING INTERNET

> utility.com tested offers of 5%–15% off, each leading to a page that offered
0%–5% additional if you signed up right away

> 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.

ENTREPRENEURIAL PRICING

SUMMARY

> Common cost-based or competitive-based pricing rules may be “precisely
wrong”

> Value-based pricing strategy
− (Customer) Perceived Value

> Determining Revenue at Alternative Price Levels
− Premarket Methods

− In-Market Methods

− Using Internet

PROMOTION, VIRAL

MARKETING

, AND
ADVERTISING FOR START-UP VENTURES

LECTURE

CHAPTER

: PROMOTION AND VIRAL

MARKETING

PROMOTION, VIRAL MARKETING, AND ADVERTISING

AN EXAMPLE – THE COOLEST COOLER

Coolest Cooler
A Kickstarter campaign promoting a newly designed cooler

> The first time Ryan sought funding on Kickstarter in November

, the
campaign failed to raise the targeted $

5,000.

− The video

> The second time in August 201

, the campaign was one of the most
successful Kickstarter campaigns ever, having raised more than
$

,000,000.

> Why?

https://youtu.be/jJO5IR51C

PROMOTION, VIRAL MARKETING, AND ADVERTISING
AN EXAMPLE – THE COOLEST COOLER
Coolest Cooler
A Kickstarter campaign promoting a newly designed cooler

> August vs. November
− Supporters were more receptive to a summer “fun” product in August

> The second video
− demonstrated the product

− communicated the benefits: all about fun—a “party in a box”

− connected with the target audience

> Simple viral tools used in the second video
− to encourage supporters of the product to spread the word

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PROMOTION, VIRAL MARKETING, AND ADVERTISING

METHODS FOR PROMOTING PRODUCTS AND ENGAGING CUSTOMERS

> These promotions should be tested and adapted to focus more resources
on those that yield the best results— adaptive testing and experimentation

PROMOTION, VIRAL MARKETING, AND ADVERTISING

GIVE IT AWAY

> Netscape Navigator
− freely downloadable for non-profit users

− 90-day free trials for other personal or corporate use

> The strategy – aiming virality!
− College students  Professors  industry and the press!

> Profits?
− Monetize the user: space on the user’s desktop  revenue

selling advertising and other items on their home page

− Netscape’s winning position  Internet servers business

What has happened next?

PROMOTION, VIRAL MARKETING, AND ADVERTISING
GIVE IT AWAY

The Internet browser story

> MS Internet Explorer – completely free

> Netscape – completely free

> Mozilla – a spin-off foundation from Netscape: Firefox, free!

> Google Chrome – free!

How do they make money now?
Directing searches to providers (Google, Bing, and Ask, among others)

PROMOTION, VIRAL MARKETING, AND ADVERTISING
GIVE IT AWAY

When can “free” work?

CLV = M × L − CAC

M x L >> CAC !!

> e.g., “Free” Gmail service with

G free space
− Ads being shown

− searches coming from mail

− more than paying for the costs of providing the service

> The key is
− the ability to generate revenue through another means

− ad, paid account, data, cross selling, etc.

PROMOTION, VIRAL MARKETING, AND ADVERTISING
GIVE IT AWAY
When can “free” work?
CLV = M × L − CAC
M x L >> CAC !!
> e.g., “Free” Gmail service with 15G free space
− Ads being shown
− searches coming from mail
− more than paying for the costs of providing the service
> The key is
− the ability to generate revenue through another means
− ad, paid account, data, cross selling, etc.
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PROMOTION, VIRAL MARKETING, AND ADVERTISING

FREE TRIALS

> To overcome the perceived cost of switching
− Making it easy to try a product or service is a key factor in creating demand

− Ensure the user realizes the true value
• doesn’t perceive the product as one that should be free

> Hybrid models
− Limited usage is free, unlimited or professional versions not

− In-app purchases

> The key metrics to consider

CLV = M × L − CAC

PROMOTION, VIRAL MARKETING, AND ADVERTISING

WHEN DOES “FREE” WORKS?

> The four key elements needed:
− Low product cost

− Low switching cost

− Easy distribution

− High customer lifetime value (CLV) relative to customer acquisition cost (CAC)

> The critical thing is to constantly measure the metrics of every stage of the
consumer adoption process.

− What fraction of users who see your product downloads the app?

− What fraction opens it for first use?

− What fraction uses it more than once?

