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Critical Assessment of Value Propositions and Marketing - Evidence from Finland
CRITICAL ASSESSMENT OFVALUE PROPOSITIONS ANDMARKETING OF TECHNOLOGYSTARTUPSEVIDENCE FROM FINLANDJoni Salminen José Teixeirajoni.firstname.lastname@example.org email@example.comTurku School of Economics Turku School of Economics
Key concepts • Startup is a young (0-2y) business organization aiming at high growth and scaling of business (adapted from Blank, 2008; Ries, 2010). • Value proposition refers to the benefits offered by a firm to its customers through goods or services (Anderson, Narus, & Van Rossum, 2006). • Pitch is a short presentation of the startup. For example, meetings with investors in startup events are typically short, and startups quickly need to create a positive first impression.2
Summary of study 1. We interviewed 21 technology startups in a conference “Slush 2011” in Helsinki, Finland. 2. Startups were asked questions relating to marketing challenges, specifically target market (customers), market research, and revenue models. 3. Value propositions were gathered from short introductions (“pitch”) given by the founder or representative of each startup. 4. We discuss various marketing challenges of early- stage technology startups and conclude by proposing more attention to the formulation of value propositions not only to communicate more efficiently but also to clarify business goals.3
Questions asked 1. Who is your customer? (What is the startup’s target market?) 2. How do you make sure that you have correctly understood the need of the customer for your product? (Has the startup done market research?) 3. How do you make money? (What is the startup’s revenue model?) 4. What is your biggest challenge at the moment?4
About the 21 startups • use Internet as a part of service delivery • international growth orientation (only 1 focusing on Finnish market) • first customer acquisition: 1) pilot organization, 2) other startups (personal contacts) • most were B2B; all B2C offer a free version of product • customers risk being ”basically everyone”, and biggest challenge ”getting users” – weakness in positioning – marketing communications, value propositions5
Main findings • apparent issues in targeting, positioning, branding – visible in value propositions measured by pitches – ”could you give me an example of a real person using the product?” (tangibilize) – confusion about marketing concept? • tendency for ”build it and they will come” • strategy of ”value stuffing” potential HAZARDS for survival6
How startups perceive marketing? Additionally, we observed the word “marketing” raised controversial reactions, so that: 1) many founders seemed to narrow the concept to either advertising or sales when talking about marketing efforts. This confusion limits the usefulness of marketing function, and is counterproductive because startups often associate negative attitudes towards advertising. “we are not doing marketing, we are doing sales” Further, 2) founders primarily understood marketing as a separate process that would be integrated after the product development; not as a parallel process that could be applied alongside the product development.7
What else did we learn? POINTERS FOR FUTURE RESEARCH8
Platform problem and solution To create market exchange, both groups need their own value propositions and need to be convinced on the utility of the platform (Evans, 2003). Since the startup is in fact a market maker (i.e. the market does not exist ex ante), it has to find a way to attract enough consumers interested in brand offerings; the more it has brand offerings, the more potential utility it offers to consumers and vice versa. However, without either party the platform remains worthless. Doligalski (2010) asserts the dilemma can be tackled by offering free services to the first party (e.g. consumers) while charging the other one (e.g. brands). Another approach planned by one startup was gamification; while the consumer plays a mobile game on the go, the applications records data on road bumps which the startup uses to analyze road conditions, later selling this information to any interested parties. In this case, the user needs not to actively contribute into data collection apart from playing the game.9
Why no customer service focus? Brand building or customer service as a competitive advantage was not explicitly mentioned by the interviewed startups. This is in line with Kim’s (2004) finding that a paid software product with high-quality service is a rare combination. Exactly for this reason it could provide a competitive advantage if compatibility with customer preferences is found. The perception of the authors is that a boost in branding and service dimensions is an obvious point of improvement for many early-stage technology startups. Think Zappos!10
“Is the mission of a startup to change the world or make money?” these goals are not always aligned, so that the startup may have to make a tradeoff between improving people’s lives (social startups) and engaging into more profitable activities (business startups). e.g. solving the problems of handicapped could be less feasible from business perspective than solving problems of e.g. bankers) while in fact the impact to customer‟s life (“good done”) would be higher. This division was also notable in the participating startups: some were clearly business oriented and had a direct route to monetizing their product, whereas others were more focused on solving the actual customer problem and less focused on creating business.11
Limitations • small sample does not allow empirical generalizability • interviewed startups operate in different type of markets (e.g. business vs. consumer; leisure vs. productivity) and use different business models, leading to many different combinations (selection bias, including and excluding) • differences in “early stage maturity” are not good for all aspects of comparisons (but then again are for others)12