I. I. COMPANY/CONCEPT/PRODUCT

A. Company

Description: Smart Card Technologies (SCT) is a Montreal-based firm specializing in the

application of smart card technology as a transportation solution.

Objective: STC is planning to expand its market for UTS (Urban Transportation Smart) cards

internationally. The company derives revenue from the smart card system in three distinct ways:

through the sale and maintenance of the system hardware and cards, through partnerships with

transportation-linked businesses and through the sale of ridership data on travel and spending

habits. The main objective is to implement the system in all of the world’s major cities and

expand the system to encompass all aspects of a commuter routine.

B. Product

Smart Card Technology’s product, as the name implies, is a card that has smart card technology

integrated into its structure and is intended for use in public transportation systems and

complimentary business transactions. The cards store the charged value, thus, serving as

efficient means of conducting small, routine transactions.

Relative advantage: “For clients, the new system is an improvement, making the

purchase and use of transit fares much simpler. For public transit organizations and

corporations, it provides better control over collected fares while helping to significantly

reduce fraud.”1

Compatibility: The new system will be compatible across many different forms of

transportation as well as in participating retail outlets. This high level of compatibility

creates the convenience, which is a core feature of the system. A smart card user could

gain access to the train and the bus with the same card used to purchase his/her morning

coffee and journal.

Complexity: The end user receives a reduction in complexity with the smart card system,

in addition to those who operate it. Despite using sophisticated, cutting-edge technology,

the smart card system is easier to manage and maintain than a manual system.

Trialability: The system takes time to be fully implemented. At the outset, the new

system will run parallel to the old one providing an excellent opportunity for testing and

1 (Quebec)

refining the system, as well as allowing time for users to adapt to the smart card

technology.

Observability: The smart card system is based on computerized system and all

transactions are logged into a central database. This enables the transportation operators

to gather data, which provides them with a level of observability not available in paper

ticket systems. Real-time data can help system operators to respond quickly to

bottlenecks, and long-term data can help them analyze trends and plan projects.

C. Potential problems

Introducing change always creates the opportunity for problems. Some people, including

the elderly, may have trouble adapting to the new system. At the outset, Smart Card Technology

plans to hire and train additional staff to provide information to passengers during the transition

period. Another potential problem is the card’s inherent risk of fraud, which the SCT continually

monitors in order to always stay one step ahead.

II. COUNTRY SCREENING ANALYSISA. Initial Screening

The initial screening for the most appropriate target countries for Smart Card

Technologies required the research and analysis of metro or tram transportation systems around

the world that serve a significant population daily. Due to the high cost of implementing smart

technology into public transportation, the focus of the research was narrowed down to key

emerging economies that would use Smart Card Technologies as a means to further their rapid

growth or to developed economies that have established transportation infrastructure and the

financial capacity to implement the innovative technology. Key factors of analysis included the

economic growth and viability, the central mode and usage of transportation, government

stability and transparency, and cultural similarity and compatibility.

The Economist provides a list of major emerging economies based on their percent

increase in GDP in 2008-2009. The IMF chart includes China, India, Russia, Malaysia, Saudi

Arabia, Poland, Argentina, Brazil, Czech Republic, South Africa, and Mexico. (Economist.com)

Despite more conservative GDP figures in 2009 due to the economic recession, the emerging

economies significant growth in recent years targeted them as potential profit centres for Smart

Card Technologies.

In addition to the IMF chart of emerging economies, preliminary research and first-hand

experience using the transportation system of Australia presented the market to be a highly

suitable candidate for Smart Technologies. Due to the vast spread of the eleven emerging

countries, subsequent research concentrated only on four countries with developed metro

systems, China, Russia, and the two emerging economies that are also primary members of

Mercosur, Argentina and Brazil. Moreover, upon researching South American public

transportation systems, an associate member of Mercosur, Chile, was also an interesting

prospect.

B. Service Usage

The second screening mechanism used to further condense the list of selected countries to

countries with the most suitable markets for the Smart Technologies involved the analysis of the

existence, development, and usage of the public transportation system. More specifically, the

research focused on the metro or subway system, since smart technology has proliferated in

cities with developed and heavily trafficked metro systems.

