Strategic Business Plan & Market Assessment


Sample Report Generated by Business Insight*


Contents

1.0 Marketing Strategy

1.1 Options
1.1.1 Distribution Effectiveness
1.1.2 Competitive Advantage
1.1.3 Generic Strategy Potential
1.1.4 Strategic Factor Ratings

1.2 Environment
1.2.1 Specific Environmental Considerations
1.2.1.1 Environment
1.2.1.2 Environmental Factors
1.2.1.3 Environmental Risk Matrix

1.3 Prospect
1.3.1 Specific Prospect Characteristics
1.3.1.1 The Prospect
1.3.1.2 Perception of Benefit
1.3.1.3 Prospect's Bargaining Power
1.3.1.4 Barriers to Entry
1.3.1.5 Market Viability
1.3.1.6 Tendency to Buy
1.3.1.7 Price Sensitivity / Perceived Differences
1.3.1.8 Product and Market Change
1.3.1.9 Industrial Decision-making
1.3.1.10 Product life Cycle / Customer's Loyalty

1.4 Competition

1.5 Product
1.5.1 Specific Product Characteristics
1.5.1.1 The Product
1.5.1.2 Position Evaluation Graph
1.5.1.3 Value of results
1.5.1.4 Advantage
1.5.1.5 Complexity of product
1.5.1.6 Obsolescence Problems

1.6 Success Analysis
1.6.1 Market Entry Specifics
1.6.1.1 Market Entry
1.6.2 Profit Potential Specifics
1.6.2.1 Profit Potential
1.6.2.2 Industry Attractiveness
1.6.2.3 Business Strategy Matrix
1.6.2.4 Directional Policy Matrix
1.6.2.5 Business Risk Analysis
1.6.2.6 Market Forces

2.0 Operational Factors

2.1 Your Business
2.1.1 Internal Factor Ratings
2.1.2 Your Enterprise
2.1.2.1 Enterprise
2.1.2.2 Mktg/Sales
2.1.2.3 Cust. Service
2.1.2.4 Development
2.1.2.5 Production

2.2 Management Considerations
2.2.1 Administration
2.2.1.1 Legal Considerations
2.2.1.2 Recruiting/Retention Ability
2.2.1.3 Enterprise Profile - management techniques
2.2.2 Operations
2.2.2.1 Freedom of Action
2.2.2.2 Economies of Scale
2.2.2.3 Infrastructure Issues
2.2.2.4 Material/Production Access
2.2.2.5 Quality Control
2.2.2.6 Research Skills
2.2.2.7 Specification Manageability
2.2.2.8 Product differentiation ability
2.2.3 Marketing & Sales
2.2.3.1 Prominence
2.2.3.2 Customers business impact
2.2.3.3 Loyalty of Customer
2.2.3.4 Shopping Characteristics
2.2.3.5 Sales Promotion efforts
2.2.3.6 Personal selling actions req'd
2.2.3.7 Readiness to support sales

2.3 Ratios
2.3.1 Expense as a % of Total Expense
2.3.2 Expense as a % of Revenue
2.3.3 Management/Employee Ratio
2.3.4 Revenue per Employee and Salesperson
2.3.5 Manufacturing Cost per Unit
3.0 Financials

3.1 History
3.2 Capitalization
3.3 ASP
3.4 P & L
3.5 Objectives vs Projections
3.6 IRR
4.0 Strengths

5.0 Weaknesses

6.0 Conclusion

1 Marketing Strategy

This report analyzes the potential for HiLight Inc to implement any of three generic strategies: cost leadership, differentiation or focus. Within those it then considers more specific strategies such as pricing, promotion and distribution strategies.

A COST LEADERSHIP STRATEGY is based on the enterprise's ability to control their operating costs so well that they are able to price their products or services very competitively and still generate high profit margins, thus having a significant competitive edge.

A DIFFERENTIATION STRATEGY involves the offering of a product or service that is clearly unique when compared to alternatives. Uniqueness can take many forms such as brand image, technology, functionality, customer service, dealer networks and many others. It is likely that differentiation will involve a combination of two or more of these forms.

A FOCUS STRATEGY may be the most sophisticated of the generic strategies, in that it is a more 'intense' form of either the cost leadership or differentiation strategy. It is designed to address a "focused" segment of the marketplace, product form or cost management process and is usually employed when it isn't appropriate to attempt an 'across the board' application of cost leadership or differentiation. It is based on the concept of serving a particular target in such an exceptional manner, that others cannot compete. Usually this means addressing a substantially smaller market segment than others in the industry, but because of minimal competition profit margins can be very high.

1.1 Options

HiLight Inc is entering the market with Smart-Lite in the introductory stage of the product type's market life cycle. The intent is to use an aggressive market penetration pricing strategy. This is consistent with Smart-Lite being priced below the average of the competitive product prices during the first year of the analysis period.

HiLight Inc will do their own manufacturing of Smart-Lite while pursuing some vertical integration within the enterprise.

A push promotion strategy is planned with minimal advertising effort and minimal publicity.

The distribution strategy will be to market Smart-Lite by using external distribution channels and also using an in-house sales organization.

The market for Smart-Lite is expected to be regional and slightly concentrated with about 25% of the prospects being existing customers of HiLight Inc.

Channels of distribution will include:

ChannelSales Volume
Year 1Year 5
Direct to Customer20%5%
Full service60%45%
Self service20%15%
Wholesale 0%35%

1.1.1 Distribution Effectiveness

This display shows the distribution methods available to HiLight Inc. The two columns associated with each method indicate the degree you expect to use the method and the analysis of how effective that distribution method will be. If the analysis is correct, your planned usage should correspond to the methods that are most effective. Use the Trace feature to review the factors.

This display shows the distribution methods available to The Enterprise. The two columns associated with each method indicate the degree you expect to use the method and the analysis of how effective that distribution method will be. If the analysis is correct, your planned usage should correspond to the methods that are most effective. Use the Trace feature to review the factors.

Planned Potential FactorUsageEffectiveness
On-premise Sales042
Direct Sales2067
Wholesale Sales3067
Self-service Retail Sales5066
Full-service Retail Sales8068

1.1.2 Competitive Advantage

This matrix examines the benefits of obtaining a competitive advantage through cost leadership and/or differentiation.

High Differentiation / High Relative Costs Even though you cannot become a cost leader, you can continue to thrive by maintaining significant differences from the offerings of your competition. You are a speciality business.

1.1.3 Generic Strategy Potential

This chart graphically displays the analysis of the potential for your enterprise to implement each of the generic strategies. You may view the assertion behind the rating by doubleclicking on the bar for the strategy of interest.

1.1.4 Strategic Factor Ratings

This is a graphical display of strategic factors, some of which you do not have the ability to directly control. This form of display is called a spider graph. It is most positive for your enterprise when all display points are at the outer limit of the chart. Each factor is rated between zero and one hundred. You may display a specific rating by clicking on the factor's plot point. To review the detail behind the rating, double click on the plot point. To have a reasonable chance for successful implementation of your marketing strategy each of the strategic factors should have a rating of 70 or higher.

1.2 Environment

The analysis indicates that environmental factors are positive for the introduction and market penetration of your products.

The evaluation of demographic factors, which is positive, considers changes in the average prospect’s age, geographic location, income and education.

The evaluation of cultural factors, which is positive, considers emerging fashion or life-style trends. The term "fashion" can relate to any product, from clothes to cars to computer programs. If the product is 'the thing you shouldn't be caught without' in your industry, then it is in fashion. Examples of life-style trends might be a public that is more health conscious or more pro-environment.

The evaluation of government controls, which is no better than fair, considers factors such as the availability of subsidies, imposition of safety and operational regulations, licensing requirements, restricted access to materials and price controls.

The evaluation of the impact of technological change on your strategy, which is positive, considers factors such as the extent to which competitive product performance has reached its limit, the direction in which competitive R&D is moving, the emergence of new technologies and the time competitor’s have to react to changes in technology.

1.2.1 Specific Environmental Considerations

The emergence of new technologies can have a significant impact on your strategy. Your answers indicate that competitive products have very little room left for improvement using current technology, with the state of the market dictating that competitors should put more emphasis on efficient production methods rather than product improvements.

Given your assessment that the competition has generally designed their products in such a way as to make it difficult to benefit from new technology, the fact that you have designed your product to put pressure on the competitors to make a technological response appears to be a good strategy.

From a demographic perspective it appears that educational changes will have a minor impact on sales, changes in the average age of the marketplace should be a positive factor, geographic population shifts (if any) will influence the market in a minor manner and income changes in the marketplace will exert minimal buying pressures.

