Lecture 3 b Developing World Challenges Marketing and

Lecture 3 b Developing World Challenges Marketing and positioning (continued)

Developing world Challenges in Guatemala • Submissions by Sarah, Vicky and Julio • All will be posted

JULIO ROBERTO GARCIA MORAN RAFAEL LANDIVAR UNIVERSITY ISSUES IN BUILDING PRODUCTS FOR THE DEVELOPING WORLD INFRAESTRUCTURE. COMUNICATION. In Guatemala a lot of roads and highways have been destroyed. Only 5% of all roads are in good state, the rest are either destroyed or are unpaved. Many remote villages and towns are thus unconnected by paved roads and this inhibits trade in the products that they produce. This is a problem that has not been fixed. In fact, the few roads fixed have been destroyed by the recent hurricanes. TRANSPORTATION. Most of the transportation in Guatemala is by bus, rural people use buses because they cannot afford to buy a car. Only a few have cars. For shorter distances, people use motorcycles and bicycles, for longer distances there is only the bus.

POWER AVAILABILITY. Many villages and towns of the rural area have electricity, Now this problem is being addressed although there are towns and villages that don’t have this important service. GOVERNMENT INTERFERENCE AND CORRUPTION. The problem of corruption in Guatemala is sad. Knowing that many politicians are corrupt its very troublesome. The police are the biggest source of corruption in Guatemala but many of the deputies that create and approve laws in the congress are corrupt too. In Guatemala all of the infrastructure works are created with political aims and this they time for the end of a presidential cycle (to please people and publicize their campaigns) and not with aims to truly develop the country.

CULTURE. POVERTY. Guatemala is a very poor country. Most of the population of Guatemala are Mayan and live in rural areas. Of this people, most live in extreme poverty (live with less than 1 buck to the day). This problem it has always existed and no government has been able to solve it. There are families of 11 members that live in poverty but even so, somehow, they find the way to survive. EDUCATION. Education is the most important problem in Guatemala and also no government are solved this problem. For me, the resolution of this problem is the solution of many other problems in Guatemala in addition of the development of the country. Most of the population of Guatemala don’t know how to write and read, the minority go to school. Of these only a few go on to high school and graduate. Only 2% have the privilege of attending a university.

BIRTH RATE. The birth rate is growing up while death rate is decreasing. The population of Guatemala is therefore increasing- now Guatemala is aprox. 13 million. This problem is actually being addressed by family planning laws but to date these are not effective yet. RELIGION. Religion can be a problem if it mixes with other activities that are not compatible. There are many religions and sects in Guatemala and all these differing mindsets make inhibit development. This becomes a problem because we have to find ways to do development activities consistent with the ideologies and beliefs of the people.

BUSINESS SUSTAINABILITY CAPITAL Many businessman have problems obtaining capital. Most the business finance their activities (especially small producers) by means of borrowing, but often lose all at the end because of bad cash administration. In addition, businesses go bankrupt because of bad management in general. This is a very common problem in Guatemala. ORGANIZATION. In Guatemala there exists a few kinds of organizations for small and medium sized businesses. The most common organizations are the cooperatives and societies. The problem with these organizations is that there will always be a person with bad intentions. Consequently, if the business doesn’t have good internal controls it is susceptible to fraud.

PROFIT. The biggest problem in organizations is the distribution of profits. In many cases there will be a person that would like take advantage of the business. Strict internal controls are required in order to avoid this problem. Other problem is the lack of planning in the business. In Guatemala most of the business don’t establish their cost and they don’t make up budgets. At the end of the season they realize that they have had a book loss. This lack of planning has caused many producers in Guatemala to fail. DISTANCE BETWEEN DEVELOPER AND USERS. All depends in the kind of business. There are business that are near the users and they can avoid the trading with intermediaries and their margins increase. But business like agriculture has the problem of distance and the producers solve this problem by trading with intermediaries. The exporters have this same problem because there are only 2 ports: one on the Atlantic and one on the Pacific. Other business that have this problem are the producers of perishable products because they have to invest in refrigerate in order to preserve this product.

