Marketing Plan of the Product

Submission Date: April 8, 2012

Institute of Business Administration

Jahangirnagar University

Quit Smoke Smartly!

Marketing Plan of the Product

Nicotino: Quit Smoke Smartly!

Course Title

Introduction to Marketing (MKT 201)

Submitted to:

Arafat Rahman

Course Instructor

Submitted by:

Group-9: Chrysanthemum

20th Batch, BBA

Date of Submission

April 8, 2012

Group Members Are

Name Roll

Patrick Kanny Sarkar 801

Ashiqur Rahman Sarker 811

Md. Nafeesur Rahman Khan 821

Md. Ashiqul Islam 1332

Kaiser Mahmud 1983

Saddam Hossain 2137

iii

Letter of Transmittal

April 4, 2012

Arafat Rahman

Assistant Professor

Institute of Business Administration,

Jahangirnagar University,

Savar, Dhaka-1342.

Subject: Submission of a report on marketing plan of the product “Nicotino: Quit Smoke

smartly!”

Sir,

We are presenting a report on the marketing plan of our product “Nicotino: Quit Smoke

Smartly!”

In this report we have explained our business idea for this product and showed the marketing

plans and strategies we may take. We have also included our estimated Balance sheet details

for the next few years. In making this report, we had to take help from the various sources of

internet, different institutes and class lectures of our course teacher. We are grateful to them

for extending generous help.

We are pleased to be granted this vital opportunity and grateful for your versatile assistance.

We hope that our work will please you. We will be available in the presentation for further

explanations.

Sincerely,

__________________

Md. Nafeesur Rahman Khan

On behalf of the Group

Chrysanthemum

20th Batch, BBA

iv

Acknowledgement

First of all, I would like to thank the almighty Allah.

I express my heartiest gratitude to our course instructor Arafat Rahman, Assistant Professor,

Batch Manager of 20th batch, Institute of Business Administration, Jahangirnagar University

for his valuable guidance, scholarly direction and unconditional support during the

preparation of this report. I have learnt a great deal from him.

I would also like to express my sense of gratitude and appreciation to Dr. Md. Baktiar Rana,

Director, Institute of Business Administration, Jahangirnagar University.

Finally I would thank my group members for their kind help and assistance in preparing this

report.

v

List of illustrations viii

Executive summary ix

1.0 Introduction 1- 2

1.1Product offerings 1

1.2 Features and unique selling proposition 2

1.3 Business model 2

2.0 Goals and objectives 3

2.1 Vision 3

2.2 Mission statement 3

2.3 Short term goals 3

2.4 Long term goals 3

2.5 Objectives 3

3.0 Competitor analysis 4- 5

3.1 Competitive force analysis 4

4.0 SWOT analysis 6- 7

5.0 Marketing strategies 8- 11

5.1 Target customer 8

5.2 Market positioning 8

5.3 Product strategy 8

5.4 Pricing strategy 8

5.5 Distribution strategy 9

5.6 Marketing communication strategy 10

6.0 Project implementation schedule and organizational structure 13- 15

Table of contents vi

6.1 Project implementation schedule 13

6.2 Organizational structure 13

7.0 Sales promotion 16-19

7.1 Distribution channels and process 16

7.2Marketing organization structure 17

7.3 Advertising and promotional campaigns 17

8.0 Financial analysis and projections 20- 25

8.1 Financial statement assumptions 20

8.2 Accounting assumptions 20

8.3 Financial assumptions 20

8.4 Initial investments 21

8.5 Projected income statement 22

8.6 Projected balance sheet 23

8.7 projected cash flow statement 24

8.8Break even analysis 25

9.0 Contingency plan 25

10.0 Appendix 26- 27

vii

List of illustrations

Illustration No. Illustration name Page No.