Analysis of cultural changes indicates that fashion trends will be consistent with and supportive of your product design and life-style trends will be a positive sales factor.

Any analysis of the environment must consider the influence of government actions on you and your ability to interact with the marketplace.

For your industry the government does not offer subsidies so there is no requirement for a strategy in this area.

In particular, you face some safety regulations, minimal licensing requirements, easy to achieve operating regulations and few price controls.

Finally, the fact that there is no restriction on your access to production materials is a definite plus.

1.2.1.1 Environment

This is an analysis of the extent to which environmental factors positively support Smart-Lite's market growth potential. The analysis includes evaluations of:

FACTORRATING 
DemographicsPOSITIVEThis is an analysis of the extent to which changes in the market's age, geographic location, income and education may support the introduction and market penetration of Smart-Lite.
Cultural changesPOSITIVEThis is an analysis of the extent to which cultural changes support Smart-Lite's introduction and penetration of the market.
Government actionsPOSITIVEThis is an analysis of the extent to which government actions support HiLight Inc's plan.
Technological changePOSITIVEThis is an analysis of the extent to which technological changes that are occurring favor the actions of HiLight Inc.

The analysis indicates that environmental factors are favorable for Smart-Lite.

Impact of environmental factors has a rating of 75% based on these factors:
Government actions support our business ( 68%)
Demographic changes are supportive ( 73%)
Product threatens current competitive technology ( 75%)
Cultural trends support our business ( 85%)

1.2.1.2 Environmental Factors

This chart presents the assessment of the environmental factors on your offering. The higher the rating (all points near the outer extent of the chart), the more positive is the factor for your business. You should study the weak areas carefully and plan alternative actions to lessen their impact on your plans.

The most supportive aspect of the analysis are the cultural trends, while the aspect of most concern are the government actions.

1.2.1.3 Environmental Risk Matrix

This matrix illustrates the relationship between the risk of environmental forces affecting a business area and the other factors affecting the prospects for developing and maintaining long-term profits. Environmental factors considered include economic, cultural, technology, demographic, and governmental trends. While the prospect for profitability is based on factors including the bargaining power of the buyers and suppliers, the threat of new entrants and/or substitutes and the competitive rivalry among the existing firms in the industry.

Your industry has been analyzed as having average prospects for profits while having low environmental risk.

1.3 Prospect

The market segment(s) that you have described are analyzed to be questionably suited to your strategy and the strengths of your product(s). This was determined by evaluating the probable length of the typical prospect’s purchase decision cycle, the probability that marketplace factors favor the acquisition of your product(s) in substantial volume, the probability that the prospect will pay a high price for your product(s), the extent to which price influences the prospect’s purchase decision and the propensity of the prospect to exert comparison energy prior to making the purchase decision.

In addition, an analysis of the marketplace characteristics that are vital to the acceptance and success of your product offerings was determined to be reasonably good.

Even if you have well defined market segments with positive characteristics it is still essential that your prospects have a positive perception of the benefits your product(s) will provide. The analysis indicates that the market has a neutral perception of your product benefits.

And, finally, it appears that the prospect’s bargaining position, which can affect price and the time it takes to make a purchase decision, is average.

1.3.1 Specific Prospect Characteristics

HiLight Inc has targeted a regional prospect base that is lightly dispersed with the following composition.

10%Individuals
20%Small companies
30%Mid-size companies
0%Religious or philanthropic orgs.
30%Large companies
0%State/Federal government agencies
5%Other

Less than 50% of the prospect base are expected to be past customers, which implies high marketing costs. In general, the prospect has acceptable financial resources with all currently having the physical resources to install and use Smart-Lite. The purchase of a product like Smart-Lite is considered to be of some, but not essential, benefit to the prospect's business.

Smart-Lite is most likely to be purchased for utilitarian purposes and will usually be purchased in the same form as it is manufactured. The purchase decision will normally be made by two or three people with the likelihood of exerting a thorough but not extensive comparison effort of Smart-Lite to the competition. Any personal risk involved in making the purchase decision is considered to be minimal. The analysis indicates that a reasonable amount of time will be taken to make a purchase decision.

The average prospect has nominal knowledge concerning Smart-Lite, will probably view the product's potential to satisfy their needs with only limited confidence and will deem the price of Smart-Lite as a factor of medium importance in their purchase decision. They consider the non-price factors to be of critical importance. From the perspective of the prospect, Smart-Lite does not appear to have enough benefits to support a higher price than the competition.

The overall quality of the projected prospect base seems to be fair, with the potential for a broad acceptance of Smart-Lite being better than average. Once established as a customer, the probability of them remaining loyal to Smart-Lite is analyzed to be fair.

1.3.1.1 The Prospect

This is a summary of analyses for the potential buyer of Smart-Lite. Primary factors considered are:

FACTORRATING 
Decision timeNEUTRALThis is an analysis of the length of the typical prospect purchase decision cycle.
Product acceptancePOSITIVEThis is an analysis of the probability that marketplace factors favor the acquisition of Smart-Lite in substantial volume.
Price versus benefitsNEUTRALThis is an analysis of the probability that a prospect will pay a higher price for Smart-Lite because it offers more of the benefits that they need.
Pricing sensitivityNEUTRALThis is an analysis of the buyer's view that price is the major deciding factor in the decision to purchase Smart-Lite.
Shopping characteristicsPOSITIVEThis is an analysis of the propensity of the buyer to exert buying and comparision energy prior to making the purchase decision.
Market penetration potentialNEGATIVEThis is an analysis of the potential for rapid penetration of the primary market served.

The analysis indicates that the targeted market segment will have a neutral attitude toward purchasing Smart-Lite.

Analysis of prospect characteristics has a rating of 54% based on these factors:

The potential for market penetration is moderate ( 38%)
Some prospects are willing to pay a high price ( 47%)
Prospect's decision time is moderate ( 50%)
Some prospects will pay for product value ( 60%)
Some prospects are likely to adopt your product ( 65%)
Some prospects will exert comparison efforts prior to purchase ( 66%)

1.3.1.2 Perception of Benefit

The marketplace will purchase your product if it perceives enough benefit will be received. This is an analysis of the benefits provided by Smart-Lite. A high Assertion rating indicates a high probability for perception of benefits which can support a focus strategy or a differentiation strategy.

Prospect's perception of benefit has a rating of 50% based on these factors:
Effect on prospect's market share is minimal ( 0%)
Prospect has many viable alternatives ( 0%)
Prospect has some need for improvement ( 60%)
Product offers many obvious advantages ( 89%)

1.3.1.3 Prospect's Bargaining Power

This is an analysis of the position of the prospect in the buying negotiation process. Strong buyers tend to drive down prices and profits creating a less attractive market. A high Assertion rating indicates a prospect with limited bargaining power.

Prospect's bargaining power has a rating of 57% based on these factors:

Product introduction/switching costs are low ( 3%)
Prospect's shopping costs are low ( 10%)
A moderate number of prospects are contacted to make a sale ( 50%)
Prospects are generally moderately profitable ( 50%)
Products are moderately differentiable ( 59%)
Product investment is a moderate portion of prospect's costs ( 60%)
Prospects are spread across numerous buying groups ( 75%)
Prospects pose minimal threat for backward integration ( 80%)
Prospect lacks full information ( 89%)
A single sale is small relative to total sales (100%)

1.3.1.4 Barriers to Entry

This is an analysis of barriers that HiLight Inc can construct to prevent competitors from entering the market. A high Assertion rating indicates the ability to create significant entry barriers. All of the strategy forms can create entry barriers and the effectiveness of the barriers is a result of how well the strategy is executed.

Enterprise' ability to create barriers to entry has a rating of 38% based on these factors:

Customer switching costs will not deter entry ( 3%)
Enterprise has minimal economies of scale ( 25%)
Enterprise can construct some "other" barriers to entry ( 52%)
New entrants will have some difficulty securing distribution channels ( 59%)
Enterprise has some capacity to differentiate ( 64%)

1.3.1.5 Market Viability

This is an analysis of the marketplace characteristics that are vital to the acceptance and success of new product offerings. A high Assertion rating indicates a high probability of product acceptance. Use the Trace feature to review in more detail the various influencing factors.

Probability of product acceptance has a rating of 62% based on these factors:

Market has some potential for growth ( 38%)
Early market adoption questionable ( 65%)
Likelihood of sustained industry growth is high ( 73%)

1.3.1.6 Tendency to Buy

Buying decisions are influenced by many factors. Two of the most important factors are the nature of the product itself and the extent to which the customer knows and trusts the supplier. This chart illustrates the relationship between these factors as it relates to you and your competitors.

