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Technology Chapter 7

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Technology Chapter 7

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7

MARKET VALIDATION Chapter

AND ANALYSIS

7.1 LEARNING OBJECTIVES

After reading this chapter, you will be able to:
1. Conduct the market validation process for your idea;
2. Identify and employ the required methods for validating the business concept;
3. Undertake and employ the necessary frameworks for carrying out a full market ecosys-
tem analysis for the technology;
4. Understand and conduct secondary desk research in the validation process and recog-
nise the value of private information not in the public domain in gaining first-mover
advantage;
5. Demonstrate the importance of marketing research in the market validation process
and explain key market research concepts.

7.2 CHAPTER STRUCTURE

The core elements of this chapter are as follows:
• Introduction • Chapter Summary
• Market Validation Process • Case Study 7.1 – Skype
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

• The Marketing Ecosystem of the New • Revision Questions

Venture • Further Reading and Resources
∘∘ 5C Framework Analysis • Notes
∘∘ Market Validation Outcome • References
• Business Concept Testing Tools • Glossary of Terms
• Conducting Marketing Research

207

Evers, Natasha, et al. Technology Entrepreneurship : Bringing Innovation to the Marketplace, Bloomsbury Publishing Plc, 2020. ProQuest
Ebook Central, http://ebookcentral.proquest.com/lib/halmstad/detail.action?docID=6424368.
Created from halmstad on 2023-10-15 21:46:22.
208 MARKET VALIDATION AND ANALYSIS

7.3 INTRODUCTION
One of the biggest challenges for technology entrepreneurs is validating their value prop-
osition and the market for it. The rapid creation of a new product market space where the
firm has some form of positional advantage is critical to those seeking to exploit technol-
ogy to create or shape markets (Kumar et al., 2000). This chapter presents the key analyti-
cal tools for inventors to conduct the market validation process (MVP) to ensure their
product or service is entering a valid and sustainable market. It introduces the learner to
the marketing ecosystem and presents the necessary frameworks for carrying out a mar-
ket ecosystem analysis for new technology. It presents the key processes available for
testing a business concept. It further distinguishes between the nature and dynamics of
customer and business markets for conducting customer analysis. Finally, it presents the
key marketing research techniques needed to carry out the validation process for both
consumers and business markets.

7.4 MARKET VALIDATION PROCESS

The MVP for high-tech ventures assesses the market worthiness of ideas that are based
around incremental, radical or disruptive innovations. The overarching activity under-
pinning the MVP is market research, namely gathering and analysing market intelli-
gence. Market research provides the relevant intelligence for developing the right strategy
for capitalising on valid market opportunities.
Market validation in high-tech markets is defined as
A dynamic and interactive process of integrating the venture’s core technology and capa-
bilities with the latent and explicit needs of the customer; with the goals of (1) resolving
the customer’s “pain-point”, (2) creating a superior value proposition for the customer,
and (3) generating economic rent. (Miles et al., 2010, p. 4)
Recent research has shown that venture capitalists, business angels, corporate venture
capitalists and entrepreneurs state that the process of market validation is a critical ante-
cedent to commercial success and ultimately determines the survival of a venture. Market
validation can be a systematic process of estimating demand and potential cashflows for
a proposed new market offering. The value proposition (introduced in Chapter 6) can be
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

developed in close consultation with prospective customers to determine market accept-

ance, to estimate demand, to refine product or service attributes and to assess the prod-
uct’s value to both the customer and the business.
Simply chatting to a few people in the industry and prospective users is not enough to
gather market information to validate the business concept or the market for it. A rigor-
ous and systematic approach to conducting an MVP needs to be adopted. Figure 7.1
identifies the two key processes involved in validating your market, supported by market-
ing research.
1. Marketing ecosystem analysis.
2. Business concept testing.

The two core MVP activities – marketing ecosystem analysis and business concept
testing – are not mutually exclusive, and can be conducted simultaneously. As shown in

Markeng research methods

Market Markeng ecosystem analysis Market

validaon validaon
processes outcome
Business concept tesng process

Markeng research methods

Figure 7.1 The market validation process

Figure 7.1, an understanding of market research methods is necessary for collecting and
analysing market intelligence to perform the two key activities. Before we examine mar-
ket research methods, we first look at the two core components of the MVP, beginning
with the marketing ecosystem.

7.5 THE MARKETING ECOSYSTEM OF THE NEW VENTURE

The MVP involves a comprehensive examination and analysis of the external environ-
ment in which the venture plans to operate, and the venture’s own resources and capabili-
ties. The marketing ecosystem describes the complex internal and external environment,
made up of all the elements and forces that can influence and affect a company’s ability to
develop and implement its market strategy successfully and sustain long-term relation-
ships with its target customers. Figure 7.2 depicts the components of the marketing eco-
system and their interplay.
The marketing ecosystem analysis is conducted at macro, meso and micro levels all
interacting with each other. The 5C framework is chosen as the main analytical tool to
conduct the analysis of the marketing ecosystem in which the venture plans to operate.
As shown in Figure 7.2, the 5Cs are the Company, its Customers, its Competitors, its
Collaborators and the macro and meso Context of the venture. The Company (micro
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

level) represents the internal situation of the venture itself; the other four Cs cover aspects
of the external situation. Through data-gathering processes, the marketing ecosystem of
the venture is analysed under each component in the 5C framework. As shown in
Figure 7.2, the Context in which the venture plans to operate is examined both at macro
and meso levels – each level examining different forces.
This process is also known as “environmental scanning” and it requires the company
to engage in a rigorous and comprehensive data- and intelligence-gathering exercise to
carefully monitor and analyse the marketing ecosystem. This is necessary for both the
MVP and also the strategic market planning process, so that entrepreneurs can identify
opportunities, as well as possible threats, and adapt the elements and activities of their
venture accordingly (Aguilar, 1967). That is why marketing is often seen as an interface,
a linking mechanism between the organisation and the elements in its ecosystem.
Environmental scanning is not a one-off activity, and continuous monitoring of trends

Macro-context

Political

Legal Meso-context Technology

Customers Competitors

The company
Micro analysis

Industry Collaborators
dynamics

Ecological– Economic
environmental Socio–cultural

Figure 7.2 The marketing ecosystem

and developments in a venture’s marketing ecosystem is critical for the growth, develop-
ment and survival of any organisation, irrespective of age or size.
The marketing ecosystem analysis is applicable to marketing decisions to offer infor-
mation on whether there is a valid market for the invention and whether the business can
sustain and grow within the environmental context it is entering. Each component and
level of analysis is described below using the 5C tool and supported by Figure 7.3.

7.5.1 The 5C Framework Analysis

Figure 7.3 presents the factors underpinning each of the five Cs. A number of analytical
frameworks and tool template guides are used with the 5C framework to examine each of
the Cs, as shown in Figure 7.3. For example, PESTEL analysis and Porter’s Five Forces can
provide deeper analytical insight into the Context. For Customer analysis, we present a
detailed template guide of questions for conducting market and customer profile analy-
sis. The aim is to present learners with established tools and guide templates and for them
to go and conduct their own validation exercise. Each of the 5Cs is dealt with in this
section.

7.5.1.1 C
ontext
For a comprehensive analysis of Context, we examine it at two levels: macro and meso.
Macro Context: To conduct a macro-context analysis, the PESTEL analytical tool is
used to examine the venture’s marketing ecosystem. The PESTEL framework involves

4 Cs-external

Collaborators–value chain
Context Competitors Customers
network

Role of horizontal & vertical Macro level

actors such as: • PESTEL analysis • Profile and analysis of current • Type and size of target
• Suppliers competitive landscape customer base
Meso-level
• Regulatory agencies • Industry dynamics/ • Identification of potential • Customer segments
product life cycle trends competitive landscape • Customer behaviour
• State support agencies
• Universities/research • Porters 5 forces and factors influencing
institutions analysis buying decision
• Key decision-makers in
• Venture capital/funding buying unit
agencies • Key attributes sought

Company/venture

Human capital Operational and

Product offering Financial resources
and capabilities Physical resources

• Product/service features • Research experience and • Assessment of current • Physical supports/premises/

• Unique attributes capabilities of founders funding sources and/ testing labs
• Access to outside or VC capital • Manufacturing
• Patent protection • Cost breakdown
knowledge and know-how • Availability of supports
• Product acceptance strategy, • Revenue and profit
i.e. are external • Managerial and forecasting • Access to other relevant
endorsements via media or commercialisation • Ratio analysis resources
other organisations? experience

Figure 7.3 5C framework for analysing the venture’s marketing ecosystem

Source: 5C Framework Analysis, www.netmba.com/marketing/situation/.

examining the macro-environmental components or the larger forces that affect the
whole business environment of the venture. The PESTEL acronym stands for Political,
Economic, Socio-cultural, Technological, Environmental and Legal factors. Even though
companies cannot control the environmental forces at the macro level, by collecting and
analysing data on their operating environment, they can take a proactive approach and
be more aware of and responsive to the possible forthcoming opportunities and threats.
Furthermore, by having a very good understanding of the environmental forces sur-
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

rounding them, companies can better meet existing customers’ needs and wants, as well
as anticipate future trends and be a step ahead of the competition.
Meso Context: The meso-level analysis involves studying the specific context in which
the new venture operates. The meso-context analysis involves gathering information for
conducting an industry analysis and a structured market analysis:
1. Industry analysis: An industry analysis is used to identify, profile and analyse indus-
try and sector structure, developments and dynamics. An established tool for analys-
ing an organisation’s industry context is Michael Porter’s Five Forces model (1980).
The Five Forces model helps inform the venture about whether the industry sector
they are entering is attractive. Attractiveness in this context refers to the overall indus-
try profitability and competitive intensity within the sector. Assessing the attractive-
ness of profitability for the venture can be determined by assessing each of the five
forces: new entrants to the industry; suppliers; buyers; competition; and substitute
offerings.1

