1. Today’s Topics Launching a New Product, Review of Course Learnings,
and
Final Exam Preparation

2. Please fill out the online course assessment survey Written comments are particularly appreciated !!

3. Course Schedule Business objectives Financial measurements (Google)
Company analysis; roles & responsibilities (Medtronic)
Business & product plans (FHP Wireless)
Target customers (DLJdirect)
Competitive analysis (Airborne Express)
Product decisions (Techsonic)
Midterm exam (THINK)
The Marketing Function (Lenovo)
Sales & Sales Channels (GolfLogix)
Internet Marketing & Sales (HubSpot)
R&D: Product Development (Guidant)
Operations (Crocs)
Product Launch (Invisalign)
Final exam (Emotiv)
Thursday, Dec 15th,
1-4pm, E230

4. Today’s Agenda Launching a product: Invisalign case
Summary of key learnings from the course
Review case for final exam (Emotiv)

5. Our Last Assignment: Product Launch
Invisalign
A new technology ( ~ 2000)
for aligning teeth

6. Product Launch Assignment: Align Technology in 2001
Invisalign straightens teeth via a series of clear plastic retainers designed and made specifically for each patient
Higher price and higher COGS than traditional metal braces, but “better”
Product available for about 2 years
Annual revenues ~$50M but OI ~($100M)
Adoption rate by orthodontists is insufficient to support future growth
Arguably, the product needs to be “re-launched”

7. Assignment Questions
Which of the three end-customer (patient) segments identified should be Align’s target? Why?
Which of the promotion and sales tasks (promotion, selling, fulfillment, service) should be done by Align? By the dentists? By the orthodontists?
What are the orthodontist’s “channel economics” for Invisalign vs. standard braces?
What barriers are preventing increased adoption of Invisalign by orthodontists?
How should Invisalign be positioned with orthodontists? (write a positioning statement)
By what methods should Invisalign be promoted to dentists? To orthodontists?

8. Making Product Decisions
Financial
Analysis
(health,
challenges)
Market Analysis
(customers, needs,
market trends)
Competitive
Analysis
(strengths,
weaknesses)
Decision Criteria: Objectives/Constraints
Competitive Adv Decision (SCA)
Target Customer Decision (C)
Product Decisions
(4P’s)

9. Align Technology Income Statement
YEAR ENDING; $K
31-Dec-10
31-Dec-08
31-Dec-06
Total Revenue
387,126
303,976  
206,354  
Cost of Revenue
83,709
78,850  
64,775  
Gross Profit
303,417
225,126  
141,579  
R&D exp
25,997
26,165  
18,474  
SG&A exp
170,137
177,216  
146,298  
Non Recurring
4,549
6,231  
14,343  
Operating Income
102,734
15,514  
-37,536

10. Invisalign’s Current Channel gold arrow = promotion
-salesforce (30)
Sales, training,
support
Orthodontists
8,500 in US
6,500 trained by
Invisalign
Dentists
-120,000 in US
referral
Patients
2M/year in US
35,000 Invisalign
patients (<2%)
visits
visit

11. Target Customers Segments identified: Health conscious
Current target: adults and adolescents with mild-to-moderate conditions; sensitive to appearance for social/personal/professional reasons
Segments identified:
Health conscious
Prior (braces) users
Beauty conscious

12. Selecting Target Customers: considerations
Segment size
Revenue and margin opportunity
Customer benefits
Customer interest
Customer willingness-to-pay
Competition/market coverage
Sales channel and associated profit margin
Cost to serve
Customer loyalty/lock-in

13. Channel Economics --- example
List price = $100
Manufacturer
COGS = 35
expenses = 20
Channel
Partner
COGS = 65
expenses = 20
end
user
price 90
channel
price 65
gross margin % = 30/65
= 46%
OI % = 10/65
= 15%
gross margin % = 25/90
= 28%
OI % = 5/90
= 6%

14. Pricing: considerations
Value/benefit delivered
Customer’s ability to pay
Competitive alternatives/pricing
Product “image” created
Initial sales ramp
Profitability (short- and long-run)

15. Positioning statement development
Who are you positioning yourself “with” ?
What do they desire and fear ?
Who/what are you positioning “against” ?
What are your differentiators/benefits ?

16. Invisalign Positioning with Orthodontists
Orthodontist desires = ?
Orthodontist fears = barriers
Positioning against = ?
(might depend on target customer)
Positioning content = ?

