INSTANT® A project of E-business INSTANT® is an inter university project of e-business developed under the logo of IDEA INN™. The core idea is to develop a business for a quick and accurate response defining customer relationship management in a new and innovative way. IDEA INN ™ 4/2/2008
INSTANT®
2008
Presented to : Miss. Umaira Imtinan Developed by: FA06/MBA-B7-A
Abdur Rehman
004
Khurram Husnain
040
Syed Kashif Ali Naqvi
100
COMSATS INSTITUTE OF INFORMATION TECHNOLGY, LAHORE
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E-commerce recipe: Take brilliant idea, add strategy, add strong team, add technology; results vary significantly if order changed.
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Contents Contents ..................................................................................................................................... 4 Executive Summary ................................................................................................................... 6 Mission ........................................................................................................................................ 7 Keys to Success ........................................................................................................................ 7 Company Summary ................................................................................................................... 8 Company Ownership ................................................................................................................. 8 Start-up Summary ...................................................................................................................... 9 Start-up Requirements .............................................................................................................. 9 Company Locations and Facilities.......................................................................................10 Service Description...................................................................................................................11 Response procedure ............................................................................................................11 Competitive Comparison ..........................................................................................................12 Technology ............................................................................................................................12 Future Services .....................................................................................................................12 Sale of responses data.........................................................................................................12 Home/office pickup service ..................................................................................................12 Dynamic product recommendations....................................................................................13 Point of sale opportunities ....................................................................................................13 Network partnerships with fulfillment and customer service providers ............................13 Technology partnerships with software companies...........................................................13 Market Analysis Summary .......................................................................................................14 Market Segmentation ...........................................................................................................14 E-tailers ..................................................................................................................................14 Catalog customers ................................................................................................................14 Click-and-mortar stores ........................................................................................................14 Target Market Segment Strategy ............................................................................................15 Market Needs ........................................................................................................................16 Service Business Analysis .......................................................................................................16 The Response Exchange.........................................................................................................16 Responses management software .........................................................................................17 OCTOPUS .................................................................................................................................17 Strategy and Implementation Summary .............................................................................17 Competitive Edge .....................................................................................................................18 Marketing Strategy....................................................................................................................18 Consumer marketing strategy..............................................................................................18 INSTANT website .................................................................................................................18 Advertising campaign ...........................................................................................................19 Organization partner marketing strategy ............................................................................19 Network partner marketing strategy ....................................................................................19 Pricing Strategy.........................................................................................................................20 Annual membership fee .......................................................................................................20 Technology integration fee...................................................................................................20 Response processing fee.....................................................................................................20 Product feedback commissions ...........................................................................................21 Services Strategy ..................................................................................................................21 Services Forecast .................................................................................................................21 Management Summary ............................................................................................................23
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Management Team...............................................................................................................23 Personnel Plan ......................................................................................................................23 Financial Plan............................................................................................................................24 Break-even Analysis .............................................................................................................24 Projected Profit and Loss .....................................................................................................24 Projected Cash Flows...........................................................................................................26
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Executive Summary The handling of e-responses is one of the most serious problems currently organizations are facing. E-responses not only are expensive, time consuming, and labor intensive for organizations to process, but the potential hassles to consumers impair services and slow customer growth. As a result, pure-play organizations are at a significant disadvantage to brick-and-mortar and click-andmortar organizations that allow customers get reply instantly from the businesses. INSTANT fills the role of an outsourced solution provider, as it is the first company to provide consumers with a no-hassle and cost-free method to get accurate response instantly, while saving organizations money on customer care centers. INSTANT will provide its organization partners with physical and virtual points of presence at which their customers can come and solve their problems. To minimize capital expenditures, operating costs, and scalability time, INSTANT will utilize a network partner model. Organization partners will pay annual membership fees and transaction-based response and exchange fees. The latter two fees will be shared with the INSTANT network partners. By partnering with INSTANT, organizations will benefit from reduced response handling costs, increased services, and improved customer service. Network centers will benefit by adding a lowcost revenue stream that will also drive desired, but otherwise inaccessible, customers into their stores. Finally, consumers will enjoy saving time and efforts with the product response process and instant solution. INSTANT was founded by three individuals, each of whom was a management sciences student at COMSATS. At the moment, the company seeks Rs.3 million in seed financing. Additional rounds of financing will be required to fund future marketing activities and technological development.
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Mission INSTANT offers its clients, electronic organizations, and catalog customers, a possibility to reduce costs associated with reverse feedback and thus increase customer service and enhance customer loyalty. By providing 'no-hassle' product response or feedback facilities it will help consumers become more comfortable with the Internet and catalog shopping. Customer service and profitable growth are two major cornerstones of INSTANT.
