Module 2 Market Analysis and Planning Cases Backbone Press 2009

Module 2 Cases
Case 1: Trading Relationship Competitive Analysis and Metrics Case 2: The World Electric Car Vehicle (WeV) Situation Analysis Case 3: The All in One Net-Tablet Situation Analysis Case 4: Campaign Process Mapping Exercise Case 5: Understanding and Managing Costs Case 6: Gap Analysis Case 7: Capital Creation Analysis Case 8: National Family Archives Planning and Budgeting

Case 1: Trading Relationship Competitive Analysis and Metrics

Study the tutorial on competitive analysis in the Module 2 worksheet, Market Analysis and Planning.xls, and answer the questions. Please also learn the definition of terms such as the H Index, trading relationship market share, and channel balance of power.

Case 2: The World Electric Vehicle (WeV) Situation Analysis

It is a resource fact that within 10 to 20 years the bulk of small vehicle propulsion around the suburbs of major Western and Asian cities will be electric. It will have to be a very low cost simple vehicle that will be sold in the millions of units. To be a truly world car it will be adaptable to become central to the system of developing intense agriculture around towns and cities in Africa where primitive logistics systems and very unreliable oil supplies reign. A light transport vehicle that can negotiate dirt roads reliably and be charged using locally generated electric power is one answer. Another fact is that going green is an important value among educated young North Americans who also are looking to North American business leadership to supply green products that are more than competitive in perceived style, quality and performance to gas driven cars. They, like all North Americans, are also adapting to the shock of the loss of wealth and economic prosperity. They will be looking to save living costs including the cost of using a small commuting vehicle or second hand car to travel to and from work, largely within or across suburbs. Electrified public transportation will dominate inner city urban commuting. An electric car that reduces operating costs by 50% and is better designed for suburban commuting than current alternatives in the market would strongly appeal to the young professional commuter. There is another sobering reality and threat that must be turned into an opportunity. If Tata can sell a small urban gas-driven vehicle for $3,000 then it could very likely aim to sell an electric commuting vehicle with superb electronics, sound system, GPS, etc. for $8,000 to $10,000 in North America. What North American manufactured electric car at any plant owned by existing manufacturers could match Tatas cost structure and price and be profitable? Tata combined with a major Chinese battery and electric car company such as BYD1 could sell millions of their version of an electric commuting vehicle in China and India. This alliance would be farther down the battery efficiency learning curve and cost curve than any other supplier around the world. Fiat in Italy may not be far behind as it already sells 600,000 units of a small city car (the Panda, Ford Ka and the retro Fiat 500) in Europe. They will electrify this platform and will be selling a million units of this vehicle within 10 years. That giant electric car manufacturing plants in China and India will exist is a certainty. It is also a certainty that they will dominate and shape the world electric car market. This is all because of the absolute necessity to reduce pollution in large Asian population centers and the economics of rising oil prices. The following are crucial pertinent statistics. In the United States, there are
1

Marc Gunther, Buffet Takes Charge, Fortune, April 27, 2009, p. 45-50.