17. Review: Major Course Topics
Financials
Business Plans
Market analysis
Competitive analysis
Product decisions
Marketing
Sales & channels
R&D
Operations
Product launch

18. Learning Outcomes: you will learn to …
analyze a company’s financial performance and assess its opportunities and challenges for future growth
assess the barriers to success in a particular market and select the appropriate target customers
identify a company’s competitive advantages by performing a comprehensive analysis of its direct and indirect competition
define the “whole product” and decide on appropriate product differentiators

19. And, you will learn to…
select appropriate sales/distribution channels and promotional messages and methods
identify best practices in new product development and the challenges in integrating the marketing, operations and product development functions
understand how technical people interact with marketing, sales and operations personnel, and how they contribute to resolution of business issues
understand how business issues impact technical work

20. …because you’ll understand and apply these Concepts (13)
Definition of product success
Whole product
Product plan: key success factors
Differentiation
Market attractiveness
Target customers
Competitive advantage
Marketing mix (C+4P)
Product positioning
Sales functions
Channel options
Channel value-added
Operations balance

21. … and you’ll be able to use these Methods/Tools (13)
Identifying competitive options
Decision criteria
Product decisions
Product competitive positioning
Channel economics
Process dimensions
Product development best practices
Income statement analysis
Financial benchmarks
Target customer description
Target customer selection
5 Forces analysis
Competitive analysis (10 dimensions)

22. The Basics……
Companies try to maximize the wealth of their owners --- market cap (stock price) plus dividends
Stock price and the ability to pay dividends are driven by earnings, and beliefs about future earnings growth
Individual products and services are successful iff they contribute targeted amounts to earnings/ earnings growth
Earnings growth (ultimately) requires revenue growth
Firms use financial statements to develop plans, and measure/analyze/report on their performance

23. …..and, in terms of business objectives…..
A company’s basic financial objective is to grow its earnings quickly and sustainably, in order to raise its stock price and have the ability to pay its owners dividends
Products are successful if and only if they attain their targeted contribution to corporate earnings

24. The Income Statement Revenues - Cost of Goods Sold (COGS)
= Gross Margin (gross profit)
- M&S expense
- R&D expense
- G&A expense
= Operating income (EBIT)
- Interest
- Taxes
= Net income (earnings)

25. Key Financial Concepts
Operations vs. total/net (e.g., OI vs. NI)
Normalizing results: return measures (e.g., OI as % of revenue; operating return on assets)
Knowing what “good” results are: benchmarks; general and industry-specific
Recognizing cash vs. non-cash
- Measures (e.g., OI vs. NOCF)
- Capital goods: depreciation/amortization
- Working capital: inventory, accounts rec’bl.

26. Method: How to analyze an Income Statement
(First, compute “the percentages”)
Operating income vs. net income
In-period operating performance: costs and expenses as a % of revenue; compare to benchmarks
Cross-period performance (trends): relative change in rev, costs, expenses, earnings… improvements vs. deteriorations, and why
Going-forward opportunities and challenges/risks for each line item

27. “Good” Operating Returns in the Business Market
Sold direct
Sold indirect
Software
27%
23%
Hardware
18%
12%
Service
15% -
Higher GM %
Higher R&D %
Lower GM %
Lower M&S %

28. “Good” Operating Returns in the Consumer Market
Sold direct
Sold indirect
Software
20%
16%
Hardware
11% 7%
Service 9% -
Higher GM %
Higher R&D %
Lower GM %
Lower M&S %

29. Business/Product Plan Learnings
Content/scope of a business/product plan
Critical aspects of a “winning” plan
Differentiation: importance, definition, identification
Start-ups: success factors, funding requirements, success profiles

30. Critical Aspects of a Winning Plan
Company: people, skills, resources
Product: “whole” product & its benefits
Market: attractiveness & target customers
Competition: differentiation !!
Sales and marketing plan: channels
Operations plan: mfg, logistics, service
Financials: investor liquidity

31. Markets/Customers Learnings
Market attractiveness: the five forces model
The concept of target customers
How to describe target end-customers: groups, demographics, psychographics, needs
Target customer selection method/process
(DLJdirect)

32. Competition Learnings
Competitive advantage, and its relationship to differentiation
How companies create value; “added value” as a measure of competitive advantage
Performing a competitive analysis (method/dimensions: Airborne Express)
Making business decisions based on competitive analysis results; competitive options framework

33. Definitions
Differentiator = a dimension of the “whole product” that is unique or best compared to competitive offerings (as measured by the value assessed by the targeted customers);
examples = best service, first-to-market
Competitive advantage = a capability, competency, process, skill or position of a company that enables creation of one or more differentiators;
examples = marketing expertise, large customer base

