Post on 12-Apr-2017
Digi-Home Presents: Digi-Note
Venture Project
BMAN70421 Strategic Marketing and New Product
Development
Alliance Manchester Business School
Word Count: 6,778
Charlotte Banks, Elvin Ibishli, Meeral Siddiqui,
Sidrah Ahmed, Richard Johnson
Digi-Home, Venture Project
Table of Contents
1. Management Summary............................................................................................... 3
2. Business Objectives...................................................................................................... 4
2.1 Marketing Objectives................................................................................................ 4
2.2 Financial Objectives.................................................................................................. 4
3. Product/Market Background...................................................................................4
3.1 Unique Selling Points................................................................................................ 5
3.2 Critical Success Factors............................................................................................6
4. Market Analysis............................................................................................................. 6
4.1. Market Analysis Results.......................................................................................... 7
4.2 Segmentation of our Target Market.....................................................................8
5. Marketing Strategy....................................................................................................... 9
5.1 Product.......................................................................................................................... 9
5.2 Promotional Activity..............................................................................................12
5.3 Pricing Strategy........................................................................................................ 13
5.4 Distribution Channels............................................................................................ 14
6. External analysis- Macro Environment...............................................................14
6.1 Porters 5 forces........................................................................................................ 15
6.2 PEST Analysis............................................................................................................ 17
7. Internal Analysis....................................................................................................... 19
7.1 SWOT analysis.......................................................................................................... 20
7.2 Corporate Structure and Employees.................................................................21
7.3 Use of Technology in Business............................................................................23
8. Controls and Evaluation........................................................................................... 23
9. Profit and loss statement/ Cash flow analysis..................................................24
9.1 Two Year Quarterly Cash Flow............................................................................25
9.2 Profit/Loss Statement............................................................................................ 26
10. Operational Considerations.................................................................................27
11. Reference List........................................................................................................... 28
12. Appendix..................................................................................................................... 33
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Digi-Home, Venture Project
1. Management Summary
Digi-Home is a UK based company, located in Greater Manchester that provides
digital accessories and applications for the Connected Home. Our mission is to
deliver innovative and seamless digital appliances for the Connected Home, offering
convenience, organisation and integration. The business currently has one flagship
product in its portfolio, Digi-Note, which is a digital notepad for the Connected
Home. The unique position of this product is its innovative, connective and stylish
nature.
The following business report analyses the key internal and external factors that shape
our strategy for business start-up, combined with both primary and secondary
research. Results from our primary research indicate a strong demand for Digi-Note,
with 97% of respondents demonstrating an interest in purchasing our product. This is
supported by our secondary research which suggests there is sufficient purchasing
power within our target market.
From these analyses, Digi-Note’s marketing strategy is constructed on the premise of
it’s niche application and unique offering. Our marketing strategies describe how
Digi-Home will achieve its marketing objectives. We also address the financial
implications of this business venture, including a two-year cash flow analysis and
profit and loss statement. Our analysis confirms the feasibility and value of Digi-
Note, with a net profit of £11,950,526.18 in the second year.
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Digi-Home, Venture Project
2. Business Objectives
2.1 Marketing Objectives
Brand awareness: Create brand awareness and increase this year on year.
o This is key in such a developing market, the perception and prestige of
the brand will have a direct impact on both sales and market share.
Increase sales: To increase sales year on year.
o This allows greater feedback into research and development, which
Digi-Home must sustain in order to maintain competitive advantage as
an innovative Connected Home accessory provider.
Increase market share: Establish a strong position within the Connected Home
accessory market.
o This will increase brand recognition/visibility and credibility, which in
turn will facilitate the acquisition of new customers.
2.2 Financial Objectives
Establish an initial profit margin.
Limit expenses increase.
Increase profit by 30%.
o As we increase the production of Digi-Note by 40% in the second year,
a 30% profit increase is viable.
3. Product/Market BackgroundDigi-Note is the first digital notepad for use in the Connected Home. The Connected
Home is made possible through the ‘Internet of Things’ (IoT) – a concept first
theorised by Mark Weiser in 1991. The IoT refers to the wireless connection of
objects and products. IoT will offer the integration of every object via embedded
systems (Xia et al, 2012).
A high interest in home automation developed in the 1990s, leading to the creation of
the INTEGER Millennium House as a showcase of home automation technology. Due
to high cost, the market was mainly focussed at hobbyists and the rich. These products
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Digi-Home, Venture Project
have now become grouped within ‘Smart Technology’ due to their communication
with other devices. Smart Technology is moving forward at an ever-increasing rate,
leading to the Connected Home becoming a viable option for consumers. According
to Cisco, the Connected Home is developing 5 times faster than electricity and
telephony. Business Intelligence predicts over £40 billion in revenue this year alone
through Smart Technology, developing to 1 billion devices sold in the year 2020
(Business Insider UK, 2014). This leads to the conclusion that it is a matter of when,
not if, we will all be living in a Connected Home.
