Today’s TopicsToday’s Topics

Launching a New Product,Launching a New Product,

Review of Course Learnings,Review of Course Learnings,

andand

Final Exam PreparationFinal Exam Preparation

Please fill out the onlinePlease fill out the onlinecourse assessment surveycourse assessment survey

Written comments areWritten comments areparticularly appreciated !!particularly appreciated !!

Course ScheduleCourse Schedule Business objectivesBusiness objectives Financial Financial

measurements measurements (Google)(Google)

Company analysis; Company analysis; roles & responsibilities roles & responsibilities (Medtronic)(Medtronic)

Business & product Business & product plans (FHP Wireless)plans (FHP Wireless)

Target customers Target customers (DLJdirect)(DLJdirect)

Competitive analysis Competitive analysis (Airborne Express)(Airborne Express)

Product decisions Product decisions (Techsonic)(Techsonic)

Midterm exam (THINK)Midterm exam (THINK)

The Marketing The Marketing Function (Lenovo)Function (Lenovo)

Sales & Sales Sales & Sales Channels (GolfLogix)Channels (GolfLogix)

Internet Marketing & Internet Marketing & Sales (HubSpot)Sales (HubSpot)

R&D: Product R&D: Product Development Development (Guidant)(Guidant)

Operations (Crocs)Operations (Crocs) Product Launch Product Launch

(Invisalign)(Invisalign)

Final exam (Emotiv)Final exam (Emotiv) Thursday, Dec 15Thursday, Dec 15thth,, 1-4pm, E2301-4pm, E230

Today’s AgendaToday’s Agenda

Launching a product: Invisalign caseLaunching a product: Invisalign case

Summary of key learnings from the Summary of key learnings from the coursecourse

Review case for final exam (Emotiv)Review case for final exam (Emotiv)

Our Last Assignment:Our Last Assignment:Product LaunchProduct Launch

InvisalignInvisalign

A new technology ( ~ 2000)A new technology ( ~ 2000)

for aligning teethfor aligning teeth

Product Launch Product Launch Assignment:Assignment:

Align Technology in 2001Align Technology in 2001 Invisalign straightens teeth via a series of clear Invisalign straightens teeth via a series of clear

plastic retainers designed and made plastic retainers designed and made specifically for each patientspecifically for each patient

Higher price and higher COGS than traditional Higher price and higher COGS than traditional metal braces, but “better”metal braces, but “better”

Product available for about 2 yearsProduct available for about 2 years Annual revenues ~$50M but OI ~($100M)Annual revenues ~$50M but OI ~($100M) Adoption rate by orthodontists is insufficient to Adoption rate by orthodontists is insufficient to

support future growthsupport future growth Arguably, the product needs to be “re-Arguably, the product needs to be “re-

launched”launched”

Assignment QuestionsAssignment Questions

Which of the three end-customer (patient) segments Which of the three end-customer (patient) segments identified should be Align’s identified should be Align’s targettarget? Why?? Why?

Which of the promotion and sales Which of the promotion and sales taskstasks (promotion, (promotion, selling, fulfillment, service) should be done by Align? selling, fulfillment, service) should be done by Align? By the dentists? By the orthodontists?By the dentists? By the orthodontists?

What are the orthodontist’s What are the orthodontist’s “channel economics” “channel economics” for for Invisalign vs. standard braces?Invisalign vs. standard braces?

What What barriers barriers are preventing increased adoption of are preventing increased adoption of Invisalign by orthodontists?Invisalign by orthodontists?

How should Invisalign be How should Invisalign be positionedpositioned with with orthodontists? (write a positioning statement)orthodontists? (write a positioning statement)

By what methods should Invisalign be By what methods should Invisalign be promotedpromoted to to dentists? To orthodontists?dentists? To orthodontists?

