PM 101

PM 104

Target market segmentation, Market Sizing &Business plan

Prof. Shah
23 June 2013

Market Segmentation: How to Do It and How to Profit from It by Malcolm McDonald (Nov 28, 2012)

Segmentation & Positioning for Strategic Marketing Decisions from It by James Myers

Course Topic Outline

Market Segmentation Target Market Sizing Business Plan Q&A

Most markets look bigger than they actually are!

Dont segment and you end up being a swiss army knife

Market Segmentation
Dividing the market into groups with distinct characteristics, behaviors or needs. 1. Benefits sought by customer 2. Purchasing Power 3. BAG - Behavior, Goals, Aspirations observable characteristics of customers

From an advertising perspective groups that differ in their responses to a given message is also a segment
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Use of Segmentations
Product Creation (Creating Value) Pricing (Capturing Value) Advertising (Communicating Value) Sales Force Design (Delivering Value) Chanel Partner Design

Customer Value Modeling

Understanding Value

Creating Value

Define products

Value based Pricing

Capturing Value

Communicatin g Value

Positioning Value Prop

Value Channels Network

Delivering Value

Market segmentation Pivots

Demographics

Industry verticals Income Regions

Psychographics

Activities Opinion Interests Lifestyle Belief

Circumstances

Identifying groups of customers that are similar enough that the same product or service will appeal to all of them.

Case Study : McDonalds Shake

Segment Attractiveness
Big Fish in a Small Pond ? Consider broadening positioning Too Small a Fish in Too Big a Pond ? Consider narrowing positioning

Product Category perceived as low value? Low Willingness-to-pay ? Nice-to-have, not Must-have ? Powerful competitors ? Consider repositioning/refocusing into more lucrative category
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Enterprise vs SMB vs Consumer

Enterprise Need Sales force, Strong support offering Does your company have that? SMB Simplicity, All-in-one product, Self-serve model Does your company have that? Consumer Win customer trust with strong branding Do you have funds for marketing?
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Segmenting by Customer Need

Providing Gasoline to customers? Or providing energy services?

Is the Need to Fly

Or

Get somewhere quick & cheap?

Selling Coffee

Or

Place to relax with friends?

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Finding Market Segments

Can you find customers whose behavior can be changed (ex. online pharma) Whose needs are not being met (ex. online matrimonials, B2B facebooks) Who have the expected money to spend (consumer electronics) Who value certain attributes distinctively (ex. organic food, cheaper airfares)

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Choosing Target Market Segments

Filtering those segments based on Can you dominate those segments? (ISB) Do they value your core capabilities/brand value? (ex. tata swachh) Can you leverage existing routes to market and relationships? (ex. Dove choclates) Which customers drive profits, find similar ones?

Ultimately can YOU make money in it?

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Who do you think is the best segment for IPLs Exec MBA program?
Prior Business Degree Need a Career Path Transition Need a formal education degree for value communication Need hands on knowledge to excel Senior working professionals looking for promotion/acceleration Who cant afford ISB but still need international faculty exposure

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Choosing Target Market Segments

Evaluating each market segments attractiveness and choosing which ones to enter that YOU can profit the most.

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Propose segments that your stakeholders/mgmt team can understand and digest

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Correlation on features x price

Avoid more features so price is high, reduce features to create a basic product

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One has to continuously re-evaluate your segments as persona behaviour will change (faster than you think!)

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For mature products (B2B & B2C) use statistical techniques like conjoint analysis, cluster analysis

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Narrowing it down! (Online Pharma)

Tier 1 Tier 2

Critical Non Critical

SMS COD Credit Card Cashless

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Conjoint Analysis
Understanding the Tradeoffs that Consumers Are Willing to Make Asking customer to choose from realistic options which are CONnect JOINTly! aka.. Operations Research (1970s)

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Why Conjoint Analysis?

