BP Lecture Part1 PDF

How to write a Businessplan Important: In a business plan we do not only tell what we intend to do, but we must convince investors: - that we have a good idea for an attractive market in which we can successfully compete against competitiion - that we will implement the idea professionelly and OPTI...

How to write a Businessplan Important: In a business plan we do not only tell what we intend to do, but we must convince investors: - that we have a good idea for an attractive market in which we can successfully compete against competitiion - that we will implement the idea professionelly and OPTIMALLY. Optimally means that from the variety of options (sales channels, promotion channels, location, etc.) we will pick the financially most reasonable ones and that we will set the right priorities. Thus, we DON'T plan to do everything possible and to spend 100 mio Euro, but to select of all options the ones which are the most appropiate for the specific situation. - We need to explain this thoroughly. The onus is on us, i.e. we cannot simply plan SOMETHING and hope that the potential investors will figure out whether our approach will be profitable, but it is on us to explain everything and to convince investors. To be convincing, we need to be as specific and concrete as possible. E.g., instead of writing "We will do influencer marketing" we should write specifically which influencers we would like to cooperate with, why, how expensive they will be, along with correct sources/citations. This principle of specificity holds for the entire business plan. From a business idea to an established company Established company Realization Foundation and growth Business Financing decisions planning Interest of Investors Creation of business idea Start-up and Seed phase Exit phase growth phase Quelle: McKinsey  Why do I need a businessplan? Top 5 sucess factors Top 5 failure factors for the foundation of an enterprise for the foundation of an enterprise Secure financing 1 Financial problems Preparation and founding concept 2 Design and planning errors Expertise and capabilities 3 Unsifficient qualifications Self-confidence 4 Overestimation of one‘s own capabilities Personal commitment 5 Lacking commitment Quelle: Maisberger et al. 1998 17 Benefits of business planning A business plan … is a tool to structure your business concept forces you to think through your business concept systematically switches your focus to customer perspective/value selling enables you to develop and share your business concept with different stakeholders avoids information overkill (limited to 30 pages) is a controlling tool is the basic document for attracting support (bankers, investors, personnel) is the basic document for board members to decide on new projects is a flexible tool, so review it continuously and keep it up-to-date! Value creation focuses on three control dimensions Profit potential Profit Cash Strategic Operational Financial management management management Business Plan The businessplan has to respond to three core questions! What is the content of the How is the business to be How is the business to be Business? positioned? implemented?  Business model, organisation  Market environment  Management and  Description of the and competition Personnel product and the  Strategy for marketing  Realisation schedule customer value and distribution  Opportunities and threats  Financial planning and financing 20 Meet the “formal criteria“ Clarity Objectivity  Well structured  Do not go into raptures over your own idea  Stick with the essential  “short, but complete“ Formal Criteria  Consolidation of authors  Avoid technical details  „Showpiece“ of the business plan  Depending on the receiver: avoid or  Mind the spelling explain technical terms Uniformity / visual appearance Comprehensibility 21 The businessplan has 9 + 1 parts Executive Summary Product or Service Market and competition Marketing and distribution Business model, business system and Organisation Entrepreneurial team, Management, Personnel Realisation schedule Opportunities and threats Financial planning and financing Possibly appendix Approx. 30 pages 22  Executive Summary Objective Content  Arouse interest of the receiver  Short outline of all important  Inform about the vital aspects of Important component aspects of your business plan your company – about 2 pages of the business plan  Product/Service  Customer value Use sufficient time for the  Relevant markets verbalization of your idea  Managerial competencies  Development of the company  Invecapital expenditure Business card of your requirements company Frequent error: The exec summary is confused with an introduction. However, it is a summary of ALL contents. Many investors only read the exec summary of 95% of the business plans they receive. Only if they find a true summary there and find it interesting, then they will continue reading. The Executive Summary using the example of va-Q-tec  Product: high-class vacuum insulation, e.g. For the isolation of transport containers (VIP), protected by patents  Entrepreneurial team: Dipl. Phys. Michael Ehrmanntraut, Dr. Roland Caps, Dr. Joachim Kuhn, Prof. Fricke  Market / Competition: heat insulation in the area of logistics, vehicle manufacturing and building insulation.