2. Structured market analysis: Similarly, contextual analysis requires a preliminary

market analysis. A first look at the market involves conducting secondary research to
gauge actual market size in terms of value, number of customers (if possible), their
location, growth patterns and projections, as well as identifying the market drivers,
developments and trends among buyers in the market. The structured market analysis
gives a good indication of market growth potential and sustainability.
The market analysis also requires an understanding of the two main types of markets:
consumer markets and organisational markets. Although detailed profiles of target cus-
tomers are examined in the Customer component of the 5C framework, an understand-
ing of market types is required at this level of market analysis. Some entrepreneurs may
purely serve and target one type of market with their innovation, while others may target
both. Consumer and business markets are very different in terms of the nature of the
intended consumer and how the customer uses the product (the intended use of the
product) and ultimately require different marketing strategies. Even though the products
might be identical, a fundamentally different marketing approach is needed for each
(Hutt and Speh, 2013).
1. Consumer markets consist of individuals and households that buy goods and services
for personal, family or household consumption.
2. Organisational markets consist of profit and non-profit organisations that buy goods
and services for incorporation (e.g. ingredient materials), for use and consumption
(e.g. office supplies and other equipment) or for resale. Organisational markets include:
• Commercial enterprises: producers (manufacturing products or delivering ser-
vices) or resellers (distributors, wholesalers and retailers buying goods and services
to resell at a profit).
• Government agencies: they can buy goods and services at different levels, state,
county or local, in order to be able to deliver their services to the public (e.g. health,
education, transport, security, etc.).
• Institutions: non-profit or charitable, educational, community and other non-
business institutions.
Some companies cater exclusively to either consumer or organisational markets, or mar-
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

ket to both. Table 7.1 provides an overview of broad characteristics that distinguish gen-
erally between types of markets.2
Meso-level analysis also extends to Competitors, Collaborators and Customers.

7.5.1.2 C
ompetitors
Profiling of competitors in your product market space is a critically important part of
the market intelligence-gathering process. Companies must constantly monitor what
competitors are currently doing and plan to do, and try to anticipate their future actions
and responses. One approach to doing this is to identify and benchmark your innova-
tion against your top three competitors, to identify products and key benefits and
examine how they position their products in the market and to which customer seg-
ments. A competitive analysis tool guide (see this book’s companion website) is a

Table 7.1 Market types: consumer markets and organisational markets

Consumer markets Organisational markets

Purchase orientation Individual/family Organisational requirements

requirements

Type of buyer Individuals or households Commercial enterprises

Government agencies
Institutions

Intended use of Finished product for Products for further production,

product/service personal, family or incorporation, operations usage or
household consumption resale

Product/service type Typically standardised Can vary from standardised to

customised solutions

Size of purchase Typically small transactions Typically large

Decision-making Short and often simple, Long and complex, involving many
involving one or a small decision-makers in the buying
number of people organisation

Risks Low for most purchases High to moderate

Purchasing is critical if a strategic
buy for the buying organisation

Channel of distribution Long – often involving many Short, depending on whether

intermediaries serving domestic or international
markets – often direct, agents,
distributors

useful exercise that allows entrepreneurs to compare their product and venture with
two or three of their most important competitors. A comparative analysis of competi-
tors benchmarked against the entrepreneur’s innovation can be an output from this
exercise to summarise succinctly the key data into a presentation-like format in the
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

business plan (see Chapter 9).

Key questions include:
• Who are our major competitors? What are their characteristics (size, growth, profit-
ability, strategies and target customer markets)?
• What are our prospective or current competitors’ key strengths and weaknesses?
• What are our competitors’ key marketing capabilities in terms of products, distribu-
tion, promotion and pricing?
• What response can we expect from our competitors if environmental conditions
change or if we change our marketing strategy?
• Is this competitive set likely to change in the future? If so, how? Who are our new
competitors likely to be?

7.5.1.3 C
ollaborators
Collaborators is a generic term incorporating the group of individuals or organisations
collaborating with or having an interest in the new venture, conceptualised as the value
network (introduced in Chapter 6). The value network surrounding an organisation
comprises stakeholders and organisations that have an effect on the outcome of the new
venture’s commercialisation, innovation and future business activities. As shown in
Figure 7.3, collaborators can be vertical actors, such as suppliers, and also horizontal
actors, such as strategic partners and regulatory agencies. For example, suppliers are
those firms and individuals that provide the resources needed by the company to pro-
duce goods and services. Vertical intermediaries, such as resellers and distributors, and
in some cases horizontal intermediaries, such as state enterprise agencies or export sup-
port agencies, can help the company to promote, sell and distribute its goods to final
buyers. Both suppliers and intermediaries are a very important part of the company’s
value delivery system.
The inventor must identify and assess which vertical and horizontal relationships
can add value to the new venture’s activities. These can be formal or informal, and need
to be recognised and managed into long-term sustainable relationships to create an
effective value network for the new venture. Such exchanges between the new venture
and various stakeholders can be in the form of economic transactions, but can also
include exchanges of knowledge, physical, human or financial resources, support in
regulatory compliance, business mentoring and support, building networks and com-
pany reputation and referrals. Leveraging and managing the value network is critical
for the new venture that would tend to suffer from the liability of “newness” and gain-
ing credibility within the industry as a nascent venture, particularly if it is in search of
seed capital. Chapter 6 examined the role of network actors and relationships of the
new venture.

7.5.1.4 C
ustomers
The analysis of Customers is one of most critical components of the 5C framework and
ultimately the MVP. It is in most cases the most challenging C in terms of intelligence
gathering and data analysis. If the data is not available via secondary research, then pri-
mary data collection is necessary to determine if market validation exists to proceed with
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

full commercialisation. The customer analysis section of the business plan is a more
detailed level of market analysis than those previously described. It involves gathering as
much information on the target customer group (or groups) that the venture believes is
able to outcompete other suppliers already serving that target with different value propo-
sitions. The customer analysis must show the needs of the customer and then link the two
together by identifying how the company’s services or products can satisfy the needs of
the customer better than its competitors.
Conducting a customer analysis requires gathering information and trying to answer
some of the following questions:
• Who is my target market(s)? What groups of customers are most likely to buy my
product?
• What are the size and growth pattern of my target market?
• What need does my innovation serve?

Company/Venture

Human capital Operational and

Product offering and capabilities Financial resources physical resources

• Product/service features • Research experience and • Assessment of current • Physical supports/premises

capabilities of founders funding sources and/ testing labs
• Unique attributes
• Access to outside or VC capital • Manufacturing
• Patent protection • Cost breakdown
knowledge and know-how • Availability of supports
• Product acceptance • Revenue and profit
• Managerial and • Access to other relevant
strategy, i.e. are external forecasting
commercialisation resources
endorsements via media
experience • Ratio analysis
or other organisations?

Figure 7.4 Assessing the resources of the new venture

• How can I improve my innovation to better serve customers’ needs?

• What is the motivation of my target customers for buying my product?
• What factors influence their purchase behaviour?

7.5.1.5 C
ompany
The micro-level analysis involves looking inwardly at the new venture – the company – in
terms of assessing its resources, experience, product or/and service capabilities and
financial situation to develop the venture forward. Figure 7.4 provides some of the key
factors to examine when conducting the company analysis, in order to profile the com-
pany in terms of its key strengths going into the market and the possible weaknesses it
needs to address. The key factors are grouped into product offering and resources and
capabilities to support the development of the new venture, such as operational, financial
and human. An internal assessment is necessary for the new venture to identify key
strengths to commercialise and grow the company, and key weaknesses that the innova-
tors must manage effectively to exploit the opportunities for their invention. Casebox 7.1
illustrates how the founding entrepreneur grew the venture successfully with limited
company resources in a highly regulated industry. (See also Part III and Chapter 8 for
discussion on entrepreneurial marketing.)
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

7.5.2 Market Validation Outcome

The 5C framework is a useful and comprehensive analytical tool for conducting a com-
prehensive analysis of the company and its marketing ecosystem in its entirety. Gathering
information sources through secondary desk research (discussed later in this chapter
under Conducting Marketing Research) is the starting point of the 5C analysis. A key
output of this analysis is to determine if a market can be validated for the venture’s inno-
vation, but it also provides insights into the nature and dynamics of the environment in
which the venture plans to operate, and if it is financially lucrative to do so long term.
A SWOT analysis involves identifying an organisation’s Strengths, Weaknesses,
Opportunities and Threats. It is one of the key outputs of the marketing ecosystem analy-
sis. The output of the internal company analysis should highlight the strengths and weak-
nesses of the new venture. For a new venture starting out there may be more weaknesses
than strengths, particularly in terms of finance and managerial experience to bring the

innovation onto the market. However, in many cases if the technology is superior to what
is on the market already and there is a valid and sustainable market, investors tend to
address such weaknesses through seed or venture capital and recruiting an experienced
person to bring the company forward.
A SWOT analysis will also condense the marketing ecosystem analysis into a listing of
the most relevant threats and opportunities, helping to assess how well the firm is
equipped to deal with them (see the online material for a SWOT template). The SWOT
analysis is used in the strategic market planning of the new venture.