− …

PROMOTION, VIRAL MARKETING, AND ADVERTISING

VIRAL MARKETING

> Can be as simple as a short sentence:
− Hotmail: “P.S. Get your free email at Hotmail,” to the bottom of every e-mail

sent through its service

> A viral situation:
− Each user tells her friends to download the app or visit a website

− Each new user “infects” many of her friends with the product,

− The company offering the product may achieve exponential growth

Why viral?
− e.g., because the app will enable them to communicate, share experiences, or

work together (LinkedIn, Facebook, WhatsApp…)

PROMOTION, VIRAL MARKETING, AND ADVERTISING
VIRAL MARKETING

> Key metrics:
− Viral Coefficient = the number of new users who sign on (or download the app)

for each additional user

− If 1 new user sends a new Instagram photo to her friends who are not on, and
2.5 (average) download the app, Instagram would have a 2.5 viral coefficient
(2.5/1 = 2.5)

− “> 3” indicates potential explosive growth and can be conducive to raising
investment capital

> Some non-organic ways
− Dropbox; offering

0MB space for referrals

− Airbnb: discount coupon for the user and the referred new users

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PROMOTION, VIRAL MARKETING, AND ADVERTISING
VIRAL MARKETING

> Using Social Media for Viral Marketing
− Ice bucket challenge

> But what types of messages are viral?
− 10 points you need to know…

PROMOTION, VIRAL MARKETING, AND ADVERTISING
VIRAL MARKETING

1. Keep it Short
− people do not want to read/watch long contents

2. Have an interpersonal, human angle
− you need to start the conversation

− “traits in your boss you don’t like”

3. Rough content that feels genuine to them
− highly produced stuff is not authentic!

4. Create something people can engage with
− People want to engage with content, not just consume it

− creating quizzes or games with your content

PROMOTION, VIRAL MARKETING, AND ADVERTISING
VIRAL MARKETING

5. Offer the ability to react / comment
− Good comment community  viral contents

6. People like lists / images
− Lists are easy to understand

− images are way more viral than video

7. Give up page views
− Contents on one page

8. Compelling headline, a call-to-action or a list

9. The content isn’t stupid and embarrassing to sending around

10. Appropriate format

An example

PROMOTION, VIRAL MARKETING, AND ADVERTISING

EVENT MARKETING

> The goal
− to have the press use editorial ink and space to promote a product, rather than

paid advertising

− not only write about the product, but also about the level of excitement
surrounding the event — convince skeptical users to try

> Create your own events
− Apple’s World Wide Developers Conferences (WWDC) or iPhone launch

> Use a third party event
− Name a stadium

− Sponsor local and charitable event

− Industry conference

https://youtu.be/twEZLlhmiU8

PROMOTION, VIRAL MARKETING, AND ADVERTISING

PRODUCT PLACEMENT

> The organic ways: influential people using your product, consumers should
follow

£8.50, from various independent coffee shops, Oxfam or Amazon

SIZE:

0ml or 12oz.

WEIGHT: 1

HEAT RETENTION: Temperature 20 minutes after cup was filled with boiling water

was 69c.

LEAK WHEN FULL? A little.

LEAK WITH DREGS? No.

Made by Ecoffee Cup — which produces a large range of stylish designs (including

William Morris prints) — it looks good and is lightweight. The eco-credentials are

decent, too. ‘Made from one of the world’s most sustainable resources — naturally

organic, rapidly renewable bamboo fibre,’ the firm boasts.

The rubber toggle that you push into the sipping hole stops dregs leaking, but it loses

heat rapidly, making it uncomfortably warm to hold initially.

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PROMOTION, VIRAL MARKETING, AND ADVERTISING
PRODUCT PLACEMENT

> More frequently:
− In a movie: the Italian job – mini cooper

− In TV series
• Apple has a policy of lending Macs to any TV program that will show an office to be an

all Mac office.

− In computer/video games

https://youtu.be/RcGFTUZfZMc

https://www.theguardian.com/technology/2014/jul/03/six-of-the-best-product-placement-video-games

PROMOTION, VIRAL MARKETING, AND ADVERTISING

SMALL FREEBIE

> Getting your company’s name, logo, and message into the mind space of as
many people for as long as possible

> A small freebie will work

> When it has:
− Longevity (your information on an ice cream?)

− Visibility (screen cleanser?)

− Cleverness (only logo on smart phone case?)

− Usefulness (smart phone handle?)

CHAPTER 6: ADVERTISING

PROMOTION, VIRAL MARKETING, AND ADVERTISING

ADVERTISING: AN EXAMPLE

> Synygy, Inc.
an entrepreneurial company that does administration of complex incentive compensation
plans.