The chart below summarizes The Metro Existence and Market Size:Country Metro Cities with smart

technology

Passengers/day Cities without

smart technology

Passengers/day

China Yes Guangzhou

Shanghai

Beijing

Nanjing

Shenzhen

1.8 million

3.065 million

3.4 million

0.28 million

unknown

Tianjin

Wuhan

Light traffic

unknown

Russia Yes Moscow

St. Petersburg

7 million

3.43 million

Argentina Yes Buenos Aires 1.3 million

Brazil Yes Brasilia

Sao Paolo

140,000

3.3 million

Rio de Janiero 550,000

Chile Yes Santiago 2.5 million

Australia Yes Melbourne

Sydney

500,000

*Passenger Information: Wikipedia

Although the emerging economies of China, Russia, and Argentina are profit centres for

many industries worldwide, smart card technology has already infiltrated all their major cities as

indicated by the chart. Therefore, the target countries of Brazil (Rio de Janiero), Chile

(Santiago), and Australia (Melbourne, Sydney) were the only remaining countries from the chart

that are still underserved and potential markets for Smart Technologies.

C. Government Stability, Transparency & Economic Freedom

The third screening factor that determined the best entry market for Smart Technologies

was the analysis of government stability and transparency and economic freedom. Before

introducing any product or service into a company, it is necessary to evaluate the political

environment, since it will influence the ease of entry into the market. For successful and ease of

implementation, Smart Card Technologies used the Corruption Perception Index as measure to

select the country with the most stable, transparent environment.

According to the Corruption Perceptions Index, Australia ranked 9th, Chile ranked 23rd,

and Brazil ranked 80th (Transparency.org) Brazil’s ranking corresponds with the political

instability of the country, which can be greatly attributed to numerous corruption scandals

preventing the country from exploiting its full market potential. To a lesser extent, Chile has also

been plagued with corruption scandals, and has significantly dropped from its 17th best result

ranking in the CPI in 1997. Conversely, Australia’s 9th position in the CPI is a good indicator of

political stability and transparency. Based on the 2009 Index of Economic Freedom World

Rankings, Australia, once again, ranks highest with a score of 82.6, followed by Chile and Brazil

with scores of 78.3 and 56.7, respectively. The 10 benchmarks for the index include the

assessment of factors such as property rights and entrepreneurship. (Heritage.org) Canada, SCT’s

country of origin, had comparable results in both indices with Australia. Other variables that

were considered include market growth rate, market intensity, and market receptivity. Through

the assessment of all the variables for each of the three countries, Australia ranked highest

indicating the greatest overall market potential.

D. Cultural Similarity and Compatibility

The final and most important part of the country screening analysis was the cultural

similarity and compatibility, which reaffirmed Australia as the prime target country for Smart

Card Technologies. The similarity in culture not only consists of the commonality in language,

but also in Hofstede’s cultural measurements of Canada and Australia. The similar cultural

dimensions regarding individualism, power distance, masculinity, power distance, and long-term

orientation enables Smart Card Technologies to better relate to the Australian culture.

The strong commitment towards sustainability engrained in Australia’s culture is

compatible with SCT’s sustainable initiatives that result from the implementation of the smart

card technology. Examples of Australia’s commitment to the environment include the

availability of dual flush toilets, the “Cities for Climate Protection Program” focusing on the

reduction of gas emissions (Nga.alga.asn.au), and “Zero Waste Initiatives”

(Zerowastewa.com.au). The implementation of SCT’s smart card would compliment Australia’s

sustainable efforts by reducing the significant amounts of paper wastage used by Australia’s

current paper card system. Furthermore, the durable and reusable plastic card would not require

frequent replacements. Therefore, the users of the extensive network of transportation systems

including trams, buses, rails, and metro would benefit from the convenience and sustainability of

Smart Card Technologies.

III. MARKET ASSESSMENT

A. Target Market

Geographical region: Melbourne is located on the South West coast of Australia at the

mouth of the Yarra river. The greater city area has a population of about 3.8 million2 over

an area of 8806 km².

Forms of transportation: “Melbourne is served by an extensive public transport network.

It has one of the world's most extensive tram networks, almost 300 bus routes and a train

system comprising of 16 lines.”3 Most trips taken in the city, however, are made in

private cars in the proportion of approx. 90%.4

Buying habits: Access to transportation is provided through the use of the MetCard

unified ticketing system. They can be purchased at vending machines, convenience

stores, stations, and over the phone or internet.5 MetCards have different tariff rates,

which are not universally available.