CASE BOX 7.1 PRAGMATIC DIAGNOSTICS – ENTREPRENEURIAL

MARKETING FOR SUCCESS FOR A SPANISH BIOTECH VENTURE IN THE
HIGHLY REGULATED LIFE SCIENCE INDUSTRY
Written by Pernille Juhl Mogensen, University of Southern Denmark, and Alex Rialp-Criado, Universitat
Autònoma de Barcelona.
Pragmatic Diagnostics, a biotech start-up located in Barcelona, Spain and founded in 2013, works
with R&D activities related to the in vitro diagnostics (IVD) field, particularly specialised in immunoas-
say reagents. Its main service is to offer assay development for third parties, which also includes bring-
ing new technology tools into the area of personalised medicine and care applications. Essentially,
Pragmatic Diagnostics helps develop the formulation for the immunoassay reagents in care applica-
tions, but the company also helps with customers’ platforms. In this sense, its focus is on the intercon-
nectivity between these points: the care applications and the platforms. This also means that for some
of the care application this involves the Internet of Things (IoT). In addition, Pragmatic Diagnostics has
patented some of its own technology. During recent years, Pragmatic Diagnostics has become a top
development partner for high-quality and high-profitable immunoassay reagents.

A Founder and Entrepreneur-Manager with a Technological and International

Orientation
Dr Sergi Gassó had acquired 15 years of work experience in the field of immunoassay reagents prior
to the inception of Pragmatic Diagnostic. Instead of being part of an organisation as an employee,
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

he wanted to assist companies by himself. This was made possible through his competencies and
the possibility of placing the company in the facilities of Parc de Recerca (Research Park) of
Universitat Autònoma de Barcelona (UAB). With the founder’s 3 years of previous work experience
in the Netherlands and 3 years in Great Britain, this meant that his background is highly interna-
tional, but more importantly the company’s services are very specific and, thus, the establishment
of the company was intentionally international from day one. This was emphasised by the fact that
the high-tech market in Spain is not very big domestically. Currently, Pragmatic Diagnostics works
with third parties from China, the UK, Denmark, Austria and Italy, among others. The way custom-
ers are found is through word of mouth, networks and fairs in both Europe and America. Marketing
capacities are rather limited, as most employees are scientists, doctors, technicians and so on. All
key marketing tasks are therefore done by the entrepreneur himself. The reason for this is that the
result from the marketing activities have to be long term, as the process of getting contracts is very
long. At some point, the company hopes to increase its focus on marketing, but due to limited
resources the founder has taken an entrepreneurial approach as thus far there have been enough
projects to absorb company resources.

Location and Firm-Specific Competitive Advantages

Pragmatic Diagnostics has no private investors or partnerships with the university. This makes the
research park location very convenient for the company, since it is equipped with expensive infra-
structure. Furthermore, the high-tech environment, with many experts and their know-how, creates
the perfect surroundings. However, it makes the company financially dependent on its customers.
Therefore, the customer identification and partnering process is very important for business success.
As mentioned, the customers can be anywhere in the world, yet they tend to have two different char-
acteristics: often the customers are some of the biggest companies in their sector in their respective
country; and another type of customer is start-ups, with whom Pragmatic Diagnostics helps in placing
the immunoassay in the new platform or technology. In this sense, the core competencies of the com-
pany are seen as accumulated know-how and the expertise of the entire workforce. With 15 people
dedicated fully to R&D, Pragmatic Diagnostics has created a competitive advantage, since its special-
ism can be transferred through direct contact with customers by phone, video calls and visits, which
makes the contact key for both Pragmatic Diagnostics and its customers. In the end, the transfer takes
place and here it is essential that the service matches the competencies of the customers.

Serial International Entrepreneur

In 2017, the founder of Pragmatic Diagnostics, Sergi Gassó, started another company, named
Fuelium, in cooperation with two other research-oriented entrepreneurs. This new firm provides
innovation with IoT in the healthcare sector. The combination of competencies in the founding team
means that they can jointly develop the strategy for the company, working on a part-time basis. The
company produces paper-based batteries for single-use electronic devices and has a focus on IoT,
primarily in the healthcare sector. The products can be disposed of without recycling and, due to
the conventional batteries in IVD devices, they are both cost-effective and compatible with the
rapid diagnostic test industry.

Regulated International Environment’s Impact on Technology Management

Nonetheless, International Organization for Standardization (ISO), CE certification and US Food
and Drug Administration regulation and regulatory application make it difficult for both firms,
Fuelium and Pragmatic Diagnostics, to work across different countries. Also, their customers are
international, so it is important to understand how the products/applications are approved. The IVD
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

field is very conservative and the reason for this is the regulations. As a result, there is a lot of resist-
ance towards innovation and implementation of new technologies in this area. Applying for regula-
tory approval is both time consuming and expensive for companies. Consequently, all customers
think twice before implementing new technologies, which means that innovation has to be properly
justified. While there are new processes and technologies that could be implemented, the market
and/or business opportunity could be lost due to the time involved in applying for the necessary
approval. This makes it a hard field in which to implement new technology.

The Future: New Information-Related Technologies

As a result, successful IoT/ICT is nowadays seen in both firms more in relation to the treatment of
information. This means that it is not just information that is valuable, but also how it is handled. For
the customers of both Fuelium and Pragmatic Diagnostics, the focus is on big data as well as big
learning. The way in which these new technologies are used will influence not just the customers,
but also the end users.3

7.6 BUSINESS CONCEPT TESTING TOOLS

Understanding the marketplace and identifying customers’ needs, wants and requests
form the starting point of any successful marketing strategy (Kotler et al., 2008). However,
when managing incremental and breakthrough innovation this process is challenging, as
it implies “moving on a continuum which ranges from responding to a known need with
an improved solution to creating an evolving solution to an uncertain need” (Friar and
Balachandra, 1999, p. 42). A technology cannot generate revenue if it has no perceived
utility to the customer. Forecasting market demand for a proposed technology is espe-
cially difficult. If investment capital is redirected to a commercial activity with no utility
for the buyer, failure of the venture is highly probable, with significant losses for inves-
tors. To mitigate against and avoid encountering such loss-making consequences, risk
assessment techniques can be used to gauge the customer utility of the technology, like
concept testing.
Business concept testing is a process used to estimate the potential market demand
and attractiveness of a particular idea or concept. Testing techniques rely on customer
purchase intent scores, leveraging a wide array of diagnostic information such as product
uniqueness, feasibility, desirability, advantages and disadvantages. There are a number of
different business concept testing techniques based on the type and level of innovation
(see Chapter 4).

7.6.1 Incremental Innovations

Incremental innovations are evolutionary in nature, smaller improvements introduced
over time, based on extensions of existing products. For incremental innovations the
market already exists; specific needs and wants are known and targeted with specific
value offerings. As these innovations come about in response to specific and articulated
customer needs, they occur in demand-side markets (Shanklin and Ryans, 1984) and are
based on market pull. There may be opportunities for the inventor to develop a new tech-
nology and position it to replace an old one, by being better, faster or cheaper.

7.6.2 Radical and Disruptive Innovations

By contrast, disruptive innovations do not simply replace an existing technology, but
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

might in fact generate multiple new applications addressing new segments and new mar-
kets. Breakthrough or radical innovations are revolutionary in nature; they break the
accepted norm, bringing about new and superior advantages compared with the old
technology. As customer needs are often unknown, breakthrough innovations occur in
supply-side markets (Shanklin and Ryans, 1984), meaning that the technology push gov-
erns the process.
At the initial stages of product development, market research methods support data-
collection processes for business concept testing and provide preliminary insight into
market reaction for the invention. For incremental innovations, customers’ needs and
wants are, or can be, known. In contrast, for more radical innovative products, the needs
and wants of potential customers are harder to pin down and clearly define, as customers
themselves find them difficult to articulate. Inventors have to assess future markets and
demand for products to which prospective users may not be privy (Friar and Balachandra,
1999). They have to work with concepts such as future, unknown/unarticulated or latent

Innovation continuum
Market-oriented Product-driven
customer needs INCREMENTAL RADICAL customer needs
known unknown
Market research
Testing processes methods Testing processes

• Concept testing Focus groups • Virtual

• Prototype testing prototype testing
• Conjoint analysis Personal • Beta site testing
interviewing • Lead user
• Customer-driven
Attribute innovation
score cards • Crowdsourcing

Figure 7.5 Business concept testing process

needs, and can involves probe-and-learn processes. Figure 7.5 identifies business testing
processes for incremental to radical innovations supported by the type of data
collection.4

7.6.3 Concept Testing

Concept testing is a process that involves asking prospective customers to evaluate one or
more concepts that the technology may offer to the market in order to determine if the
concept has market potential and should be pursued further. It is a useful approach to
getting a reaction on how prospective customers may evaluate the technology in relation
to what is already available on the market. It also allows the entrepreneur to assess the
anticipated response of customers to the new product before prototype design and
launch. Data is collected to test the business concept and typically involves the use of
qualitative methods such as focus groups and personal interviews from a sample of pro-
spective target users.
For example, a product concept or early prototype may be presented to a focus
group (covered under Conducting Marketing Research in the next section), facili-
tated by a moderator in order to monitor and record opinions and reactions. As
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people are motivated to communicate in focus groups, an experienced moderator

can infer the meaning of their qualitative opinions, judgements and statements on
the issues that they express. Using focus groups, it is possible to get feedback on how
well the concept for the product actually performs. The data collected helps to iden-
tify the strengths of the product, as perceived by the members of the focus group. At
the same time, group members also identify aspects of the concept that are not par-
ticularly appealing, or that they believe could be improved on and thus enhance the
desirability of the product. Technologies targeting consumer markets are more suited
to the focus group approach.

