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Welcome to 15.835!
Entrepreneurial Marketing
Session 1:
Entrepreneurship and Marketing
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Puzzle I
Puzzle II
Who are the major competitors of successful new

vetures?
Does every successful entrepreneur have a breakthrough product or service?
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(a) Small companies or other start-ups
(b) Fortune 500 companies
(c) Vertical integration by customers
(d) All of the above
(e) Few direct competitors
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(a) Almost always

(b) Usually
(c) Less than half
(d) Rarely
Puzzle III
What % of successful new ventures competed in earlystage industries?
Answer: Puzzle III

How mature was the industry you competed in?
((Inc
Inc 500 study)
Infancy
(a) High
(b) Medium
(c) Low
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Early growth
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Growth
6
53
Mature
Decline
0
0
20
40
60
- Matured market (53%)
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Puzzle IV
What do you think about the following statement:
Every successful entrepreneur has a detailed master
plan from the start
No w ritten biz plan
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Rudimentary biz plan
(a) Of course, it is true.

(b) No. Most entrepreneurs have great visions but typically lack
organized thinking.
(c) Most have a business plan.
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Pro forma biz plan for

investors
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Detailed biz plan
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Question: Why didnt most of them have business plans?
Why?: Puzzle IV
Question
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For most successful new ventures,
Impossible to anticipate all rapid changes in the

environment
Lots of missing information
Typically, entrepreneurs have many hypothesis
On-line correction of plan over time
Planning is a process
There was nothing unique about their base functionality

Existence of substitutes
Half of them were competing in matured industries
Many small-size start-up competitors
The missing elements in the plan emerge

as time progresses.
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How could they be successful?
Key: Product/Service Differentiation
Challenges to New Venture (contd)
Find something I can do best

but others cannot easily replicate
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Timing is all about
Find a foothold to survive
Find a foothold to avoid competition with giant firms
Build a strong brand from nothing
nothing
Build or expand its own market/customer base
base
Strategic Constraints of New Venture
Two Major Themes of This Course
Limited resources
Entrepreneurial New
Venture
Financial
Man power
Knowledge and information
How to best
leverage my Limited
Resources to
overcome
challenges?
- Lots of HYPOTHESIS
Marketing
What and How am I

selling to Whom?
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What Will We Do?
Course Outline
Module 1: Entrepreneurship and Marketing
Throughout this course,

We will discuss important marketing problems
through the window of Entrepreneurial New
Venture.
Session 1 (2/6): Introduction

Session 2 (2/11): Competitive advantage
Session 3 (2/13): Guest speaker, Eric Spitz
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Module 2: Identifying Market Opportunities
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We will also learn easily applicable low-cost tools

for making important marketing decisions.
How to do it
Session 4 (2/19): Market research

Session 5 (2/20): Wildfire Communication Inc. (A)
Session 6 (2/25): Demand forecasting
Session 7 (2/27): E.T. Phone Home, Inc.
Module 3: Market Development
Session 8 (3/4): net.Genesis, Inc.

Session 9 (3/6): WaterTest Corporation
Session 10 (3/11): CNET2000
Session 11 (3/13): Positioning
Session 12 (3/18): Guest speakers, Alex Kleiner and Rob Guttman
Course Outline (contd)

Module 4: Entrepreneurial Communication Strategy
Session 13 (4/1): Guest speaker, Brent Hodgins
Session 14 (4/3): Winsales
Session 15 (4/8): TIVO
Module 5: Entrepreneurial Pricing Strategy
Session 16 (4/10): Pricing Tools I
Session 17 (4/17): Pricing Tools II
Session 18 (4/22): Rogers Communications, Inc.: The Wave
Module 6: Entrepreneurial Distribution Strategy
Session 19 (4/24): Keurig, Nick Lazaris
Session 20 (4/29): Mathsoft (A)
Discussion Class
Session 21 (5/1): Guest speaker, Brad Feld
Course Outline (contd)

Module 7: Building Customer Relationships
Session 22 (5/6): Managing Customers
Session 23 (5/8): BizRate.com and Wrap-UP
Presentation of Marketing Plans

Session 24 (5/13)
Session 25 (5/15)
Grading
Four Written Assignments (30%)
Only top three will be counted
10 pts per each
Marketing Plan (40%)

Important criteria (35%)
Does the plan solve the problem?
Quality of problem-solving
Completeness
Peer evaluation (5%)
Contribution to Class Discussions (30%)

1 pt for attending the session
2 pts for making a contribution
3 pts for making a strong contribution
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Focus Strategy (contd)
15.835: Entrepreneurial Marketing
Although the payoff of a small niche may be less than

that of a large growing market, the competition may
often also be less intense.
Session 10:
Focus vs Diversification
However, a focus strategy naturally limits the potential

business. Therefore, profitable sales may be missed.
It is crucial whether a focus strategy involves
meaningful Sustainable Competitive Advantages.
Variations of Focus Strategies
Two Growth Strategies
Keep a focus on present markets
Focusing the product line in order to enhance technical

superiority
Diversification
Targeting a niche
Focus
Explore new markets with new products

1. Related
2. Unrelated
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Focusing limited geographic area
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Focus Strategy
Concentrate on one part of the market or product line.

Avoid
strategy dilution or
distraction
Reduce competitive
pressures
Compete with
Limited resources
FOCUS
STRATEGY
Provide positioning
strategy
Bypass competitor
assets/competencies
Growth Strategies under a Focus

Keep a Focus on present markets
1. With present products
- increase market share
- Increase product usage
2. With new products
- add product features
- Develop a new-generation product for the same
market

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Performance of Diversified Firms (contd)
Diversification
From 1950 to 1980, among 2021 acquisitions made in

new industries by 33 large, diversified U.S. companies,
More than half were divested by 1986 (Porter, HBR, 1987)
Among 931 unrelated diversifications, 74% were
divested (Porter, HBR, 1987).
In a sample of Fortune 500 firms, the related
diversifications were highest in performance, followed
by the less related diversification and finally the
unrelated diversification (Rumelt, Strategic Management Journal, 1982)
450 related diversifications had a significantly higher
ROA than 20 unrelated diversification firms (Simmonds,
Approach new markets with new products

Two types
Related diversification
The new business area has meaningful commonalities with
the core business.
Unrelated diversification
Unrelated diversification lacks enough commonalities.
The objectives are therefore mainly financial, to generate
profit streams that are either larger, less uncertain, or more
stable that they would be otherwise.
Strategic Management Journal 1990)
Risk of Unrelated Diversification
Motivations for Diversification

Related Diversification
yExchange or share assets or
competencies by exploiting
- Strong brand name
- Strong marketing skills
- Strong distribution capacity
- Manufacturing skills
- R&D capability
Unrelated Diversification
Unrelated diversification, if unsuccessful, may actually

damage the original core business by diverting attention
and resources from it.
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y Manage and allocate cash flow

y Enter business areas
with high ROI prospects
Managing the new business may be difficult because it

requires different assets and resources.
y Refocus a firm
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yReduce risk by operating in

multiple product markets
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y Vertical integration
Performance of Diversified Firms
In the 1960s and early 1970s, a wave of acquisitions

took place.
Typically, friendly mergers involving unrelated diversification.
The fraction of single-business companies in the Fortune 500
dropped from 23% to 15% from 1959 to 1969.
The percentage of conglomerates with no dominant business
rose from 7.3% to 19%.
Issues in Diversification
The important issue in diversification is how to achieve
synergy. In unrelated diversifications, there is no
possibility of synergy.
Successful diversification requires a common core or
unity represented by common markets, technology, or
production processes. Without such unity,
diversification is unlikely to work.
Were they successful?

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Session 12:
Positioning
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Positioning
Consumers generally use a small number of
evaluation dimensions (two to four) when they think
about a particular product or product class
Placing a product in consumers minds (relative to
competing products)
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Physical vs Perceptual Positioning

Limitations of physical positioning
A simple comparison of only the physical dimensions of
alternative offerings usually does not provide a complete
picture of relative positions because
positioning ultimately takes place in customers minds.
Customers may attach less importance to some of physical
attributes, or perceive them differently, than the firm
expects.
Customers attitudes toward a product are often based on
social or psychological attributes not amenable to objective
comparison.
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e.g., aesthetic appeal, spottiness, status image in car market
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Physical vs. Perceptual Positioning (contd)

Why is perceptual positioning better than physical
positioning?
Customers know very little about the essential physical
attributes of many products. Even if they did, they would not
understand them well enough to use them as a basis for
choosing between competitive offerings.
Most customers are not buying physical properties but rather
the benefits they provide.
The evaluation of many products is subjective because it is
influenced by factors other than physical properties. Thus,
physically similar products may be perceived as being different
because of different histories, names, and advertising
campaigns.
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Comparison of Physical and Perceptual Analysis

Physical Positioning
Perceptual Positioning
- Technical orientation
-Customer orientation
- Physical characteristics
- Perceptual attributes
- Objective measures
- Subjective measures
- Data readily available
- Needs marketing research
- Direct R&D implications
- Indirect R&D implications
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- Large number of dimensions - Limited number of dimensions
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Why Is Positioning Important?