Direct Questions dont lead to real answers How much would you like to pay for medical advice on online pharma? How much discount would you need to switch to pharmastore.in? Would you like to get online access to your medical history? Figure out willingness to pay, preferred ratio of $$ to feature for each segment

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Conjoint Analysis
Attributes (ex. Price, Color, Time To Deliver) Levels (ex. 100$, 200$ - Green, Blue 20 mins, 1 day) Typically 6 attributes with <6 levels for each attribute for Choice based Conjoints Dynamic Questions randomly administered to 500+ respondents Max 30 questions per person

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Value Inference

Choice A 10$/year Instant Pickup Discreet Shopping

Choice B 10% Discount 1 day Auto Refills

Choice C At par Same Day Medical Advice

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Clustering Analysis
Multi variate Statistical Models Once the data fits the model, a lot can be inferred (ex. psychiatric analysis of crimes, predictive buying models)

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Cluster Analysis
14 12 10 Revenue 8 6 4 Q2-Q4 Transactions

Linear (Q2-Q4 Transactions)

2
0 0 5 10 Feature Usage 15
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100$ test for Online Pharma Across Indian Geos

10 9 8 7 6 5 4 3 2 1 0

Madhya Pradesh

Kerala

Punjab

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Online Pharma Segment Considerations

If routes to market is pure online marketing then Tier 2 might be difficult If physical distribution can be leveraged than Critical drugs might be in scope

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Examples of hyped market size citations

India has the potential to reach 237 million mobile internet users by 2015 BCG, Sep 10 21.4% of worlds internet users are in China Internet World Stats Oct 10 India has a billion people! Mandarin is the largest spoken language in the world

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Accurately sizing the market

Total Addressable Market (TAM) Anybody who is likely to buy will actually buy from you!
Total Serviceable Market (TSM) Anybody who will buy in response to our GoToMarket Execution Market Share Projections Actual projection of what might happen year 1
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A few terms
Market Demand (TAM)

Minimum Market Certain level of demand for product without any marketing Market Potential TSM Market Forecast
TAM = # of buyers in market x avg price paid per transaction x annual qty purchased by each buyer

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Exercise: Online Pharma for Tier 1 Cities

200M$

5M x 40% x 100$

Addressable market ____ Segment of Focus ____ Penetration % ___ 1st year ___

40M$

20% BLR

4M$

10% (Corporate) 1st year forecast

Assumptions
# of people online 10M

1M$

30% people live in Tier1

40% people in Tier1 have credit cards
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Market Sizing - Bottoms up

Factors to consider

Leads in the pipeline and conversion Sales and Channel bandwidth Average sales price Average Deal size

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Using LinkedIn to figure out Market Sizing

How many product managers do you have in India?

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Business Model and Plan

Business plan is where it all comes together Its a canvas that ultimately becomes the guiding principle of allocating resources and commence construction While not mandatory its always good to have a business plan even for incremental releases

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Business plan
Elements of a business plan

Market Problem Proposed Solution Bookings Projections

Price, Qty, market size

Resource Requirements
Cost

Product Strategy & Roadmap Critical Success Factors

New Products

ROI and Risk Quotients

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Business Plans should answer

1. 2. 3. 4. People Involved (especially startups) Market Problem & Solution Financial Opportunity Operational Details

Ultimately decision maker is evaluating whether YOU have the right set of Leadership Skills + Customer Insights/Domain Knowledge + Functional Credibility to pull this off!

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Where would VC bet money?

People first, Ideas second

Plans can (and will!) change, they are betting on people who can adapt and excel!

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Customer Understanding..
Who is the customer and what will make them decide to buy? Compelling or nice to have How will the venture reach the identified segments

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Operational Parameters
Resource Needs Timing of the Release GoTo Market Plans Costs

Customer Acquisition Delivering Value Supporting the customer Retaining the customer
Critical Success Factors/KPIs

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Practical Tips from the Field

Leadership side Be crisp on what you need from them (dont limit it to money & dont ask for moral support!) Get buy-in before the meeting ideally! Decision is usually made in the first 2 slides Plan to communicate a story not facts and figures Give credit to folks its a team sport! Ask the M$ question So what do you think?

