BUSINESS CASE ANALYSIS

Spring 2011 Terry Undergraduate Business Case Competition

I. Executive Summary
The purpose of this business analysis is to create a feasible business model and marketing plan for launching the new integrated product known as the Perfect-A-Flash. VIP’s problem statement for the marketing plan of the new product development process is defined as “how to launch a new camera accessory that will positively improve the camera industry.”  A new product development needs-and-benefits analysis was conducted to show the key selling points for the Perfect-A-Flash will be positioned for an effective selling strategy.

A novel approach was needed to address the problem in the study in regards to research, correct target market segmentation, effective and efficient channel allocations, roll-out strategy, feasible financial sales forecasts, results measurement, and conclusions for better-decision making recommendations to invest in this innovative product.

This project found that the professionals, prosumers, new SLR camera users, and first time SLR camera buyers are appropriate segments for Perfect-A-Flash’s target market.  In the beginning stages of the product life cycle, the Perfect-A-Flash will be targeted predominately towards professionals and prosumers who will have realized a strong need for the camera accessory.

Market segments will be addressed through the creation of marketing channels and distribution channels.  The marketing channels are defined as online channels, social media, and trade shows.  Online channels will be heavily prioritized to help increase brand awareness by growing rapidly over the Internet.  The distribution channels are personal selling, VIP store, and camera boutiques.  It is important to understand that the personal selling distribution channels will be the most influential distribution channels in the beginning to develop growth.  However, as time passes, the camera boutiques will be strategically used as the strongest distribution channel for increasing the number of units sold nationally.

In order for a nationwide United States roll-out strategy as well as an online market-dominance to be achieved, new and innovative ideas were compiled from the aforementioned research to present a better VIP business strategy.  Innovations include focus on publications like National Geographic, a Comprehensive Online Presence in Social Media, Publicity Campaigns, a redesigned Product Web-page, an affiliate program, online stores, Google AdSense, Home Shopping Network broadcasts, sporting event photography, and hiring interns.

Based upon these findings, a conservative approach was taken with our figures based on our individual capabilities and resources within the VIP organization.  Through VIP’s 20-plus years of field experience, we assumed that VIP would have a photo industry network of at least 5, 000 contacts.  Our assumed 3 representatives for cold calling created 40% sales from the original 5,000 contacts in the first quarter of launch year.  500 units per quarter thereafter were based upon referral generation.  4,500 was decided as the yearly objective to reach first year overall sales goals.  VIP’s Store generates 10 sales for every positive online endorsement, with 50 endorsements generated from VIP sending 200 free promotional units to industry heavyweights and influential bloggers.  It is important to keep in mind the influx of photographers who read reviews. Objectives were set again to reach the overall sales goal in assuming the number of reviews read.

In the 2nd year, an Affiliate program was implemented.  Increasing by 500 units after the first year, the Affiliate program will be implemented by offering growth of online users an incentive to create buzz about the Perfect-A-Flash.  25 Camera Boutiques will be contacted in the first year and doubled every year thereafter as camera retailers start to recognize the market demand for Perfect-A-Flash.  However, a very conservative number of 5 units sold in each store monthly was used to limit the risk of  overestimating sales.  Our financial strategy is more concerned with increasing the number of stores that we can reach instead of the quantity of units sold in each store.  Operating Expenses increase yearly with hiring of new employees to account for the increase in workload as the the number of units sold increases.  IRR was not calculated because in this case there is no negative total cash flow in the first year of the project.  Because the project NPV is bigger than 0, the new product launch is worthwhile to invest in.

In conclusion, it is recommended to the VIP decision makers choose the business case that we have developed to launch the Perfect-A-Flash.  This marketing plan and business model are designed help drive sales revenue, profits, and camera experience offerings to the diversified community that exists in the photographic industry. Implementation of this marketing plan will increase overall customer satisfaction among all photographers.
II. Definition of Problem

To launch a new camera accessory that will positively improve the camera industry.
III. Approach to Problem

Because the problem is to launch a New-to-the world product (discontinuous innovations), the product must offer an improved performance or greater perceived value; “new and improved” image.  Thus, the approach to the problem must be to re-position the product to new markets and segments.  This repositioning approach will first use cost reduction, or modifying products to offer performance similar to competing products but at a lower price.  Thus, VIP must successfully differentiate its product from already existing products also to be more attune to customer perceptions. Our objectives are to prove that this a new-to-world product that has a market for the needs of our target markets.
IV. Research Design