(Competitione.g. Styrofoam and fibre glass)  Marketing / Distribution: Direct marketing , later on using license holders  Business system / Organisation: Own development, production and distribution of VIP and licensing of know-how  Realisation schedule: 1. Phase develop and build-up production, 2. Phase Licensing, cooperations and further development of the products  Opportunities / Threats: new emerging market, Patent right / price decline  Financial planning / Financing: Break-even in year xxxx, financing using equity, venture capital, silent partnerships, government grants The Executive Summary  Formulate as specific as possible  Keep it as simple as possible  Make sure to have your plan counterchecked Agenda Executive Summary Product or Service Market and competition Marketing and distribution Business model, business system and Organisation Entrepreneurial team, Management, Personnel Realisation schedule Opportunities and threats Financial planning and financing Possibly appendix Approx. 30 pages 30 Customer Value has three dimensions Check customer value along all 3 dimensions Illustrate the value clearly Quantify where possible 32 Customer Value as sales message Quality Price Time  Unique feature or Unique selling proposition (USP)? USP Unique feature (Unique selling proposition) My product differs from all other products My product / Service offers an unique buying incentive for my target group. Value Proposition: Totality of all features/ benefits that are offered to customers, everything that a car provides  A „unique selling argument“that is normally used as a sales message.  Describes – from a market-based point of view - an outstanding attribute of a product  The respective target group shall develop preferences for the advertised product. USP: Which of these features/ benefits/ product  Is a basic requirement for a successful functionalities are unique, e.g. for a Koeniggsegg sports car positioning of product. it is its top speed of 436 km/h which stands out The seats, steering wheel, lamps, etc. are part of the value proposition, but they are offered by other car companies, too, i.e., they don't form the USP Uniqueness may be due to... … technological characteristics … the shape … the price … operator convenience … quality/longevity … time saving … accessability (distribution channel/point of sales) … the service … the image …  Customer Value and the Value Chain Where are you located? Who is your customer? Value Chain Value Value Value Supplier Processing1 Processing2 example example example End customer Component Telecommunication Network operator manufacturer unit manufacturer Type This is text relevant here in the business-to-business domain (B2B) Description of product/service Objective Content  Communicates the business  Description of the innovative Look through the product or service idea idea in an easy comprehensible „customer glasses“! manner  Quantify Customer value/  The customer value and the customer news and highlight the Which problem of USP Unique Selling Proposition (USP) the customer are you  State the status of product need to be clearly visible going to solve? development and required further steps Do not describe technical  List the protection of innovation details! advance / pretection rights - Are there already pertinent patents out there? - Is it possible to protect your product by a new patent? - You don't need CAD drawings, but the major technical approach should be explained. - If possible, provide a sketch/ drawing/ scheme of the product. - In the realization plan, you can plan to finish product development.  Who is your customer / target group? What are your customers´ requirements? Which functions are provided by your product? What are the technical features of your product? What constitute value adding services and helpful solutions for your customers? Which benefits does your product offer? What is the innovation in your business idea? What is the Unique Selling Proposition (USP)? How can you protect the USP? E.g., patents, brands, customer relationships, etc. netzwerk|nordbayern Agenda Executive Summary Product or Service Market and competition Marketing and distribution Business model, business system and Organisation Entrepreneurial team, Management, Personnel Realisation schedule Opportunities and threats Financial planning and financing Possibly appendix Approx. 