There is a customer need for an effective household lizard destroyer. An innovative electrostatic device has been developed and will be launched on 1st July at five retail outlets in Singapore. The company has low fixed costs, low market exit costs and a positive cash flow forecast after product introduction. As the company is new, it has no reputation and promotion is limited to passing trade at five store locations. Opportunities exist for product diversification for the extermination of other household pests. Threats remain from a depressed market caused by economic downturn and raw material supply from China is a concern. A market-penetration pricing objective is chosen. Cost estimation, competitor's prices and the company's ROI objective dictate a selling price of S$28.99 per unit. An action programme of pre-launch tasks has been produced. The marketing budget clearly forecasts that the product should be deleted after 2 years when it is in the decline period of its life cycle and demand has fallen. Sales, financial and personnel controls procedures will be adopted.
Product life cycle
The four stages of the product life cycle for the LizaKillaTM in Singapore’s home country market are estimated to be 3 months introduction, 6 months growth, 2 years maturity and 4 years of decline. Although risky and expensive, we choose to gain a pioneer advantage by being first into the market with our electrostatic lizard terminator. Our quality product uses new technology and our company will benefit from the brand awareness of being first to enter the market. We expect to add new design features to the existing product at the latter end of the growth stage to sustain market growth. Our advertising, promotion and pricing will be modified during the maturity stage and the product will be deleted from our range at the latter end of the decline stage.
The market for the LizaKillaTM is currently latent. Customers need an efficient method of ridding their premises of house lizards but no highly effective product is currently available. Two surveys of 100 home owners each in Jurong, Holland Village and 20 business owners throughout the island show that 70% would be interested in buying ournew product if it was economic to buy, maintenance free and was more successful that current methods. We expect competitors to enter the market as it grows and we will defend our share of the market through introducing product innovations. As competition becomes more fierce during the maturity stage of the market, our modified advertising, promotion and pricing will maintain our position as market leader. As the market becomes saturated and demand declines, we will dispose of the product when profits become unattractive.
We face many challenges with our launch of LizaKillaTM but we have taken steps to mitigate our risks associated with bad market information, product performance, costs and competition.
Our idea for this new product came from the need of customers who were dismayed with the ineffective traditional method of house lizard extermination. We used several creativity techniques to provide a short list of six alternative product designs. The electrostatic device was chosen in preference to our other alternatives of ultrasonic, mechanical, electrical and chemical device ideas.
Concept to strategy
Over the last few months, we've developed several LizaKillaTM prototypes and tested them at various locations throughout Singapore. Prototype MKT01 was the most effective but was not economic to manufacture. Prototype MKT02 suffered from spurious discharges which reduced battery life. The most economic prototype was MKT04, but the structure of this model was not rigid enough for commercial use. Eventually, from development tests, we chose Prototype MKT03 as being economic to manufacture, effective and robust for commercial use. Our marketing strategy for pricing, distribution, market size, structure, share, positioning and financials are given in our marketing plan.
Development to commercialisation
We negotiated the supply of raw materials which arrive from China every month. Our fist batch arrived last month and our staff of four contract employees are assembling 100 units per day to build up stock for the product launch and market testing next month. We've secured contracts with Cold Storage at their Centrepoint, China Square, Holland Village, Novena and Takashimaya locations. We'll be market testing for the first month at these stores. If the trial results prove favourable then we'll commence negotiations to expand our manufacturing operations by moving to larger premises at the start of the growth phase in three months.
Cold storage have agreed to locate our LizaKillaTM product displays at end-of aisle positions at it's five stores for a an initial one month period to create customer awareness. Each display stand has an enlarged lizard at it's top to stimulate interest and customers can evaluate the product by reading the technical and commercial information at the display stand. We expect that our marketing mix will encourage customers to buy LizaKillaTM and to recommend the product to others, after effective trials at their home.
The LizaKillaTM provides benefits to the customer at various levels. The core benefit is the elimination of lizard faeces on ceilings, walls, floors and eradication of any bacteria, virus or disease spread by the reptile. Our basic product consists of a 15 cm plastic oblong, internally housing an electro statically charged foil mat powered by a battery operated capacitance circuit with automatic discharge. The product expected by our customers, we estimate, has a battery life of six months, is safe to humans, 95% effective, robust, easy to operate, can be moved around the premises and retains the dead lizard as evidence of a kill. An augmented product will be introduced at the start of the growth stage. We will continually develop the LizaKillaTM, using customer feedback, to produce the potential product during the growth stage.
