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Team 3Divye GoyalRebecca PapilloJoseph SakrPatrick Tehan
iRobotStrategic Recommendations
iRobot’s business is based on three key pillars
Management expertise
- Financial position
Concentrated customer base
R&D expertise- Employs nearly 50% of staff
Military- Tender process- Spiral development
Non-military- Variable demand- Limited product awareness
How can iRobot reduce demand volatility and thus build a platform for profit growth?
Cost Cutting
How can iRobot reduce demand volatility and thus build a platform for profit growth?
Growth from existing operations
Growth from new operations
New products
New customers
Geographic expansion
iRobot needs to leverage existing operations and look at new areas for growth
Collectively, these three strategies will address the key question
How can iRobot reduce demand volatility and thus build a platform for profit growth?
New target market Existing target market
Enhance product integration Improve volumes
“Mowbot” gardening robot TV advertisingCommercial cleaning
robotNPV: USD 116.9m NPV: USD 280.2m NPV: USD 73.6m
Commercial Cleaner | Mowbot | Marketing
Commercial cleaning provides a ripe opportunity for iRobot’s expansion into a new market
• New customers provide diversification benefits
• Less volatile demand because of differences between commercial and private usage.
• Cleaning equipment market is growing quickly
• Have industry expertise
2009 2010 2011 2012 2013 2014 2015 -
1
2
3
4
5
6
7
8
9
Source: BCC Microelectronics Cleaning Report, 2010
Global market for microelectronics cleaning equipment, 2010 ($USD Billions)
Commercial cleaning robotics is a viable and lucrative market
Commercial Cleaner | Mowbot | Marketing
We propose a new paradigm - increased speed, battery life and capacity – scaling towards industrial robotic cleaning
2002- Roomba Robot
initial launch
2004- Red- Discovery
2005- Scheduler
2006- Dirt Dog- Intellibin
2007- 560 range
2010- 610 range
Specifications Roomba 610 “Comm-bot 1000”
Speed 80m2/hr 200 m2/hr
Weight/diameter 8.3 lbs/13-inch 30 lbs/30-inch
Capacity 1 x regular bin1 x high capacity bin
4 x high capacity sweeper bin
Battery life 2 hours, 3 hours recharge 8 hours, 15 hour recharge
Source: iRobot.comCommercial Cleaner | Mowbot | Marketing
The commercial cleaner’s cost-effectiveness will render it an attractive proposition for its target markets
• Focus where cleanliness is necessary but not core to business
• Factories• Libraries• Educational institutions
• Attractive pricing allows quick break-even points
• Warranties and associated maintenance provide feedback channels
1 4 7 10 13 16 19 22 25 280
2000
4000
6000
8000
10000
12000
Source: Payscale, iRobot financial report
Comparison of manual cleaning and automated cleaning vs. time
Commercial Cleaner | Mowbot | Marketing
A specialised sales team will enable marketing that specifically targets the concentrated customer bases
Manufacturing
• Continue current manufacturing processes
• Focus manufacturing in the US plant
• Allows better monitoring
Research and Development
• Continue team model for R&D expenditure
• Hire 20 staff and group them under a new team
• Cross functional- commercial expertise
Sales
• New product requires different selling approach
• Outsource dedicated sales team
• Target developed countries
Commercial Cleaner | Mowbot | Marketing
The risks associated with a commercial cleaner can be mitigated
Sales personnel not meeting expected targets
Performance management procedures for sales personnel
Production delays after orders taken Contract financial penalties for delay which are then passed onto consumers
Loss of control of sales message Initial training regarding product specifications and updates every year
Commercial Cleaner | Mowbot | Marketing
How can iRobot reduce demand volatility and thus build a platform for profit growth?