30 pages 45  When talking about market and competition you have to show that you know the market Objective Content  Shows the company‘s  Create market and competition positioning in the market Use top-Down- analysis  Classification of the company and bottom-up-  Market segmentation in its competitive environment Planning for validation  Describe target groups and their needs Name the most attractive  Define market potential market segments and Justify your decision  Market size market competition  Customer numbers Markt Wettbewerb Give sources for market data  Numbers for products used in your description  Total turnover  Expected market growth Target market Zielmarkt netzwerk|nordbayern 46 An analysis is the precondition for market strategy and competitive strategy Market analysis Choice of the target Competition analysis market  In which industry are you Market demarcation  Which important competing and how is it Segmentation competitors offer developing? Finding the target market comparable products / Positioning services?  How big is the total market and the market potential?  Can the market be  How durable is the segmented? competitive advantage?  Is the entire market relevant or are certain parts to be  Which part of the market is  The market perspective is excluded? relevant for me? essential!  What kind of entry barriers  Also consider non-direct exist and how can I cope competitors. with them?  Define customers 47 For a market analysis, various sources can be used...  Statistics portal http://de.statista.org  Federal Office for Statistics (Destatis) http://www.destatis.de Official Statistics  Statistical offices (international organizations, continents, countries, regions, cities) http://www.it.nrw.de/links/statistikAnbieter.html  Governmental departments http://www.bundesregierung.de/Webs/Breg/DE/Bundesre gierung/Bundesministerien/bundesministerien.html  Economic research institutes http://de.wikipedia.org/wiki/Wirtschaftsforschungsinstitut  Market and opinion research http://de.wikipedia.org/wiki/Marktforschung Institutes 48 For a market analysis, various sources can be used...  Search engines (Google & Co.) Web Recherche  Rating communities, News forums, Blogs http://www.top100-business-blogs.de  Competitors (e.g. Website)  Reports of bigger companis (duty of limited Company data companies to publish certain infomation)  Index of exhibitors, company presentations and workshops Companies and exhibitions  Chambers of trade  Chambers in general  Expert interviews, customer meetings Own research 49 For a market analysis, various sources can be used...  Leading publishers http://www.medialine.focus.de http://media.spiegel.de Media studies/ Press http://www.bauermedia.com …  Specialist magazines http://www.fachzeitungen.de  Leading consultants http://www.mckinsey.de http://bcg.de http://www.rolandberger.com … Consulting companies  Accountants http://www.de.ey.com http://kpmg.de/  Banks and Insurances http://www.sparkasse.de http://www.allianz.de Financial institutions 50 example: implementation of the Blue-Ray format 51 Analyse the market size  Sales volume -> This is what you plan for your start-up. Entity of a company‘s sales volume based on a certain product. Market volume = Total sales of all competitors in a market = Market size  Market growth How is the market volume and the market potential going to change in the future.  Market potential Entity of possible sales volumes of a market based on a certain product. 52  Analyse the market size Sales volume of competitor B Growth reserves Market volume of all competitors Market potential 53 netzwerk|nordbayern 53  Market volume. How big is the market volume for diapers in Switzerland? This is an example for how one can estimate the market potential. Estimations for a target market size can be done in a similar manner. Population of 7 millions Basic data: Average life span of 75 year (Federal Office for Statistics) Logical way Infants need diapers for 2 (Assumption): years in average Calculation: 2/75 = 2.7 % of the total population or 190.000 children Excess of age 160.000-200.000 Assumption: Diaper usage per day: 5 - 7 diapers (interview parents) Estimated daily diaper usage: 0.8 - Preliminary result: 1.4 mil If youtext Type findhere specific market numbers in market reports, then you should use these and cite 365 x 0.8 mil = 292 mil (lower limit) the sources correctly. In this case, you don't Market potential: 365 x 1.4 mil = 511 mil (upper limit) need to estimate the market size. Check-Up: How many diapers does P&G sell in the infant market segment? 54 Create a prediction for the turnover based on the probability of sale Probability of Weighted Customer Sales volume sale sales volume A 100.000 € 0,2 20.000 € B 500.000 € 1,0 500.000 € C 200.000 € 0,8 160.000 € D 300.000 € 0,4 120.000 € 1.100.00 €  800.000 € This is only relevant if you plan to sell to different customer segments. 