Reasoning by Analogy • Is there a new idea (not necessarily in your market) that penetrated a developing country? • What did they do right? What did they do wrong? – Interview principal? • How do you transform someone else’s success to your market? • Transformation in time • Transformation in product • Transformation in market segment

Creating Effective Marketing Visions • • Customer Specification Voice of the Current Customer Competitive Benchmarking Tire-kicking Voice of Lead Users Empathetic Design Market intuition Scenarios of the future Reactive Pro-active

Consider scenario • In order to understand how product is used, consider scenario – A vision – A story – Describes a future state where the product is being used by a “real” person – Captures imagination of stakeholders

Example of hypothesis • Statement summarizing the benefit of the product or service to the consumer • Then by the end of your research, you will have proven or disproved and changed your hypothesis. • Hypothesis examples? ?

More thoughts on Why do we do marketing? • Determines customer – Is there a customer? – How important a market? – How fast is it growing? – Alternative solutions? – Segments! – Is it worth pursuing?

Why we do marketing? Marketing Specs translation aka “House of Quality” Marketing Specs 1. 2. 3. 4. 5. Engin’ring Specs 1. 2. 3. 4. 5. Mfg Specs 1. 2. 3. 4. 5.

Why we do marketing • Drives “Design for Cost (DFC)” – Allocate Cost amongst different parts of system. – Budget – Over run in one component puts stress on other components – Based on market ability to pay?

Why we do marketing • Determines features – Drives Market acceptance – Drives Cost – Drives Complexity – Drives Maintenance – Drives Test and Testability

Use www/Library Data Base Sources to Determine: • Major trends in technology, standards, regulations • Drivers and barriers to growth- consider rate of market adoption • Business model options and key players (competitors/ partners) at each layer of the food chain • Size of segment, major sub-segments/rough distribution of market revenues/units • Forecasts or prognostications of rate of segment growth • Value chain, ecosystem and customer players

Product • What is your product? Describe in terms of benefit to the customer. • Product packaging (is this relevant? ) – Discuss form-factor, pricing, look, strategy – Summarize Cost of Goods and high-level Bill of Materials – Shipping issues – Customs issues (of components) – Instructions and support

Promotion • Direct marketing – Overview of strategy, vehicles & timing – Overview of response targets, goals & budget • Third-party marketing – Co-marketing arrangements with other companies – Agents • Marketing programs – Other promotional programs • Freebies and demos

Pricing • Pricing – Summarize specific pricing or pricing strategies – Compare to similar products or compare to doing nothing – What is my return on investment if I buy your product • Strategy – Summarize strategy relevant to understanding key pricing issues

Placement (Distribution) • Distribution strategy (required even at village level) • Channels of distribution – Summarize channels of distribution • Distribution by channel – Show plan of what percent share of distribution will be contributed by each channel -- a pie chart might be helpful • Discuss fulfillment issues

Vertical Markets/Segments • Vertical market opportunities – Discuss specific market segment opportunities e. g. , sell a uv water purifier device to a fullservice water treatment service – Address distribution strategies for those markets or segments – Address use of third-party partner role in distribution to vertical markets

Placement (International) • International distribution- beyond Guatemala – Is your product so focused that it has only Guatemala applications? – Address international distribution strategies – Discuss issues specific to international distribution • International pricing strategy • Localization issues – Highlight requirements for local product variations

Success Metrics • • First year goals Additional year goals Measures of success/failure Requirements for success

Schedule • 18 -month schedule highlights • Timing – Isolate timing dependencies critical to success Task 1 Task 2 Milestone Task 3 Task 4 Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

Don’t freak out • • What I have suggested here is necessary for the Final but not right away. Iterate assumptions I need a plan for a plan Biggest issues 1. Your own inhibitions 2. Schedule engineering • • Yours Theirs