New target market Existing target market
Enhance product integration Improve volumes
“Mowbot” gardening robot TV advertisingCommercial cleaning
robotNPV: USD 116.9m NPV: USD 280.2m NPV: USD 73.6m
Collectively, these three strategies will address the key question
Commercial Cleaner | Mowbot | Marketing
Introducing a new product will ease volatility through diversification and entrenchment in customers’ lives
Diversification
Entrenchment in consumer products
market
Reduced volatilityReduced reliance on
single product
Reduced volatilityEnhanced customer
loyalty
New “Consumer
goods”product
Commercial Cleaner | Mowbot | Marketing
Expanding into horticulture represents the most attractive proposition
Commercial Cleaner | Mowbot | Marketing
“Mowbot” will be fully automated and will leverage off existing Roomba technology
• Multi-functional device• Lawnmower• Line trimmer• Water’s gardens• Weed spray
• Uses existing Roomba sensory technology
• Has safety lights, plastic guard and rubber wheels for wet weather navigation
Commercial Cleaner | Mowbot | Marketing
The “Mowbot” will be US-focused using existing operational expertise
• Predominantly distribute through US retailers and online channels
• Target similar customer base as Roomba
• Middle-high class segment
• Research and Development will require extra 30 personnel
• Manufacturing to continue at three plants
Commercial Cleaner | Mowbot | Marketing
The risks associated with Mowbot can be mitigated
Perception of dangerous product Automatically turns off when bumped, protective case and guard railing installed
Local regulation regarding unmanned robots
Work with local councils to address further noise/safety concerns. Similar approach to competitors
Disruption to factory production Use of multiple, geographically diverse factories diversifies factory-specific risks
Commercial Cleaner | Mowbot | Marketing
How can iRobot reduce demand volatility and thus build a platform for profit growth?
New target market Existing target market
Enhance product integration Improve volumes
“Mowbot” gardening robot TV advertisingCommercial cleaning
robotNPV: USD 116.9m NPV: USD 280.2m NPV: USD 73.6m
Collectively, these three strategies will address the key question
Commercial Cleaner | Mowbot | Marketing
The use of traditional mass media will raise consumer awareness of iRobot products
Social Media:Trust in Advertising Characteristic Traditional mass media:
Trust in Advertising
Wealthy
45-55 years old
Tech savvy
Time poor
Commercial Cleaner | Mowbot | Marketing
Television represents the most attractive advertising medium
Commercial Cleaner | Mowbot | Marketing
Advertising will be carefully targeted towards wealthy, time poor consumers
Mad
Men
Leve
rage
The Closer
Burn Notice
0.00
500000.00
1000000.00
1500000.00
2000000.00
• Advertise during shows with wealthy viewers
• Use advertisements to demonstrate the value of household robotics
• Grow customer interest within industry
• In turn, sales growth of existing products
Source: Neilson Media Research, 2009
Number of viewers (USA) with income > USD 100K, 2009 (millions)
Advertise during high rating television shows between 7-11pm weeknights
Commercial Cleaner | Mowbot | Marketing
The risks associated with television advertising can be mitigated
Brand is tied too closely to a particular television show
Advertise during several high rating television shows
Price of advertising during selected time slot increases
Look to alternative advertising options including radio and print media
Commercial Cleaner | Mowbot | Marketing
The commercial cleaning strategy will return a net present value of USD 116.9m over ten years
NPV = USD 116.9m
IRR = 55.92%
Revenue Drivers Cost Drivers
Sales R&D costs
Cross-selling Manufacturing costs
Sales team costsYear
1Year
2Year
3Year
4Year
5Year
6Year
7Year
8Year
9Year 10
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
Total RevenuesTotal Expenses
The Mowbot strategy is predicted to have a net present value of USD 73.60m
NPV = USD 73.60m
IRR = 36.05%
Revenue Drivers Cost Drivers
Sales R&D costs
Cross-selling Manufacturing costs
Administrative costs
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
$90,000,000
Total Revenues
Total Expenses
The marketing strategy also creates value for iRobot, returning a net present value of USD 280.2m
