Russell Davison

I originally wrote this article, “New product launch” in April 2003 when I was asked to spearhead the development of a new product.



Summary



There is a customer need for an effective household lizard destroyer. An innovative electrostatic device has been developed and will be launched on 1st July at five retail outlets in Singapore. The company has low fixed costs, low market exit costs and a positive cash flow forecast after product introduction. As the company is new, it has no reputation and promotion is limited to passing trade at five store locations. Opportunities exist for product diversification for the extermination of other household pests. Threats remain from a depressed market caused by economic downturn and raw material supply from China is a concern. A market-penetration pricing objective is chosen. Cost estimation, competitor's prices and the company's ROI objective dictate a selling price of S$28.99 per unit. An action programme of pre-launch tasks has been produced. The marketing budget clearly forecasts that the product should be deleted after 2 years when it is in the decline period of its life cycle and demand has fallen. Sales, financial and personnel controls procedures will be adopted.



Product life cycle



The four stages of the product life cycle for the LizaKilla^TM in Singapore’s home country market are estimated to be 3 months introduction, 6 months growth, 2 years maturity and 4 years of decline. Although risky and expensive, we choose to gain a pioneer advantage by being first into the market with our electrostatic lizard terminator. Our quality product uses new technology and our company will benefit from the brand awareness of being first to enter the market. We expect to add new design features to the existing product at the latter end of the growth stage to sustain market growth. Our advertising, promotion and pricing will be modified during the maturity stage and the product will be deleted from our range at the latter end of the decline stage.



Market evaluation



The market for the LizaKilla^TM is currently latent. Customers need an efficient method of ridding their premises of house lizards but no highly effective product is currently available. Two surveys of 100 home owners each in Jurong, Holland Village and 20 business owners throughout the island show that 70% would be interested in buying our new product if it was economic to buy, maintenance free and was more successful that current methods. We expect competitors to enter the market as it grows and we will defend our share of the market through introducing product innovations. As competition becomes more fierce during the maturity stage of the market, our modified advertising, promotion and pricing will maintain our position as market leader. As the market becomes saturated and demand declines, we will dispose of the product when profits become unattractive.



Challenges



We face many challenges with our launch of LizaKilla^TM but we have taken steps to mitigate our risks associated with bad market information, product performance, costs and competition.



Ideas



Our idea for this new product came from the need of customers who were dismayed with the ineffective traditional method of house lizard extermination. We used several creativity techniques to provide a short list of six alternative product designs. The electrostatic device was chosen in preference to our other alternatives of ultrasonic, mechanical, electrical and chemical device ideas.



Concept to strategy



Over the last few months, we've developed several LizaKilla^TM prototypes and tested them at various locations throughout Singapore. Prototype MKT01 was the most effective but was not economic to manufacture. Prototype MKT02 suffered from spurious discharges which reduced battery life. The most economic prototype was MKT04, but the structure of this model was not rigid enough for commercial use. Eventually, from development tests, we chose Prototype MKT03 as being economic to manufacture, effective and robust for commercial use. Our marketing strategy for pricing, distribution, market size, structure, share, positioning and financials are given in our marketing plan.



Development to commercialisation



We negotiated the supply of raw materials which arrive from China every month. Our fist batch arrived last month and our staff of four contract employees are assembling 100 units per day to build up stock for the product launch and market testing next month. We've secured contracts with Cold Storage at their Centrepoint, China Square, Holland Village, Novena and Takashimaya locations. We'll be market testing for the first month at these stores. If the trial results prove favourable then we'll commence negotiations to expand our manufacturing operations by moving to larger premises at the start of the growth phase in three months.



Consumer adoption



Cold storage have agreed to locate our LizaKilla^TM product displays at end-of aisle positions at it's five stores for a an initial one month period to create customer awareness. Each display stand has an enlarged lizard at it's top to stimulate interest and customers can evaluate the product by reading the technical and commercial information at the display stand. We expect that our marketing mix will encourage customers to buy LizaKilla^TM and to recommend the product to others, after effective trials at their home.



Product mix



The LizaKilla^TM provides benefits to the customer at various levels. The core benefit is the elimination of lizard faeces on ceilings, walls, floors and eradication of any bacteria, virus or disease spread by the reptile. Our basic product consists of a 15 cm plastic oblong, internally housing an electro statically charged foil mat powered by a battery operated capacitance circuit with automatic discharge. The product expected by our customers, we estimate, has a battery life of six months, is safe to humans, 95% effective, robust, easy to operate, can be moved around the premises and retains the dead lizard as evidence of a kill. An augmented product will be introduced at the start of the growth stage. We will continually develop the LizaKilla^TM, using customer feedback, to produce the potential product during the growth stage.