Making Product Making Product DecisionsDecisions

FinancialAnalysis (health,

challenges)

Market Analysis(customers, needs,

market trends)

Competitive Adv Decision (SCA)

Target Customer Decision (C)

Product Decisions(4P’s)

CompetitiveAnalysis

(strengths,weaknesses)

Decision Criteria: Objectives/Constraints

Align TechnologyAlign TechnologyIncome StatementIncome Statement

YEAR ENDING; $K 31-Dec-10 31-Dec-08 31-Dec-06

Total Revenue 387,126 303,976   206,354  

Cost of Revenue 83,709 78,850   64,775  

Gross Profit 303,417 225,126   141,579  

R&D exp 25,997 26,165   18,474  

SG&A exp 170,137 177,216   146,298  

Non Recurring 4,549 6,231   14,343  

Operating Income 102,734 15,514   -37,536

Invisalign’s Current Invisalign’s Current ChannelChannel

gold arrow = promotiongold arrow = promotion

Invisalign-promotion

-salesforce (30)

Dentists-120,000 in US

Orthodontists-8,500 in US

-6,500 trained byInvisalign

Patients-2M/year in US

-35,000 Invisalignpatients (<2%)

Sales, training, support

visit

referral

visits

Target CustomersTarget CustomersCurrent target: adults and adolescents with Current target: adults and adolescents with

mild-to-moderate conditions; mild-to-moderate conditions; sensitive to sensitive to appearance appearance for for social/personal/professional reasonssocial/personal/professional reasons

Segments identified:Segments identified:

Health consciousHealth conscious

Prior (braces) usersPrior (braces) users

Beauty consciousBeauty conscious

Selecting Target Customers: Selecting Target Customers: considerationsconsiderations

Segment size Segment size Revenue and margin opportunityRevenue and margin opportunity Customer benefitsCustomer benefits Customer interestCustomer interest Customer willingness-to-payCustomer willingness-to-pay Competition/market coverageCompetition/market coverage Sales channel and associated profit marginSales channel and associated profit margin Cost to serveCost to serve Customer loyalty/lock-inCustomer loyalty/lock-in

Channel Economics --- exampleChannel Economics --- example

Manufacturer

COGS = 35

expenses = 20

ChannelPartner

COGS = 65

expenses = 20

channel price 65

end user price 90

List price = $100

gross margin % = 30/65gross margin % = 30/65 = 46%= 46%

OI % = 10/65OI % = 10/65 = 15%= 15%

gross margin % = 25/90gross margin % = 25/90 = 28%= 28%

OI % = 5/90OI % = 5/90 = 6%= 6%

Pricing: considerationsPricing: considerations

Value/benefit deliveredValue/benefit delivered Customer’s ability to payCustomer’s ability to pay Competitive alternatives/pricingCompetitive alternatives/pricing Product “image” createdProduct “image” created Initial sales rampInitial sales ramp Profitability (short- and long-run)Profitability (short- and long-run)

Positioning statement Positioning statement developmentdevelopment

Who are you positioning yourself “with” ?Who are you positioning yourself “with” ? What do they desire and fear ?What do they desire and fear ?

Who/what are you positioning “against” ?Who/what are you positioning “against” ? What are your differentiators/benefits ?What are your differentiators/benefits ?

Invisalign PositioningInvisalign Positioningwith Orthodontistswith Orthodontists

Positioning with = Positioning with = orthodontistsorthodontists

Orthodontist desires = ?Orthodontist desires = ? Orthodontist fears = Orthodontist fears = barriersbarriers

Positioning against = ? Positioning against = ? (might depend on target customer)(might depend on target customer)

Positioning content = ?Positioning content = ?

Review: Major Course Review: Major Course TopicsTopics

FinancialsFinancials Business PlansBusiness Plans Market analysisMarket analysis Competitive Competitive

analysisanalysis Product decisionsProduct decisions

MarketingMarketing Sales & channelsSales & channels R&DR&D OperationsOperations Product launchProduct launch