7.6.4 Personal Interviewing

Also known as in-depth interviewing, this is another form of collecting data on business
concepts and is mainly suitable for entrepreneurs who wish to target organisational cus-
tomers such as companies and public- and private-sector institutions.

For both these types of testing, potential customers are asked to rate concepts on vari-
ous dimensions such as interest, perceived benefits, perceived value and so on. Concept
testing allows the entrepreneur to develop, modify or change the concept for their tech-
nology and ideally develop a concept based on the data obtained, thus increasing the
likelihood of being accepted by the market. This process further allows them to proceed
to the next step of building a prototype, and to continue with the full MVP and market
ecosystem analysis discussed in the previous section.
As concept testing only focuses on the technology concept and the attributes it may
offer, it does not assess how the concept is evaluated in relation to other concepts that
may be built around the new technology, or in relation to existing products already on
the market. To overcome limitations and acquire deeper comparative insight into cus-
tomer preferences, as shown in Figure 7.5 conjoint analysis technique can be employed
and is discussed below.

7.6.5 Conjoint Analysis

This type of analysis is concerned with understanding how people make choices between
products or services. The common aim of conjoint analysis is to test the attractiveness of
the various concepts in relation to each other. This method tries to capture what really
drives customers to buy one product over another and the key question is: “What do
customers really value relative to competitors’ products?” The theory behind this type of
research is that buyer choice involves compromises and trade-offs among attributes, as
the ideal is rarely attainable. If entrepreneurs can find out how people make selections
between a limited number of products, based on the relative importance they place on
different attributes, they would be able to design better-perceived products.
Great care has to be taken in selecting the attributes presented to respondents, since
customer choices between poorly defined attributes and levels would render the results
meaningless. Identifying attributes is possible after secondary market data is collected
and from informal knowledge of the industry. When attributes are identified they are
presented to prospective users, ideally in a focus group or personal interview setting.
Here, respondents are asked to score product profiles according to their preference for
preferred combinations of attributes. They will rate the product based on a variety of
metrics to evaluate the role of each feature or attribute they are asked to score. Conjoint
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testing is often based on purchase intent scores, leveraging a wide array of diagnostic
information such as product uniqueness, feasibility, desirability, advantages and disad-
vantages. Sometimes prospective users will be asked to evaluate several different prod-
uct/service propositions alongside each other to see which one generates the best
feedback. From these scores, the analysis derives utility scores for each attribute. Attributes
that score highest among users will reduce the risk for entrepreneurs and investors.
Conjoint analysis evaluates the relative value of attributes considered jointly, which is a
better, more realistic measure than when they are considered in isolation.
Through understanding the utility values of different attributes, companies can calcu-
late how their product/service compares to those of their competitors and, most impor-
tantly, how they can best optimise the value proposition for the customer. For example,
according to the importance they place on various attributes and their combination, this
method can statistically predict the optimal combination of price and product
attributes.

Conjoint analysis is suited for incremental innovations in terms of:

• Identifying market segments for which specific product concepts have greater value;
• Defining a new product for an already existing market;
• Improving an existing product;
• Acquiring ideas for new product functionality bundling;
• Forecasting sales of alternative products, including possible cannibalisation or sub-
stitution effects.
As such techniques are mainly applicable to incremental innovations and can be used
individually or in combination, the entrepreneur must ensure that their concept is devel-
oped based on some meaningful alternative to what is already out there, and that their
customers are willing to switch and pay for their product over what competitors have on
offer. Let us take the example in Case Box 7.2 of how Android phones followed the
iPhone, the leader in the smartphone market.

CASE BOX 7.2 ANDROIDS: AN ALTERNATIVE TO A MARKET LEADER

IN SMARTPHONES
In 2007, Apple Mac launched the iPhone as a radical innovation based on superior technology,
which made mobile communication more sophisticated and fun. However, despite its cool technol-
ogy and design and first-mover advantage in the smartphone market, the subsequent entry to the
market a year later of Android phones was successful. Why? Androids capitalised on the limitations
of the iPhone. Android phones offered a wider handset choice and price points and open-source
apps.
Differentiation by focusing on what the market leader could not offer was how Androids competed
and captured a growing share of the smartphone market. They developed a significant meaningful
alternative offering incremental innovation over the iPhone. Differences must be meaningful when
building business concepts around incremental innovation, with marginal improvements rarely suc-
ceeding in displacing a technological market leader.
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7.6.6 Business Concept Testing for Radical Innovations

In the case of radical or disruptive technology, customers’ needs are harder to define, as
customers themselves might be unaware of these latent or potential needs. Such innova-
tions have no sales history as a product category, hence the validation process will be
more rigorous, since the product idea aims to create a new market that had not previously
existed. Because of these challenges, marketers are employing novel research methods
that attempt to gain customer insights regarding their innovative value propositions.
Although the same principles for concept testing techniques as used for incremental
innovations can still be used for radical inventions (see Figure 7.5), inventors need to
employ more advanced analytical techniques to provide harder evidence for their con-
cept and create a market for it, rather than throwing the dice. The techniques shown in
Figure 7.5 are discussed here.

7.6.6.1 Real and Virtual Prototype Testing

Probably the most common and effective form of testing is prototype testing, which
also applies to incremental innovations (see Figure 7.5). Real prototyping involves
testing a model of the product or service on the market, so that customers’ reactions
to it can be observed and evaluated. The business concept is converted into an actual
prototype model and presented to a sample of target users. In recent years, technol-
ogy has enabled companies to use virtual prototype testing, also referred to as mini-
mum viable product testing. It is cheaper and easier to modify, and it is also more
suitable in some cases, as the “product” itself is virtual, such as a service (see Case
Box 7.3). The process helps crystallise the necessary core product benefits and is a
good way of market testing, as it also demonstrates the tangibility and functionality
of the business concept.

CASE BOX 7.3 VIRTUAL PROTOTYPE TESTING OF DROPBOX

One of the techniques used to validate the concept for Dropbox was so powerful – and so simple.
Drew Houston is the CEO, founder and inventor of Dropbox, one of the most successful high-tech
ventures in file hosting applications (i.e. cloud storage, file synchronisation and software). The
Dropbox application allows users to create a folder on their computer. Anything they drag into that
folder is uploaded automatically to the Dropbox service and then instantly replicated across all their
selected computers and mobile devices.
When developing the concept, the challenge for Houston was that it was impossible to demon-
strate the working software in a prototype form. The product required that significant technical
hurdles be overcome; it also had an online service component that required high reliability and
availability. To avoid the risk of waking up after years of development with a product nobody
wanted, Houston did something unexpectedly easy: he made a virtual representation of the con-
cept in the form of a video. The feedback he received was excellent and confirmed a workable
prototype for further commercialisation. Drew recounted, “It drove hundreds of thousands of peo-
ple to the website. Our beta waiting list went from 5,000 people to 75,000 people literally over-
night. It totally blew us away” (TechCrunch, 2011).
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7.6.6.2 Beta-Site Testing

Beta-site testing is a form of prototype testing, but occurs towards the final stages of test-
ing (see Figure 7.5). It can involve sending the product out to an external group of users
or beta test sites to test the product, or offering the product for a free trial download over
the internet. When the idea has been assessed through the concept, and possibly proto-
type testing stages, in beta testing, the first prototype version of the product is given to a
group of selected users (typically companies) that would be prospective customers of the
product. They then provide the inventor with valuable feedback, identifying and evaluat-
ing the prototype before it is considered market ready. Identifying the right users and
gaining access to beta sites can be a challenge, however, hence establishing and managing
good relationships is critical through the new product development process.
In the case of Dropbox (see Case Box 7.3), the company followed up the virtual testing
with beta testing. When the Dropbox concept received positive feedback after virtual

testing, over 1,000 users then logged on to volunteer as beta users. As illustrated by this
example, beta testing can be preceded by real or virtual prototype testing before the beta
testing on a selected group of external users. Although Dropbox targeted both consumer
and business markets, beta testing is a more common approach in markets where the
customer will be an organisation or a company and not the end consumer.