Digi-Note takes advantage of this increasing development and awareness of Smart
Technology. Digi-note will initially act as a central hub for information dissemination
around the home – a physical input that captures anything written or drawn on it. This
allows the user to input calendar events, notes, reminders, drawings and many more
into the Connected Home system. These functions then link with other devices around
the Connected Home including fridges, digital mirrors, televisions, and transportable
goods such as mobile phones and cars. Digi-Note will also allow users to choose how
they wish information to be distributed and to which devices. (See Appendix A as a
guide for the visualization of the product). For example, an individual living in the
connected home is writing a supermarket shopping list. The user could write a list on
the Digi-Note through the physical interface, and choose to synchronise this list with
their connected fridge. When the individual notices they are running low on certain
items, or have a particular need for certain products, they can add and amend this list
through the digital interface of their connected fridge, where the list will be clear and
readily available due to the synchronisation from their Digi-Note.
3.1 Unique Selling Points
Innovation is key to Digi-Note’s USP. There are no competitors in the market, and as
such Digi-Note is at the forefront of information dissemination within the Connected
Home. The unique connectivity of Digi-Home’s software integrates with every other
Smart Device’s operating system - linking to all other devices owned by the
consumer. As such, Digi-Note can become the hub that links all of your integrated
devices.
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Digi-Home, Venture Project
Finally, style is distinctly important within the home. Digi-Note is made of
lightweight aluminium and glass with an aluminium-cased stylus, contributing to a
simple and elegant design. In a world where aesthetics are of increasing importance,
such classic styling means that Digi-Note will appeal to all generations and fit into all
homes.
3.2 Critical Success Factors
Digi-Note, as with the entire Connected Home market, has two main critical success
factors: Price and Security. As a developing technology market, price has been high
within Smart Technology and the Connected Home. This has been a barrier for
customers, as it narrowed the appropriate market considerably. Production costs have
begun to decrease due to advances in production and connective technology, creating
greater interest.
Security is still a vital issue within the Connected Home. Hacking and Data theft is a
regular topic on news sites, leading to a high level of consumer interest in the area. As
the Connected Home and Digi-Note rely on the transfer of sensitive data throughout
the home, the security of this system must be highlighted.
4. Market Analysis
It is imperative to identify our target market and gain an understanding of their
specific wants and needs, as a focused market orientation has a positive effect on
business profitability (Narver and Slater, 1990). Therefore, we undertook both
primary and secondary research to identify these, which influenced key decisions with
regard to our product and marketing strategies. We created a questionnaire using
Qualtrics Survey Software (Qualtrics, 2015) which asked questions surrounding
respondents’ awareness of the Connected Home, their interest in a digital notepad for
the Connected Home, required functions of the product, interest in purchasing the
product and how much they would be willing to pay for this product. Participants
were gathered using a voluntary sample of 76 adults.
4.1. Market Analysis Results
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Digi-Home, Venture Project
Our primary research indicated that 60% of respondents had an awareness of the
Connected Home, which by inference, would suggest their awareness for Connected
Home applications and accessories such as Digi-Note. It is important to recognise
that a large proportion of our respondents were aged between 18-24yrs, which could
introduce bias and also limit the generalizability of our findings. When we split the
data by age, we found that, on average, respondents aged 25 and over had a greater
awareness of the Connected Home than respondents aged 18-24, demonstrating an
awareness of 71% and 57% respectively. See Figure 1 and 2 for an illustration of
respondent’s awareness of the Connected Home, split by age.
Figure 1. Respondents aged 18-24yrs percentage of awareness of the Connected
Home
Figure 2. Respondents aged 25+ percentage of awareness of the Connected Home
Participants indicated the features they would most value in a digital notepad for the
Connected Home would be notes, reminders and calendar events. On average,
respondents indicated they would be willing to pay £116.37 for Digi-Note, with £250
as a maximum value. Assuming participants lived in a Connected Home, 97%
indicated they would be interested in purchasing Digi-Note, reflecting a strong want
in the market for our product.
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Digi-Home, Venture Project
4.2 Segmentation of our Target Market
Segmenting the market can help distinguish the proportion of consumers who have
the means to live in a Connected Home, and therefore purchase Connected Home
accessories such as Digi-Note. Whilst it is acknowledged that there is presently a
small number of Connected Homes in the UK (Joseph Rowntree Foundation, 2000),
the market potential is currently predicted to be just short of £50 million (BSRIA,
2013) and Connected Home device shipments are predicted to grow at a CAGR of
67% over the next five years [See Appendix C] (Business Insider UK, 2014).
Due to the nature of the product itself, it is unsuitable to target lower social grade
brackets, as it is less likely that individuals in this segment would currently live in a
Connected Home. Therefore, we position the Digi-Note as a Veblen good, targeting
higher earning brackets, including lower middle, middle and upper middle class,
representing 53.52% of the UK population (See Table 1 for Approximated Social
Grade Brackets in the UK as stated in the ONS 2011 Census), indicating a strong
purchasing power. The Smart Homes Report (BRISA, 2013) revealed luxury villas
and houses comprise 50% of the smart home market size customer segment in
Europe, and luxury apartments accounting for the second largest segment of 30%.