1 Problems to prospect 1

2 Business model 2

3 Porter’s five force analysis of Nicotino 5

4 Nicotino’s SWOT analysis 7

5 Product positioning map 8

6 Nicotino’s product offering 9

7 Wholesale and Retail price of Nicotino products 10

8 List of product distribution zones 10

9 Pull strategy of Nicotino 11

10 Project implementation schedule 12

11 Organizational structure of Nicotino 13

12 Staffing needs 14

13 Distribution Channels 15

14 Marketing organization structure 16

15 Advertising and promotional campaign schedule 17

16 Three year marketing budget 18

viii

Executive summary

The following market plan has the potential to be the basis for a new product which can help

the country to ensure a smoking free environment. This product, Nicotino, is a nicotine

chewing gum, which helps smokers give up smoking by suppressing their craving for

cigarettes with almost harmless nicotine.

Smokers take more than 3000 type of harmful chemicals in their body with each smoke puff

they inhale. Nicotine is one of them that creates craving in smokers body. When it is

swallowed as nicotine chewing gum, it goes to liver and is dissolved as harmless chemical.

Thus it enables smokers to gradually give up smoking by chewing these gums for few

months.

Nicotino will be launched in the market at the end of December 2012. It will be launched in

the market in three flavors- original, cinnamon and fresh mint. Each packet will contain 30

pieces of gum. It will operate in the Dhaka city for the first three years. The city is divided

into 8 zones covering 16 areas. The target customers are middle class and high end based on

income. Target segment is divided into two groups on age basis, 20-35 and 35-55 years.

Nicotino will use pull strategy to make people aware of its products. It will be positioned as a

product of moderate price and high quality. There will be various types of promotional

campaign to make people aware of the product brand and the health benefit it offers. The

marketing tools will include TVC, FM radio ads, newspaper ads, 24/7 help desk etc.

Nicotino’s marketing budget is estimated in affordable method which will enable it to

continue the huge sales promotion schedule.

Nicotino products are produces in its own production plant in Sirajganj because of

convenient transport and availability of raw materials. Finished product will be distributed

with help of local distributors.

The estimated project cost is BDT 8,493,500 in FY 2012-13 which is financed by 69% equity

from partners and 31% debt from lenders. This report contains projected income statement,

balance sheet, cash flow statement and break even analysis for FY 2012-13, 2013-14 and

2014-15. The projected financial statements portray liquidity and solvency of the firm.

ix

1.0 I N T R O D U C T I O N

Nicotino is the country’s first ever nicotine gum brand which will enter the market as a

Nicotine Replacement Therapy (NRT). This gum will be an alternative nicotine source for the

smokers and will also compel them to give up smoking and thus nicotine and other 3000 plus

harmful chemicals. According to Global Adult Tobacco Survey 2009, around 41.3 million

people of our country use tobacco in form of cigarette. For this around 57000 people die

every year due to smoke related diseases. Also, according to World Health Organizations

survey of 2004-2005, low income households of our country spend around 15% of their

income in tobacco products, which thus reduces private savings. Nicotino identifies these

problems as opportunity and combines two solutions into a single direction which is

producing a chewing gum that reduces the nicotine craving of the smokers by supplying very

small amount of nicotine and ultimately directing them to give up this habit.

1.1 Product offerings

Nicotino original- Original sweetened nicotine gum.

Nicotino flavored- Nicotino fresh mint (fresh mint flavored gum) and Nicotino

cinnamon (cinnamon flavored gum).

Nicotino will launch its products in 2 small packet sizes: 30 pieces and 60 pieces. These

packs will be released into market containing 2mg strength nicotine gum.

Solution to smoking problem

Solution to health hazard

Nicotin gum

Increasing rate of smokers Increasing death rate due to smoking

Unique product for Bangladeshi market

Illustration-1: Problems to prospect

Page- 1

1.2 Features and unique selling proposition

Nicotine gum is a totally new concept in Bangladesh.

Nicotine gum is a commercially and technically viable smoke quitting solution for the

smokers of our country.

Nicotine gum helps smokers quit cigarettes within maximum 6 months, generally in

2-3 months.

No artificial sweetener, color, flavor will used when producing Nicotino.

1.3 Business Model:

Nicotino’s business model is entirely production and manufacturing-based. Nicotino’s

production process transforms and adds value to the ingredients and produces non-flavored or

flavored nicotine gums. Nicotino will:

Produce gums in its own production plant using eco-friendly production process.