2 (WikiMedia, Melbourne)3 (WikiMedia, Transportation in Melbourne)4 (WikiMedia, Transportation in Melbourne)5 (WikiMedia, Metcard)

Advertising: Melbourne is served by 3 daily newspapers, 6 television stations and a

number of radio stations.6 It is a modern city that makes use of all forms of media.

Pricing: Pricing for public transit is highly segmented based on three basic criteria:

distance travelled (divided through 2 zones of concentric rings around the city), validity

period of the ticket (including two-hour, all-day, weekly, monthly and annual tickets),

and rider category (including student, senior and others)

B. Market Size and Opportunities

Estimated revenue for market: Melbourne’s budget for such a project is estimated at

about $500 million for installation and $50 million a year to operate.7 Combined public

transportation in Melbourne accommodated 432.5 million trips in 20078 projected to be

closer to 500 million by 2010. SCT’s calculations show an average of $.25 in incidental

sales9 per trip. Incidental sales per trip double as a result of the convenience of smart card

technology and so the market becomes $250 million annually. Businesses who would

benefit from this increase will opt into SCT’s partnership program with an estimated

revenue of 10% of the market value, $25 million annually. A market of that size sales of

commuter data are estimated at between $2-5 million annually. SCT’s total estimated

revenue potential for the first 5 years of operation is $892.5 million dollars. Given that

on a city by city basis this market functions as a monopoly STC expects to be able to

realize 100% of the market revenue.

Competition: Currently Melbourne is in the middle of a failed implementation of a

similar smart card system. It has been delayed for years and is costing a lot more than

planned with many complaints about the system.10 This provides SCT with an excellent

opportunity to usurp the contract with SCT’s system, which would cost less and would

not share the same limitations and be subject to the same criticisms.

6 (WikiMedia, Melbourne)7 (WikiMedia, Metcard)8 (WikiMedia, Metcard)9 Incidental sales are sales linked to commuter travel; i.e. a coffee or journal for the trip etc.10 (WikiMedia, Myki)

Product comparison: Given the current state of transition, SCT’s will conduct a

comparative analysis of both the MetCard and Myki systems. Prices are set by the

transport authority of Melbourne.

  Met Card Myki Smart Card

Brand Adequate, reliable Expensive, problematic Convenient, reliable

FeaturesPaper, transport only Plastic, RFID, transport and concession Plastic,   smart   chip,   transport   and 

concession

Promotion and advertising methods: SCT has several tailored promotion strategies to

increase user acceptance and create a positive brand image. Such promotions include Welcome

Week, which will give free rides for first week to anyone who purchases the new smart cards.

Also, the calendar will have many “Free Days” that correspond to Australian holidays and

events. SCT may also implement a rewards program for frequent users. The competition have

used few to no promotional strategies of this type.

Government participation: Due to the privatization of the Melbourne Public Transport

Corporation, there will be no need for government participation.

C. Chosen Mode of Entry

The method of entry that will be used to introduce Smart Card Technologies (SCT) into

the Australian market is through a contractual agreement with Metlink, since Metlink is

responsible for uniting the various modes of transport in Melbourne and making public

transportation commuter friendly. Therefore, the use of licensing or the process by which a

holder of intellectual property grants certain right in that property to a foreign firm under

specified conditions, 11 enable SCT to penetrate the Australian market. In this case, Smart Card

Technologies will be licensing the smart card manufacturing technology to Metlink.

Although licensing generally is considered the least profitable method of market entry, in

the case of Smart Card Technologies entry into the Australian market, it presents itself to be the

most viable option. SCT has a marketable intellectual property, however, there are no patents

protecting it from being copied, and similar technologies are present in other countries such as

Russia, England, China and Japan. Therefore, SCT will not be offering Metlink with a unique

technology; instead, SCT is giving Metlink an opportunity to profit from up-to-date 11 Graham, Cateora. International Marketing. Mc Graw Hill 13edition, New York, 2007.

technological know-how that would increase the efficiency of public transportation in Melbourne

without requiring a significant investment in research and development. From SCT’s

perspective, licensing is a cost-free way to capitalize on intellectual property. 12In addition, SCT

will be avoiding high transport costs and delays in filling orders that exist in exporting ready-to-

use products. Trade restrictions set by the government and other obstacles concerning exports

would also be eliminated.