Module 2 Market Analysis and Planning Cases Backbone Press 2009 about 1,000 oil-driven vehicles for every 1,000 people. In China and India there are about 30 oil-driven vehicles for every 1,000 people. As these huge countries continue to prosper over the next five-ten years, their emerging middle class of entrepreneurs, merchants, and professionals will want their own oil-driven vehicles for exactly the same reasons that North Americans have acquired so many vehicles it will increase the quality of their life. Tens of millions of newly wealthy new car owners, world-wide buying tens of millions of new cars, however fuel-efficient, will significantly increase demand for oil; check, is significantly increasing demand for oil. They can be sold superior electric vehicles, particularly locally manufactured and marketed electric cars that are a symbol of national pride. The economic growth of the many impoverished countries in Africa also will depend on a light, electrified small car/truck that can handle the dirt roads and create the transportation networks that are needed between electrified cities and towns. Such a jeep-like electric vehicle will be the backbone for moving people and developing the agricultural production and agricultural exports of these countries. There is no other economically viable alternative where there is no transportation infrastructure to support heavy trucks and gas priced at $5-$10 a gallon (and perhaps not even available in credit risk countries with no clout to even obtain supplies of oil.) China with its Africa strategy is in a unique position to supply such vehicles (new or pre-owned) and deeply entrench itself in the economic development of its African host by enabling its host to first feed itself and then export agricultural products. The situation for domestic North American brands appears very grim. Simply put they have very publicly failed to compete against their foreign competition, the result of years of uncompetitive management. They have lost the confidence of the buying public and their manufacturing and distribution costs will remain uncompetitive for a long time to come. Investors will prefer to invest in the car industry in markets where the growth in sales of personal vehicles is likely to be far higher than in North America, the cost of manufacturing far lower, and the evident innovation and diffusion of innovation skills of management is clearly superior. The Business Development Opportunity The opportunity exists for a North American not-for-profit entrepreneurial venture to make the world market for a small two person vehicle by creating a global partnership between an Indian car manufacturer such as Tata, a Chinese car manufacturer such as BYD and Fiat. It is proposed to be not-for-profit so that it is more acceptable to its partners, will have greater access to government support and because its major goal is to ship hundreds of thousands of WeVs coming off lease to Africa to be distributed through partnership charities and non-corrupt governments to agricultural coops. Throughout this course we are going to talk about this electric car project. If you Google Electric cars, you will see that in its product life-cycle, the electric car is at the ferment stage: there are a lot of start-up ventures, a lot of supply ideas but as yet very few sales. As a general concept, the electric car is a sure winner. The real question is what electric car design is going to be the big winner? What Model E-car is going to be the Model-T car of this age and make the market? Which electric car is going to take the electric car to the rapid growth stage, selling millions of units a year, setting the standard of performance for all others? The car will have to be a mass market model. The Tesla may be the car of choice of Californian celebrities but it is a high performance electric sports car costing $100,000. Will the market maker be a highway cruiser? No. Because range performance and conformance is the biggest problem with the current batteries. A distribution network of fast charging stations does not exist and probably will not exist. Why? Because getting a battery charge down to under an hour let alone 30 minutes is not possible with todays or tomorrows technology (the next 10 years). A car battery swapping station concept is being tested in Japan (Fortune, April 27, 2009, p. 57) but that would require a universal standard of battery and battery pack that is decades away. The reality is that the hybrid is the solution for the highway cruiser and that means a car costing $20,000-$30,000 and Toyota is way out in front in the Hybrid market. Companies such as BYD in China, one of the worlds leading lithium battery manufacturers, appears determined to catch up with their F3DM, the first mass market hybrid whose batteries can be recharged at a household outlet.

Module 2 Market Analysis and Planning Cases Backbone Press 2009 From the perspective of marketing, to win you must have superior product innovation and superior distribution that gets you to the cost economies of scale and a brand reputation based on delighting the customer faster than any of the competition? To get you to think in such a mode we offer the following proposal for you to critique and improve. The car is a suburb to suburb small commuting car, bigger than the ugly squat Mercedes Smart car, a two door, two-seater with a rag-top and anchor points for baby and child seats in the rear. It will use roll-bars for robustness and safety and will initially only be sold in the temperate and southern zones of the United States. The car is very light-weight but superbly designed and engineered as a commuting vehicle. It will be developed with constant modularized design and feature improvements, and lead-customer testing iterations over an intense year-long period, and with global supply-chain partner designers and engineers working 24/7 on the project in a skunk works. Questions 1. What is the product development and design solution for North American entrepreneurs and electric car innovators? Should they immediately partner with Indian and Chinese companies to design, make, and market the world electric car? 2. What sort of competitive strategy is such a partnership? 3. Please search the Internet for the BusinessWeek article Switched-On Highways, January 19 2009, p. 34 that is an interview with Shai Agassi and a description of his electric car business model. What aspects of his solution have general application? Where is his vulnerability? 4. If you were Apple and faced the opportunity of creating an electric car dashboard that plugs in iPods, iPhones, GPS navigation, uses an Apple flat screen to present the gauge cluster, and provides superb interior acoustics, would you joint venture with Toyota, GM, or Tata? If Apple went with GM and Samsung went with Tata, and the GM electric car cost $20,000 and the Tata luxury electric car cost $10,000 who would end up the big winner?

