Exam 1

What does Effactuation do?

(ISD) Ideas- Effactuation advances ideas toward sellable products and services with proven customers Stakeholder Commitments - using effactuation, the entrepreneur interacts in search of self-selecting partners to co-create the venture with Decisions- Expert entrepreneurs use a set of techniques that serve as the foundation for making decisions about what to do next

Principles of Effectuation

1) Bird-in-Hand 2) Affordable Loss 3) Lemonade 4) Patchwork Quilt 5) Pilot-in-the plane

The 9x Effect

1) Consumers overweight the incumbent products benefits by a factor of 3 2) Companies overweight the new product's benefits by a factor of 3

How to capture value from customers

1) Creating customer loyalty and retention 2) Growing share of customer 3) Building customer equity

3 types of start-up risk

1) Customer risk- no one wants the product/service (Biggest Risk) 2) Market risk- external factors (competitors, economy, regulatory) doom you to failure 3) Technology risk- underlying technology needed to deliver value envisioned isn't going to work

Developer's Curse

1) Developers tend to overvalue gains relative to the general population 2) Developers tend to view gains as status quo 3) Developers tend to systematically underestimate the extent to which their perspective differs from would-be adopters

Evidence-Based Entrepreneurship: Basic Philosophy

1) Evidence over intuition 2) Facts exist outside the building 3) Biggest risk: building a product no one wants 4) Build-measure-learn 5) Fail fast and cheap 6) Raise customers first 7) Show, don't tell

Types of value created by marketing

1) Functional 2) Symbolic 3) Hedonic 4) Time, place, and form value

Ways to minimize and manage consumer restistance

1) Make behaviorally compatible products 2) Target consumers who aren't yet using entrenched products 3) Change consumers' reference point by allowing them to try the new product risk-free 4) Find believers 5) Brace for the long haul 6) Offer benefits at least 10x greater than existing products

The Effectual Cycle

1) Means 2) Goals 3) Interactions 4) Commitments

Five core customer and marketplace concepts

1) Needs, wants, and demands 2) Market offerings 3) Value and satisfaction 4) Exchanges and relationship 5) Markets

Entrepreneurial Process

1) Opportunity recognition 2) Ideation 3) Customer delivery and validation (evidence gathering) 4) Strategic / business planning 5) Launch (& Scale)

Psychology of gains & losses

1) People evaluate new projects based on perceived value, not on objective value 2) People evaluate new products relative to a reference point 3) People view improvements relative to this reference point as gains and treat all shortcomings as losses 4) People are loss averse

5 alternative concepts under which organizations design and carry out their marketing strategies

1) Production concept 2) Product concept 3) Selling concept 4) Marketing concept 5) Societal Marketing concept

Entrepreneurial Mindset

1) Questioning of, and dissatisfied by , the status quo 2) Perceptive and reflective 3) Growth / Learning oriented 4) Predisposed to solving problems 5) Perceive the world as full of abundance 6) Optimistic and persistent

Marketing process Model

1) Understand the marketplace and customer needs and wants 2) Design a customer driven marketing strategy 3) Construct an integrated marketing program that delivers superior value 4) Build profitable relationships and create customer delight 5) Capture value from customers to create profits and customer equity

What 2 questions need to be answered to design a winning marketing strategy?

1) What customers will we serve? (Target Market?) 2) How can we serve these customers best? (Value proposition)

Effectual vs Casual Reasoning

Effectual is a process of thinking whereby goals are determined based on available resources and means where causal reasoning determines its goals prior to seeking needed resources

What Is effectuation?

Effectuation IS: -A thinking framework -A set of heuristics -Doing the do-able -How to get the sellable products and services established

Define PATCHWORK QUILT

Expert entrepreneurs build partnerships with self-selecting stakeholders. (Form Partnerships)

Individual needs

Knowledge and self affection

Additional factors relating to gains & losses

Timing: Losses are immediate; gains are often delayed Certainty: Losses are certain; benefits are relatively uncertain Quantifiability: Costs are quantifiable; benefits are qualitative

Define EFFACTUATION

a logic of thinking that uniquely serves entrepreneurs in starting businesses

Wants

are the form human needs take as they are shaped by culture and individual personality

Social needs

belonging and affection

Consumer-generated marketing

brand exchanges created by consumers themselves - both invited and uninvited - by which consumers are playing an increasing role in shaping their own brand experiences and those of other consumers

Define PILOT-IN-THE PLANE

by focusing on activities within their control, expert entrepreneurs know their actions will result in the desired outcomes (Control vs Predict)

Positioning

creating a clear, distinctive, and desirable place in the minds of target customers (relative to competing market offerings)

Marketing by attraction

creating market offerings and messages that involve consumers rather than interrupt them

Differentiation

creating superior customer value by actually differentiating the market offering

Market segmentation

divides the market into segments of customers

Define LEMONADE

expert entrepreneurs invite the surprise factor. Instead of making "what-if" scenarios to deal with worst case scenarios, experts interpret "bad" news and surprises as potential clues to create new markets (Leverage contingencies)

Define AFFORDABLE LOSS

expert entrepreneurs limit risk by understanding what they can afford to lose at each step, instead of seeking large all-or-nothing opportunities. (Focus on the downside risk)

Customer satisfaction

extent to which a product's perceived performance matches a buyer's expectation (sometimes it is necessary to cut-off relationships with un-profitable customers)

Physical needs

food, warmth, clothing, and safety

Societal Marketing concept

holds that a company's marketing decisions should consider consumers' wants, the company's requirements, consumers long-run interests, and society's long-run interests

Marketing concept

holds that achieving organizations goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitor's do (Market - customer needs - integrated marketing - profits through customer satisfaction)

Production concept

holds that consumers will favor products that are available and highly affordable (Organization should focus on improving production and distribution efficiency)

Product concept

holds that consumers will favor products that offer the most in quality, and innovative features (Organization focus on making continuous improvements to the product)

Selling concept

holds that consumers will not buy enough of the firm's products unless it undertakes a large-scale selling and promotion effort (Factory - existing products - selling and promoting - profits through sales volume)

Customer-managed-relationships

marketing relationships in which customers, empowered by today's new digital technologies interact with companies and with each other to shape their relationships with brands

Horn Definition Entrepreneurship

pursuing the creation, delivery and capture of value from new ideas

Customer value and satisfaction

satisfied customers buy again and tell others about their good experience while dissatisfied customers often switch to competitors and disparage the product to others

Target marketing

selecting which segments it will go after

Market offerings

some combination of products, services, information, or experiences offered to a market to satisfy a need or want

Human needs

states of felt deprivation

Marketing Management

the art and science of choosing target markets and building profitable relationships with them

Dictionary Definition ENTREPRENEURSHIP

the capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit

Customer-perceived-value

the customer's evaluation of the difference between all the benefits and all the costs of a marketing offer relative to those of competing offers

Marketing myopia

the mistake of paying more attention to the specific products a company than to the benefits and experiences produced by these products

Customer relationship management

the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction

Marketing

the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return

Market

the set of all actual and potential buyers of a product or service

Value proposition

the set of benefits or values it promises to deliver to consumers to satisfy their needs

Marketing mix

the set of marketing tools the firm uses to implement its marketing strategy: 1) Product 2) Price 3) Place 4) Promotion

Define BIRD-IN-HAND

when expert entrepreneurs set out to build a new venture, they start with their means and then the entrepreneur imagines possibilities that originate from their means (Start with your means)

endowment effect

when ownership increases the value of an item

Demands

when wants are backed by buying power

Partner relationship management

working closely with partners in other company departments and outside the company to jointly bring greater value to customers