Smart Card Technologies will restrict the license agreement to the geographical region of

Melbourne. However, SCT has intentions to expand within Australia once the company’s

technology and presence are established in Melbourne. This geographical restriction ensures

that, in the meantime, Metlink will not become a competitor. The licensing agreement will not

restrict the output, the customers or the field of use.

Finally, concerning the payment of the intellectual property, the different options

available are: royalties, lump sum fees or a mix of royalties and fees. Licensing contracts tend to

use royalties when sales are relatively high and the fixed fee system is used when sales are

volatile. 13 SCT would be influenced in both situations; therefore, SCT applied a combination of

both payment options.

IV. THE MARKETING MIX

A. Product Adaptation

By licensing the technology to Metlink, the core product, Smart Card technology, will

essentially remain the same.

The packaging, however, will need to be adjusted in order to adapt to cultural differences.

The first step in implementing the smart card technology is the manufacturing of a plastic card

instead of the traditional paper card used in the Metcard system. Since this plastic card is a

onetime purchase, this new technology will correspond with Australia’s environmentally friendly

initiatives. Furthermore, like in the old Metcard system, the consumer can select the design of

their smart cards, which will feature Melbourne-related themes. This aspect is particularly

important since Australians are very patriotic (Morrison & Conaway, 2006). The smart card

production technology will be able to accommodate any number of designs for the card. 12 Rein, Barry.  Research & Development: Legal basics of tech transfer licensing Highlands Ranch:Feb 1996.  Vol. 38,  Iss. 2,  p. 23 (1 pp.)13 Sharmila Vishwasrao.  International Journal of Industrial Organization: Royalties vs. fees: How do firms pay for foreign technology?.  Amsterdam: Aug 2007.  Vol. 25,  Iss. 4,  p. 741 

However, as more designs are produced, the cost of production will also increase. Therefore, it

is recommended that Metlink select 4 standard designs (Refer to Appendix A for examples).

Due to the frequent use and longevity of the smart card, it is also recommended that Metlink

offer consumers the option to customize their design based on personal preferences. In essence,

consumers can submit their pictures or designs via the Metlink website where their design will

be stored and transferred to the plastic smart card. Consumers who decide to use this

customization service would incur an additional cost, which could be an additional source of

profit for Metlink. Consumers who value that additional feature will be willing to pay the extra

fee. Finally, the MetCard system required students and seniors to get concession cards with

photo IDs in order to receive discounts rates. This ID must be renewed every year, hence,

resulting in more paper waste. However, by using the smart card technology, the photo ID can

be placed directly on the back of the card, which again supporting the green movement.

In terms of supporting services, Smart Card Technologies will be responsible for any

repairs or maintenance needed on the technology equipment for the duration of the licensing

contract. However, Metlink will be responsible for all other services involving the actual use of

the smart card.

B. Price

By licensing, SCT and Metlink will be avoiding some of the unpleasant price escalations

such as tariffs and middlemen costs (Cateora & Graham, 2007). However, the cost of the new

public transportation card will need to take into account the Australian exchange rate. Initially,

public transport consumers will need to purchase the smart card. The initial cost for the OPUS

card is $7.00CAD according to the consumer’s need the card is recharged(“OPUS Fares”, 2009).

The current exchange rate is $1CAD = $1.19407AUD (“Universal Currency Converter”, 2009),

therefore, the smart card should sell for at least $8.36AUD. However, even price numbers

generally look better so it is recommended that the card should be priced at $9.00AUD. This is

approximately the same price as the concession card, therefore, students and seniors will not be

affected by the price of this card. Full fare consumers will have to bear this cost, but the

environmentally friendly aspect of this technology may make the price to be more acceptable.

Therefore, public transport users will have a onetime fee of $9 plus the price of the fare that suits

their needs. The smart card will not affect the current public transportation fares and options

(Refer to Appendix B). Finally, in the initial implementation phase, it is recommended that

Metlink offer a discount on the price of the smart card in order to encourage early switching.