Module 2 Market Analysis and Planning Cases Backbone Press 2009

Case 3: The All in One Net-Tablet Situation Analysis

The netpad is the next generation personal computer. With 3G+ connectivity, it is also the next generation smart phone and is already being sold as such by AT&T and Verizon with an upfront price of around $100-$200 plus a monthly cell phone fee of $40-$60. Smart phone and Cell phone are in quotes because these companies actually are trying to charge consumers separate fees for a cell phone, and for connecting the phone to support a netpad. However, this doubledipping charging is hardly sustainable. There will surely be service consolidation where we pay one fee to connect our smart-phone/iPhone, our net pad, our M3 player/iPod and our digital book reader/Kindle to the Internet. If a cartel of the major cell phone oligopolies tries to prevent this, regulators responding to business and consumer pressure will require it. However, the cell phone service providers will fight this because with cell phone penetration at 90% in North America, this is a major profit growth opportunity added fees for connecting your cell phone to other devices such as a netpad that they also now selling as part of a service plan.2 Business Development Opportunity This brings us to the business opportunity: an all-in-one 6x9 net-tablet. This device is a thin light weight net book with a tablet top that swivels 180 degrees and folds back on the keypad to become a 5x8 inch full color screen ebook reader with touch screen controls. In short, a net-tablet (that we will call affectionately Nettie) rather than a netpad. An additional option would be a built-in web-cam and blue-tooth audio input and output capability (for video conferencing/training/teaching). At well under a kilo (2lbs), and around $500-$600 (when mass produced) it brings together in one convenient all-in-one unit the digital book reader now priced at $300-$5003, the student or business netpad priced at $300-$500, a M3 movie and music player now priced at $100-200, with the capability of connecting to your Blackberry. Netpad companies will be approached to make such a net-tablet compatible with the Blackberry. How easy will it be to convince Asian suppliers to make the Nettie? They will scramble to make it, ever lighter, ever more powerful and with an ever-longer battery life. 4 The product would be sold at the allin1site.com with the very best accessories. These accessories would include noise suppressing wireless headphones for music and movies, the best blue tooth video conferencing headphones/microphone for video conferencing, the most stylish cases for carrying Nettie, a smart, convenient charger, a mother ship super battery that clips on the bottom of Nettie and can charge all accessories. The retailing concept is to provide a site that students and young executives can go to as a gift store to add to their net-tablet purchased through the university bookstores, or provided by their company along with their Blackberry. This brings us to Research in Motion, one of the premier Canadian IT companies. Research in Motion will be approached to sponsor the launch of Blackberry compatible Netties to cater to the business/sales segment and to the university/college segment. It is in RIMs interest to open up the market for Blackberry compatible devices because Apples and Amazons Achilles heel is their proprietary design and distribution channels. The best way RIM can out-innovate and out-commercialize them in the Nettie market is to be as open source as possible and encourage several major netpad manufacturers to make Blackberry compatible Netties. Amazon has partnered with six universities to launch digital textbooks But with a user base that already has a laptop and a mobile phone to shell out a few extra hundred extra dollars is a hurdle, says Mike McGuire, a media analyst at the IT research firm Gartner. 5 Another threat is that students comfortable with music file sharing will share digital textbooks unless the text is made part of a course fee. If this is done then universities will want students to be able to interact with the digital text particularly using directed learning study quizzes, other online learning exercises, and the general Internet (as in this course). Students will also be asked to complete and submit assignments using MS Word and other Office suite software that will require a separate notepad or desktop computer. Teachers and students will want to have a combined e2 3

Roger O. Crockett and Olga Kharif, AT&T and Verizon bet on Netbooks, BusinessWeek, June 1, 2009, p. 030-31. Consumer Reports, July 29, p. 39 4 Bruce Einhorn, Looking for Life After Laptops, BusinessWeek, June 1, 2009, p. 043. 5 Douglas MacMillan, Amazons Kindle is Off to College, BusinessWeek Internet, May 4, 2009.