> The first version:
− Used an advertising agency in the traditional way.

− The advertising was run for a period of six months in print media

− target audience—senior sales force managers and administrators

− The objective: bring good leads for their sales force to follow up

PROMOTION, VIRAL MARKETING, AND ADVERTISING
ADVERTISING: AN EXAMPLE

> An ad that was typical of the ads the agency ran

This ad campaign brought in from
2-5 leads per week either over
the phone or to the company’s
website.

PROMOTION, VIRAL MARKETING, AND ADVERTISING
ADVERTISING: AN EXAMPLE

> One of the company’s employees brought a mock-up of a very different
print ad. The ad was tested by running it once in place of the old ad.

• The ad was much better than the old ad in that
period of time.

• Synygy began using the new ad exclusively

• With no change in media budget or media
plan, the new campaign was at least 15 times
more productive than the old campaign

Adaptive experimentation in advertising can
provide large returns for modest investments!

PROMOTION, VIRAL MARKETING, AND ADVERTISING

MOVING TO MORE EFFECTIVE ADVERTISING

> Entrepreneurs
− believe that advertising is too difficult to evaluate on a cost-benefit basis

− often adopt approaches to advertising that large packaged-goods companies use

> Certain rules are dominating
− If you want to achieve a market share of x%, you must maintain an advertising

budget that is greater than x% of the amount spent by all the competitors in the
category

− If an area or market segment has x% of revenues, it should get x% of the
advertising exposures—its “fair share.”

− …
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PROMOTION, VIRAL MARKETING, AND ADVERTISING
MOVING TO MORE EFFECTIVE ADVERTISING

> This rule might be fine with large firms

> Entrepreneurs can’t run their businesses on faith
− They must allocate scarce capital resources to maximize the value

− Advertising is only one alternative use of scarce resources.

> Entrepreneurs have to improve the productivity of advertising

> How?

PROMOTION, VIRAL MARKETING, AND ADVERTISING

HOW ENTREPRENEURS CAN IMPROVE THE PRODUCTIVITY OF THEIR ADVERTISING

> The key advertising decisions are
− budget (how much should I spend?)

− media planning (where and when should I place the advertising?)

− copy (what should I say?)

> Entrepreneurs usually get ideas from someone (agency, friends, partners,
parents, etc.)

− e.g., “Let’s e-mail an ad with a discount to promote trial of our new app”

− Then what?

PROMOTION, VIRAL MARKETING, AND ADVERTISING
HOW ENTREPRENEURS CAN IMPROVE THE PRODUCTIVITY OF THEIR ADVERTISING

> Entrepreneurs need a way to evaluate the campaign
− the incremental margin contributed by that new revenue will more than cover

the expense.

− and this return is better than other uses

− If yes, continue the campaign; otherwise, use alternatives…

> Continuously improving the campaign and re-evaluate the improvements

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PROMOTION, VIRAL MARKETING, AND ADVERTISING

IMPROVING CAMPAIGNS

> How to improve campaigns?
1. Every campaign is consistent with your positioning

2. Generate a number of very different campaigns

3. Evaluate the potential incremental revenue of each

4. Run only the best one

> Generate a number of very different campaigns ?
− Increasing the variability of the creators

− Encourage option ideas from everyone who possibly can help in the creative
process

− Do not make advertising perfectly artistically beautiful!

PROMOTION, VIRAL MARKETING, AND ADVERTISING

EVALUATING CAMPAIGNS

One possible way:

> Watching the daily revenues

> Estimate “what revenue would have been without the advertising or
promotion campaign.”

> The best comparison to use for evaluating a campaign
− the difference between revenues per week during the campaign versus before

the campaign started
vs.
the same numbers for areas in which the campaign was not used over the same
time periods

> A better way …

PROMOTION, VIRAL MARKETING, AND ADVERTISING
EVALUATING CAMPAIGNS

Planned Market Experimentation using a sample of the market

The five characteristics:
− The assignment of which areas or subjects will get the campaign or the control

(nothing different) should be random

− Nothing else could have caused the results observed except for the campaign
you are testing

− The results can be logically projected to the firm’s real marketing situation in
which the campaign would be used

− The experimental campaign must precede the sales effects it is supposed to
cause

− There must be a comparison group that did not receive the campaign or
received a different campaign

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MEDIA PLANNING

> The key:
− Finding the media option that has the most likelihood of generating

incremental revenue per dollar spent

> Media option needs to be
− consistent with the firm’s strategy

− directly related to the campaign

> A sample template for media evaluation …

PROMOTION, VIRAL MARKETING, AND ADVERTISING
MEDIA PLANNING

> Step 1

> B: “How valuable to me is reaching a person in one segment versus
another?” (subjective judgment)

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PROMOTION, VIRAL MARKETING, AND ADVERTISING
MEDIA PLANNING

> Step 2

> E: the fraction of audience members who will actually be exposed to your
ad.