34. Differentiation from Competitors’ Products
Whole product differentiation is the answer to:
Why do customers choose your product
instead of somebody else’s ?
(or buying nothing at all?)
Product differentiators are the things that are unique or best about the whole product, compared to the customers’ other alternatives
Potential areas for differentiation = dimensions of the whole product (product features, price, sales, marketing, customer service/support, brand, etc)

35. Identifying Competitive Options
Products
Current
Position
Current
products
Current
target
customers
Customers

36. Therefore… Competitive Options
Protect & defend current customer/product segment
Increase market share in current segment
Selectively extend (whole) product offerings
Selectively extend target customer set
Become a broad-line supplier

37. Making Product Decisions
Financial
Analysis
(health,
challenges)
Market Analysis
(customers, needs,
market trends)
Competitive
Analysis
(strengths,
weaknesses)
Decision Criteria: Objectives/Constraints
Competitive Adv Decision (SCA)
Target Customer Decision (C)
Product Decisions
(4P’s)

38. Decision Criteria Address…
Revenues
COGS/gross margin
Expenses
Profits (usually, operating income)
Timeframe for results
Risk tolerance
Constraints (financial and other resources)

39. Marketing: Learnings Elements of the Marketing Mix (C+4P)
Basis of mix decisions: market & financial objectives and competitive advantage(s)
Importance of product positioning
Positioning factors:
- positioning with? (target customers)
- positioning against? (relevant competitors)
- desires & fears of positioning target
- key positioning content (esp. differentiators
and benefits)
Promotion (marcomm): choosing the vehicle(s)/ media that provides best and most cost-effective access to the target

40. Sales Channels: Learnings
The basic sales functions: (promotion/marcomm); selling, fulfillment, and service
Channel value-added: Higher and lower value-added channels; value-added functions
Specific channel options: direct (multiple types), OEM, integrator, VAR/VAD, distributor, dealer/retailer/reseller, etc
Channel decision criteria: considerations in matching products, customers, and channels
Channel economics: channel margin, profit
Channel conflict: coordinating multiple channels

41. Channel Economics --- example
List price = $100
Manufacturer
COGS = 35
expenses = 20
Channel
Partner
COGS = 65
expenses = 20
end
user
price 90
channel
price 65
gross margin % = 30/65
= 46%
OI % = 10/65
= 15%
gross margin % = 25/90
= 28%
OI % = 5/90
= 6%

42. Learnings: R&D
Characteristics of market-focused new product development processes……best practices
Process dimensions: What? How? How well? (objectives, structure/discipline, execution quality)
Marketing/R&D integration: aspects, desired vs. actual integration, barriers

43. Learnings: Operations
Operations functions: manufacturing, logistics & service
Characteristics of world-class operations processes
The Operations Balance
Impacts on operations: marketing, sales, R&D

44. The Operations Balance
COGS
Inventory
Customer
Service

45. Final Exam
Thursday, Dec 15th
1 – 4pm
E 230

46. Process for final exam
Handwritten; no laptops or other communicating devices
Open book, open note;
all materials on paper
Question sheet must be returned
Stevens Honor Code applies

47. Typical Grade Distribution individual semesters vary considerably
D/F C B A
homework 0+
10%
80+%
class participation
30%
45%
25%
mid-term exam 5%
35%
40%
20%
actual grades
3(12%)
8(31%)
14(54%)
1(4%)
final exam
50%
out of 26 students
6.5 13
course grade
15%
60%

48. It’s the Thoughts That Count Brain-computer interface (BCI)
Final Exam Case
Emotiv Systems:
It’s the Thoughts That Count
Brain-computer interface (BCI)
technologies

49. Emotiv Systems in 2007
Emotiv’s EEG-based product can sense 30 mental states (12 expressive, 6 affective, 12 cognitive)
Currently targeting the video game market, but other application markets are possible (medical, military, market research, etc)
Decisions to make before 2008 product launch:
- console or PC games?
- distribution channels
- pricing
- game development?

50. Potential Exam Topics Decision criteria (objectives, outcomes)
Income statement analysis
Decision criteria (objectives, outcomes)
Market attractiveness (5 Forces)
Competitive analysis
Competitive advantage
Target customer selection/description
Differentiation (whole product)
Product decisions (pos-and-neg’s)
Channel economics
Channel choice (pos-and-neg’s)
Product positioning
Pricing
Promotion

51. Please fill out the online course assessment survey Written comments are particularly appreciated !!