workshop 5 slides

Commercial Development Programme

Commercial Essentials

Workshop 5 – Understanding, Finding and Developing Markets

NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS

Ross Golightly


Agenda

1.Recap on Commercialisation Project Management Cycle 2.Introduction to Marketing3.Defining Your Market 4.Identifying Application Markets 5.Characteristics of Different Markets 6.Market Research: Sources of Information for Desk Research7.Basic Searching Strategies for Market Research8.Market Research Resources and Links 9.Pro’s and Con’s of Different Exploitation Strategies 10.Process for Licensing IP / Technology11.Licensing Agreements 12.Valuing IP 13.Negotiating Tactics 14.Royalties15.Value Proposition Development16.Marketing Strategies 17.Segmentation 18.Generic Strategies 19.Pricing Strategies


Commercialisation Project Management Cycle

IP Exploitation

Concept Research Business

Plan

IP Protection

Funding Package

Product Dvpt

Commercial-isation

Working Capital

Strategy Dvpt

Market Research

Company Set Up

Idea Dvpt

Risk Management

Revenue Generation

Strategy


Our Basic Function is to Create a Customer, profitably.

This we do by focussing on Marketing and Innovation

The rest are merely support functions where cost must be contained, reduced and waste eliminated

• Marketing and Innovation generate

Margins!

• Margins generate profits!


Define Your Research from the Perspective of Needs:

A Market … £100m Value? (That’s Financial)

… France and Germany? (That’s Geography)

… High Street / On-Line? (That’s a Channel)

A Market People with a Common Need or Want

If You Start with a Definition of a Technology or Research Piece,

You will never Define a Need!


Developing Markets and Identifying Application Markets

Your application markets will depend on your intended business model. Consider in what contexts your IP / Technology / Services can be used?

MARKETPENETRATION

MARKETDEVELOPMENT

PRODUCTDEVELOPMENT

EXISTING NEW

EX

ISTIN

G

PRODUCT

S

DI VERSIFY

NEW

MARKETS


Characteristics of Different Markets: Consumer Markets

• Simple supply chain with high visibility but difficult to enter as a start-up

• Usually manufacturer to retailer (and sometimes via distributor/wholesaler)

• More easy to map out the potential market through desk research

• Generally highly price driven and very product driven

• Aggressive marketing based on emotional pull of the product

• Multiple margin tiers: trade price to retailer, end-user price plus VAT uplift

• Generally two revenue stream options: 1) direct, 2) indirect (retail distribution)

• Twin marketing requirements: 1) Trade marketing and 2) Consumer marketing


Characteristics of Different Markets: Industrial / B2B Markets

• More complex market structures with inter-dependent supply chains

• Think: application markets (especially for technology)

• Often difficult to quantify market size and characteristics (lots of data is “invisible” or unavailable)

• Performance-driven relationships (i.e. supply chain KPI’s, rate of defects etc.)

• Several stages in supply chains – e.g. Automotive and Aerospace tier 1 and 2

• Distinction between OEM and Aftermarkets (two different product offers)

• Relationships and selling are often contractual or tender led (customer-supplier integration)

• High importance placed on quality


Characteristics of Different Markets: Services Markets

• Lowest barriers to entry (easy to establish and less overheads)

• Relationship driven and less price sensitive

• Very little “consumer-type” marketing, such as advertising

• People to people marketing (i.e. networking, referrals, personal introductions)

• More smaller, focussed markets

• Proposition often based on exploitation of some level of intellectual capital

• Selling based on business value to the third party


Market Research: Sources of Information for Desk Research

• Online information alone is doubling every 6 months

• Information is available:

- On the web (free)

- In the web (invisible)

- Via the web (fee based)

• Knowing where to start looking for information is the key to success

• Search Strategies:

- Know what you are looking for before you begin

- Refine results

- Use more than one search tool


Basic Searching Strategies for Market Research

Basic search strategies can greatly increase your recall of relevant information:

• Keywords – specific, unique and descriptive as possible

• Use parentheses to keep words and phrases together

• Use +/- to add or delete words from your search

• Think of word order – it does matter

• Define by further specificity: +statistics /+ map/+ database

• Limit search to title only: intitle:

• Limit search to text only: intext:

• Limit search to links only: inlink:

• Limit search to site type: site:edu

• Limit search by date: daterange: (start date-end date)


Market Research: Intellectual Property Searching

Sources of information to search for competitor IP and for own ideas / IP:

• Intellectual Property Office (IPO) for Patents, Trademarks and Design Registrations: http://www.ipo.gov.uk

