1. champions of change
Scoping the Market Opportunity
Workshop
Mairi Robertson
March 30th 2012

2. Who are we?
• Advisory and investment boutique that specialises in innovation and enterprise
in TMT sector;
• Known as “practitioners that consult”;
• We translate between the technologists and the creatives to make the business
case that enables informed decisions to be made;
• We work with corporate and venture-backed start-up clients;
• Track record in creating successful businesses – bigger, better, faster!
• Research and Intelligence Hub coupled with the ability to deliver;
• Offices in Glasgow & London;
• International perspective.

3. if you don’t move forward,
you’re standing still, or worse.
champions of change
• Transformation. Innovation, Re-engineering, Business Strategy Development.
• nmp have been championing change, maximising growth and enhancing return
on investment since 1999 for some very happy clients; like Samsung, Sony,
Oracle, Nokia, TeliaSonera, Orange, BBC, ITV and Channel 4.
• We operate on the cusp of technology and content, bringing business people,
technologists and creative people together and bringing clarity, honesty and
focus to the table.

4. So you’ve had a good idea ….
Who are your
competitors?
What is the
product/
service?
Will they buy
it? Who is the
customer?
How much will How many
you charge? people will
buy it?

5. What is the product/ service?
Who are
your
competitor What is
s? the
product/
service?
Will they
buy it? Who is the
customer?
How much How many
will you people will
charge? buy it?
• This should be the easiest question
• Define the product/service in a few sentences
• It needs to be jargon free and not focused on technology
• It should clearly state what the benefits are to the end user

6. iPad
• “Pick up the new iPad and suddenly, it’s clear. You’re actually
touching your photos, reading a book, playing the piano. Nothing
comes between you and what you love. To make that hands-on
experience even better, we made the fundamental elements of
iPad better — the display, the camera, the wireless connection. All
of which makes the new, third-generation iPad capable of so much
more than you ever imagined”

7. Media Composer 6
• “Professional editors and producers like you around the world
have told us what you need to succeed. More efficient and easy-
to-use video editing tools. An open platform that enables you to
work with everything you want and integrate into any workflow.
More power to eliminate bottlenecks, so you can work faster than
ever. We listened. We took notes. We made it happen.”

8. Angry Birds
• “The survival of the Angry Birds is at stake! Dish out revenge on
the green pigs who stole the Birds’ eggs. Use the unique
destructive powers of the Angry Birds to lay waste to the pigs’
fortified castles. Angry Birds features hours of gameplay,
challenging physics-based castle demolition, and lots of replay
value. Use logic, skill, and brute force to crush the enemy.”

9. Who is the customer?
Who are
your
competitor What is
s? the
product/
service?
Will they
buy it? Who is the
customer?
How much How many
will you people will
charge? buy it?
• Who will buy it?
• Who will use it?
• Are these different?

10. Understand your customers, market position & how competitors fit
High performance
Low cost High cost
Low performance

11. Why is it important?
• Enables you to:
– better determine if there is enough
people willing to buy your
product/service
– tailor your offering to better meet the
needs of your potential customer base
– target your marketing efforts to reach
your most promising prospects
– use the right marketing messages
• Defining a target market will not
limit your business
• Defining a target market will
increase cost efficiency

12. Common consumer characteristics
age
hobbies and
gender
interests
political
income level
affiliations
Target
customers
buying
ethnic group
habits
geographic occupation
location or industry
marital
family status
status

13. Common business characteristics
industry
number of
job role
employees
Target
customers
amount of
age of
annual
business
sales
geographic
location

14. How many people will buy it?
Who are
your
competitor What is
s? the
product/
service?
Will they
buy it? Who is the
customer?
How much How many
will you people will
charge? buy it?
• In simplest terms market potential can be expressed as a function
of:
– the number of customers purchasing
– amount purchased
– frequency of purchase
• In other words, market potential = (how many * how much * how
often)

15. A cautionary note!
• Creating a realistic estimate of your addressable market can
seem daunting
• However, the math behind these calculations should usually be
relatively simple
• Remember that stakeholders/VCs want to see that you used an
easy to understand and logical methodology to generate the
estimate that you're giving them
– the easier it is to understand the quicker they can get comfortable
with it and focus on other questions that they might have
– building in unnecessary levels of assumptions can generate an
unrealistic result – garbage in garbage out!

