Entrepreneurial Marketing

How to Develop Customer Demand

Edwin J. Nijssen

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000436488
• Edition: 3
• Topic: Business
• Subtopic: Marketing
• Index: Business

How do you sell an innovative product to a market that does not yet exist? Entrepreneurial businesses often create products and services based on radically new technology that have the power to change the marketplace. Existing market research data will be largely irrelevant in these cases, making sales and marketing of innovative new products especially challenging to entrepreneurs. Entrepreneurial Marketing focuses on this challenge.

Classic core marketing concepts, such as segmentation, positioning, and the marketing mix undergo an 'extreme makeover' in the context of innovative products hitting the market. Edwin J. Nijssen stresses principles of affordable loss, experimentation, and adjustment for emerging opportunities, as well as cooperation with first customers. Containing many marketing examples of successful and cutting-edge innovations (including links to websites and videos), useful lists of key issues, and instructions on how to make a one-page marketing plan, Entrepreneurial Marketing provides a vital guide to successfully developing customer demand and a market for innovative new products. This third edition has been thoroughly expanded, including:

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• Expanded content on leveraging digital technologies and their new business models

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• More practical tools, such as coverage of the Lean Canvas model

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• Updated references, cases, and new examples throughout; and,

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• Updated online resources

This book equips advanced undergraduate and postgraduate students of marketing strategy, entrepreneurial marketing, and entrepreneurship with the fundamental tools to succeed in marketing.

Chapter 1

Using marketing to create a new business with radically new ideas

DOI: 10.4324/9781003010197-1

Key issues

• Define market opportunity and tech-entrepreneurs.
• Compare radical to incremental innovations
• Identify required changes in customer behaviour as an important barrier to entrepreneurial success.
• Discuss the importance of identifying a sustainable business model.
• Define marketing and sales and explain the effectuation marketing approach.

1.1 Entrepreneurship and radically new ideas: the need for effectuation

Every day, people come up with new ideas. Sometimes small, but every now and then, such an idea concerns something extremely innovative that can be developed into a radically new product or service: a new product or service that has never been seen before, but that is exciting and may even create a whole new product category or market. Such a new product or service represents a market opportunity that may become a financial success for the entrepreneur who came up with the idea and decided to develop it into a business. While new products are important, the trend of digitalisation and rise of the Internet of Things (IoT) have stimulated interest in and opportunities for developing smart products and their related services. Consisting of a combination of hardware and software, these products involve product-service systems that are often accompanied by performance contracts or subscription services and can be customised and optimised based on data collected across customers and use situations. Examples are inner-city mobility solutions, animal health monitoring solutions, and smart doorbells. Consequently, complexity increases and the distinction between products and services blurs.¹

Entrepreneurs are people who act on a perceived market opportunity. They develop the opportunity into a business by creating a new product or service for a group of customers not served well by existing alternatives in the market. They are aware of the uncertainty but willing to take the financial risk involved.² They often feel the need, or even the urge, to pursue their luck and build their own businesses.

Many entrepreneurs aim to improve existing products and compete in existing markets. Their markets involve familiar products that are clearly delineated. Consequently, these new entrepreneurs know who their customers and competitors are. They can rely on traditional marketing, which focuses on identifying and targeting a particular customer segment and positioning a product to address this segment’s stated (or latent) needs to grow sales. Its systematic and goal-oriented approach can help the nascent entrepreneur specify the features of the product or service, develop a pricing strategy, and create the right message and adequate promotional support.

In contrast, people with radically new ideas based on new technology are better defined as (high-)tech entrepreneurs. Based on new technology, their application often redefines existing markets by creating a new or altering existing product categories (e.g., action cameras, electrical and hydrogen cars, smart refrigerators or doorbells, fitness gadgets and Apps, and customised 3D-printed shoes). These entrepreneurs generally are engineers, data analysts or technology enthusiasts who have developed something unique that no one has seen before or that people have only dreamed about. They see the potential of their idea and confidently go about making a business out of it, even when first customers’ reactions are sceptical. However, particularly if the new concepts they come up with are new for the market, convincing prospects to become buyers can prove extremely difficult.

Lack of experience and business knowledge generally does not scare these entrepreneurial minds away. They seek financial support from venture capitalists to help finance their new business. However, they usually have to invest heavily themselves, and take major personal risks too. Given the fact that nine out of ten start-ups fail, and because lack of customer demand for young firms’ value offer is the number one reason for failure,³ better understanding the marketing challenge involved is of the utmost importance. Only if the entrepreneur can create a product or service and a customer will the idea fly and a business take shape. To turn a new idea into a business requires, first and foremost, being able to create a product-market fit.

