Feasibility Study Essay
In the convenience driven world we live in today it is no question that people are looking for more and more ways to make their lives easier. With that being said I would like to ask you a question. On an average day how many of you find yourselves using a pen? Our thoughts exactly, so one day we sat down and thought how great it would be to combine this compact device, which people already use throughout their daily activities, with something most people wish they could use on a daily basis. Well after some brain storming that’s exactly what we did. Our new product “Handy Pens” combines the convenience and familiarity of a pen with hygienic items we found to usually be more troublesome to carry in your pockets or handbags.
For starters our pens include an attachment full of either a breath freshening spray to keep your mouth smelling minty fresh in the blink of an eye or a pen with an attachment filled with hand sanitizer keeping your hands germ free with the push of a finger. Barriers to entry in the stationary industry are low and we feel consumers would be excited to test out the innovative concept behind Handy Pens. We understand our weaknesses and plan to turn them into strengths, we acknowledge the threats ahead and are excited to change those into opportunities. The potential rewards in this industry outweigh the risks and we are excited to dive in and see what awaits us in the near future.
The problem our product resolves in the stationery market is the convenience of having two products combined into one. Our pens have either hand sanitizer spray or breath freshener spray built-into the pen. We will have retail customers who would distribute our product in their General Merchandise stores and commercial customers who could order customized pens with their company information to use as a marketing tool. One way we can innovate the distribution channel would be to sell our product on online retail stores websites. We would eventually grow our line by manufacturing mechanical pencils and highlighters with hand sanitizer and breath freshener spray. Our profits would come from our commercial customers using our customized pens as promotional items. Also, our retail customer would enjoy the convenience and differentiation of our pens as compared to those of our competitors. INDUSTRY ANALYSIS
PORTER’S 5 FORCES ANALYSIS
Our product would have low entry barriers because the stationary industry isn’t too hard to enter. Economies of scale do exist in the stationary industry; we have a low cost high volume product. Buyers would not need to be brand loyal. Capital requirements and the cost of making our product are both low making the threat of competition high, however. Quality substitute products will be easily available when patents expire. There will be a possibility that the price of the substitute products could be lower than our price. The customers switching cost to competitors could be high because customers would not need to have brand loyalty since there would be no change in quality. Another reason for this is because the quality of specific hand sanitizers and pens are not easily seen to consumers; they would only look for the lowest price and the number of buyers is massive, so consumers will look for pens that are different rather than being brand loyal.
There are many suppliers who sell pens and these are not exclusive products so there are many substitutes. The supplies needed to make our product are low costs. With our product we would offer companies like Listerine and Purell buying power because of their large brand following. The number of competitors in the stationery industry is quite large; thusly there is an opportunity to sell a differentiated product in this industry. Our competitors would be similar in size with the exception of the few large multimillion-dollar companies such as Société Bic, Faber-Castell, Newell and Schwan-Stabilo. The industry is not growing at a fast pace due to the increase of use in laptops, tablet computers, and smart phones. The high threat of new competition, threat of substitutes, and bargaining power of buyers make the stationery industry an unattractive industry to enter. SWOT ANALYSIS
Retail and Commercial Customers
Differentiation from other writing instruments
Low Cost Product
Dependency on other Brands
Manufacturing in China
Capital from Investors
Working with Commercial customers with specific demands regarding customizations Threats
China’s political atmosphere
Policies in USA regarding doing business internationally
Increasing Labor costs in China
Low entry barriers
Marketing Tool for Businesses
Easy to expand
Working with Brand Names Listerine and Purell
Our biggest strength is our product differentiation and our biggest opportunity is a partnership with brands Listerine and Purell. Using the low cost business strategy and having retail and commercial customers can give us the competitive advantage needed to succeed in this industry. COMPETITOR ANALYSIS
Our competitors are Société Bic (BIC), Faber-Castell, Newell and Schwan-Stabilo. Société Bic holds the number two spot for ballpoint pens in the US with their stationery consumer branch making 715.4 million worldwide in 2010. Faber-Castell is the world’s oldest writing instrument manufacturer, celebrating its 250th anniversary in 2012. In 2005 Faber-Castell had revenue of 1.09 billion in US dollars with their best-known brand being PITT Artists Pens. Founded in 1885 as a pen maker, Schwan-Stabilo grew into is the biggest manufacturer of highlighters earning around 459.57 million in US dollars in sales revenue in 2007. We are different than our competitors by offering a product with the two uses, a writing instrument with hand sanitizer or breath freshener spray. MARKET ANALYSIS
The worldwide consumer stationary market generated over 8.25 billion dollars in 20091. Found within the consumer stationary industry, the pen market alone generated over 4.62 billion dollars that same year1. Of that amount, the ballpoint pen segment was responsible for 1.11 billion dollars in sales1. Our company’s two products would be entering this ballpoint pen market. As a result of its strong reputation, quality products, and simplistic designs, BIC earned a market-leading 19% share of the ballpoint pen industry in 20091. BIC’s status as the dominant player in the ballpoint pen industry has remained unchanged for years, and it is expected to remain so for the foreseeable future. The stationary industry has been an oversaturated market for some time. The Writing Instrument Manufacturers Association (WIMA) claims over 3.7 billion ballpoint pens were imported to America in 2011 alone2.