NPV = USD 280.20m
IRR = 34.29%
Revenue Drivers Cost Drivers
Additional sales Agency fees
TV network fees
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
$450,000,000
Total Revenues
Total Expenses
Collectively, these strategies will add USD 470.7m to iRobot’s bottom line
NPV = USD 470.7m
IRR = 37.33%
Payback period = 4.1 years
Growth RateWACC 2% 4% 6.76% 8%
6% 34.67% 36.49% 39.20% 39.98%7.32% 33.02% 34.76% 37.33% 38.08%
10.00% 29.80% 31.37% 33.69% 34.37%12.00% 28.31% 29.80% 32.01% 32.65%
Sensitivity Analysis
Value added to iRobot by each strategy in USD (m)
Implementation timeline
Recruit R&D staff
Design, develop, modify
Launch productPartner with sales org
Continuous monitoring and improvement
Evaluate sales team performance
March 2011 March 2012 March 2013 March 2014
Com
mer
cial
cl
eane
rM
owbo
tAd
verti
sing
ca
mpa
ign
Recruit R&D staff
Design, develop, modify Launch product
Continuous monitoring and improvementExpand distribution
capacity
Contract ad agency
Negotiate with network
Develop and produce ad Launch ad
Measure effectiveness
Begin subsequent campaign
Launch ad
How can iRobot reduce demand volatility and thus build a platform for profit growth?
New target market Existing target market
Enhance product integration Improve volumes
“Mow-bot” gardening robot TV advertisingCommercial cleaning
robotNPV: USD 116.9m NPV: USD 280.2m NPV: USD 73.6m
Collectively, these three strategies will address the key question
Appendices
Commercial cleaning Mow-bot TV ads Financial General
Social costs Market price Television ad message Key Statistics Scope for vertical integration
Performance management Harvey balls- cooking Harvey ball data Assumptions Risk of obsolescence
Why outsource Harvey balls- bathroom
Decline of TV effectiveness
Comm. Cleaning - Modelling Effect of doing nothing
Where to outsourceHarvey balls- laundry Why TV the preferred
advertising methodComm. Cleaning - Revenues
Usefulness of 10-year horizon
Returns policy Competitor analysis Alternate strategy if ads become too expensive
Comm Cleaning - Expenses Geographic expansion potential
Cleaning area assumptions
Competitors "free-riding" off our marketing
Mowbot - Modelling Resources available to implement strategies
Advertising location Mowbot - Revenues Rejected strategies
Mowbot - Expenses Role of military customer
Marketing - Modelling Presentation Slides
Marketing - Revenues
Marketing - Expenses
Funding mix
How will these strategies be funded?
• Funding is of fundamental importance
• iRobot has been savvy in its financing decisions to date
• As well as avoiding downturns, cash creates opportunities
• As such, we propose adopting an identical funding model as currently stands
• The equity component will be raised through a rights issue
31.26%
2.00%
66.73%
Current liabilities
Non-current liabilities
Equity
Current financing arrangements for iRobot
Source: Annual Financial Report
What would happen if we were to reject these strategies?
• Not only do these strategies provide a positive effect on iRobot’s bottom line, but they also help avoid the negative base-line case of doing nothing.
• What does this mean? Industry analysts, such as Roger Christian, VP at Motoman, agree that the robot industry must grow strongly, and quickly, in order to survive
• Inaction may well cripple the industryYear 1 Year 2 Year 3 Year 4 Year 5 Year 6
0
100
200
300
400
500
600
700
800
Revenues with our strategies
Revenues without our strategies
Revenues in USD (m)
Source: Financial modelling
Do you have the resources to implement two new products at once?
• There is a real and present danger that iRobot faces, in terms of spreading itself too thinly
• This issue is particularly acute for iRobot, because of the relative scarcity of good personnel – robotics is still only an emerging field
• To mitigate this risk, our recommended implementation timeline staggers the new projects a year apart, in order to have more time to attract staff
Recruit R&D staff
Design, develop, modify
Launch productPartner with sales org
Continuous monitoring and improvement
Evaluate sales team performance
March 2011 March 2012 March 2013 March 2014
Com
mer
cial
cl
eane
rM
owbo
t
Recruit R&D staff
Design, develop, modify Launch product
Continuous monitoring and improvementExpand distribution
capacity
What strategies did you reject and why?