Keys to Success While there are risks associated with all new businesses, INSTANT has identified three particular issues, unique to its model, which will improve the company's chances of success: Successful technology development This will require the work of a dedicated team over several months. The software application will need to be simple and user-friendly, but robust enough to integrate easily into organizations' disparate database systems. It is estimated that a working application prototype can be built and tested in 4-6 months. If development takes longer than six months, it will delay the roll out of the INSTANT service. Any delays will give competitors time to become established and reduce any first mover or near-first-mover advantage INSTANT will have. The company will also need to control the amount of time it takes to integrate into the organization partners' databases. The application will be designed to be as "plug and play" as possible, but integration will still need to be customized for each organization partner. Striking favorable agreements with proper network partners While financial analyses and projections indicate that INSTANT would be a very profitable ancillary business to network partners, their management may decide to design their own e-responses program, partner with another business similar to INSTANT, or not enter the space at all. It is not likely that network partners will try to build an e-responses program like that of INSTANT without partnering because of the difficulties involved in designing, maintaining, and integrating the requisite technology. With few exceptions, the potential network partners identified by INSTANT have chosen to partner with other companies to execute technology initiatives which are outside of their core businesses. In addition, there are no known companies currently offering this service to potential network partners. Capturing market share Formidable competitors are entering the e-responses space, including well-capitalized companies such as call centers Etc. While no company has established itself as the dominant e-responses player as of yet, INSTANT should get to market in time and capture the market share it predicts. This will strongly depend on the execution of the INSTANT' management team as well as on the attention and resources its competitors devote to their e-responses programs.
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Company Summary INSTANT is a start-up company that plans to capitalize on the growing market of product responses to the pure Internet based organizations and traditional catalog customers. This market segment has been overlooked by industry players and INSTANT' management has reason to believe the company will be able to rapidly capture market share. At this point, the company seeks Rs.3 million in seed funding to facilitate initial technology development and marketing activities.
Company Ownership INSTANT, Inc. was incorporated in Lahore in 2008. The company's senior management will own 100% of the company. The majority of shares belongs to [Abdur Rehman]. The other two investors [Khurram Husnain, Syed Kashif Ali] are minority shareholders.
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Start-up Summary Senior management has invested Rs.750,000, which covers the start-up expenses, with the remaining amount contributed towards the cash requirements. At this stage, the company seeks Rs.3 million in seed financing to begin technology development, pay salaries, and cover professional services fees. As the technology development nears completion, another round of financing will be sought to fund business development and marketing activities.
Start-up Requirements Start-up Expenses Legal Stationery, etc. Brochures Consultants Insurance Rent Research and Development Expensed Equipment Other Total Start-up Expenses
Rs.5,000 Rs.3,000 Rs.10,000 Rs.50,000 Rs.10,000 Rs.2,900 Rs.20,000 Rs.30,000 Rs.19,100 Rs.150,000
Start-up Assets Needed Cash Balance on Starting Date Other Current Assets Total Current Assets
Rs.3,550,000 Rs.50,000 Rs.3,600,000
Long-term Assets Total Assets Total Requirements
Rs.0 Rs.3,600,000 Rs.3,750,000
Funding Investment Senior Managers Seed Investment Total Investment
Rs.750,000 Rs.3,000,000 Rs.3,750,000
Loss at Start-up Total Capital Total Capital and Liabilities
(Rs.150,000) Rs.3,600,000 Rs.3,600,000
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Company Locations and Facilities INSTANT locations will be located in the Defense area, Lahore. Each location will be equipped with two terminals: Responses processing terminal (RPT), for use by the INSTANT ROBOTS LEARN terminal, for use by the customer The RPT will contain proprietary software and privileged network access to the organization partners' databases. Customer call information and product solutions criteria allowing the INSTANT ROBOTS to inspect and authorize each response on behalf of the organization partners. The process will be guided by proprietary software designed to maximize response processing speed and minimize the amount of discretion required by INSTANT ROBOTS. At no charge to network partners, INSTANT will equip each location with the computers, printers and collateral materials necessary for operation. INSTANT will provide the following equipment at each location.
Network PC and monitor (RPT) Network PC and monitor (LEARN) Inkjet printer Surge-protected power strip Dedicated phone line
INSTANT will provide its organization partners with physical points of presence at which their customers can response unwanted or defective problems. To minimize capital expenditures, operating costs, and scalability time, INSTANT will utilize a network partner model. Its centers will be located inside of stores owned by its network partners and will utilize their employees as INSTANT ROBOTS. ROBOTS will use stand-alone terminals linked directly into the back-end systems of INSTANT affiliated organizations to electronically obtain response authorization, inspect and approve problems for response and initiate instant solution to customer–-all at no charge to consumers. For those customers wishing instead to ask queries they've dedicated "LEARN" terminals will provide access to each organization partner's website, where customers can learn new products. Organization partners will pay an annual fee as well as a per-transaction processing fee that is based on the number of response criteria that must be met before the INSTANT ROBOT approves the response. It is projected that organizations will require more conditions be met for responses of expensive problems; thus, the responses processing fees will loosely correlate with the price of the responseed problems. Finally, organizations will pay a standard 10% commission on new products learn through LEARN terminals. Organization partners will benefit by retaining existing customers, 80% of whom claim to increase spending at sites where they receive positive customer care, and by driving new services from the large segment of consumers that now avoids buying online because of potential response hassles. Moreover, INSTANT can help organization partners reduce supply chain costs by as much as 61%, by eliminating call centers, multiple call destinations and extraneous processing.