> F: How much do I care to have a good potential customer be exposed to my
ad in one media vehicle versus another?

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PROMOTION, VIRAL MARKETING, AND ADVERTISING
MEDIA PLANNING

> Step 3

> G, H, & I: The fraction of each segment that is counted as being “in the
audience” of each of the media options being evaluated.

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PROMOTION, VIRAL MARKETING, AND ADVERTISING
MEDIA PLANNING

> Step 4

> M: the total audience of each media weighted by the importance of that
segment to the firm

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PROMOTION, VIRAL MARKETING, AND ADVERTISING
MEDIA PLANNING

> Step 5

> M x E x F: combining the media audience potential, ad exposure
probabilities, and the relative media values into the “bang.”

> Then divided by the costs per insertion of the media to get a relative “bang
per buck.”

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PROMOTION, VIRAL MARKETING, AND ADVERTISING

THE DIGITAL MARKETING REVOLUTION

> Digital marketing:
− Focus your ad spend much more specifically to market segments

− Two trends: digital and mobile

> Advantages
− precisely target market segments

− learn about customers via readily observable online behaviors

− engage with customers

− test campaigns cost effectively

> Display Ads

> Search Engine Optimization

> SoLoMo

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PROMOTION, VIRAL MARKETING, AND ADVERTISING
THE DIGITAL MARKETING REVOLUTION

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PROMOTION, VIRAL MARKETING, AND ADVERTISING

SUMMARY

> Promotion and Viral Marketing

> Advertising
− Again, adaptive testing!

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PUBLIC RELATIONS FOR START-UP
VENTURES

LECTURE

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SECTION TWO: DEMAND-GENERATION AND SALES

AN INTRODUCTION

> Marketing strategy, positioning, and targeting establish the goals and objectives

> Marketing activities attract the largest number of customers and purchases in a
cost-effective 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

> How?

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SECTION TWO: DEMAND-GENERATION AND SALES
AN INTRODUCTION

> Customer lifetime value (CLV) is the total revenue contributed to your venture by a
customer over the length of their relationship with your venture.

> CLV is dependent upon three factors:
− Customer acquisition cost (CAC), the total cost to secure that customer

− Annual profits a customer generates for your venture (M)

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

> The most simplistic form:

CLV = M × L − CAC

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SECTION TWO: DEMAND-GENERATION AND SALES
AN INTRODUCTION
CLV = M × L − CAC

> The 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

> The most effective way is to map the adoption process on the way to the customer
actually making a purchase.

− The movement of information, influence, goods and services, benefits and value, and
money

> Each marketing activity should have a positive effect, moving your customer closer
to purchase

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SECTION TWO: DEMAND-GENERATION AND SALES
AN INTRODUCTION
5

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SECTION TWO: DEMAND-GENERATION AND SALES
AN INTRODUCTION

> Entrepreneurial marketers must ensure that every marketing tactic has a
clear sense of:

− Audience — The target profile of prospects

− Objective — The goal that will allow the right prospects and customers to move
on to the next phase

− Call-to-action — The specific action that the right customers will take to engage
with you and move to the next phase of adoption, whether it be call a number,
visit a website, or redeem a coupon

− Measurable outcome — The metric that will determine the success or failure of
the marketing activity

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PUBLIC RELATIONS FOR START-UP
VENTURES

PUBLIC RELATIONS FOR START-UP VENTURES

AN EXAMPLE – PAYMYBILLS.COM

PayMyBills.com
− One of the final eight projects at the annual Wharton Business Plan

Competition.

− The cofounders were brought out to Idealab and given 60 days to launch the
company and the business

− The business plan competition results help it be covered by the New York
Times, Philadelphia Magazine, and other publications.

− This helped the company in its initial hiring and fundraising
• Ten days later, they had hired ten people

• Three weeks later, Idealab used the buzz to raise more than $4 million for the
company at a much more favorable valuation than would have been possible
without the public relations (PR).