Many firms practice the low cost, low differentiation strategy and enter the market in hopes of luring customers with the lowest prices. Although the market may seem attractive, many firms learn surviving long-term is too difficult in an industry dominated by an established few. As a result of the recent global financial crisis, unemployment rates have drastically increased over the past three years. This has had a negative impact on the consumer stationary industry in developed markets. Growth in the stationary industry is often tied to present economic conditions. When firms hire more they spend more on stationary products. Luckily, strong growth is still expected for the industry throughout the next few years in emerging markets. After one year in operation, we expect our firm to earn at least a fifth of a percent share (0.002%) of the approximate 1.11 billion dollar ballpoint pen market. This would in turn generate nearly 2.2 million dollars for our firm.
The ingenuity and added convenience of our 2-in-1 pens is what will set our products apart in the stationary industry. Despite this, in order to attain our sales goals and to remain successful long-term, it is imperative that we partner our pens with the established and highly successful products Listerine (Johnson & Johnson) and Purell (Gojo Industries). Thanks to the positive brand recognition that would be associated with our products as a result of using both companies’ respective logo and product, our firm could easily set itself apart in the ballpoint pen industry. OUR CONSUMERS
Our primary customer is a consumer. More specifically, our products are marketed towards individuals who make more health conscious decisions and value cleanliness. Our products are writing instruments that promote healthier living. With better smelling breath, cleaner teeth, and cleaner hands, our pens will improve the quality of life of its user. They provide the added convenience of not having to carry hand sanitizer or mouthwash. Professionals, students, and mothers are our core customers. These individuals will quickly see the usefulness and added benefits in our products. They will buy our products at retailers like Walmart and Target. They will hear about it through witty commercials and word of mouth. Professionals, students, and mothers all over the world are now more than ever worried about the spread of bacteria and wish to limit the possibility of getting ill. Our 2-in-1 pen and hand sanitizer combination can help address this issue.
You no longer need to be near a sink to wash your hands. Our 2-in-1 pen and breath freshener can help individuals address any insecurities they may have about their breath before meeting a client or before going to class. Mothers often purchase supplies for their children. This is why we plan to focus a significant portion of our marketing efforts directed towards them. Women in general are more likely to purchase our products as they often place a larger importance on hygiene. Our company would experience steady, year round demand, but sales would cyclically increase before the start of each school year. In addition, individuals who live in densely populated areas are more likely to purchase our products as they often worry more about cleanliness.
It must be noted that we will not be marketing our products towards young children because they pose a risk of possibly misusing the hand sanitizer or mouthwash spray. Another portion of our company’s operations will focus on selling our products to businesses who wish to promote their company, while at the same time advocating healthier living. Specifically, we would like to market and sell our products to dentists and doctors. They could use our pens to generate more interest in their own businesses while promoting our own. ENTRY STRATEGY
We plan on gaining the respect and attention of major retailers by becoming the most highly recommended pen by doctors and dentists. Our pens will be given out free of cost to doctors and dentists around the world for a limited time after our inception to generate buzz about our products. We also plan on regularly donating pens to UNICEF and the REDCROSS to promote literacy and cleanliness. This will help those less fortunate and further improve our company’s image. With our strong reputation and popularity, retailers who sell stationary goods such as universities, pharmacies, and grocery stores will gladly stock our products.
Our company’s product line consists of two distinct pens. These pens will be sold in retail stores, or directly to individuals if they so chose to make a custom order with a logo, or name on each pen. Our pens give users the convenience of not having to carry mouthwash or hand sanitizer with them on their person at all times. Each pen’s 2-in-1 functionality (working as both a pen and a hygienic device) gives us a competitive edge. Our first product is a multi-function ballpoint pen with a spray nozzle attached to its top filled with hand sanitizer. These pens will be using 10 mL of alcohol free, FDA approved, Purell hand sanitizer that kills 99.9% of germs in seconds. Our second pen is a multi-function ballpoint pen with a spray nozzle attached to its top filled with dentist recommended Listerine mouthwash. Both pens will be refillable in terms of ink. In addition, each pen’s liquid capsule filled with either Purell or Listerine can be refilled. Our pens will be reliable and we will offer a number of styles to cater to various demographics. Please see below (image 1.1) for a better understanding of what our pens will look like.