Strategy Description Reason for Rejection
Alternative energy
Devoting R&D expertise to booming area of renewable energy generation
Requires highly specialised knowledge, beyond mere robotics
Medical procedures
Applying robotic controls to common surgical procedures, such as prostate surgery, minimises blood loss and speeds recovery time
Requires highly specialised knowledge, beyond robotics
Creation of prosthetics
Using expertise in robotics to create sensate, responsive prosthetics for amputees – DARPA grants are available
Already a highly competitive and innovative field, and it would be difficult to quickly gain market share
Military projects
Creating a new robotic military technology, as has occurred in the past with UAVs and the like
Tender-based, so independent innovation is wasteful, and relationships are already developed
Consumer & commercial cooking
Either domestic or mass-produced meals produced by automation
Quality would likely suffer, and any robotic meal preparation would likely have limited appeal
The future role of the military in iRobot’s future
• The role of the military, as iRobot’s largest customer (making up around 40% of revenue), is critical.
Dealings with government
Sales Relationship
Tender-based Alternative is unviable
Spiral feedback
Nature of government
On this analysis, iRobot will maintain both its relationship with the military, as well as its sales.
Why did you pursue television advertising despite its failing effectiveness in advertising?
• While its effectiveness may be decreasing, we believe this is more of a normalisation than a decline.
• Television has enjoyed decades of being the central entertainment hub, and with the expansion of consumer technology (social media, computer gaming, iPods, internet, cable), it is reasonable to see a decline in its popularity.
• Indeed, television is still an effective mechanism of advertising – this is indicated by the value the market places on it (see graph, left).
Source: Signtel.com
Commercial Cleaning – where to outsource sales teams
• Sales team locations• 2 x North America
• Boston• Los Angeles
• 1 x Asia• Tokyo, Japan
• 1 x Europe• London, UK
• Targeting wealthy, industrial cities with established sales outsource teams and reputation for technology uptake
Source: NASA, SalesForce Inc, Sales Inc, Lighthouse sales
Strategy 2 – Criteria for judging the attractiveness of other types of products (Cooking)
Criteria Reasoning Horticulture
Large Market sizeUSD 13.5b
Fast food spending used as proxy: Key Note consulting
USD 16.4bFreedonia Market Research
Ongoing Market growth5% until 2015
Bain industry analysis report
3.4%Freedonia Market Research
Quality of Output expectedHygienic Concerns
Consumers expect higher levels of output for food.
No hygienic concerns. Consumers are not too concerned with quality
control.
Strategy 2 – Criteria for judging the attractiveness of other types of products (Bathroom Cleaning )
Criteria Reasoning Horticulture
Large Market size USD 4.7bFreedonia Market Research
USD 16.4bFreedonia Market Research
Ongoing Market growth 27%PackagedFacts.com
3.4%Freedonia Market Research
Quality of Output expectedHygienic Concerns
Consumers expect higher levels of output for bathroom cleaning.
No hygienic concerns. Consumers are not too concerned with quality
control.
Strategy 2 – Criteria for judging the attractiveness of other types of products (Laundry equipment)
Criteria Reasoning Horticulture
Large Market sizeUSD 10.0b
MindBranch Industry Report
USD 16.4bFreedonia Market Research
Ongoing Market growth6.4%
MindBranch Industry Report
3.4%Freedonia Market Research
Quality of Output expectedHygienic Concerns
Consumers expect higher levels of output for laundry
cleaning.
No hygienic concerns. Consumers are not too concerned with quality
control.