The trade name of our LizaKillaTM product has been registered and our strategies instil the idea of affordable effectiveness in the customer's mind. The product represents the values of our company being a quality manufacturer of an effective, economical product. The identity of theLizaKillaTM is readily identified by it's name and our logo of a green lizard inside a yellow circle with a line through, signifies the absence of lizards. We will build brand loyalty through reputation so that our brand equity differentiates our product from competitors' offerings during the growth stage. Customer feedback and complaints will be efficiently dealt with to retain our brand equity.
The packaging takes advantage of the rectangular shape of the product. The external surfaces are flat, as all the functional parts are contained within the oblong housing. The product name, logo and instructions are all printed on the external surfaces to allow simple and cost effective clear cellophane to package the product.
Preface - organisation, mission, corporate objectives
Lizakilla (Singapore) Pte Ltd was incorporated on 1st April 2003 with registered offices at Shopping Block 445, Clementi Avenue 3. There are currently two full time employees (directors) and four contract workers based at the 500 sq. feet ground floor facility. Each company director has provided S$10,000 of share capital and S$40,000 of investment capital in Lizakilla (Singapore) Pte Ltd. The company mission statement of Lizakilla is "We serve our customers with quality products which keep their homes free of household pests. Our customers benefit from receiving the latest technology in pest extermination devices at affordable prices.”
The company has financial, marketing, operational and personnel corporate objectives. A return upon investment of greater than 85 percent per year will be achieved through market leadership in all of our product offerings. We will efficiently execute our operations, matching scale with demand. We will provide a stable work environment to attract and retain staff.
Current marketing situation
The total market size for LizaKillaTM is that of all homeowners in Singapore (approx. 800,000). Our market surveys show that the potential market of Singaporeans with a sufficient level of interest in an electrostatic lizard terminator is approximately 500,000. Out of this, it's estimated that the available market of people with income, access and interest is approx. 200,000. To curtail promotion costs, the target market size of 100,000 relies upon available market customers patronising the five Cold Storage locations, during introduction. The potential, available and target market sizes will grow as the number of people interested in the offer expands, due to the stores promotions and referrals. The penetrated market is expected to grow quarterly from 1 % to 4% of the target market during growth, reaching a saturation level of 6% before decline, as shown in the table below :
Strengths and weaknesses
An evaluation of LizaKillaTM and Lizakilla (Singapore) pte Ltd's internal strengths and weaknesses gives:
- The quality of the product is tested during assembly, prior to distribution
- Delivery of the product to each stores location takes place every day by a dedicated employee
- The product is innovative and uses the latest technology
- The finance of the product launch is entirely by way of share capital and personal investment by company directors
- The cash flow forecast, after introduction, is favourable
- The company is currently financially stable
- The fixed cost for the small assembly facility is low
- All of the workforce are on six month renewable contracts
- Assembly efficiency within the small company is high
- The business premises are on a short term lease
- The directors are proven good leaders and have a financial interest in the success of the company
- The company directors have an entrepreneurial orientation
- The company has the flexibility to cease trading with low exit costs and the ability to expand with minimum relocation loss
- The company is new and has no track record
- Promotion of the product is through passing trade in Cold Storage outlets only
- Only five retail stores locations are used during the product launch
- The current workshop has a limited output capacity
- The workforce is contract labour
Threats and opportunities
An analysis of LizaKillaTM and Lizakilla (Singapore) pte Ltd's opportunities and environmental threats gives:
- Stimulation and retention of the interest of passing trade, within the five stores, through regular change of the end-of-aisle displays
- Expansion in the number of sales places to include all of the Cold Storage store locations
- Expansion in categories of sales places to include all grocery and hardware locations for a variety of companies
- Accreditation to ISO 9000 and Singapore PSB domestic product testing to display conformance to standards by the product
- Product diversification for the extermination of other household pests
- Cost effectiveness through the economies of scale
- Promotion through internet based companies
- Developments in attributing disease to household lizards
- Economic downturn reduces the available market size
- Government legislation protecting certain species of reptile
- Adverse publicity from animal rights campaigners
- Premature entry into the market of competitors
- Withdrawal of sales place by retailers
- Disruption to supply of raw materials from China
The company has considered options in selecting the objective of market penetration pricing. Survival pricing was not chosen because it is short term and just covering costs would not assist in company expansion. Maximum current profit pricing was excluded because market demand for is not known with certainty. The product does not lend itself to market-skimming pricing as their insufficient buyers with a high demand. Market-penetration pricing will stimulate the market growth required, lower costs and discourage competition.