7.6.6.3 Lead User Testing

Similar to beta testing, lead user research is the next more advanced step in the process
of business concept testing. The idea behind the lead user theory is that often it is the
users themselves (a particular category of users) who develop new products (Eric Von
Hippel, 1988).
Lead users are typically industry users such as companies or other organisations that
are well ahead of market trends and have needs that go far beyond those of the average
user. Their expertise and experience might provide valuable insights into the future
trends that would in time be characteristic of the whole market (or of significant seg-
ments in the market; Von Hippel et al., 1999). Lead users differ from “early adopters”
(already discussed in Chapter 4), who are people that are among the first to purchase an
existing product. Lead users of a novel or enhanced product, process or service face needs
that will be general in the marketplace, but it is months or years before the bulk of that
marketplace encounters them. Lead users may not be satisfied with what is being cur-
rently offered on the market and may search for a solution or try to develop their own
solutions (Herstatt and Von Hippel, 1992). The lead user can have significant influence
on the direction and pace of market adoption and is typically a product leader in a sector.
From a marketing perspective, what this means is that companies might be able to fore-
cast market opportunities by conducting research on a specific group in the market: the
lead users.
Moore’s adopter categories have been the starting point for the lead user process,
developed by Von Hippel (1988). Four main steps are identified in the lead user market
research process (Von Hippel et al., 1999):
1. Identify an important market or technical trend;
2. Identify and question lead users;
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3. Analyse lead user data and develop novel products;

4. Adapt and project lead user data on the general market of interest.

There are many challenges in the lead user process, starting with the identification of lead
users and ending with the proper application of the findings to the larger market.
However, if properly conducted, lead user testing can tap into valuable information on
emerging and latent needs. The lead user process can crystallise previous business testing
efforts in the latter stages of product development and market launch. For more on this,
see Von Hippel (1988) and Von Hippel et al. (1999).

7.6.6.4 Customer-Driven Innovation

Customer-driven innovation is based on the idea that there is more to be gained from an
open innovation process, whereby companies connect with customers in an attempt to
better identify, create and deliver value. In this type of research the customer takes on an

active role; the process points towards multiple and shifting loci of innovation, since
firms outsource innovation to others, both firms and customers (Nambisan and Sawhney,
2007).
Customer-driven innovations are based on the idea that supplier and consumer can
work together and co-create value (Vargo and Lusch, 2004), in an interactive process of
learning together (Ballantyne, 2004). Co-developing relationships can diminish the
uncertainty risks coming from the lack of information for both seller and buyer. By work-
ing together, sellers can better define market needs, as buyers impart important tacit
information; in turn, buyers learn first hand about the capabilities of the new technology,
lessening the anxiety of adopting the innovation. Value is thus co-created and the cus-
tomer becomes an important resource or, better said, an integral part of the value propo-
sition. Many firms find it hard to accept customer-driven innovation, however, since the
“usual” innovators might disregard customers’ ideas and generally ignore any initiative
not generated internally.

7.6.7 Crowdsourcing
One type of customer-driven innovation that is growing in popularity is crowdsourc-
ing. Crowdsourcing is a form of open innovation and involves a process of identify-
ing a task or group of tasks and inviting, usually online, a group of people or “crowd”
outside the company to carry out this task for a fee or prize (Whitla, 2009). The invite
may be open to anyone or restricted to those qualified to undertake the task or
address the problem. Companies can engage in collecting primary market intelli-
gence (usually in qualitative form) on new ideas, products or services targeted at
mainly consumer markets. It can also provide insight into branding and the market-
ing communication strategy (discussed in Chapter 8). It can be conducted online or
offline and has emerged as one of the popular idea platforms for companies
(Letstechknow, 2019; Speier, 2016; Dixon, 2016). However, companies need to ensure
that they carefully manage the process and are not swamped with a bunch of useless
ideas (Acar, 2019). Crowdsourcing must therefore be well planned, managed and
targeted at a prospective and/or current group of users to acquire worthwhile bene-
fits on key lessons in crowdsourcing planning (Brunneder et al., 2020). Case Box 7.4
offers an example of the use of crowdsourcing at LEGO.
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CASE BOX 7.4 CROWDSOURCING FOR LEGO IDEAS

Through the LEGO Ideas platform (https://ideas.lego.com/howitworks), users are able to submit
ideas for new LEGO sets and vote and provide feedback on those submitted by others. Ideas with
over 10,000 votes are evaluated by LEGO. The creators of those selected work with the LEGO team
to bring the idea to commercial fruition as well as receiving royalties on sales. The platform encour-
ages idea generation at LEGO and enables LEGO to validate the demand for those ideas. Notable
creations from the platform include the “Big Bang Theory” and the Beatles “Yellow Submarine” sets
(Digital Innovation and Transformation, 2017).

7.7 CONDUCTING MARKETING RESEARCH

This section presents marketing research methods underpinning MVP processes.
Marketing research is systematic and objective identification, collection, analysis and dis-
semination of information and recommendations to inform the entrepreneur’s decision-
making in relation to marketing their business and products. Gathering and analysing
market intelligence through the market research process is a crucial step in examining
the validation of the business concept and the market for it. Further market research may
be needed to profile the target market(s) and help formulate a well-designed and action-
able marketing strategy for bringing innovation into the marketplace. The American
Marketing Association (AMA, 2017) outlines marketing research as involving the follow-
ing activities:
1. Identification: Identification involves defining the research objective and specifies
and determines the information that is needed to address it.
2. Managing and Implementing the Data-Collection Process: Data is then collected
through a variety of means and sources. This is initially secondary research and then,
if secondary research does not satisfy the research objective, primary data collection is
conducted.
3. Analysis: Data/results/findings are analysed and interpreted, and inferences are
drawn.
4. Communicate, Disseminate and Respond/Act on Research Findings: The findings,
implications and recommendations are provided in a format that makes the data
actionable, applicable to the research objectives and directly useful as an input to
decision-making.
These four activities are mapped out in Figure 7.6, as a step-by-step model of seven
stages necessary to conduct a marketing research project.5 Each stage is explained below.

7.7.1 Stage 1: Formulating the Research Objective

The first step, clearly defining the problem at hand and the specific objectives to be met,
is extremely important. The purpose of the study, why it is being undertaken and what it
needs to achieve have to be clearly determined. For formulating the research objective,
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entrepreneurs needs to ask the following questions:

• What is the purpose of the study?
• What is the decision to be made?
• What information is needed?
• How will the information be used?
• What is to be measured?
• Is there a need for marketing research?
Equally, in the early stages of new venture creation, technology entrepreneurs would be
expected to engage in comprehensive marketing research to convince investors that there

is a valid market when presenting their sales pitch for initial-round funding (see Chapter 9).
Typical marketing research objectives for the venture would be:
• Opportunity identification and preliminary market insight:
–– Testing and validation of the business concepts.
• Understanding the marketing ecosystem in terms of:
–– Competitor information and industry analysis;
–– Identifying the collaborators and key stakeholders in the industry;
–– Identifying changes and trends within the industry context in the macro and micro
environment.
• Customer analysis:
–– Gauge market size and gain insight into potential market segments;
–– Identify and understand customers’ needs and wants;
–– Identify and analyse target market(s) and the most valuable customers (especially in
business-to-business markets);
–– See how the actual buying process occurs and identify the major influencing factors;
–– Establish how customers interact with the product (their actual use – what they like and
dislike);
–– Understand how customers rate/compare and contrast the offering against competitors’
products.
• Formulation of the marketing strategy:
–– Identify the best way to deliver the product and/or service to customers;
–– Benchmark – develop the market value of the product/service to see what customers
would perceive as a fair price, within particular market conditions;
–– Identify and assess the most effective and efficient way to communicate and develop a
sales strategy with customers as well as build a promotional strategy;
–– Use customer feedback in the new product development process;
–– Track customer loyalty and retention and identify the best ways to build long-term cus-
tomer relationships and increase customer equity.

Research
objectives

Data collection
methods

Secondary data Sampling

Primary data
Fieldwork (primary
data collection)

Analysis of data

Present
findings

Figure 7.6 The marketing research process

All of these steps indicate that conducting research is a continuous process; it reduces
risks and can increase the viability of the new venture. Young and mature, big and small
companies need to proactively listen and align their products and marketing strategies to
their target markets and ecosystems. Good marketing research leads to better marketing
decisions.

7.7.2 Stage 2: Research Design

There are basically three types of research, each fit for different research objectives:
• Exploratory research is used in order to gather preliminary information; it aims to
explore the issues around the problem at hand because very little is known about it.
Exploratory research usually generates “soft” data; it helps in defining the research
problem more clearly and suggests a further course of action within the research
plan.
• Descriptive research is used to describe facts and things about the market. It is
employed when much is already known about the market and companies want to
describe or quantify certain aspects in more detail, such as a thorough description
of customers’ geographical spread (single variable) or the relationship between price
and quality (association between variables). Descriptive research is very structured
and formal and generates “hard” data.
• Causal research is used when testing cause-and-effect relationships between two or
more variables. This is a specific measurement of dependent and independent vari-
ables for a specific marketing problem and is rarely used as a research approach for
market validation.

7.7.3 Stage 3: Data-Collection Methods

When the research objective is identified and depending on the nature of the knowledge
gap, data can be collected from both secondary and primary sources. When deciding on
data-collection methods and instruments, the first major question to be answered is
whether this information is readily available. Because conducting primary research (i.e.
information directly from a source, such as personal interviews) can be costly, research-
ers should always make sure they exhaust all sources of secondary data before embarking
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on a project to collect primary data.