What follows is an example of a previous student submission

Mission 1: The 4 Ps 1. Product Our aim is designing an inexpensive handheld corn sheller. Our primary target market is subsistence farmers in Guatemala who grow and shell their own corn. The secondary market is small commercial farms, as well as those who wish to start their own business growing and selling corn. The customers for our product are the end users. Currently, shelling equipment at any automation level rarely exists, which means the competition in this field is low. However, an important constraint exists, since rural farmers use corn shelling time as social time with family and friends. Without proper considerations, corn shellers will infringe on this and be unsuccessful in the targeted market. We will need to design a compact and portable corn sheller which still allows people to socialize while improving shelling efficiencies. Subsistence farmers are used to stripping corn kernels off the cob with their hands, a low efficiency method. Currently, about one full hour is needed to shell a bushel (35 L) of corn. Corn harvesting season is from November to March, during which 2 -3 family members spend 4 -5 hours per day stripping corn. A mere doubling of efficiency will reduce the daily working time by 2 -2. 5 hours. Over a single harvesting season, this amounts to a conservative estimate of about 600 man-hours saved per family. A hand-held corn sheller can easily achieve even higher efficiencies and hours saved. The time saved from this one simple task can be reallocated to specialized tasks, aiding the development of the family as well as the country as a whole. Another direction we can take is to develop a larger, centralized automated corn sheller. This sheller would be located in a village center, where rural farmers can bring their corn and pay a small fee to use it. This model has already been adopted by corn grinding machines, and is therefore less likely to be socially unacceptable. If further research reveals that a handheld corn sheller is untenable, this alternative plan can be used.

2. Promotion The best way of promoting the corn sheller is through personal demonstrations in Guatemalan villages. For example, during the harvesting season, we can visit 10 villages over a week, comparing the corn sheller with hand shelling. It would be beneficial to give free trials to some local farmers, in hopes that they would adopt it and promote our product among their community. Other possible ways include demos at farmer’s trade shows and local markets. Most forms of media advertising, including TV, Internet, and newspaper, are not practical due to the low level of existence in rural areas.

3. Place A distribution partnership may be needed. This includes local mechanical stores, grocery markets, and other businesses that farmers visit frequently to buy needed living products. Direct marketing is not feasible since people in rural areas may not have access to internet shopping or TV shopping. If we opt for the large-scale corn stripper, then we will possibly seek co-distribution with the automated corn mill which already exists in Guatemalan villages.

4. Pricing Manufacturing cost: $1. 00 – 2. 00 USD Distribution cost (dealer’s mark-up, storage and transportation): $0. 50 – 1. 00 USD Pricing strategy: While alternative sheller machines do not exist, the purchasing power of farming families is very low. We aim at small profit in the short term but a dominating share of the market in the long run. The relationship between end users’ required quantity vs. the final unit price needs to be evaluated through the questionnaires and surveys. The population of Guatemala is about 14 million, and the number of households is around 4 -5 million. About 1. 8 million families actually grow their own corn, as subsistence or as a commercial product. Average income varies from about $90 USD per month to less than $30 USD for poorer farmers.

Mission 2: Questionnaire (target: 25 minutes) 1. How many people are there in your family? _____ How many people work on the field? _____ 2. How much corn do you grow each season? _____ How many people work on shelling corn kernels? _____ How much corn does each person shell in an hour? _____ How much time is spent per day shelling corn? _____ 3. Does your family shell corn by hand? _____ What are some advantages of hand shelling over other ways of shelling corn? _________________________________________ What are some disadvantages of hand shelling? _________________________________________ 4. Do you think corn shelling is one of the most time-consuming parts in the corn growing process? If not, please list some other things that need development. _________________________________________ 5. What is your total family income per month? _____ Would your family be interested in purchasing a hand sheller tool that can at least double the speed of corn shelling? _____ Would your family be interested in this tool if it is 4 USD? _____ If not, what do you think is a more reasonable price? _____ 6. What are some reasons why you would like to have such a tool for your family? _________________________________________ What are some reasons why you wouldn’t feel like owning such a corn sheller? _________________________________________