This would appear to support the decision to target higher approximated social grade
brackets.
Therefore, based on our primary and secondary research, we have segmented the
market. We will target Generation Y, technology enthusiastic adults aged 25 and over,
and families, who are occupants of a Connected Home, within the lower middle,
middle and upper middle social grade brackets. The purchase motivations of our
target market will be an increased desire for convenience within their Connected
Home, technology innovation and widespread connectivity.
Table 1. Approximated Social Grade Brackets in the UK as stated in the
ONS 2011 Census
Approximated
Social Grade
Occupation % of Population
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Digi-Home, Venture Project
AB (Upper Middle –
Middle)
Higher and
intermediate
managerial /
administrative /
professional
occupations
22.69
C1 (Lower Middle) Supervisory, clerical
and junior
managerial /
administrative /
professional
occupations
30.83
C2 (Skilled
Working)
Skilled manual
occupations
20.77
DE (Working –
Lowest levels of
subsistence)
Semi-skilled and
unskilled manual
occupations,
unemployed and
lowest grade
occupations
25.71
5. Marketing Strategy
5.1 Product
We believe Digi-Note meets the needs of our target market, as respondents who
participated in our primary research indicated they would most likely use a digital
notepad for notes, calendar events and reminders; which are the primary functions of
our product. The unique selling point of our product is its innovative, connective and
stylish features. Digi-Note is innovative in its nature; as smart home technology is an
emerging industry. Also, Digi-Note is currently the only digital notepad within the
Connected Home accessory market. Our product offers unique connectivity solutions
and the style of Digi-Note is classic and unassuming, in order to complement any
Connected Home.
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Digi-Home, Venture Project
The Digi-Note will be launched as one standalone flagship product in black, made of
aluminium and glass, with approximate dimensions of 200 mm × 135 mm × 7 mm.
These dimensions were chosen to reflect the shift towards small and portable
technology devices (Tech News World, 2014). The packaging will be sleek, simple
and compact, to distinguish the product in a visually agitated market (Forbes, 2014),
and also to reflect the simplicity of the product itself. We decided to name our
product Digi-Note for two reasons. Firstly, this explicitly reflects what our product is
– a digital notepad. Secondly, as Digi-Note is a product of Digi-Home, the
synonymous link between our product and brand name maintains brand consistency,
reinforcing the identity of Digi-Home, which in turn should encourage trust and
positive sentiment.
Whilst Digi-Note has no direct competitors in terms of its exact product offering, the
Livescribe Wireless Bluetooth Pen (Livescribe, 2015) presents itself as a competitor,
in the form of a substitution product. The Livescribe Pen offers a similar function to
the Digi-Note; it is a Bluetooth pen which captures writing and drawing,
synchronising with iOS and Android mobile devices. The Digi-Note differs from the
Livescribe Pen in a number of ways, which we believe demonstrate the competitive
position of our product. Firstly, the Livescribe Pen requires specialized paper, which
consumers must subsequently purchase after each notepad is used (Livescribe, 2015).
In contrast, there is no paper involved in the use of Digi-Note due to the digital
interface, which in turn results in a cost saving and increased convenience for our
users. This also upholds our environmental values as a business. In addition, the
Livescribe Pen synchronises solely with iOS and Android mobile devices (Livescribe,
2015). The Digi-Note is an accessory for the Connected Home and is therefore
compatible with all digital devices, encompassing a wider range of connected
products. Digi-Note provides increased benefits to its consumers, as it enables users
to differentiate which connected devices they would like each individual feature (i.e. a
note or reminder) to be synchronized with, instead of synchronising automatically
with every device in the Connected Home; offering increased privacy and security.
It is important to consider the product life cycle (Harvard Business Review, 1965) in
the marketing planning of our product. During the introduction and growth stage of
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Digi-Home, Venture Project
the product life cycle, we will maintain our single flagship product strategy. When
Digi-Note reaches the maturity phase, we will apply strategies from the BCG growth
share matrix (Boston Consulting Group n.d.) to extend this stage of the product life
cycle, including market penetration and market development. With regards to market
penetration, Digi-Home will re-launch Digi-Note in the same original target market,
offering a variety of colours to suit the preferences of each individual user. We also
hope to engage in market development, where we would look to expand into the B2B
market.
Whilst our product is at the core of our business, it is necessary to develop a strong
aftersales service and improvement plan. Aftersales service adds further value to our
consumers (Rainer and Cegielski, 2010), acting as a source of revenue, profit and
competitive advantage (Saccani, Johansson and Perona 2007). This is increasingly
important when today’s digitally empowered consumers are equally as demanding
about aftersales service, as they are about what they purchase (Accenture n.d.). We
believe our aftersales activities primarily include warranty, education/tech support,
and operation system updates.
