Step 1: De-average the market

The aim of this step is to further build on the initial findings made in IDDwhere, but add another layer on the market context. Whereas IDDwhere found the key markets to focus on, based on the core-factors of need and solution-fit, this step aims to understand how these core factors exist in the real market.

E.g. What is the structure of customers, what supply chains are there and who are the competitors are key questions to get an understanding of, while still adding further insight on the customer perspective.

What does ‘de-averaging’ the market mean?

To put it simple, this step is about painting a broader and deeper picture of the market than that already depicted in IDDwhere. The level of insights needed here varies depending on the application-scope of the solution, amount of target markets and prior knowledge. The most important activities are to, already now, start understanding how the verified solution-need-fit can be extended into a view on business model market-fit, by both conducting secondary and primary research.

To be able to analyse how the innovation should be commercialized it’s important to timely understand the big picture of the market: The customers [added insight from IDDwhere], potential segments and the ecology of players. This will serve a multitude of purposes:

• Enable potential segmentation, targeting and positioning [e.g. target segments]
• Accounts for key business model design factors, aside from the core solution
• Builds a knowledge baseline needed to:
  • Be credible on the market when doing further interviews
  • Better model market size and trends
  • Identify competitors and other stakeholders

Understanding the market factors to enable commercialization

Key data to capture in this step

Gathering data and insights in this step could take anywhere between1 day to 1 year, so what we want to emphasize on keeping this manageable, aiming only for the key data points. Generally the market consist of the customers, providing the demand, and the market structure factors, which overall provide an infrastructure for the supply and offering other influencing effects [e.g. interest groups, legislation, academia/research etc.]. The aim is to focus on key questions within these 2 scopes.

Customer insight

Problem and need/solution-fit – always need further verification

Requirements – Key factors on solution [performance, physical, life-time and other metrics] and business model [service level, distribution etc.]

Pricing – Find out what they would be willing to pay

Purchasing process and criteria – Who and how is the decisions on solution purchase made

Customer groups – Are there clear differences between groups, e.g. are there segments?

Market structure

Supply chain – What does the generic supply chain look like?

Competitors – Without going into any depth, who are competing here?

Are there any new technologies being developed?

Societal stakeholders – What legislators or interest groups are there?

Capture the data depending on time-constraints

Many of the necessary data-points here can be retrieved through secondary research, though it is always recommended to conduct further interviews. To faster gain customer insights, it is a good idea to talk to experts and customer close stakeholders, e.g. retailers for a consumer product. Remember; if you find information that completely changes the feasibility of the innovation, which is a great finding if it negatively impacts the solution potential. You need to acknowledge that and either focus on other target markets or re-think the innovation [iterate].

In a full IDD we usually perform approximately 30-40+ interviews per target market/target market segment, though in this light version you should aim at adding at least 3-5 interviews per market just to get the overview of the structure and a tentative view on the customer perspective [given time and resource constraints]. Don’t go into depth concerning competitor analyses, since this is a separate step later in IDDhow.

General approach to data gathering

Step 2: Assessing the market size

Assessing the size of the market is crucial because it provides a data driven view on the boundaries of the innovations potential. At the same time the exercise serves as a great tool that forces structuring of the market, its drivers and logic and really tests your knowledge and identifies the gaps therein.

On a general level market sizing shows the ‘ceiling’ of the market, the size and growth of key segments that you´re addressing and provides a view on the potential market share that you’re aiming at. This is an exercise that both leverages and extends existing knowledge of the customers and the market gained in IDDwhat and IDDwhere.

Key concepts in market sizing

There are some concepts that are crucial to understand when it comes to market sizing. These are concepts that for example potential investors assume you’ll have a view on. Before going into some methods for market sizing, we’ll lay out some key terminology:

TAM – Total Available Market

This is the total market value, demand, for a specific market. It comprises of all companies total revenue related to the product/solution that’s sold in the market.