7. If a large, automated, high-efficiency corn sheller was in your village (like the corn grinder), would you rather buy a cheap hand tool or use the larger, faster sheller for a fee? ________________________________________ 8. What do you think are the most important qualities and features of a corn sheller * desirable but unnecessary **would be nice ***absolutely essential _____ Cheap _____ Durable _____ Safe and easy to operate _____ Easy to fix _____ Portable and light _____ High efficiency _____ Comfortable _____ Additional factor, please explain ____________________________________ 9. If this hand tool is on the market and you are interested in it, what places do you think this product should be promoted and sold? ________________________________________ 10. If you are interested in participating in a market interview on the subject of corn shellers, please provide your contact information: ________________________________________

Primary Research Targets Primary research aims at subsistence farmers and small-scale commercial farmers in Guatemala. It should focused on farmers in rural area but should also cover potential users in urban areas, including restaurants and urban families. Communication means: Universidad Francisco Marroquin: Jennyffer Zepeda: jennyfferzepeda@ufm. edu. gt Carla Hess: hess@ufm. edu. gt Jennyffer and Carla can provide details and guidance on the project, as well as be a conduit to distribute surveys and collect market research data. Amigo. Latino Gabriel Biguria gabriel@amigolatino. com Gabriel is able to provide contacts with Guatemalans in the LA area. Through Amigo. Latino, he is also able to provideoconferencing and communication with farmers in Guatemala. Erick Solares erick_solares@dot. ca. gov Erick is in the process of arranging for a shipment of Guatemalan dried corn to LA. This is important for the engineering aspects of the project, to make sure that the sheller will function properly when used on local corn.

Mission 4: one page script: Our project is to design an inexpensive device for stripping corn kernels from the cob and subsequently selling this device in Guatemala. Corn is among the popular crops in Guatemala and is used as a primary food source. However, at the current stage, shelling corn kernels is still a very time-consuming and low-efficiency task. One full hour of hard work is needed in order to shell a bushel (35 L) of corn, not to mention scraped and exhausted hands. Therefore, a highly efficient hand sheller can benefit the farmers directly by saving a huge fraction (6080%) of their time. Local farmers can use the saved time on specialization and development. The resulting surplus of corn kernels or ground corn can also be sold for profit. Due to the fact that 75% of Guatemalans are living under poverty line ($1300 USD per year) and most rural farmers earn less than $30 USD monthly, it makes little sense to make an expensive tool that local farmers can not afford. Our corn sheller is targeted at a sale price of less than $5 and ideally below $2. It will have a relatively simple design and compact size. It should also be produced by making use of cheaply available local resources such as aluminum cans, nails, etc. It will be very easy to operate so that users can learn from a simple demonstration by a salesperson or another user. It needs to be highly durable so that it can maintain working condition for many years without frequent fixing. The market targets, from most to less important, are subsistence farmers, small-scale commercial farmers, urban households, and large-scale corn farmers. Subsistence farmers and small scale commercial farmers can make more profit by producing more corn products per unit time. Households in urban area do not produce corn, but often buy a large amount of corn from the market to make their meals. A hand sheller will save their time spent on shelling corn, and is a very small investment for relatively affluent urban households. There is still a lack of highly automated electric corn shelling machinery in large-scale Guatemala corn farms, due to the extremely high price (>$10, 000 USD), large farms may also be interested in hand shellers for their employees so that they can increase their efficiency and increase profit. This segmentation of markets may provide incentive to design corn shellers at different automation and price levels. Selling our product through internet or television is highly unlikely in rural area so distribution partnership is the more feasible avenue. Corn shellers can be conveniently promoted and sold at local markets that farmers frequent. Local demonstrations at rural farms are also planned.

