Positioning for the Future Profitability for Today

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


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


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


The Chemical Supply Chain

Regional Distributor

ProducerManufacturer

XS Inc.


The Seed Supply Chain

Distributor

ProducerManufacturer

XS Inc.


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


Maintain strategic fit Corporate culture must be consistent

with ventures Products must be consistent with mix


Implications Concentrate on the original plan for

making XS Inc. profitable Divest Nterline Do not expand the agricultural parts

category


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


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


Target Market by Area


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


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


How do we create customer value? Personal contact

Territory managers

Timing 5% restocking fee

Security and technology XS Inc. has handled Farmers are ready


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


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


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


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


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

Positioning for the Future Profitability for Today

Documents

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