55 An analysis is the precondition for market strategy and competitive strategy Market analysis Choice of the target Competition analysis market  In which industry are you Market demarcation  Which important competing and how is it Segmentation competitors offer developing? Finding the target market comparable products / Positioning services?  How big is the total market and the market potential?  Can the market be  How durable is the segmented? competitive advantage?  Is the entire market relevant or are certain parts to be  Which part of the market is  The market perspective is excluded? relevant for me? essential!  What kind of entry barriers  Also consider non-direct exist and how can I cope competitors. with them? indirect competitors  Define customers e 56 The competitor analyses allows for an estimation of the competitive advantage Important factors for a competitor analysis: Product lines and Technology of competitors Presentation: Target groups and overlappings  List of competitors Market shares of competitors  Competitor‘s characteristics Sales, turnover if available  SWOT Analysis of the profit situation if available competition Cost items  Acticity and segment matrix Image Compare in a matrix/table the characteristcs of the competitors Growth and development particulary along the key buying Distribution channels for sales approach factors from the customer Partnerships and cooperations perspective 57 Example for a service offer- / customer segment matrix Goal: Show your own positioning in the market. Yet the specific analyis below may not be relevant for all markets. Who offers which service for which segment? Offer Sports car Station wagon Van Segmente Void found! Family with 3 Porsche Audi A6 Avant VW Bus children Cayenne BMW 5er Mercedes Vito Audi Cabrio Audi A4 Avant Single --- Porsche 911 BMW 3er Married couple with Audi A6 Avant VW Bus --- bicycles BMW 5er Mercedes Vito 58  Example for a competitor analysis You should have a detailed comparison between the degrees to which competitors and your own start-up company satisfy key buying factors. (competitive product) Key buying factors Alternatively, you can also present the differences in the form of a table. Your positioning helpfs investors to understand how you want to convince customers to buy from you and how you intend to compete in the market. 59 netzwerk|nordbayern 59 Eine Analyse ist die Voraussetzung für die Markt- und Wettbewerbsstrategie Market analysis Choice of the target Competition analysis market  In which industry are you Market demarcation  Which important competing and how is it Segmentation competitors offer developing? Finding the target market comparable products / Positioning services?  How big is the total market and the market potential?  Can the market be  How durable is the segmented? competitive advantage?  Is the entire market relevant or are certain parts to be  Which part of the market is  The market perspective is excluded? relevant for me? essential!  What kind of entry barriers  Also consider non-direct exist and how can I cope competitors. with them?  Define customers Quantitatively estimate the size of the target market 60 Segment your market based on your knowledge about your customers and competitors! Market segmentation By region By product, By technology By buyer decision Industry or process customers  GER  Cars  Laser  conservative  EU  machine technology  progressive  USA construction  Micro  brand loyalty  RoW electronics  price-conscious example: Ford builds some of its cars (e.g. Pickups) for the US market only 61 61 The process of market & customer segmentation Estimate Positioning Select Segment Structure of market size & on the target your competition growth market segments customers Estimate realistic Take direct Clearly define market Focus on those Understand figures for market size, competitors, potential entry strategy segments promising potential customer growth rates & entrants, suppliers, Check strategic the highest returms value per each profitability customers and options for further segment substitution into development Set up selective & consideration significant clusters Market entry barriers and buying resistance Typical market entry barriers  Economies of Scale  Product differentiation barrier Customers are brand-loyal  Compatibility barriers e.g. Software interface problems  Political and lawful barriers e.g. Entrance limitations in some countries  Distribution barriers e.g. Channel conflicts Or slotting fees/  Reference barriers e.g. Lack of references prominent positioning fees may be too high. Typcial buying resistances  Customer's uncertainty concerning the cost-effectiveness of his purchase  Technology life-span of the product  Viability of a start-up  Fear of lock-in  Uncertainty regarding Acquisition cost, operating cost and follow-up cost  High switching costs  "budget is exhaustet" 64 Agenda Executive Summary Product or Service Market and competition Marketing and distribution Business model, business system and Organisation Entrepreneurial team, Management, Personnel Realisation schedule Opportunities and threats Financial planning and financing Possibly appendix Approx. 