1.Commercial Development Programme Commercial Essentials Workshop 5 Understanding, Finding and Developing Markets

2. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Ross Golightly 3. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Agenda

Recap on Commercialisation Project Management Cycle

Introduction to Marketing

Defining Your Market

Identifying Application Markets

Characteristics of Different Markets

Market Research: Sources of Information for Desk Research

Basic Searching Strategies for Market Research

Market Research Resources and Links

Pros and Cons of Different Exploitation Strategies

Process for Licensing IP / Technology

Licensing Agreements

Valuing IP

Negotiating Tactics

Royalties

Value Proposition Development

Marketing Strategies

Segmentation

Generic Strategies

Pricing Strategies

4. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Commercialisation Project Management Cycle Risk Management Strategy IPExploitation ConceptResearch BusinessPlan IP Protection FundingPackage ProductDvpt Commercial- isation WorkingCapital StrategyDvpt MarketResearch CompanySet Up Idea Dvpt RevenueGeneration 5. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Our Basic Function is to Create a Customer, profitably.

This we do by focussing onMarketing 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!

6. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Define Your Research from the Perspective of Needs: A Market 100m Value? (Thats Financial)France and Germany? (Thats Geography) High Street / On-Line? (Thats a Channel) A MarketPeople with a CommonNeedorWant If You Start with a Definition of a Technology or Research Piece,You will never Define a Need! 7. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Developing Markets and Identifying Application MarketsYour application markets will depend on your intended business model. Consider in what contexts your IP / Technology / Services can be used? 8. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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

9. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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 KPIs, 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

10. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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

11. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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

12. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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)

13. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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

14. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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, BVDs Mint and Fame services (paid for) are excellent for full company

accounts, abbreviated accounts and Director contacts

15. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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/

16. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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/

17. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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

18. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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

19. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Licensing Based Exploitation Strategy: Pros

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

20. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Licensing Based Exploitation Strategy: Cons

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 VCs 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

21. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Manufacturing / Scalable Trading Business: Pros

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

22. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Manufacturing / Scalable Trading Business: Cons

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-

ups

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

23. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Go to Market Strategy: Licensing

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

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

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.)

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

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

24. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Go to Market Strategy: Licensing

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

• Is your product, service or technology complimentary as an add on to the

• companys 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?

25. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Go to Market Strategy: Licensing

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

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

26. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Go to Market Strategy: Licensing

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

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

27. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Go to Market Strategy: Licensing

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?

Expect considerable due diligence on you from them:

• - Demands for exclusivity

• - Domain name registration

• - Negotiations over royalties

28. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

Nature of Licensing Agreement

Exclusive or non-exclusive

Geographical license by territory

Sector or application market license

Term

29. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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?

30. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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)

31. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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 youre 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.

32. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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

33. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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.

Dont expect returns immediately the licensor is bringing a completely new

product, service or technology to market which takes time

34. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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 dont understand their needs and wants?

You arent talking their language?

You competition is faster / smarter / cheaper?

35. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Manufacturing Mindset Sell What We Make Make What Will Sell How WeOftenFunction How WeShouldFunction Marketing Mindset 36. MORE OF THE SAME Dont be a Karaoke Product 37. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Development Blue Ocean Strategy: DONT COMPETE! CreateUncontestedMarket SpaceCreating Temporary Monopolies is Exactly What Businesses Aspire to do! 38. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS From Trademark to Trustmark What is your relevant and differentiated offer to your marketplace?BRAND VALUE Trademark Familiar Distinctive Identity Familiar Distinctive Identity Special Promise Brand Familiar Distinctive Identity Special Promise Authority Trustmark 39. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Developing Markets and Identifying Application MarketsYour application markets will depend on your intended business model. Consider in what contexts your IP / Technology / Services can be used? 40. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Product Life CycleThis is the traditional view of the life cycle of a product from launch to decline: 41. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Product Life Cycle: The RealityThis is how the 4 marketing strategies in the Ansoff Matrix are applied: TIME Market Penetration Product Life Extension New Product Development Market Development Diversification 42. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS

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

43. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Market Segments and Strategic Options The Market Segments Strategy 1Undifferentiated Strategy 2 Differentiated Strategy 3 Concentrated 44. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Generic Strategies 45. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Generic Strategies 46. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Pricing Strategies: The Danger of Price-Based Marketing

Your frequency of Deals changes the customers reference point

How often you are on Deal damages your Reference Point

Frequency of Price-Cutting or Price-Based Promotions Perceived Value / Reference Price 47. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Pricing Strategies: The Danger of Price-Based Marketing Frequency of Price-Cutting or Price-Based Promotions Sales Volume Increase

The Greater the Frequency of Deals, the Lower the Height of the Deal Spike

Average Sales Level The Cocaine Effect! 48. NORTHUMBRIA COMMERCIAL ENTERPRISESINNOVATION CAMPUS Thanks for Listening ... Q&A Ross Golightly [email_address] Tel: 07984 379 558 / 0191 4604126 www.twitter.com/RossGolightly www.spheraconsulting.co.uk