Micro Fridge: Case Study:-
1. Central Issue:
a) How to produce?
b) For whom to produce?
c) If he should go with the Sanyo offer?
d) If he should only use distributors to supply his product to the market or go with house accounts?
e) How much should be the cost of the micro fridge that could fetch him decent % of profit.
2. Objectives to be achieved:
a) To be able to introduce the micro fridge the market with $50000 capital.
b) To convince the dormitories and other targeted customers.
c) To set up a price that earns him return of minimum 15% initially on the selling price.
d) To find a manufacturer that fits his budget.
3. Situation analysis & alternatives available:
a) Low capital: Robert Bennett has $50,000 in hand to start up his new business which is not enough.
b) Manufacturing problem: After speaking with few home appliances manufacturers out of which only SANYO and Samsung agreed to manufacture his product provided Bennett pays all the upfront cost of $170,000. Being low on budget Bennett has to think over the offer.
c) Administration, Legal, Patent & other miscellaneous expenses: Besides upfront and basic product cost Bennett has to pay for these expenses as well.
d) Potential buyers: The potential buyers he was targeting were not very sure if they would like to buy the product from an unknown brand like his.
a) The electronic circuitry should be patented and later find the buyer of the concept and keep getting a permanent royalty or a flexible royalty on the basis of increase in sales. This way Bennett can retain his job as well as introduce his concept in the market.
b) As Sanyo and Samsung are ready to manufacture the product. Bennett should negotiate with them, if he can pay the upfront cost of $170,000 once the sales start to pick up and pay the per unit cost with a credit period of 45-60 days after the delivery from the manufacturer. That ways he would have enough time in hand to arrange the money from the sales of the units.
c) Taking loans from the financial institutions for the upfront & administration cost.
d) If he decides to go for the direct sales the price could be quoted as $350 to $375/unit initially which fetches him a profit of 30% to 40%, after paying $263/unit to the manufacturer but because of direct sales volume would be less and more manpower would be required. Delivery of product in perfect condition in another hassle.
e) If he decided to go to the end user via distributor’s channel, he can share his profit of 30% to 40% with the distributors. In this case he should quote them a price of $309 to $ 315(depending on the volume) & the distributors further sell it for $350 to $375/unit. In this case both the will get a profit of 14% to 20% but in return Bennett can ensure to supply in bulk at a time creating high revenue in the long run. Distributors on the other hand will be happy too to save that extra few % of profit by selling the product directly to the end user than through the vendors.
4. Suggested Alternative & why?
The positives of this products: - patentable product, less space consuming, less power consuming, tie up with SANYO or Samsung will ensure good quality product and a large potential market like:- college housing, hotels, motels, military quarters, service apartments, old age homes, Small offices might attract some investor to invest in this idea.
Step 1: Having a capital of $50,000 look for a partner or a financial institution who could invest equal or more money in this business.
Step 2: create awareness about the product. Set up a marketing team to do detailed market survey. The marketing people could be Bennett and his partners and besides that he can hire few marketing researchers with his little capital for the process.
Step 3: Subcontract...
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