Module 2 Market Analysis and Planning Cases Backbone Press 2009 book and netpad that can be taken to class and follow along on their own computer. A Nettie (maybe with the video conferencing feature) will be definitely needed for distance learning. In short, Amazon and its university partners will very quickly learn that their students need a Nettie. The student Kindle will evolve into an Amazon student Nettie, for sure. Apple will also develop its own very cool but expensive Nettie (probably called an iPad) to go with its very cool but expensive iPhone. So what is Research in Motion going to do to protect its 54% smart phone market share particularly with businesses who pick up the costs of their employees Blackberries? 6 Palm has come out with its hot new Pre and Apple has souped up versions of its iPhone. What is RIM going to do to answer these challenges in a market where sales of smart-phones will increase by 25% this year? 7 Its opportunity is to pre-announce a net-tablet initiative and then quickly get into a major partnership with a TT (teaching tech) consortium of U.S. Business Schools and develop its prototype BC Netties (Blackberry Compatible Netties) with the Schools. Of course, RIM would use a global-supply chain to source the product but RIM could lead in the design and global commercialization of the Nettie an initiative that will inspire Canadians. Microsoft will also be invited in as a partner and encouraged to provide the software for the beta test (currently it is supplying Windows XP for netbooks at a price of $10-$15.8) Think about beating Amazon, Apple, Google, Samsung, Sony, Acer, and everyone else to this next generation executive and education product market a coup for investor relations and for Canadian high-tech! Moreover, this U.S. Business School teaching tech (TT) consortium could negotiate special wireless phone connect rates for its students and also evaluate, purchase and develop on-line teaching materials and course packages that would be accessed by the Nettie. They could also develop professional expert systems for law, business and engineering graduates that would be used by alumni. Research in Motion leading such an Apps partnership is good business and good public relations. Then consider a program where the low cost Nettie combined with a cell-phone (Blackberry) was leased to students for 3-4 years and then donated to a specially created independent charity that distributes them to needy university and high school students in Africa along with preloaded donated online study systems software and ebooks. Now we are talking about a world leading IT company that has a soul. Questions 1. What long-term strategic advantage would RIM gain by launching the Nettie product in a buying consortium of U.S. Business Schools? 2. What will be the long-term strategic consequences if RIM does not lead in the development of the Nettie? 3. Search the internet for any developments that might threaten this business development proposal and write up a brief summary of your conclusions.

6 7

Gene Marcial, Betting on Blackberry, BusinessWeek, April 27, p. 068. The Economist, Smart-phone wars: Pre conceived, June 13, 2009, p. 66 8 The Economist, Netbooks Small but disruptive, June 13, 2009, p. 65

Module 2 Market Analysis and Planning Cases Backbone Press 2009

Case 4: Campaign Process Mapping Exercise

Please go to the website specified by your teacher and complete the exercise.

Case 5: Understanding and Managing Costs

It is a fact that in business it is easier to control and manage costs than it is to control and manage consumer demand for company products and services. The reason is that consumer demand also is influenced by other factors quite beyond a firms control such as competitors market behavior and/or the state of the economy. An important principle of marketing systems control and its metrics is to first master cost control. Such mastery starts with understanding variable costs. Variable costs Variable costs vary with the quantity sold, Q. Variable costs are also sometimes called direct costs as in directly connected to sales. An example is salesperson commissions. If salespeople get a 5% commission on a product that sells for $100, then this is a variable cost of $5 for every sale. Thus, the variable sales cost per unit sold is $5. Examples of variable costs are the direct costs of materials used in the product, including the cost of all components (such as a screen for a personal computer) and the direct costs of labor used in making, assembling or providing a service. Variable distribution costs are costs such as the UPS cost of delivery per unit. Other examples of variable costs are:

After-sales service costs/unit = proportion of total quantity sold that will need servicing (this is a defect rate) x (multiplied by) the average cost of service per unit Coupon redemption cost/unit sold = proportion of total quantity sold that are redeemed (this is the coupon redemption rate) x the average cost of processing each coupon redemption Rebate redemption cost/unit sold = proportion of total quantity sold that are redeemed (this is the rebate redemption rate) x the average cost of processing and fulfilling each rebate redemption. Cost of each products packaging Import/export duties Fixed costs One way of thinking about fixed costs is that they are all costs other than the variable costs. They are fixed in that they do not vary with sales. For example, the cost of an ad campaign does not usually vary with actual sales (unless it is search advertising on Google and each search drives online sales). There are often costs associated with managing distribution, marketing and manufacturing that are fixed such as management salaries, office rentals, photocopying, utilities, legal costs, accounting costs (all of these costs are sometimes called overhead costs shortened to overheads), depreciation or rental of equipment, computers, vehicles; market research studies, product and service research and development, maintenance of websites, sales-training, sporting event sponsorship, public relations campaigns. All of these costs have to be recovered before the company starts to make a profit. Explanation why the following costs are fixed or variable Advertising campaign expenses: fixed, does not vary with sales volume (Q) Costs associated with marketing coupons to consumers: fixed, does not vary with Q Coupon redemption cost: variable as this cost = Q x proportion of sales where coupon

Module 2 Market Analysis and Planning Cases Backbone Press 2009 is used x redemption cost per coupon. From the formula it is clear that this cost varies with sales. Salesperson commission: variable as varies with Q Sales managers salary: fixed, does not vary with Q Cost of applying for a patent: fixed, does not vary with Q Cost of designing packaging: fixed, does not vary with Q Royalty paid to patent holder: variable as this cost = Q x Royalty paid per unit sold. Costs of product packaging: variable, varies directly with number of packages sold (Q) Delivery costs of orders to merchants: variable, because order volume varies with Q Marketing overhead costs: fixed, does not vary with Q After-sales service costs: variable because cost = Q x average cost of service call x proportion of sales that require after sales service. From the formula it is clear that this cost varies with Q Import duties: variable because this cost = Q x proportion of sales sold to countries with import duties x average import duty per unit. Again it is clear that this varies with Q. Sunk, common and incremental costs The Empire State Building is 1,454 ft tall including a 204 ft. tower. A new 410 ft. tower, twice the size of the current tower, is being considered which would increase the height of the Empire State Building to 1,660ft. How much taller will the building now be? Do you subtract 1,454ft from 1660ft to work out the difference? You could, but a simpler way is to subtract the height of the old tower 204 ft. from the new tower 410ft and get 206ft. Similarly, in making a financial decision only consider the marginal unique costs of each option. Costs that are common across all options do not need to be considered in the decision and they add unnecessary complexity to the decision. The same with comparing costs of different strategies and options. The following sunk costs are a special type of common cost: Assume that you have spent $400 on a non-refundable ticket for a weekend trip to Michigan. Several weeks later you buy a $200 ticket for a weekend ski trip to Wisconsin. You think you will enjoy the Wisconsin ski trip more than the Michigan ski trip because you will be with friends you like more. As you are printing off your non-refundable ticket to Wisconsin, you notice that the Wisconsin trip is for the same weekend as the Michigan trip. Its too late to sell either ticket, and you cannot return them. You must use one ticket and not the other that cannot be redeemed. Which trip would you go on? In one study more than half of the students chose the Michigan trip.9 They considered the irrelevant sunk cost. Even one third of students in an economics class, where sunk cost was explained, chose the Michigan trip. The rational decision is to consider that you have sunk $600 into taking either trip. The common cost is $600. Which will deliver the most benefit for $600? The Wisconsin trip so you should take it. You do have to account for common costs in your P&L (Profit & Loss) statement, but not in your decision-making. Marketing cost mismanagement Marketing costs include all costs incurred from the time the product is produced to the time the invoice is paid.10 This includes all selling, distribution and promotion costs. In practice, distribution costs are often the responsibility of another part of the organization and are not included as a marketing cost. Less than a third of companies include packaging costs, distribution costs, shipping costs and credit and collection costs as a marketing cost under the control of the marketing function! Apparently customer service and physical distribution delivery service to customers are not part of marketing in many companies! See the following Table. An extraordinary irony about this misallocation of cost responsibility is that over the last three decades, the percentage of GDP (gross domestic product) in the U.S. spent on physical distribution costs has gone down
9