This is referred to as a penetration pricing strategy (Cateora & Graham, 2007). Since the OPUS

card can sell for $3.50CAD (“OPUS Fares”, 2009); then, using the same exchange rate as before,

the smart card could sell for at least $4.18AUD in Melbourne. Therefore, it is recommended that

Metlink sell the smart card for $4.50AUD in the first month of implementation.

C. Distribution

The smart card will be distributed to first time users at metropolitan ticket counters in the

Melbourne region. Recharging the card will be possible at various locations such as

metropolitan ticket counters, fare booths and vending machines. All distribution channels, except

vending machines are currently used in Melbourne increasing the acceptability of the smart card

due to familiarity with most existing channels. Installing fare vending machines or recharging

terminals in high-access locations such as convenience stores, supermarkets, universities and

pharmacies will provide commuters with more convenient ways to recharge their smart cards

(See Exhibit 1 for Potential Convenience Locations).

Exhibit 1:Potential Convenience Locations for Fare Vending Machines Convenience Stores Supermarkets Universities Pharmacies

Seven Eleven WoolworthsColes

University of MelbourneVictoria University

MyChemistPrice Line Pharmacy

D. Marketing Objectives

The primary marketing objective is to sell the smart card technology to current users of the

public transport network in Melbourne, Australia, who could also be characterized as the

immediate target market. Current data shows that this is equal to 9% of the total population, i

which would be the initial market penetration and coverage. Thus, out of a population of 3.8

million, the current size of the target market would be 342,000 commuters. Future marketing

objectives include: (a) transforming non-users, specifically those that do not regularly use public

transportation due to environmental or economic reasons, into full time users and adopters of the

i http://www.dse.vic.gov.au/melbourne2030online/content/policies_initiatives/08a_policy81.html

smart card technology, and (b) adding sponsorship revenues by creating partnerships with local

businesses. The latter would give customers the option to use the smart card to purchase

convenience items (i.e. coffee, coke, etc.) with funds linked to the card, similar to a debit card.

Expected Sales in Year 2010* 500 million x $3= $1,500 million

Profit Expectation for Year 2010 $1,500 million - $550 million= $950 million

*This was calculated by multiplying the average trips per year by the cost per trip. Thus, 500 million trips per year based on a $3 fare would come out to $1,500 million in sales.

E. Promotion Mix

1.) Advertising

Objectives:

Gain liking and acceptance among users of public transportation in Melbourne, Australia

Create pull to website (i.e. Metlink.com)

Media Mix:

Displays: Displays located in the metro system, bus and train transportation are the most

efficient media for delivering message to the target market. The target market is exposed

to messages found in the displays during their routine commute.

Message:

Convenience: The current system is unreliable for the consumer. The paper cards

continually malfunction and must be replaced through a complicated process. With the

new smart card technology, the process will become 100% hassle-free for the consumer.

In addition, the durability of the plastic smart cards will greatly reduce the number of

malfunctional cards, and consumers will not be required to experience the inconvenience

and complexity previously associated with the constant replacement of faulty paper cards.

Environmental friendliness: The current production of cards produces an increasing

amount of paper waste. The plastic new smart card allows consumers to reuse cards by

recharging them. Consequently, smart card technology offers an environmentally-

friendly solution as significant amount of paper waste comes from the daily production of

new paper cards is eliminated.

Lower cost: In the long-term, the smart card technology is cheaper to produce, and the

cost savings will be transferred to the consumer, thus, saving the consumer some

disposable income.

Cost:

$3,000 in artwork and installation fees

Maintenance of artwork and installation ranges from $5,000 to $500,000 depending on

the quality of the artwork and the size of demographic group targeted, which would either

increase or decrease the cost

The minimum contract is 16 weeks lengthii

2.) Contest

Objectives:

Create an emotional attachment among users

Create a database of users (i.e. name, address, email, income, etc)

Details:

Users can enter a contest to design one of the official smart cards. The winner will be

chosen based on creativity and the strength of ties to the community. Participant entry

must be submitted through online access of the website. The grand prize winner will

receive free public transportation for the year.

Cost:

Negligible: The posters, whose costs were previously accounted for, will pull viewers to

the website where customers can enter the contest and learn more about the new smart

card service.

iihttp://74.125.95.132/search?q=cache:s6DCx5sEOeQJ:www.iesmallbusiness.com/resources/ Major_Media_Types.doc+ad+costs&cd=4&hl=en&ct=clnk&gl=ca