Unknown Company / Unique Product Customers are suspicious about dealing with companies which are unknown even if they have superior products. Your success depends on the impact that sales and advertising make on your image. You must focus your efforts in these areas of marketing to be successful.

1.3.1.7 Price Sensitivity / Perceived Differences

This is a two-dimensional grid that focuses on the choice between reducing costs or building in more value to the customer. Each of the four quadrants has different implications in terms of suggested strategy.

Low Price Sensitivity / Large Perceived Differences A specialty strategy is recommended for products facing low price sensitivity and large perceived differences by buyers. You should initiate or continue efforts to differentiate your offering.

1.3.1.8 Product and Market Change

The form of your product or service and the makeup of your prospect base will influence how you structure your promotion. If you are offering an improved version of the same product or service to the same customer/prospect base then no changes should be required. On the other end of the spectrum, a new product or service going to a new prospect base calls for a new and innovative approach to promotion. In between circumstances require a more subtle approach to promotional changes.

1.3.1.9 Industrial Decision-making

In industrial markets two of the important criteria controlling the decision cycle are the complexity of the offering and the risk associated with the purchase decision. This chart examines the relationships between these variables and indicates the implications to you as the seller.

Low Complexity / Low Risk In the case where there is little product complexity to understand and absorb and there is little risk associated with making an incorrect decision, the purchasing manager generally handles the purchase decision by himself. Here, past experience is the most crucial factor. It is critical here to be in front of purchaser at every opportunity through advertising, promotion, and sales calls. Make sure your offering is readily available through all possible sources and channels so that the purchaser can gain easy access to it.

1.3.1.10 Product life Cycle / Customer's Loyalty

This chart illustrates the value of customer loyalty in markets with different levels of market.

High Market Growth / High Customer Loyalty This quadrant indicates success. You should be reaping the rewards of customer loyalty. However, you should continue to work to maintain that loyalty. You should not become complacent.

1.4 Competition

The analysis indicates that the competitors you have described have considerable experience and are in a strong position to market their product(s). They appear to have a very strong commiitment to the marketplace while current conditions place them in a position such that abandoning the market is not an acceptable alternative. They would appear to have some of the basic attributes to successfully compete in the market and if history is any indicator, they will respond to your market entry efforts in an ethical and businesslike manner. This group of competitors should present an extreme challenge to HiLight Inc.

1.5 Product

You will be selling a physically small, technically unique, low maintenance product that is viewed with little interest by the scientific community. Your prospects perceive that the product pricing is competitively comparable if it satisfies their needs. The benefits to be derived from the product are clearly visible, easily understood and easily described.

The product, considering product benefits, complexity and differentiation, ease of customer utilization, potential for obsolescence, proprietary technology and the potential for production and marketing problems is analyzed to be a fair contributor to the success of your marketing strategy.

1.5.1 Specific Product Characteristics

Smart-Lite, is a product that is not complex to understand and use. The product is not patented and is being marketed using a name that is not trademarked. It has the potential for some differentiation from competitive products in the marketplace.

Few government controls are imposed on the manufacture and sale of Smart-Lite. HiLight Inc has limited ability to protect Smart-Lite's proprietary technology while the product has some potential for product obsolescence during the analysis period. Factors related to manufacturing, prospect knowledge, industry standards and regulatory controls are likely to generate few setbacks for HiLight Inc during efforts to achieve market penetration.

Selling and/or using Smart-Lite should require very little training of the sales force and minimal customer education. Given the few complexities, installation of Smart-Lite is expected to cause minimal interruption of the customer's business. Other related costs of changing over to the use of Smart-Lite should be minimal and following installation the user can expect many cost savings.

You have indicated that Smart-Lite is quite unique in the industry, has some optional features and follows industry standards. You have also described it as having low visual appeal with some emotional appeal.

The analysis indicates that it is of utmost importance to have an advertising program for Smart-Lite and the advertisability of Smart-Lite is analyzed to be excellent.

In support of the effort to sell Smart-Lite, HiLight Inc currently has average logistics capabilities for delivering the product, an adequate number of service outlets and an inadequate number of service technicians.

Projected sales for Smart-Lite in 1998 will be 17,500 units at a retail price of $80.00, an average selling price of $52.00, and a production cost of $27.66. In 2002 this will change to 85,000 units at a retail price of $70.00, an average selling price of $36.93, and a production cost of $20.50.

1.5.1.1 The Product

This is an analysis of a variety of factors that combine to create products that are strong contenders in the marketplace. A very strong product can be the basis for a differentiation strategy. The factors considered are:

FACTORRATING 
Product differentiationPOSITIVEThis is an analysis of product differentiation in the marketplace.
Product benefitsNEUTRALThe marketplace will purchase your product if it perceives enough benefit will be received. This is an analysis of the benefits provided by Smart-Lite.
Impact on buyer's businessPOSITIVEThis is an analysis of the impact on all aspects of the customer's business as the result of the trial and/or installation of Smart-Lite.
Product complexityPOSITIVEThis is an analysis of the complexities that will be involved when trying to use or sell Smart-Lite.
Product obsolescencePOSITIVEThis is an analysis of the likelihood of technological obsolescence of Smart-Lite.
Proprietary informationNEGATIVEThis is an analysis of the extent of proprietary protection for the technology (either design, or process) that is used in Smart-Lite.
Implementation problemsPOSITIVEThis is an analysis of the degree to which Smart-Lite faces problems common to the introduction of a new product.

The analysis indicates that Smart-Lite will be a strong performer in the marketplace.

Product market strength has a rating of 62% based on these factors:

There are some problems protecting proprietary technology ( 34%)
There is some product benefit ( 50%)
There is some product differentiation ( 64%)
Product is not in danger of obsolescence ( 68%)
Enterprise can easily overcome introduction problems ( 69%)
Minimal impact on the customer's daily routine ( 73%)
Product complexity is minimal ( 78%)

1.5.1.2 Position Evaluation Graph

The Position Evaluation Graph compares the attributes of your offering with the best of your competition in each category. Ideally the display for your product will form a circle around the extremes of the graph. This evaluation will force you to consider the strength of each of the competitive offerings and how you must position your offering to face them.

Some strategy conclusions might be reached based on the results of this comparison.

For example, if your offering is low priced and offers acceptable performance then your business may thrive while competitive technology is widely available and inefficient market leaders are priced too high.

Or, if your offering is of high quality with good availability of support, good quality and high performance then it can be the best value for the affluent customer.

However, if your strength is only in availability then you can expect gradual erosion of market share until competitors establish a reputation and better distribution - then the bottom will fall out.

Or, if your offering is a me-too product with low to average ratings in each category then you can expect to muddle through while the market is rapidly growing, but likely fall by the wayside during industry shake-out.

Your ratings are average so you have a limited number of options available when defining your strategy.

1.5.1.3 Value of results

This is an analysis of the extent to which Smart-Lite produces valuable results, based on the product strengths and cost advantages. A high Assertion rating indicates a high potential for valuable results.

Value of results from product usage has a rating of 76% based on these factors:

A product ROI can be determined with some effort ( 50%)
Product offers significant performance advantage ( 78%)
Product offers significant cost advantages ( 83%)
Product has higher performance rating than competitors (100%)

1.5.1.4 Advantage

This is an analysis of the degree to which the advantage offered by Smart-Lite will be obvious to the potential buyer. A high Assertion rating indicates that the advantage will be obvious.

Advantage's of purchasing your product has a rating of 89% based on these factors:

Product results are very significant ( 76%)
Product results are very quantifiable (100%)
Product results are easily described (100%)
Product results are very understandable (100%)
Product results are very visible (100%)

1.5.1.5 Complexity of product

This is an analysis of the complexity associated with the understanding and/or use of Smart-Lite. A high Assertion rating indicates that Smart-Lite is easy to understand and use. Products with low complexity tends to support a cost leadership strategy while complex products are more likely to be supportive of a differentiation strategy.

Product complexity has a rating of 78% based on these factors:

Product is dealing with a known concept ( 50%)
A product demonstration is helpful ( 50%)
Some complementary products are in place to assist ( 65%)
Technical content of product is low ( 70%)
No installation effort is required ( 70%)
Product offers few options ( 80%)
Product is standardized (100%)
Few support devices are required for product (100%)
Little to no retraining is required for product use (100%)
Little to no technical assistance is required for product use (100%)

1.5.1.6 Obsolescence Problems

This is an analysis of the likelihood of technological obsolescence of Smart-Lite. A high Assertion rating indicates a low probability of obsolescence.