Learning about novel products is a very difficult and
complex problem for customers.
Knowledge about a new product category is initially
minimal and customers are exposed to products
sequentially-first the pioneers and subsequently later
entrants.
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As a result, customer preferences are likely to evolve

over time.
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Why Is Positioning Important?
Three stages of a customers learning about an

innovative product or service.
1. Prior to trial
2. Through trial of the pioneer product/service
3. After the advent of latent entrants
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Preferences Prior to Trial

Preferences prior to trial are likely to be weakly formed
since:
the category is novel and buyers know little
the knowledge on the most important attribute or the best
combination of attributes are not obvious even though potential
customers have objective information on product attributes.
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Therefore,
potential customers are likely to be largely indifferent
between possible offerings in the new product category.
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Uniformly distributed ideal points across potential buyers
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Preferences Prior to Trial (contd)

Uniformly distributed ideal points across potential
buyers
Attribute 1
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Attribute 1
z Ideal Point
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Attribute 2
Attribute 2
Preference Formation Through Trial of the

Pioneer
Buyers update their preferences through trial of the
pioneer product.
Buyers try the pioneer product and if the product works,
attribute the successful outcome to the attribute
combination of the pioneer product.
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Buyers learn through trial of the pioneer how to value

attribute combinations. Because their experience is
limited to a single product, they learn the pioneers
attribute combination and update their preferences
accordingly.
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Preference Formation Through Trial of the

Pioneer (contd)
Therefore, customers ideal points shift toward the
pioneers position to reflect their learning about.
Attribute combination
Attribute weights
Attribute 1
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Attribute 1
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z Pioneer
zUpdated Ideal Point

z Ideal Point
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Attribute 2
Attribute 2
Preference Change After the Advent of Late

Entrants
When latent entrants are me-too products,
Through learning process, customers perceive the pioneer as a
prototypical product in the product/service category.
As late entrants position closer to the pioneer, they become
less distinct and the pioneer more distinct, increasing the
relative perceptual prominence of the pioneer.
Being closer to the pioneer, the me-too products are less
distinct than the pioneer, so any price reduction of the me-too
products have a small impact.
Therefore, the more similar the pioneer and me-too products,
the greater the relative advantage of the pioneer.
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Preference Changes After the Advent of Late

Entrants (contd)
Late entrants had better move away from the pioneer.
The differentiated late entrants can:
Diminish the impact of the pioneers distinctiveness

Become more distinct relatively to the pioneer
Develop recognition for a market segment
Increase their relative prominence in the chosen segment
If the late entrants succeed in differentiation, they can

effectively increase their market share and steal market
share from the pioneer.
Therefore, for late entrants, it is very important to find a
dimension to differentiate them from the pioneer
through careful decision on positioning.
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Preference Changes After the Advent of Late

Entrants (contd)
What should pioneer do?
To minimize the loss of market share produced by the advent of
differentiated late entrants, the pioneer should:
Target the most profitable segment
Carefully position it to attract the target market
By doing this, the late entrants will have a great difficulty in
finding profitable segments.
By pre-occupying the most profitable market position, the
impact of differentiated late entrants will be diminished
significantly.
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Positioning Map (Perceptual Map)

Consumers generally use a small number of
evaluation dimensions (two to four) when they think
about a particular product or product class
Objective of a positioning map
To identify the relevant evaluation dimensions and
to locate the positions of existing and potential new
products along these dimensions
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Example: Pain Reliever Market

Gentleness
z Tylenol
Effectiveness:
perceptions on the
ability to make
Effectiveness headache pain go
away fast
z Bufferin
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Bayer z
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z Private
Label
Aspirin Anacin z
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z Excedrin
Gentleness:
perceptions that the
product would not
upset ones stomach or
cause heartburn
Positioning Opportunity
Q: Is there a positioning opportunity along gentleness and
effectiveness?
A: Search for an empty space in the positioning map.
Gentleness
z Tylenol
Opportunity?
Opportunity?
How to determine which empty

space is better?
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Bayer z
Opportunity?
z Private
Label Anacin z
Aspirin
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Effectiveness
z Bufferin
Find an Ideal Vector
z Excedrin
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Ideal Vector
Objective
To find the importance weights of the evaluation dimensions
on the preference formation
importanceof gentleness
>1
importanceof effectiveness
=1
Gentleness
<1
z Tylenol
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Effectiveness
z Bufferin
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Bayer z
z Private
Label Anacin z
Aspirin
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z Excedrin
Ideal Vector: Preference Regression
One of the most popular approach to derive an ideal vector is

Preference Regression Analysis.
Underlying assumption on preference: Expectancy-value model.
Pref ij
I ik X ijk
k =1
where,
Prefij=individual is preference for brand j
Iik=importance placed by individual i on
dimension
k
Xijk=individual is perception on dimension k of
brand j
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) Iiks are measured directly from individual i and Prefij is derived.
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+ error
I X B
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Preference Regression
Pref ij
ijk
k =1
) Prefij is measured but Iks are estimated.
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Ideal Vector: Preference Regression (contd)
Dependent variable: preference score

Measure of preference: get the preference rank orders on all
brands and rescale the rank orders by subtracting the original
ranks from the number of brands.
Preference
rank orders
Anacin
Bayer
Bufferin
Excedrin
Tylenol
(3)
(4)
(2)
(1)
(5)
Rescaled
Anacin
Bayer
Bufferin
Excedrin
Tylenol
(2=5-3)
(1=5-4)
(3=5-2)
(4=5-1)
(0=5-5)
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Independent variables: evaluation ratings on several

dimensions for each brand
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For example, the result of the preference regression analysis for

the pain reliever market is as follows:
Prefij = (0.35) * effectiveness + (0.65)* gentleness
Gentleness Ideal
Vector
z Tylenol
Opportunity?
The best empty space
Opportunity?
for positioning
(0.35,0.65)
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z Bufferin
Bayer z
z Private
Label Anacin z
Aspirin
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Opportunity?
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Effectiveness
z Excedrin

The preference regression can be conducted
for each segment.
i.e. segment-specific ideal vectors
If segmentation scheme is appropriate,
segments will be very heterogeneous in terms
of importance weights, i.e., ideal vectors.
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Gentleness
Aggregate Ideal Vector
z Tylenol
(0.35,0.65)
I.V. for Seg. 2
I.V. for Seg. 1
Effectiveness
z Bufferin
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Bayer z
z Private
Label
Aspirin
Anacin z
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z Excedrin
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How to choose the best location of a brand?
Measure a Euclidean distance from a brands location to the

ideal vector.
Gentleness
Ideal Vector
z Tylenol
Location 1
90
Location 2
Effectiveness
z Bufferin
Bayer z
z Private
Label
Aspirin
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Anacin z
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Euclidean distance:
The shorter the distance is,
the better it is
z Excedrin
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How to Match Positioning with the Target Market?
Measure a Euclidean distance from a position of a product

concept to the segment-specific ideal vector.
Economy
I.V. of Seg2
I.V. of Seg 1
X(Seg 1)
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Performance
Y(Seg 2)
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If Seg. 1 is the target market,
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X is better.
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Oh! Pioneers!
Product pioneer = first firm to develop a working model

or sample in a new product category
Session 2:
Competitive Advantage/
The First Mover Advantage
Market pioneer = first firm to sell in a new product

category
The first product to enter the market
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Pioneer Advantage/
The First Mover Advantage
Pioneering new markets is expensive and risky,

but potentially very rewarding
Example: Photocopier
Inventor: Chester F. Carlson (1906-1958), a patent attorney
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Pioneers are more likely to:

Have high market share,
Survive longer
Be market leaders in their product category
It was his job to prepare the paperwork which was

submitted to the patent office to register his company's
inventions and ideas. However, the patent office
required multiple copies which he had to duplicate by
hand.
Redrawing the copies took hours. What's more,
Carlson was nearsighted and had arthritis, which
made his job even more difficult. He knew there had to
be a better way.
He worked in the kitchen of his home in 1930s.
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because market pioneers enjoy advantages based on

early market entry.
[the first photocopy]
Voila! dry-copy! Electrostatics!
Example: Photocopier (contd)

However, his fight wasn't over. It took him another 6
years to find a business interested in his technology. He
approached companies like IBM, GE and RCA, but was
turned away.
Finally, he was able to interest the Battelle
Development Corporation in his invention in 1944.
In 1947, the Haloid Company was founded
Later, the Haloid was renamed Xerox.
In 1959, Xerox introduced an office copier, the 914,
which became the basis for the current multibilliondollar industry.
Example : The First Spreadsheet

Targeted platform: Apple
In 1982, Lotus introduced 1-2-3 for IBM PC.
No patent protection
In Sep.. 1983, Software Arts was sued by VisiCalc's publishers,
VisiCorp (originally named Personal Software). Software Arts.
Software Arts countersued.
In the summer of 1984, a settlement was reached. VisiCorp was
eventually sold off to various players. Software Arts' assets were sold
to Lotus Development Corporation, the creators and publishers of the
1-2-3 spreadsheet, in 1985.
In 1981, the US supreme court opened the floodgates of software
patents. Unfortunately for the players in the VisiCalc story, it came too
late to help them patent the spreadsheet.
Lotus sued the makers of products; It claimed VisiCalc was too similar
to 1-2-3; it used copyright, not patent, protection.
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Evidences Against the Pioneer Advantage

PIMS data suffer from survival bias and self-reports
bias; Most pioneers are market leaders for only 5 to 10
years; Early market leaders have a higher M/S, higher
success rate, and stronger market leadership than
pioneers (Golder and Tellis 1993)
First entrants survived longer than second entrants only
in successful market. But, in all markets second
entrants survived as long as first entrants
Sources of Pioneer Advantage
(Glazer 1985; newspaper industry in Iowa from 1836 to 1976)
Product-based Entry-Barriers
Economy of scale and learning can lead to lower
costs for pioneers.
Technological leadership can enable pioneers to
consistently have better products than competitors.
Cornering scare assets with long-term agreements
can keep them from late entrants.
Lower M/S for first and second entrants;

higher M/S for third and fourth entrants
(Lilien and Yoon 1990)
.(a lot)
Sources of Pioneer Advantage (contd)