Although customers are expected to buy the LizaKillaTM infrequently, the maximum price that may be charged has to be set to provide a minimum demand. As the product is new, there is no history to estimate the relationship between price and demand. The price may be adjusted once the elasticity of demand has been established during the introduction phase of the product.
The fixed cost for Lizakilla (Singapore) Pte Ltd are S$20,000.00 per month for the business unit rent, utilities, salaries and transport. The variable cost of the LizaKillaTM is S$5.00 per unit for the raw materials from China andfor the cost of packaging each item. From these fixed and variable costs, the average cost per unit is :
|Monthly production||Fixed cost||Variable cost||Total cost||Average cost per unit|
There are currently three competing products in the market for getting rid of house lizards :
|Competitor’s product||Selling price||Characteristics||Estimated monthly demand|
|Ultrasonic repeller||S$80.00||Plugs into electricity supply. Emits repelling high frequency sound with 80% claimed success. No evidence of kill.||100|
|“Wet Feet”||S$30.00||White chemical painted onto walls and ceilings.||200|
|Lizard paper||S$3.50||Paper with adhesive on one side to catch prey. Ineffective.||400|
Lizakilla (8ingapore) Pte Ltd estimates that a price position below the ultrasonic repeller and “Wet Feet” but abovelizard paper is correct.
The lowest price, given a customer monthly demand of 2000 to 4000 units is S$10.00 to S$15.00. At this price the company would make no profit. The highest price is dictated by positioning within the current product offerings of competitors and is S$30.00. Additionally, the company's financial objective dictates a target rate of 85% minimum return on investment per year. Target -return pricing dictates a unit selling price of S$28.99, as shown in the cash flow forecast. It is estimated that the customer would have a reference price of $20.00 to $30.00 for the product, based upon competitive products and the application of the device. Additionally, the company is anxious to encourage Cold Storage to promote the product and has agreed to offer S$5.00 commission to the retailer on the sale of each unit. Taking into account the psychological benefit of '.99', a sales price of S$28.99 is chosen.
|Action plan for product launch on 1st July 2003|
|Item||Description||Person responsible||Date required||Date completed|
|01||Meet Cold Storage to sign sales contract||Tan M H||01 May|
|02||Buy stands for product in store displays||Wong B||15 May|
|03||Stock control procedure with Cold Storage||Tan M H||13 May|
|04||Create workshop inventory system||Tsee M||20 May|
|05||Define daily stocking store procedure||Tsee M||23 May|
|06||Process April letter of credit letter with supplier||Wong B||26 Apr|
|07||Expedite supplier for May delivery||Tsee M||26 Apr|
|08||Process May letter of credit with supplier||Wong B||26 May|
|09||Expedite supplier for June delivery||Tsee M||26 May|
|10||Commence discussions with new premises landlord||Tan M H||15 Jun|
|11||Process June letter of credit with supplier||Wong B||26 Jun|
|12||Meet Cold Storage for display locations||Wong B||23 Jun|
|13||Deliver product to 5 Cold Storage sores||Tsee M||30 Jun|
|Sales @ S$23.99/unit||8,697||8,697||11,596||14,495||20,293||23,192|
|Cost of sales|
|Sales @ S$23.99/unit||34,788||37,687||43,485||46,384||49,283||49,283|
|Cost of sales|
The marketing plan has sales, financial and personnel controls procedures to keep the programme on track and to identify any changes that may be required.
Sales figures are received daily when stock is taken and replenished by the dedicated distribution worker for Lizakilla (Singapore) pte Ltd. Additionally, this information is verified in the weekly account statement from Cold Storage. Production volumes and raw material purchases are adjusted during the demand forecast for the next four weeks.
Payments received, and expenditure made, are reconciled with bank statements every month and audited company accounts are produced every six months. Deviations from cash flow forecasts are analysed and corrective action is taken, where required.
Personnel are informed every Friday afternoon of next week’s production target and contract workers are advised every month of the security of their tenure.