Potential for product obsolescence has a rating of 68% based on these factors:

R&D may address product or process improvements ( 50%)
Performance is far from any physical limits ( 70%)
Product improvements are probable ( 70%)
Enterprise has plenty of time to react to competitive changes ( 70%)
Substitutes are not entering the market ( 80%)

1.6 Success Analysis

The probability of your successful entry into the defined market is evaluated by considering a variety of factors. These include your overall management capabilities, the strength and viability of the product development team, the adequacy of your production process, the methods available for product distribution, the marketing and sales organization's strengths and current activities, your experience versus that of your competitors plus your ability to differentiate your product from those of the competition, the problems you may encounter in your efforts to penetrate the market, the potential difficulties you may encounter due to insufficient infrastructure and the availability of adequate operating capital.

Your potential to achieve significant market penetration has been evaluated as no better than fair.

Given a successful entry into the market you must then evaluate the potential for generating and maintaining profits over an extended period. This requires the analysis of your ability to construct barriers that might prevent competitors from entering the market, whether competitors are likely to retaliate when your products are introduced, how vigorously the competition will compete with you and with each other in the marketplace, the probability that your products will encounter competitive products or alternative solutions in the marketplace, the strength of the prospect in the buying negotiation process, your ability to purchase materials at a reasonable price and your ability to sustain a competitive advantage.

Your long-term profit potential is evaluated to be negative.

1.6.1 Market Entry Specifics

Your ability to enter the market in an effective way depends on a variety of factors. You must, of course, have a strong marketing and sales organization.Your organization is evaluated to be weak. Contributing to this negative evaluation is a non-existent marketing manager, a less than strong distribution capability, an effective pricing strategy, a non-viable advertising program, a publicity effort that is not likely to be successful and an unprepared sales function.

It is likely your cost to compete as you enter the market will be comparable to competition based on the experience of your competitors and your ability to differentiate your products from the competitor’s and you will probably encounter some introduction problems involving marketplace standards, product quality, product obsolesence, regulatory considerations and prospect confusion about the benefits of your product.

You appear to have a less than strong product development capability with a mediocre development manager, only partial equipment and financing, difficult to implement product specifications, sufficient personnel resources and the use of technology that has been proven in pilot programs but will require some in-house education.

1.6.1.1 Market Entry

This is an analysis of the factors that will influence HiLight Inc's costs to achieve significant market penetration. The higher the rating the more reasonable the costs. The analysis considers the following factors:

FACTORRATING 
Development teamPOSITIVEThis is an analysis of the strength and viability of the product development team.
Operating costsNEUTRALThis is an analysis of the product's engineering design for use of materials, the accessibility of those materials, the adequacy of your facilities and the quality of your manufacturing personnel.
Distribution methodsPOSITIVEThis is an analysis of the methods available to HiLight Inc for distributing Smart-Lite.
Marketing and salesNEUTRALThe marketing and sales organization is analyzed for its strengths and current activities.
Experience factorsPOSITIVEThis is an analysis of your experience versus that of your competitors plus your ability to differentiate your product from those of the competition.
Start-up problemsPOSITIVEThis is an analysis of the problems that HiLight Inc may encounter in their efforts to penetrate the market.
InfrastructurePOSITIVEThis is an analysis of the potential difficulties HiLight Inc may encounter due to insufficient infrastructure.

The analysis indicates that HiLight Inc's costs to achieve significant market penetration will probably be low.

Costs to achieve significant market penetration has a rating of 66% based on these factors:

Enterprise has so-so marketing ( 52%)
Enterprise has only fair access to raw materials and production ( 55%)
Enterprise has moderately capable management ( 57%)
Enterprise's ability to stay cost competitive is questionable ( 60%)
It is questionable whether enterprise infrastructure is adequate ( 62%)
Enterprise may have problems with usual introduction problems ( 65%)
Distribution functions are likely to be effective ( 67%)
Technological efforts likely to be successful ( 70%)
Capital requirements can be satisfied (100%)

1.6.2 Profit Potential Specifics

Your potential to generate effective barriers to market entry for new competitors is evaluated to be terrible. You are unlikely to benefit from economies of scale, the probability that your product will establish a unique niche in the marketplace is fair, factors such as your use of subsidies, proprietary technology, production experience and controlling access to materials may deter competitive entry, competitors will probably have difficulty gaining access to distribution channels and it is relatively easy for a customer to switch from one product to another.

You can expect intense rivalry from your three to five competitors. Typically the competing enterprises are larger than HiLight Inc, the industry growth rate is moderate meaning there are some prospects to share, the competitor’s products are somewhat difficult to differentiate and there are some exit barriers.

Long-term profit potential is impacted by the likelihood of on-going competition that is evaluated to be high. The marketplace is not hard pressed to make a product purchase decision, competitors are reasonably profitable, competitors have some room left for product improvement, products are slowly approaching obsolescence and the likelihood that competitors will reverse engineer your product is low.

Prospects with a strong bargaining position tend to drive down prices and profits creating a less attractive market. The analysis shows that your prospects have a fairly strong bargaining position. The typical prospect is likely to know that any given sale is not very important to your financial success. Your prospects are reasonably profitable, would have to spend a moderate portion of their budget on your product and are likely to know very little about your industry or product form.

When producing a product you are usually involved with outside suppliers. Your success is partially in their hands based on their ability to provide timely delivery of needed materials. If you are in a strong position to negotiate prices and delivery schedules from suppliers you have a greater potential for long term profitability. Unfortunately, the analysis indicates that the suppliers have a stronger bargaining position. Some of your materials are standard, making it fairly likely that they will be available from multiple suppliers. Alternative materials are readily available if necessary however, it is expensive to make the switch. You have judged the availability and reliability of your specific suppliers to be very important to your success however, the suppliers consider your business to be minimally important to them.

Factors such as the likelihood of competitive imitation, ability to weather economic changes, the ability to justify high prices and ”learning curve“ requirements for new competitors also indicate a low potential for maintaining a strong competitive position.

Finally, the market you have defined is growing at a moderate pace, offers poor potential for early penetration and is moderately inclined toward purchasing your product.

1.6.2.1 Profit Potential

This is an analysis of the factors that could influence the potential for generating and maintaining profits over an extended period. The higher the rating the more favorable the potential. The analysis considers the following factors:

FACTORRATING 
Competitive market entryNEGATIVEThis is an analysis of HiLight Inc's ability to construct barriers that might prevent competitors from entering the market.
Competitive retaliationNEGATIVEThis is an analysis of whether your named competitors are likely to retaliate when new products are introduced.
Competitive rivalryNEUTRALThis is an analysis of how vigorously the competition will compete with you and with each other in the marketplace.
Substitute productsNEUTRALThis is an analysis of the probability that your products will encounter competitive products or alternative solutions in the marketplace.
Buyer's bargaining powerNEUTRALThis is an analysis of the position of the prospect in the buying negotiation process. Strong buyers tend to drive down prices and profits creating a less attractive market.
Supplier's bargaining powerNEUTRALThis is an analysis of your ability to establish reasonable purchase prices with your suppliers.
Staying powerNEUTRALThis is an analysis of HiLight Inc's ability to sustain its competitive advantage.
Freedom of actionPOSITIVEThis is an analysis of the degree of independent control that is available to HiLight Inc.

The analysis indicates that HiLight Inc's profit potential is average.

Potential for maintaining profits over time has a rating of 50% based on these factors:

Fair potential to construct entry barriers to competition ( 38%)
Competitive retaliation is possible ( 40%)
Competitive rivalry is fairly intense ( 42%)
Suppliers have moderate bargaining power ( 44%)
Enterprise has fair ability to sustain position ( 48%)
There is some threat of substitutes ( 54%)
Buyers have moderate bargaining power ( 57%)
There is fair market potential for new products ( 62%)
Enterprise has some freedom of action ( 65%)

1.6.2.2 Industry Attractiveness

This industry model, initially described by Michael Porter in his book, Competitive Strategy, addresses the key factors that influence industry profitability. Your objective should be to understand each of these factors to the extent that you can defend against them or influence them in your favor. The nearer the plot point is to the outer edge of the chart, the more favorable it is for your strategy.