Sell products in 2 small packet sizes (30 and 60 pieces) containing 2mg strength

nicotine gums.

Following is the business model of how Nicotino will make money:

Gum ingredients

Nicotino firm

Nicotin gum

Valued customer

Money

Illustration-2: Business model

Page- 2

2.0 G O A L S A N D O B J E C T I V E S

2.1 Vision

Nicotino’s vision is to create a smoking free Bangladesh to create a healthy nation.

2.2 Mission statement

Nicotino wants to offer its nicotine chewing gum to help the smokers give up smoking habit

while using most efficient and state- of- the- art technology in production operation. Nicotino

aims at establishing eco-friendly work environment and providing better employee incentives

as it continues to expand its business.

2.3 Short-term goals:

To offer quality products at a fair price to capture potential market share.

To create a demand for nicotine chewing gums as a solution for tobacco use quitting

process.

To persuade the target customers regarding the benefits of using nicotine gums as a

NRT for cigarettes which will bring familiarity among customers.

2.4 Long-term goals:

To expand its operation beyond Dhaka within the year 2015 and further goes for

export.

To set up new industrial unit in the west region of Bangladesh by the year 2018.

To enlarge its product mix by adding nicotine lozenge and nicotine patch product

lines.

2.5 Objectives:

To attain 20% growth rate by the year 2014.

To attain net profit margin of 25% in year 2017.

To repay loans by the year 2020 and lever up the firm with 25% debt by the year

2025.

Page- 3

3.0 C O M P E T I T O R A N A L Y S I S

Nicotino is the first production company in this country which is going to introduce tobacco

users to Nicotine replacement therapy. That means no other company in this country offers

nicotine gums for smoking substitution. It implies that Nicotino is going to enter the market

as the only one of its kind. Thus Nicotino will have no competitors in this country until the

time when-

The existing domestic pharmaceutical companies decide to include this product line

in their product mix.

Other multinational companies such as GlaxoSmithKline, Aventis or Pfizer decide to

launch their NRT products in this country.

3.1 Competitive forces analysis:

Porter’s five forces analysis has been conducted to evaluate competitive edge of Nicotino

from its potential or existing competitors. The analysis shows:

Bargaining power of suppliers is high because there are not a lot of suppliers who can

supply necessary raw materials.

Bargaining power of buyers is low because the consumers don’t have other options,

but it is essential for Nicotino to keep a moderate price to attract new customers.

Threat of new entrants domestically is low as the raw materials are not easily

available and there hasn’t been any other company in the past whose market operation

could be monitored.

Threat of substitute is very low also.

The intra-industry rivalry is domestically very low as Nicotino is the first company to

produce this product.

Page- 4

The following illustration shows the summary result of Porter’s five forces analysis of

Nicotino:

Burgaining power of suppliers

Burgaining power of buyers

Threat of new entrants

Threat of substitute products

Intra industry rivalry

High

Low

Low

Low

Low

Illustration-3: Porter’s five force analysis of Nicotino

Page- 5

4.0 S W O T A N A L Y S I S

Strength:

Positive internal factors that Nicotino uses to accomplish its goals and objectives are

Nicotino is the first nicotine chewing gum brand of the country. That’s why it enjoys

the first mover’s advantage in the market.

The nicotine chewing gum option is commercially and technically the most viable

Nicotine Replacement Therapy for Bangladesh.

The employees are given favorable work environment and it helps to create employee

loyalty.

The management team is comprised of efficient and dynamic persons.

It will face less government regulations due to its business intention to reduce the

smoking habit in society.

Weakness:

Negative internal factors that inhibit the accomplishment of Nicotino’s goals and objectives

are

Nicotino’s product distribution is highly dependent on dealers.

Nicotine gum making process is highly dependent on other ingredients. The

disruption of those may hamper production. Also a small error can create hazardous

consequence.

Nicotino has no established brand or image. So it may need aggressive promotion to

create brand awareness among customers.

Opportunity:

Nicotino can take advantage of two major market opportunities

There are increasing rate of voice in the nation against smoking habit and its health

hazard. Recent data shows that alone in Dhaka city, 72% of the smokers are willing to

quit cigarettes but are failing to do so. They can be potential customers.