A. Secondary Data Research

Secondary research of the company and the photography industry needed to be addressed first.  Most photographers lack expertise in the area of portable LIGHTING for digital camera pictures. Wedding and event photographers are key audiences for our new offerings. They need accessories that work with the portable flash units that they have already purchased for their digital camera.”  Perfect-A–Flash is portable, works with most portable camera flash units, and virtually eliminates ugly shadows from photographer’s pictures. VIP wants to manufacture and market an affordable, durable, effective, portable, photographic camera accessory that decreases or eliminates ugly picture shadows and improves the lighting quality of pictures taken with camera mounted flash units. Simply put, the Perfect-A-Flash spreads out strong direct light from a camera flash like a shower head spreads out the strong current of water coming through a shower’s water pipe. The Perfect-A-Flash is a high density constructed device. Once molded, it is inexpensive to make, is durable and solves a big problem for photographers today and in the future. It fits and works with most detachable camera flash units both new and old. With effective marketing and good distribution, the Perfect-A-Flash will solve a common problem and positively affect the photography industry. It will also provide a positive return on investment for its investors.

Using on-camera flash will give a very harsh light, which results in a loss of shadows in the image, because the only lightsource is in practically the same place as the camera. Balancing the flash power and ambient lighting or using off-camera flash can help overcome these issues. Using an umbrella or softbox (the flash will have to be off-camera for this) makes softer shadows.

A typical problem with cameras using built-in flash units is the low intensity of the flash; the level of light produced will often not suffice for good pictures at distances of over 3 meters (10 ft) or so. Dark, murky pictures with excessive image noise or “grain” will result. In order to get good flash pictures with simple cameras, it is important not to exceed the recommended distance for flash pictures. Larger flashes, especially studio units and monoblocks, have sufficient power for larger distances, even through an umbrella, and can even be used against sunlight, at short distances.

The “Red-eye effect” is another problem with on camera and ring flash units. Since the retina of the human eye reflects red light straight back in the direction it came from, pictures taken from straight in front of a face often exhibit this effect. It can be somewhat reduced by using the “red eye reduction” found on many cameras (a pre-flash that makes the subject’s irises contract). However, very good results can be obtained only with a flash unit that is separated from the camera, sufficiently far from the optical axis, or by using bounce flash, where the flash head is angled to bounce light off a wall, ceiling or reflector.

On some cameras the flash exposure measuring logic fires a pre-flash very quickly before the real flash. In some camera/people combinations this will lead to shut eyes in every picture taken. The blink response time seems to be around 1/10 of a second. If the exposure flash is fired at approximately this interval after the TTL measuring flash, people will be squinting or have their eyes shut. One solution may be the FEL (flash exposure lock) offered on some more expensive cameras, which allows the photographer to fire the measuring flash at some earlier time, long (many seconds) before taking the real picture. Unfortunately many camera manufacturers do not make the TTL pre-flash interval configurable.

Flash distracts people, limiting the number of pictures that can be taken without irritating them.Photographing with flash may not be permitted in some museums even after purchasing a permit for taking pictures.  Flash equipment may take some time to setup, and like any grip equipment, may need to be carefully secured, especially if hanging overhead so it does not fall on anyone. A small breeze can easily topple a flash with an umbrella on a lightstand if it is not tied down or sandbagged. Larger equipment (e.g. monoblocks) will need a supply of A.C. power.

After the background information was researched we then transitioned to the Process of developing new products: He has already created the new idea generation.  We are now in the screening and evaluation stage, where ideas are screened for match with firms capabilities and ability to meet customers needs and wants.  We will advise the company how to develop, or show how the product specifications are set, design is finalized, and initial production begins; full marketing plan is developed in order to acquire the resources and collaboration needed for full scale launch here.  Finally, we will use test marketing in real or simulated situations to determine performance and commercialize the launch of the new product with the complete marketing program.

B. Primary Data Research

A phone interview was conducted with John Howard to understand more about the product and his intentions for marketing this great idea.  The questions are below:

John Howard Questions

  1. Are you going to be at the case competition?

Yes.  “Sometimes you create things you don’t use.”

  1. Do you make any of these camera ideas?

Yes first creative rollout though.  Need to better understand lighting basics: light basics, diffusion, dispersion, bending, reflecting, absorbing, strong light, and directional.