30 pages 68 Marketing and distribution Objective Content  Marketing conceptualization  Coherent planning of marketing based on market and competitor and distribution activities, which analysis are harmonized with the respective product and target Marketing is not equal  Describe market entry strategy group. advertisement!  Create the right marketing mix out of the following areas: This area is often Production policies, The overarching marketing underestimated while distribution policies, price strategy forms the basis for policies and communication a coherent and consistent planning and policies choice of the 4P's. implementing unterschätzt.  The distribution structure and channels need to be shown and justified. Specific details and explanations! Basic principles of marketing planning Objective Strategy Mix What is the marketing How does the marketing The Marketing Mix! aiming for? strategy look like? What do we have to use How do we get there? for that? Where do we want to go?  We want to be market  Product leader in 5 years  Cost leadership  Place  Every third quotation will  Differentiation strategy lead to a transaction  Price  Niche strategy  We want to offer the best  Promotion cost/performance ratio 70  The Marketing Mix What is the best way to distribute my product? place Which price are my What attributes does my customers willing to product need to have? product 4P price pay for the product? promotion How do I communicate best with my customers? 72 Example Costs to the customer Purchase of a new car: The customer does not only pay the purchasing price for the new car, but also has to cope with additional costs. The car has to be registered and also transfer costs may arise. When changing car brand (e.g. from VW to BMW) the customer might also need new bike or ski racks, a bigger garage or new snow tires. Direct cost: Value cycle Indirect costs:  purchasing price  disposal of old car  loss of use  transfer  operating cost  expendable parts Total costs for the customer 74 netzwerk|nordbayern The Marketing Mix place Which characteristics does the product / service need to have?  Equipment components   Quality Customer service product 4P price  Quantity  Design  Packaging This is captured in the above chapter on the value proposition and customer value. You can refer to promotion the above chapter. 75 Product policy: Business idea Which requirements/ expectations do the customers have? Is there a match between customer need and my products / services? 85 % of all newly introduced products in 1990 where not present anymore on the market in 1994. Example: The production of the Renault Vel Satis was stopped after only 7000 manufactured copies. 76 Product policies in the car distribution business: What value do you offer your customers? In addition to the core product, there are optional products and services, which enhance the customer value. Optional services: tire change / storage driver trainings Erweitertes Produkt: customer societies / credit cards etc. Aluminum rims Luggage racks child car seats etc. Core product 77  The Marketing Mix place How can I best distribute the product/service? Distribution channels are sales channels.    Distribution channels Wares logistics Marketing intermediary product 4P price  Marketing channels  Location - All sales channels cost money, usually a lot of money. You can sell through several channels, but no start-up company can afford ALL channels simultaneously. - Optimization problem: Channels through which you can promotion reach many customers are usually very expensive. Using cheaper channels (e.g., own web page) saves costs, but reach and thus sales is lower. In your plan, you should OPTIMIZE distribution, i.e. maximize growth but also profit. You must convince investors that you choose the channel(s) that is (are) the most reasonable in your specific case. 78 What do you have to keep in mind when creating your distribution policy?  How is the product or service supposed to be sold? Be as specific as possible. If you use retailers, then name them and explain why you choose them  Which distribution channels are going-> totarget group-specific optimization of revenues versus sales costs. No start-up company can be used? afford all sales channels. - Retailer margins (10-40% of revenues)?  Statement of costs - Slotting fees (i.e., shelf space must be rented)? - Fees for prominent positioning on pages of online retailers?  Distribution e.g., Amazon search results on p. 1 or on p. 17: product position on p.1 very expensive, but maximizes revenues  do it yourself - If you use own sales reps (in B2B): Personnel costs incl. social security fees plus travel costs  outsource i.e., direct or indirect sales approach.  