1.6.2.3 Business Strategy Matrix

Medium Attractiveness / Average Competitive Position Your firm lies in one of the yellow cells of the matrix. The strategy advice for this cell is to selectively invest for earnings. Consider the following strategies:

  1. segment the market to find a more attractive position
  2. make contingency plans to protect your vulnerable position

The General Electric Company, with the aid of the Boston Consulting Group and McKinsey and Company, pioneered the nine cell strategic business screen illustrated here. The vertical axis represents the industry attractiveness. Factors such as the bargaining power of the buyers and the suppliers, the internal rivalry and the threat of new entrants and substitutes are weighed and considered. The horizontal axis represents the firm's strength or ability to compete in the industry. The competitive strength includes an analysis of the value and quality of the offering, its market share, staying power, experience, etc.

The circle on the matrix represents your enterprise. Both axes are divided into three segments, yielding nine cells. The nine cells are grouped into three zones:

The Green Zone consists of the three cells in the upper left corner. If your enterprise falls in this zone you are in a favorable position with relatively attractive growth opportunities. This indicates a "green light" to invest in this product/service.

The Yellow Zone consists of the three diagonal cells from the lower left to the upper right. A position in the yellow zone is viewed as having medium attractiveness. Management must therefore exercise caution when making additional investments in this product/service. The suggested strategy is to seek to maintain share rather than growing or reducing share.

The Red Zone consists of the three cells in the lower right corner. A position in the red zone is not attractive. The suggested strategy is that management should begin to make plans to exit the industry.

1.6.2.4 Directional Policy Matrix

Market attractiveness is measured by:

Supplier Bargaining Power
Threat of Substitutes
Threat of New Entrants
Competitive Rivalry
Buyer Bargaining Power

Business Strengths are measured by:

Product Quality
Product Value
Relative Market Share
Reputation
Customer Loyalty
Staying Power
Experience

Low Market Attractiveness / High Business Strengths
In this quadrant you have high strengths in a market that has lost its attractiveness in terms of its future potential. It is still good for near term profits, so maintain the position for as long as possible.

1.6.2.5 Business Risk Analysis

The concepts of closeness to the core business and market attractiveness can be combined to analyze the risk of investing in new offerings. The proximity of the new offering to the core business is measured by its proximity to current offerings and current markets. Such factors as technology, familiarity with the materials, special finishes, and quality standards contribute to the proximity to current products. Market attractiveness considers such factors as: bargaining power of the suppliers, threat of substitutes, threat of new entrants, competitive rivalry, and bargaining power of the buyers.

Close to Core Business / Low Market Attractiveness The decision to proceed should be based on the evaluation of the market potential. The low attractiveness of the market may be a benefit since it will be less lucrative for competitors.

1.6.2.6 Market Forces

This chart portrays the interaction between three of the five forces from the Industry Attractiveness chart. If the prospect is in a position to dictate the terms under which they purchase your product or service and there is also a high probability of new competition or substitute products then it will be difficult to be profitable. As either or both of these forces is weakened, your potential for profitability increases.


2 Operational Factors

Implementation of your strategy is as important as its definition. The strength of your enterprise, which includes structural and legal organization, management experience, management style, freedom to act and staying power is critical to successful implementation. Appropriate functional capabilities in development, production, marketing and sales, and customer service are also crucial.

Understanding ratios such as expense to revenue, management to employee, revenue per employee and unit costs will also help to insure your success.

Finally, at a detailed level, reviewing administrative practices, operating methodologies, marketing and sales techniques and product development activities can provide important insights into appropriate methods for strategy implementation.

2.1 Your Business

As an enterprise, HiLight Inc appears to have a reasonable number of the attributes necessary for success. On a scale of 1 to 100, the functional aspects of HiLight Inc rate as follows:

57Key Management
70Engineering/Development
47Production
52Marketing/Sales
54Customer Service

HiLight Inc will be selling its products, in particular Smart-Lite, to a market segment defined to include prospects that are mostly new to HiLight Inc, composed mostly of medium size to large organizations, who are more value instead of price sensitive and who have an indifferent attitude about purchasing the product. The economic, business and cultural climate supporting sales to this market segment appears to be strong.

Smart-Lite, rated on technology, image, user benefit, ease of use and competitive differentiation is considered excellent and will be competing with some products or alternatives in the marketplace.

2.1.1 Internal Factor Ratings

2.1.2 Your Enterprise

2.1.2.1 Enterprise

This is a summation of factors relating to HiLight Inc, analyzing the strength of HiLight Inc as an enterprise. The factors considered are:

FACTORRATING 
Management teamNEUTRALThis is an analysis of the management team's experience and compatibility with their job.
Enterprise imageNEUTRALThis is an analysis of the marketplace image of HiLight Inc. This factor is important to successful market entry and in gaining access to various channels of distribution.
Cost competitive productNEGATIVEThis is an analysis of HiLight Inc's ability to achieve a competitive advantage based on cost leadership (vs product differentiation).
Industry leader potentialPOSITIVEThis is an analysis of HiLight Inc's ability to become an industry leader by creating the best product in the marketplace.
Freedom of actionPOSITIVEThis is an analysis of the degree of independent control that is available to HiLight Inc.
Staying powerNEUTRALThis is an analysis of HiLight Inc's ability to sustain its competitive advantage.
InfrastructurePOSITIVEThis is an analysis of the potential difficulties the enterprise may encounter due to insufficient infrastructure.
Competitive market entryNEGATIVEThis is an analysis of HiLight Inc's ability to construct barriers that might prevent competitors from entering the market.
Legal considerationsPOSITIVEThis is an analysis of legal factors that must be considered, including patents, copyrights, trademarks, royalty claims, union relationships, state and federal regulations and many others.

The analysis indicates that HiLight Inc is an enterprise needing improvement.

Overall strength of the enterprise has a rating of 53% based on these factors:

Enterprise has some capacity to be a low-cost leader ( 35%)
Enterprise can construct some entry barriers to competition ( 38%)
Enterprise has an average ability to sustain position ( 48%)
Enterprise is somewhat prominent ( 50%)
Enterprise has an average management team ( 57%)
Enterprise has average infrastructure to support activities ( 62%)
Enterprise has some freedom of action ( 65%)
Enterprise has significant capacity to differentiate ( 68%)
Enterprise has few outstanding legal problems ( 80%)

2.1.2.2 Mktg/Sales

The marketing and sales organization is analyzed for its strengths and current activities. The factors considered include:

FACTORRATING 
Marketing managerNAThis is an analysis of the experience and suitability for the job of the Marketing manager.
DistributionNEUTRALThis is an analysis of the strength of your distribution capability, considering sales strength, sales support capability, channel strength, channel relationships and other factors.
PricingPOSITIVEThis is an analysis of your product pricing logic. The consistency between your stated pricing strategy and related factors plus the external constraints imposed on the enterprise are considered.
AdvertisingNEUTRALThis is an analysis of the viability of your advertising efforts, considering your experience, budget, contacts, product advertisability and other factors.
PublicityNEGATIVEThis is an analysis of the probability that your publicity campaign will be successful. Past success, contacts, promotional literature, educational capabilities and other factors are considered.
Sales promotionNEGATIVEThis is an analysis of the effectiveness of your sales promotion efforts, considering trade allowances, special pricing, contests and other factors.
Personal sellingNEUTRALThis is an analysis of the need for a personal sales effort and how well the reputation of HiLight Inc and Smart-Lite support personal sales.

The analysis indicates your marketing and sales organization has only some of the attributes necessary for success.

Marketing and sales organization strength has a rating of 52% based on these factors:

Publicity efforts have low potential for success ( 14%)
Sales promotion efforts are weak ( 32%)
Advertising has fair potential for success ( 57%)
Enterprise distribution capability is only fair ( 58%)
Sales somewhat well positioned for success ( 59%)
Pricing logic is likely to be appropriate ( 77%)
Marketing/Sales manager has poor credentials (NA %)

2.1.2.3 Cust. Service

This is an analysis of the strength of the customer service function. Strong customer service is always important. If service is a high profile consideration in your business, such as a bank or a quick stop hamburger shop, it could be the basis for a focus strategy. The factors considered include:

FACTORRATING 
Service managerNEUTRALThis is an analysis of the experience and suitability for the job of the Customer Service manager.
Past customer serviceNEUTRALThis is your estimate of how the service for your past products/services has compared relative to the competition.
Past customer trainingNEUTRALThis is your estimate of how customer training for your past products/services has compared relative to the competition.
Current customer servicePOSITIVEThis is your estimate of the extent to which needed service facilities are established and available for Smart-Lite upon its introduction.
Current customer trainingNEGATIVEThis is your estimate of the extent to which trained service personnel are available for maintaining Smart-Lite.
Service uniquenessPOSITIVEYour estimate of the view of your product service organization from the prospect's perspective as to characteristics that create a uniquely positive image in the industry.

The analysis indicates a questionable customer service function.