  1. Is this a diffuser or a reflector?

This is neither.  It uses integrated lighting techniques, basically bounces around in the box until all shadows are gone.  This is an attachment of the flash which make the flash better quality.  This all has to do with better lighting.  Need to understand how light bulbs work.  They are frosted, filtered, the filament, and directional bright.

  1. How big of product launch are you looking at?

Test at least nationwide, then globally.

V. Limitations and Caveats

The limitations are that we have none.  Realistic funding assumptions: this guy won’t be able to easily secure $1,000,000 (or some other large number) in funding unless he shows very strong success in his launch.
VI. Conclusions and Recommendations
VIP Imaging should use a selective distribution channel to have a broad distribution coverage that allows shoppers to collect information on VIP and competitive products, compare prices, shop at their favorite store, use a variety of means of payment, and get the model they want, even when one location is out of stock on a model.  VIP will not make the Flash Accessory available in convenience stores or grocery stores due to its relatively high prices, the customers need for information, and the the company’s desire maintain some control over pieces and the point-of-scale displays for the cameras.

Presentation Outline-15 Minutes
1. What is your target market?

Camera owners that need a better integrated accessory for creating quality photographs.

Specifically, we will segment our broad market into four segments

  1. First Time SLR Camera Buyers
  2. New SLR Users
  3. Prosumers – Hobbyists and amateurs who are very interested and somewhat-to-very knowledgeable about photography – they have varying budget
  4. Professionals

2. What is your territorial roll out strategy?
Our territorial rollout strategy is to test launch this new product in the United States and heavily online.  We will initially focus our selective retail rollout on specialty camera stores in the Atlanta area and seek to build relationships with other camera stores throughout the country as time permits.

3. What channels will you use to market the product?

Kodak digital cameras are available at Best Buy, Office Depot, Walmart, Target, and many online merchants.  Yet, the shelf space required for these retailers can be quite expensive and hard for small companies to cover the costs of keeping the products on their shelves.  In today’s channel trends, the world is moving away of inter mediation, elimination and reduction of people, and towards an increase of electronic channels.  Thus, in the growth stage of this product, online channels will be more heavily used to reduce costs.

Marketing Channels:

  1. Trade Shows
  2. Online Channels
    1. Photographic Forums/Communities
    2. Photographic Equipment Reviews
    3. Photography Blogs
    4. Photographic Equipment Retailers
    5. Amazon Store
    6. Social Media Presence – Build word of mouth
      1. Facebook
    7. New Product Website – Roll Out new product
      1. With links to all other channels (give the product to the consumer the way they want)
  3. Media
    1. Magazines – National Geographic
      1. Buy Ads
      2. Generate Publicity through National Geographic photographers using PAF

Distribution Channels:

  1. Personal Selling
  2. VIP Store
  3. Camera Stores

Distribution Comments: 3PL – outsourced logistics

4. How will you position the product in the market?
We will position the product based on value propositions for each different segment.

5. How many products do you project to sell through each distribution channel?
Projected: 2.1 million slr cameras sold in 2010, so about 2.2 million in 2011

Marketing Budget
Number of Employees:  7  Bank:  Wells Fargo
Law Firm:  Legal Zoom  Accounting Firm:  O’ Daniel Outlaw and Assoc.
Project Launch and marketing budget: $10,000.00
Revenue:
(MSRP $49.95 Per Unit-a suggested selling price for the retailer.)-Amount generated from sale of goods or services, or any other use of capital or assets, associated with the main operations of firm before any costs or expenses are deducted. Revenue is shown usually as the top item in an income (profit and loss) statement from which all charges, costs, and expenses are subtracted to arrive at the net income of the firm. Also called sales, or (in the UK) turnover.

COGS:
($9.95 Per Unit) Retailing: Purchase price of a merchandise. Also called cost of goods sold.

Distribution Fees:
advertising costs, shipping & logistics costs, compensation for brokers and others who sell fund shares, payments for printing and mailing prospectuses to new investors and sales.

Gross Margin:
Gross income expressed as a percentage of net sales. Sales revenueCost of sales) x 100 ÷ Sales revenue

Operating Expenses:
Those incurred in carrying out a firm’s day to day activities, but not directly associated with production. Operating expenses include payroll, sales commissions, employee benefits and pension contributions, transportation and travel, amortization and depreciation, rent, repairs, and taxes, etc. Also called non-manufacturing expenses, these expenses are usually subdivided into selling expenses and administrative and general expenses.Expenses associated with administering a business on a day to day basis. Operating costs include both fixed costs and variable costs. Fixed costs, such as overhead, remain the same regardless of the number of products produced; variable costs, such as materials, can vary according to how much product is produced.