Learning Outcomes:Learning Outcomes:you will learn to …you will learn to …

analyze a company’s analyze a company’s financial performance financial performance and and assess its assess its opportunities and challenges for future opportunities and challenges for future growthgrowth

assess the assess the barriers to success barriers to success in a particular in a particular market and select the appropriate market and select the appropriate target target customerscustomers

identify a company’s identify a company’s competitive advantages competitive advantages by by performing a comprehensive performing a comprehensive analysis of its direct analysis of its direct and indirect competitionand indirect competition

define the define the “whole product” “whole product” and decide on and decide on appropriate appropriate product differentiators product differentiators

And, you will learn to… And, you will learn to…

select appropriate select appropriate sales/distribution channels sales/distribution channels and and promotional messages and methodspromotional messages and methods

identify best practices in identify best practices in new product developmentnew product development and the challenges in and the challenges in integrating the marketing, integrating the marketing, operations and product development functionsoperations and product development functions

understand understand how technical people interact how technical people interact with with marketing, sales and operations personnel, and marketing, sales and operations personnel, and how they contributehow they contribute to resolution of business issues to resolution of business issues

understand how understand how business issues impact technical business issues impact technical workwork

……because you’ll because you’ll understand and apply understand and apply these these ConceptsConcepts (13) (13)

Definition of Definition of product successproduct success

Whole productWhole product Product plan: key Product plan: key

success factorssuccess factors DifferentiationDifferentiation Market Market

attractivenessattractiveness Target customersTarget customers

Competitive Competitive advantageadvantage

Marketing mix Marketing mix (C+4P)(C+4P)

Product positioningProduct positioning Sales functionsSales functions Channel optionsChannel options Channel value-addedChannel value-added Operations balanceOperations balance

… … and you’ll be able to use and you’ll be able to use these these Methods/ToolsMethods/Tools (13) (13)

Income statement Income statement analysisanalysis

Financial Financial benchmarksbenchmarks

Target customer Target customer descriptiondescription

Target customer Target customer selectionselection

5 Forces analysis5 Forces analysis Competitive analysis Competitive analysis

(10 dimensions)(10 dimensions)

Identifying Identifying competitive optionscompetitive options

Decision criteriaDecision criteria Product decisionsProduct decisions Product competitive Product competitive

positioningpositioning Channel economicsChannel economics Process dimensionsProcess dimensions Product Product

development best development best practicespractices

The Basics……The Basics……

Companies try to maximize the wealth of their owners Companies try to maximize the wealth of their owners --- --- market cap (stock price) plus dividendsmarket cap (stock price) plus dividends

Stock price and the ability to pay dividends are driven Stock price and the ability to pay dividends are driven by by earnings, and beliefs about future earnings earnings, and beliefs about future earnings growth growth

Individual Individual products and services are successful iff products and services are successful iff they contributethey contribute targeted amountstargeted amounts to earnings/ to earnings/ earnings growthearnings growth

Earnings growth (ultimately) requires Earnings growth (ultimately) requires revenue growthrevenue growth

Firms use Firms use financial statementsfinancial statements to develop plans, and to develop plans, and measure/analyze/report on their performancemeasure/analyze/report on their performance

……..and, in terms of ..and, in terms of business objectives…..business objectives…..

A A company’scompany’s basic financial objective is to basic financial objective is to grow its earnings quickly and sustainablygrow its earnings quickly and sustainably, , in order to raise its stock price and have in order to raise its stock price and have the ability to pay its owners dividendsthe ability to pay its owners dividends

ProductsProducts are successful if and only if they are successful if and only if they attain their attain their targeted contribution to targeted contribution to corporate earningscorporate earnings

The Income StatementThe Income Statement

Revenues Revenues - Cost of Goods Sold (COGS)- Cost of Goods Sold (COGS) = Gross Margin (gross profit) = Gross Margin (gross profit)

- M&S expense - M&S expense - R&D expense - R&D expense

- G&A expense - G&A expense = Operating income (EBIT) = Operating income (EBIT)

- Interest - Interest - Taxes - Taxes = Net income (earnings) = Net income (earnings)

Key Financial ConceptsKey Financial Concepts Operations vs. total/net (e.g., OI vs. NI) Operations vs. total/net (e.g., OI vs. NI)

Normalizing results: return measures (e.g., OI as Normalizing results: return measures (e.g., OI as % of revenue; operating return on assets)% of revenue; operating return on assets)

Knowing what “good” results are: benchmarks; Knowing what “good” results are: benchmarks; general and industry-specificgeneral and industry-specific

Recognizing cash vs. non-cashRecognizing cash vs. non-cash - Measures (e.g., OI vs. NOCF)- Measures (e.g., OI vs. NOCF) - Capital goods: depreciation/amortization- Capital goods: depreciation/amortization - Working capital: inventory, accounts rec’bl.- Working capital: inventory, accounts rec’bl.