Arkes, H.R. and C. Blumer, The Psychology of Sunk Cost, Organizational Behavior and Human Decision Processes, 35 (1985), p. 124-140. 10 Schiff, Michael and Jonathan B. Schiff, Marketing Cost Analysis for Performance Measurement and Decision Support, (ed. Claire Barth), Institute of Management Accountants, 1994, Montvale, NJ,

Module 2 Market Analysis and Planning Cases Backbone Press 2009 from around 11-12% to around 7-8%.11 It has been a remarkable increase in efficiency but, in many firms, marketing has not been able to take any credit for this, even though distribution is a major element of the marketing mix and, hence, the cost of distribution is a major element of marketing costs. Percentage of Companies that do Not Include Element in Marketing Costs12
Advertising Sales promotion Catalogs, samples Marketing research Field sales force Technical services Inventory carrying costs Quality and customer service Physical distribution Shipping costs Credit and collections Packaging 4% 5% 5% 8% 10% 45% 45% 58% 73% 74% 86% 87%

In the 1980s, packaged goods companies such as Procter & Gamble undertook a great deal of price promotions without accounting for the extra cost of distribution that price promotions created. This is because the cost of distribution was another Departments responsibility so was not included in the cost and profitability analysis of those managing the price promotion campaigns. Even leading marketing scholars undertaking promotion research sponsored by the Marketing Science Institute did not take into account the very large increase in distribution costs produced by price promotions. Because of the boom and bust in sales created by promotion pricing, much larger investments were needed in warehousing and inventory storage to cope with peak demand. In addition the whole distribution system became less productive and more expensive When senior management finally became aware of this they very rapidly lost interest in price promotions. They went for stability and steady flow through the distribution channel rather than wildly swinging sales that required much larger capacity and, hence, investment in the distribution channel. They went for the Wal-Mart relationship model of trying to add value to the relationship by greatly reducing distribution costs through greater cooperation, coordination, information sharing, and logistics innovation. This problem of responsibility without control and decision distortion has to be remedied by organizational restructuring. A simple solution is to give the senior VP of sales and marketing, responsibility for all selling, promotion, customer service, marketing and delivery costs and, in addition, after-sales customer service costs, which may also be categorized as pre-selling costs charged to the sales generated in the next purchase cycle. The senior marketing and sales executive then creates teams to manage specific productmarket segments. If senior management does not reorganize this way and change their accounting and reporting systems to consolidate all marketing costs, then they are not managing as well as they could. Questions 1. Please indicate which of the following costs are fixed and which are variable with a V or F beside each cost: __ Advertising campaign expenses __ Google search/click costs __ Costs associated with marketing coupons to consumers __ Coupon redemption cost paid to retailers __ Salesperson commission
11

Delaney, Robert V., Is Logistics Productivity at a Crossroad? Simple Facts, Plain Arguments and Common sense, Cass Information Systems, 1994. 12 Source: Marketing Costs: Back to Basics, Financial Executive, May/June 1991, p. 35.

Module 2 Market Analysis and Planning Cases Backbone Press 2009 __ Sales managers salary __ Cost of applying for a patent __ Cost of designing packaging __ Royalty paid to patent holder __ Cost of product packaging __ Delivery costs of orders to merchants __ Marketing overhead costs __ After-sales service costs __ Import duties __ Cost of a salespersons car __ Product usage instruction booklet __ Cost of a warranty program 2. Sunk costs are common costs. a) True b) False 3. Common costs have to be considered in financial reporting of results but should not be used in decision making. a) True b) False 4. A study of what was included in marketing costs found Advertising and sales promotion were included about half the time Field sales force costs were included always Inventory carrying costs were included about half the time The cost of physical distribution was included 75% of the time Packaging was included in marketing costs about 25% of the time a) True b) False a) True b) False a) True b) False a) True b) False a) True b) False

Case 6: Gap Analysis

Please go to the Planning Gap Analysis tutorial in M2 Analysis and Planning.xls worksheet and answer the questions.

Case 7: Capital Creation Analysis

Please go the Capital Creation Analysis tutorial in M2 Analysis and Planning.xls worksheet and answer the questions.