• Espace – for patents granted: http://gb.espacenet.com

http://www.ipo.gov.uk/

http://gb.espacenet.com/


Market Research: Financial and Competitor Data

Sources of information to search for competitor information or data on potential licensees, distributors or market partners:

• Companies House - free basic data and can order company reports for £1/report: www.companieshouse.gov.uk

• Free information from financial pages of listed companies in Europe and the USA: www.carol.co.uk

• Free annual reports of NYSE/NASDAQ listed companies: www.annualreports.com

• Bureau Van Dijk – one free company profile - http://www.bvdinfo.com/Home.aspx

• Otherwise, BVD’s Mint and Fame services (paid for) are excellent for full company accounts, abbreviated accounts and Director contacts

http://www.companieshouse.gov.uk/

http://www.carol.co.uk/

http://www.annualreports.com/

http://www.bvdinfo.com/Home.aspx


Market Research: Financial and Competitor Data

Trade directories for company information and business listings:

• Yahoo Company and Trade Directories: http://uk.dir.yahoo.com/business_and_economy/directories/

• Worldwide directory of free access directories and databases: www.freedirectories.com/

• Kompass free of charge trade directory searching: http://gb.kompass.com/

• Search 700,000 manufacturers by product/service: http://www.solusource.com

• Applegate free trade directory search: http://www.applegate.co.uk/

http://uk.dir.yahoo.com/business_and_economy/directories/

http://www.freedirectories.com/

http://gb.kompass.com/

http://www.solusource.com/

http://www.applegate.co.uk/


Market Research: Free Market and Industry Data

• Office of National Statistics (ONS): http://www.statistics.gov.uk/hub/index.html

• Government Departments (e.g. NHS, department of culture, media and sport etc) • Blogs: use Google Blog search: http://blogsearch.google.co.uk/

• Key Note (if not subscribed to, use the free executive summaries for top-line information): www.keynote.co.uk

• Report Linker searches all free resources for reports: http://www.reportlinker.com/

• Mori free reports, including highlights and summaries from paid-for reports: http://www.ipsos-mori.com/

• Market and sector reports at UK Trade & Investment (requires registration): https://www.uktradeinvest.gov.uk/

http://www.statistics.gov.uk/hub/index.html

http://blogsearch.google.co.uk/

http://www.keynote.co.uk/

http://www.reportlinker.com/

http://www.ipsos-mori.com/

https://www.uktradeinvest.gov.uk/


Market Research: Business Opportunities

Set up tender monitoring for business opportunities via free sites:

• Free public sector Tender monitoring service: http://www.supply2.gov.uk/

• Tenders Electronic Daily (TED): http://www.tenders.com/

• Websites of key organisations seeking to appoint service providers where tenders may be published

http://www.supply2.gov.uk/

http://www.tenders.com/


Paid-For Resources (A Small Selection of the Useful Ones)

The University may be able to provide or access these at no cost to you:

• Mintel: http://reports.mintel.com

• MarketResearch.com (120,000 market research reports): ww.marketresearch.com/

• Research and Markets: http://www.researchandmarkets.com/

• Datamonitor: http://www.datamonitor.com/

• Euromonitor: http://www.euromonitor.com/

• Technology Markets: Frost & Sullivan: www.frost.com/prod/servlet/frost-home.pag

• IT Industry: Gartner: http://www.gartner.com/technology/home.jsp

http://reports.mintel.com/


Licensing Based Exploitation Strategy: Pro’s

• Requires substantially less cost to commercialise your IP: costs are largely front- ended (R&D, IP Protection, Commercialisation, Licensing Agreement)

• Requires substantially less management time and resources and has little/no ongoing costs, other than patent renewals, accounting fees and incidental costs

• A third party assumes the risk of commercialising your IP

• An established player will be able to get your product to market quicker than you can and possibly generate higher sales volumes than a start-up would

• Although you are giving away a larger share of the profitability, the likelihood is the licensee is capturing a share of a larger opportunity

• Licensing provides passive and secondary income streams for the inventor who can be working on other ideas


Licensing Based Exploitation Strategy: Con’s

• A less equitable business model for the entrepreneur or inventor

• Entirely reliant on a third party to commercialise your IP

• Less relevant for service-based businesses

• Less likely to attract funding from investors or VC’s because its deemed less of a scalable business model

• You are an invisible entity to the end-user – the licensee is associated with the IP

• Doesn't lend itself as well to service businesses


Manufacturing / Scalable Trading Business: Pro’s

• Building a scalable business is more equitable and financially rewarding (in the longer-term)