Key Financial Statistics
Strategy Net Present Value Internal Rate of Return Initial Capital OutlayCommercial Cleaning USD 116.9m 55.92% USD 41.2mMowbot USD 73.6m 36.05% USD 50.3mMarketing Strategy USD 280.2m 34.29% USD 186.3mOverall USD 470.7m 37.33% USD 470.7m
Key Financial Assumptions
WACC Item Data SourceEquity 133,194,000$ iRobot Financial ReportsDebt 62,376,000$ iRobot Financial ReportsValue 195,570,000$ (E/V) 68.11%Return on equity 9.26% (R(f) = 0.25%, beta = 1.10, R(m) = 10.69%)(D/V) 31.89%Return on debt 3.17% iRobot Financial ReportsWACC: 7.32% WACC = (D/V) x RoD + (E/V) * RoE
Strategy Data SourceRisk free rate 0.25% US Federal ReserveBeta 1.10 Yahoo Finance and Capital IQReturn on Market 10.69% S&P 500 average growth over 3 years
Strategy Growth Rate SourceCommercial Cleaning Strategy 15.00% BCC Microelectronics Cleaning Report, 2010 quotes 18.60%Mowbot Strategy 3.40% The Freedonia Group Market Research Report, 2009Marketing Strategy 4.20% GroupM Analyst Report, 2010Overall Growth Rate 6.76% Average of the three, weighted by size of NPV
Financial Modelling Excerpt – Commercial Cleaning
Strategy 1 - Comm Cleaning Year 1 Year 2 Year 3 Year 4 Year 5RevenuesDirect sales revenue 61,811,299$ 69,537,711$ 77,264,123$ Cross-selling revenue 61,811$ 69,538$ 77,264$
Total Revenues -$ -$ 61,873,110$ 69,607,249$ 77,341,388$
ExpensesResearch and Development Costs 2,866,140$ 2,866,140$ Sales Team costs 640,000$ 736,000$ 846,400$ 973,360$ Manufacturing costs 34,768,856$ 39,984,184$ 45,981,811$ 52,879,083$ Total Expenses 2,866,140$ 38,274,996$ 40,720,184$ 46,828,211$ 53,852,443$
Net Profit 2,866,140-$ 38,274,996-$ 21,152,926$ 22,779,037$ 23,488,944$ Discount Factor 1.07 1.15 1.24 1.33 1.42 Present Value of Profit 2,670,695-$ 33,232,963-$ 17,113,992$ 17,172,882$ 16,500,545$
Revenues – Commercial Cleaning Strategy
Direct sales revenue Cross-selling revenueAve sq m per library(Salt Lake City Public Library) 2055.555556 Robot revenue 77,264,123$ No of libraries in USEstimate 30000
Uptake proportionEstimate 0.10%
Ave sq m per schoolEstimate 3000No of schools in US(Centre for Education Reform) 132000Ave sq m per university(Based on NYU as a proxy, but reduced by 40%) 36000No of universities in US(US Department of Education) 4861Ave sq m per factory(US Energy and Information Administration) 1933.333333No of factories in US 1000Total area 634596000No of sq m covered in a night 1600Proportion on east and west coastsEstimate 10%Proportion of schools who adopt 10% p.a. for 5 yrsNo of sq m covered 3966.225Proportion of sales in the US 46%No of robots required 8584.902597Price per robot 9000
77,264,123$ 77,264$
Revenues from Commercial Cleaning Robot
Expenses – Commercial Cleaning Strategy
Research and Development Costs Sales Team costs Manufacturing costs
Using a team structure: No of members 4% of revenueAnnual Report indicates 32.6% 45%
No of team members 20 No of teams 4 Total revenue 77,264,123$
Average annual wage at iRobotAnnual Financial Report 143307
Average wage (including bonus)Payscale (increased by 15%) 40000 *Adjusted from 32.6%
No of years for project 25,732,280$ *$35360 (Payscale) 640,000$ 34,768,856$
Expenses from Commercial Cleaning Robot
Financial Modelling Excerpt – Mowbot
