Dr. Venkat Srinivasan gave a talk on “Market Analysis and Pricing” as part of the 2nd TiE Institute which was held on Sunday April 27th, 2003 at Babson College. There were about 60 people in attendance at this popular TiE event. Venkat is a former Associate Professor of Finance at Northeastern University and founding CEO of eCredit.com, a leading provider of IT solutions for managing credit. Currently he is CEO of Rage Framesworks, Inc., which has a proprietary platform for business process automation. Venkat split his talk into five segments dealing with Industry Analysis, Market Analysis, Product Strategy and Pricing, Financial Planning and Case Study.

In Industry Analysis, the key areas one should focus on are Potential Entrants, Rivalry Among Existing Firms, Buyers, Suppliers and Substitutes. For Potential Entrants, one has to understand the barriers to entry whether they are capital requirements, access to distribution channels or government policies. For Rivalry Among Existing Forms, one should consider growth in industry, fixed costs and exit barriers. Combining the two, if entry barriers are low and exit barriers are high, it is the worst case scenario. If entry and exit barriers are low, then the returns are low. If entry barriers are high and exit barriers are high, then it has the potential for high returns but it can also be very risky. The best case scenario is when the entry barriers are high and the exit barriers are low. Besides the usual analysis of buyers and suppliers, one should look at substitutes or regulations, which might make your product obsolete.

The key aspects of Market Analysis are sizing demand and segmenting the market to enhance profits and gain market share. However, the focus of this workshop was on Product Strategy and Pricing. Product Strategy should consider target market consisting of innovators (first 5-10% that adopt the product), early adopters (next 10-15%), early majority (next 30%), late majority (next 30%) and laggards (remaining 20%). One mistake an entrepreneur often commits is to spend significant time and resources trying to convince laggards to buy your product. In order to succeed it is imperative that you should be able to define the following:

Vision – "to be"
Mission – "to do"
Essence – "to feel"
Position – "to say"

An entrepreneur should be able to complete the following for his/her product:
For... Who...That...Unlike...This...

One of the most important questions about pricing is, ‘How do you know the price is right?’. In order to answer that assess the value customers place on the product or service; look for variation in the way customers value the product; monitor realized prices, and analyze whether the returns are worth the cost to serve. If the perceived value is less than the cost of serving, then it is an infeasible business model. Finally, one must understand and be able to calculate break even revenue, break even units, full cost plus pricing, pricing based on return on investment method and value based pricing.

In order to run a financially viable business, one must have a financial plan, be able to distinguish between growth and working capital, and not under-estimate capital needs.

The session ended with a case study dealing with Handmade Paper Industry in India. Overall, it was a very good and informative session. However, it would have been even more informative if more time was spent on the case time and financial spreadsheets and less on general information. Speakers should also try to plan effectively to stay within their allocated time.

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