• More personally rewarding / fulfilling

• The inventor / entrepreneur retains control

• A manufacturing business is more attractive to an investor or VC

• Will attract higher grant funding


Manufacturing / Scalable Trading Business: Con’s

• Requires higher financing and has high cash demands during the early trading stages

• Some markets (e.g. consumer products) have higher barriers for entry for start- up’s

• Requires significant investment of time and resources

• Unlikely to return high profits in the short-term unless robust and clear routes to market are established


Go to Market Strategy: Licensing

There is a basic process to follow for licensing IP / Technology:

1.Map out the potential application markets for your product, service or technology

2.Undertake due diligence on each of those application markets:

- Market size - Historical performance (growth, decline, stagnation) - Market trends and key issues - Sales channels and routes into the sector (distributors, intermediaries, agents) - Barriers to entry (technological / legislative etc.)

3.Identify the potential end-users of your product, service or technology within those application markets

4.Go back up the supply chain by one immediate step to the organisations supplying those end users



5.Look at strategic fit of each major player to your IP:

- Is your product, service or technology complimentary as an add on to the company’s existing core range?

- Are they manufacturing similar products/services/technologies where your IP would be a logical add-on?

- Do you have visibility on their major customers and key markets?

- Do they have manufacturing capability or are they merely a sales organisation?



6.Gather data and intelligence on each of those organisations to draw up your potential licensing short-list:

- Full company address and contact details / base of operations - Financial due diligence (turnover, credit rating, strength of Balance Sheet etc.) - Number of employees - Companies House data - Trade Directories - Websites

7.Approach each organisation and identify the relevant decision maker for evaluating external IP / licensing offers:

- Head of R&D - Head of Sales and Marketing - Product Development Function - Likely to be Managing Director in owner-managed or small businesses



8.Approach that decision maker and request an NDA is signed before sending information

9.Prepare a licensing offer document that communicates the IP:

- Basis of product/service/technology - CAD drawings, technical data (dimensions, materials etc.) - Details of any patents, design registrations or trademarks (including filings and coverage) - Images / photography of any prototypes - Investment into technology and R&D programme to date - Top-line data on level of market opportunity and potential revenue stream for the licensee - Set out how you expect to transact (level of exclusivity, territorial coverage) - Invite further discussions



10.Negotiate with your interested short-list and undertake due diligence:

- How would they commercialise your IP? - What price would they sell your IP at? - What would the margins be within this out of which your royalty could be paid? - What marketing effort would they invest in the IP? - How and where would they sell and distribute your IP? - What do they see as the potential application markets?- What resource would they commit to this? (Sales force, personnel etc.)- What aspects of the prototype would be altered for production? - How quickly can the IP be commercialised and get to market?

11.Expect considerable due diligence on you from them:

- Demands for exclusivity - Domain name registration - Negotiations over royalties


Nature of Licensing Agreement

• Exclusive or non-exclusive

• Geographical license by territory

• Sector or application market license

• Term


Negotiating Royalties for Licensing: Valuing IP

There are no hard and fast rules. Key considerations include:

• Anticipated volume levels

• Value of product and end user price (including margins)

• Level of further investment licensee may need to make in R&D and commercialisation (amortised over manufacturing) – i.e. how quickly can they recover initial investment?

• Ease of product imitation and strength of security on the IP (are competitors locked out?)

• Competitor products – is anyone else manufacturing or offering similar products/services?


Negotiating Royalties for Licensing: Valuing IP

Further considerations include:

• Bear in mind a patent can be on a novel feature/component within a product so there could still be similar products/services competing within a marketplace

• Market conditions (price driven or value driven)

• Royalties can range from 3% to 20% (rarely higher)

• Higher end royalties tend to be associated with lower volume, high value products / services or a major disruptive technological innovation

• Lower end royalties tend to be associated with higher volume, lower value products/services

• The overall commercial transaction you negotiate also influences royalties (more later)


Tactics to Strengthen Your Negotiating Position to Increase Royalties

• Value your IP strongly on the potential revenue opportunity for the licensee (“business case selling”)

• If the IP is a major innovation and no prior market exists, value strongly on other trends, such as market and technological drivers (build your case positively)

• Have your prototype as well developed as possible – (reduce the level of expenditure likely to be incurred by the licensee and subsequently risk)

• Ensure you are well prepared and knowledgeable on the technology and market opportunity (this makes you more investible)

• Know what concessions you’re prepared to grant (e.g. exclusivity / geographical territories etc.)