Strategy 2 - Mowbot Year 1 Year 2 Year 3 Year 4 Year 5RevenuesSales 55,757,576$ 62,727,273$ 69,696,970$ Cross-selling 557,576$ 627,273$ 696,970$
Total Revenues -$ -$ 56,315,152$ 63,354,545$ 70,393,939$
ExpensesR&D Costs 4,299,210$ 4,299,210$ Manufacturing Costs 34,848,485$ 36,033,333$ 37,258,467$ 38,525,255$ Administrative Costs 6,969,697$ 7,206,667$ 7,451,693$ 7,705,051$ Total Expenses 4,299,210$ 46,117,392$ 43,240,000$ 44,710,160$ 46,230,305$
Net Profit 4,299,210-$ 46,117,392-$ 13,075,152$ 18,644,385$ 24,163,634$ Discount Factor 1.07 1.15 1.24 1.33 1.42 Present Value of Profit 4,006,043-$ 40,042,266-$ 10,578,585$ 14,055,811$ 16,974,502$
Revenues – Mowbot Strategy
Sales Cross-sellingUS Lawnmower Sales(Freedonia Market Research) 3220000000 Revenue 69,696,970$ Proportion of market captured 1% p.a. for 5 yrs Proportion of cross-selling 1.00%Projected US sales 32200000Proportion of sales in the US 46%
69,696,970$ 696,970$
Revenues from Mowbot
Expenses – Mowbot Strategy
R&D Costs Manufacturing Costs Administrative Costs
Using a team structure:% of revenue(Financial reports quote 32.6%) 50% Warranties 1%
No of team members 30 Total revenue 69,696,970$ Marketing 5%Average annual wage at iRobot(Annual Financial Report) 143307 Training & admin 4%No of years for project 2 Total 10%
Revenues 69,696,970$ 8,598,420$ 34,848,485$ 6,969,697$
Expenses from Mowbot
Financial Modelling Excerpt – Marketing Strategy
Strategy 3 - Marketing Year 1 Year 2 Year 3 Year 4 Year 5RevenuesAdditional Sales 275,308,950$ 286,871,926$ 298,920,547$ 311,475,210$
Total Revenues -$ 275,308,950$ 286,871,926$ 298,920,547$ 311,475,210$
ExpensesAdvertising fees 199,680,000$ 208,066,560$ 216,805,356$ 225,911,180$ 235,399,450$ Advertising Agency 250,000$ 260,500$ 271,441$ 282,842$ 294,721$
Total Expenses 199,930,000$ 208,327,060$ 217,076,797$ 226,194,022$ 235,694,171$
Net Profit 199,930,000-$ 66,981,890$ 69,795,129$ 72,726,525$ 75,781,039$ Discount Factor 1.07 1.15 1.24 1.33 1.42 Present Value of Profit 186,296,597-$ 58,158,247$ 56,468,465$ 54,827,780$ 53,234,764$
Revenues – Marketing Strategy
Revenues from Marketing
Additional Sales
% expected increase in sales 5%
Existing sales 262199000
$ 275,308,950
Source: McKinsey Advertising Industry Report, 2010
Expenses – Marketing Strategy
Advertising fees Advertising Agency
No of 30 second slots:Ave cost of advertising campaign(Adage.com) 250000
No. of ads per hour 1 national advertisingAmount of hours per night in PT 4 campaignNo of days per week 4No of weeks in campaign 26Total no of 30 second slots 416Ave price for PT 30 second slot(Adage.com) 320000
133,120,000$ 250,000$
Expenses from Marketing
Advertising Harvey ball data
Access to target ConversionConveys product
experienceCost per customer
Television
Wealthy consumers watch the shows targeted
1-4% Copernicus marketing
Engages most senses. Easiest way to demonstrate capabilities
320 000/7.6m = 4.2c USA network viewing figures, adage.com
Wide demographic which includes but not targets high income individuals
2-3%
HTG industry report
Relies on sight, can grab attention but not experience
1500/876,638 = 0.17c New York Times, Boston Globe
Radio
Wide demographic which includes but not targets high income individuals
1.5-4%
HTG industry report
The functionality of Roomba can’t be exploited. Cannot see.