Strength of Customer Service function has a rating of 54% based on these factors:

Not enough technicians exist to service product ( 30%)
Service manager has average qualifications ( 45%)
Enterprise provides unique product support ( 70%)
Many product service outlets exist ( 70%)
Enterprise has an average record of product service ([*]%)
Enterprise has an average record of product training ([*]%)

2.1.2.4 Development

This is an analysis of the strength and viability of the product development program. The following factors are considered:

FACTORRATING 
The Development ManagerNEUTRALThis is an analysis of the experience and suitability for the job of the Development manager.
Technical understandingPOSITIVEThis is an analysis of the development team's ability to deal with the complexity and uniqueness of the technology, awareness of competitive technology and current experience with the technology.
Product specificationsPOSITIVEThis is an analysis of whether product specifications can satisfy market demand and still allow cost effective manufacturing.
ResourcesPOSITIVEThis is an analysis of the development program's need for equipment and financing and the extent to which each of these is available.
PersonnelPOSITIVEThis is an analysis of whether the development personnel have the necessary skill levels and ability to do quality work and are motivated to achieve the development objectives.

The analysis indicates your development team has the attributes necessary for success.

Strength and viability of product development program has a rating of 70% based on these factors:

Development manager is average ( 60%)
Enterprise has most equipment and financing ( 70%)
Specifications are easy to implement ( 71%)
Technology is well understood by the enterprise ( 72%)
Enterprise has most of the necessary personnel ( 80%)

2.1.2.5 Production

This is an analysis of HiLight Inc's production organization with respect to their ability to cost effectively produce Smart-Lite. The following factors are considered:

FACTORRATING 
The Production ManagerNEUTRALThis is an analysis of the experience and suitability for the job of the Production manager.
Material/production facilitiesNEUTRALThis is an analysis of the engineering design for use of materials, the accessibility of those materials, the adequacy of your facilities and the quality of your personnel.
Bargaining powerNEUTRALThis is an analysis of your ability to establish reasonable purchase prices with your suppliers.
Quality controlPOSITIVEThis is an analysis of your ability to insure availability of materials to production, minimize damage to products during shipping, storage and display and the potential to benefit from production experience.
Production experiencePOSITIVEThis is an analysis of your experience versus that of your competitors plus your ability to differentiate your product from those of the competition.
Experience benefitsNEGATIVEThis is an analysis of your ability to benefit from your knowledge to apply new technologies in the production process.

The analysis indicates a questionable production capability.

Strength of the production operation has a rating of 47% based on these factors:

Enterprise has poor economies of scale ( 25%)
Technology and production experience unlikely to reduce costs ( 33%)
Production personnel skill level is average ( 43%)
Suppliers have moderate bargaining power ( 44%)
Enterprise has mediocre access to raw materials and personnel ( 55%)
Production manager is average ( 55%)
Enterprise may be cost competitive ( 60%)
Enterprise has fair control of material quality and production ( 62%)

2.2 Management Considerations

The process of managing your business will determine whether you can effectively implement your marketing strategy. This begins with administrative concerns such as the legal considerations that will inevitably arise and the problems of recruiting, hiring and nurturing your work force. You must effectively integrate the various operational functions within the enterprise, insuring good communications, well-defined interfaces, efficient production processes, excellent research and development capabilities and unrelenting quality control.

However, an efficiently managed organization is only a part of the key to success. Even though you produce the best quality, most cost effective product on the market, you must still convince the marketplace to purchase it. This involves the creation of a good market image, understanding your prospect's needs, care and consideration of your customer base and the ability to "sell".

2.2.1 Administration

Administratively, HiLight Inc has a more entrepreneurial than conservative management style. In general, they are willing to take minimal risks to achieve their objectives. A formal business plan is created each year, but operational objectives which are likely to be more subjective than quantitative are reviewed on a haphazard basis. Formal internal communications are a weekly occurrence, cost controls are very loose with feedback to management regarding expenses being provided informally.

From a legal perspective, your products are satisfying all of the legal restrictions applying to safety, operation, labeling, advertising and shipment, your product name is not trademarked with some work still required, there will be considerable patent work, and minimal union negotiation problems.

Administration of your human resources will be of reasonable complexity given that salary levels are about average, employee benefits are about average, most new employees can be hired from within the local geographical area and the enterprise’s working environment is better than that of the competition.

2.2.1.1 Legal Considerations

There are often a variety of general legal factors that must be considered when managing an enterprise. These include patents, copyrights, trademarks, royalty claims, union relationships, state and federal regulations and many others. A high assertion rating is beneficial to any strategy, but is essential for a cost leadership strategy.

Legal Considerations & Issues has a rating of 80% based on these factors:

Trademark defense potential is weak ( 25%)
Patent is likely to be established and defended ( 75%)
Royalties are not a major factor (100%)
Unions are not a major factor (100%)
There are minimal legal issues with product (100%)

2.2.1.2 Recruiting/Retention Ability

The ability to recruit and retain employees is key to the long-term success of HiLight Inc. A high Assertion rating indicates a good recruiting and retention ability. This is important for any strategy.

Employee recruiting/retention ability has a rating of 60% based on these factors:

Salary levels are average ( 40%)
Employee benefits are average ( 46%)
Qualified personnel are readily available ( 75%)
Enterprise offers an excellent working environment ( 80%)

2.2.1.3 Enterprise Profile - management techniques

This is an analysis of HiLight Inc's management techniques.

A high assertion rating indicates a conservative, tightly controlled management style. This style lends itself to a cost leadership, late market entry type of product business.

A low assertion rating indicates a more loosely controlled, entrepreneurial management style. This style lends itself to a differentiation, early market entry type of product business.

Enterprise profile has a rating of 44% based on these factors:

Enterprise seldom reviews costs ( 0%)
Management seldom reviews objectives ( 15%)
Subjective measurements are used for employee reviews ( 20%)
Enterprise does not maintain tight cost controls ( 25%)
Enterprise seldom takes business risks ( 70%)
Enterprise maintains very formal internal coordination ( 75%)
Enterprise produces an annual business plan (100%)

2.2.2 Operations

The evaluation indicates you are organizationally only partially prepared to implement a marketing strategy. In particular, your materials acquisition and production capabilities appear to be in need of improvement and your ability to produce quality products seems to be mediocre. Your freedom to pursue 'any' strategy is somewhat limited with some distribution constraints and minor pricing constraints as well as some dependence on external factors such as cost and availability of materials, access to suppliers, access to distribution channels and the use of proprietary technologies. Your inability to benefit from economies of scale is a negative factor.

In today’s fast paced environment it is important to keep your product(s) near the leading edge of technology. This usually requires strong research and development skills. In HiLight Inc these skills appear to be only partially established. One part of the R&D process is to develop specifications for new or improved products. These specifications, usually established by engineering and/or marketing, must satisfy market demand and still allow cost effective manufacturing. You appear to have some problems in this area. A major benefit from staying current with technology is the ability to better differentiate your product(s). The various resources and procedures to maintain highly differentiated products appear to be in place.

2.2.2.1 Freedom of Action

This is an analysis of the degree of independent control that is available to HiLight Inc. A high Assertion rating indicates a high degree of freedom. While this is important for any strategy, it is especially important to a cost leadership strategy.

Enterprise degree of independence has a rating of 65% based on these factors:

Enterprise is somewhat dependent upon others ( 58%)
Competitive environment does not limit freedom ( 72%)

2.2.2.2 Economies of Scale

This is an analysis of the extent to which HiLight Inc can benefit from economies of scale. A high Assertion rating indicates a strong potential to benefit from economies of scale which can be a major factor in a cost leadership strategy.

Potential for economies of scale has a rating of 25% based on these factors:

Minimal production overlap with other Enterprise businesses ( 0%)
Operations not shared with other Enterprise businesses ( 20%)
Potential for vertical integration is average ( 55%)

2.2.2.3 Infrastructure Issues

This is an analysis of the potential difficulties the enterprise may encounter due to insufficient infrastructure. A high Assertion rating indicates a minimum potential for infrastructure problems. This factor is critical to all strategies.

Infrastructure Issues has a rating of 62% based on these factors:

Sufficient technicians do not exist to service product ( 30%)
Some difficulty in recruiting/retaining employees ( 60%)
Many product service outlets exist ( 70%)
Product support logistics are excellent ( 70%)
Many complementary products are in place ( 80%)

2.2.2.4 Material/Production Access

A good engineering design for use of materials, the accessibility of those materials, the adequacy of your facilities and the quality of your personnel are all factors that influence your operating costs. A high Assertion rating indicates a good potential for controlling operating costs.

