A look at Market Research

1. A look at Market Research February 2004 Nora Zietz Director Business Development Office Johns Hopkins

2. Market Research 1)What is it? 2) Why do venture capitalists require it? 3) How is it done? 4) Do I HAVE to do it? 5) What are standard techniques? 6) What will it tell you?

3. Market Research 1) What is it? Information on an industry, product, or customer set. 1) Primary market research: . polling potential customers . interviewing competitors . talking directly to distribution channels quantify the opportunity and discover trends. $$ Takes time; can be expensive. 2) Secondary research = primary research “packaged” by someone else (ex: a market research firm) and somehow published. $$ Expensive, but quick.

4. Market Research 2) Why do Venture Capitalists require it? • Easy to obtain • AND very expensive to fix if wrong “Missionary sale”: dreaded words Market risk is -- Worse than: . Financing Risk . Management Risk .Technical Risk (except in biotech -- maybe)

5. Market Research • … expensive to fix: • Astra Zeneca’s new statin – Crestor • Must displace some of Pfizer’s Lipitor market share Analysts expect AZ to spend over $500 million in promotion, pre-launch through first year in US

6. Market Research AZ’s Crestor: what if promotion does not work? $500 million down the drain. Poor market research is very expensive.

7. Market Research The cost of poor market research at Hopkins • Office of Licensing has to guess which technologies are worth patenting. 1) Provisional -- $200 2) Convert to patent: (US, Europe, Asia) -- $50,000 If no one licenses the technology, money wasted. OTL is going to be very, very careful: the way to help is to give them market research.

8. Market Research 2) Why do Venture Capitalists require it? [ or: Why not let the VCs do it themselves?] • They will either be familiar with your market and (a) think it’s a good opportunity ( if YOU know the market too, you look good) • OR be familiar with your market and (b) think it’s a bad one ( you need to convince them they are wrong) • OR be unfamiliar with your market and therefore less likely to be interested (lack of time): don’t give them that excuse to say no. Be prepared.

9. Market Research 3) Standard Techniques? Primary research • Focus Groups – customers, distributors • Phone/Live Interviews- customers, distributors, sales teams of competitors • Trade Shows, Conferences • Competitors’ catalogs and product lit • Web searches (public company financials, annual reports)

10. Market Research How expensive? Primary research: • 1) time for someone to make the phone calls. In specialized markets (like medical markets), educated “someone” (expensive.) Also, professional researchers know how to ask questions (even more expensive) • 2) cash to buy lists, prepare, mail, compile surveys. • You get what you pay for; large companies spend $ hundreds of millions.

11. Market Research 3) Standard Techniques? Secondary Research .Professional market research reports • Web searches • Library searches • Magazines, reports • Sales and Marketing Management Magazine • US government publications • Trade and professional associations • Always read the publications your target customer reads, including the ads

12. Market Research How expensive? Secondary research: • can cost thousands of dollars (professional market research firms) • Or less (often subsets of data available) • Or even less - the web publishes “teasers” with high-level numbers from reports: can be useful (free) • Free? Library: government reports, books, journals

13. Market Research Sales of secondary research on the web . www.mindbranch.com . www.marketresearch.com . www.ecnext.com Specialized journals, like those published by Windhover, also searchable online (www.windhover.com -- do have teasers) Specialize in healthcare business intelligence

14. Market Research 3) Do I HAVE to do it? YES • Why waste your own time developing a product with no possible market? • Knowing the market BEFORE you develop will affect sales • Knowing the market will probably land you funding.

15. Market Research Do I HAVE to do it? Yes: it shapes your market size • The more successful biotech companies develop marketing strategies BEFORE the product is ready (to do that, understand market) • Ex: FOSAMAX (Merck). Initial clinical investigation showed: useful for “post-menopausal women with confirmed fracture and other factors.” • Merck redefined it, before product was ready: as “men and women at risk of osteoporosis (20-50 times larger market: big chunk of baby boomers”)

16. Market Research 4) What will it tell you? (or, the questions you SHOULD be asking) -- is the market clearly identifiable? What, exactly, is it? What COULD it be? -- how large is the currently served market? -- how fast is it growing? -- who are the competitors, how large, growing? etc. -- how will you be different from competitors? -- current trends in the industry? -- regulations? -- why are competitors’ customers loyal (are they?) -- if you are successful, who benefits, who hurts?

17. Market Research What will it tell you (c’td)? -- Comparable sales growth -- Comparable profit margins -- Likely funders in your industry

18. Market Research Is the market clearly identifiable? What, exactly, is it? • SAM = Served Available Market • TAM = Total Available Market • Differentiate them • Explain why you will be in 1 or 2, and why • Be as specific about your market as possible. A start : “we address the HIV market (too broad – tells no story)” Better: “HIV prevention” Best: “Microbicides for HIV prevention”

19. Market Research • So which is it? Specific or Optimistic? It sounds as if: • 1) better be specific as possible • 2) but also look at the largest potential YES – be specific so (1) you know what to tell funders, honestly, and (2) focus – but imagine the larger market, and plan strategically

20. Market Research: competition

21. Market Research • If you succeed, who benefits, who is hurt? Classic case: generics • Benefits: consumer, insurance companies • Hurts: Big Pharma expect major marketing dollars spent against you (formulation not exact replica, poorly regulated, UNSAFE…) • Begin addressing those issuesNOW …and enlisting help of those who will benefit

22. Market Research • What it may not tell you… is how much of the market you could penetrate. • Not good: ‘we plan on penetrating 3% of the market by year 5’ • Better: ==$1 million supports 7 salesmen over 3 years. == The average quota of a salesman in the industry being $150,000/year, == we are targeting sales of over a million a year starting year 3.

23. Getting Started: the minimum 1) Visit relevant association on web -- look at its board of directors (potential competition/allies) -- read featured journals and papers -- read annual meeting schedule (trends) -- visit posted “industry resources” -- visit list of members

24. Getting started: the minimum 2) Visit Public competitors’ websites www.finance.yahoo.com • Go to Stock Research; enter symbol • Click “Get Quotes” • Click “Company Profile” • See financials, analyst reports, news, etc

25. Getting started: the minimum 3) Google: try “market [industry]” This will bring up sites selling market research; description and teasers included. Be familiar with WHICH market research firms are credible (hint: they are quoted by large competitors and stock market analysts).

26. Market Research Don’t write a business plan without it __________