Entrepreneurship Ch. 9

Entrepreneurs must focus on choosing the

"right" customers

Companies work their way up the learning curve, by

-Adding new features -Improving speed -Enhancing reliability, etc.

Which of the following would help an entrepreneur get his or her new product as the technical standard?

-Building relationships with the producers of complimentary products. -Lowering the price when the new product is introduced. -Get to the market quickly rather than getting to the market with the best product. ^^^All of the above are correct^^^

The rate of market growth determines:

-Ease of capturing new customers -Potential volume of customers -Benefits of volume purchasing and scale economies for entrepreneurial production

Which of the following might suggest that an established firm chooses to improve its current products rather than adopt a new product?

-Technology and investments. -New products generally begin with inferior performance to their existing products. -Managers believe that by improving current products, they will compete with entrepreneur's new products. -Human resource investments. ^^^All of the Above^^^

Which of the following is important to know as an entrepreneur before entering the diamond ring market?

-The demand for diamond rings has more than doubled this past year. -Last year, the diamond revenues totaled $400 billion in the United States alone. -Demands are increasing for new and unique styles. -There are approximately 80,000 vendors of diamonds in the United States. ^^^All of the Above^^^

A higher price can be supported on:

-The higher the perceived quality of the product, -The stronger the need it meets -The better the support offered along with it, and -The greater the " intangible benefits" it confers

Entrepreneurs should begin with three basic tasks:

-They should attempt to make sure that there is a real need for their new product or service -They should assess customer preferences for various attributes of features of the new product or service that they are considering offering, and -They should identify the key dimensions of customer need that their product or service will meet

To survive this early period on the S-Curve, entrepreneurs need to:

-find a source of money than can sustain them until they can develop their new product's performance or -find a market segment that does not care that much about the performance of the new product and is willing to adopt it

A new product was released by Vazco which made packing for trips more efficient. By using Vazco's new vacuum bags, travelers can now decrease the amount of space their belongings usually take up and pack more in one suitcase. A way to get consumers to move from early adopter to early majority is by

-focusing on one target market, perhaps business workers only. -express the solution to the customer's problem clearly.

Established firms will almost always choose to improve their own product rather than adopt a new product because:

-they tend to underestimate the appeal and potential of new products, -they have tremendous investments in the technology and human resources used to product the older, existing product

To be successful, entrepreneurs must win a large number of customers for their new products or services. This requires that they know:

-which customers will adopt their products, -when they will adopt them, and -what characteristics their products must have to gain acceptance from a particular segment of the market

S-Curve

A graphical depiction of the typical pattern of performance improvement of new products or services as a function of the amount of effort put into them.

Conjoint Analysis

A technique for determining the relative importance of various dimensions in customers' evaluations of specific products. Uses a fractional factorial design based on results of perceptual mapping

How can we find out if our New Product or Service Meet These Needs?

Assessing customer preferences

Which of the following is not a step in defining what consumers' real needs are?

Begin to advertise the new product.

Which of the following normally are associated with fixed costs?

Building.

Which of the following is an example of a complimentary products?

Coffee and coffee filters.

An entrepreneur is working to develop a new video game. Preliminary information suggests that consumers are concerned about the quality of the graphics, the extra features of the game, and the price, but it is not known which is the most important relative to the others. Research is set up in which copies of the same game, varying with different combinations of graphics, features, and price, are presented to potential consumers . Potential consumers are asked to indicate which copy of the game they prefer. This is an example of using

Conjoint Analysis.

You are listening to the radio while you are driving your car to school one morning. You are already late and did not have time for breakfast, so you are hungry. You hear the music on the radio and several commercials. One commercial for a new type of energy bar seems to catch your attention. Which of the following terms suggests why that particular commercial might have caught your attention?

Context.

Which group of adopters base buying decisions on intuition about the value of new products and do not require much information to make purchasing decisions?

Early Adopters.

Approximately 68% of product users fall into which categories?