Digi-Home’s warranty shows a commitment and responsibility for our business to our
consumers, that our product is reliable and of a high quality, ensuring it will function
and demonstrate superior longevity in comparison to competing products. Due to the
digital nature of our product, it is important to offer tech support and education for our
users, as this will resolve any issues users may have and also enable them to maximise
the utility of their Digi-Note. We will equip each Digi-Note with sensors, GPS and
communication devices to transmit their location, usage and condition data, which
will enable Digi-Home to engage in remote monitoring and predictive maintenance
(Accenture n.d.), enabling a more efficient service provision from our tech support
team. This will also allow Digi-Home to notify each user when system updates are
available.
Whilst our engagement on social media platforms is part of our promotional activity,
it could be used as an additional means of providing service from our support channel
to handle micro-service requests, offer educational guides, hints and tips and also
ignite consumer to consumer forums surrounding tips, self-service maintenance and
repair.
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Digi-Home, Venture Project
5.2 Promotional Activity
Promotion creates a channel for communication with the targeted consumer base,
comprising any activity an organisation uses to engage the consumer in motivating
them to purchase the product (Harris, 2003). Primarily, advertising is the most
suitable promotional method for Digi-Note, enabling reach to a potential mass-
audience. Advocating this one-way form of communication, advertising can build
awareness by creating an identity and purpose for the Digi-Note within the market
(Robbin, 1999). Television, magazine and radio advertisements are a few of the many
methods to be used, creating an interest for consumers and ensuring the consumer
places the product as something that is unfulfilled to them. [See Appendix B for a
provisional example of a magazine advertisement].
Moreover, online platforms including trending websites such as ‘Digital Trends’ and
‘Tech-insider’ would be beneficial with regards to promotion. These platforms
advertise new high-tech developments into the market that can further stimulate a
demand for the product and may follow additional feedback from interested
consumers. Receiving insight about product perspectives from consumers would be
advantageous for a product like Digi-Note that is new to the market, as this can
further enhance R&D. Similar to online platforms, a strong social media presence is
imperative to allow us to showcase Digi-Note within the digital sphere. Closely
communicating with consumers reflects a source of trust that creates a strong brand
image (Harris, 2003).
Thirdly, promotion at the Consumer Electronics Show (CES). CES is an international
electronics and technology trade show. It attracts major companies and professionals
in the electronic industry (Belch, 2003). In 2015, connected home products were the
trending topic of CES. This promotional strategy would be ideal for Digi-Note as it
enables insight into new high-tech developments within the industry, giving in-depth
insight to similar products and creating awareness for Digi-Note within the market
(Belch, 2003).
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Digi-Home, Venture Project
Lastly, personal selling is a promotional strategy that involves a direct and personal
relationship between the consumer and corporate (Barton, 1999). This will be offered
through retailers such as John Lewis and Currys PC World. Due to Digi-Note being
an innovative high-tech product that is new to the market, consumers may require
further product information. Personal selling aims to directly educate consumers
about the product with regards to its usage, benefits and features (Barton, 1999).
5.3 Pricing Strategy
Price defines what the value of the product is to the consumer (Palmer 2004). When
deciding an appropriate pricing strategy, the factors taken into consideration reflected
the cost of production and perceived value of product. With regard to the survey
conducted using primary research, consumers were asked to comment on their
perceived value for the product, expressing how much they were willing to pay. An
average price of £116.37 was indicated through our primary research. It was
important to consider that pricing the product below the perceived value can result in
a potential loss in revenue. In addition, the consumer could assume a low product
quality as a reflection of its price (Xin, 2003). However, pricing the product much
higher than the perceived value can lead to consumers losing interest in the product.
This is due to pricing affecting consumer’s impressions of a product (Best, 2009).
A price of £119.99 was set, just above the average perceived price. Premium pricing
was considered the most suitable pricing strategy as it reflects the exclusivity of Digi-
Note within the market (Xin, 2003). The benefits of premium pricing are based on the
assumption of high price creating an association with the consumer of high quality
goods. As Digi-Note is a new, innovative, high-tech product competitive pricing was
unsuitable, largely due to the lack of competition. (Best, 2009).
5.4 Distribution Channels
In order to reflect our premium pricing strategy, enhancing the products exclusivity
within the market, an exclusive distribution channel was selected (Gavil, 2004). This
reinforces Digi-Note’s exclusive brand identity in offering a limited amount of
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Digi-Home, Venture Project
products to retailers such as John Lewis and Currys PC World. These retailers were
carefully chosen due to their strong and trusted brand image, further enhancing Digi-
Note’s credibility within the market (Flavian, 2005).
We have selected both in-store and online channels of distribution, as they cater to
different target audience preferences. In-store distribution methods require consumers
to physically enter stores and speak to sales representatives about Digi-Note’s features
(Gazzoli, 2008). The ability to view and test the product may influence the consumers
decision-making process.