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PUBLIC RELATIONS FOR START-UP VENTURES
AN EXAMPLE – PAYMYBILLS.COM

The Alexander Ogilvy agency was hired to get a fast-track product launch
− An interview schedule for trade press, business press, and radio that focused

on a product launch

− Meetings held with the Wall Street Journal, LA Times, PC Magazine.

− Spot radio advertising in several cities, including on the Howard Stern Show for
the first two weeks after launch

− The two competitors, PayTrust and CyberBills, had been in existence much
longer but were staying in stealth mode.

> PayMyBills.com tilted the playing field and gained 50,000 customers in less
than a year.

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PUBLIC RELATIONS FOR START-UP VENTURES

BEING THE KNOWN WINNER

Entrepreneurs want to

> Drive Awareness
− Before people can buy your product or use your service, they have to know it

exists and how to get to it

> Have the perceptual edge:
− Customers should feel that they are going with a winner if there is a choice

among products in the category

> Proper use of public relations can
− Drive publicity and

− Provide this “winner” feeling far faster and at much lower cost

> How?

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PUBLIC RELATIONS FOR START-UP VENTURES
BEING THE KNOWN WINNER

> The key driver to quickly gaining leadership in a new category is the
creation of “buzz” — the feeling that you are the winner

> “It’s the cheerleader approach, where you tell the world that we’re the
winner even before the game has started, which is successful in the
Internet space.”

> Example: When Google first released its Chrome browser,
− Competing products already successful in the marketplace, such as Firefox,

Safari, and IE

− A PR campaign got tremendous coverage in the trade press —declared Chrome
as the browser to beat

− And Chrome soon gained overwhelming market share to make the perception
a reality

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PUBLIC RELATIONS FOR START-UP VENTURES
BEING THE KNOWN WINNER

> How can you achieve this perceptual edge?
− Understand how most users make their decision

− Generally, users ask someone they trust

> The key to gaining the perceptual edge is to influence the influencers, or
gatekeepers

> Gatekeepers get their knowledge from a smaller set of influencers whom
they trust

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PUBLIC RELATIONS FOR START-UP VENTURES
BEING THE KNOWN WINNER

You need to reach the following groups:

> Gurus — Key industry insiders•

> Influencers — Key trade and business press; industry analysts

> Decision makers — Key bellwether buyers; those who can say yes

> Naysayers — People who can say no

> Mass buyers — The masses who mainly follow what they perceive as the
winning trend

Influencer marketing

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Expertise

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PUBLIC RELATIONS FOR START-UP VENTURES

INFLUENCER MARKETING

Types of Influencers

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Hierarchy

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING

> Celebrities

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING

Macro Influencers

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING

Rising Creators

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING

Micro Influencers

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING

How to choose?

Efficiency

Virality

Scale

Velocity

> Consistency

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING
Efficiency

> Does this influencer efficiently drive engagement/activity

> Some matrics to consider:
− % active audience

− Average engagement (%)

− …

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING
Virality

> Does the content have pass-along value?
− Shares (total)

− Shares/retweets per post

Scale

> Is there enough scale to achieve your goals?
− Total actions/impressions/views…

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content of your buzz marketing

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING
Velocity

> What is the trend of the impacts? Up or down?

Consistency

> Is the influencers consistently provide high quality influence?

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PUBLIC RELATIONS FOR START-UP VENTURES
INFLUENCER MARKETING

Key considerations

> Metrics have been taken into account to ensure the best chances of
success, during the planning and selection process?

> Which type of influencer(s) are right to support the brand and campaign
objectives?

> Is the influencer that a brand is partnering with a good fit not only in terms
of aesthetics and style, but also by the existing affinities of their current
audience?

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PUBLIC RELATIONS FOR START-UP VENTURES

SPOKESPERSONS/EVANGELISTS

One (or at most two) people in the company Serve as evangelists for the
product and company

− Most often, the CEO and chief technical person

− Visiting the gurus on “press tours,”

− Getting them prerelease (beta) software or hardware,

− Providing technical support to ensure usage goes smoothly and positioning
clearly communicated

> The evangelists need to be
− Personable

− Knowledgeable about the company and its products

− Sensitive to what can and can’t be said

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PUBLIC RELATIONS FOR START-UP VENTURES
SPOKESPERSONS/EVANGELISTS
One (or at most two) people in the company Serve as evangelists for the
product and company
− Most often, the CEO and chief technical person
− Visiting the gurus on “press tours,”
− Getting them prerelease (beta) software or hardware,
− Providing technical support to ensure usage goes smoothly and positioning
clearly communicated
> The evangelists need to be
− Personable
− Knowledgeable about the company and its products
− Sensitive to what can and can’t be said