Consumer-based Entry Barriers
When consumers successfully use the first product,
they will continue to favor it because they know it
works.
The pioneer influences how consumers evaluate
attributes and may become the standard for the
product category.
The pioneer can carve out the most profitable
segment
The pioneer may be able to lock-in consumers by
creating high switching costs.
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Forces Against the Pioneer Advantage

Free-rider effect: competitors introduces the same
technology with lower costs.
Technological discontinuities: late entrant uses superior
technology to produce a better product before the
pioneer.
Shifts in consumers tastes: the late entrants adopt new
positioning before pioneers.
Incumbent inertia: pioneer is deterred from making the
investments necessary to remain a market leader.
Identification of ideal points: best product may become
apparent only after the first product is widely
introduced.
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Question
Does there truly exist

the first mover advantage?
Answer
It depends.
Pioneering new markets is expensive and risky, but
also potentially very rewarding.
If pioneers have advantages in
Supplies
Costs
Information
Product quality
Product line breath
Distribution,
Firms may benefit from early entry.
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Answer (contd)
If late entrants can leapfrog pioneers with:
Superior technology
Better product quality
Better customer service
Better brand image,
Firms could be better off entering late.
The logic of success is not to be first to enter the market,

but to strive for market leadership
by scanning opportunities, building on strengths, and
committing resources to customers effectively.
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Discussion on Erics Talk
Trakus Sports Products

Very specialized products
Well defined target markets (NHL, NFL, etc)
Conducted several product concept tests and got very positive
feedback
Big initial investment required for installation but they have
limited resources.
The critical question was not what the target market was
but what market they should go after first.
They decided go after NHL first. However, the NHL did not
provide any revenue.
The members in the board helped Trakus (1) find revenue
sources (e.g., broadcasting companies, sponsors) and (2)
attract other big customers (e.g., NFL).
Session 4:
Marketing Research
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Need for Marketing Research
Discussion on Erics Talk (contd)
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Trakus was identified as

One of the 10 hottest new companies of 1999 by Inc.
One of 10 high potential, new high-technology companies by
Fortune.
Entrepreneurs do not have sufficient information when

they start their businesses.
They need to be able to update plans over time.
They need to gather missing information.
Need for Marketing Research (contd)

Failure rates
Industrial products
Probability
CommerEc onomic
cialization(C)
Success(E)
given T
given C
0.65
*
0.74
Probability
Success ful
Market
Tes t Market(T)
Succ ess(M)
given D
given T
0.45
*
0.85
Technical
Completion(T)
Average
0.57
Overall
Succ ess
0.27
Case I: Iridium Inc.

A satellite phone system that promised to communicate
"with anyone, anytime, virtually anywhere in the world"
Motorola, Inc. first proposed the development of a
worldwide satellite phone network in 1987. After
several years of research and development, Motorola
spun off a company, Iridium, Inc., to head the project in
1991.
Consumer products
Success ful
Design(D)
Average
0.5
Overall
Succ ess
0.19
The results suffer from survivor bias which inflates success rates.
Hence, the success rate may be much much lower (e.g. G.E. 2%)
Case II: Trakus
Case I: Iridium Inc. (contd)

The name Iridium came from the fact that the system
was based originally on a 77 satellite network, and the
element iridium has an atomic number of 77. Iridium
Inc. launched 66 satellites. It spent more than $5
billion.
Iridium needed a million subscribers or more to even
get close to breaking even.
In 1999, Iridium had only 20,000 subscribers -- far short
of the 500,000 it had projected.
Iridium collapsed into bankruptcy in 1999.
The market pioneer for the video cart product, VideOcart Inc.,
declared bankruptcy in the mid 1990s.
Poor execution: The carts were not recharged or repaired on a timely
basis. When a consumer went to take one, the odds were that the cart
would not function well. Very bad WOM!
Erics team was going to do Videocart right using the latest

technology. They conducted a careful concept test for the new
video cart.
Retailers
Reluctant to try another version of a product that had a terrible
reputation. The team would have had to establish extensive beta
sites. However, retailers did not want to pay for it.
Manufacturers
Wanted to know whether ads on the Videocart would increase
sales before committing significant advertising and promotion
funds to the new medium. This required extensive beta sites
again. However, manufacturers did not want to pay for it.
N
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Myths of Marketing Research
What is Marketing Research?
S
.B
The systematic and objective search for and analysis of

information relevant to the identification and solution of
any problem in the field of marketing
Systematic approach:
A clear and concise statement of the problem
Data collection
Analysis
Objectivity
Problem orientation: related to a marketing decision
36
1. Research is only for big decisions

-
Many start-up feel that they cannot justify the level of

expenditures they think any serious marketing research
undertaking will require.
But:
- Strategic mistakes may cost a lot in the future.
- Relatively trivial decisions can be significantly
improved by a small amount of marketing research
Myths of Marketing Research
What Kind of Marketing Research Do

Entrepreneurs need?
2. Market research is too expensive

-
Most people think that market research is survey

research
Survey based sampling is expensive, but, there are
many alternatives to conduct research that can
adequately meet information needs at low cost.
Further, there are many ways in which the cost of survey
research itself can be significantly reduced.
Cheap but Good Marketing Research!!!

1. Low-Cost Experiment
2. Cheap Survey Methods
37
Pseudo-Experiment I
CASE I
A newly designed catalog of electronic texts was
mailed to potential customers and the firm sold 20
percent more compared to the previous year.
PART 1: Low-Cost Experiment
Question
Can we conclude that the new catalog increased sales?
N
I
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E
V
S
Pseudo-Experiment II
Pseudo-Experiment I (contd)
No. We cannot rule out other factors (e.g. improved economy)
What is the problem?
No control group
The mailing catalog was mailed to all potential buyers.
How to remedy the problem?
Divide potential buyers or cities randomly into two groups:
Treatment Group
Mail the new catalog
Control Group
Mail the previous catalog
W
Treatment
Other factors affect both groups: we can infer the causal relationship
between catalog design and sales by comparing sales between groups.
Pseudo-Experiment II
No. It is not clear which of the following is true:
Advertising expenditure causes sales to change.
The change in sales caused advertising expenditure to change.
It is not clear whether the change in advertising activity

preceded the change in sales.
Advertising
Expenditure
Sales
S
.B
CASE II
A firm has two independent subsidiaries, one for the East
coast market (A) and the other for the West cost market
(B). Each subsidiary makes its regional advertising
expenditure decision independently.
When A increased its advertising expenditure and Bs
advertising expenditure remained the same, As sales
increased 10% while Bs sales did not change.
Question
Can we conclude that increased advertising expenditure
increased sales?
In Experiment,
We want to make a causal inference between
treatment and outcome.
In order to make valid causal inference,
1. There must be a control group that did not receive the
treatment or received a different treatment.
- To rule-out out competing explanation
- To cancel-out uncontrollable events external to the
experiment
2. There must be random assignment of treatments to groups.
3. The experimental treatment must precede the outcomes.
38
Exercise 1 (contd)
Exercise 1
Randomized Control Group Design
A young PC game company developed

a new strategy simulation game and is considering
inserting a rebate coupon into the package.
Treatment Group
(G1)
Control Group
(G2)
How to test whether the rebate coupon is a good idea?

Think about:
Randomized groups(G)
Treatment (X; the rebate coupon)
Output (O; measurement of interest)
Package with coupon Purchase intention

(X)
(O1)
Package without coupon Purchase intention
(O2)
The output of interest: O1 >O2
Then, design an experiment.
N
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Exercise 2 (contd)
Exercise 2
S
.B
The PC game company is considering three different

product packages, A, B, and C. The company wants
to pick the best among them.
Design an experiment to help them.
Note that the level of treatments is 3 (A,B,and C)
Factorial Design
An ISP firm wants to test three marketing variables:
price, message, and promotion.
1. Price (4 levels)
$20/month $30/month $40/month $50/month
2. Message (2 levels)
Fast download speed Fast customer service
3. Promotion (2 levels)
free for the first month free for the external modem
Randomized Control Group Design
Group 1
(G1)
Package A
(X1)
Purchase intention
(O1)
Group 2
(G2)
Package B
(X2)
Purchase intention
(O2)
Group 3
(G3)
Package C
(X3)
Purchase intention
(O3)
The output of interest: max(O1,O2, O3)

Here there is no separate control group.
Each group acts as a control group for the others.
Fractional Factorial Design

In the full factorial design, as the number of factors
increases, the required number of groups increases
exponentially.
The fractional factorial design reduces the number of
groups so that each level of each factor is paired in at
least one instance with each level of the other factors.
Full Factorial Design
The total number of possible combinations is 4 2 2=16
16 Groups!
Fractional Factorial Design (contd)

G1
G2
Promotion
First
First
month free month free
Message
Fast
download
speed
Price ($20)
Price ($40)
Sample Size?
The size of each group does not need to be big.
In the randomized control group design, 30 people in
each group may be sufficient.
In the fractional factorial design, 10~15 people in each
group is sufficient.
Remember that the most important thing is an
appropriate control or balance to minimize noise.
G4
Free
modem
Fast
customer
service
Fast
download
speed
Fast
customer
service
Price ($30)
Price ($50)
G3
Free
modem
39
Only FOUR groups
N
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Limitation of Experiments
S
.B
Laboratory Experiment vs Field Experiment

Between-subject Design vs Within-subject Design
Internal Validity and External Validity
PART 2: Low-Cost Surveys
Low-Cost Sampling
Low-Cost Survey Design

A survey with probabilistic sampling is expensive.
However, it is possible to design low cost surveys.
Survey methods include:
One-to-one interviews
Mail surveys
Telephone surveys
Internet surveys
The sampling cost is the most expensive cost

component.
Focus groups
Mall intercepts
Quota sampling
Convenience sampling
Judgment sampling
Snowball and network sampling
How many respondent do we need?
Several thousand? No 200 at most
Guideline for Survey Questions
How Big Should Sample Size be?