Page- 6

Government has banned smoking in public places. This regulation helps to attract

customers to our product to help them in quitting cigarettes.

Threats:

Nicotino will face three main threats as it is introduced to the market

The level of acceptance by people is not reasonably certain.

Economic recession may lessen the purchase power of potential customers.

As in this country, Nicotino is in the introduction stage of its product life cycle, the

production company may have to face losses in early stages.

Strengths

First movers advantage being unique product

Commercially and technically viable NRT

Subject to fewer government regulations

Weaknesses

Distribution highly depend on dealers Any small error in production process

can hamper production hugely Need aggressive advertisement to

create brand awareness

Opportunities

Increasing rate of smokers willing to quit cigarettes

Government regulation against smoking compelling smokers to NRTs

Threats

Uncertain acceptance level Decreasing purchase power of

potential customers due to recession Production may face losses in early

stages

Illustration-4: Nicotino’s SWOT analysis

Page- 7

5.0 M A R K E T I N G S T R A T E G I E S

Making people aware about nicotine chewing gums and its benefits.

Focusing price unique selling propositions while developing marketing campaign

Building brand proposition to different consumers according to their perception (e.g.;

Nicotino as cigarette expense saver for middle class consumers, health preserver for

high end consumers).

Creating customer loyalty and making customer delight by proper quality assurance

campaign.

5.1 Target customer:

Geographic location: Dhaka city for first 3 years

Demographic:

1. Social class—middle class and high end consumers.

2. Age— 20-35 and 35-55 are two prospective buyer segments for flavored gum

and original gum respectively.

Prospective buyers: Around 540,000 ( 30% of Dhaka city’s total cigarette smoking

population fall under Nicotino’s target customer segments)

5.2 Market positioning

Nicotino positions itself in the market on

the Basis of its moderate price and the

health benefits the target customers can

receive by consuming this product to help

them give up smoking. The product

position map here shows the unique

position Nicotino will have relative to

some cigarette brands.

Harmless to health

Hazardous to health

Low price

NicotinoMarlboro

High price

Gold leaf

DunhillB&H

Page- 8

5.3 Product Strategy

Nicotino offers two basic types of products: original and flavored. The pack sizes of

Nicotino Original is 30 and 60 piece gums per packet. Nicotino Flavored offers 2 flavors

(fresh mint and cinnamon) with pack size of 30 and 60 piece gums per packet. All these gum

are offered in 2mg strength nicotine gum. Nicotino uses state-of-the-art technology for

packing its offers. The following table illustrates Nicotino’s total product offering-

Nicotino Original Nicotino Fresh mint Nicotino Cinnamon

Gum strength 2mg 2mg 2mg

Piece per pack 30 60 30 60 30 60

The shelf life of Nicotino is 30 months for both original and flavored gum. If the nicotine

gum becomes popular among the target customers, then Nicotino may decide to launch two

more product lines that include nicotine patch and nicotine lozenges.

5.4 Pricing strategy

As Nicotino is a unique as well as a new product in the country’s market, we have decided to

use the market-skimming pricing strategy for the product. The reasons behind using this

strategy are:

68.6% of current smokers, aged 35-55, are looking for means to give up smoking.

Thus there are enough buyers who will pay high price for the product.

As the product is totally new for Bangladesh market, competitors are unlikely to

emerge in the market easily and undercut the high price.

Illustration-5: Product positioning map

Illustration-6: Nicotino’s product offering

Page- 9

Nicotino will be introduced to market at Tk.195 wholesale / Tk. 240 retail price for 30 pieces

gum packet. For 60 pieces gum packet, the price is estimated Tk.390 wholesale/ Tk. 480

retail price.

The following price list shows the wholesale and retail prices of Nicotino products:

Nicotino Original Nicotino Fresh mint Nicotino Cinnamon

Piece per pack 30 60 30 60 30 60

Wholesale price (BDT) 195 390 195 390 195 390

Retail price (BDT) 240 480 240 480 240 480

5.5 Distribution strategy

The production of Nicotino will be done in the own operational plant in Sirajganj because the

availability of raw-materials as well as the convenient transport and communication.