Example: The total revenue of movie theatres in Sweden is 300 mEUR/annually

SAM – Served Available Market

This refers to the share of the total available market that your company/solution addresses and aims to serve. In some cases, where the solution is very specific, this is well known in the start of the IDD-process. SAM is almost always a limitation of the TAM, because of differences in products or buyers, or due to constraints in distribution [geographic markets] or targeting.

Example: You plan on starting 2 new movie theatres in 2 cities, so your SAM is limited to the movie markets in these 2 cities. The SAM in this case is 20 mEUR/annually

SOM – Share of Market

Unless you have monopoly, this refers to the market share you would be able to gain, in competition with other solutions, within the SAM. Penetration rate is the common term for the speed of which you gain market share in your SAM.

Example: There are 5 other movie theatres in each city, and you think you’ll be able to gain a 20% market share in 1 year. Your SOM is therefore 4 mEUR/annually.

Common methods for assessing the market size

There are two general methods for sizing a market: Top-down approach and Bottom-up approach. Both have their own unique sets of pros and cons, and it is always a good idea to triangulate the correct answer by applying both methods if time and resources allows.

Top-Down approach:

Most commonly used methods because it is generally faster and gives a good 80/20 view on the market size, especially the TAM.

In this method you start with an estimate of the overall market [TAM] and then evaluates the successive key segments [however you segment it] into SAM. The easiest starting point are to research available sources; trade organizations, governmental publications, statistical databases etc. Also, here you often need triangulate from different sources.

If there are no publicly available information the other option is to find the key competitors and add up their revenue [supply-side approach].

Whichever granularity level you need, you should always aim at having a top-down view for reference.

Bottom-Up approach:

At one point or another you’ll need to make a bottom-up analysis on your target SAM, since it is more solid, requires real market insight and is also the best model to make and change key assumptions within. This method starts with understanding the demand base, e.g. the customers and customer segments of the solution, and then adding the annual spend by these customers to get a view on the market size. Often this is a method that requires a combination of statistical research and sample interviews, and most of all this exercise requires a structural and logical approach. Building driver trees is critical to capture all relevant factors into a workable model, and most often it takes time and high-quality market insights to achieve good results.

There is always a trade-off between accuracy and time when doing market sizing, be sure to know the accuracy needed before starting the process.

Top-Down vs. Bottom-Up

Contextualize the findings to make it meaningful for your commercialization plan

Once you have established the method for market sizing it’s time to critically start answering how attractive the market is and what’s in it for you. To do this you need not only to have a static view on the market size, but also an idea of how the market will evolve and at which rate you can penetrate your target segments [SAM]. This is an iterative process that require insights from other module-steps in IDDhow, mainly competitor and trend analyses, but it’s time already now to lay out the groundwork.

• Identify the historical growth of the TAM and SAM, aim at getting a view on at least the last 5 years.
  • This is based on the bottom-up and top-down analysis
• Make a projection for the next 5 years, including the penetration rate of your innovation [from the date of commercialization].
  • Make an initial view on SOM, you will need additional insights from competitor analysis [step 4].
  • Base TAM and SAM initially on market research, and allow trend analysis [step 3] to further enhance the projections.

Contextualize the history and future of the market

Why is growth in your market so important?

As already stated the TAM is the overall potential of your innovation in the long run, and investors will want to see that there is a big potential and that the market is growing. Investors also want to see that your innovation is competitive and that you have a strong penetration rate within the SAM you’re addressing. In this sense SOM and SAM expresses short term sales potential, while TAM is the option value of scaling up the innovation.

Let’s say an investor, looking for 10X ROI, offers 220kEUR for 20% equity ownership.

You have done all research and found that TAM is 1BEUR while SAM is 100mEUR in 3 years and 110mEUR in 5 years.

SOM-projections is 5% in 3 years and 10% in 5 years, while you’ll be able to keep a steady 15% EBITDA throughout projection-period. The general valuation multiple in this industry is 7X EBTIDA.