Branding



The trade name of our LizaKilla^TM product has been registered and our strategies instil the idea of affordable effectiveness in the customer's mind. The product represents the values of our company being a quality manufacturer of an effective, economical product. The identity of theLizaKilla^TM is readily identified by it's name and our logo of a green lizard inside a yellow circle with a line through, signifies the absence of lizards. We will build brand loyalty through reputation so that our brand equity differentiates our product from competitors' offerings during the growth stage. Customer feedback and complaints will be efficiently dealt with to retain our brand equity.



Packaging



The packaging takes advantage of the rectangular shape of the product. The external surfaces are flat, as all the functional parts are contained within the oblong housing. The product name, logo and instructions are all printed on the external surfaces to allow simple and cost effective clear cellophane to package the product.



Preface - organisation, mission, corporate objectives



Lizakilla (Singapore) Pte Ltd was incorporated on 1st April 2003 with registered offices at Shopping Block 445, Clementi Avenue 3. There are currently two full time employees (directors) and four contract workers based at the 500 sq. feet ground floor facility. Each company director has provided S$10,000 of share capital and S$40,000 of investment capital in Lizakilla (Singapore) Pte Ltd. The company mission statement of Lizakilla is "We serve our customers with quality products which keep their homes free of household pests. Our customers benefit from receiving the latest technology in pest extermination devices at affordable prices.”



The company has financial, marketing, operational and personnel corporate objectives. A return upon investment of greater than 85 percent per year will be achieved through market leadership in all of our product offerings. We will efficiently execute our operations, matching scale with demand. We will provide a stable work environment to attract and retain staff.



Current marketing situation



The total market size for LizaKilla^TM is that of all homeowners in Singapore (approx. 800,000). Our market surveys show that the potential market of Singaporeans with a sufficient level of interest in an electrostatic lizard terminator is approximately 500,000. Out of this, it's estimated that the available market of people with income, access and interest is approx. 200,000. To curtail promotion costs, the target market size of 100,000 relies upon available market customers patronising the five Cold Storage locations, during introduction. The potential, available and target market sizes will grow as the number of people interested in the offer expands, due to the stores promotions and referrals. The penetrated market is expected to grow quarterly from 1 % to 4% of the target market during growth, reaching a saturation level of 6% before decline, as shown in the table below :

	Introduction	Growth	Maturity
	2003		2004				2005
	Q3	Q4	Q1	Q2	Q3	Q4
Market	800k	800k	800k	800k	800k	800k	800k
Potential market	500k	510k	520k	530k	540k	540k	540k
Available market	200k	204k	208k	212k	216k	216k	216k
Target market	100k	102k	104k	106k	108k	108k	108k
Penetrated market	1k	2k	4k	5k	6k	6k	12k

Strengths and weaknesses



An evaluation of LizaKilla^TM and Lizakilla (Singapore) pte Ltd's internal strengths and weaknesses gives:



Strengths

• The quality of the product is tested during assembly, prior to distribution


• Delivery of the product to each stores location takes place every day by a dedicated employee


• The product is innovative and uses the latest technology


• The finance of the product launch is entirely by way of share capital and personal investment by company directors


• The cash flow forecast, after introduction, is favourable


• The company is currently financially stable


• The fixed cost for the small assembly facility is low


• All of the workforce are on six month renewable contracts


• Assembly efficiency within the small company is high


• The business premises are on a short term lease


• The directors are proven good leaders and have a financial interest in the success of the company


• The company directors have an entrepreneurial orientation


• The company has the flexibility to cease trading with low exit costs and the ability to expand with minimum relocation loss

Weaknesses

• The company is new and has no track record


• Promotion of the product is through passing trade in Cold Storage outlets only


• Only five retail stores locations are used during the product launch


• The current workshop has a limited output capacity


• The workforce is contract labour

Threats and opportunities



An analysis of LizaKilla^TM and Lizakilla (Singapore) pte Ltd's opportunities and environmental threats gives:



Opportunities

• Stimulation and retention of the interest of passing trade, within the five stores, through regular change of the end-of-aisle displays


• Expansion in the number of sales places to include all of the Cold Storage store locations