PUBLIC RELATIONS FOR START-UP VENTURES
SPOKESPERSONS/EVANGELISTS

The overall company and product pitch with three lengths
− The “elevator pitch”

• 30 seconds to 2 minutes

• focus your elevator pitch on your positioning

• “We’re going to be the Uber (or Amazon, or Facebook…) for [fill in the blank].” (this
can be risky though)

− 15-minute demo
• a minute or two to introduce the speaker and company with credibility enhancers

(advisory board members, directors, investors)

• followed by a demo of the product

− 30 to 45-minute road show pitch
• company history, financing, product rollout plans, advertising plans, partnering

deals, and, the product itself

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PUBLIC RELATIONS FOR START-UP VENTURES

CRISIS MANAGEMENT

PUBLIC RELATIONS FOR START-UP VENTURES

SUMMARY

> 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

> Proper use of public relations can
− Drive publicity

− Provide this “winner” feeling far faster and at much lower cost

− Mange crisis

> Influencer Marketing
− Types of influencers

− How to choose influencers

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DISTRIBUTION & CHANNEL DECISIONS

LECTURE 7

DISTRIBUTION & CHANNEL DECISIONS

AN EXAMPLE – ANKI

Anki

> In

, Tim Cook introduced Boris Sofman, CEO of Anki at the Apple World
Wide Developers Conference (video)

> Anki: a robotics and artificial intelligence company that had been operating
in stealth mode, launched its products on one of the world’s largest and
most visible stages.

> The product became one of the top-selling products in U.S.-based Apple
stores during the holiday season.

> How and why?

https://youtu.be/QnsR-kZUx

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DISTRIBUTION & CHANNEL DECISIONS
AN EXAMPLE – ANKI
Anki

> Anki could not have paid to gain such tremendous exposure.

> The company earned the right to launch in such grand fashion by delivering
a compelling, sustainable advantage not only to its end users, but also to its
lead distributor.

> Anki’s value proposition consistent with Apple’s positioning
− reinforced Apple’s design-centric brand

− delivered a compelling customer experience

− increased traffic and sales in Apple stores

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DISTRIBUTION & CHANNEL DECISIONS

DISTRIBUTION CHANNELS

> Distribution channels are the means by which you reach customers when
they are ready to buy.

> Effective channel strategies serve many objectives
− expanding your reach into the market

− build awareness

− reinforce your segmentation and differentiation

− provide opportunities for customers to evaluate and try your offering

− enhance the value proposition to customers

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DISTRIBUTION & CHANNEL DECISIONS

BASIC FUNCTIONS OF A DISTRIBUTION SYSTEM

> Effective distribution delivers the right product or service to the end
customer at the right place at the right time in the right quantities.

> Three basic functions
− Reassortment/sorting:

Supplier (large quantities, small assortment)
=> Customer (small quantities, large assortment)

− Routinizing transactions:
standardize products and services and automate transactions

− Facilitating search:
easier for sellers to find buyers
easier for buyers to find their best purchase

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DISTRIBUTION & CHANNEL DECISIONS

POSITIONING AND DISTRIBUTION DECISIONS

> As technology and the environment change, you must constantly review
your distribution options according to your positioning

> Understanding the target market segment your are trying to reach
− Your distribution channels should be the most efficient and effective way to

reach your target market among all other options

> The product-offering bundle that the end customer sees must reinforce
your differentiation

− Distribution channel delivers additional information to customers

> However, you never get exactly the “optimal”

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DISTRIBUTION & CHANNEL DECISIONS

DISTRIBUTION SYSTEM DESIGN—DIRECT VERSUS INDIRECT

> Distribution options vary from direct to many layers of middlemen

> The reality is that distribution strategy and options lie on a continuum that
reflects elements of each

Indirect Direct

Variable Costs Fixed costs

Efficiency per contact Effective per contact

Lower control Higher control

Coverage Targeting

Low customization High customization

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DISTRIBUTION & CHANNEL DECISIONS

EXCLUSIVITY ALTERNATIVES IN INDIRECT DISTRIBUTION OPTIONS

> Exclusive distribution gives a retailer or other
intermediary the exclusive right to sell your
product in a defined “area” for a defined time
period.

> Selective distribution gives the right to
distribute your product to some entities in a
defined area but limits the number to a select
group.

> Intensive distribution lets anyone who wants
to distribute your product do so.