Look at example below to see what investers, in general, are looking for in start-up technologies.

Example: Investor view on growth

Step 3: Trend analysis

Trend analysis is never a standalone activity, but should be incorporated as an operational activity in every well-functioning firm with any level of strategic focus. Within IDDhow this step is about understanding the key drivers of the industry and the markets your innovation addresses to successfully mitigate risks and capture future potentials.

Key output of trend analysis

Here we will briefly focus on why and how you can use trend analysis to understand the future landscape of your potential innovation or company. This can be done in a variety of ways, but at this early stage of market assessment we recommend keeping the focus on Megatrend and Industry trends. The key output and values of investigating these concepts are:

Gathering a data driven view on future challenges and opportunities

• As a canvas for how you should position yourself

Input data on forecasting future market size

• An exercise in step 2 of IDDhoww

Megatrends will affect you in the long run – so get ready

Megatrends are major shifts that are affecting society, the business world or the general progress in important fields of development. These trends are important to monitor since they are resilient and are, unlike fads, easier to predict. During the financial recession 2008 megatrends were unaffected and some trends even grew stronger, so using these as anchoring points for prognosis usually renders reliable results.

Key megatrends like urbanization, rise of middle-class income in many regions, demographic shifts and digitalization are quite apparent. The challenge is to try to understand what these trends mean for your business or innovation. Our recommendation is to use a framework called PESTEL to structure your findings and then make an analysis on which threats and opportunities they imply for your innovation.

Trend analysis template

Key factors – PESTEL

Industry level trend analysis gives the direction and the pace

Mapping the megatrends, and naturally keeping a wider scope, before digging into industry trend analyses is often very helpful, since it creates a canvas of the big changes and offers you the possibility to see how and if these changes are incorporated within the industry. To give an illustrative example; Let’s say you’re analyzing tourism trends in Scandinavia and identify a steady growth for the next 10 years mainly driven by an increased volume of visitors from UK, Germany and France. While this still might be true, an initial megatrend analysis could have shown you that the rapid growth, in volume and wealth, of urban middle-class in key Asian countries could offer even more potential upsides to the tourism-trend forecast.

Analyzing industry trends is about gathering information on factors implying changes in supply and demand related to the innovation area that you’re addressing. A key intellectual tool here is using triangulation when analyzing the results, to try to give a credible narrative of the future foresighting of the industry.

Key sources:

• Industry reports
• Company financial statements
• Analysts [leverage stock analysts reports]
• Interviews [though; be careful with your time-management]
• Output from Megatrend analysis

Methodology:

• Gather and categorize information in template
• Triangulate findings and keep the most credible ones
• Assess as challenges or opportunities
• Assess what the findings imply for the market sizing exercise

Step 4: What is your potential competitive advantage?

The purpose of this section is to provide you with the structure and tools at a high-level to be able to perform an analysis on the competitive landscape, and further expand the knowledges attained from IDDwhat. A conceptual understanding of the competitive structure will provide invaluable information in positioning your competitive strategy, which is a key driver in achieving a solid penetration rate in your SOM.

Before building your strategy to compete, you need to analyse what players there are on the market and what game they are playing.

Roadmap of the competitive analysis

A systematic approach is needed to conduct an actionable competitor analysis. It allows you to analyse the competitive landscape and what your competitors are good at (strength) and not so good at (weaknesses). Insights into the market structure contribute to building the most appropriate and well positioned go-to-market strategy.

The structure of this segment is as follows:

1. Competitor profiling: Collect and summarize descriptive information regarding your competitors (Core offering, extended offering, target segments and financials)
2. Market game analysis:
   1. Generic strategies you need to look for
   2. Industry analyses
   3. Competitor mapping analysis
3. Formulating your strategy

Roadmap Competitor analysis

Profiling: Gather key information on your competitors

In IDDwhat – current state you have identified competing solutions. We’re now shifting the focus from the solutions and features to the competitor and their strategies. The first step is to build an understanding of the competitors by creating a profile based on descriptive information.