7.7.3.1 S
econdary Data Collection
The first activity to begin any desk research with is identifying and assessing the second-
ary data already available: data from internal sources (e.g. internal product documenta-
tion/records) and data from external sources such as published materials, computerised
databases, or from syndicated services (see Figure 7.7 for secondary data sources).
Secondary data gathered and published by government agencies, trade publications,
independent research firms and universities provides a valuable and inexpensive (as
compared with the high costs of conducting primary research) start to building a knowl-
edge base on a particular market. The internet especially can provide access to thousands

Internal

Needs
Ready to use
modification
Secondary data sources

International
Government
bodies

External
Trade/professional
Directories
bodies

Internet/www Databases

Syndicated Grey material/

services other

Figure 7.7 Classification of secondary data sources

of web pages holding a wealth of information (Figure 7.7). Secondary data is usually eas-
ily available and relatively inexpensive to obtain.
However, when relying on secondary sources to address their research question,
researchers need to consider the validity and reliability of the information. Secondary
data needs to be assessed in terms of relevancy, validity of source, accuracy and timeli-
ness.6 Questions to consider are:
• Who collected it?
• Is it from a credible source?
• Why was it collected?
• What methods were used to collect the data?
• Is it up to date?
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• Is it unbiased and objective?

7.7.3.2 P
rimary Data Collection
Primary data can come in two formats, qualitative and quantitative, each determined by
the data-collection method. Quantitative data is anything that can be expressed as a
number, or quantified; it may be represented by ordinal, interval or ratio scales and lends
itself to most statistical manipulation. Quantitative data focuses more on what people/
organisations do. In contrast, qualitative data cannot be expressed as a number, as it
focuses on people’s opinions, with no intention of statistical classification. Qualitative
data is based on why and how people/organisations behave under certain conditions; it is
more open to interpretation and helps marketers understand the meaning of actions.
Both types of data are valid types of measurement and are sometimes used within the
same research project to complement each other.

7.7.3.3 Q
ualitative Research Methods
Focus groups involve bringing together a group of 8–12 participants who are led by a mod-
erator in a discussion focused on a particular topic or research question, with the objective
of understanding what people think or feel about an issue or object. A focus group can be
representative of people who share some common characteristics, including their expecta-
tions for a specific type of product. A focus group is an interview conducted by a trained
moderator among a small group of respondents in a non-structured and natural manner.
In-depth interviews are another data-collection method. This method is especially useful
when attempting to understand complicated issues, such as complex decision-making pat-
terns, possibly embarrassing topics or when inquiring about confidential personal data.
The in-depth interview is conducted on a one-on-one basis, and the interviewer tries to
uncover the respondent’s underlying motivations, beliefs, attitudes and feelings on a topic.
Great insights can be revealed. Interviews are also used when the group of customers are
business users and hence require a more personal setting for gathering market intelligence.
Personal interviewing can be done face to face or for example via or Zoom Skype.

7.7.3.4 Q
uantitative Data Methods
The survey is still the most common market research approach as it has the ability to
gather a wealth of data. It consists of asking people questions about products and brands,
about their knowledge, attitudes, preferences and buying behaviour. The data-collection
instrument associated with surveys is the questionnaire (Malhotra, 2019). This can take
different forms, according to the type of information that is needed. With a survey, the
researcher has to decide on a contact method, be it telephone, personal or online distri-
bution. However, compared with interviews, surveys are limited in giving opinions on a
concept, as they are mainly a voting exercise used to ask if the respondent would use the
product/service or not.

7.7.4 Stage 4: Sampling

Whatever methods is selected, a sample or segment of respondents need to be chosen
from which to collect the data. A sample is a segment of the population selected for
research. Sampling implies identifying who has the needed information. Whether a focus
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group, personal interviewing or survey is used for data collection, a sample of respond-
ents needs to be put together representing or profiling characteristics similar to the target
market for the innovation. The sample should be representative so that the researcher can
make accurate estimates of the thoughts and behaviours of the larger population (Kotler
et al., 2008).
In terms of qualitative methods, the sample is small (i.e. number of focus groups used
and/or interviewees) and non-probability methods can be used to select participants.
Non-probability methods are not based on statistical probability and are hence more
subjective in nature. Even though the sampling error cannot be measured, and results
cannot be generalised, non-probability samples can still provide very useful market and
customer insights. Non-probability samples are chosen based on the researcher’s judge-
ment, issues of access to population, cost and time constraints.
In terms of quantitative methods such as surveys, the sample size (how many people
should be surveyed) and the sampling method (how people in the sample should be

chosen) are important decisions. When probability sampling methods are used, the
researcher employs statistics and objectivity in selecting who to talk to, ensuring that
each member of a population has a known chance of being included in the sample. The
results can thus be generalised to the wider population of interest.

7.7.5 Stage 5: Fieldwork

Fieldwork consists of collecting all relevant data and information through one or more of
the methods already described. Data can be collected by one or more researchers and
doing so involves selection, training and management of the research staff. When plan-
ning, organising and conducting the fieldwork, it is essential to remember that the quality
of the data-gathering process will impact the data analysis and ultimately the accuracy
and relevance of the research findings: the better the process, the better the data.

7.7.6 Stage 6: Data Analysis

Data gathered through secondary and primary data-collection methods has to be trans-
formed into information in order to be useful in the decision-making process within an
organisation. The process starts with data preparation and it includes editing, coding and
reduction. According to the type of data (quantitative or qualitative), different analytical
methods will be used. For qualitative data the analysis consists of identifying patterns,
themes and relations between the elements in the data. No statistical tests are conducted
for qualitative data, and analysis may include creating word lists, checking frequency of
occurrence, identifying categories and so on. Quantitative data lends itself to statistical
analysis; simple and cross-tabulations, frequency distributors, central tendency and dis-
persion measures, regression, factor analysis, multi-dimensional scaling and so on are all
used to classify and summarise the data.

7.7.7 Stage 7: Present the Findings and the Research Results

The final market research report should start by reiterating the initial marketing research
objectives. It should contain a detailed outline of the findings, as well as possible weak-
nesses of the research (in terms of how reliable and valid the data is). In the final part the
report should incorporate feasible recommendations based on the newly acquired infor-
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mation. The report is usually appended to the business plan and key findings on market
validation are summarised in the plan itself in the “Marketing” section.
Market research activities can be a laborious, costly and time-draining process, and yet
sometimes market opportunities are ready to be exploited. In new ventures and small estab-
lished firms, which do not have the resources to conduct a large-scale project, marketing
research can take simpler forms, always starting with a detailed review of secondary data and
continuing with simple observations, small-scale surveys, using convenient samples, personal
interviews with existing or potential customers and industry operators and similar methods.

7.8 CHAPTER SUMMARY

This chapter highlights the importance of market validation for a technology venture and
outlines the necessary processes to ensure that a rigorous and systematic approach is
taken. The two key processes that underpin the market validation process are market

ecosystem analysis and business concept testing. For market ecosystem analysis, the 5C
framework is used to conduct the analysis. For business concept testing, analytical tools
are employed to explore and validate the business concepts of the invention. There are
research techniques specific to validating the market opportunity for the business con-
cept for both end consumers and business customers. An understanding of market
research methods is necessary for collecting and analysing market intelligence to per-
form the two key steps in the market validation process. Market research is key to under-
standing customers and validating a target market. Obtaining and using information on
the market is an important tool in not only identifying market opportunities for
technology-based products, but also ensuring that the product is entering a valid and
sustainable market for revenue generation. The final part of the chapter discusses the
importance of market intelligence and identifies market research methods for gathering
and data to conduct the market validation process. Case Study 7.1 brings all these ele-
ments together.

CASE STUDY 7.1 SKYPE

Case written by Dr. Gabriela Gliga, GMIT, Galway

The telecommunications industry has undergone tremendous changes in the last two decades,
through the explosive growth of the Internet. VoIP (Voice over Internet Protocol) was the name
for the new technologies that allowed the delivery of voice communications over an Internet
network. Enabling functionalities, such as voice calling, video calling, and instant messaging, VoIP
has rapidly replaced expensive traditional phone services, because of its reduced costs, eliminat-
ing investment in telecom hardware equipment.
The VoIP market is estimated to grow from US $ 20 billion in 2018 to around US $ 55 billion by
2025. This growth can be mainly attributed to the increasing demand for cost-effective communi-
cation solutions for both organisations and individuals, and worldwide government initiatives for
the development of wireless telecommunications infrastructure, such as 4G/5G networks.
However, when Skype was launched in 2003, the notion that people could use voice calls for
free was something new. Skype Technologies was the manufacturer and developer of Skype, a
high quality and easy-to-use software-based communications platform for both consumers and
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

businesses. Today Skype can be used for both one-on-one and group conversations on phone,
computer, TV and voice assistant devices, such as Alexa, to communicate, collaborate and share
experiences globally through voice, video and text. The software also allows users to make low‐
cost calls to landlines and mobile telephone lines.
Skype managed to disrupt not only the traditional business model of telephony services, but
also the model of the other VoIP service providers, by successfully combining peer-to-peer com-
puting (P2P) and VoIP. Skype took advantage of the new world order and capitalised on emerging
areas, afforded by increased broadband access and P2P networking trends. The P2P technology
allowed for a new approach to networking, as the division into clients and servers, which was the
traditional architecture used by most other VoIP services, could be replaced by a decentralised
paradigm, where each node could act as both, suppliers (senders), and consumers (receivers). By
using P2P networks, Skype eliminated the need for a central server, as users employ (simultane-
ously supply and consume) their own computers’ resources.
Skype was founded in 2003 and headquartered in Luxembourg, by Niklas Zennström and
Janus Friis, who have previously created the world’s largest peer-to-peer file sharing service,