> A number of trade-offs you must evaluate
when you consider your choice of distribution
channel

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DISTRIBUTION & CHANNEL DECISIONS
EXCLUSIVITY ALTERNATIVES IN INDIRECT DISTRIBUTION OPTIONS

> Exclusive Distribution
− Easier to sell in (+)

− Higher control (+)

− Higher margins for both parties (+)

− Less competition at point of sale (+)

− More push from the distributors (+)

− Less coverage (-)

− More association with the distributor (?)

− Possible guaranteed min. sales (?)

> Item Exclusivity
− Customers cannot compare prices across distributors

− Solve conflicts between offline and online

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DISTRIBUTION & CHANNEL DECISIONS
EXCLUSIVITY ALTERNATIVES IN INDIRECT DISTRIBUTION OPTIONS

> Intensive Distribution
− High coverage

− Convenience

− Lower control

− Less push in store

− More mass pull needed from you

− Faster sales cycle possible

> If you notice a short product life cycle and high risk of knockoffs – good
option

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spending money for demand generation

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DISTRIBUTION & CHANNEL DECISIONS
EXCLUSIVITY ALTERNATIVES IN INDIRECT DISTRIBUTION OPTIONS

> Selective Distribution
− The conceptual middle between exclusive and intensive distribution.

− Distributors compete (?)

− Less distributor loyalty (-)

− More space for entrepreneurs to be creative

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DISTRIBUTION & CHANNEL DECISIONS

USING SELECTIVE DISTRIBUTION TO REPOSITION A BRAND

Brooks Sports

> Had been successful in the late

70s; in the 1980s they tried to chase Nike.

> Expanded into other categories like basketball, aerobics, and baseball.

> Stretched too thin.
− When business began to slow, it began using cheaper materials and selling its

sneakers at rock-bottom prices to discount retailers like K-Mart

> Brooks lost credibility with joggers, and between 1983 and 1993 it lost some
$60 million

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DISTRIBUTION & CHANNEL DECISIONS
USING SELECTIVE DISTRIBUTION TO REPOSITION A BRAND

> Helen Rockey came to Brooks in 1994 after 11 years at Nike

> A completely different marketing strategy
− went back to Brooks’ running heritage

− repositioned as the shoe for serious running enthusiasts

> Repositioning dictated all the elements of her new marketing mix, including
distribution.

> Make the product attractive
− not only to the end purchaser, the running enthusiast

− but also to the specialty running store retailers

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DISTRIBUTION & CHANNEL DECISIONS
USING SELECTIVE DISTRIBUTION TO REPOSITION A BRAND

> The repositioning
− limited to the 3 best suppliers who produced high-quality shoes

− redesigned the line to be attractive to serious runners

− boosted the suggested retail prices to as high as $1

− only supply specialty running shops

− sales force helped their retailers to offer running clinics and trained the retail
sales force

− extensive and professional presence at the major running trade shows

− give over 200 competing runners with free shoes

− appearance in niche publications like Runners World and Running Times

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DISTRIBUTION & CHANNEL DECISIONS
USING SELECTIVE DISTRIBUTION TO REPOSITION A BRAND

The result

> Brooks’ sales have been growing at a 30% clip for the past 4 years until
1999, and hit $100 million by 2000.

> Operating income (net before depreciation, interest, and taxes) last year
(1998) topped $4 million, from $3 million in 1997.

> Brooks does not have the potential to outcompete or outmuscle Nike.

> However, it does have the potential to make a lot of money for its
entrepreneurial owners if they continue to understand its limitations and
have a marketing mix (including selective distribution) consistent with its
revised positioning

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DISTRIBUTION & CHANNEL DECISIONS

HOW TO DEAL WITH INTERMEDIARIES

> Intermediaries do not exist to reinforce your positioning, serve your
customers, and build your business. Rather, they seek to accomplish all of
these objectives for themselves.

> You must position yourself with your chosen intermediaries just as you
would with customers

> Your product offering must enhance the perceived value of the
intermediaries’ customers and create value for their businesses

> A typical principal-agent issue …

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DISTRIBUTION & CHANNEL DECISIONS
HOW TO DEAL WITH INTERMEDIARIES

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DISTRIBUTION & CHANNEL DECISIONS

TYPES OF INTERMEDIARIES

> Agents, brokers, and manufacturer representatives (reps)
− earn a commission and do not take possession of inventory