16. Bottom Up or Top Down
• A top down approach starts with market and industry data.
Based on a geographic market area, customer profile and their
propensity to buy your products and services
– Start with the whole pie, the whole market. Narrow it down by various
means to get to the number that you’ll sell
• A bottom up starts with your customers. How much and often do
they buy? What is their profile? How many potential customers do
you have in the market based on your customer profiles? How
can you reach them?
– Instead of subtracting things from a hypothetical pie, you
multiply these assumptions to determine the market potential

17. Top down example – new entrant mobile operator
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Population of UK

18. Target market
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Population of UK

19. Addressable market
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Population of UK Mobile subscribers in UK

20. Market share
100%
90%
80%
70%
60% 3UK
Everything Everywhere (inc. Virgin)
50% T-Mobile (inc. Virgin)
Orange
40% O2 (inc. Tesco)
Vodafone
30%
20%
10%
0%
2005 2006 2007 2008 2009 2010

21. Total customers
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Population of UK Mobile subscribers in UK New entrant subscribers

22. Price
Average revenue per subscriber
250
200
150
100
50
-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

23. Revenue
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
-
2011 2012 2013 2014 2015 2016

24. Bottom up
New prepay
subscribers
Existing prepay Prepay subscribers
subscribers
Churned prepay
subscribers
New contract
subscribers
Existing contract Contract subscribers
subscribers
Churned contract
subscribers

25. Bottom up
Average minutes per Annual prepay
month minutes
Prepay subscribers Average SMS per Annual prepay SMS
month
Average data usage Annual prepay data
per month usage
Average minutes per Annual contract
month minutes
Contract subscribers Average SMS per Annual contract
month SMS
Average data usage Annual contract data
per month usage

26. Bottom up
Annual prepay Price per prepay Revenue from
minutes minute prepay voice
Annual prepay SMS Price per prepay Revenue from
SMS prepay SMS
Annual prepay data Price per prepay Revenue from
usage data usage prepay data usage
Annual contract Price per contract Revenue from
minutes minute contract voice
Annual contract Price per contract Revenue from
SMS SMS contract SMS
Annual contract data Price per contract Revenue from
usage data usage contract data usage

27. Bottom up
Revenue from
prepay voice
Revenue from Revenue from
prepay SMS prepay
Revenue from
prepay data usage
Total Revenue
Revenue from
contract voice
Revenue from Revenue from
contract SMS contract
Revenue from
contract data usage

28. Which to use?
• The bottom-up method is generally considered more robust
– less likely to include non-addressable revenue
– starting point for financial projections and operational planning
– identifies key drivers, such as the number of customers, essential for
determine costs, profitability and cash flow
• Top-down financial projections often don’t consider the right
market
– available figures may not be for the right region, target customer or
part of the value chain you are addressing
– it doesn’t include the operational assumptions or metrics describing
how those sales will be accomplished – can be risky when building a
full business plan

29. Advice
• Remember it is a forecast – it will never be correct. However
make sure you have identified the key profit/loss parameters
• Where you have assumptions that are less reliable use scenarios
(low and a high version of the estimate) to provide a range for the
size of the addressable market
• Consider estimating the market size in more than one way
– bottom-up estimate and top down to make sure that the two
approaches yield a somewhat similar number

30. How much will you charge?
Who are
your
competitor What is
s? the
product/
service?
Will they
buy it? Who is the
customer?
How much How many
will you people will
charge? buy it?
• What is the business model
• How will you charge?
• How is it calculated?
• Does it stack up?

31. Business model examples
The The
The Add-On
Subscription Advertising
model.
model model
The Pay as The Affiliate
You Go model model
Business
The Low-Cost models The Auction
model model
The Internet The Bait and
Bubble model Hook model
The Freemium The Direct
model The Franchise Sales model
model

32. Pricing principles
• No matter what type of • Do not set prices once and
product you sell, the price you "hope for the best.“ It’s time to
charge your customers or review your costs when:
clients will have a direct – you introduce a new product
influence on whether your – Your costs change;
business succeeds – you decide to enter a new
market;
• Some key principles – your competitors change
– all prices must cover costs their prices;
and profits. – the economy experiences
– the most effective way to either inflation or recession;
lower prices is to lower costs – your sales strategy changes;
– your customers are making
more money because of your
product or service

33. Types of pricing methodologies
• Cost-Plus Pricing
– mostly used by manufacturers
– based on all overhead costs + percentage of profit
– essential overhead figure is accurate
• Demand Price
– optimum combination of volume and profit
– products usually sold through different sources at different prices
• E.g. wholesaler might buy greater quantities than a retailer, which results
in purchasing at a lower unit price
– difficult for new products as need to be able to correctly calculate
beforehand what price will generate the optimum relation of profit to
volume

