Positioning for the Future Profitability for Today
XSInc.com
Bill Golden
Erika Lehman
Jeri Stroade
Kansas State University
The Presentation
Erika will present an overview of the company and industry and will state the problem.
Jeri will present our view of the future, strategic alternatives for future operations, and how XS Inc. should position itself to take advantage of an evolving market.
Bill will outline our marketing plan and implementation to insure profitability today and positioning for the future.
Industry & Competitive Analysis
SWOT AnalysisFive-Forces ModelKey Success FactorsProblem Statement
SWOT Analysis
Strengths Brand name Proprietary
software Manufacturer
affiliation Agriculture on-line
auction
Weaknesses Financial situation Exclusively
“virtual” Provides few
services Portfolio
management
SWOT Analysis
Opportunities Globalization
breaks down spatial barriers
Willingness to use technology will increase in future
Existence of excess inventory likely to continue
Threats Losing major
customers Logistical
improvements E-bay (agriculture
auctions) Technological
change Government
regulations
Five-Forces ModelRivalry among sellers Strong
Substitute products Many
Potential entry of new competitors High probability
Bargaining power of suppliers High
Bargaining power of customers High
Key Success Factors
Strategic fitProfitability todayBrand name equityTechnology managementStrategic alliances throughout chain“Brick and click” combination
Poor PoorGoodGoodAveragePoor
The Problem
Benefits of e-commerce undeniable but slower in occurring than expectedMost successful e-commerce businesses are “brick and click” but XS Inc. has no “brick and mortar” componentXS Inc. must find a successful strategy to maintain flexibility and survive until e-commerce proves profitable
Positioning for the Future
Assumptions XS Inc. is not profitable today Auction side has not performed
satisfactorily Nterline looked like a way to salvage XS Inc. Investors are nervous
Positioning for the Future
Alternatives Do nothing Get out of the business Continue with product line expansion and
diversification Restructure and refocus
Positioning for the FutureDrivers of Change Globalization + Profitability = Concentration Concentration + Internet = Evolving Supply
Chain
Will change come fast? NO
Why? Friction with and investment in existing supply
chain Target market’s reluctance to purchase on the
Internet Fear of something new Security concerns Time lag
Positioning for the Future
Uncertainty about future Most manufacturers of agriculture inputs
have a strategic contingency plan for selling direct to producers
They would prefer not to, but are not sure
how the supply chain will evolve
Positioning for the Future
The Chemical Supply Chain
Regional Distributor
ProducerManufacturer
XS Inc.
Positioning for the Future
The Seed Supply Chain
Distributor
ProducerManufacturer
XS Inc.
Positioning for the Future
Focus on your competitive advantage Core competency in the chemical and seed
industries Strategic advantage in logistical
management Brand name in agricultural markets Specific knowledge of on-line auctions
Positioning for the Future
Maintain strategic fit Corporate culture must be consistent
with ventures Products must be consistent with mix
Positioning for the Future
Implications Concentrate on the original plan for
making XS Inc. profitable Divest Nterline Do not expand the agricultural parts
category
Positioning for the Future
Develop strategic alliances Supply control “Brick and click” Improve financial strength
With whom? Manufacturers E-bay National Association of Crop Consultants
Profitability for TodayWhat went wrong?
Expertise in the chemical industry Expertise in wholesaling Expertise in business Expertise in e-commerce
XS Inc. did not identify or understand the target market
Crops are not generic Producers are not generic Savings does not equal customer value Producers need personal attention Timing and delivery issues are critical
Let’s address these issues
Profitability for Today
The issue of timing/delivery Producers have a hard time planning chemical use Financially and emotionally producers do not like to
carry inventory XS Inc.’s delivery schedule of 7-10 days does not
create value or meet customers’ needs
Solution Use XS Inc.’s strategic advantage in logistics and
liquidation to offer a guaranteed return policy with a 5% restocking fee
This will generate profitable additional sales
Profitability for Today
Target Market by CropChemical Cost per Crop
0
50
100
150
200
250
Crop
An
nu
al C
os
t p
er
Ac
re
Source: USDA
Profitability for Today
Target Market by Area
Profitability for Today
Target by customer
Large Farmers (75,000 Producers)
Medium Farmers (130,000 Producers)
Small Farmers (220,000 Producers)
Top 5%(20,000 Producers)
Chemicals
Seed
Profitability for Today
How do we reach the target market? Personal contact
1 national manager and 4 territory managers Hire from competitive pool Preferably from area
Advertising Crop specific magazines CPM NACC DTN
Profitability for Today
How do we create customer value? Personal contact
Territory managers
Timing 5% restocking fee
Security and technology XS Inc. has handled Farmers are ready
Profitability for Today
How do we price our product? $100 access fee is too cheap for
information Incrementally raise to $250 at $25 per quarter
3% is too cheap for an auction commission Incrementally raise to 5% at 0.25% per quarter
Profitability for Today
Breakeven analysis Cost of sales force 4 @ $65,000 $260,000
Sales manager 1 @ $100,000 $100,000 Travel and entertainment $250,000 Advertising $100,000
Total $610,000
Breakeven sales @ 5% commission $12,200,000Breakeven per territory $3,050,000
Profitability for Today
Can they do it? Per territory:
$3,050,000 @ $60/acre @ 600 acre/producer 90 new customers per year Less than 8 per month
Profitability for TodayHow do you value a customer?
HBS asserts that customers should be valued at their lifetime value
AssumptionsTime Between Purchases (years) 1Retention Rate per Period 90%Average Purchase Value 30,000.00$ Profit Margin 5%Profit per Purchase 1,500.00$ Discount Rate per year 10%Product Inflation per year 3%
Cost of Reaching a Potential Customer -$ Response Rate 10%Cost of Attracting a Customer -$ Coupon or Other One-off Costs 1,500.00$ Total Customer Acquisition Cost 1,500.00$
Copyright © 1999 President and Fellows of Harvard College
Lifetime Customer Value Calculator BASIC MODEL -ASSUMPTIONS
Profitability for Today
Calculations
Years per Period 1Retention Rate 90%Inflation per Year 3%Discount Rate per Year 10%Change in Value of Customer Purchase per Period -7%Discount Rate per Period 10%
Net Present Value of Customer Purchase Stream 8,670.52$ Cost of Acquiring a Customer 1,500.00$ Net Present Value of Acquiring a Customer 7,170.52$
Copyright © 1999 President and Fellows of Harvard College
Lifetime Customer Value Calculator BASIC MODEL - CALCULATIONS
Profitability for Today
Bottom line 360 new customers per year @ $7200
lifetime value Yearly increase in NPV of $2,600,000
Implementation
Divest Nterline by January 2002Create strategic alliance with Rhone-Poulenc by 2002Create alliance with Dupont and Monsanto by June 2002Have sales force in place prior to October 2001Start advertising immediatelyIdentify 4 new territories by June 2002
Questions and Comments
Thank you for your attentionWe will now entertain questions and comments