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Consumers will benefit from the availability of a fast and convenient response channel that does not require calling ahead or being confined to a single location to coordinate pick-ups that could occur any time during the day. Moreover, consumers will pay no call charges when responseing problems and will enjoy the peace of mind brought from instant solution. INSTANT will aggressively develop its brand into a customer service seal of approval that consumers will consider when selecting among organizations.
Service Description Response procedure When the customer decides to make a response, he or she will take contact or visit INSTANT location. The INSTANT ROBOT will select the organization from which the product was purchased. The ROBOT will then look up the customer's call number from his or her receipt or packing slip and enter it into the RPT. Criteria will include rules and attribiutes. Criteria will be set forth by each organization partner and can be customized by product type (e.g., all DVD players) or by product model (e.g., Sony DVD player model #DVP-S7700). For the convenience of organization partners, INSTANT will provide a database of default criteria that may be used in original criteria from the organization. INSTANT personnel will use information gathered from manufacturers to develop the default criteria database, which will then be offered to organization partners free of charge. Default criteria will be developed first for those product categories that are best suited for INSTANT, followed by categories that will be allowed by, but not ideally suited for, INSTANT. Organizations will have the option of providing digital photographs of products to ROBOTS in their solutions. Product photographs will be particularly important for complex problems with which ROBOTS may not be intimately familiar (e.g., consumer electronics, computer hardware, etc.). If a product does not meet all criteria, on-screen instructions will direct the INSTANT ROBOT to refuse the response, and the RPT will automatically generate a pre-formatted letter written by the organization partner describing why the product cannot be accepted for response and inviting the customer to use an onsite telephone to call the organization's customer service line if he or she wishes to further discuss the matter. This is important for two reasons: It will deflect anger over the failed response from the INSTANT brand and ROBOT to the organization. The ROBOT will likely not have enough information about the organization's response policy or the product being responsed to decide whether to override the standard criteria. Only the organization's customer service department will be authorized to override a response decision. If all criteria are met, the software will instruct the ROBOT to approve the response from the organization. The software will then automatically generate and print a call label. The address on the label will be based on the product being responseed as well as the reason for its response. A response processing fee will be charged to the organization after each response. The processing fee will average Rs.5.00, and will be charged regardless of whether or not the response was
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approved. Network partners will receive 50% of the response processing fee and INSTANT will retain the remainder. Organization partners will be electronically debited every 30 days to pay for INSTANT services. Network partners will be paid their share immediately upon collection of payments from the organization partners. Upon receiving the response, INSTANT organization partners or their designated ROBOTS will merely need to scan the label on the box to notify their computers that the problems has been received. Customer solution will have already been processed, and the inventory management system updated. It is estimated that INSTANT can save organizations up to 61% on responses processing costs through its optimized handling procedure.
Competitive Comparison A number of companies are beginning to focus on providing responses solutions to e-tailers, but none offers a business model as compelling to consumers or as cost-effective to organizations as the INSTANT model.
Technology Using off-the-shelf solutions wherever possible, INSTANT plans to outsource development of a robust software application that integrates INSTANT' terminals into the, payment processing, and customer database systems of organization partners. This application will be hosted on a middleware server, which will be linked, through a web-based interface, to network PCs at each INSTANT location. The end-user interface on the network PCs will be designed to be intuitive, user-friendly, and simple. The business logic, solutions criteria, and call address information will be housed on a central INSTANT server, while the customer call records will continue to be housed on the organization partners' own systems.
Future Services INSTANT will maintain rapid growth by quickly expanding beyond its core business model into new markets and services. The following are services INSTANT intends to offer after the core service is rolled out across domestic markets.
Sale of responses data INSTANT will collect and aggregate detailed data from thousands of responses . Over time, a sizeable database of responses will be generated, which will be used to generate individually tailored reports for sale to manufacturers, market research groups, and organizations. Detailed data analyses will highlight trends among consumers, products, and industries that can be used to make forecasting and other business decisions. For example, a manufacturer could learn which of its products are responseed most often and why. That information could then be used to modify the product specifications in call to lower its response rate and increase profitability.
Home/office pickup service Multiple network channels will allow INSTANT to meet the needs of different consumers. Some customers prefer to have their responses picked up at their homes or offices. To meet this demand, INSTANT plans to partner with same-day fulfillment companies. These companies currently realize poor capital utilization because their vehicles leave warehouses with full loads but come back empty. By picking up responses, they will increase revenue with little marginal cost.