Method: How to analyze anMethod: How to analyze an

Income StatementIncome Statement

(First, compute “the percentages”)(First, compute “the percentages”) Operating income vs. net income Operating income vs. net income In-period operating performance: costs and In-period operating performance: costs and

expenses as a % of revenue; compare to expenses as a % of revenue; compare to benchmarksbenchmarks

Cross-period performance (trends): relative change Cross-period performance (trends): relative change in rev, costs, expenses, earnings… improvements in rev, costs, expenses, earnings… improvements vs. deteriorations, and whyvs. deteriorations, and why

Going-forward opportunities and challenges/risks Going-forward opportunities and challenges/risks for each line itemfor each line item

““Good” Operating ReturnsGood” Operating Returnsin the Business Marketin the Business Market

Sold directSold direct Sold indirectSold indirect

SoftwareSoftware 27%27% 23%23%

HardwareHardware 18%18% 12%12%

ServiceService 15%15% --

Lower GM %Lower M&S %

Higher GM %Higher R&D %

““Good” Operating ReturnsGood” Operating Returnsin the Consumer Marketin the Consumer Market

Sold directSold direct Sold indirectSold indirect

SoftwareSoftware 20%20% 16%16%

HardwareHardware 11%11% 7%7%

ServiceService 9%9% --

Lower GM %Lower M&S %

Higher GM %Higher R&D %

Business/Product Plan Business/Product Plan LearningsLearnings

Content/scopeContent/scope of a business/product planof a business/product plan

Critical aspectsCritical aspects of a “winning” plan of a “winning” plan

DifferentiationDifferentiation: importance, definition, : importance, definition, identificationidentification

Start-upsStart-ups: success factors, funding requirements, : success factors, funding requirements, success profilessuccess profiles

Critical Aspects Critical Aspects of a Winning Planof a Winning Plan

Company:Company: people, skills, resourcespeople, skills, resources

Product:Product: “whole” product & its benefits“whole” product & its benefits

Market:Market: attractiveness & target customersattractiveness & target customers

Competition:Competition: differentiation !!differentiation !!

Sales and marketing plan:Sales and marketing plan: channelschannels

Operations plan:Operations plan: mfg, logistics, servicemfg, logistics, service

Financials:Financials: investor liquidity investor liquidity

Markets/Customers Markets/Customers LearningsLearnings

Market attractiveness: the Market attractiveness: the five forces modelfive forces model

The concept of The concept of target customerstarget customers

How to describeHow to describe target end-customers: groups, target end-customers: groups, demographics, psychographics, needsdemographics, psychographics, needs

Target customer Target customer selection method/processselection method/process

(DLJdirect)(DLJdirect)

Competition LearningsCompetition Learnings

Competitive advantageCompetitive advantage, and its relationship to , and its relationship to differentiationdifferentiation

How companies createHow companies create valuevalue;; “added value” “added value” as a as a measure of competitive advantagemeasure of competitive advantage

Performing a Performing a competitive analysis competitive analysis (method/dimensions: Airborne Express)(method/dimensions: Airborne Express)

Making Making business decisionsbusiness decisions based on competitive based on competitive analysis results; competitive options frameworkanalysis results; competitive options framework