Statement of requirements: Direct sales approach more common in b2b markets because of non-self-explanatory products  Number and qualification of Personnel  Own distribution personnel because of higher task complexity?  Motivation models 79  Fundamental considerations regarding distribution planning You must explain how your sales approach is optimized. Don't simply state your channel(s). Investors know them all, but they want to understand why your channel(s) is (are) the best for your company. E.g. why one specific retailer and not another one. Internet Company Own web page, online shop, online platform Consumer Distribution must be optimized for specific Direct distribution target group In particular for B2B Distributors Incl. online retailers Wholesaler Trading agents Franchise / license system Who is the consumer of my products / services? How do I reach those customers? 80  Examples: For business-to-business All too often, it is not possible to sell the product directly to the end customer Car parts AUDI, BMW, BOSCH manufacturers Mercedes, etc. Where am I located in the value chain? Who else is involved? Mobile phones maker e.g.: NOKIA Entrepreneur: Customer: Phone-Shop Phone user Network operator e.g..: T-Mobile How complex is supplier the structure? User: patient e.g.: orthopedist Political payer: health guidelines insurance 81 The distribution planning needs to be comprehensible in the business plan Distribution channels must match your target customers  How large is the basic set of potential customers? -  Take the numbers from the market part of your business plan  When are the potential customers approachable regarding the new product?  When will budgets be set? If you are in a b2b market, who are the purchasing decision makers of your customers?  How does the decision making process work for the customer and who is the right contact person?  What are realistic step by step success rates in the decision making process?  What are the required capacities for every single activity? For a direct sales approach, you must employ enough sales representatives to attain your sales goals  How much effective selling capacity is at our disposal? 82 Sales & distribution planning needs to be plausible Example for a calculation on how many sales reps you need for a direct sales approach. Going direct is particularly reasonable for business-to-business sales. Number of available days per seller and year 200 days weekends, holidays, sick days, instruction courses, internal meetings Thereof active selling time at customer‘s (Assumption 25%) 50 days Rest: travel- , documentation-, postprocessing time etc. 2 to 5 visits in the sales are per visting day 3 visits/ day Maximum visiting performance per year 150 visits Customer contacts with follow-up appointments 30 visits (e.g. 20% success rate) Conclusion of a contract at e.g. 30% of contacts. 10 (e.g. Selling a product worth 50,000 €.) Attention: further visits neccessary. This is binding capacity! (Introduction of the company and its products/ services, reference customer visits, product demonstrations, transaction negotiation, Abschlussverhandlung, visits after the initial start of the operation) Maximum turnover per seller 500T€ Presumed margin: 10% (=50.000€) Cost of a sales worker > 50.000€  In this example: loss 83 Not every target customer leads to a contract Sales funnel for a direct sales approach 84 Definition of distribution channels When? Consequences for start-ups  Necessity of customer relations  High cost Direct distribution  Concentrated customer base  Low market penetration For complex products that require a lot of explanations  Limited market access, barriers  Dependency from distribution Distribution  Detailed knowledge of the market partnersRetail margins can be high partners required (e.g. regional markets)  Possibly co-distribution of Slotting fees, positioning fees can be high, must be considered OEM  Introduction of new products to highly  Small margin of profit Original Equipment Manufacturer competitive markets  Dependency on the product  Swift market penetration desired development of the OEM  Interest of strong potential licensees  No customer relations  Lack of finances  Lion‘s share of value added made by Franchising  Sustainability due to patential protection licensees  Confirmation of a minimum fee Online sales platforms can be very expensive: - Margins for revenues - Fees for product positioning - Cheaper for smaller more specialized platforms, but smaller customer reach - Contingent on target segment and product, different channels can be more reasonable. Considering expected revenues and costs, you must explain what is best for your company. You must convince investors of your choice. 85 The Marketing Mix place Which attributes does the product/service need to have?  