Based on the level of ‘newness’ of a technology, three types of new products are generally distinguished:

• (1) New versions of existing products: (i.e., me-too products or line extensions) modestly new products that have been around for some time but, with a different marketing approach or minor change, can be revived and enjoy sales growth. Organically grown tomatoes in supermarkets is an example.
• (2) Incremental innovations: extensions of existing products. These products fit current knowledge and market structures but bring something new to the equation offering extra value to the customer. LED displays or electric toothbrushes are examples. They generally do not require much behavioural change.
• (3) Radical innovations:⁴ these draw on new technology to produce products people have not seen before. These new products can often change markets, alter existing product categories or even make them obsolete. Examples include the light bulb and the telephone. These products do require learning and behavioural change to enjoy their value.

So, the more radical a product idea, the more likely people will need to change their perceptions and behaviours, and probably even need to update their definitions of product categories. The marketing challenge of these different levels of new products increases, exponentially, moving from extensions to radical innovation. Of course, the required marketing and sales investments (time and money) to achieve customer adoption and build the market will increase too.

For instance, tablets and smart televisions were easy to adopt because they represented simple extensions of functions already available on smartphones and computers. In contrast, the introduction of robots and instant diagnostics in the operating theatre has greatly improved the precision and success in tumour removal but its adoption is moving more slowly. It requires important new knowledge and behavioural change. Surgeons see their role diminished and have to work with new medical staff who understand and can operate this new, essential, medical technology. This new and useful technology is bringing about substantial change in the profession.

As the previous examples suggest, marketing for radically new products differs from marketing for line extensions and incremental innovations. The challenge to sell a radical new product is much greater. First, because radical new products affect existing product categorisations, existing market data often do not apply. Consequently, the business plans for these products or services are more uncertain. (For example, the anticipated market size for smartphones could obviously not be computed by simply combining or adding up the market data of computers, phones, and cameras.) Second, radical new products or services often involve behavioural change at the customer end; they require users to seriously change their behaviour to enjoy their benefits and thus derive value. Because people prefer to be efficient, they will only make the investment if they are dissatisfied with existing alternatives on the market or if the innovation offers something new that persuades them. Because most new products and services are far from perfect at introduction, their producers struggle to convince potential customers who are sceptical in response to ‘eager sellers’ who typically overvalue their products.⁵

Effectuation

Radical innovations require a novel marketing approach that embraces the uncertainty caused by the new technology and focuses on customer discovery and creation. The unpredictability requires talking to and experimenting with innovative customers to identify the required product-market fit.⁶ This conscious approach of ‘transform the unexpected into opportunities’ is called effectuation. ⁷ Effectuation theory suggests that the future cannot be predicted or controlled. But, by using small steps and experimentation, one can uncover and control the path of development. The iterative cycle of updating the status quo with new information relies on experimentation to address and control the uncertain environment and future. Aspirations and goals can be updated in the face of new information about market conditions and potential gains achieved in the process. Experimenting in this way helps young firms discover and build customers; in so doing, they can thus develop their product or service’s advantage and achieve a sustainable market position for a particular group of customers, that is, customer segment. Effectuation explains how entrepreneurs think and learn in this process of discovery.⁸

Effectuation inverts the fundamental principles of predictive rationality, which consider the environment exogenous but predictable and assumes that foresight and planning can be used to adjust to trends and capture opportunities in the market (which underlies traditional marketing). In contrast, in the effectuation view, the environment is endogenous to the actions of ‘effectuators’ (which can be either firms or individual entrepreneurs) that can apply their resources in an attempt to contribute to and shape the future through commitments of their network of partners, investors, and customer contacts.⁹ Consequently, the starting point in the effectuation are the resources the entrepreneur has or can gather via his or her network. These means are actively used to discover product-market fit.

While effectuation logic stimulates young companies to utilise all their available resources, effectuation marketing and value-based selling guide them in designating and exploiting their limited resources effectively to create value for customers....

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• List of boxes
• Preface
• 1. Using marketing to create a new business with radically new ideas
• 2. Identifying an application and market
• 3. Detailing the market: Segmentation and positioning to maximise the value of the product application
• 4. Adoption, diffusion, and understanding lead customers
• 5. Important competitive and market considerations
• 6. Market research in entrepreneurial context
• 7. The customer development process
• 8. Developing a marketing and sales programme
• 9. The role of sales in customer development
• 10. Developing the new firm’s marketing and sales capabilities
• References
• Index