Online platforms create convenience for consumers who are already familiar with the
product and its features. Allowing the consumer to purchase the product online can
create a simplistic and quick way of purchasing Digi-Note, satisfying needs of
accessibility (Flavian, 2005).
6. External analysis- Macro Environment
Due to the innovative and unique nature of Digi-Note, Digi-Home operates in a niche
market. Leduc (1998) describes a niche market as “a group of potential customers
who share common characteristics making them specifically receptive to a product,
service or an opportunity” (Dalgic, 2006, p. 26). The digital market has experienced
rapid growth in the past few years, with the UK currently showing one of the highest
levels of digital consumerism in the world (Innovate UK, 2015). Data from GWI
Device report (2015) asserts that close to 50% of internet users personally own a
tablet, with a desire for more flexible technologies for the future (Mander, 2015). It
has been forecasted that investment will rapidly increase in smart technology over the
next few years, with more consumers adopting digital platforms. Data compiled by
Ofcom illustrates penetration into smart technology, with the consumption of tablet
computers rising to 44% and 61% of adults in the UK using smartphones (KeyNote,
2014).
6.1 Porters 5 forces
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Digi-Home, Venture Project
Porters 5 forces is essential in assessing a firm’s industry framework and the strategic
processes involved. The model illustrates how effectively corporate policies manage
the opportunities and threats in an organisation’s external environment (Yilmaz,
2009). The five forces analysis, however, is not without its limitations. Despite the
model providing an in depth understanding of the macro environment the business
would operate in, the model does not consider micro-economic factors such as target
segment and market size. Whilst the model assumes barriers in all industries,
contemporary industries are increasingly unrestricted (Bohari, Hin, & Fuad, 2013).
Moreover, in a dynamic market, the focus has diverged from the business towards the
consumer. Porter’s model does not take into consideration the factors that would
influence the customer, in comparison to models such as PEST (Indiatsy et al., 2014).
Therefore, Digi-Home’s macro assessment includes both Porter’s 5 forces and a PEST
analysis.
Threat of Entry: Moderately Unfavourable
The electronic’s industry requires a large amount of capital investment, making
it difficult to enter.
Since status quo is essential, a new firm would have difficulty establishing its
name in the current market. To rectify this, Digi-Home will need to invest
heavily on advertising to create an awareness for Digi-Note and secure repeat
customers (Schiavone, 2011).
A new entrant has to face a cost disadvantage, keeping prices low and
maximising output. However, our primary research indicates customers are
willing to pay a good price for the innovative benefits of Digi-Note, which
would suggest Digi-Home could have a first mover advantage (Markides &
Sosa, 2013).
Supplier Power: Moderately Favourable
Access to distribution channels are important. As large players in the industry
(i.e. Apple) have already established mainstream distribution channels, Digi-
Home would find it hard to locate shelf spaces in stores to sell their products.
Digi-Home would need to build strong relationships with retailers such as
John Lewis to secure shelf spaces (Oh & Sambamurthy, 2012).
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Digi-Home, Venture Project
The company will rely on suppliers for key components of the digital notepad
at competitive prices. Strong relationships with a contracted design house
need to be maintained over time to achieve economies of scale and ensure
high quality. An intermediary such as Red House Global would ensure easy
and efficient outsourcing of the production process to China and
simultaneously certify high standards (Ma, Kaldenbach, & Katzy, 2014).
Threat of Substitute: Highly Favourable
There are a few companies that sell digital notepads in Manchester such as
Apple and Samsung, however no device offered by these competitors provides
features compatible with the Connected Home.
In addition, Bluetooth and Wireless pens such as Livescribe (Livescribe 2015)
present a threat of substitution, however these products are limited in their
compatibility and do not present applications for the Connected Home.
Digi-Note is a highly differentiated product which acts as an accessory to the
Connected Home, delivering integration between home appliances through a
physical input (Drnevich & Croson, 2013).
As Digi-Home offers high-tech innovation which enhances consumer
lifestyles with significant value for money, there is a major opportunity for
Digi-Note to tap into the market.
Buyer Power: Moderately Favourable
Results from our survey demonstrate that customers are willing to pay a good
price for Digi-Note. With rapidly changing market dynamics, consumers
demand products which make their lives easier, providing a unique and
flexible experience. They desire services, which offer value and organisation
within their fast paced lives.
A segment of consumers have a great dependency on technology (Ratchford &
Barnhart, 2012). This would suggest there is a market of individuals who will
appreciate the value of Digi-Note, and be willing to pay for the benefits this
product will offer them.
It is acknowledged that due to low switching costs through digital channels,
Digi-Home will have to continuously innovate to establish brand loyalty and
attract new customers (Tung, 2012).
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Digi-Home, Venture Project
Intensity of Rivalry: Favourable
At present there are few companies that have tapped into the Connected Home
Industry.