• Expansion in categories of sales places to include all grocery and hardware locations for a variety of companies


• Accreditation to ISO 9000 and Singapore PSB domestic product testing to display conformance to standards by the product


• Product diversification for the extermination of other household pests


• Cost effectiveness through the economies of scale


• Promotion through internet based companies


• Developments in attributing disease to household lizards

Threats

• Economic downturn reduces the available market size


• Government legislation protecting certain species of reptile


• Adverse publicity from animal rights campaigners


• Premature entry into the market of competitors


• Withdrawal of sales place by retailers


• Disruption to supply of raw materials from China

Marketing strategies



The company has considered options in selecting the objective of market penetration pricing. Survival pricing was not chosen because it is short term and just covering costs would not assist in company expansion. Maximum current profit pricing was excluded because market demand for is not known with certainty. The product does not lend itself to market-skimming pricing as their insufficient buyers with a high demand. Market-penetration pricing will stimulate the market growth required, lower costs and discourage competition.



Although customers are expected to buy the LizaKilla^TM infrequently, the maximum price that may be charged has to be set to provide a minimum demand. As the product is new, there is no history to estimate the relationship between price and demand. The price may be adjusted once the elasticity of demand has been established during the introduction phase of the product.



The fixed cost for Lizakilla (Singapore) Pte Ltd are S$20,000.00 per month for the business unit rent, utilities, salaries and transport. The variable cost of the LizaKilla^TM is S$5.00 per unit for the raw materials from China and for the cost of packaging each item. From these fixed and variable costs, the average cost per unit is :

Monthly production	Fixed cost	Variable cost				Total cost			Average cost per unit
1000	S$20,000	S$5,000				S$25,000			S$25.00
2000	S$20,000	S$10,000				S$30,000			S$15.00
3000	S$20,000	S$15,000				S$35,000			S$11.67
4000	S$20,000	S$20,000				S$40,000			S$10.00
5000	S$20,000	S$25,000				S$45,000			S$9.00
6000	S$20,000	S$30,000				S$50,000			S$8.33
7000	S$20,000	S$35,000				S$55,000			S$7.86
8000	S$20,000	S$40,000				S$60,000			S$7.50

There are currently three competing products in the market for getting rid of house lizards :

Competitor’s product	Selling price	Characteristics	Estimated monthly demand
Ultrasonic repeller	S$80.00	Plugs into electricity supply. Emits repelling high frequency sound with 80% claimed success. No evidence of kill.	100
“Wet Feet”	S$30.00	White chemical painted onto walls and ceilings.	200
Lizard paper	S$3.50	Paper with adhesive on one side to catch prey. Ineffective.	400

Lizakilla (8ingapore) Pte Ltd estimates that a price position below the ultrasonic repeller and “Wet Feet” but above lizard paper is correct.



The lowest price, given a customer monthly demand of 2000 to 4000 units is S$10.00 to S$15.00. At this price the company would make no profit. The highest price is dictated by positioning within the current product offerings of competitors and is S$30.00. Additionally, the company's financial objective dictates a target rate of 85% minimum return on investment per year. Target-return pricing dictates a unit selling price of S$28.99, as shown in the cash flow forecast. It is estimated that the customer would have a reference price of $20.00 to $30.00 for the product, based upon competitive products and the application of the device. Additionally, the company is anxious to encourage Cold Storage to promote the product and has agreed to offer S$5.00 commission to the retailer on the sale of each unit. Taking into account the psychological benefit of '.99', a sales price of S$28.99 is chosen.



Action programme

	Action plan for product launch on 1st July 2003
Item	Description	Person responsible	Date required	Date completed
01	Meet Cold Storage to sign sales contract	Tan M H	01 May
02	Buy stands for product in store displays	Wong B	15 May
03	Stock control procedure with Cold Storage	Tan M H	13 May
04	Create workshop inventory system	Tsee M	20 May
05	Define daily stocking store procedure	Tsee M	23 May
06	Process April letter of credit letter with supplier	Wong B	26 Apr
07	Expedite supplier for May delivery	Tsee M	26 Apr
08	Process May letter of credit with supplier	Wong B	26 May
09	Expedite supplier for June delivery	Tsee M	26 May
10	Commence discussions with new premises landlord	Tan M H	15 Jun
11	Process June letter of credit with supplier	Wong B	26 Jun
12	Meet Cold Storage for display locations	Wong B	23 Jun
13	Deliver product to 5 Cold Storage sores	Tsee M	30 Jun