Early Majority and Late Majority.

Which of the following statements, addressing the adoption of new products, is not true?

Early adopters tend to buy the product before any marketing has occurs.

Which of the following statements is least true about an entrepreneurial situation?

Entrepreneurs are better off targeting established markets rather than new markets because it is difficult to predict the needs of new markets.

Which type of cost becomes less per unit as the entrepreneur produces more of a product?

Fixed cost.

Which of the following classifications of customers is probably least sensitive to the price of the product?

Innovators

To which customer groups does the entrepreneur have trouble selling enough to make the business worthwhile?

Innovators and Early Adopters

For which of the following products would an entrepreneur have a more difficult time obtaining target market information?

Internet-based auction for homes.

Which classification of product adopters are not comfortable with new products and will wait for the product to become well-established before purchasing it? Moreover, only when they are shown that the value outweighs the costs do they adopt the product.

Late Majority.

Which of the following groups of customers tend to be most cautious in buying a new product or service?

Late majority.

According to the authors of the textbook, which of the following is the first thing an entrepreneur needs to do when deciding to start a new business?

Make sure there is a real need for the new product.

Which of the following is the weakest example of a product fulfilling a real need?

Multi-color laundry baskets.

A Shelter Insurance Agent tends to do a majority of his marketing through customer meetings. This is an example of which form of marketing?

Personal selling.

The size of the market determines:

Start-up costs Need to cover Fixed Costs Need to reach Break Even Sales Ability to go in "under the radar"

AT&T originally required special phone jacks to be installed in each customer's house. After the Carterfone Law was passed, all telephone companies had to use standard jacks like AT&T's. This market structure is known as

Technical Standard.

When personal computers were beginning to be widely used, there were several operating systems that were being used on different kinds of computers; Microsoft used MS DOS, then an expanded version which include Windows, Apple used OS2, etc. Obviously, the Microsoft software became the "industry standard." This represents which concept named below?

Technical Standard.

User myopia

The fact that customers can only see very narrow needs or solutions, typically only their own needs, not those of other market segments

Tyranny of the current market:

The fact that listening to customers will make it difficult for companies to come up with new products for new markets because a firm's current customers will always ask for improvements to current products, not new products for new markets.

Suppose you are an entrepreneur and you sell TV's. When you first entered the market, TV's were in black and white and innovations were very slow. After about five years of time, TV innovations became more frequent with color, picture in picture, and TV/VCR combos. However, after about 10 more years, the innovations decreased again. This market behavior is known as what?

The product development S-curve.

Approximately five years ago, there were several e-businesses set up to fill orders for prescription drugs by use of the Internet and a delivery service. At the time, many people thought that these e-businesses would be major competitors to regular drug stores. That did not happen. What was a likely reason?

There probably was not a real consumer need for this type of service.

Crossing the Chasm

Transitioning from selling to the innovator adopter category to the early majority category

Assume that for local telephone calls, one pays the same rate each month. However, for long distance telephone phone calls, the costs depend on how many long distance calls were made, what time of day they were made, and the length of each call. What type of costs are the long distance calls to the consumer?

Variable.

In which of the following situations would an entrepreneur have the best advantage?

When the solution to customers' needs is novel.

Look for the "sweet spot" -

a good balance between and quality

In a rapidly growing market

a new venture can grow quickly by serving customers who have not been customers in the market before and are not being served by another company

Which of the following tends to represent a disadvantage for existing established companies when attempting to create new products?

a. Focused on current customers. b. Core rigidities. c. Tyranny of the current market. d. User myopia. ^^^All of the above are correct responses^^^

When products are first introduced, they are often inferior to

alternative products on may of the dimensions that are important to customers (quality, reliability, performance, etc.)