There are many available sources to find information on your competitors, so try to keep the search as simple as possible.

The profiling could include information on:

• Core offering (current state) –  The features and the targeted need in the market.
• Extended offering – Aspects that add value for the customer or infrastructures that improve the offering.
• Target segments and customer base – Who do they sell to?
• Size and Financials – How are they performing?

These data points should help you understand how they are competing and what their strengths/weaknesses are so that you can position yourself as optimally.

Where to find information?

Analyse the game – Know the strategies, to analyse the markets

Understanding the conditions of competition and what strategies exists, aid in articulating your competitive strategy and finally finding your place in the competitive landscape.

The games in the market place changes when disruptive innovations and business model merge, gaining a view on this is critical, and we will focus on analysing the game from both a high-level industry indication perspective as well as a competitor key factor benchmarking.

To make the mapping of strategies manageable we will present 4 overall generic strategies, from which you then can add specific strength and weaknesses of competitors. The 4 strategies are presented above, and states what they imply for you and the market.

Analyse the industry game – Understand the context of the games being played

To understand the rivalry in an industry it helps to first understand the context of the competition, and to do this we recommend you make very quick analysis of some key elements based on Porter’s model of 5 forces.

Quick view on the market context:

1. Bargaining powers of suppliers: Are there many suppliers or few?
2. Bargaining powers of customers: Are there many suppliers or few?
3. Threat of substitutions: Can the need be meet by other types of solutions?
4. Threat of new entrants: Are there any barriers of entry [legal, monopoly, investment costs etc.]

These factors, on a high level, sets the scene for analysing the games being played among existing rivals.

Do not put too many hours into this exercise and hopefully you already have some insights from step 1 in IDDhow.

Analyse the industry game – Understand fragmentation as indication of game types

Industry concentration is an indicator of the competitiveness in the market. The concentration will provide insights into potential competition strategies and on how to compete in the market.

Fragmented industry – Many smaller competitors. No single entity has large enough market share to influence/dominate the market. Differentiation in products can be very high.

Consolidated industry – Few companies control a relatively large market share of a market. Often associated with high barriers to entry, scale advantages and high brand awareness. Price is a key driver, though potential of some brand and product differentiation among major players.

Use this analysis to understand how, among the 4 general strategies, companies are competing currently:

Different indicators may be applied to measure the market competition and market share, see for example Herfindal-Hirschman index (HHI).

Analyse competition – Use key factors to map competitor landscape

Boiling down the information collected in the prior steps, you can tell a lot about your competitors by comparing 3 key factors.

Pricing – Variation in pricing indicate if the competition competes on price (cost strategy) or on differentiation

Features – The variation of the features/products indicate if the competitors are differentiating the offering (Differentiating Strategy)

Target segments – Comparing markets and target segments shows an indication of where the competitors are focusing. (Focusing Strategy)

By comparing these factors between competitors, you will be able to, in relative terms, see what kind of strategy the different players are using. A company with a wide spread geography with the lowest price only carrying core features would likely be a player aiming at economies of scale, while a perhaps still wide spread competitor with high price but with special features most likely is aiming at a differentiation strategy. There are seldom clean cuts in the strategies applied, and often different approaches are used for different products, but this exercise gives you an idea of how companies are competing in the industry you have already briefly analysed high-level.

Example, Map your competitors

Tip: Analyse competition– leverage the financial statements

Another source and helpful tool when comparing strategies of competitors is to analyse financial statements. An approach in analysing financial data is to do a common-size adjustment to the income statement, where you identify cost structure differences by putting each cost item as a proportion of revenue.

This an easy way to directly see if there seem to be different strategies at play.

Example, Common-Size Income statement

A comparison of the cost structure of the competitors indicate how they financially compete.

A common-size income statement is a statement as a proportion of revenue, which eliminates the dependence on size.