Module 2 Market Analysis and Planning Cases Backbone Press 2009

Nationalfamilyarchives.org

Case 8 : National Family ArchivesTM Planning and Budgeting13

Budget statements vary depending on the nature of the business. They are designed to account for all of the costs and to project running income, costs, cash flow, and profits by month, quarter, or year. The impact of a price change always has to be studied in terms of its change in budgets. The best way of introducing you to budget statements is to use a case example such as from the business plan of the following entrepreneurial venture. The segmentation of the market for National family Archives TM is discussed as a Module 5 case. The following questions were asked of a national panel of 1,000 heads of households in 2005: Imagine a National Family ArchivesTM online computer service where, at no cost, your descendants can easily find your personal history, perhaps with your own voice, recorded in an audio clip or video. Your personal history could contain a written story about your past, treasured photos, documents such as your resume, medical records, and family tree. Your history will be archived in a fail-safe computer network with copies of the entire archive stored at several prominent university libraries. The archive would be maintained by a not-for-profit foundation supervised by reputable not-for-profit personal history and archiving associations and highly respectable universities that would study the archives and ensure that your personal history will be preserved for hundreds of years. If such an archive already existed with millions of personal biographies and profiles going back hundreds of years that could be searched without a fee, would you consider using it to learn about your ancestors? Yes 78% No 22% That is a lot of clicks. Would you be willing to make a one-time registration payment of $30 to have a personal history about yourself, or a child or a parent, grandparent or another loved one, stored for hundreds of years in such a National Family ArchivesTM? Yes 25% No 75% That is a lot of market potential. A similar question asked of a national sample of 1,500 heads of household in 1994 reported that 21 percent were prepared to pay $100 to have a personal history about themselves, or a child or a parent, grandparent or another loved one, stored for hundreds of years in such a National Family Archives TM? Such a reputable digital-archiving service will surely emerge and flourish and become a cultural treasure as long as we as a species wish to remember and be remembered. Could NFA start the ball rolling? The Business Model Nationalfamilyarchives.org (please visit this Web site) is set up as a not-for-profit venture to build such an archive. The Web site provides the details of the service that costs $40 for a five-megabyte registration with a public and a time-locked section. Of this $40, $21 goes to the NFA Foundation Endowment. The projected financials of the NFA Foundation are presented below. It can be seen that the major activity of the NFA Foundation is to maintain hard copies of the archive at the National Archives and four prestigious university libraries and to disburse research grants to the said four universities with archives and to give
13

Copyright 2008 by Peter R. Dickson.

10

Module 2 Market Analysis and Planning Cases Backbone Press 2009 annual grants to trustee organizations listed on the Web site. The research grants are to be used to study the NFA archives. The financials for the major newspapers who, with the coordination of the Newspaper Publishers Association, are licensed to sell NFA registrations are also projected below. The plan is to advertise with one-liners spread across the Sunday obituary pages: Visit NationalFamilyarchives.com This is an illustration of the sort of financial spreadsheets needed to support a marketing/business plan. You can see that the upfront investment in fixed costs is almost zero as on-line storage, on-line site maintenance, and other activities such as publishing of the NFA Guide are outsourced. The important insight provided by cash-flow analysis is whether you are going to run out of cash at any time over the year! In entrepreneurs speak it is called valley of death analysis. The foundation is flush with cash under this scenario.

Table 1: NFA Foundation Financials

Amount endowed/registration Endowment fixed income return 2009 Registrations (thousands) Endowment Income ($000) Less Disbursements ($000): On-line storage costs (5c/R) Library storage costs (5c/R) Grants to Trustee Orgs Research funding (000) Storage replacement ($0.50/r) Net surplus ($000) $18 $18 $0 $0 $0 $112 $35 $35 $200 $200 $0 $171 $60 $60 $200 $500 $0 $178 $85 $85 $200 $500 $0 $548 $110 $110 $200 $500 $175 $743 $135 $135 $200 $1,000 $350 $438 350 $147 $21 4% 2010 700 $441 2010 1,200 $798 2012 1,700 $1,218 2013 2,200 $1,638 2014 2,700 $2,058

2 million registrations will be stored on 2,000 dvd disks stored in ten cubic feet of space Honorary Foundation Presidency Rotated Between Trustees Every Year Click on above Figure once and then double click to activate it as a spreadsheet so you can do the analysis to answer the assurance of learning questions below. Click outside the figure to return to text. Alternatively use the worksheets presented in the NFA Case Budget folder in M2 Planning.xls.