Technical Standard

an agreed upon basis on which a product or service operates

Dominant Design

an arrangement that all companies producing a product will choose as the way of bringing together the different parts of a product or service

For entrepreneurs to really succeed, they need to gain

broad adoption of their new products or services

Early majority

can relate to technology; but driven by practicality; wait and see how others are making out before using a new technology; wants to see well-established reference; usually needs substantial marketing/advertising budgets to reach

We do not ask customers which features are most important, we make them

choose between features

Must have a

clear identifiaction of the primary customers

Core rigidities

companies do well at things that they are accustomed to doing, not new things

Pricing New Products

consider what ways the customer will trade off product attributes and price

In setting the price on a new product, an entrepreneur bases the price on the amount of money used to produce the product. This is known as

cost-based pricing.

Variable Costs

costs for things that are incurred on each unit that is sold (sales commissions, packaging, etc.)

Fixed Costs

costs for things that do not change with the number of units products (buildings, equipment, etc.)

Making the transition from early adopters to early majority is usually called

crossing the chasm.

When entrepreneurs successfully move from selling to the early adopters to the early majority, they are said to be

crossing the chasm.

A real need exists when

customers have a problem that needs to be solved and no existing products or services can do this

Pull marketing

customers must have a problems that they want solved, but no existing products or services currently do this

Laggards

do not want anything to do new technology; not worth pursuing

A rapidly growing market means that with larger customer volume the

economies of scale make a lower cost per customer to get into the market

Entrepreneurs must recognize that new product improvement is a function of

effort, not time

A reasonable price is necessary to

encourage customers to switch from alternatives to the new product

Try to introduce a new product or service that

established companies are not trying to also develop

Concentrate on getting to the market quickly rather than

getting in the market with the best possible product

Entrepreneurs should ultimately

go into new markets with new solutions.

Established firms will not compete with entrepreneurs to develop new products that are

in the early stages of the S-curve. This is because the new product begins with performance to the products that established firms already have

Changes of dominant design usually occur by

incremental changes punctuated by a few radical shifts

Guerilla Marketing

involves actions outside the usual channels and usual techniques

New ventures have

limited resources

Introducing novel products is very difficult for entrepreneurs because

new products start out with inferior performance on the dimensions that customers care about

when markets already exist, or new products are based on known solutions to customer problems,

new ventures will have difficulty

Late Majority

not comfortable with their ability to handle a technology; waits until technology becomes established standard; tend to buy from established companies

Early adopters:

not technologist; someone who understand, appreciate the benefits of technology and match benefits to their concerns; do not rely on well-established reference when making purchasing decision

Asks individuals to express their

preferences for various products chosen to offer a systematic array of features

Cost-based pricing

pricing based largely on the costs of producing a product or service

Value-based pricing

pricing based on what consumers are willing to pay for a product

Complimentary Products

products that work together with each other

Successful products and services are based on

real customer needs

To introduce a new product or service successfully, the entrepreneur not only has to satisfy a market need, but he or she must do it

signficantly better than the competitors

Even products that ultimately prove to be tremendously successful start out

slowly and only gain mass popularity later

Determine which customers have

strong reasons to buy the new product or service

It is easier to capture new customers than to

take a customer away from others:

Innovator

technologist; technology a central interest in life, their endorsement reassures other group of users

Viral Marketing

the holy grail. Difficult to achieve, but free and effective

The smaller the market

the lower will be the potential sales for the new venture and the higher the share of the market the entrepreneur will need to win just to cover the cost of getting started

In a stagnant market:

the only way for a new venture to make sales is to take customers away from existing companies - this is very costly to do

Usually, the innovators and Early Adopters are

too small a group to sustain new ventures

When the target market and solutions are not well known

traditional market research techniques tend to do poorly

When the target market and solution are well known

traditional market research techniques work effectively

The idea that an existing company might have a difficult time developing a new product for a new market because it listens closely to current customers is known as

tyranny of the current market.

An established business is thinking about introducing a new service and asks current customers for their views of the intended new service. The current customers report that they do not like the new service, primarily because they tend to interpret it from the perspective of the current service. This represent the idea of

user myopia.