Mears Power-T, Inc. CASE 18 Ray Mears has developed a portable sound system that he thinks will be able to offer him an additional income. As a music minister at a small local church he has been searching for something to supplement his salary so that he can continue to afford to do what he needs, he developed a sound system that is very versatile and affordable for such cus- loves (church music). With his knowledge of church and overseas missions audio system omers. He has established a company. Mears Power-T, Inc., to begin to manufacture and market his design if it appears feasible. Background Having been in the ministry and overseas mission work for over 20 years, Mears recog nized the need for a powerful yet portable sound system as a convenient way to commu- nicate to small or large groups both indoors as well as outdoors under varying conditions Many years ago, he had been given a small backpack system that had come from a Holly wood sound studio. It was very lightweight but not very powerful. He used it for several years until finally it was broken beyond repair. A member of one of Mears' overseas mis- in a portable unit Sice teams told him that it resembled a piece of PVC and perhaps he should try to build one. This was the birth of the concept of the Power-T. Mears Power-T" is a lightweight portable sound system that can operate on AC/DC power and has a self-contained microphone, amplifier, and a speaker (see Exhibits C18.1. keyboard or other electrical musical instruments. The name of the product was originally going to be "Port-a-Sound" in order to let the customer know that the unit provides sound Unfortunately, Mt. Mears had to change this name due to a possible trademark vio- Iation. He is not sure if the current name adequately reflects the features or benefits of the product to potential customers. Mr. Mears is confident of the attributes built into the product, but wonders if there are any other design features the product should have The product's exterior is a plastic (PVC pipe) outer shell that is a very durable protector of the inside of the unit. The two-way speaker system provides high-quality sound that is very effective for singing or for speaking in a normal size room. In addition, if the cus- tomer needs to project to a large number of people either outside or in a very large room, the unit can accommodate additional speakers. The Power-Talso incorporates a horn speaker. The portable system has one audio input, so that the user can easily plug an auxiliary item directly into the unit, such as a cassette deck or a compact disc player. A microphone is attached to the unit, which provides high quality and clear sound to the audience. The unit is totally self-contained and carries a one-year warranty against all factory defects. EXHIBIT C181 Components of PowerT EXHIBIT C18.2 Assembled Power-T Market Potential Mears thinks the product has great potential especially for schools, churches, and other organizations, particularly those that have outdoor events or the need for portable sound equipment, such as lifeguards at pools or on beaches. If the product has potential, Mean will be able to spend only a couple of days each week assembling and selling the Power: because he is a choir director at a church. This is his calling and his family needs the fir nancial support provided by the position Mears has gathered some data and believes that the primary market for his product consists of two main groups. The first includes schools, colleges, and universities. The second market segment consists of organizations such as churches. A breakdown of the different types of potential purchasers in selected counties/parishes of three states is shown in Exhibit C18.4. Even though there are other potential customers such as police departments, nursing homes, political groups, or even individuals or groups of singers Mr. Mears' primary focus is on public and private schools, churches, and universities because of the perceived great potential of these groups to purchase the product. These organizations need compact and durable equipment that will withstand the wear and tear EXHIBIT C18.3 Specifications for the Power-T AMPLIFIER 30 watts 112 db 1 meter, 1000 cps Cutout impedance: 4-16 ohms Microphone and Auxiliary inputs individual volume controls ACDC operation MICROPHONE Standard Microphone Standard Heavy Duty Ball Type Unidirectional High Feedback Rejection 500 Ohms Freq. 90-10K -75 +/-3db On-Off Switch Cast Steel Housing BATTERY 12-volt/5.0 amp hours rechargeable sealed lead acid AC ADAPTER/CHARGER: 12 VDC O 1,5 amp WEIGHT: 20bs (with standard accessories) DIMENSIONS: 12"HX21"WX11'D Siren circuit Durable steel faceplates and input jacks SPEAKERS: Main Speaker High quality 6.5* Two-way Freg. Response: 55-22kHz impedance 4 Ohms Rated a 60 watts Continuous Metal protective grill Horn 5X8 at face, heavy duty ABS plastic body with stainless steel hardware, rated @ 60 watts groups of everyday use Pep rallies, choral events, and outdoor activities held by these otally presented the need for some type of sound equipment. The Power-T is more flex- ble and powerful than amplified megaphones that are used by many of these groups Meurs initial thinking about a marketing strategy has focused on a selling strategy in which he would cover an area involving a one-way driving distance of 100 miles. He thought this would allow him to make sales calls and return home the same day with rel areas. With such an approach. Mears thought he would be able to easily maintain his church music director job with no sacrifice in performance. Within the 100-mile radius Men determined that there were 980 schools, 7,282 churches, and universities in a tri state area including Arkansas, Louisiana, and Mississippi. He did not yet know the entines or addresses of the specific organizations + 3 Competitive Analysis Alle identifying what Mears thought were the most obvious target customers, he next tried to pain a better understanding of the competition. Mears thought that the Power-T's main competitors would be amplified megaphones and portable sound systems since these are the most widely used systems in schools and churches. Even though these are the pri- mary competitors, karaoke sound systems are also a threat due to the nature of the prod- wtfacceptable to high-quality sound combined with one or more microphones for the purpose of singing). Currently, megaphones are the most commonly used communication Case 18 Mears Power-T, Inc. C18-3 $89.95 EXHIBIT C18.5 Competitive Product Prices $799.98 $699 98 $387.98 Amplified Megaphane Kas Pioneer CLD-V380 Pioneer CLD-V870 Pioneer PD-VIOG Poneer PD-VIOG/B Zenesis K2-77 Portable Sound Systems Fender Passport P. 150 Fender Passport PD-250 $299.99 $169.00 $424.99 5849.99 tool in these target markets due to low cost and ease of use. However, Mears considered the Power-T to have key advantages over its competitors due to certain attributes. Even though megaphones are portable, they do not provide a high quality of sound especially for masi) compared to the Mears Power-T. Portable sound systems are also widely used by schools and churches. But Mears' product has a competitive advantage over this type of system because of its high mobility and AC DC power flexibility. With its small just one person