Marketing budget

Sales	Jul-03	Aug-03	Sep-03	Oct-03	Nov-03	Dec-03
Units sold	300	300	400	500	700	800
Sales @ S$23.99/unit	8,697	8,697	11,596	14,495	20,293	23,192
Cost of sales
Retailer commission	1,500	1,500	2,000	2,500	3,500	4,000
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	1,500	1,500	2,000	2,500	3,500	4,000
Total cost	23,000	23,000	24,000	25,000	27,000	28,000
Opening balance	80,000	65,697	51,394	38,990	28,485	21,778
Contribution	(14,303)	(14,303)	(12,404)	(10,505)	(6,707)	(4,808)
Closing balance	65,697	51,394	38,990	28,485	21,778	16,970

Sales	Jan-04	Feb-04	Mar-04	Apr-04	May-04	Jun-04
Units sold	1200	1300	1500	1600	1700	1700
Sales @ S$23.99/unit	34,788	37,687	43,485	46,384	49,283	49,283
Cost of sales
Retailer commission	6,000	6,500	7,500	8,000	8,500	8,500
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	6,000	6,500	7,500	8,000	8,500	8,500
Total cost	32,000	33,000	35,000	36,000	37,000	37,000
Opening balance	16,970	19,758	24,445	32,930	43,314	55,597
Contribution	2,788	4,687	8,485	10,384	12,283	12,283
Closing balance	19,758	24,445	32,930	43,314	55,597	67,880

Sales	Jul-04	Aug-04	Sep-04	Oct-04	Nov-04	Dec-04
Units sold	1900	2000	2100	2100	2000	1900
Sales @ S$23.99/unit	55,081	57,980	60,879	60,879	57,980	55,081
Cost of sales
Retailer commission	9,500	10,000	10,500	10,500	10,000	9,500
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	9,500	10,000	10,500	10,500	10,000	9,500
Total cost	39,000	40,000	41,000	41,000	40,000	39,000
Opening balance	67,880	83,961	101,941	121,820	141,699	159,679
Contribution	16,081	17,980	19,879	19,879	17,980	16,081
Closing balance	83,961	101,941	121,820	141,699	159,679	175,760

Sales	Jan-05	Feb-05	Mar-05	Apr-05	May-05	Jun-05
Units sold	1900	1700	1500	1300	1100	900
Sales @ S$23.99/unit	55,081	49,283	43,485	37,687	31,889	26,091
Cost of sales
Retailer commission	9,500	8,500	7,500	6,500	5,500	4,500
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	9,500	8,500	7,500	6,500	5,500	4,500
Total cost	39,000	37,000	35,000	33,000	31,000	29,000
Opening balance	175,760	191,841	204,124	212,609	217,296	218,185
Contribution	16,081	12,283	8,485	4,687	889	(2909)
Closing balance	191,841	204,124	212,609	217,296	218,185	215,276

Sales	Jul-05	Aug-05	Sep-05	Oct-05	Nov-05	Dec-05
Units sold	800	700	600	500	500	500
Sales @ S$23.99/unit	23,192	20,293	17,394	14,495	14,495	14,495
Cost of sales
Retailer commission	4,000	3,500	3,000	2,500	2,500	2,500
Fixed costs	20,000	20,000	20,000	20,000	20,000	20,000
Variable cost	4,000	3,500	3,000	2,500	2,500	2,500
Total cost	28,000	27,000	26,000	25,000	25,000	25,000
Opening balance	215,276	210,468	203,761	195,155	184,650	174,145
Contribution	(4,808)	(6,707)	(8,606)	(10,505)	(10,505)	10,505)
Closing balance	191,841	204,124	212,609	217,296	218,185	215,276

Controls



The marketing plan has sales, financial and personnel controls procedures to keep the programme on track and to identify any changes that may be required.



Sales figures are received daily when stock is taken and replenished by the dedicated distribution worker for Lizakilla (Singapore) pte Ltd. Additionally, this information is verified in the weekly account statement from Cold Storage. Production volumes and raw material purchases are adjusted during the demand forecast for the next four weeks.



Payments received, and expenditure made, are reconciled with bank statements every month and audited company accounts are produced every six months. Deviations from cash flow forecasts are analysed and corrective action is taken, where required.



Personnel are informed every Friday afternoon of next week’s production target and contract workers are advised every month of the security of their tenure.