Your II will change after the business plan presentation

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Practical Tips from the Field

Operationally Find your companys Risk threshold (1:6 for R&D to revenue for MNCs) Figure out how to align your product strategy with corporate strategy Focus on sales & marketing plan Identify and present leverage points

Channels Existing customer relationships Strong sales team in certain industry Brand
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Practical Tips from the Field

Keep your backup sturdy! Competitive Analysis, Win/Loss Analysis, Survey Results,100$ test, conjoint analysis, cluster analysis Gartner Reports (Secondary Research) Product Strategy/Product Roadmap UX mockups/prototypes Financial Models of customer Acquisition Marketing Plans Sales Pipeline Reports Relevant Metric Reports IRR, Discount Trending, Revenue/sales, CAC Remember this is an II building (or losing!) exercise
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Sample B2B Business Plan

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Business Plan: AIX agent support

Proposal Drivers
To develop AIX support for the security agent by Oct 2012 Larger opportunities in the pipeline (~2M) Win/Loss Analysis shows several losses due to lack of platform Product line focused on Federal and Financial segments where AIX is widely deployed Bookings potential of 3M over 2 years, Cost of development .5M over 12 months
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P&L Impact

AIX Market
AIX platform still prevalent in the Financial market Overall AIX market share is 18% IBM committed to support and grow the pSeries product line Unix units growing at about 2.2% -- AIX maintains about 18% of that
AIX Units as % of Unix
25
Other (x86) Other (nonx86) Apple Mac OS X Server SCO OpenServer SCO UnixWare HP Tru64 Unix Solaris/SPAR C

Unix Market Share 2007

HP-UX

AIX

Solaris/x86

AIX Units ('000)

140 120

20

100
15

80 60

10

40
5

20 0

2004

2005

2006

2007

2004

2005

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2006

2007

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Our Opportunity
Opportunity to displace Symantecs xxx at AT&T (~1.5M deal) AIX critical to the next 12 months opportunities in pipeline (~2-3M) Assumes bookings 3M in 09 and 5M in 2010 (incremental) R&D Opex

Policy Auditor + MA on AIX

6,000 4,000 2,000 0 Bookings Opex

2008 0 233

2009 3,000 624 Bookings Opex

2010 5,000 825

3 dev, 2 QA, 1 writer

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Pipeline Opportunities (12 mons)

BT&T $1.5M Textron $600K Sales Input Bank of Mexico$800K Pat R. xxxxx Fedelity Investments $450K Alan D. xxxx Prude Insurance $375k Mike G. xxxx AIG $350K Citigroup $800K Chandra S. xxxxx Additional upside from existing clients
Dept of Energy Dept of Treasury Fifth Third Bank.

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Incremental OPEX
3 dev (US), 2 QA (India), 1 writer (US) Total cost 240K(yr 1), 300K(yr 2) Roadmap

Beta (T + 8 months) GA (T + 12 months)

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Backup

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Examples of Secondary Research

Gartner Hype Cycle

Gartner Magic Quadrant

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Customer Acquisition::Freemium Model

Freemium: Give your product/service away for free, acquire a lots of customer (usually through social media) and then offer premium priced value added/enhanced services to your customer base. Try before you buy, allows to accelerate adoption across the maturity curve

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Freemium business models

1. Free serves paid

Free customers create value (content, time spent, reviewing etc.) for the paid customer Ex. Community based Q&A service (ex. Yahoo answers)

2. Free trial
Full featured functionality with a time expiration Key is to get the customer to try enough before you pull the plug

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Freemium business models

3. Restricted free
Base set of features/usage is free, additional features are at a premium Ex. LinkedIn, turbotax, google mail

4. Free as Inventory
Access to full feature set, pay on activation Viral Invites is key Skype, google search, matrimonial sites

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Freemium Model - Profitability

Lifetime value > Cost of Acquisition + Cost of service (free + paid) Cost of Acquisition Media efficiency (paid search) Signup conversion % Viral invites sent out Life time value Retention metrics Revenue Mix Freemium is hard as it forces us to think who NOT to serve?!
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Freemium Model to Profitability

5000 users sign up (hook rate 12%) 10% paid conversions Viral effect: each invites 5, conversion is 15% CPA is 6.5$ Retention is 80% Revenue/customer = 7$ Cost of service = .1
Freemium Model for Acme Widgets: Ad spend versus Revenue
$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Revenue Total cost

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