Ability to control production expenses has a rating of 55% based on these factors:

Personnel recruiting, knowledge and retention somewhat positive ( 37%)
Production facility is somewhat effective ( 60%)
Materials are reliably available ( 67%)

2.2.2.5 Quality Control

The ability to insure availability of materials to production, minimize damage to products during shipping, storage and display and the potential to benefit from production experience can all contribute to reasonable operating costs. A high Assertion rating indicates high potential for benefiting from your production management.

Production effectiveness potential has a rating of 62% based on these factors:

New process technology is unlikely to be of benefit ( 30%)
Packaging sometimes protects product from damage ( 60%)
Most materials are standardized ( 70%)
Enterprise likely to benefit from experience curve phenomena ( 70%)
Material substitutes are readily available ( 80%)

2.2.2.6 Research Skills

This analysis evaluates the research and development skills that exist in the enterprise. A high Assertion rating indicates a high degree of skill. This is an essential part of a differentiation strategy.

Research skills within the enterprise has a rating of 79% based on these factors:

Know-how is average ( 66%)
Technology status is excellent ( 75%)
In-house experience is excellent ( 75%)
Quality & skill level is excellent (100%)

2.2.2.7 Specification Manageability

Product specifications, usually established by engineering and/or marketing, must satisfy market demand and still allow cost effective manufacturing. A high Assertion rating indicates a good product specification.

Product specification manageability has a rating of 71% based on these factors:

Product partially meets well-defined industry standards ( 41%)
Product spec's impose minor marketing restrictions ( 75%)
Enterprise has extensive control over product specifications (100%)

2.2.2.8 Product differentiation ability

This is an analysis of the factors that are necessary to allow HiLight Inc to create and maintain a high degree of product differentation. A high Assertion rating indicates strong abilities in this area. This is crucial in support of a differentiation strategy.

Product differentiation ability has a rating of 73% based on these factors:

Employee enjoys average benefits ( 46%)
Internal coordination is strong ( 75%)
Research & development skills are strong ( 79%)
Enterprise personnel have a number of unique skills ( 80%)
Engineering skills are strong ( 80%)
Enterprise has very creative personnel ( 80%)

2.2.3 Marketing & Sales

There are some important responsibilities of the marketing function that should be considered when implementing your strategy.

It is beneficial to be ”known“ in the industry. This can be done through the founder’s reputation, endorsements from high profile personalities, strong performance in customer support, outstanding product capabilities and, of course, a strong market share. The analysis shows that your marketplace image is not good.

Marketing personnel must understand the implications for the new customer when they purchase your product. Will the purchase require installation, training, trial periods, disruption in the day to day processes or other unusual expenses? For Smart-Lite, the implications are somewhat disruptive so marketing should be prepared to deal with a prospect’s concerns.

Another important factor to understand is whether a customer will also be a prospect for the next product or service you have to sell. If you are able to instill loyalty in your customer base, the selling expense for the next product or service is greatly reduced for that portion of your market segment. The analysis indicates your customers are only somewhat likely to be loyal.

Each market has different shopping characteristics. It is helpful to understand how vigorously the prospect is going to be searching for a solution to the problem your product addresses. And, if they are prone to expending research effort, how knowledgeable they are about competitive pricing and quality. In this case it appears the prospect will exert minimal buying effort. When they do consider a purchase, their knowledge of pricing is average and their ability to assess product quality is average.

The marketing organization appears to implementing a limited number of sales incentives. The organization seems fairly well prepared to initiate the sales process and fairly well prepared to provide sales support.

2.2.3.1 Prominence

This is an analysis of the marketplace image of HiLight Inc. This factor is important to successful market penetration and in gaining access to various channels of distribution. A high assertion rating indicates a good marketplace image. This is important to a differentiation strategy.

Prominence of the Enterprise has a rating of 50% based on these factors:

Product will not be endorsed by important parties ( 0%)
Enterprise is new to the business ( 20%)
Enterprise has established some presence in the market ( 40%)
Product has an average record for durability ( 60%)
Enterprise has some intangible assets ( 62%)
Enterprise has excellent reputation for delivery ( 70%)
Enterprise has excellent reputation for technology ( 80%)
Enterprise has excellent reputation for quality ( 80%)
Enterprise has an average reputation for training ([*]%)
Founder's reputation has minimal influence on sales ([*]%)

2.2.3.2 Customers business impact

This is an analysis of the impact on various aspects of the customer's mode of operation as the result of the trial and/or installation of Smart-Lite. A high Assertion rating indicates a low impact on the customer's daily routine.

Product's impact on customer's business has a rating of 73% based on these factors:

Product is not available for trial ( 0%)
Product benefits can be achieved in a reasonable time ( 35%)
Impact to customer operations is minimal ( 75%)
Introduction and/or switch costs are low ( 97%)
Trial costs are minimal (100%)

2.2.3.3 Loyalty of Customer

This is an analysis of the probability of customer loyalty to HiLight Inc or Smart-Lite. A high Assertion rating indicates a high potential for loyalty.

Potential for customer loyalty has a rating of 52% based on these factors:

Few prospects require custom solutions ( 0%)
Enterprise has some visibility in the industry ( 50%)
Prospect has many non-price objectives ( 70%)
Many complementary products are available ( 80%)

2.2.3.4 Shopping Characteristics

This is an analysis of the propensity of the buyer to exert buying and comparision energy prior to making the purchase decision. A high Assertion rating indicates a low propensity for energetic buying and comparison efforts.

Prospect's shopping characteristics has a rating of 66% based on these factors:

Prospect has some knowledge of market price ( 47%)
Prospect will exert some comparison effort ( 52%)
Prospect will exert minimal buying effort (100%)

2.2.3.5 Sales Promotion efforts

This is an analysis of the potential effectiveness of your sales promotion, considering trade allowances, special pricing, contests and other factors. A high Assertion rating indicates strong sales promotion potential.

Evaluation of product promotion efforts has a rating of 32% based on these factors:

Few trade allowances are planned ( 0%)
Minimal sampling effort is planned ( 0%)
Reduced prices will be a seldom used sales technique ( 20%)
Sales contests are not likely to be used ( 20%)
Extensive Point-of-Sale effort is planned ( 70%)
Sales brochures will be a regularly used sales tool ( 80%)

2.2.3.6 Personal selling actions req'd

This is an analysis of the requirement for personal selling efforts to insure that Smart-Lite is properly marketed. A high Assertion rating indicates that minimal actions are required to prepare HiLight Inc for personal selling.

Preparedness of sales organization has a rating of 67% based on these factors:

Some sales bonuses are required ( 50%)
Some recruiting/relocation of sales personnel is required ( 50%)
Some promotion to distributors is required ( 60%)
Technical support requirements are minimal ( 74%)
Product complexity is minimal ( 78%)
A short demo will probably assist in sales ( 80%)

2.2.3.7 Readiness to support sales

This is an analysis of HiLight Inc's readiness to support a sales effort. A high Assertion value indicates a high degree of readiness.

Enterprise's readiness to support sales has a rating of 53% based on these factors:

Inadequate product warehousing is available ( 30%)
Some product maintenance is available ( 40%)
Most logistics are in place ( 70%)
Most product delivery functions are in place ( 70%)

2.3 Ratios

Just as there are ratios that help you evaluate your financial performance there are ratios that help to evaluate your operational performance. For each ratio you should be familiar with what the best in your industry are doing as a comparison. For example, you are projecting that;

Marketing expenses will be 7% of your total expense and 8% of your total revenue in the first year going to 2% and 2% respectively in the fifth year

In the first year your management personnel will represent 27% of your total work force changing to 14% in the fifth year

Your revenue per employee will be $30,333 in year 1 growing to $40,761 in year 5

Your revenue per salesperson will be $455,000 in year 1 growing to $3,138,625 in year 5

Unit production cost will be $28 in year 1 improving to $20 in year 5

If you can operate such that these ratios are better than your competition, you will probably be a leader in your industry.

2.3.1 Expense as a % of Total Expense

One way to analyze your expenses is to view them as a percent of your total expense. By tracking any given expense factor over time, you can usually determine whether it is reasonable just by determining if it is consistent with prior years as a percent of total expense. You can also look to industry norms to see if your expenses are within reason.