Summarize competition – Identify their strengths and weaknesses

Once you have profiled the competitors, analysed the market on high-level and benchmarked competitors to identify and map out their potential strategies you’ve come a long way in understanding the competitive landscape, and could start assessing how you should position yourself to win.

Though; We recommend you to first leverage all information you have, to structurally map out key information on competitors or cluster of competitors.

A useful tool to identify for structurally doing this is by using a SWOT-analysis.

SWOT-analysis on either single company or entire strategy-cluster

Find your opportunity in the market

Armed with the information about the competitors, industry and their strategies, you now want to find your potential place in the competitive landscape.

In IDDwhat and IDDwhere you summarized the information regarding your competitive advantages, features/benefits and target markets. Based on the characteristics of your solution and the market you want to identify your most suitable market strategy.

All obtained information regarding competitors, strengths & weakness, the market and industry characteristics serves as the basis for the business case which is your product/service.

• Competitive advantages and disadvantages (IDDwhat)
  • What value does your solution offer compered to current solutions?
• Competitor profiles
  • What they offer? (Core and extended offering)
  • Who they sell to?
  • How they are performing?
• Competitive strategies
  • Which strategies are the competitors using (Cost, differentiation or/and focusing).
  • Which factors govern the competitive factors (Price, features & target segments)
  • What are the industry and market characteristics.
  • What are the competitor strengths and weaknesses (SWOT)

Interpret the market

What are the implications of the competitor’s strategy and the characteristics of the market?

There is no exact answer to how your competitor’s compete so it is an conclusion you draw based on the information you have been able to collect.

A good approach may be to interpret the market based on the key factors of the market and the competitors strategy. From this you may summarized the implications of the market structure to finally arrive at an conclusion regarding the the best strategy to compete based on your competitors.

Exemple, Consolidated market landscape

The airline market is characterized by few companies with have a relatively large portion of the market. The transportation service is a homogenous product.

Solution: An innovative airline

Key factors (Market)

Pricing: Homogenous products -> Price sensitive costumers.

Features: Low variation -> Differentiation mainly on service.

Target segments: High variation

Mapping (Competitors)

Cost leadership: Low-cost airlines

Differentiation: Offering exceptional service, etc.

Cost focus: Regional low-cost airlines

Differentiation focus: Regional airlines (example for unique destinations, only charter, etc)

Implications

The airline market analysis indicates a high degree of consolidation. In a consolidated market a competing only on cost is hard due to economics of scale. Since the products are rather homogenous, competition solely on differentiation may also be disadvantageous.

Conclusion: Based on the competitive landscape (and depended on the solution) a focused strategy combined with cost of differentiation is preferable.

Example, Fragmented market landscape

Solution:  A mobile application with workout routines

Key factors (Market)

Pricing: High variation & different revenue models.

Features: High variation

Target segments: High variation

Mapping (Competitors)

Cost leadership: Free app’s within exercise

Differentiation: App’s with unique features

Cost focus: Free app’s in geographical regions

Differentiation focus: App’s with unique features for a segment

Implications

The market indicates a fragmented characteristic. Companies compete on features and business model. The pricing structure differ, and the costumers are price aware.

Conclusion: Based on the competitive landscape (and depended on the solution) a differentiated strategy may be recommended.

Fill in the blank (in the market)!

The optimal choice is to dominate within your strategy, this may be obtained in numerous of ways. Finding your place in the market depends on the competition but also on your solution. We have interpreted the market (competition) in prior step and now it’s time to finalize the process by accounting for the inherent features/benefits.

This may be performed by testing your solution at each strategy which will reveal your market place based on your solution and the market.

Example, your place in the competitive landscape

• Is your solution cheaper or can be produced more efficiently/cheaper?
  • Is your solution cheaper in a focused market?
• Is your solution uniquely different from the competition?
  • Is your solution different for a focused segment?

Many roads lead to the same destination!

There are many roads to the same result and our aim have been to provide you with a structured approach of thinking of the competitive analyse and not an exclusive checklist but instead a framework.