34. Classic price elasticity questions
• Best done on a large scale survey
• Present the overall concept – where possible making
comparisons to existing or similar products to give a benchmark,
bringing out the core USPs of the product
– At what price would you consider the product to be so expensive that
you would not consider buying it? (Too expensive)
– At what price would you consider the product to be priced so low that
you would feel the quality couldn’t be very good? (Too cheap)
– At what price would you consider the product starting to get
expensive, so that it is not out of the question, but you would have to
give some thought to buying it? (Expensive/High Side)
– At what price would you consider the product to be a bargain—a
great buy for the money? (Cheap/Good Value)

35. Pricing based on Van Westendorp principles
• Optimum Pricing Point is the
price at which the number of
customers who see the product
as too cheap is equal to the
number who see the product as
too expensive
– typically the recommended
price
• The range of prices between
the Point of Marginal
Cheapness and the Point of
Marginal Expensiveness is the
range of acceptable prices for a
product
– in established markets, few
competitive products are
priced outside this range

36. Types of pricing methodologies
• Competitive Pricing
– used when an established market price for a particular product or
service
– often in markets where there is a major market player that will set the
price that other, smaller companies will be compelled to follow
– benchmark prices of each competitor then figure out your optimum
price and decide, based on direct comparison, whether you can
defend the prices you've set
• If higher than competitors you must offer something extra like superior
customer service or added features
– difficult for service businesses as services vary widely from one firm
to another
• you can charge a higher fee for a superior service and still be considered
competitive within your market

37. Might want to consider trade off techniques
• Product is described in terms A B
of attributes and levels in order
to see what is being traded off Analysers 3 5
• An attribute is a general feature Languages C C+ Java
of a product– say size, colour,
speed, delivery time. … … …
– Each attribute is then made up
of specific levels. So for the Price £500 £1000
attribute colour, levels might be
red, green, blue and so on
• Conjoint analysis takes these Attributes could be based on different
commercial options or competitor
attribute and level descriptions products
of products and uses them ask Again it should emphasis the USP of
people to make a number of the product
choices between different
products
• For instance would you choose
product A or product B

38. Will they buy it?
Who are
your
competitor What is
s? the
product/
service?
Will they
buy it? Who is the
customer?
How much How many
will you people will
charge? buy it?
• What do the potential users think?
• This should be done before you have a product to sell!! Arguably
should be the first step

39. Use the right techniques
Secondary
Brainstorming Focus Group
research
Survey Workshop Interview
Use cases Observation Prototyping

40. Where do you customers hang out online?

41. Ask the right questions
• I’m developing a new oven • What issues do you have
– Do you want it be gas or cooking food?
electric? – “It takes too long – I want to
– Does it need a separate grill? cook food in 5 mins rather
– Etc … than an hour”
• Answer
– A slightly improved oven • Answer
– Microwave
Issues: What are the end user’s unmet needs when doing a
task?
Demand: How important are they?
Differentiator: How close do your/competitor’s products get
to meeting the unmet needs?

42. Continue to listen to your customers
• They can help you to innovate and focus your next developments
• Find out your customers concerns and try and work out ways to
address these concerns without any significant increase cost
• Sometimes providing additional features that are not essential but
attractive can just give you the edge

43. Who are your competitors?
Who are
your
competitor What is
s? the
product/
service?
Will they
buy it? Who is the
customer?
How much How many
will you people will
charge? buy it?
• How does your product compare to your competitors?
• What is your competitive advantage or USP?
• How long can you sustain this?

44. Competitive advantage
• Anything that helps your business attract more customers than
your competitors is a competitive advantage
– most are only temporary
• Start by thinking about the features of the product or service that
you want to promote
– then how the customer will use the product or service
– how is what you offer better than your customers product or service
– translate features into a benefit to the customer
• If you think there is a number of benefits you may want to
prioritise for specific customer groups in terms of importance for
your marketing messages

45. Potential areas of competitive advantage
• Cost (short term solution)
• Quality value for money is a longer term strategy that works.
Building a reputation for quality in your field is very important,
because people won’t mind paying a bit more for something that
they’re sure will be a good buy
• Service – people appreciate and will pay for excellent customer
service
• Innovation - by adding improved and unique features will you be
able to create a separate identity for your business

46. Your USP can be anywhere across the value chain
10 types of innovation (Source http://www.doblin.com/)

47. Why they are the success they are
• Facebook • Apple
– interface very simple one and
the design is plain and easy to – the engineers at Apple
use. Clean and uncluttered understand what people want -
– Facebook promotes interaction designs of Apple products are
between its users through simple, clean and elegant
many features including the
Like feature, the Comments – dynamic Product Line that
feature and the Sharing keeps customers coming back
features (all of which were for more
innovative at time of release)
– marketing campaigns that
– broad target market -
something for everyone focus on the benefits - show
(critical mass) how the gadget can make your
– people have full control over life easier
their profile and what they
choose to display
– continual revamp and
development