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A partnership with INSTANT would be a logical next step for same-day fulfillment services, given their strategy of leveraging their fixed infrastructure.
Dynamic product recommendations A significant advantage that brick-and-mortar organizations have over e-tailors is their ability to convert responses into feedbacks. Services ROBOTS often recommend different products to customers making responses, enabling the store to recoup what otherwise would have been a lost sale. Although LEARN terminals will address this opportunity, feedbacks will be dependent on the ability of customers to find substitute goods without assistance. To offer customers more support with the feedback process, INSTANT plans to leverage the personalization and recommendation engines that many e-tailers use on their sites. INSTANT will have the ability to download product recommendations tailored to individual customers. In ths way, customers will be proactively directed to purchase products using the LEARN terminal.
Point of sale opportunities INSTANT will offer organizations the chance to provide promotional or informational materials to customers making responses. For example, e-tailers wishing to provide selected customers with coupons or special offers could have them printed directly onto the response receipts given to customers after each transaction. A supplemental fee will be charged for this service.
Network partnerships with fulfillment and customer service providers INSTANT will seek partnerships with business service firms that would benefit by adding responses handling to their service offerings. Customer service providers (e.g., PeopleSupport) currently do not offer responses handling as an option to their customers. Responses handling is a crucial customer service component, making a partnership with INSTANT a natural fit. Similarly, feedback suppliers (e.g., Fingerhut) allow organizations to outsource elements of their supply chain. Many feedback providers do not currently offer reverse feedback services; INSTANT fills in that void, allowing them to provide turnkey solutions to their customers.
Technology partnerships with software companies INSTANT system are built into future versions of software applications subsequent to integration, it will be extremely fast and inexpensive. In response, INSTANT would offer such software companies a share of revenues from new organization partners that use their applications.
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Market Analysis Summary INSTANT will target Web-based organizations ("e-tailers"), paper-based catalog vendors, and click-and-mortar organizations in the business-to-consumer space. Through the late 2000,s, the etailer segment experienced spectacular growth that is expected to continue over the next years as new users come onto the Internet and existing users increase their frequency of online shopping.
Market Segmentation The customer segments INSTANT targets--catalog customers, e-tailers, and click-and-mortar stores--are expected to produce 17 million responses this year and 37 million by 2010. These projections are considered conservative, as the rate of e-responses is projected to reach parity with response rates of brick & mortar stores, which currently are twice as high.
E-tailers The rapid pace of online services growth is expected to continue as 2010 e-commerce revenues.
Catalog customers INSTANT will also aggressively target consumer catalog customers, a sector whose 2007 services was nearly three times as great as those of 2006. From the responses standpoint, catalog customers represent an attractive market since many have response rates higher than those of e-tailers.
Click-and-mortar stores Virtual organizations face a growing competitive threat from brick-and-mortar organizations, which are increasingly pursuing online (click-and-mortar) strategies. Such organizations can use their physical infrastructure as a responses channel for goods purchased online, giving them leverage over pure-play e-tailers. But with the growth of their catalog and website businesses, many traditional brick-and-mortar organizations will face a similar responses problem as their virtual counterparts: not all of their Internet and catalog customers will have access to physical locations to response problems. Companies such as HKB and PACE have relatively few store locations, leaving the majority of their Web and catalog customers without a place to response goods. Such click-and-mortar organizations therefore would benefit from partnerships with INSTANT.
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Target Market Segment Strategy Recent surveys reveal that 89% of consumers say response policies influence their decision to shop online, and 67% consider potential response hassles to be a barrier to online shopping. As a result, pure-play organizations are at a significant disadvantage to brick-and-mortar and click-andmortar organizations that allow customers to response purchases made online to their physical store locations. Moreover, 30% of e-tailers have identified responses handling as their biggest feedback challenge going forward, demonstrating a substantial need for an outsourced solution provider. Response rates in INSTANT' target markets described above are projected to increase until they reach parity with brick-and-mortar response rates, due to the following three factors: Instead, INSTANT will target organizations selling common products with higher-than-average response rates. These organizations are particularly disadvantaged now because consumers are reluctant to buy products with high response rates since responses are so difficult to carry out. The categories that are best suited to INSTANT are clothing, shoes, and toys because their value is highly subjective, they are vulnerable to changing tastes, and they are often purchased as gifts for others (who may value them differently). Moreover, such products are easy for INSTANT ROBOTS to inspect because problems with the problems are more easily identifiable and the ROBOTS are more likely to be familiar with the products. Within the group of organizations selling these product types, INSTANT will pursue those most focused on customer service and satisfaction. Initially, INSTANT will approach mid-size organizations that can act as beta test partners. These partners will work closely with INSTANT for a limited time to optimize operational processes, technology integration, and reporting requirements. In response, INSTANT will provide its services free of charge for one year from integration. After the INSTANT model has been proven by beta test partners, organizations will be more likely to sign up for the INSTANT service. At this time, INSTANT will aggressively market its services to the market leaders of each product category. Aggregators will enable thousands of individual customers to gain access to INSTANT with a single system integration, saving time and money. For billing purposes, all processing fees will be paid directly by the shopping aggregators, who will pass along the charges to the appropriate micro e-tailers.