  2007 2008 2009 2010 2012
Mkt/Sales 7% 3% 3% 2% 2%
Customer Service 7% 9% 8% 8% 9%
Production 43% 56% 60% 64% 64%
Development 14% 6% 5% 4% 3%
G & A 30% 26% 24% 21% 21%
Other Expense 0% 0% 0% 0% 0%
Total Expense 100% 100% 100% 100% 100%

2.3.2 Expense as a % of Revenue

One way to analyze your expenses is to view them as a percent of your revenue. By tracking any given expense factor over time, you can usually determine whether it is reasonable just by determining if it is consistent with prior years as a percent of revenue. You can also look to industry norms to see if your expenses are within reason.

Another way to analyze your expenses is to view them as a percent of your revenue. In particular you should pay attention to marketing expenses as a percent of revenue. These expenses are normally the most volatile and difficult to assign direct benefits to. Again, you can look to industry norms to see if your expenses are within reason.

  2007 2008 2009 2010 2012
Revenue 100% 100% 100% 100% 100%
Expenses
Mkt/Sales 8%3% 3% 2% 2%
Customer Service 8%8% 8% 7% 8%
Production 53%54% 59% 56% 56%
Development 17%6%5%3% 3%
G&A 36%25% 24% 18% 18%
Other 0%0% 0% 0% 0%
Total Expense 123% 97% 97% 86% 87%

2.3.3 Management/Employee Ratio

The ratio of management personnel to non-management personnel is a rule of thumb for measuring the efficiency of the organization. Enterprises in their infancy will often have a difficult time separating managers from non-managers. Childhood enterprises often have a high number of non-management versus management personnel with the more mature enterprises settling into a more traditional ratio of about one manager for every seven employees or about 14%.  In recent years, however, new technologies and changing approaches to management have lowered the ratio to the 7% to 10% range. The ratio of management personnel to non-management personnel is a rule of thumb for measuring the efficiency of the organization. Young enterprises often have a high number of non-management versus management personnel with the more mature enterprises settling into a more traditional ratio of about one manager for every seven employees or about 14%. In recent years, however, new technologies and changing approaches to management have lowered the ratio to the 7% to 10% range.

  2007 2008 2009 2010 2012
Management 8 8 9 10 11
Total Employees 30 42 56 67 77
Managers/Employees 27% 19% 16% 15% 14%

2.3.4 Revenue per Employee and Salesperson

The relationship of revenue to employee count has long been a measuring stick for sales efficiency. The revenue per employee or sales person varies widely by industry. You should understand what the best in your industry are accomplishing and compare your projections with those numbers.

  2007 2008 2009 2010 2012
Revenue $910 $1,536 $2,025 $2,706 $3,139
Total Employees 30 42 56 67 77
Revenue/Employee $30 $37 $36 $40 $41
Total Sales Personnel 2 1 1 1 1
Rev/Sales Person $455 $1,536 $2,025 $2,706 $3,139

2.3.5 Manufacturing Cost per Unit

It is important to understand what it is costing you to manufacture each unit of Smart-Lite. Normally you would expect the costs to decrease each year as you gain more manufacturing experience. If it doesn't you should review your manufacturing expenses.

  2007 2008 2009 2010 2012
Mfg Exp. (000) 484 832 1185 1502 1742
Sales Volume 17500 32000 48000 65000 85000
Mfg Cost/Unit 28 26 25 23 20
Improvement 0% 6% 11% 16% 26%

3 Financials

This section is a very high level review of some of the financial factors that will influence your strategy.

It begins with your financial history and then reviews the investment you are planning for this strategy. You can then look at the average selling price you can expect your product(s) to sell for in the open market which leads to the projected income and expense statement. This allows you to compare the projected results against your objectives and finally to determine whether the strategy is going to give you an acceptable return for your investment.

3.1 History

FINANCIAL HISTORY (000's)
2002 2003 2004 2005 2006
Revenue$0$0$0$200$350
Profit Before Tax$0$0$0$5$57
PBT %0%0%0%3%16%
Cumulative PBT$0$0$0$5$62

3.2 Capitalization

Start-up Capitalization
Initial advertising expenses$75,000
Research and development expenses$0
Startup facilities expenses$25,000
Initial product inventory expenses$20,000
Initial operating expenses$150,000
Emergency/Other funds$0
Initial capital investment requirements$270,000

3.3 Average Selling Prices

Average Selling Price
2007 2008 2009 2010 2012
Retail Price$80.00$80.00$75.00$75.00$70.00
Sales Volume17,50032,00048,00065,00085,000
Calculated ASP$52.00$48.00$42.19$41.63$36.93
ChannelDisc.% of Total Volume
Retail0%20%10%5%5%5%
Full service45%60%60%55%50%45%
Self service40%20%25%25%25%15%
Wholesale60%0%5%15%20%35%

3.4 P & L - Income Statements

INCOME STATEMENT (000)
2007 2008 2009 2010 2012
Revenue$910$1,536$2,025$2,706$3,139
Expenses:
Mkt/Sales 77 46 51 5662
Customer Service 76 131 162 194 256
Manufacturing 484 832 1185 1502 1742
Development 155 86 91 86 86
G&A 332 388 480 500 576
Other Expenses 0 0 0 0 0
Total Expense $1,123 $1,483 $1,969 $2,338 $2,722
Pre-Tax $ ($213) $53 $56 $367 $416
Pre-Tax % -23% 3% 3% 14% 13%

3.5 Objectives vs Projections

Revenue & Expenses (000's)
2007 2008 2009 2010 2012
Objectives
Revenue $750 $1,125 $1,688 $2,531 $3,797
Expenses $600 $900 $1,350 $2,025 $3,038
Pre-tax $225 $225 $338 $506 $759
Pre-Tax % 20% 20% 20% 20% 20%
Projections
Revenue $910 $1,536 $2,025 $2,706 $3,139
Expense $1,123 $1,483 $1,969 $2,338 $2,722
Pre-Tax ($213) $53 $56 $367 $416
Pre-Tax % -23% 3% 3% 14% 13%

3.6 Internal Rate of Return (IRR)

Projected Return on Investment (000's)
Initial Capital$270,000
Discount Rate 5%
2007 2008 2009 2010 2012
Revenue $910 $1,536 $2,025 $2,706 $3,139
Expense $1,123 $1,483 $1,969 $2,338 $2,722
Profit % -23% 3% 3% 14% 13%
Profit ($213) $53 $56 $367 $416
Disc. Profit ($213) $50 $51 $315$339
Cum. Profit($213)($160)($104)$263$679
Annualized IRR 0% 0% 0% 0%18%

4 Strengths

Every enterprise has some unique operational strengths, business relationships, product capabilities or market segment characteristics that they can rely on as they implement their marketing strategy. The analysis indicates that the following aspects of your business can be used in support of your strategy.

Pricing constraints
Cost for customer to introduce and switch to your product
Prospect's buying knowledge
Advantage's of purchasing your product
Impact of cultural trends
Strength of enterprise's channels of distribution
Cost benefits profile of product
Adequacy of distribution network
Development personnel capabilities
Legal Considerations & Issues


5 Weaknesses

Likewise, every enterprise has some operational processes, business relationships, and lack of product capabilities or market segment characteristics that make the implementation of their marketing strategy more difficult. The analysis indicates that the following aspects of your business should be improved or compensated for in some way to minimize their negative impact on your strategy.

Publicity campaign experience
Availability of promotional information
Publicity campaign activity
Probability of publicity campaign success
Potential for economies of scale
Enterprise's publicity campaign effort
Experience level of all competitors
Evaluation of product promotion efforts
Potential for reducing production costs over time
Protection of proprietary technology


6 Conclusion

To summarize, at the highest strategic level you are pursuing a focused differentiation strategy.

You will be selling a physically small, technically unique, low maintenance product that is viewed with little interest by the scientific community.

HiLight Inc has targeted a regional prospect base that is is lightly dispersed with the following composition.

10%Individuals
20%Small companies
30%Mid-size companies
0%Religious or philanthropic orgs.
30%Large companies
0%State/Federal government agencies
5%Other

Less than 50% of the prospect base are expected to be past customers, which implies high marketing costs. In general, the prospect has acceptable financial resources with all currently having the physical resources to install and use Smart-Lite. The purchase of a product like Smart-Lite is considered to be of some, but not essential, benefit to the prospect's business.

In concert, you plan to implement an an aggressive market penetration pricing strategy, a push promotion strategy and a distribution strategy that uses external distribution channels and also uses an in-house sales organization.

On a scale of zero to one hundred, the analysis assigns a probability of 56 that you can successfully implement this strategy. This conclusion has been reached by evaluating the following factors:

FactorRating
The Prospect54
The Product62
The Competition46
The Environment75
The Enterprise53
Marketing & Sales52
Engineering & Development70
Production47
Customer Service54
Market Penetration Potential66
Long Term Profit Potential50

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