Pricing strategy   List price Discounts product 4P price  Time allowed for payment  Price differentiation  Financial terms Discounts, payment terms, financial terms are less relevant for start-ups. promotion 86  20.09.24 Pricing: Three approaches that you should all use and interpolate (1/4) Competition- For direct competition: Derive from a performance comparison based with the competition, what your competitive price-performance relationship should be If there is no direct competition, then apply this approach to indirect competition, i.e., to substitutes Estimate how much typical target customers would be willing to Value-based pay for your product. At this price point you can maximally exploit customers' willingness to pay, and hence maximize profit, e.g., see Apple and all luxury brands You should survey your target customers. In B2C you could run an online survey among 100 target customers. In B2B a smaller number of customers are sufficient, contingent on how difficult it is to get access. 1 Pricing: Three approaches that you should all use and interpolate (2/4) Approach: Cost-based 1. Create a provisional bill of materials (BOM), find prices for materials/ components or estimate them by resorting to similar materials/ components. Consider volume discounts. In the BOM, note purchasing prices next to the materials and add correct sources/citations (i.e., where did you find these prices?) 2. Add a brief estimation on how much labour is needed to produce, package and dispatch one unit of your product. 3. State typical production wages and social security costs (incl. sources/citations) and calculate labour costs per production unit. 2 1  20.09.24 Pricing: Three approaches that you should all use and interpolate (3/4) 4. Consider depreciation costs for your machines and tools (include Cost-based depreciation times in a small table). 5. Plan your projected sales volume and divide your rent, utility bills, insurance, etc. (incl. sources/ citations) by your production volume. Thus, you can get your planned production overhead costs and your total production costs per unit of production. 6. Estimate your marketing & sales costs and your administration costs, e.g. personnel costs for the founders, office costs, etc. Divide these overhead costy by the production volume, too. Alternatively, you may take these data from your financial plan in the last chapter of your business plan. 7. Add a mark-up/ profit margin of at least 20%. This yields your target price. 3 Pricing: Three approaches that you should all use and interpolate (4/4) If you can determine your price by using the first two methods, then cost-based pricing constitutes a lower threshold for your price. If you can't apply the first tow methods, then cost-based pricing will be your only method. If possible, you should apply all three pricing approaches and compare the results. Then you can argue which price would be most reasonable to maximize profit. If you execute all three methods thoroughly and if you cite sources, then investors get a professional and convincing impression of you. If you just wildly guess your price, then investors don't know whether you maximize profits. You should convince investors that you have done all your "homework" in a professional manner. 4 2 What should you pay attention for in the context of your pricing strategy?  Definition of pricing strategies  Skimming strategy  Penetration strategie Could be helpful for start-up companies.  Shaping the financial terms policy  Discounts, terms and conditions Less relevant for start-ups.  Price differentiation (different prices for different customers/markets)  Calculation of the financial range Example: Primary cost/ piece 20 € List price 60 € Range for discounts etc. 40 € 87 Skimming Strategy Only relevant for start-ups if product is highly differentiated and attractive Thus, avoiding typcial mistakes of Advantages start-up enterprises Acceptance in High introductory price, the market Gain experiences using small Approach the big market without strong decline in prices volume while operating on a real experience how to win the most over time market important customers (opinion leaders) Skim high margins using limited Brand may be damaged, because early productions early productions were not in line with the market Deficient experience with econoimies Maintain margins using downward of scale and scope1111 motions on the learning curve Price Example mobile navigation devices: Were extremely important when introduced on the market and were sold in small quantities only. Higher amount of sold units go along with a decline in prices. 