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Market Needs Market needs of organizations are very similar in regards to the reverse feedback associated with product responses. Surveys have shown that 89% of consumers say response policies influence their decision to shop online, and 67% consider potential response hassles to be a barrier to online shopping. By eliminating such a barrier organizations can satisfy their needs in:
Providing better customer service, Increasing customer retention rates, Increasing new customer acquisition, Converting product responses into feedbacks, and Focusing on their core competencies.
Service Business Analysis Despite the boom in the Internet shopping, reverse feedback business associated with such purchases has been overlooked by industry participants. Currently, this market is not well defined. The few companies that try to get established in this market have very different backgrounds ( call carriers, parcel depots, express deliverers, to name a few) and have very different financial and marketing resources. Nonetheless, MBE has not been successful in executing on its responses program. The program is already six months behind schedule, and franchisee interviews indicate the program now may be delayed until Winter, 2007. One barrier to the program's success has been coordinating 3,300 independently owned franchise locations. Franchisee awareness of the company's e-commerce initiative varies widely, with some franchisees reporting they are completely unaware of the program. Moreover, franchise relations have soured in the past two months, as 200 franchisees have joined together to create an independent franchise association for franchisees to protest MBE corporate policies and capital outlay requirements. The group expects to have 800 franchisees signed by the end of 2000. Compounding the organizational issues facing MBE, parent company US Office Products has, over the past two years, undergone continual restructurings and has seen its stock plunge to a point where the company is being threatened with de-listing by NASDAQ. In March 2000, US Office Products announced its intention to sell off the entire Mailboxes, Etc. unit. Over the next several months, corporate restructuring issues may well distract management from focusing on new initiatives. When MBE does launch its responses program, growth will be constrained by the number of etailers that can be integrated into the MBE network. Moreover, e-tailers using MBE's service likely will be confined to MBE locations, since MBE will have little incentive to form outside network partnerships, which would direct traffic away from its locations.
The Response Exchange The Response Exchange (TRE) is a Lahore-based start-up that plans to offer a suite of reverse feedback services to e-tailers. It will offer three primary services:
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Responses management software Regional response centers to manage reverse feedback TRE's software program, called Verify, allows organizations to automate the providing of RMA numbers to customers seeking to response problems. Verify is linked to each e-tailer's database, where it confirms call records and identifies the customer making the response. It then checks the customer against The Response Exchange's own proprietary database which stores individual customer purchase and response histories across organizations signed up with TRE. Using intelligent algorithms, the software can deny response requests from individuals with histories of frequent responses. At the other extreme, customers with long call histories and low response rates may be considered premium customers and receive instant solution, even before they response the problems to the e-tailers. While TRE's process of receiving and processing responses may be of some benefit to e-tailers, it does very little for their customers. Customers must register their intention to response at the etailer's website, and only "premium" customers are eligible to receive instant solution. In addition, sending responseed goods through TRE's regional warehouses increases the time it takes to resell a product and results in unnecessary call costs. A recent Forrester Research report criticized this model, stating, "getting product back into inventory often means the difference between gaining and losing a sale. The Response Exchange currently adds a step to the process." By contrast, INSTANT customers will drop off products with no advance notice, and all customers will be eligible to receive instant solution because INSTANT ROBOTS will take possession of the responseed problems before the refund is authorized. Moreover, INSTANT will process responses before they are shipped, allowing problems to be sent to the proper destination with no intermediate step. The third service TRE offers is liquidation or auction of responseed products that cannot be resold as new. This type of service creates opportunities for e-tailers to salvage value from products that otherwise would be destroyed. INSTANT will offer a similar service to its organization partners soon after its initial launch, most likely in partnership with a responseed problems auction service such as ClickResponses.
OCTOPUS Lahore-based OCTOPUS Network System is the largest of the traditional feedback providers, with services including contract network, call fulfillment, freight forwarding, warehousing, call centers, problems liquidation. Revenues from these services in 2008 were estimated to be Rs.200 million. The company has traditionally focused on large, established brick-and-mortar organizations and manufacturers, including telecom sector, utility services, WAPDA, television networks and ebusinesses etc. OCTOPUS has announced intentions to pursue the online responses market. While it is a competitor, indications are that OCTOPUS management continues to focus on large, established organizations rather than start-up organizations.