In addition to our retail sales, our pens will be sold directly to businesses who could use our products as promotional giveaways. These businesses can place their logo and/or their name, on our pens. Our pens’ unique and unforgettable functionality will set us apart from other pen manufacturers. Our pens will help companies market themselves at a very low cost. They will grow as a result of doing business with our firm. We plan on doing a significant amount of business with doctors and dentists who are more likely to see the value in our hygienic products. In order to lower costs while maintaining quality, the fabrication of our pens will be outsourced to a Chinese manufacturer with past experience developing stationary goods. We will employ Chinese firm Polywide Industrial Limited to manufacture our two distinct ballpoint pens. Our estimates suggest it will cost approximately twenty-five cents to produce each pen. Each pen will then be sold at $1.50 as a standalone pen or in a package of three or five. In the coming future we must trademark our company name and create various pen prototypes to showcase on sales visits. FINANCES
We expect to sell 500,000 units in 2012. In 2013 that number is predicted to grow to 750,000 units. We plan to ship out 1,000,000 units in 2014. We will set our price at $1.50 per pen. Therefore our revenue can be forecasted as $750,000 in 2012; $1,125,000 in 2013 and $1,500,000 in 2014. To meet our targeted sales numbers, we will need to implement a marketing program which will cost $50,000 in 2012. This figure will continue to increase to $75,000 in 2013 and $100,000 in 2014. The marketing program will include giving free samples, issuing coupons, and advertisements in local newspapers and magazines. Contracting with Chinese manufacturing firm Polywide Industrial Limited to build and ship our pens will save our firm labor, machine, storage, warehouse, and transportation costs. However, this Chinese firm requires orders to be of 1000 pens or more. At this rate manufacturing and shipping costs are 12 cents per pen.
This estimate does not include the cost of adding hand sanitizer or mouthwash spray to each pen. Regarding those additions, our company plans to partner with Listerine (supplier of breath spray) and Purell (supplier of sanitizer). These suppliers will produce and ship the breath spray and sanitizer parts directly to our contracted Chinese manufacturer. The Chinese manufacturer will hold the responsibility of adding those components to the pen. It will cost us an extra 13 cents to add the liquid capsules to each pen. Therefore the total cost for each final product to be produced and shipped is 25 cents. In addition to our costs, we will need to pay Listerine and Purell to add their products to ours. Our company plans to pay Listerine or Purell an extra 10 cents for each product to be produced. This variable cost can increase or decrease depending on sales and future contract terms. In order to get our products on shelves in retail stores we plan on offering companies such as CVS or Walgreens approximately 15 cents per sale. In addition, in order to operate and manage efficiently, our company will need an office with enough computers and equipment (telephones, printers, furniture, etc.). Office and equipment costs are as follows: Office rental:
Office rental: $5,000 per month
Utilities: $200 per month
Total: $5,200 per month or $62,400 per year.
Total investment for office equipment will be $6,000. This is a one-time investment and will be straight-line depreciated 10% each year. Nevertheless, to be able to reach our targeted sales number, our company will need to hire 5 sales representatives with a salary of $40,000 each per year. Their duties will include providing customer service, contacting new potential customers, and finding new distributors. In addition, our company will need additional 5 more employees in years 2013 and 2014 to maintain growing sales. Please refer to Appendix I for detailed financial projections. CONCLUSION
We believe our product is innovative. We also believe the buzz around our product would generate significant sales. Despite this, we do not have the brand recognition nor capital or efficient manufacturing operations that major stationary good companies currently exhibit. Our analysis has led us to believe that sales numbers could be significantly higher if we were to market our Handy Pens under an established name such as BIC or Faber-Castell. Companies like BIC offer a customer base we most likely could never attain. While strategically thinking about our future we have decided it would be best for our current employees to pitch our trademarked pen prototype to the stationary industry’s leading firms. We would do this in hopes of selling the rights to producing Handy Pens. Our potential profits may be limited by selling the rights to our prototype to a major stationary company but our financial risk will then be limited. We hope our founding members are then able to earn a certain percentage of all Handy Pen sales by signing a long-term contract with whichever company purchases our prototype.