Whilst Apple have introduced Home kit and Samsung offer a Smart Home
service (KeyNote, 2014), no competitor has launched a device with the same
product offering as Digi-Note. This gives Digi-Home a competitive advantage
and will undermine the position of its potential rivals (Wu, 2012).
In addition, Digi-Home has secured a patent and Intellectual Property Rights
for Digi-Note, allowing the business to gain a competitive advantage over it’s
competitors.
6.2 PEST Analysis
Political:
Government actions have a major influence on the digital industry and its
consumers. Government setup clusters and organisations such as Tech City aid
digital entrepreneurs to grow and survive in the constantly changing market
conditions, providing access to efficient resources (Brewer & Rees, 2015).
To stay at the forefront of digitally developing economies, the UK government
intends to invest approximately £30m to support businesses and institutes
involved in digital innovation. The government foresees the potential of the
digital economy increasing the overall UK GDP, therefore encouraging
businesses and innovators focus on enhancing consumer’s user experience
(Innovate UK, 2015).
However, the government has set standards for quality surrounding
sustainability, as customers show increasing concern for environmental
factors. Movements towards eco-innovation have gained a lot of attention and
the government has set regulations for businesses to implement this in their
operations (Horbach, Rammer, & Rennings, 2012). Nevertheless, these
standards are not difficult to adapt to.
Economic:
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Digi-Home, Venture Project
Inflation rate has been close to 0 in 2015 and is expected to rise to about 2%
by 2017 (Milliken & Schomberg, 2015). The increase in purchasing power
will encourage spending and boost consumer confidence to invest in the latest
technological developments. Additionally, outsourcing production will be
highly cost-effective for the business because of the appreciation in GBP value
(Elliot, 2015).
Social:
Social trends in technology adaptation illustrate individuals becoming more
digitally savvy in the UK (Mintel, 2014). With the world becoming more
globalized and connected, consumers desire a unique experience which
connects them to a distinctive environment between people and digital
devices.
Users of digital products are demanding flexibility and control. Advancements
in digital equipment have consequently led consumers to desire products
which deliver an improved standard of living with effortless functionality.
Ofcom reports show individuals spend an average of 11 hours on their
electronic devices, which is more than the amount of time people spend
sleeping (Ofcom, 2014). Therefore, this indicates a potential demand for the
consumption for digital Connected Home products, presenting a promising
opportunity for Digi-Note.
Technological:
There has been an accelerated growth in technological advancements over the
past few years. Features and benefits most sought through technologies such
as the Connected Home include ease of use, portability, appealing design, and
convenience.
There are some products which offer these desired features, however there are
very few innovative technologies which allow multi-tasking on different
devices (Barrett et al., 2015). Thus, failure to innovate in technology will
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Digi-Home, Venture Project
separate Connected Home suppliers from the development powers of the free
market. Digi-Note delivers all of these benefits to its users.
However, in order for Digi-Note to reach consumers with minimal lead time,
Digi-Home should look to adopt simultaneous engineering.
Moreover, eco-innovation and sustainability has become a major concern for
digital entrepreneurs, since the UK government has urged businesses to
minimize externalities (Alves et al., 2014). The physical interface of Digi-
Note upholds Digi-Home’s environmental stance, where previous forms of
note taking would require paper consumption. Digi-Home must demonstrate
its commitment to corporate social responsibility and sustainability through its
material selection, distribution channels and general business practices.
7. Internal Analysis
Internal analysis of Digi-Home illustrates the understanding and evaluation of
capabilities and the potential of resources within the organisation (Baines, Fill, and
Page, 2011). However, this analysis should not focus on the relative strengths and
weaknesses of particular resources. As Thompson (1990) mentions, “resources are not
strong or weak merely because they exist… their value depends upon how they are
being managed, controlled and used”.
The SWOT analysis is used to evaluate the factors that build on strengths, eliminate
weaknesses, exploit opportunities and counter threats (Dyson, 2004). It is considered
an essential tool in strategic marketing analysis, which helps to form a company’s
marketing plan based on objectives and strategy (Bernnan et al.). Consequently,
analysis of Digi-Note’s marketing strategy will emphasize its role in the complex,
dynamic and competitive market environment.
7.1 SWOT analysis
Strengths
Strengths are the features of a business that help it to operate more effectively
than its competitors (Bernnan et al.). The core competence of Digi-Home is
that it offers a new state-of-the-art product, with excellent engineering and
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Digi-Home, Venture Project
practical applications that will enhance the capabilities of the Connected
Home, to create smarter and more efficient standards of living. Our primary
research indicated a public interest in the product, with the majority of
respondents willing to buy it. In addition, Digi-Note is an environmentally
friendly product that contributes to eliminating the usage of paper products
and embracing digital notes instead. This will help us to position the company
as an eco-friendly organisation. Finally, Digi-Home’s leadership in the market
with this new product will support our future growth opportunities while also
increasing our profit margins.