> Wholesalers and retailers
− take possession of inventory; may facilitate search as well as provide goods and

services to specific market segments

> Resellers and value-added resellers (VARs)
− bundle an offering with additional products and services, enhancing the overall

perceived value

> Original Equipment Manufacturers (OEMs)
− provide a component, subsystem, or complete product that is then sold as part

of a separately branded product

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DISTRIBUTION & CHANNEL DECISIONS

HOW TO DEAL WITH INTERMEDIARIES – AN EXAMPLE

> Neat, Co.
designed and manufactured scanners for the small office and home office markets. Helped
organizing receipts, business cards, and documents that clutter offices

> Staples and other office products retailers
− hesitant to give up valuable shelf space to an unknown brand

> Neat rolled out kiosks in airports that allowed customers to demo the Neat
solutions

− excellent visibility and awareness

− proof that Neat products were perceived as highly valuable

> Armed with the data and results, Neat returned to Staples and secured both
the shelf space and broad distribution it sought

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DISTRIBUTION & CHANNEL DECISIONS

Dynamic Distribution Management

> Distribution channels can sometimes be more valuable if they are changed
over time

− product lines that continually have innovation

− new products or models that are introduced

> The distribution channels need to change
− the prestige you want to associate with your newest and most innovative

product may be very different from the prestige you are able to associate with
an existing product

> Matching
− Associate the high-prestige items with high-prestige distribution channels and

lower-prestige items with lower-prestige distribution channels

− We need to understand the high- and low- end distributors first

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DISTRIBUTION & CHANNEL DECISIONS
Dynamic Distribution Management

> The high-end channel members
− want to sell exclusive, high-perceived value items

− do not want to compete on price with the same item in a lower-end store

− their better service justify higher margin than the mass-market competitors

− do not sell in mass volumes

> The lower-end channel members
− Dream: to sell the same items that the high-end stores do

> Managing the delicate balancing act of the different channel hierarchies is a
real challenge for many entrepreneurs

> How? Move up or move down?

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Rolex would not sell their product in
low-end channels (e.g., K-Mart) because of mismatching!

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DISTRIBUTION & CHANNEL DECISIONS

Another Distribution Option – Franchising

Types of Franchising

> Manufacturing franchise
− a franchisee manufactures a product using the

franchisor’s name and trademark

> Manufacturer-retailer franchise
− Franchisee has the right to sell products through a

retail outlet.

> Wholesaler-retailer franchise
− the retailer has the right to carry products distributed

by the wholesaler

> Business format franchise
− franchisee gets a way of operating a business

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DISTRIBUTION & CHANNEL DECISIONS

ANOTHER DISTRIBUTION OPTION – BEING A FRANCHISEE

Advantages Disadvantages

• Lower risk of failure
• Established product/service
• Experience of franchisor
• Group purchasing power
• Instant name recognition
• Operational standards ensure uniformity

and efficiency
• Assistance in setting accounting

procedures, facility management,
personnel policies, and so on

• Start-up assistance
• Location assistance
• Help with financing arrangements
• Power of national and regional

marketing

• Payment of an initial franchise fee
• Ongoing royalty payments
• “Off the top” payments for cooperative

marketing fund
• Cannot add or drop products unilaterally
• Little say on national marketing policies

and tactics
• Must conform to operating procedures
• You depend on the franchisor for much

of your success
• Some large franchisors have failed
• May be restrictions on selling the

franchise
• May be difficult to pass the business to

your heirs

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DISTRIBUTION & CHANNEL DECISIONS

ANOTHER DISTRIBUTION OPTION – BEING A FRANCHISOR

Advantages Disadvantages

• Rapid expansion without large
investments

• scale economies increase access to real
estate

• Franchisees are more motivated
• Predictable cash flow
• Easier to sell

• No full control
• Image and positioning rely on the

franchisees
• Need suitable systems and controls to

ensure that the franchisees pay the
correct franchise fees

• Different incentives for pricing from
franchisees

• Distribution channel hard to change
• Creating new competitors

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DISTRIBUTION & CHANNEL DECISIONS

Concept Testing on Channel Members

> REMEMBER: Channel Members do not exist to reinforce your positioning,
serve your customers, and build your business. Rather, they seek to
accomplish all of these objectives for themselves.

> To get channel members’ reactions to your new entrepreneurial product(s)
or services – a concept test

> The channel member should be exposed to your concept as realistically as
possible.

− Let the channel member know explicitly what functions you expect him to
perform as well

− All tentative prices and terms should also be shown

− Consumer concept testing results can be powerful arguments for convincing a
retailer to carry your product

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DISTRIBUTION & CHANNEL DECISIONS

SUMMARY

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