Confidence Interval = [Estimate Sampling Error]
Sampling Error =
40
If you do not ask, you cannot get an answer

You need an explicit set of hypothesis that you want to test in advance
Design your analysis in advance as this will determine the sample
size.
Std. Dev. of Estimate

z
Sample Size
zF=cut-off value given the significance level
If there is something wrong in the questionnaire, the survey data is

just a waste
z 2 Std. Dev. of Estimate

Sample size =
Sampling Error
Use a focus group interview to understand important variables (e.g.

product attributes) before writing about questions.
Conduct a pre-test of the questionnaire (N=30)
Open to other possibilities
Note that zF is fixed in advance.
Think about multiple possible answers for a problem

e.g. three hypothesis on possible segmentation variable
What will happen if sample size increases?
Actionability
Is bigger sample size always a good idea?
N
I
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E
V
S
Measurement Scale
Guideline for Questions (contd)
S
.B
Avoid questions that make respondents infer the answer you

expect to get
e.g. Dont you agree? Wouldnt you say?
Minimize the number of open-ended questions. Choice from a list

of multiple responses is better than open-ended questions.
Use simple, direct and familiar vocabulary to all respondents
Avoid vague or ambiguous meanings
e.g. How long have you lived here?
Avoid double-barreled questions
e.g. Are you satisfied with the cost and convenience of this service?
Ordinal
Rank order among brands in terms of preferences
Categorical
Yes/No choice
Single or multiple choice(s) from a list of responses
Interval
Likert scale
Start with easy questions and put lengthy and difficult questions at
the end.
General questions first and specific questions later.
Sensitive questions dealing with income status, skill level, and so
forth should not be placed at the beginning.
New Medium for Survey: Internet
Measurement Scale (contd)
Two types
Likert scale or semantic differential scale

Use 5- or 7-points scale
1
Disagree
strongly
Disagree
somewhat
Neither agree
nor disagree
Agree
somewhat
Agree
strongly
Definitely
would not buy
Probably
would not buy
May or may
not buy
Probably
would buy
Definitely
would buy
Very inferior
Very bad
Neither
superior nor
inferior
Bad
Average
Very superior
Good
Very good
E-mail survey
Web-survey
Advantages
Fast and very cheap

Accessible to diverse and large group of people
Error free in terms of coding
On-line statistical analysis
Vivid stimuli (e.g. photo, graphics) can be used.
Disadvantages
No control on sampling
Dissatisfied
Satisfied
41
Statistical Analysis
If responses are categorical, use a cross-tab (x2 test)
If responses are interval scaled,
Test differences between two groups: 2-sample t-test

Test differences between 2 interval responses: 1-sample t-test
Test differences among >2 groups: one-way ANOVA
Test differences with moderator: ANCOVA
Test multiple responses among groups: MANOVA, MANCOVA
Others
Correlation; regression; discriminant analysis; cluster
analysis; logistic regression.
See any business statistics or multivariate analysis

textbooks.
N
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S
.B
42
How Big Should Sample Size be?

Example
We have data y=(y1,,yN), where y~N(,2)
We want to test
H0: = vs H1:
Chosen significance level==0.01
Fixed critical cut-off value = c*= 1.64,
Test statistics
z value =
Mean(Y) -
Mean(Y) -
= Sample Size
Std. Dev. (Y)
Std. Dev. (Y)/ Sample Size
If |z|>1,64, reject H0
N
I
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E
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How Big Should Sample Size be? (contd)

An experiment collected N=100 observations, yN=100,
assumed to be independently from N( ,1)
He wants to test
H0: =0 vs H1: 0
Current sample mean yN=100=0.2.
So, zN=100=(0.2-0)*10=2
Pocock (1977) showed cut-off value under =.05, c*=2.18
Since z100<c*, H0 is not rejected.
S
.B
So, he decided to collect another 100 observations. Then, he

computed zN=200..
Could he reject H0 eventually?
Business Concept Testing

To evaluate feasibility of a business idea
Two key decisions
1. How to communicate the concept
2. The data to collect from respondents
Respondents
Potential target customers
Other important players (e.g., possible channel members)
43
Measures
Primary
Intended purchase measures
Overall product diagnostics
Special attribute diagnostics
Respondents profiling variables
Secondary
Open-ended reason why
N
I
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V
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How to Present A Business Concept?
S
.B
Use simple written statement on the business concept (possibly

with visual stimuli)
A short statement of the core product concept
Alternatively, a vivid story board
Your Task
Develop a research plan for concept testing of
LINEPASS.
Objective
Respondents
Sample size
Method
Stimuli
Data
Measurement
Analysis
44
Affinity Diagram (Kawkita Jiro Method)
N
I
.
E
V
S
Fishbone Diagram
S
.B
Market Entry Strategies

These
firms
are characterized by these elements:
Successful
pioneers
[ Netscape]
-Large entry scale

-Broad product line
-High product quality
fast followers
[ Microsoft ]
-Larger entry scale than the pioneer

-Leapfrogging the pioneer with
superior technology, quality and
customer service.
Successful
late entrant
- Focus on peripheral target markets or

niches
Mass-Market
Successful
Penetration
Niche
Penetration
45
Market Entry Strategy for Pioneer

1. Mass Penetration
Netscape
2. Niche Penetration
3. Focused Sequential Penetration
Trakus
N
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V
S
Situations Favoring Alternative Marketing Strategies for Pioneers

Mass-Market Penetration
Focused Sequential Penetration
Market
Characteristics
-large potential demand

-homogeneous customer needs
-short diffusion process
-large potential demand

-fragmented market
-relatively longer diffusion process
Product
Characteristics
-difficult to copy
-limited sources of supply
-complex production process
-easily copied or adopted

-many sources of supply
-relatively simple production
process
Competitor
Characteristics
-few potential competitors

-Few sources of differential
advantage
-many potential competitors

-many possible sources of
differential advantage
Firm
Characteristics
-strong product engineering skills

-strong marketing skills and
resources
-sufficient financial and
organizational resources
-limited product engineering skills

and resources
-limited marketing skills and
resources
-insufficient financial and
organizational resources
S
.B
Strategic Objectives
Mass-Market Penetration
WildFire
Focused Penetration
Short-term
-Maximize number of
adopters in total market
-Invest heavily to build future
volume and share
-Maximize number of adopters

in initial target segment
-Limited investment to build
volume and share in chosen
initial niche
Intermediateterm
-Attempt to preempt
competition
-Maintain leading market
position even if some
sacrifice of margins is
necessary in short terms as
new competitors enter
-Maintain leading share position

in target segment even if some
sacrifice of margins is
necessary in short terms as
new competitors enter
-Accumulate resources and
experience from initial niche
and utilize them to penetrate
other segments.
Long-term
-Maximize ROI
- Maximize ROI
46
EPILOGUE
In January 1995, McCaw invested $5 million in Wildfire
and obtained 12.5% of the companys shares
Mutually non-exclusive collaboration for Network Wildfire
McCaw placed an order for a 500-user prototype
Planned to scale up a 500-user prototype Network Wildfire to a
1,500 user system by the end of 1996.
In July 2000, Wildfire was acquired for about $142

million by Orange Telecommunications, a subsidiary of
France Telecom.
Currently, Wildfire is focusing on Network and
Corporate systems.
Entrepreneurs do not have sufficient information

Lots of missing information
many hypothesis
However, it is crucial to make on-line correction of initial plan over
time.
Entrepreneurs need to gather critical information in order to make
correct on-line correction of plan.
Fill missing information
Test hypothesis
N
I
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E
V
S
S
.B
Wildfires decision on line-of-business highlights the need of

obtaining critical information for its on-line correction of plan.
Wildfire case also highlights the importance of partnership in order

to overcome the problem of limited resources.
47
The First Home Video System
Session 6
Demand Forecasting
Ampex VR-1500
in the 1963 Neiman Marcus Christmas catalog
- It weighed around 100 lbs by itself, but

it was completely transistorized.
Extremely high tech for 1963!
- The tape speed was 3.75 IPS (inches
per second) with recording time of up
to 5 hours of black and white video on
a single 30 lbs / 12. 5 inch diameter
reel of standard 2 inch wide
broadcasting video tape.
- It Included a 21" color TV, stereo FM
tuner, turntable (remember LP's?) and
a reel to reel audio tape recorder. A
video camera was also included! All
for a modest $30,000!
- Installation included a (free?) visit by
an Ampex service engineer to set up
the 900 lbs system.
N
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RCA Selecta Videodisk Player
Home Video War!
Began long before 1974.

Beta vs. VHS
Sony introduced Beta Format in 1974. In the first year, Sony sold
30,000 Betamax VCRs in the US.
When JVC came out with the VHS format VCR in 1976, the stage was
set for the format wars.
In 1981, Betamax format VCRs accounted for merely 25% of the entire
market and consumers were being warned that the selection for VHS
would be "slightly broader.
In 1987, Rolling Stone announced that "The battle is over." On
January 10, 1988, Sony admitted to plans for a VHS line of VCRs.
VHS players commanded 95% of the VCR market.
Laser Disk and DVD formats were under development in 1970s.
One more player! RCAs Videodisk system.