20 000/1m = 0.2cRadio marketing bureau, WABC listener numbers
Direct mail
No targeting at all, can mail based on suburb income but nonetheless haphazard.
1-3%Copernicus marketing
Cheapens image and relegates brand to ‘junk mail’ status
$1,500/1,000 = 1.5cSmallbusiness.com
Speed assumptions for Commercial cleaner
roomba 610 source Commbotrooms per hour 4 -
size of average room (m2) 20international residential code 200
battery life (hours) 2 8Charge time (hours) 3 15total area per run/charge cycle (m2) 160 1600cycles per night 1.8 (9 hours) 1total cleaned area per night 288 1600
Is it reasonable to make a ten year projection?
• It can be argued that a ten year financial projection in the robotics industry is misplaced, as the industry and technology change so swiftly.
• However, we believe that the following is more convincing:
• First, the robotics industry has long lead times, and hence needs long-term thinking
• Secondly, sophisticated decision-making requires long-term thinking, even if the future is not perfectly clear
• Thirdly, our projection is for current projects only, and is not a projection of iRobot’s business as a whole. The outlook for those projects should be relatively stable.
Geographic expansion
• We considered, and then rejected, the idea of a geographic expansion strategy, for three reasons:
• First, iRobot already has a booming international presence, and is quickly growing
• Secondly, the nature of iRobot’s business is such that there is no need for a physical expansion – it already utilises global channels such as its partnership with Amazon
• Thirdly, we believed that other avenues of diversification, namely in commercial cleaning and gardening, would be more profitable in the long run, as they would continue iRobot’s success in pioneering ‘blue ocean’ markets
Mowbot Competitor analysis
• The robotics industry as a whole has not proved to be a necessity in the consumer electronics market
• Hence, competition will help push this market into customers’ minds and lower prices
• As a cost-leader, iRobot has the ability to fight price wars and hence wants to encourage competition which will increase the market as a whole.
• Incumbent products are: RoboMower and LawnBott• Still blue-ocean given iRobot was the last entrant in the automated vacuum
market but still captured majority of market. • Additionally, Mow-bot will have more features: line trimming, weed spraying and
watering
Returns policy for Comm-bot
• Given the higher price margin and higher usage load, offer a longer warranty to appease consumer indecision regarding product.
• Roomba has a 1 year warranty, the Comm-bot 1000 will have a 3 year warranty which includes battery life and full parts warranty
• High level of manufacturing expertise and design will ensure this expense is kept to a minimum
• Further, the higher price charged allows greater flexibility in warranty options on behalf of iRobot
What message will the television advertisements convey?
• The television advertisements will promote the iRobot brand as an essential part of stylish living, adding a layer of serenity, ease and freedom to the everyday lives of its consumers
• The advertisements will convey the functionality of the products, with a focus on the best selling Roomba, and how the products integrate seamlessly into family life
• Overall, stress the importance and usefulness of robotics within the home and ensure it is a ‘must-have’ item
Should iRobot consider vertical integration or broader manufacturer arrangements?
• Vertical integration addresses two problemsa) Lowers costsb) Increases certainty of supplies
• Neither of these is an issue for iRobot, • Already cost leader • Has a long term contract with one manufacturer and two other reliable
manufacturers
• Further to this, manufacturing is beyond iRobot’s core areas of expertise and may add unnecessary complexity to the organisation, which would prove costly
How should iRobot deal with the risk of obsolescence?
• R&D is one of the core competencies of iRobot:• 6% revenue reinvestment• Nearly 50% of staff in R&D
• iRobot must maintain organisational focus on innovation• Recruit the best people – hire graduates from the best engineering schools and
experienced hires from firms with similar specialisations• Provide good remuneration to attract and retain staff• Continue to invest heavily in R&D
What are the social costs of introducing a commercial cleaner?