Weighted Average Cost of Capital-10%:
A calculation of a firm’s cost of capital in which each category of capital is proportionately weighted. All capital sources – common stock, preferred stock, bonds and any other long-term debt are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk.  The WACC equation is the cost of each capital component multiplied by its proportional weight and then summing:

.10=

Rd = cost of debt

E = market value of the firm’s equity

D = market value of the firm’s debt

V = E + D

E/V = percentage of financing that is equity

D/V = percentage of financing that is debt

Tc = corporate tax rate

Where:

Re = cost of equity

1. A stock or any other security representing an ownership interest.

2. On a company’s balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as “shareholders’ equity”.

3. In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage.

4. In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage.

5. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor’s portfolio.  The term’s meaning depends very much on the context. In finance, in general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner’s equity because he or she can readily sell the item for cash. Stocks are equity because they represent ownership in a company.  Businesses often discount cash flows at WACC to determine the Net Present Value (NPV) of a project, using the formula:
NPV:
The future stream of benefits and costs converted into equivalent values today. This is done by assigning monetary values to benefits and costs, discounting future benefits and costs using an appropriate discount rate, and subtracting the sum total of discounted costs from the sum total of discounted benefits.  Present Value (PV) of the Cash Flows discounted at WACC.
Broadly speaking, a company’s assets are financed by either debt or equity. WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation. By taking a weighted average, we can see how much interest the company has to pay for every dollar it finances. A firm’s WACC is the overall required return on the firm as a whole and, as such, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. It is the appropriate discount rate to use for cash flows with risk that is similar to that of the overall firm.

IRR:
The discount rate often used in capital budgeting that makes the net present value of all cashflows from a particular project equal to zero. Generally speaking, the higher a project’s internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.

Assumptions:

  • Company Structure
    • CEO
    • Marketing VP – John Howard
      • One Marketing Associate
      • One Sales Associate
    • One Administrative Assistant
    • VP Operations
      • R&D Manager
  • VIP Photo Industry Network -Including contacts of all employees –
      • 5,000 Contacts – they will contact all of them
      • Assumes 3 people make 20 phone calls each a day
  • Cold-Calling Assumptions:
    • 1/15 calls will generate sales – Professional Photographers found through market research
      • Develop relationships with photographers
  • For every personal sale made, we will get at least one additional sale out of a referral

Sales Forecast Assumptions:

  • Personal selling
    • Year 1 – 2,500 units sold
      • 40% of the 5,000 contacts in the first quarter and 500 additional units for the second, third, and fourth quarters as a referral base is generated
    • Year 2 – 3,000 units sold
      • Referrals based on word-of-mouth from previous sales continue to grow
      • New contacts and referrals will are actively pursued
    • Year 3 – 3,000 units sold
      • VIP will set a goal for 3,000 units a year as this distribution channel passes into the Maturity stage and plateaus
    • Year 4 – 3,000 units sold
    • Year 5 – 3,000 units sold
  • VIP Store Assumptions:
    • Year 1 – 500 units sold
      • 10 sales for every endorsement, 50 endorsements generated from us sending 200 free units to online photography resources
        • Each review gets about 100 reads a month
    • Year 2 – 1,000 units sold
      • 500 sales still based on the endorsements
      • 500 sales based on the implementation of Affiliate Program
      • Continue targeting professional photographers for new endorsements generated from us sending 25 free units a year
    • Year 3 – 1,500 units sold
      • 500 sales still based on the endorsements
      • 1,000 sales based on the Affiliate Program due to incentives and their desire to earn money
    • Year 4 – 2,000 units sold
      • 500 sales still based on endorsements
      • 1,500 sales based on the Affiliate Program
    • Year 5 – 2,500 units sold
      • 500 units still based on endorsements
      • 2,000 sales based on the Affiliate Program
  • Camera Boutique Stores:
    • Year 1 – 1,500 units sold
      • 25 stores selling 5 units each month
    • Year 2 – 3,000 units sold
      • 50 stores selling 5 units each month
    • Year 3 – 6,000 units sold
      • 100 stores selling 5 units each month
    • Year 4 – 12,000 units sold
      • 200 stores selling 5 units each month
    • Year 5 – 24,000 units sold
      • 400 stores selling 5 units each month
  • Distribution Costs Average: $2.00/unit
    • Shipping costs are brought down by sending multiple units together to retailers
  • Retail Markup is 50% (We sell it to them for $25.00, they sell it for MSRP $49.95)
  • There will be 25 stores that carry the Perfect-A-Flash after Year 1
    • That number will double every year to having 500 stores carrying our product after 5 years