Began field testing in 1975
Extensive press coverage in 1976 and 1977
S
.B
RCA Selecta Videodisk Player (contd)
-Medium: CED (Capacitance Electronic Discs),

housed in 16 housing case
-Used a needle to read disc surface
-One sounded: cartridge must be flipped over half way
through the movie
-No recording function
What They Did?
Demand Forecasting
Conducted market research
Expected to sell 200,000 players and 2 million disks in 1981
Forecasted that in 10 years the players would be in 30% to 50% of all
American households with $7.5 billion in annual sales of players and
discs.
Our customer for video discs is clearly the average family, the same
broad segment that built the television business to 1980's level of
nearly 16 million annual unit sales." (Ack K. Sauter, RCA vice
president)
Video disc players will reach a higher sales level in the first year than
any other major video product in the history of the industry."
(Sauter)
Value Proposition: Easy to use, depth of software, and

affordability
Allies: Zenith, JC Penney, Sears, Sanyo, Toshiba, Hitachi, and
Radio Shack
5000 retail outlets
$22 Million Advertising
Initial Price
$499.95 for the player
$14.98 to $39.98 for CED disc titles.
48
What We Learn from Videodisk?
What Happened?
Sold 100,000 players, half of the forecasted sales, in
1981
The importance of Demand Forecasting
When the system hit the market, VCR's were well established
Typical consumers thought "Why would I want this VideoDisc
player, when for about the same price I can get a VCR that
both plays and records.
RCA's market research didn't take videocassette rental into
account at all, and a lot of consumers who earlier would have
been willing to purchase movies now preferred to rent them.
Business feasibility assessment

Is the market potential big enough?
Decision on resource commitment before market launch
Pricing
Cum. Sales in 1984: 500,000 Units

Withdrew in 1986
Loss: $580 Million
N
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Demand Forecasting of an Innovative

Product/Service
Topics
S
.B
How to forecast sales of a truly innovative

product/service
What is the challenge of it?

No historical data
Time-series methods are inapplicable
How to forecast sales of an early entrant to market

How to forecast sales of a pioneer brand after the
market entry of a new competitor
Two Approaches for Sales Forecasting of

Innovative Products
Survey-Based
BASES II (for package good)
Part I. How to forecast sales of a truly

innovative product/service
Next Class
Model-Based
Diffusion Model (Bass Model)
Binary Logit Model
49
The Objective of Diffusion Models

To represent a life-cycle sales curve of an innovation-a
new product or service- among a given set of
prospective adopters over time with a small number of
parameters.
A. Diffusion Model
(The Bass Model)
N
I
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E
V
S
Assumptions of Diffusion Models
S
.B
Two adopter categories
Applicable to a new product category

not to a new brand.
Each adopter purchases only one unit of the new
product
No repeat purchases
Applicable only to durable goods
Total potential market size is fixed.
The Bass Model
Innovators
Imitators
Assumption
The new product is first picked up by innovators
The innovators pass the word (WOM effect) to other membersimitators.
The Bass Model (contd)

S ( t ) = p [ m Y ( t )] + q
Y (t )
[ m Y ( t )],
m
where,
S(t) = sales units at time t
Y(t) = cumulative sales units at time t
Three unknown parameters

p: adoption rate of innovators
q: adoption rate of imitators
m: potential market size
Estimation of the Bass Model

S (t ) = [ p + q
Rewrite as
Y (t )
][ m Y ( t )],
m
q
[Y (t 1)]2
m
2
= a + bY (t 1) + c[Y (t 1)]
S (t ) = pm + (q p )Y (t 1)
Run a regression analysis to find a, b, and c.

Then, find
b b 2 4ac
m=
so that m > 0
2c
a
p=
m
q = mc
50
If Sales Data Dont Cover the Peak Time

Periods
Application of the Bass Model (contd)
Use only 4 year sales data

8000
7000
m=39285.08
m=16999.01
True peak time=8

6000
Unit sales in thousands
Unit sales in thousands
7000
6000
5000
4000
3000
2000
5000
4000
3000
2000
1000
1000
0
1
10
Actual
10
Year
Year
Actual
Predicted
Predicted
N
I
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E
V
S
Application of the Bass model for a Truly

Innovative Product
Problems of the Bass Model

No. of data points required
S
.B
There are no historical sales data.
At least 3 sales data points
It has been found that the Bass model works well when
sales data cover the peak time periods
For a truly innovative product, there are no historical sales data.
Diffusion process vs Marketing activities
It is better to set the market potential parameter, m, a

priori.
Products in the same product category tend to have

similar Bass coefficients.
The innovator coefficients, p, are relatively stable across similar
products
The imitator coefficients, q, tend vary across similar products
One adoption per an adopter

One inflection point
Application of the Bass model for a Truly

Innovative Product (contd)
Analogical analysis
1. Find a set of similar products introduced in the past
2. Apply the Bass model to these products and get estimates of
three Bass parameters
3. Run a simple linear model
For example,
qi = ' xi + error
where,
qi=imitator coefficient of product i
xi= independent variables
that are assumed to affect the diffusion process
Examples of xi
Similarity ratings
Product evaluation scores
Attribute ratings
Marketing mix variables
Any variables that are assumed to affect the diffusion

process
Demand Analysis in Binary Logit Model

Choice or trial intent observations
For consumer i (i=1,,I), yi = 0/1 (No/Yes)
I-B.Binary Logit Model
Then, Total demand=iyi
Therefore, the key is how to predict yi

Key assumption: (Expected) Utility Maximization
A consumer will buy the product If
utility obtained from the product > utility from no purchase
Binary Logit Model
Binary Logit Model (contd)
V
S
Utility from no purchase decision=0

Utility offered by the product = xi+error
Measurement through survey

yi
p (Purchase ) = p ( y i = 1) =
' xi
e0 + e
N
I
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E
'
xi
S
.B
' xi
1+ e
'
xi
If xi>0, consumer i will buy the product
Show the product concept

Ask Are you likely to buy this product? (Yes/No)
Xi
independent variables that are assumed to affect choice
decision
Product characteristics and/or consumer characteristics
Price term can be included in xi
Korean Beer War

Two Beer Companies, OB and Crown
Part II. Sales Forecasting

- When A Start-up firm is an Early Entrant
- When Competitors Enter the Market
Multinomial Logit Model
In 1933, Crown beer was introduced and there were no

competitors.
In 1948, OB beer was introduced. In 1952, OB beer became a
market leader.
Since 1952, OB beer had kept its market leader position for
about 40 years. In 1992, market share of Crown beer was
about 15%.
51
52
Korean Beer War (contd)
Korean Beer War (contd)

In 1993, Crown beer company introduced
a new beer brand, Hite.
In 1994, OB company launched Green Soju, a premium

soju product.
Unique selling proposition: Freshness
To defend their market position, Jinro launched a new

premium soju product and decided to counter-attack
OB company by launching a new beer product.
OB launched several new beer products (e.g. OB Sound, OB Ice,

NEX, CAFRI) but lost their market share quickly.
In 1994, the actual market share was

OB: 70%
Hite: 30%
To improve revenue structure, OB company decided to enter

Korean traditional wine market (Soju), which had been
dominated by a formidable company, Jinro,
for about 50 years.
N
I
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E
Demand Forecasting for the New Beer
V
S
What Happened?
In 1994, Jinro launched a new beer product, Cass.
In 1993, a market survey was conducted.
S
.B
After collecting about 3000 questionnaires, the

multinomial logit model was applied to forecast market
share of Cass.
Forecasted market share in bottle beer market
Cass: 23%.
Hite: 45%
OB: 27%
Foreign beers: 5%
Sold 20 million bottles in the first 37 days.

Sold 10 billion bottles in the first two years.
What is Multinomial Logit Model?

i: Consumer (i=1,,I)
j: Choice alternative (j=1,,J)
Independent variable (xij): vector of explanatory
variables for i and j which are assumed to determine
purchase decision (e.g., evaluation on attributes)
Then, utility of a person for a product is assumed to be
a linear model:
uij = ' xij + errorj
What is Multinomial Logit Model? (contd)

Dependent variable (yi)
yi is a polychotomous response, yi {1,,J}
Then,
Pr( y i = j ) = Pr( u ij > u ik for all k j)
= Pr( ' x j + error j > ' x k + error k )

(Expected) Utility Maximization Assumption
Assume errors are independently and identically
distributed with Weibull distribution, then we have
Pr( yi = j) =
Utility of consumer i for product j
e
J
'x j
'
xk
k =1
53
Measurement of Independent Variables

(contd)
Measurement of Independent Variables

Survey data
Example: Evaluation on attribute
Please rate several brands in terms of each statement
1.
Monthly fee
Very
Very
bad
Bad Average Good good
Verizon
1 2 3 4 5
Sprint
1 2 3 4 5
Cingular
1 2 3 4 5
.
2.
Territorial Coverage
.
It is better if respondents are exposed to a sample of

the new product.
In addition, some marketing decision variables can be
entered into xij
Prices, package type, ..
After measuring attribute evaluation of substitutes or

competing brands, measure attribute evaluation for
the new product or service
N
I
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E
V
S
Estimation of Logit Model
Measurement of Dependent Variable

Among all products/brands including the product we
described (or showed),
Which product do you want to buy?
It is possible to measure purchase intension with
varying marketing variables for the new product(e.g.,
$1, $1.5, )
Key is to get the estimate of
S
.B
In order to get good estimate of , the sample size

needs to be over 150
54
Simple Hierarchy-of-effect Model (contd)
This simple structure decomposes the big problem of

demand forecasting into three smaller problems.
The long-run business success depends on the size of
repeat purchase customers.
Given this structure,
Session 7:
Demand Forecasting II
Prob(Being Regular Users) = Prob(Aware)

Prob(Trial|Aware)
Prob(Repeat|Trial)
Then, if untapped market size is N (e.g. 50 million
households) and average purchase unit is n,
Estimated Market Size = N n Prob(Being Regular Users)
Popular Models
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1. BASES II
Survey-Based Demand Forecasting
Developed by SAMI/Burke Marketing Research in 1978

Use survey data
Sales volume forecasting
2. ASSESSOR
-
BASES II
Silk and Urban (1978) (Journal of Marketing Research, May, 171-191)

Use simulation data of a store shopping environment
Market share forecasting
V
S
3. NEWS
-
Pringle, Wilson, and Brody (1982)

Use survey data
- Market share forecasting
S
.B
-
(Management Science, Vol. 1, 1-30)
Simple Hierarchy-of-effect Model

UNAWARE
AWARE
Advertising
Word-of-mouth
Sample
Couponing
Ad
Distibution
Price
TRIAL
Product quality
Service
REPEAT
Popular Models (contd)

Key of implementation of these three models is the
estimation of transition probabilities of
Awareness Trial
Trial Repurchase
Among these models, we will focus on the BASES II

since
It uses survey data, which are much cheaper than
ASSESSORs simulation data of a real shopping environment.
It requires a simple product/service concept.
ASSESSOR requires several different ads and packages.