According to Table 2 below, at current sales projections, NFA will add $232,000 to a newspapers bottomline in first year if they sell 35,000 registrations.

11

Module 2 Market Analysis and Planning Cases Backbone Press 2009

Table 2: NFA Financials for Urban Newspaper First Year

Circulation 200,000 $40 Price for each NFA registration sold (a one tim paym e ent)
Forecast Sales 2008-9 NFA Registrations (000's) Revenues ($000) Less Direct Costs ($000) C. card processing fee ($2.00/r) Newspaper Publishers Assoc. NFA Foundation Endowment 5 hard copy backups ($1.00/r) NFA Guide &Postage ($5.00/r) Cash flow/contribution Less Fixed Costs Newspaper Advertising Marketing Mgr. salary/b. $ 4 $6 $4 $6 $8 $6 $2 $6 $2 $6 $2 $6 $2 $6 $4 $6 $6 $6 $8 $6 $2 $6 $2 $46 $6 $72 $2 $1 $21 $1 $5 $10 $4 $2 $42 $2 $10 $20 $10 $5 $105 $5 $25 $50 $10 $5 $105 $5 $25 $50 $2 $1 $21 $1 $5 $10 $2 $1 $21 $1 $5 $10 $2 $1 $21 $1 $5 $10 $4 $2 $42 $2 $10 $20 $6 $3 $63 $3 $15 $30 $20 $10 $210 $10 $50 $100 $4 $2 $42 $2 $10 $20 $4 $70 $2 $35 $42 $10 $20 $735 $175 $350 $2 $35 March 1 $40 April 2 $80 May 5 $200 Jun 5 $200 July 1 $40 Aug 1 $40 Sept 1 $40 Oct 2 $80 Nov 3 $120 Dec 10 $400 Jan 2 $80 Feb Totals 2 $80 35 $1,400

Cash Flow ($000)

$0

$10

$36

$42

$2

$2

$2

$10

$18

$86

$12

$12

$232

Click on above Figure once and then double click to activate it as a spreadsheet so you can do the analysis to answer the assurance of learning questions below. Click outside the figure to return to text. Alternatively, go to the worksheet presented in M2 Planning.xls. Questions 1. How many major newspapers in major urban areas are planned to partner with NFA? 2. The growth of YouTube, FaceBook, and MySpace suggests that a company such as Yahoo! might be very interested in launching National Family Archives, and before someone else does. It is the next step beyond creating personal life diaries on the social Web sites. Its growth prospects are very high. The longterm costs associated with digital storage and access are plunging. The launch costs would also be low, PR value would be very high, and it would energize Yahoo!s image, even seen as beating Google and Microsoft to such an initiative. Someone is going to do it, why not Yahoo!? But the Yahoo! people say that they would want to sell a NFA registration for far less, for $20 and only transfer $11 to the NFA Foundation. They believe, however, that they can double the registrations forecast to be sold starting with 700,000 registrations in 2009 growing to 5.4 million registrations by 2014 and, importantly, on-line storage cost/hosting of the NFA would be paid for by Yahoo! out of its $9. What will be the new 2014 net surplus for the NFA Foundation? 3. What would Yahoo!s financials look like if its registration price was $20 and sales were March 2009, 20,000, April 40,000, May 100,000, June 60,000, July 40,000, August 40,000, September 60,000, October 60,000, November 100,000, December 100,000, January 40,000, and February 40,000? In your analysis, assume it could reduce the cost of shipping the NFA 100 page Keeping the Memories Alive guide to $3 from $5 and eliminate the Newspaper Association cost and newspaper advertising, would it earn a million plus in the first year of operation?

12

Module 2 Market Analysis and Planning Cases Backbone Press 2009

13