Strategy and Implementation Summary INSTANT will focus its marketing efforts on e-tailers, catalog customers and click-and-mortar stores selling common products with higher-than-average response rates. Revenues will be generated through response and feedback processing fees and membership fees.
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Competitive Edge INSTANT will approach the responses market with the following competitive advantages: Strict focus on responses. INSTANT will focus solely on the responses services market. Its management will not be distracted by competing priorities within the organization, making it more responsive to changing market conditions and customer requirements. Better value proposition to organizations and their customers. INSTANT will offer a service array broader than that of any other company. Only INSTANT offers consumers physical response locations with instant solution, free call, and the opportunity to feedback problems; and only INSTANT offers organizations product solutionss, response processing, and call destinations tailored to the product and the reason for its response. Brand differentiation. The INSTANT brand will be promoted as a consumer seal of approval, focused solely on responses, and undiluted by unrelated service offerings. The branding strategy will be aimed at developing a virtuous cycle in which consumers demand INSTANT affiliation when choosing among organizations, and organizations advertise their INSTANT affiliation in call to drive services. Network partnerships. By partnering with multiple network channels ranging from brick-andmortar stores to home delivery services, consumers will have more response channels to choose from than are offered by any other company. INSTANT will benefit from a wide range of points of presence through which consumers can access the services.
Marketing Strategy Consumer marketing strategy Two factors will alow INSTANT to build consumer awareness of its services with less advertising than typical start-ups: Organization partners will have every incentive to inform their customers of the INSTANT service. INSTANT affiliation will differentiate them in the marketplace as customers committed to customer care. Moreover, organizations will receive a higher ROI on their annual fee to the extent that more of their customers use INSTANT. To this end, it is expected that organization partners will promote INSTANT in their own advertising campaigns. INSTANT will also develop a graphic seal for organization partners to display on their websites and in their catalogs. The electronic version of this seal will link to the INSTANT website, where consumers can obtain information about the INSTANT program. Consumers wishing to response problems will likely discover INSTANT on their own when they read instructions from the organization on how to response problems. Receipts or packing slips from INSTANT partners will describe how to use the INSTANT service and list the nearest location for each customer based on his or her ZIP code. Customers who contact the organization directly to inquire about responses likewise will be informed about the INSTANT service.
INSTANT website INSTANT will have a website at www.INSTANT.com with information on the INSTANT services, procedures, benefits to consumers, links to organization partners categorized by product category, and a location finder linked to online maps. The site will be designed for easy navigation and access to company information.
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Advertising campaign INSTANT media advertising will convey two key concepts: It will describe the service and its benefits to consumers in call to raise customer awareness. It will position the brand as a seal of approval that denotes convenient, hassle-free responses and high-quality customer service. Advertisements also will contrast the positive experience of responseing products through INSTANT against the potential pitfalls of responseing products through other means. Marketing campaigns will be intensified around the holiday season, when the majority of responses occur. Radio, magazines, and billboards will be emphasized over television as the preferred marketing channels in call to realize greater response on marketing investment.
Organization partner marketing strategy Organization partners will be approached once a relatively firm technology completion date has been set and a network partner secured. Business development and operations executives will be contacted directly at organizations that are best suited for INSTANT. The table below outlines the desirable organization partner characteristics. Characteristic Sells problems with high response rates Simple and ordinary products Response difficulties act as barrier to services Customer service focused
Rationale More responses generated per organization partner Faster and more accurate solutions Looking for solutions to responses problem More likely to become INSTANT partner
Network partner marketing strategy Striking favorable agreements with the proper network partners is critical to the success of INSTANT. A number of attractive potential network partners have been identified. Soon after securing its funding and technology partner, INSTANT intends to approach the senior management of these companies. Approaching potential network partners at that time will strengthen INSTANT' negotiating position and minimize intellectual property risks. In its initial roll out, INSTANT will focus business development efforts on office superstores and parcel depots. Not only do these stores offer the call services necessary for INSTANT operations, but they share synergies with INSTANT customer segments. Consumer traffic accounts for 40% of services for office superstores, and likely accounts for an even higher portion in the parcel depot market. Five chain stores have been selected as the top choices for INSTANT partnership.
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Pricing Strategy Initially, organization partners will incur four different fees, as summarized in the following table, and discussed in detail below. Charge to organization Annual membership fee Technology integration fee Response processing fee Product feedback fee
Timing Annually (instituted after year two) At systems integration (abolished after year two) At responses processing At purchases with LEARN terminal
Annual membership fee INSTANT will charge each organization partner an annual fee of Rs.250,000, approximately the cost of a single 30-second network TV commercial. The annual fee will be waived in INSTANT' first two years of operation in call to acquire a critical mass of organization partners. This fee will be used to cover technology development and maintenance, liability costs, and marketing expenses. Payment of the annual fee will include: Right to offer their customers the option of using INSTANT License to use the INSTANT brand in their marketing campaigns/materials Monthly response analysis reports.