1
BASES II
55
How to Use BASES II?
Stage 1 (Before-use measure)
Use sensible discounting factors
Shopping mall intercept interviews at four or more

geographically dispersed cities
Respondents are not screened for category usage.
After presenting a product/service concept to respondents, the
interviewer asks a set of questions such as like/dislike, trial
Intent (binary measure), purchase intent (binary and/or Likert
scale), and purchase quantity/frequency of the product
category.
the top box rule

Study a few similar product categories
Use multiple discounting factors
Optimistic and pessimistic sales forecast
The most difficult part is the estimation of awareness

proportion, which depends on marketing plan.
How to find a good estimate on the relationship between
marketing activities and awareness level?
e.g. Ad expenditure and Awareness level
Stage 2 (After-use measure)

After several weeks, users are called on the phone to obtain
after-use measures, which include some of before-use
measures and repurchase intent.
How Well Do BASES II Work?
How to Use BASES II? (contd)
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In 1986 SAMI/Burke brochure,

we have established a validation database of over
200 cases. Based on our validation in the 1980s, 90%
of our forecasts (sales volume, as well as trial and
repeat rates) were within 20% of actual volume, and
over half were within 10%.
Relationship between Ad expenditure and Awareness

level
Select similar product categories

collect data of current ad expenditure and awareness data of
brands in these product categories
Ad expenditure data are readily available
If it is difficult to get current awareness rate data, measure
awareness of these brands during shopping mall intercept
study at the stage 1.
Pool all collected data and run a regression:
V
S
NEWS: 18.5% (n=22 cases)

ASSESSOR: 21.5% (n=44 cases)
S
.B
Awareness = n + ln(ad
expenditure)+error
BASES II (contd)
Since SAMI/Burke had an extensive database of

thousands of tests across many product categories,
they could make a good inference on:
Relationship between marketing expenditures and Awareness
Relationship between Awareness and Trial intent
Relationship between (Likert-scale) purchase intent and real
trial
Relationship between (reported) repurchase intent and real
repurchase rates
The database could help them a lot because subjects

responses given a simple product/service concept
typically suffered from over-estimation. The database
allowed them to find good sales estimates through a
discounting process.

2
56
How to Define the Market Structure?
Case I: No market structure
Session 8:
Competitive Market Structure
(Market Definition)
A
(40%)
B
(20%)
C
(20%)
D
(20%)
Case II: Market structure (2 submarkets)
A
(40%)
B
C
(20%) (20%)
D
(20%)
If A is not available, what will happen?

(contd)
Example: RCA Video Disk

Home Video
Beta
VHS
Video Disk
Case II
Laser Disk
DVD
V
S
A
(40%)
Home Video
Beta
VHS
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A market is defined by a series of submarkets, if, when

a product is deleted from a submarket, its former
consumers are more likely to buy again in that
submarket than would be predicted by market share.
Case I
Video Disk Laser Disk
B
C
(20%) (20%)
D
(20%)
When A is unavailable, M/S of B will be increased

more than 13.3%=4020(20+20+20).
S
.B
DVD
If there is no market structure, M/S of A will go to B,C, and D equally.
Why is Market Structure important?

Market definition
Which market will I enter?

Who are my direct competitors?
Market structure information or decision will determine

the entrepreneur's competitive marketing strategies.

(contd)
Two approaches
Firm-oriented
Customer-oriented
Urban, Johnson, and Hauser (1984), Testing Competitive
Market Structures, Marketing Science, Vol. 3, No. 2, 83112.
Question
What are the problems of firm-oriented definition on
market structure?
57
We Want to Know..
Which of the following is correct
Case II
Case I
Home Video
Home Video
Customer-Oriented
Market Structure Analysis
Beta VHS Video Disk
Laser Disk
DVD
Beta
VHS
Video Disk Laser Disk
DVD
To make an inference on this, we need to examine

the changes in market shares of products in a
submarket when one of these product is deleted.
Under two conditions,
1. Under no market structure assumption
2. Under an assumed market structure
Data: Switching Matrix
Example: Case II
Two submarkets: [Beta,VHS], [VD,LD,DVD]

Pi*(s)
Forced switching
First observe the product a customer most prefers
Place him/her in a choice situation in which his/her preferred
product has been removed from the choice set
Then, observe the product a customer most prefer among
remaining products
Preference rank
0.55
=11/20
0.36
=(0.3)/(1-0.2)
VHS
0.53
=16/30
0.29
=(0.2)/(1-0.3)
VD
0.8
=(10+6)/20
LD
0.67
=(4+6)/15
DVD
0.67
=(3+7)/15
E
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S
S
Ask customers to rank order the products in terms of their

preference
Then, identify their first and second ranked products
N
I
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Pi(s)
Beta
0.38
=(0.15+0.15)/(1-0.2)
0.41
=(0.2+0.15)/(1-0.15)
0.41
=(0.2+0.15)/(1-0.15)
1.62
3.00
3.92
2.01
2.01
Pi*(s): observed switching prob. in a submarket under the assumed

market structure = ,ji N(i,j), / Ni, where i,js
Pi(s): switching prob. in a submarket under no market structure
assumption = ,ji, MSj / (1-MSi) where i,js
.B
Z=(Pi*(s)-Pi(s))/sqrt(Pi(s)(1-Pi(s))/Ni)
Hypothetical Switching Matrix

No. of Beta
Respo
ndents
(Ni)
VHS
Beta
20
11
VHS
30
16
VD
20
LD
15
DVD
15
2nd
1st
VD
LD
DVD
10
6
6
Example: Case II (contd)

Then, compute aggregate statistics.
P* = Total switching prob. in submarkets
under assumed market structure
= s i,ji N(i,j) / N
P = Total switching prob. in submarkets
under no market structure assumption
= s iPi(s) Ni
Z = (P*-P)/sqrt(P (1-P)/N)
In case II,
P*= (11+16+10+6+4+6+3+7)/100=0.63
P= (0.36 20+0.29 30+0.38 20+0.41 15+0.41 15)/100=0.36
Z = (0.63-0.36)/sqrt(0.36*(1-0.36)/100)=5.64
58
Then,
With the same token, for the case I,
P*= 0.51
P = 0.47
Zcase I = 0.71 < Zcase II=5.64
Therefore, the hypothetical switching matrix are in favor

of Case II over Case I.
What is Market Structure?
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The structure of competition among products or

substitutes
Monopoly
V
S
Perfect
Imperfect
Competition
Competition
(e.g. Monopolistic Competition,
Oligopoly)
S
.B
Indication of Market Structure (at industry level)

Monopoly
Monopolistic
Competition
Oligopoly
Perfect
Competition
Size & number Many buyers;

of buyers
small relative to
the market
Many buyers;
small relative to
the market
Many buyers;
small relative to
the market
Many buyers;
small relative to
the market
Size & number One seller

of sellers
Many sellers;
small relative to
the market
A few sellers;
some of them
are large relative
to the market
Many sellers;
small relative to
the market
Degree of
substitutability
among
products
No close
substitutes
Differentiated
products
May or may not

be close
substitutes
Close
substitutes
Conditions of
entry
Barriers prevent
entry
No barriers to
entry; firms may
be barred from
making identical
products
Often have
barriers that limit
(but do not
completely
prevent) entry
No barriers to
entry
59
Why Is Segmentation Important? (contd)
Suppose that competitors enter into the market.

Competitor B
It will be better off

if it pre-occupies
competitors positions.
Its position will be
determined by comparing
sizes of segments.
13
Session 9:
Segmentation and Targeting
12
11
D im ension II
10
Switchers
to B
9
8
Competitor A
7
6
Switchers to A
5
4
3
3
10
11
12
13
Dim ension I
Segmentation
The Difficulty in Segmentation

Segmentation is a practical issue.
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Dividing the total heterogeneous market for a good or

service into smaller groups which are more
homogeneous
Example (Bicycle riders)
There are so many possible segmentation variables.

How to pick up the best segmentation scheme?
Transportation
Riders
Exercisers
V
S
Socializers
Off-road
S
.B
Environmentalists
Adventurers
Why Is Segmentation Important?
Criteria for Segmentation
CConsider a heterogeneous hypothetical market
Scatter plot of ideal

products of customers in
the market.
They will prefer a
product which is closer
to their ideal points
14
Segment 1
12
D im ension II
10
This position will

attract all customers
from Seg. 1 as well
as Seg. 2 under
monopoly condition.
Segment 2
0
0
10
12
14
Segmentation dimensions
Homogeneous
within
Substantial
Profitable
Heterogeneous
between
Operational
Useful for identifying
customers
Dim ension I

1
Miller case
Segmentation (contd)
Combining vs. dividing
New product concept
Combining
Many people have switched to wine

because wine has lower calories
than regular beer
The heavy beer drinkers may have
the same concerns because they are
drinking beer in large quantities.
low calorie beer, which ensure rich
and full-bodied beer taste at only 96
calories.
Pros
Try to increase the size of the target markets by combining
several segments.
May help achieve economies of scale
May also require less investment because a marketing mix is
developed for all combined segments.
Cons
As the target market is enlarged by combining several segments,
it becomes less homogeneous and then it is very hard to develop
a marketing mix for all customers in the market.
Competitors can easily draw customers by offering marketing mix
to more homogeneous sub-segments of the combined target
market.
Miller case (contd)
Segmentation (contd)
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Dividing
Pros
60
The company needed to study
What is the target market of the new beer concept?