All products/services are unique, and the approach should be adjusted to the same.

We have provided tools and examples which will help you in formulating the strategy most suitable for your solution. There are numerous of additional tools which may be used.

Step 5: Design your value proposition

In the final step of “IDDhow – commercialization strategy light” it’s time to boil down all the key findings into a very brief statement called the Value Proposition. Even though, throughout the IDD-course, you’ve had hypotheses or elevator speeches on the value that is created it is now time to leverage all the key takeaways from IDDwhat, IDDwhere and step 1-4 in IDDhow to formulate the statement of why your target customers should buy your innovation.

Components of a value proposition

Value propositions can take different forms, but the key underlying goal is to provide an clear, relevant, short and attractive statement of what you’re offering and why they should be interested. That is the bottom line – you want to construct a statement that persuades someone in a direction that is beneficial to you and the counterparty. Since you most often cannot share a 100-page slide-deck of the whole IDD-investigation, you should really put time and effort into this exercise.

We recommend that your value proposition in some form addresses these factors:

What: What is your solution, frame it effectively as you have done in IDDwhat

Value/Benefits: What are the key benefits/values delivered to target customers, e.g. relieve what pain or provide what gain?

Proof/Credibility: What is the single most compelling, and for the customer group important, quantifiable evidence?

Who: Who is the target customer? Who is listening to this value proposition? What do they value?

Different: How are you different from your competitors? What makes you unique?

The challenge is building these factors into an understandable and communicable brief that also leverages important market findings!

By studying examples, you would find that many companies are focusing on most, not always all, of these factors while some firms actually have quite poor value propositions – look up a few companies to see how well they address these factors!

Common mistakes

Tech terms and jargon: – Avoid all types of terms that are not common knowledge

Acronyms: – What does HGH, LKNR or even IDD mean?

Opposing claims: – Highest quality and lowest price? Likely not

Broad claims: – ‘Improves everyday life!’ Be more specific

Poor evidence: – Always provide credible evidence of the benefits

Exercise: A way of getting the structure and creativity going

Formulating the value proposition can take time, where all the key points need to come through and the structure need to feel right. This is an exercise you can use in a workshop-setting to enable creativity, by establishing value propositions for everyday services and products!

Service

I will …… [what] to …… [Who] by …… [how will you do it in a way that is valuable and unique]providing you …… [key quantifiable benefits/values]

Product

We offer this …… [What product] to …… [Who] providing …… [key quantifiable benefit that set you apart from competitors] which is evidenced by …… [Proof]

Closing remarks: How should you view IDDhow – Commercialization strategy light

The steps and modules in IDDhow have focused on providing deeper insights into the markets which have been selected and initially tested in IDDwhere, which in turn have been based on IDDwhat. This overall step in the IDD-process have shown how you can analyze the market by;

• Understanding and framing the market and its structure – by also conducting additional interviews
• Conduct historical and forecasted market sizing on TAM, SAM and SOM
• Analyzing trends to find mega movements and industry changes affecting your future positioning and market size
• Conduct comprehensive competitor mapping to find attractive strategies for positioning
• Sum all findings into an attractive value proposition

The full IDDhow also adds focus on the Go-To-Market strategies, financial forecasting/Business cases, Business modeling, further value chain analyses and perhaps most of all conduct considerably more validator interviews.

What you have now, have you gone through the whole process, is a highly data driven IDD on the market potential of your innovation. What we have provided is the structure and tools for attaining the insights, and of course the value of it relies on the time and effort you put into it. Some steps might of course be redundant depending on prior knowledge and maturity, but following the complete IDD-process will give you an extremely strong foundation to base the next decisions for your innovation on.

Always remember: You are never done!

As stated in all sections in this learning process; never be afraid to iterate when new findings are made. Being able to find and incorporate new insights into your innovation is what will ultimately drive a successful launch of the innovation, or enable an early stop before significant investments are put into a ‘dead’ product.