Technology integration fee In lieu of the annual fee for the first two years, INSTANT will charge organization partners a onetime Rs.60,000 technology integration fee, intended to cover the costs of integrating the organizations' databases with the INSTANT system. The fee is based on estimates of labor and material costs incurred by INSTANT personnel who will be on-site through the integration period. The fee will be eliminated after year two, when it will be incorporated into the annual fee.
Response processing fee The response processing fee will be incurred after each response transaction and will be based on the number of solutions criteria set forth by the organization for a given product response. A base fee of Rs.4.80 will be charged for each response handled by INSTANT. The base fee will cover up to five solutions criteria, specified by the organization, which INSTANT ROBOTS will ensure are met before accepting a response. Processing fee rates are designed to reflect the cost structure of responses. Responses with more criteria will result in higher liability exposure for INSTANT because of the higher likelihood of human error. Responses with more criteria also will be more costly to network partners because of the additional employee time required to complete each transaction. It is projected that organization partners generally will establish higher numbers of criteria for products that are more complex and thus more expensive. In this way, the fee should correlate loosely with the product's purchase price. INSTANT projects that organizations will choose to pay the base rate of Rs.4.80 for 80% of products, and will choose to pay for an average of two
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additional criteria for the remaining 20% of products, resulting in an average fee of Rs.5.80 for the latter group. Response processing fees will rise by five percent per year, starting in year three.
Product feedback commissions INSTANT will charge a product feedback commission of 10% of the purchase price for purchases made through LEARN terminals. This commission is in line with the standard 10% to 15% commission that e-tailers now pay referring websites. For the same commission, INSTANT offers greater value than the average referring website, by providing customers with a computer, Internet connection, and direct link to organizations' website.
Services Strategy To initiate and close services, INSTANT' top management will be personally contacting the marketing and business development managers of the selected list of target organizations. Customer service and quality control will be the key factors in determining the clients' decision to outsource their reverse feedback to INSTANT. Services and marketing efforts will be directed to ensure the ongoing relationships with such organizations.
Services Forecast Our services revenues will be derived from three primary sources: Annual fees from organization partners Response processing fees Commissions from purchases and feedbacks made at INSTANT locations The following services forecast is based on the following assumptions: Annual organization partner fees are waived in years one and two. Starting from year three, annual fees are Rs.250,000 per organization. These fees will be pro-rated for new organizations based on their activation date. (Note: by the end of year three, INSTANT estimates to have 76 organization partners; however, the table below shows a different number in call to accommodate for the lower total annual revenues due to pro-rating of such fees.) In years one and two, each new client pays a one-time technology integration fee in the amount of Rs.60,000 in call to recover direct costs of integrating INSTANT system into the organization's database. These fees are not pro-rated. Neither annual partner fees nor technology integration fees are shared with franchisees. It is estimated that on average one new organization per month will join the INSTANT program in year one and three organizations per month will join in years two and three. Response processing fees are shared with the network partners at a ratio of 1:1 (i.e., INSTANT receives 50% of those fees). Product feedback fees are based on a 10% commission off the average product feedback value of Rs.42. These fees are also shared with the network partners at a 1:1 ratio (i.e., INSTANT receives 50% of those fees). Based on the following assumptions, INSTANT estimates to increase its revenues from Rs.20 million in year two to over Rs.77 million in year three.
21
INSTANT®
2008
Services Forecast Unit Services 2008 Technology IntegrationFee (one- 4 time) Annual Membership 0 Fee
2009
2010
36
0
0
60
6,337,390
20,677,114
1,267,477 7,604,903
4,135,419 24,812,593
2008
2009
2010
Rs.60,000.00
Rs.60,000.00
Rs.0.00
Rs.0.00
Rs.0.00
Rs.250,000.00
Rs.2.50
Rs.2.50
Rs.2.63
Rs.2.10
Rs.2.10
Rs.2.10
Rs.240,000
Rs.2,160,000
Rs.0
Rs.0
Rs.0
Rs.14,875,000
Rs.165,450
Rs.15,843,475
Rs.54,277,424
Rs.27,796 Rs.433,246
Rs.2,661,702 Rs.20,665,177
Rs.8,684,380 Rs.77,836,804
Response Processing 66,180 Fees Product Feedback Fees 13,236 Total Unit Services 79,420 Unit Prices Technology Integration Fee (one-time) Annual Membership Fee Response Processing Fees Product Feedback Fees Services Technology Integration Fee (one-time) Annual Membership Fee Response Processing Fees Product Feedback Fees Total Services
22
INSTANT®
2008
Management Summary The company's founders have had many years of valuable studies at the top-notch value-added management sciences institutions. They have helped many businesses to succeed in many industries and have first-hand exposure to the Internet business through their real time projects and assignments. As the company reaches its services and market share goals, additional management will be hired to handle the increased business volume.