Weaknesses
Weaknesses are the aspects of a business that negatively affect the value an
organisation can offer, which can create competitive difficulty (Bernnan et
al.). While there is a great deal of public interest, we are also aware of
significant market challenges. There remains a lack of customer information
about the industry, meaning we need to invest heavily in order to create
awareness. Another weakness of Digi-Note is that it can only target a niche
segment - the people that are already living in the Connected Home and have
an income level suitable to purchase this exclusive product.
Opportunities
Opportunities are the attractive factors of an external environment that, if
successfully implemented, give an organisation the chance to grow (Bernnan
et al.). One of the key opportunities for Digi-Note is that it operates in the
rapidly developing technology market, which will allow us to further enhance
product capabilities and offer new functionalities as well as supplementary
products for the Connected Home industry. For example, investing in
Artificial Intelligence during the next product development stage will be
significant in order to launch a new, smarter Digi-Note that learns from its
user and is capable of intelligent behaviour. Moreover, Digi-Home has another
opportunity to move its operation into new business areas, segments and
markets, while also collaborating with technology giants such as Samsung,
Apple and Cisco to offer the product as a supplementary device to their whole
Connected Home package.
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Digi-Home, Venture Project
Threats
Threats are factors stemming from the external environment that are beyond
the control of an organisation, creating danger to a business and its strategy
(Bernnan et al.). In reference to Gartner’s (2015) Hype-Cycle model, one of the
vital threats to the success of Digi-Note is if the market growth is highly
overestimated, as there is a lot of hype surrounding the Connected Home. This
could result in short-lived demand and rapid decline. In addition, the product
failing to meet customer’s expectations may also have a negative effect on
demand. Another major threat is that Digi-Home must successfully protect its
product rights with IPRs, otherwise competitors will easily eliminate our
competitive advantage. The final threat originates from common issues in the
smart technology market - an inability to secure the device from hackers. In
order to prevent hacking attacks, our company must provide software that
works in a secure environment with the help of up-to-date antivirus programs;
it is also important to keep our security protocols at the highest level. In this
way, it is possible to prevent unauthorised parties from attempting to attack
our system.
7.2 Corporate Structure and Employees
It is argued that people are the most valuable asset of any organisation and they make
critical differences when it comes to organisational performance, competitiveness,
innovation and business success (Bakker and Schaufeli, 2008). As a newly established
company with an innovative product and limited resources, Digi-Home must
constantly consider its corporate structure in order to reduce irrelevant costs and
improve productivity. Figure 3 demonstrates the structure of our corporation, which
we plan to achieve within next two years.
Figure 3. The corporate structure showing the division to be achieved within
the next 2 years.
Excecutive Management
Group
Business operationsPublic and media relations
Government relationsHuman resources activities
Managing company and other departments
Sales and Marketing
Product management,Sales in different
markets,Marketing activities,Customer Services.
Finance
Financial planning and reporting,
Treasury, Internal audit.
Research and Product
DevelopmentRTD,
Software and hardware
development, Bug fixing.
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Digi-Home, Venture Project
Initially, we plan to hire one skilled employee within our sales and marketing
department, who will be responsible for marketing activities such as product
management, sales in different markets and customer service. We will also have one
employee who will be responsible for financial planning, reporting, and internal
auditing. Our Research and Technology Development team will carry out activities
such as software and hardware development, bug fixing, as well as continuously
producing innovative ideas to enhance the capabilities of our offerings. Initially we
will hire three people to work in the RTD team. In the beginning, the remaining
managerial activities will be distributed throughout these three departments, however,
within next two years, a new executive management group will be created who will
be responsible for activities such as HR, public, government and media relations (see
Figure 4). Considering the intensity of the work employees must carry out, the
company will ensure that they have relevant benefits in return and are rewarded
generously. Employees’ starting salary will be £26, 000 annually.
7.3 Use of Technology in Business
As we offer a highly advanced product to the market, we believe our business should
embrace the use of innovative technologies during business operations. One way to
achieve this is the introduction of SAP products, which will help Digi-Home interact
with a common corporate database for a wide range of applications. This tool will
help the organisation to easily manage its resources and capabilities with applications
for customer relations, marketing, sales, product design and services, as well as HR,
22
Digi-Home, Venture Project
payrolls, workforce management, finance and accounting. SAP products are widely
used by companies to improve their productivity, to cut costs and to bring about
creative business solutions.
8. Controls and Evaluation
We will implement a number of controls to evaluate the position and success of our
brand.
Customer Feedback will help analyse areas for improvement within our service
provision and our operating system interface. We will also receive feedback via
professional reviews from websites such as Digital Trends and TechInsider. The
monitoring of these reviews and comments is essential to keep our customers happy,
ensuring a positive experience throughout the products life.
Target Market Sales will help us evaluate the direct success of our product. Due to the
relatively low number of initial units produced (250,000), we can expect a majority to
be sold. This should be similar in the second year, with a production increase of 40%.
Our target market is technologically enthusiastic individuals and families within
Generation Y. If sales decrease we will need to analyse our market further, including
a possible demographic breakdown of sales. This requires the assistance of our retail
partners.