DefinitionsDefinitions

DifferentiatorDifferentiator = a dimension = a dimension of the “whole of the “whole product”product” that is that is unique or bestunique or best compared to compared to competitive offerings (as measured by the value competitive offerings (as measured by the value assessed by the targeted customers);assessed by the targeted customers);

examples = best service, first-to-marketexamples = best service, first-to-market

Competitive advantageCompetitive advantage = a = a capability, capability, competency, process, skill or positioncompetency, process, skill or position of a of a company company that enables creation of one or more that enables creation of one or more differentiators;differentiators;

examples = marketing expertise, large customer baseexamples = marketing expertise, large customer base

Differentiation Differentiation from Competitors’ from Competitors’

ProductsProducts Whole product differentiation Whole product differentiation is the answer to:is the answer to: Why do customers choose your product Why do customers choose your product instead of somebody else’s ?instead of somebody else’s ? (or buying nothing at all?)(or buying nothing at all?) Product differentiators are the things that are Product differentiators are the things that are

unique or best unique or best about the whole product, about the whole product, compared to the customers’ other alternativescompared to the customers’ other alternatives

Potential areas for differentiation = Potential areas for differentiation = dimensions of the whole product (product dimensions of the whole product (product features, price, sales, marketing, customer features, price, sales, marketing, customer service/support, brand, etc)service/support, brand, etc)

Identifying Competitive Identifying Competitive OptionsOptions

Products

Customers

Current

Position

Currentproducts

Current target customers

Therefore…Therefore…Competitive OptionsCompetitive Options

Protect & defend current customer/product Protect & defend current customer/product segmentsegment

Increase market share in current segmentIncrease market share in current segment

Selectively extend (whole) product offeringsSelectively extend (whole) product offerings

Selectively extend target customer setSelectively extend target customer set

Become a broad-line supplierBecome a broad-line supplier

Making Product Making Product DecisionsDecisions

FinancialAnalysis (health,

challenges)

Market Analysis(customers, needs,

market trends)

Competitive Adv Decision (SCA)

Target Customer Decision (C)

Product Decisions(4P’s)

CompetitiveAnalysis

(strengths,weaknesses)

Decision Criteria: Objectives/Constraints

Decision Criteria Decision Criteria Address…Address…

RevenuesRevenues COGS/gross marginCOGS/gross margin ExpensesExpenses Profits (usually, operating income)Profits (usually, operating income) Timeframe for resultsTimeframe for results Risk toleranceRisk tolerance Constraints (financial and other Constraints (financial and other

resources)resources)

Marketing: LearningsMarketing: Learnings

Elements of the Elements of the Marketing Mix (C+4P)Marketing Mix (C+4P) BasisBasis of mix decisions: market & financial of mix decisions: market & financial

objectives and competitive advantage(s)objectives and competitive advantage(s) Importance of Importance of product positioningproduct positioning Positioning factors:Positioning factors:

- positioning - positioning withwith? (target customers)? (target customers)- positioning - positioning againstagainst? (relevant competitors)? (relevant competitors)- - desires & fearsdesires & fears of positioning target of positioning target- key positioning - key positioning contentcontent (esp. differentiators (esp. differentiators

and benefits)and benefits) Promotion (marcomm)Promotion (marcomm): choosing the vehicle(s)/ : choosing the vehicle(s)/

media that provides best and most cost-effective media that provides best and most cost-effective access to the targetaccess to the target

Sales Channels: Sales Channels: LearningsLearnings

The basic sales functions: (promotion/marcomm); The basic sales functions: (promotion/marcomm); selling,selling, fulfillment,fulfillment, andand serviceservice

Channel value-addedChannel value-added: Higher and lower value-: Higher and lower value-added channels; value-added functionsadded channels; value-added functions

Specific Specific channel optionschannel options: direct (multiple types), : direct (multiple types), OEM, integrator, VAR/VAD, distributor, OEM, integrator, VAR/VAD, distributor, dealer/retailer/reseller, etcdealer/retailer/reseller, etc

Channel decision criteriaChannel decision criteria: considerations in : considerations in matching products, customers, and channelsmatching products, customers, and channels

Channel economicsChannel economics: channel margin, profit: channel margin, profit Channel conflictChannel conflict: coordinating multiple channels: coordinating multiple channels