Does there exist a segment that has great concern about
calories? And is the segment big enough?
If there does not exists a big segment that has great concern
over calories, what is the best target market of the new beer
product?
Try to satisfy each segment very well

May help achieve competitive advantage easily
May minimize competition
Can also generate bigger sales by concentrating on a
homogeneous segment
e.g. niche marketing
V
S
To study those questions, the company conducted a

series of market surveys. The critical parts of the
surveys were segmentation, targeting, and
positioning.
Cons
The chosen target market, a subset of all segments, may
not be big enough.
S
.B
Segmentation and Targeting

Good segmentation scheme
Substantial variation in terms of the chosen segmentation

variable across segments.
Pretty small variation in terms of the chosen segmentation
variable in a segment.
There must be substantial variations across segments

in terms of
Purchase pattern (e.g. purchase intention, usage rate)
Needs or Benefits
Miller case (contd)

Segmentation
Benefit segmentation
Benefits include:
physical product characteristics (tastes, price, % of
alcohol, bottles etc.)
non-physical product characteristics (freshness, richness
etc.)
other needs which can be satisfied by consuming a beer
(social activities etc.)
unmet needs which have not been satisfied.
These variables can become targeting variables.

2
Miller case (contd)
Miller case (conntd)

Post hoc segmentation
Seg.
4
Seg.
3
Seg.
8
Seg.
5
Seg.
6
Positioning strategy
New findings
They compared the differences between responses on
benefits sought across segments.
Using a cluster analysis
Seg.
2
Seg.
1
They found that the target market, the heavy drinkers,

had a complaint, I feel heavy on the stomach when I am
drinking beer.
The other important dimension was taste
Input data:responses on questions,

which are designed to measure
the evaluation on multiple benefits
Seg.
7
Positioning concept (Core Benefit Proposition: CBP)

A good tasting beer which does not produce the feeling
of satiation.
Miller case (contd)
Miller case (contd)
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Marketing mix strategies
Targeting
A target market was selected by comparing the average
beer consumption rate of segments.
A segment of the highest consumption rate was targeted.
Product strategies
CBP: Feel Less, Taste Better
Brand name: Lite
Promotion strategies
Seg.
Seg.
Seg.
Seg.
3
4
Seg.
5
Seg.
6
61
To reach the target market, they

studied the characteristics of the
target market
One of the most interesting findings
was that the target market has a
great interest in sports.
V
S
Target market: Heavy drinkers

Seg.
8
S
.B
Seg.
7
Findings
Miller case (contd)
Unfortunately, the new product concept with low calories

does not appeal to the target market.
Q. How to position the new product in the target market? Is
there any important evaluation dimensions in the target
market?
Positioning strategy
Miller case (contd)

Advertising
Unique Selling Proposition
Feeling Less, Taste Better
They launched ad campaigns of which backgrounds were
sports games (e.g. baseball).
Promotion
They have been sponsoring several big sports events.
Miller Lite NFL Player of the Week and NFL Player of
the Year programs
Miller Lite Drag Racing
NASCAR Winston Cup

3
15.835 ENTREPRENEURIAL MARKETING

Assignment II: Demand Forecasting
This assignment is designed to help students learn about how to forecast the demand of a new
product or service. For this assignment, students should have an execution file, BLOGIT.EXE and a data
file, DATA1.DAT. The data file contains synthetically generated choice observations and the execution
file will implement the binary logit analysis. In the Appendix, students can find a concise description
about how to use the execution file.
Demand Forecasting of a New Product/Service (Segway Inc. )

On Dec. 3, 2001, Dean Kamen unveiled Segway Human Transporter (HT), the worlds first dynamic
self-balancing human transporter, which was designed to enhance the productivity of people by
increasing the distance they can travel and the amount they can carry. The Segway HT is an one-person,
gyroscope-packed, electric-powered scooter and perhaps the biggest innovation in transportation since
the car replaced the horse and buggy.
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Kamen and his team plan to release their products to customers by the end of this year. Their
commercial ambitions are as advanced as their technical virtuosity. By stealing a slice of the $300 billion
transportation industry, they expect that their start-up, Segway Co., will be the fastest outfit in history to
reach $1 billion in sales. To get there, Kamen has collected a total of about $90 million and has erected a
77,000-sq-ft. factory a few miles from its Manchester, N.H., headquarters that will be capable of
churning out 40,000 Segway HTs a month by the end of this year.
Before the market launch, Segway Co. should resolve two strategic issues: (1) which segment is the
best initial target market? and (2) what is the best product for the chosen initial target market? Even
though they plan to eventually penetrate both commercial and consumer markets, they feel they need to
focus on only one market in the short term in order to generate the revenue necessary to upgrade their
products. Since there is a significant difference between two markets in terms of needs, the technical
specification of the first commercial transporters depends on the chosen market. In particular, Segway
Co. is considering three attributes as follows:
Price : $3,000 or $8,000
Maximum Speed: 10mph or 20 mph
Range: 17 miles or 30 miles per battery charge
To address these two issues, a group of brilliant Sloan MBA students have conducted a market
research study designed to measure purchase intents for alternative product concepts. The data they
collected are given in a tab-delimited file, DATA1.DAT, which contains total 300 purchase intent
observations, 150 from commercial customers and 150 from public consumers. The data file consists of
6 columns as follows:
Col. No. 1: ID (1-300)
Col. No. 2: Price (0 for $3,000; 1 for $8,000)
Col. No. 3: Maximum Speed (0 for 10 mph; 1 for 20 mph)
Col. No. 4: Range (0 for 17 miles; 1 for 30 miles)
62
63
Col. No. 5: Observed Purchase Intent (0 for no purchase intent; 1 for purchase intent)
Col. No. 6: Customer characteristics (0 for consumers; 1 for commercial customers)
Since purchase intents (Col. No. 5: CN5) are binary responses, the binary logit model is suitable for
this data set. In particular, we assume the binary logit model as follows:
r
e G x i , (1)
r
1 + e G xi
where x i : 1, CN2, CN3, CN4 is a 4-dimensional column vector of an intercept and three independent
r
r
variables (covariates) and G : G 1 , G 2 , G 3 , G 4 is a 4-dimensional row vector of coefficients for x i .
Note that the first element of x i , 1, is designed to capture an intercept and the first element of G, G 1 ,
denotes the estimate of the intercept.
Prob of customer i (i : 1, q , I making a purchase : p i : pCN5 i : 1 :
1. Fit the binary logit model to DATA1.DAT by using BLOGIT.EXE and

a. Get the estimates of G for all data,
b. Get the estimates of G only for commercial customers,
c. Get the estimates of G only for consumers.
After finding three sets of Gs, compare them each other in terms of magnitude
and discuss implications of this.
Note: for this task, you should run BLOGIT.EXE three times with different options:
sel:all for a, sel:(6:1) for b, sel:(6:0) for c.
2. Fill out the following table.
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Product Concept
S
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Pred. M/S* in whole market Pred. M/S in commercial market Pred. M/S in consumer market
A ($3K, 10mph, 17miles)

B ($3K, 10mph, 30miles)
C ($3K, 20mph, 17miles)
D ($3K, 20mph, 30miles)

E ($8K, 10mph, 17miles)
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F ($8K, 10mph, 30miles)
G ($8K, 20mph, 17miles)

H ($8K, 20mph, 30miles)
Note: *: Predicted market share

Hint: You can use Eq. (1) to compute the predicted M/S since you have the estimate of G
and since x i can be defined for each product concept.
For example, x i becomes 1, 0, 1, 0. and 1, 0, 1, 1 for product C and D, respectively.
(one more question in the next page)
3. Discuss
a. Should Segway focus on only one market?
b. If Segway wants to focus on only one market in the short term, which market is the best
initial target market?
c. Which product concept is best for the chosen target market?
d. To penetrate the other (unchosen) market in the future, what should Segway do?
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64
APPENDIX
Before using BLOGIT.EXE
1. Create a folder(directory) in your hard drive (e.g., c:\; md EMKTG)
2. Copy BLOGIT.EXE and DATA1.DAT to the folder.
How to use BLOGIT.EXE
1. BLOGIT.EXE is a simple execution file.
2. BLOGIT.EXE requires a program file which contains all parameters
for options you should provide. The options you should provide are as follows:
data:name_of_data_file;
out:name_of_ file_ for_output;
save:name_of_file_for_saving_predicted_choice_probabilities;
nrow:number_of_rows_in_data_file;
ncol:number_of_columns_in_data_file;
id:index_of_column_in_data_file_which_has_id;
cov:index_of_columns_in_data_file_which_will_be used_as_covariates;
ch:index_of_column_in_data_file_which_has_observed_choices;
intercept:indicator_for_intercept;
sel:indicator_for_observation_selection;
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Rule 1: There should be NO SPACE.