Innovative ideas:

Idea uses for this product are sporting events, computer technology cameras, and phone cameras.  A big benefit of this product is that you can take pictures of rapid-movements and it makes them still-so taking a picture of an insects flapping wings with flash would let you see the actual wings instead of a blur.  Therefore, it would also be innovative to market to national geographic type people and/or sport photographers.  Also, with Wedding Season and graduations coming upon us in the spring, considerations for increased sales and better marketing to these segments should be applied.  Finally, a patent product & license to a flash manufacturer would be beneficial.

Take on Marketing & Sales Interns (Hire a smart social media kid)  – interns will be hired as company grows

    1. establish online presence through social media
      1. Facebook
    2. Contact potential leads & resellers
    3. Generate positive publicity for VIP & the Perfect-A-Flash

Develop Referral & Affiliate Program  – THROUGH VIP Store

  • Discounts, Price Incentives
  • Affiliate Program – Commissions
    • Generates massive amount marketing & advertising with no costs

Notes from: “The Business Plan Workbook”

  • Assignment 16, Page 258: The Sales Forecast
  • “If we can capture 1%  of market share falacy”: pg. 251 (pdf pg. 260)
  • Most Reasonable Suggestion: “how many customers and potential customers do you know who are likely to buy from you, and how much might they buy?”
  • Rules of Thumb – see if there are any we can use to make forecasts
  • Relate forecasts to activity: how many phone calls are made to get one order? How many calls are sales people willing to make?
    • Sales Rep Productivity → this applies to our business case – How much time and effort is John Howard willing to put into marketing this product?
    • Selling:  Getting this product into Camera boutiques & Online retailers
        • Because he doesn’t have a large enough budget (not would it be realistic to assume he can get millions in funding) → he will need to generate demand for his product through personal selling to boutiques, etc. – that will
    • How many units does he need to produce for the first year?
      • We need to generate PUBLICITY – mail 100 to the biggest names in digital photography online
      • 10 units per boutique & online retailer – initial supply
        • Retailer can do 40% Markup – That is, we sell to each retailer for $30.00
        • They can sell it for $49.95
      • Direct Online Sales through new product website:
        • Most profitable channel: COGS ($9.95) + Distribution ($5/unit)
      • Target
  • Time:
    • “However, financiers we have talked to, while often asking for a five-year view, only pay serious attention to the first three years.”  pg 255
    • The first two years of the sales forecast should be made on a monthly basis, and the remaining three years on a quarterly basis.ba

Works Cited
http://www.terrymbsa.com/bcc/
http://www.facebook.com/Ben.Kepner
http://www.facebook.com/profile.php?id=1412220284
http://www.facebook.com/henryoddi
http://en.wikipedia.org/wiki/Prosumer
http://www.bhphotovideo.com/c/buy/Camera-Flashes/ci/643/N/4294204370 http://www.aphotovideo.com/
http://aperfectchapel.com/
http://www.smta.org/education/vendor_days/vendor_days.cfm#atlanta
http://www.eventsinamerica.com/events/interwire-2011/ev4a56142f799ed/
http://imagingusa.org/
http://www.buzzillions.com/reviews/harbor-digital-design-ultimate-light-box-pro-pack-canon-580ex-ii-flash-reviews
http://www.garyfongestore.com/
http://learn.garyfongestore.com/blog/
http://www.youtube.com/watch?v=4-94JhLEiN0&feature=autoplay&list=PL38E38B33238B0BE3&index=95&playnext=2
http://www.stofen.com/index.asp
http://www.investopedia.com/terms/w/wacc.asp
http://cameras.about.com/b/2010/03/04/report-25-million-digital-cameras-to-be-sold-in-u-s-in-2010.htm
http://www.msnbc.msn.com/id/41288713/ns/technology_and_science-tech_and_gadgets/
http://nikonrumors.com/2010/05/12/nikon-sales-by-product-past-2010-vs-estimated-2011.aspx
http://www.census.gov/prod/1/pop/p25-1129.pdf
“Business Plan Workbook”

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