can carry, set up, and use it very easily. Component sound systems toque AC power and generally require extra accessories, such as long cords and speakers to be able to communicate with the audience. The threat of future competition always exists due to the case of entry into this type of market. The possibility of a competitor copying the product is a threat to be considered in this situation. Mears' Power-T competition and approximate prices are shown in Exhibit CIRS Production Ray Mears thinks it may be best for him to be solely responsible for all the marketing and production activities. He wants to manufacture the Power-T by himself without outside labor. Mears has built several prototypes for trial and feedback from users. In the proces he has refined the operation down to an efficient activity. Production basically involves assembly of the component parts into a carrying case. The case contains all the compo- nents and also includes a handle with a clip for a microphone. The cost of the components is $210. By buying components in bulk he would be able to decrease variable costs by 10% and have the ability to build twenty units at a time. He can assemble one unit in an hour. With his current planned schedule of work. Mears anticipates that he will be able to assemble up to fifty units per month for sale and distribution. At this time he can only de vole 10-12 hours a week to production and sales of the product and still have time for his other responsibilities. Mears' hope is to produce enough revenue to provide an additional income of $35,000 per year Mears has lined up a finance company loan of S12,000 at 16 percent interest to move a small storage building onto his property to be used for manufacturing and storage. He will also use the loan to buy one month's supply of components. He felt he could interest potential investors in the product or acquire an additional loan if he could build and us tain a reasonable sales volume for 6-12 months C166 Case 18 Mears Power-T, Inc. Marketing stable approach he could take. But he is confident that his knowledge of the product and rem and finalize sales. However, he is not at all sure that this is the most effective or prof- Mears would make personal sales calls on schools and churches to demonstrate the sys- the market's needs combined with his natural skills at communication would yield very good results through personal selling There are other parts of a marketing strategy that Mears has not yet finalized. He needs a prototype of a brochure that could be used in promotion to show to customers and leave behind where necessary. He does not know what other, if any, approaches he might need to take with promotion, their cost, or how he would go about planning and implementing Although being a one-man distribution approach for his product would allow him to control all aspects of the sale of the Power-T, Mears does not know if that is how he should best spend his time and effort. In fact, he does not know what other options he might have any other alternative approaches. for distribution of this product. Mears plans to pay for all shipping costs in the delivery process if the unit must be shipped. If the customer is within a reasonable distance, then Mears plans to deliver the unit himself. Mr. Mears will be in charge of all phases of the distribution process. He will take, process, and fill all orders. If a unit is found to be defective within the warranty pe- riod of one year, then he must make the service call and repair the unit. Another issue for Mears is what to charge for the Power-T. The enthusiastic response he has received from friends in the music ministry encourages him to charge a premium price. But he feels ethically bound not to "gouge" the prospects he will be selling to. He has a reasonable grasp on the cost structure that will form the minimum price floor from which to work. A friend in the local school system has told him that an interesting policy in Louisiana bid law requires only those items costing $500 or more to be put out to bid. Mears assumes this must be representative of his other target states so he plans to sell the units for $499. Market Opportunity Analysis Plan A banker friend has told Mears that he could probably qualify for a traditional bank loan at 10 percent interest if he were to put together a thorough plan analyzing the business opportunity. He has decided this needs to be his next step in the process of getting the Power-T to market and obtaining the supplemental income he desires. Even more optimistically, if the Power-T exceeded his present production and sales capacity levels within the next couple of years, it would present a challenge. Mears needs to have some contingency plans for a five-year period indicating how he would be able to take advantage of sales opportunities lying beyond the 100-mile range and production demands that could outstrip his present capabilities. Mr. Mears has used his product in a number of situations and found it to be useful. True False QUESTION 13 Which best describes Mr. Mears goal for the Power-T? He believes this product will perform a valuable service to others and is dedicated to its production regardless of whether he ever makes a dime from it. He wants to develop and grow an innovative product and sell it to another company, He wants another source of income to support his work in music ministry, He wants to cash in on a hobby he enjoys QUESTION 14 If Mr. Mears follows his long term plan for the Power T company, the project will bring in more and more money and take less and less of his personal time True False QUESTION 15 Suppose a friend advised Mr. Mears to outsource the manufacture of his power-Tto China (or some other country and sell them on Amazon What would NOT be an advantage of that strategy? He would have more time for the music ayinistry that is his real passion He could focus on the marketing side (which wouldn't require much travel since he's selling on Amazon) and leave the manufacturing to someone else. He would avoid competition from larger companies The supplier could produce the product less expensively and would have experience in manufacturing QUESTION 16 All of the following are advantages of Mr. Mears' current strategy except. O Hand making the products himselt and distributing them on a small scale would be a good way for him to test market the Power:T and get a feel for what his customers really want and need Being a small shop with relatively limited personal investment would allow him to "get his feet wet and see how well being a small business owner works with his day job as a music minister. If it doesn't work out, he can scale down or exit easily without much financial loss and use the storage building for storage O it would allow him to scale up his business to compete in the larger market, and it includes a well-developed strategy for providing service and repair to the units he sells Because he is a small shop, it would be easy for him to custom build the product for the specific needs of his customers. QUESTION 17 if Mr. Mears decided to outsource production of his power-T, it would be a good idea for him to consider both the cost of manufacturing and the cost of warehousing and delivery when deciding when selecting his supplier. True False