Another product

What is our product? • Miniature power generator that converts kinetic energy to electricity What problem do we solve? • Portable power is needed in many applications where battery replacement is not feasible

Where will we sell this product? • Primary application: power source for pacemakers • Secondary application: power source for Portable Data Assistants Who is our competition? • Wilson Greatbatch (they supply 90% of pacemaker batteries) • Energizer, Duracell, Radio Shack, and other producers of small batteries, fuel cells

2. Internet market research on target markets

Pacemaker Market Research • 600, 000 pacemakers implanted annually • 84% of users over 64 years • Number of patients receiving pacemakers growing at 8%/year. • Current market 3. 36 billion/year • 40% of implantations in 2000 were replacements “Future Trends in Industry Economics”, Brown Univ. 2000

Secondary Market: Power Source for PDA • Customers: Handspring, Palm, Toshiba… • About 35 million PDAs sold by 2005 • At present: Li-ion battery, Lithium Polymer battery, Advanced Lithium, Fuel cell • Fuel cell info: – 50, 000 units in 2002 – Expected increase to 2 million in 2007

3. Market Research Questionnaires

Pacemaker Implant Patients 1. Is this you first pacemaker? Y / N 1 b. How many have you had? ______ 1 c. How would you rate the procedure to replace the battery? 1(very traumatic) to 10 (walk in the park) ____ 2. How many years do you expect your pacemaker to last? ______years 2 b. What is the average life of your past pacemakers? ______years 3. Do you expect to outlive your current pacemaker? Y / N 4. On a scale of 1 to 10, how important is the battery life of your pacemaker to you? ___ 5. Do you know the brand or model of your current pacemaker? N / _____ 6. Did you pick out your pacemaker? Y / N 6 b. What did you base your choice on? ___________________________________________________________________ 7. Do you like your pacemaker? Y / N (any elaboration)__________________________________

8. What would most like to change about your pacemaker? (Hints: does it stick out? , is battery life to short, does it need extra features? ) ___________________________________________________________________ 9. Does your pacemaker function properly all of the time? Y / N 9 b. What specific problems have you had with your pacemaker? ___________________________________________________________________ 10. Does your pacemaker cause you any discomfort? Y / N 11. Would you feel safer if you pacemaker was implanted closer to your heart? Y / N 12. On a scale of 1 to 10, what criteria will decide the choice of your next pacemaker? 1 (Doctor decides) 10 (I gather information and tell my doctor what I want) ______

Pacemaker Implant Doctors 1. How many NEW (patient’s first) pacemaker implant surgeries do you perform per week? _____ 2. How many REPLACEMENT pacemaker surgeries do you perform per week? _____ 3. Do you view pacemaker replacement/battery replacement as (circle one): a nuisance acceptable important revenue 4. When recommending a pacemaker, on a scale of 1 to 10 how important is: _____ your familiarity with brand _____ brand history and reliability _____ battery life _____ component life (full unit replacement) _____ patient restrictions (no exposure to microwaves etc. ) _____ physical size _____ ease of surgery _____ utilizing new technology _____ patient’s preference _____ additional factors, please explain ___________________________________________

5. In your view, is the location of pacemakers under the collarbone driven by ___ size ___ safety ___ necessity Explain___________________________________________________________ 6. Would you feel more of less comfortable with a pacemaker small enough to implant within the ribcage? Assume battery replacement is not necessary. ______________________________________________________________________ 7. If you would like to participate in a market interview (one-on-one) on the subject of new pacemaker technology, please provide contact information: ______________________________________________________________________

HW for next Tuesday, Oct 10 • Marketing Plan – 1 page ‘What is it? ” – Initial Strategy for the 4 Ps – Begin Secondary Research – First draft questionnaire – Strategy to get to Primary Research Targets • Who are they? • Communication means, e. g. , Amigo, e-mail, telephone, etc.