89  Penetration strategy Can help to overcome initial resistance of cautious/sceptical customers Thus, avoiding typcial mistakes of Advantages start-up enterprises Acceptance in the market Penetrating the market as fast as Instead of using high margins, possible due to a relatively low turnover is generated by selling price vast amounts of pieces Faster development of mass Opportunity to set the standard Low starting price and markets (e.g. Microsoft Office) quick market penetration due to high Higher quantitiy of sales at a lower Especially important when fixed initial investments cost per piece cost is high to be long-term Price profitable Possibly hard fights for market Deterrence of potential shares; critically evaluate the competitors business model example IKEA: very cheap assemble-yourself furniture as mass product. Also ongoing success of higher priced collections and services. 90  Hybrid forms of pricing models Cf. chapter on business model (-> earnings model) example: printer HP printer EUR 59,- Refill cartridge col EUR 34,- Refill cartridge sw EUR 25,- This means: new cartridges cost as much as the new printer. HP earns its money mainly from selling From consumable material. Type text here  The Marketing Mix - If you plan to use the following promotion channels: - Advertising in social media/ internet: Which ones? Why? How expensive? - Influencer marketing: Which ones? Why? How expensive? - Exhibitions/ trade shows: Which ones? Why? How expensive? - The details matter most! place How do I communicate best with my customers?  Above-the-line advertising  Sales promotion product 4P price  Public Relations  Product Placement  Exhibitions promotion Similarly to sales channels, money of a start-up is very limited. Hence, you need to prioritize and precisely target your customers to get the highest "bang for the buck". You need to explain your promotion approach to investors with concrete details and relevant sources/ citations. 92 Communication policies on innovative products: principal tasks  Placing information regarding the existance of the innovation (product advertisement and respectively advance notive)  Overcome customer uncertainty by using signals like  tests, warranties, certificates  Reputation and Image (reference companies, public relations)  Standards and certification  „Reference Selling“ especially regarding innovations -> use reference customers & influencers  Presenting the functionality and value of the innovation  Accentuation of relevant attributes/ valuable components  Consider information seeking behavior of the consumer  decision-oriented, fact-oriented, safety-oriented consumer -> geared towards target customers 93  Types of communication policies Communication policies Impersonal communication Personal communication No dialogue with the customer. Aiming at customer dialogue Usually for indirect sales approach. CRM and dialogue Personal sales marketing. Classic Marketing Public relations advertising Corner shop/ mom-and- Data banks and IT help with pop store as ideal Particularly through internet, i.e., Youtube, social media, influencers, etc. the dialogue TV commercials would be far too expensive and unspecific. Only the target group should see promotion efforts. This is far cheaper. 94 Examples for impersonal communication 95 Examples for impersonal communication 96 Types of communication policies Communication policies Impersonal communication Personal communication No dialogue with the customer. Aiming at customer dialogue For direct sales approach, particularly in b2b and for complex product that need in-depth explanations CRM and dialogue Personal sales marketing. Classic Marketing Public relations advertising Corner shop/ mom-and- Data banks and IT help with pop store as ideal the dialogue 97 Personal communication: „corner shop principle“ Personal relationship to the Example of a small country bakery: customer (dialogue) "Good Morning Mrs. Smith, two bread and two croissants as always? Consider customer habits “over-fulfill“ expectations Also, I put two slices of the strawberry cake that you like so much aside! Customer sales increased 98  Important questions regarding the communication mix Exhibitions, trade fairs, conventions Number &  Which trade fair do you want to visit? type of visitors?  Identify visiter and exhibitor profiles.  When will the trade fairs take place?  Which cost will incurr for for the fair includingpre-and post-processing? Particularly relevant for B2B advertisements in specialist magazines  Date of publication, print run, identify audience  When do you publish advertisements?  What costs have to be anticipated for the advertisement? Provide specific details! Particularly relevant for B2B Mailings -> SPAM! -> Usually, not very effective.  To whom do you send the mailings?  When do you send the mailings?  Mind legal frameworks  Which costs arise relating to the mailing? -> Overalls: details, sources, costs 99  Which product/service combination will you offer? What is your target price? How do you promote your offer? What is your sales strategy (channels)? How will you convince and enable your sales staff? Who is the decision maker on the customers side and what are the specific preferences? Who is your first customer (reference)? How will your market share develop?