• Unemployment may result from the introduction of a commercial cleaner into industries and commercial organisations
• Labour is very costly and often an overhead expense which business’ seek to reduce
• iRobot is in the business of creating solutions and improving the efficiency of everyday tasks
• Innovation is necessary to continue to minimise the costs that businesses face, allowing them their ability to improve products and services delivered
Performance management of sales staff for commercial cleaner
• Utilisation of trusted sales organisation• Salesinc – 12 years experience, created $1b in sales for clients• Salesforce- One of the largest sales organisations in the world. Provides online
and telephone support as well• Lighthouse sales – focus on emerging and new technology companies
• Work closely with sales organisation to train staff in iRobot products and experience• 2 day intensive course• Regular information packs with updated information• Helpline
• Regular monitoring and evaluation of sales performance• 10% success rate requirement which is the rate used in financial analysis
Commercial Cleaning – why outsource
• Focus on core competencies- design, develop and market robotics
• Given the multinational sales channel, would need to establish a cross-country sales team which would be both labour and capital extensive
• In addition, don’t have local knowledge which helps in sales techniques
• iRobot of successful alliances.• Although mainly manufacturing firms, highlights in the importance placed on
quality and choosing the best people for the job, not the cheapest. • Use same thought-process for sales team.
Mow-bot price
• High variability in lawnmower prices from competitors• Robomower RM200: $900 at lower end• LawnBott LB 3510: $4000 at upper end Source: Amazon.com
• Thus, iRobot can safely price within this range which allows a margin enhancement to the current Roomba product line
• Also, given the proposed “Mow-bot” will have added features, we can once again charge a greater premium
• As iRobot is the cost leader, can ensure a price war can be fought if eventuated
Alternative if ads become too expensive
• TV advertising is a great way to enhance brand exposure but must continue to look at cost-benefit analysis
• If too expensive, not worthwhile to pursue this avenue
• Look at radio and print media which were the next best advertising alternatives to again drive customer knowledge and provide enhanced experience
Why TV is the prefferred option to increase robotic industry exposure
• Average American watches “3 hours and 46 minutes of TV each day” – AC Nielsen
• Fast, effective way to quickly impart knowledge regarding Roomba and robotics as a whole
• Facebook advertisements have click-through rates of approx. 0.01% which is a highly passive marketing strategy
• TV advertisement allows greater engagement and thus conversion from viewer to customer
• Engages more senses which allows greater emotional connection to the message• More interactive than listening to radio ads or print media ads
What is stopping competitors from emulating our advertising campaign?
• It can be argued that increased competition will serve well for the slowly diminishing robotics industry by increasing awareness of the products amongst a wider base of consumers.
• This is supported by Industry analysts, such as Roger Christian, VP at Motoman, who agrees that the robotic industry must grow strongly, and quickly, in order to survive.
• This will increase the market size of the industry and it is assumed that the increase in market share will be outpaced by the increase in market size leading to an overall rise in absolute market share
Why isn’t advertising campaign occurring in areas other than US?
• Initially need to be very selective about the locations in which we advertise as it is capital intensive.
• US is the most developed nation yet it has been shown that there are large amounts of the population who still are not aware of robotics.
• US is the market in which iRobot has the greatest understanding of and can use their current national networks to gain maximum exposure
• Therefore the US serves as the optimum starting point for the advertising campaign
Presentation Slides Index
Introduction Strategy 1 Strategy 2 Strategy 3Financials and Implementation
Front Page Strategies Strategies Strategies Strategy 1
Pillars Cleaning Market Diversification & entrenchment
Mass media vs social media Strategy 2
How to reduce volatility
New paradigms - what is a commercial cleaner?
Which is the most attractive market?
What is the most attractive mass media market?
Strategy 3
Cost-effectiveness What is a Mowbot? Targeting of advertising OverallSpecialised Sales Team
Implementing the Mowbot Risks and mitigation Implementation
Risks and mitigation Risks and mitigation Summary