KaZaA. In 2004, only one year after its inception, Skype had already recorded impressive growth,
with more than 9 million registered users and more than 20 million downloads for its software.
Skype’s impressive growth has of course attracted investor attention. Skype was acquired by
eBay Inc. for US$2.6 billion in September 2005. eBay was hoping that the VoIP service would help
its auction participants to communicate. The company also believed that Skype would afford
cross-marketing opportunities by providing access to a vast pool of users. In 2008, Skype
Technologies generated revenues of $551 million, and the registered users totalled 405 million, a
47 per cent increase from 2007.
However, eBay’s plans for Skype did not fully materialise, and in November 2009, eBay Inc.
has successfully completed the sale of its Skype communications unit in a deal valuing the
business at US $2.75 billion. The buyer was an investor group led by Silver Lake, which also
included the Canada Pension Plan Investment Board and Andreessen Horowitz. The deal was
also accompanied by a lawsuit from Skype’s founders (Joltid Ltd.), who claimed they still
owned the P2P technology that was Skype’s basic platform. The investor group settled the
Joltid litigation and acquired all Skype technology in exchange for equity in the company.
Joltid Ltd. ended up with about 14 per cent equity in Skype and have subsequently joined the
investors’ group, now owing around 70 per cent of Skype, with eBay retaining the remaining
30 per cent.
This deal was perceived as bringing value to both eBay and Skype. eBay got a significant
cash up-front while still retaining a minority stake in Skype and could now focus on their core
business and capabilities for the auction site and PayPal. For Skype, the deal provided the
opportunity to accelerate the growth of its business by leveraging the deep technological and
company development expertise that resided within the investor group, who had a track
record of taking technology companies to the next level. As of 2010, Skype was available in 27
languages and became the leading VoIP service provider with 660 million worldwide users, an
average of over 100 million active each month. “Skype me” has replaced the phrase call me in
many conversations, which was something that the Skype creators envisioned in its
beginnings.
In October 2011, Skype was acquired by Microsoft Corporation for US $8.5 billion, a deal that
got mixed reviews from analysts, particularly in relation with the price of the acquisition. While
the Skype division continued to offer its current products, Microsoft also planned to integrated
Skype across an array of its platforms. Microsoft and Skype aimed to transform real-time com-
munications for consumers and enterprise customers and to become the communications plat-
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

form of choice around the world. However, Microsoft’s refocus on the corporate market, alongside
new high quality, and more user-friendly alternatives (e.g. WhatsApp), may have pushed end
users away from Skype.
Skype’s initial success was attributed to its very simple business model. Initially Skype offered
PC-to-PC calling and this basic service was offered for free at a time when most companies
charged for a similar value proposition. Furthermore, Skype was very simple to download and use
and offered good quality in audio and video. Later on, the free calling, video conferencing, text
messaging and file sharing has been extended with supplementary services. For a low fee,
SkypeOut allowed users to place calls from computers to regular telephones. Prices were very
competitive with rates as low as 2 cent per minute and somewhat higher for countries where the
telecommunication industry had not been liberalised and the interconnection fees were still high.
In some markets SkypeIn was also offered, allowing users to receive calls on their computer (on a
regular phone number) from phone users.

Additionally, in 2007, in order to compete against phone companies who offered unlimited local
calling for a flat monthly fee, Skype also introduced monthly subscriptions with unlimited calls. And
in 2010, Skype launched monthly premium subscriptions, supporting group video calls and group
screen sharing at a low cost of US$ 3,49 per month, bringing additional revenues to the company.
Further revenue generators included advertising and e-commerce features, where Skype partnered
with hardware companies. The Skype shop provided headsets and microphones, desktops, home
phones, webcams, mobiles, tablets, gaming, apps and gift cards for a number of years.
Skype’s strategy was based on a freemium model (i.e. give away the core product for free), with
up-selling additional services for profit. This was possible as the marginal cost per customer was
very low. Skype’s marketing costs were also very low. Skype basically promoted itself. The viral
promotion strategy for Skype was very effective as it was based on word-of-mouth or “word-of-
mouse”: individuals recommending the application to their circle of friends. Skype’s early adop-
ters, who readily embraced the application, included people who spent considerable amounts of
time on a computer, were already using services such as instant messaging and wanted to use the
Internet to communicate with other people.
Furthermore, TV broadcasters were specifically targeted as key opinion leaders and they were
encouraged to integrate Skype into programming. One great success was to become a regular on
the influential The Oprah Winfrey Show, whose host began to include regular Skype video calls in
the programme, and in May 2009 an entire show was dedicated to Skype and its significance.
While VoIP was a very attractive value proposition to residential customers, the corporate
market was the one with the most profit promise. Skype for Business Online has capitalised on
the realities of today’s borderless business world and the ever-growing international e-commerce
marketplace. For instance, Skype has afforded a new channel of distribution for various service
providers, in a variety of sectors, such as education, consultancy, health, fitness etc.
Skype and other similar providers illustrate “the death of distance” as they offer a way to
communicate in real time with geographically dispersed and remote employees internally, and
with business partners and customers, externally. Being able to bring the entire ecosystem of
workers, partners and customers together to get things done is positively impacting on both
business relationships and customer service. Such systems further enable companies to con-
duct business across borders at low rates, and easily scale their communication infrastructure
cost-effectively, without paying for components and maintenance. This is also enhanced by
the growing adoption of cloud-based communications platforms. Consequently, the managed
and hosted segments in the VoIP market were expected to witness the fastest growth rate
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

from 2019 to 2025, as corporate clients rely on providers to deliver full cloud-based services,
without the need to install any equipment on-premises. As the global pandemic hit at the
beginning of 2020, cloud platforms for video, voice, chat and content sharing went from an
optional extra to absolute necessity, with subsequent record growth rates around the world.
For instance, Zoom, moved from 10 million daily meeting participants in December 2019, to
300 million in April 2020. Furthermore, as organisations around the world are moving forward,
they will continue to consider the benefits of remote work long term. This means business
communication and collaboration platforms are not addressing only a temporary need. They
are here to stay.
For Microsoft, the addition of Skype helped sell subscriptions to its cloud-based Office 365,
allowing customers access to the full suite of capabilities and integrated Microsoft Solutions.
However, by incorporating Skype into its lucrative Office suite for corporate customers, Skype
has become less appealing to individual consumers.

Despite the introduction of better features, such as mobile screen sharing (which is not as
common in apps targeting consumers, like FaceTime, Messenger, or WhatsApp) and enabling
integration across tools from Google, such as calendars, email, and even social media, many users
have left Skype behind. Customers still remember Skype’s crash in 2007, leaving over 220 million
users, some of them small businesses with no communication channels for a day, while Skype
executives gave only vague explanations regarding the cause of the problem.
Some of the more recent updates for the free consumer option of Skype have also been met
with criticism in the market. For instance, in 2017, Microsoft’s choice to update Skype’s appear-
ance led to numerous negative reviews. Users were unhappy about the redesign, both in term of
style (which included Snapchat-like features), as well as functionality and features. In 2018, argu-
ing that they are listening to their customers’ feedback closely, Skype was simplified, refocusing
on the main uses of the service: calling, video calling and messaging. “We are listening to your
feedback and are wholly committed to improving the Skype experience based on what you are
telling us” wrote Peter Skillman, Director of Design for Skype and Outlook, when introducing the
new Skype. However, for many former users, Skype became just a corporate tool in an extremely
competitive technology market. The company hasn’t updated the number of Skype users since
2016, when it put the total of monthly active users at 300 million. Some analysts suspect the
numbers were flat at best.
With so many competitors around (Zoom, WhatsApp, Messenger, FaceTime, Snap, WeChat,
Viber, Talky etc. for consumers, and Zoom, TeamViewer, GoToMeeting, Cisco Webex Meetings,
UberConference, Google Hangouts, Slack etc. for corporate clients), Microsoft struggled to bring
Skype back to its market status from 2011. In July 2019, Microsoft announced Skype for Business
Online will be retired by July 2021, being replaced by Microsoft Teams. Teams aims to enable
entirely new ways of working, combining chat, video, calling, document collaboration, and appli-
cation integration into a single experience. Skype for end users remains available. However a
crowded market place, Skype’s prior design issues, as well as the decision to retire Skype for
Business Online do not predict a bright future for the consumer app that was the number one
choice in 2011.
But privacy issues, ability to protect intellectual property rights and to deal with economic and
regulatory uncertainties across international markets are realities for all the platform competing
in this space. For example, regulations vary by country, as some nations still own telecommunica-
tion carriers and they rely on the income they produce. Cloud-based conferencing services have
also been under the radar in terms of security aspects, such as monitoring calls and wiretapping.
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

Furthermore, the incumbents in the telecommunication markets are pushing for new regulation,
since these services are not restricted by the traditional telephony regulation and hence do not
pay the fees that the traditional providers are subject to.
And, following the global pandemic of 2020, things are not slowing down in the market. As the
adoption of business communication and collaboration platforms increases in the corporate
world, so will the competition. Alongside Microsoft Teams, market leaders are likely to engage in
more mergers and collaborations, as well as adopt product and service differentiation strategies
to cater to the growing number of customers with full-service solutions in a highly competitive
market.
Skype had high expectations to meet, as the anticipated continuation of its growth has been
valued at US $8.5 billion in 2011 (a value 32 times larger than Skype’s operating profits at that time).
eBay’s CEO Meg Whitman took a gamble with Skype, which never really paid off. The second big-
gest acquisition in Microsoft’s history (after LinkedIn, acquired for US $26.2 billion in 2016) would
also appear to come short of expectations. Yet, Microsoft Teams had over 75 million daily active

users in April 2020, double the rates from March, indicating very healthy growth. While Skype
might not have fully delivered, was it the necessary stepping stone for the success of Teams?