Market share is our final control. Our market share should be high within the
immediate competitor market due to our unique product. However, increasing market
share within the Connected Home market will be crucial for the development and
success of future products and endeavours. Therefore, we need to keep a positive
increase in our market share of the Connected Home. If the positive increase is not
consistent within a year, we must investigate why our plan is not producing
significant results.
9. Profit and loss statement/ Cash flow analysis
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Digi-Home, Venture Project
Digi-Note production costs and sales make up the majority of our expenses and
income. We make a significant profit on each unit made, due to the comparative price
expected from the product after primary research.
In the first year, we aim to sell 250,000 units, each of which costs £66.72 to make.
This profit margin of £53.27 equates to an income of £29,997,500 over the year.
Increasing the number of units produced by 40% in the second year increases our
income by a proportionate amount. During the second year we will incur greater
expenses. This is due to the expected hiring of staff to consolidate and increase the
brand’s growth. We will also funnel more profits into Research and Development in
order to stay ahead of competition. This R&D budget will allow Digi-Home to expand
services and products quickly and innovatively.
We can expect some income from Intellectual Property Rights and Patents in the
future. It is difficult to predict this amount, as it relies on uptake and interest from
other companies to enter this area of the market. However, due to the innovative
nature of our product, we can expect to eventually earn a strong revenue stream from
current and future IPRs and Patents.
9.1 Two Year Quarterly Cash Flow
Year 11st Q 2nd Q 3rd Q 4th Q
Cash Inflow
Sales £7,499,375.01 £7,499,375.01 £7,499,375.01 £7,499,375.01
Interest
Income
£4,026 £2,524 £3,386 £2,452
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Digi-Home, Venture Project
Expenses
Operating £4,609,122.01 £4,618,196.01 £4,607,696.01 £4,609,778.01
Personne
l
£37,247.43 £37,247.43 £37,247.43 £37,247.43
Year 2 1st Q 2nd Q 3rd Q 4th Q
Cash Inflow
Sales £10,499,124.9
9
£10,499,124.9
9
£10,499,124.9
9
£10,499,124.9
9
Interest
Income
£4,346 £2,586 £2,453 £2,503
Expenses
Operatin
g
£7,439,233.99 £7,448,632.99 £7,446,181.99 £7,457,000.99
Personne
l
£50,247.42 £50,247.42 £50,247.42 £50,247.42
9.2 Profit/Loss Statement
INCOME This Year Next Year
Digi-Note Sales £29,997,500 £41,996,500
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Digi-Home, Venture Project
Interest Income £12,388 £11,888
Potential Income
IPR Royalties @ 5-7% of revenue1 Unknown Unknown
Total Income £30,009,888 £42,008,388
Expenses This Year Next Year
Personnel £217,430.96 £266,811.92
Office £87,431 £84,812
Payroll £129,999.96 £181,999.92
Operating £18,444,792 £29,791,050
Advertising £95,865 £91,738
Delivery Costs £80,426 £81,995
Legal and Auditing £85,083 £93,837
Office Supplies £77,345 £95,877
Utilities £8,733 £5,603
Digi-Note Production £16,730,000 £23,422,000
Research and Development £1,367,340 £6,000,000
Total Expenses £18,662,223.96 £30,057,861.92
OVERALL TOTAL £11,347,664.14 £11,950,526.18
10. Operational Considerations
The company’s main operational concerns will include managing the supply chain
efficiently and providing sufficient aftersales services for Digi-Note. The logistics
process for Digi-Home’s supply chain is demonstrated in Figure 4.
1 Analysis Group, as quoted in Parr, R. ‘Royalty Rates for Licensing IP’
26
Digi-Home, Venture Project
Figure 4. Logistics process of Digi-Home’s supply chain.
With research and development and technical support based in Greater Manchester,
UK, Digi-Home’s production is outsourced to China due to lower labour costs,
extensive capabilities in assembly and manufacturing and lower restrictions on goods.
These factors illustrate the benefits of subcontracting production to China, which is
subsequently the most cost-effective strategy (Wei, Zhou, Sunc, , & Lin, 2012). Red
House Global will support the company in this and Digi-Home will ensure good
relationships are built to maintain mutual benefits for both parties. Digi-Note will be
delivered back to the UK and launched into the market directly and indirectly through
retailers.
Conforming to the company’s business strategy, Digi-Note must have the highest
quality, providing excellence. ISO 9000 and Total Quality Management will be
implemented in the operations and supply chain to deliver a superior quality product
to the consumer (Vouzasb, Psomas, & Fotopoulos, 2010).
11. Reference List
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12. Appendix
Appendix A. A visual representation of Digi-Note.
Appendix B. Provisional sample of a magazine advertisement for Digi-Note
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Digi-Home, Venture Project
Appendix C. Forecasted Connected Home Device Annual Shipments (Business
Insider UK 2014)
34