• Use an advisor – this is an investment, not a cost. Negotiating is a skill in its own right.


Considerations for Structuring Your Royalty Remuneration

Consider the following when structuring your deal:

• Frequency of payments (quarterly, twice yearly, annually)

• Seek minimum payments (irrespective of product sales) in addition to direct royalties

• Some licensors successfully negotiate an upfront license fee


Protecting Your Position: Further Considerations

• Document all negotiations and finalise an outline agreement into a Heads of Terms document

• Engage a specialist IP lawyer for the drafting of a Licensing Agreement

• Grant initial trial period of 12 months – to be extended on review of sales levels achieved by licensee.

• This gives you an exit option in the event of poor performance.

• Consider writing performance targets into the licensing agreement which the extension of the relationship is dependent on.

• Don’t expect returns immediately – the licensor is bringing a completely new product, service or technology to market which takes time


Building Your Value Proposition for a Scalable Business: Some Key Questions

Why should people buy from you if:

• You aren't able to give them what they want?

• You don’t understand their needs and wants?

• You aren’t talking their language?

• You competition is faster / smarter / cheaper?


Manufacturing Mindset

“Sell What We Make”

“Make What Will Sell”

How We Often

Function

How We Should

FunctionMarketing Mindset

“MORE OF THE SAME”

Don’t be a “Karaoke Product”


Development

“Blue Ocean Strategy”:

DON’T COMPETE!

Create Uncontested Market Space

Creating Temporary Monopolies is Exactly What Businesses Aspire to do!


From Trademark to Trustmark

What is your relevant and differentiated offer to your marketplace?

Trademark

Familiar

Distinctive Identity

Familiar


Special Promise

Brand

Familiar


Special Promise

Authority

Trustmark

BRAND VALUE


Developing Markets and Identifying Application Markets

Your application markets will depend on your intended business model. Consider in what contexts your IP / Technology / Services can be used?

MARKETPENETRATION

MARKETDEVELOPMENT

PRODUCTDEVELOPMENT

EXISTING NEW

EX

ISTIN

G

PRODUCT

S

DI VERSIFY

NEW

MARKETS


Product Life Cycle

This is the traditional view of the life cycle of a product from launch to decline:

LAUNCH GROWTH MATURITY DECLINE

Time

PRODUCT LIFE CYCLE


Product Life Cycle: The Reality

This is how the 4 marketing strategies in the Ansoff Matrix are applied:

£

TIME

MarketPenetration

Product Life Extension

New Product Development

MarketDevelopment

Diversification


Segmentation

Segmentation is about dividing a market into distinct groups that might warrant distinct products / services or marketing mixes.

Segmenting gives you:

• The basis to choose where you will compete

• The basis for identifying opportunities

• The basis for developing competitive advantage

• The basis for creating a superior value offering

• The ability to anticipate unmet, unidentified or future needs of customers


Market Segments and Strategic Options

A

B

C

D

E

A

B

C

D

E

A

B

C

D

E

A

B

C

D

E

The Market Segments

Strategy 1 Undifferentiated

Strategy 2Differentiated

Strategy 3Concentrated


Generic Strategies

STUCK I NTHE

MIDDLE

DI FFERENTIATION

FOCUSCOSTLEADERSHIP


Generic Strategies

FULLCOSTS

PROFITPROFIT

FULLCOSTS

FULLCOSTS

PROFIT

PREMIUM PRICE

ORI GINAL PRICE

ORI GINAL COST

NO GENERI C STRATEGY

COST STRATEGYPrice unchanged but

lower costs

DIFFERENTIATI ONSTRATEGY

Costs increased to add premium features, but higher price

chargeable


Pricing Strategies: The Danger of Price-Based Marketing

Frequency of Price-Cutting or Price-Based Promotions

Per

ceiv

ed V

alue

/ R

efer

ence

Pric

e

• Your frequency of “Deals” changes the customers reference point

• How often you are on “Deal” damages your Reference Point


Pricing Strategies: The Danger of Price-Based Marketing

Frequency of Price-Cutting or Price-Based Promotions

Sal

es V

olum

e In

crea

se

• The Greater the Frequency of “Deals”, the Lower the Height of the Deal Spike

Average Sales Level

“The Cocaine Effect!”


Thanks for Listening ...

Q&A

Ross [email protected]

Tel: 07984 379 558 / 0191 4604126www.twitter.com/RossGolightlywww.spheraconsulting.co.uk

workshop 5 slides

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