2: Each option line should be ended by ";".
3: File names can have a folder information.
4. For COV option, column numbers should be delimited by commas,",".
5. For INTERCEPT option, a) y if you want to include an intercept
b) n otherwise.
6. For SEL option, a) all if you want to use all available observations in data file
b) (Column_number_in_data_file:specific_integer_value)
if you want to use a subset of observations in data file.
Note that you should provide ":" in the option field.
For example, if you give sel:(2:3),
a subset of observations in the data file will be
used only if its 2nd column has a value of 3.
Here is the program file you should use for DATA1.DAT .
data:c:\EMKTG\data1.dat;
out:c:\EMKTG\all.out;
save:c:\EMKTG\all.sav;
nrow:300;
ncol:6;
id:1;
cov:2,3,4;
ch:5;
intercept:y;
/* Observations will be imported from

c:\EMKTG\data1.dat */
/* Estimation result will be written into
c:\EMKTG\all.out */
/* Predicted choice probabilities will be written
into c:\EMKTG\all.sav */
/* c:\EMKTG\data1.dat has 300 rows.*/
/* c:\EMKTG\data1.dat has 6 columns */
/* The 1st column in c:\EMKTG\data1.dat contains IDs */
/* The 2nd, 3rd, and 4th columns in c:\EMKTG\data1.dat
will be used as covariates */
/* The 5th column in c:\EMKTG\data1.dat contains
observed choice decisions */
/* An intercept will be included */
65
sel:all;
/* All observations in c:\EMKTG\data1.dat will be used */
3. Use Notepad to type the above options and save them as a text file in the folder you created.
(e.g., c:\EMKTG\all.prg)
4. To run BLOGIT.EXE, click Start-;Programs-;Accessories-;Command Prompt
5. Then, type c:\; cd the_folder_name you_created (e.g., c:\;cd EMKTG)
6. Then, type blogit file_name_of_your_program_file
e.g., c:\EMTG;blogit all.prg
7. The analysis will be done shortly. Examine output and save files.
Example of output file
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Binary Logit Analysis
+ Copyright (c) 2002 by Jin Gyo Kim
+ Sloan Sch. of Mgmt, MIT
+ kimjg@mit.edu
+
+ This program was coded to supplement class discussions.
+ This program can be distributed freely only for educational purposes.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
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Data File : eg.dat

No. of rows : 300
No. of columns : 10
ID : Column No. 1
Choice observation : Column No. 4
S
.B
3 Covariates
Intercept and Col. No. 2, 3
All 300 observations are used

Iteration
1
2
3
4
Log-likelihood
-97.8441
-90.3836
-89.7739
-89.7609
As log-likelihood value increases, it is better.

Total No. of Iteration: 4
Log-likelihood: -89.76090
Estimation Result Estimate of G
Variable Estimated Beta
Std. Dev.
Intercept
2.88839
0.44149
Col. No. 2
-4.82683
0.45288
Col. No. 3
0.12782
0.40127
Z Value
6.5423
-10.6582
0.3185
The significance level can be determined by examining Z values.

If |Z|;1.64, we may infer the estimate is significantly different from 0.
66
Classification Table
| Predicted
Percentage
Observed |
0
1
correct
0
| 137
7
95.14
1
| 21
135
86.54
Overall percentage: 90.67
Note: Predicted choice probabilities are saved in a file ex.sav
In the file, there are two columns.
1st col.: ID
2nd col.: Predicted Choice Prob.
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[ Assignment I: Concept Testing ]

It has been found that approximately 60% of new ventures fail because of bad
marketing decisions. A careful low-cost marketing research can help new ventures make
right marketing decisions. In particular, too often companies with new offerings do not
test enough to assure that a product is an appealing concept to enough customers.
In this assignment, you are asked to design a research plan for concept testing of a
new product, LINEPASS, developed by a new venture. Concept testing is a research
technique that checks whether the prospective purchaser and/or user of a new productoffering bundle understands the product/service idea, feels that it answers a need, and
would be willing to purchase and/or use it. Concept testing is basically a set of
procedures in which potential customers are exposed to a product or service concept and
are asked for their reactions to it.
LINEPASS is an easy-to-use Wireless Reservation System for theme park attractions.
Visitors receive small personal terminal devices when they buy tickets at the entrance. The
personal devices are linked to a server through FM transmitters.
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The benefits LINEPASS can offer are as follows:
Visitors
y Get information about waiting times for any attractions in the theme park.
y Get information about all the different events in the theme park.
y Make a reservation for any attractions in the theme park.
y Avoid waiting in line for tickets and rides.
y Map current location and find the best route to any place in the theme park.
y The digital signature uniquely built into each terminal device allows users
to board rides quickly by passing through gates.
y The terminal device notifies users 15 min. before their next reserved ride is
to start.
y Pay all bills one-time upon returning the terminal device.
Corporation
y Monitor movement of all visitors and revenue contribution from all
attractions on-line.
y Increase sales by sending ads or notices for events to all terminal devices.
68
Design a 2-3 page marketing research plan for concept testing of LINEPASS.
For the concept test plan, the following questions must be addressed:
y Objective: State explicitly what you want to learn and how you will use the
information
y Respondents: Who should be exposed to the concept? Be specific about your
segmentation and target market.
y Sample size: How many respondents should be contacted?
y Method: What are the best modes of data collection? How would you approach
respondents?
y Stimuli: What should be in the concept statement?
y Data: What specific information should be collected from respondents?
y Measurement: How should the questions be asked and measured?
y Analysis: What kind of analysis should be conducted after gathering data?
N
I
.
E
V
S
S
.B
69
70
Hi,
We are interested in your opinions about the following new product. Please take a few minutes to fill out this questionanaire.
Your answers are really important for us.
Thank you!
Multi-purpose handheld device

This next generation technology provides several types of services in a single hand-held device, eliminating the need to
carry multiple devices (for example, it may eliminate the need to carry both a cell phone and a palm pilot). These
services may include:
1. Personal Digital Assistant: Provides services similar to those currently offered
on devices such as Palm Pilots, including address books, calendaring, to-do lists,
and notes.
2. Cellular calling: Provides services similar to those currently provided in cell
phones
3. Wireless LAN: Unike cell phones, which allow you to connect to the internet by
placing a cellular phone call (and incurring charges), wireless connectivity allows
you to connect to the internet and/or transmit data whenever you are in range of a
wireless transmitter, without placing a phone call (and incurring charges). For
example, Starbucks is currently installing wireless transmitters in their stores
nationwide.
4. Hands free voice activated operation: Allows you to exucute simple functions
using voice commandes as opposed to using a stylus or keyboard. Note that voice
commands can be used for all features of the device, not just when making phone
calls. Also note that this only allows you to execute pre-programmed commands
(you cannot dictate into the device)
N
I
.
E
5. Global Positioning: Allows you to locate your exact position at any point in time
to within 10 feet. Coupled with map-oriented software applications, this allows the
device to be used to provide real time directions. This functionality is similar to
systems contained in luxury cars, that provide your current position on a map of the
area with alternative routes you can take to reach your destination.
V
S
These five services are collectively referred to as "hardware functionality" throughout this survey, as each requires
specific hardware that will impact the appearance, size, and weight of the device. When answering the following
questions, please assume that adding one or more of these services will generally increase the device size and weight.
Adding one or more of these services will also increase the price.
S
.B
In addition to the hardware functionality, the device may also include several types of software functionality. It may
support applications such as email, internet browsing, e-books, music, games, digital payments, and Microsoft Word,
PowerPoint, and Excel. Adding software functionality to the device will not increase its size or weight, but may increase
the price.
Definitely
Purchase
Probably
Purchase
Might
Purchase
Probably
not Purhase
Definitely
not
Purchase
Strongly
Agree
Mostly
Agree
Indifferent
Mostly
disagree
Strongly
Disagree
Would you purchase this device sometime in the next two years?
Do you believe a single device that can be used for several

functions provides a unique benefit over using multiple devices?
I would prefer to have a smaller device (ie: size of a small cell
phone) that has a few key functions than a slighlty larger device
(ie: size of a Palm Pilot) that has many functions
I would prefer to have a less expensive (<$249) device that has a
few key functions than a more expensive device (>$499) that has
several functions

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www.onlineeducation.bharatsevaksamaj.

Who are the major competitors of successful new

Does every successful entrepreneur have a breakthrough product or service?

(a) Small companies or other start-ups

(b) Fortune 500 companies

(c) Vertical integration by customers

(d) All of the above

(e) Few direct competitors

(a) Almost always

Answer: Puzzle III

- Matured market (53%)

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No w ritten biz plan

Rudimentary biz plan

(a) Of course, it is true.

Pro forma biz plan for

Detailed biz plan

Question: Why didnt most of them have business plans?

For most successful new ventures,

Impossible to anticipate all rapid changes in the

There was nothing unique about their base functionality

The missing elements in the plan emerge

How could they be successful?

Key: Product/Service Differentiation

Challenges to New Venture (contd)

Find something I can do best

Timing is all about

Find a foothold to survive

Find a foothold to avoid competition with giant firms

Build a strong brand from nothing

Build or expand its own market/customer base

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Strategic Constraints of New Venture

Two Major Themes of This Course

What and How am I

What Will We Do?

Module 1: Entrepreneurship and Marketing

Throughout this course,

Session 1 (2/6): Introduction

Module 2: Identifying Market Opportunities

We will also learn easily applicable low-cost tools

Session 4 (2/19): Market research

Module 3: Market Development

Session 8 (3/4): net.Genesis, Inc.

Course Outline (contd)

Course Outline (contd)

Presentation of Marketing Plans

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Marketing Plan (40%)

Contribution to Class Discussions (30%)

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Focus Strategy (contd)

15.835: Entrepreneurial Marketing

Although the payoff of a small niche may be less than

However, a focus strategy naturally limits the potential

Variations of Focus Strategies

Two Growth Strategies

Keep a focus on present markets

Focusing the product line in order to enhance technical

Explore new markets with new products

Focusing limited geographic area

Concentrate on one part of the market or product line.

Growth Strategies under a Focus