CASE QUESTIONS
1. Given the global nature of Skype’s operations, which changes in the macro-context have posed
the greatest threats to its survival and expansion as part of the Microsoft Corporation?
2. Outline the factors in Skype’s meso-context, which have had an impact on the company during
its life span.
3. In your opinion, what were the advantages of Skype’s early entry into the VoIP market?
4. With its generic value proposition, did Skype still need to address the consumer and organisa-
tional markets differently?
5. How could Skype benefit from customer driven innovation to reinstate its relevance? Can you
identify a crowdsourcing opportunity for Skype?

CASE STUDY REFERENCES

Bhutani, A. Wadhwani, P. (2019) Voice over Internet Protocol (VoIP) Market, Global Market
Insights, accessed 28 June, 2019 at https://www.gminsights.com/industry-analysis/
voice-over-internet-protocol-voip-market
Carter, R. (2017) “People are Really Hating the New Microsoft Skype Redesign”, UC Today, July
11, accessed 26 June 2019 at https://www.uctoday.com/collaboration/team-collaboration/
people-really-hating-new-microsoft-skype-redesign/
Fowler, G. A. (2009) “Skype Gets the Oprah Treatment”, The Wall Street Journal, May 21, accessed
27 June 2019, at http://blogs.wsj.com/digits/2009/05/21/skype-gets-the-oprah-treatment/
http://about.skype.com/2009/09/ebay_inc_signs_definitive_agre.html
http://about.skype.com/press/corporate/
http://www.nytimes.com/2007/08/17/business/17ebay.html?_r=1&oref=slogin,
Koptyug,E.(2019)NumberofestimatedSkypeusersworldwide2009-2024,Statista.com,accessed28June
2019 at https://www.statista.com/statistics/820384/estimated-number-skype-users-worldwide/
Lasica,J.D.(2013)“TheEngadgetInterview:NiklasZennström”,Engadget,November8,2004,accessed25
June, 2019 at http://www.engadget.com/2004/11/08/the-engadget-interview-niklas-zennstrom/
Copyright © 2020. Bloomsbury Publishing Plc. All rights reserved.

Lee, D. (2011) “How Skype connected”, BBC, May 10, accessed 27 June 2019 at http://www.bbc.
co.uk/news/technology-13350425
Lindsay, A. (2011) “Skype settles lawsuit with founders,” Compare Business Products, November
6, 2009, updated January 7, 2011, accessed 27 June, 2019 at http://www.comparebusinessprod-
ucts.com/blog/entryid/88/skype-settles-lawsuit-with-founders.aspx
Market Watch (2019) Voice over Internet Protocol Market By Type Trunking, By Access Type, By Call
Type, By Medium, By Application, Forecast, 2019 – 2025, accessed 28 June 2019 at https://www.mar-
ketwatch.com/press-release/voice-over-internet-protocol-voip-market-size-will-reach-55-billion-
usd-by-2025-2019-05-01
McCarthy,C.(2009)“eBaysetsSkypelooseat$2.75billionvaluation,”CNETNews,November,19,accessed
on 25 June, 2019 at https://www.cnet.com/news/ebay-sets-skype-loose-at-2-75-billion-valuation/
McIntyre, D. A. (2017), Whatever Happened to Skype?, Finance Yahoo, March 14,
accessed 26 of June 2019 at https://finance.yahoo.com/news/whatever-happened-
skype-103003615.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29v
Z2xlLmNv bS8&guce_referrer_sig=AQAAABX8MAtjK16M8wxNyZT T TFiD GZ

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Technology Chapter 7

Uploaded by

Technology Chapter 7

Uploaded by

7

MARKET VALIDATION Chapter

7.1 LEARNING OBJECTIVES

7.2 CHAPTER STRUCTURE

• The Marketing Ecosystem of the New • Revision Questions

7.4 MARKET VALIDATION PROCESS

developed in close consultation with prospective customers to determine market accept-

Markeng research methods

Market Markeng ecosystem analysis Market

Markeng research methods

Figure 7.1 The market validation process

7.5 THE MARKETING ECOSYSTEM OF THE NEW VENTURE

Legal Meso-context Technology

Figure 7.2 The marketing ecosystem

7.5.1 The 5C Framework Analysis

Role of horizontal & vertical Macro level

Human capital Operational and

• Product/service features • Research experience and • Assessment of current • Physical supports/premises/

Figure 7.3 5C framework for analysing the venture’s marketing ecosystem

2. Structured market analysis: Similarly, contextual analysis requires a preliminary

Table 7.1 Market types: consumer markets and organisational markets

Consumer markets Organisational markets

Purchase orientation Individual/family Organisational requirements

Type of buyer Individuals or households Commercial enterprises

Intended use of Finished product for Products for further production,

Product/service type Typically standardised Can vary from standardised to

Size of purchase Typically small transactions Typically large

Risks Low for most purchases High to moderate

Channel of distribution Long – often involving many Short, depending on whether

business plan (see Chapter 9).

Human capital Operational and

• Product/service features • Research experience and • Assessment of current • Physical supports/premises

Figure 7.4 Assessing the resources of the new venture

• How can I improve my innovation to better serve customers’ needs?

7.5.2 Market Validation Outcome

CASE BOX 7.1 PRAGMATIC DIAGNOSTICS – ENTREPRENEURIAL

A Founder and Entrepreneur-Manager with a Technological and International

Location and Firm-Specific Competitive Advantages

Serial International Entrepreneur

Regulated International Environment’s Impact on Technology Management

The Future: New Information-Related Technologies

7.6 BUSINESS CONCEPT TESTING TOOLS

7.6.1 Incremental Innovations

7.6.2 Radical and Disruptive Innovations

• Concept testing Focus groups • Virtual

Figure 7.5 Business concept testing process

7.6.3 Concept Testing

people are motivated to communicate in focus groups, an experienced moderator

7.6.4 Personal Interviewing

7.6.5 Conjoint Analysis

Conjoint analysis is suited for incremental innovations in terms of:

CASE BOX 7.2 ANDROIDS: AN ALTERNATIVE TO A MARKET LEADER

7.6.6 Business Concept Testing for Radical Innovations

7.6.6.1 Real and Virtual Prototype Testing

CASE BOX 7.3 VIRTUAL PROTOTYPE TESTING OF DROPBOX

7.6.6.2 Beta-Site Testing

7.6.6.3 Lead User Testing

3. Analyse lead user data and develop novel products;

7.6.6.4 Customer-Driven Innovation

CASE BOX 7.4 CROWDSOURCING FOR LEGO IDEAS

7.7 CONDUCTING MARKETING RESEARCH

7.7.1 Stage 1: Formulating the Research Objective

entrepreneurs needs to ask the following questions:

Secondary data Sampling

Figure 7.6 The marketing research process

7.7.2 Stage 2: Research Design

7.7.3 Stage 3: Data-Collection Methods

on a project to collect primary data.

Syndicated Grey material/

Figure 7.7 Classification of secondary data sources

• Is it unbiased and objective?

7.7.4 Stage 4: Sampling

7.7.5 Stage 5: Fieldwork

7.7.6 Stage 6: Data Analysis

7.7.7 Stage 7: Present the Findings and the Research Results

7.8 CHAPTER SUMMARY

7.1 LEARNING OBJECTIVES

7.2 CHAPTER STRUCTURE

7.4 MARKET VALIDATION PROCESS

Markeng research methods

Market Markeng ecosystem analysis Market

Markeng research methods

7.5 THE MARKETING ECOSYSTEM OF THE NEW VENTURE

7.5.1 The 5C Framework Analysis

7.5.2 Market Validation Outcome

7.6 BUSINESS CONCEPT TESTING TOOLS

7.6.1 Incremental Innovations

7.6.2 Radical and Disruptive Innovations

7.6.3 Concept Testing

7.6.4 Personal Interviewing

7.6.5 Conjoint Analysis

7.6.6 Business Concept Testing for Radical Innovations

7.6.6.1 Real and Virtual Prototype Testing

7.6.6.2 Beta-Site Testing

7.6.6.3 Lead User Testing

7.6.6.4 Customer-Driven Innovation

7.7 CONDUCTING MARKETING RESEARCH

7.7.1 Stage 1: Formulating the Research Objective

7.7.2 Stage 2: Research Design

7.7.3 Stage 3: Data-Collection Methods

7.7.4 Stage 4: Sampling

7.7.5 Stage 5: Fieldwork

7.7.6 Stage 6: Data Analysis

7.7.7 Stage 7: Present the Findings and the Research Results

7.8 CHAPTER SUMMARY