Channel Economics --- exampleChannel Economics --- example

Manufacturer

COGS = 35

expenses = 20

ChannelPartner

COGS = 65

expenses = 20

channel price 65

end user price 90

List price = $100

gross margin % = 30/65gross margin % = 30/65 = 46%= 46%

OI % = 10/65OI % = 10/65 = 15%= 15%

gross margin % = 25/90gross margin % = 25/90 = 28%= 28%

OI % = 5/90OI % = 5/90 = 6%= 6%

Learnings: R&DLearnings: R&D

Characteristics of Characteristics of market-focused new market-focused new product development processes……best product development processes……best practices practices

Process dimensions: What? How? How Process dimensions: What? How? How well? (objectives, structure/discipline, well? (objectives, structure/discipline, execution quality)execution quality)

Marketing/R&D integration: aspects, Marketing/R&D integration: aspects, desired vs. actual integration, barriersdesired vs. actual integration, barriers

Learnings: OperationsLearnings: Operations

Operations functions: manufacturing, Operations functions: manufacturing, logistics & servicelogistics & service

Characteristics of world-class Characteristics of world-class operations processesoperations processes

The Operations BalanceThe Operations Balance Impacts on operations: marketing, Impacts on operations: marketing,

sales, R&Dsales, R&D

The Operations BalanceThe Operations Balance

COGS

Inventory CustomerService

Final Exam Final Exam

Thursday, Dec 15Thursday, Dec 15thth

1 – 4pm1 – 4pm

E 230E 230

Process for final examProcess for final exam Handwritten; no laptops or other Handwritten; no laptops or other

communicating devicescommunicating devices

Open book, open note; Open book, open note;

all materials on paperall materials on paper

Question sheet must be returnedQuestion sheet must be returned

Stevens Honor Code appliesStevens Honor Code applies

Typical Grade Typical Grade DistributionDistribution

individual semesters vary individual semesters vary considerablyconsiderablyD/F C B A

homework 0+ 10% 10% 80+%

class participation 0+ 30% 45% 25%

mid-term exam 5% 35% 40% 20% actual grades 3(12%) 8(31%) 14(54%) 1(4%)

final exam 0+ 25% 50% 25% out of 26 students 6.5 13 6.5

course grade 0+ 15% 60% 25%

Final Exam CaseFinal Exam Case

Emotiv Systems:Emotiv Systems:

It’s the Thoughts That CountIt’s the Thoughts That Count

Brain-computer interface (BCI)Brain-computer interface (BCI)

technologiestechnologies

Emotiv Systems in 2007Emotiv Systems in 2007

Emotiv’s EEG-based product can sense 30 Emotiv’s EEG-based product can sense 30 mental states mental states (12 expressive, 6 affective, 12 (12 expressive, 6 affective, 12 cognitive)cognitive)

Currently targeting the video game market, but Currently targeting the video game market, but other application markets are possible other application markets are possible (medical, (medical, military, market research, etc)military, market research, etc)

Decisions to make before 2008 product launch:Decisions to make before 2008 product launch:

- console or PC games?- console or PC games?

- distribution channels- distribution channels

- pricing- pricing

- game development?- game development?

Potential Exam TopicsPotential Exam Topics Income statement analysisIncome statement analysis Decision criteria (objectives, outcomes)Decision criteria (objectives, outcomes) Market attractiveness (5 Forces)Market attractiveness (5 Forces) Competitive analysisCompetitive analysis Competitive advantageCompetitive advantage Target customer selection/descriptionTarget customer selection/description Differentiation (whole product)Differentiation (whole product) Product decisions (pos-and-neg’s)Product decisions (pos-and-neg’s) Channel economicsChannel economics Channel choice (pos-and-neg’s)Channel choice (pos-and-neg’s) Product positioningProduct positioning PricingPricing PromotionPromotion

Please fill out the onlinePlease fill out the onlinecourse assessment surveycourse assessment survey

Written comments areWritten comments areparticularly appreciated !!particularly appreciated !!