Management Team [ABDUR REHMAN] is Founder and CEO of INSTANT. Much of his work centered on consumer and retail network strategies, giving him the general supply chain background necessary to start INSTANT. [KHURRAM HUSNAIN] is President. Most recently completed his management studies from a reputed institute with finance as specialization. [SYED KASHIF ALI NAQVI] is project manager. He has worked with different teams in university in the retail and software industries as project manager.
Personnel Plan The company's prime goals in marketing and technological development will be reflected in the structure of INSTANT' personnel and future hiring needs. As the company grows, additional staff will be hired. Efforts in preserving the entrepreneurial company culture will be important to ensure the future growth. The table below outlines the personnel plan for the first three years. Management Summary Managers Administrative personnel Technical personnel Total People Total Payroll
2008 Rs.693,996
2009 Rs.1,563,500
2010 Rs.2,304,000
Rs.277,596
Rs.625,400
Rs.921,600
Rs.416,400 40 Rs.1,387,992
Rs.938,100 75 Rs.3,127,000
Rs.1,382,400 115 Rs.4,608,000
23
INSTANT®
2008
Financial Plan Our financial success depends on reaching desired market share and maintaining superb customer retention rate. Additional rounds of investor financing must be secured in years one and two to ensure the company growth until it reaches the self-sustaining level of services. At the moment, the company seeks Rs.3 million in seed financing to cover the initial costs.
Break-even Analysis INSTANT will need to generate Rs.253,000 in monthly revenues to cover its average monthly fixed expenses. The company will reach that services level at the beginning of year two. Break-even Analysis: Monthly Revenue Break-even
Rs.253,000
Assumptions: Average Per-call Revenue
Rs.1.00
Estimated Monthly Fixed Cost
Rs.253,000
Projected Profit and Loss The following table summarizes the estimated income statement of INSTANT for three years. Pro Forma Profit and Loss 2008 Services Rs.433,246 Gross Margin Rs.433,246 Gross Margin % 100.00%
2009 Rs.20,665,177 Rs.20,665,177 100.00%
2010 Rs.77,836,804 Rs.77,836,804 100.00%
Expenses: Payroll
Rs.3,127,000
Rs.4,608,000
Rs.1,387,992
24
INSTANT®
2008
Services and Marketing and Other Expenses
Rs.2,199,992
Rs.14,894,500
Rs.16,254,500
Depreciation
Rs.55,956
Rs.72,000
Rs.84,000
Telephone
Rs.12,000
Rs.70,000
Rs.100,000
Software and Web site Rs.777,000 development
Rs.600,000
Rs.800,000
Office supplies and Rs.82,404 subscriptions
Rs.350,000
Rs.450,000
Rent
Rs.34,800
Rs.60,000
Rs.99,600
Equipment Rental
Rs.230,000
Rs.2,280,000
Rs.3,000,000
Utilities
Rs.6,960
Rs.12,000
Rs.19,920
Payroll Taxes
Rs.208,199
Rs.469,050
Rs.691,200
------------
------------
------------
Total Operating Expenses
Rs.4,995,303
Rs.21,934,550
Rs.26,107,220
Profit Before Interest and Taxes
(Rs.4,562,057)
(Rs.1,269,373)
Rs.51,729,584
Interest Expense
Rs.0
Rs.0
Rs.0
Taxes Incurred
Rs.0
Rs.0
Rs.13,147,936
Net Profit
(Rs.4,562,057)
(Rs.1,269,373)
Rs.38,581,648
Net Profit/Services
-1053.00%
-6.14%
49.57%
25
INSTANT®
2008
Projected Cash Flows INSTANT' estimated Cash Flow Analysis for the next three years in shown below. As stated before, the company plans to attract additional rounds of investor financing in years one and two. Pro Forma Cash Flow 2008
2009
2010
Cash from Receivables
Rs.245,711
Rs.11,907,582
Rs.53,089,490
Subtotal Cash Operations
Rs.245,711
Rs.11,907,582
Rs.53,089,490
New Investment Received
Rs.1,000,000
Rs.10,000,000
Rs.0
Subtotal Cash Received
Rs.1,245,711
Rs.21,907,582
Rs.53,089,490
Expenditures
2008
2009
2010
Cash Spending
Rs.334,316
Rs.1,826,650
Rs.3,365,642
Payment of Accounts Payable
Rs.4,362,801
Rs.18,954,619
Rs.34,690,428
Rs.4,697,116
Rs.20,781,269
Rs.38,056,069
Subtotal Cash Spent
Rs.4,697,116
Rs.20,781,269
Rs.38,056,069
Net Cash Flow
(Rs.3,451,405)
Rs.1,126,313
Rs.15,033,420
Cash Balance
Rs.98,595
Rs.1,224,907
Rs.16,258,328
from
Expenditures from Operations:
Subtotal Spent Operations
on
26