Nicotino uses a simple distribution channel with zone-wise distributors. The Dhaka city has

divided into 8 different zones covering 16 areas. Their list is given below:

Illustration-8: List of product distribution zones

Illustration-7: Wholesale and retail price of Nicotino products

Page- 10

Zone Covering areas

Zone-1 Mirpur, Pallabi

Zone-2 Cantonment, Kafrul,

Zone-3 Mohammadpur, Dhanmondi

Zone-4 Ramna, Tejgaon

Zone-5 Gulshan, Uttara

Zone-6 Lalbag, Kotwali

Zone-7 Demra, Sutrapur

Zone-8 Sabujbag, Motijheel

Finished Nicotino products come directly to a Dhaka city warehouse from the plant. Sales

team will use firm’s covered vans to distribute the product to the dealers. It will use different

specific day for specific zone. Then the secondary distribution channel led by the dealers

distributes the product by using their own resources. Nicotino will also make strategic

alliance with super stores and educational institutes’ canteens to sell its products.

5.6 Marketing communications strategy

Nicotino uses pull strategy as its promotion mix strategy which is spending a lot on

advertising and consumer promotion to build up consumer demand. It makes the promotion

mix efficient enough to activate customers to ask the retailers for the product. Here is a

graphical view of the pull strategy:

Nicotino’s marketing communication mix or promotion mix includes all the typical elements

like advertising, sales promotion, public relation, personal selling and direct marketing.

Here’s the detail:

Advertising:

Electronic media advertisements, such as television commercials, FM radio

commercials.

Print media advertisements, such as newspaper ads, posters and leaflets.

Point of purchase advertisements, Shelf space advertisements.

Sales promotion:

SMS contest

Price discount at special occasion

Nicotino Distributors and retailers

Customers

Illustration-9: Pull strategy of Nicotino

Order Demand

Marketing activities

Page- 11

Public relation:

“Buzz marketing”—by using opinion leaders (doctors).

Written articles about awareness of nicotine gum and its benefits.

Written features in lifestyle pages of newspapers.

Sending press release about products.

Arranging seminars under “Anti- tobacco awareness campaign.”

Personal selling:

Temporary selling booth at super stores, hospitals and campus.

“Nicotino quality assurance campaign”— a tour to production plant to know about the

eco-friendly production process.

Direct marketing:

E-mail marketing, web marketing

Page- 12

6.0 P R O J E C T I M P L E M E N T A T I O N S C H E D U L E

A N D O R G A N I Z A T I O N A L S T R U C T U R E

6.1 Project implementation schedule

The project starts at April 2012 and the commercial launch is on January 2013. The 6-month

project implementation schedule is as follows

July’12 Aug’12 Sept’12 Oct’12 Nov’12 Dec’12 Jan’13

License and approval

Product development

Land, building

Machine purchase

Installation

Premise beautification

Pilot Production

Quality testing

Commercial operation

6.2 Organizational structure

Illustration-10: Project implementation schedule

Page- 13

At the initial phase, the operation of Nicotino is monitored by six department heads

categorized as finance, human resource, manufacturing, marketing, research and

development, procurement and storage. The head of the departments are taken from the

partners and requirement for labors, supervisors and managers are fulfilled from outsource.

Following is the organizational chart of Nicotino:

At the initial phase, the operation of Nicotino is monitored by six department heads. The

needs of staffs can be illustrated below based on the organizational structure:

2012-13 2013-14 2014-15

Finance unit

Head 1 1 1

Manager 1 1 1

Staff 3 3 3

NICOTINO

Head of human

resource

Head of Finance

Head of marketing

Head of Procurement

Manufacturing manager

Head of manufacturin

g

Staff

Marketing manager

HR managerFinance manager

Head of R&D

Storage manager

R&D manager

StaffStaff Supervisor Supervisor Supervisor Staff

Staff

Illustration-11: Organizational structure of Nicotino

Staff

Page- 14

Human resource unit

Head 1 1 1

Manager 1 1 1

Staff 3 3 3

Marketing unit

Head 1 1 1

Manager 3 3 3

Supervisor 4 4 4

Staff 16 17 17

Manufacturing unit

Head 1 1 1

Manager 1 1 1

Supervisor 3 3 3

Staff 12 13 13

R&D unit

Head 1 1 1

Manager 1 1 1

Staff 6 7 7

Storage unit

Head 1 1 1

Manager 1 1 1

Supervisor 1 1 1

Staff 5 6 6

All the staffs are permanent and recruit by giving monthly wages

The production unit needs extra staffs each years due to process more raw-materials

The staffs are giving all privileges stated in “Bangladesh Labor Code 2006.”

Illustration-12: Staffing needs

Page- 15

7.0 S A L E S P R O M O T I O N

7.1 Distribution channels and process

The distribution channel of the Nicotino can be easily shown in the following figure:

As it is shown in the graph, the retail distributors and dealers can place order by using order

form or through internet. The customers can place orders only through the website . The

distribution process goes as the following:

Finished Nicotino products are transported from the Sirajganj plant to a warehouse

that is situated in Dhaka.

Nicotino uses intensive distribution strategy, which means that this product will be

available in all the outlets on basis of demand by dealers and consumers.

Our product representatives will deliver the finished products to super stores, drug

stores and departmental stores. They may use the firm’s covered vans to do this.

Specific day for specific zone are to be assigned, so the distribution operation may

continue systematically.

Retailers will then sell the products to the valued customers.

We will provide a 24/7 call center. Also retailer survey will be conducted quarterly by

the marketing team to know the first hand information of the customers.

Nicotino

RetailerNicotino

Consumer

Consumer

Website

Website

Order form

Illustration-13: Distribution channels

Page- 16

7.2 Marketing organization structure

Nicotino’s head of the marketing department, chief marketing officer holds overall

responsibility for all of the company’s marketing activity. The following figure shows the

structure of eight personnel marketing organization-

7.3 Advertising and promotional campaigns

Nicotino’s nicotine gum will be first launched in the market in January 2013. Following is

the summary of the advertising and promotional campaign during the first year of Nicotino’s

product:

In January, we will start advertising for our product with the help of newspaper ads

and creating Buzz by providing samples to selected product reviewers, opinion

Chief Marketing

Officer

Advertising Manager

Promotion Manager

Sales Manager

Advertising Analyst

Regional Sales

Promotion Analyst

Regional Sales

Illustration-14: Marketing organization structure

Page- 17

leaders, and in its case, the renowned doctors of our country. Newspaper ads will

continue whole year. Also our marketing staff will use direct marketing by working

with retailers to explain nicotine gum’s health benefit and advantage.

There will be television commercials which we will launch at the month of March.

These commercials will create brand awareness among people faster. This will

continue throughout the whole year.

In May we will arrange SMS contest. We will also distribute new point of purchase

and shelf space ads. There will be also FM radio advertising.

In July we will hold internal contest among sales persons and the retailers offering

prizes and discount to those who will be able to sell most products in their zone

during the four week period.

We will launch create our own website and start online ads this in August.

In October, there will be a discount offer for the four week period.

In December we plan to roll out a massive advertising campaign. We will use

celebrity voices telling how Nicotino helped them stop their smoking habit.

The following schedule shows one year plan of our advertising and promotional campaign:

Jan ‘13

Feb’13

Mar’13

Apr’13

May’13

Jun’13

July’13

Aug’13

Sep’13

Oct’13

Nov’13

Dec’13

News paper ads

Direct marketing

Television ads

SMS contest

FM radio ads

Point of purchase ads

Contest among retailers

Website and online ads

Discount offer

Advertising using celebrities

Page- 18

Following is the three year allocation of our marketing budget at affordable method:

2012-13 2013-14 2014-15

Advertising 2,983200 5,146,400 5,146,400

Sales promotion 150,000 200,000 200,000

PR and personal selling 1,146,600 933,600 1,233,600

Direct marketing 20,000 20,000 20,000

Total 4,300,000 6,300,000 6,600,000

Illustration-15: Advertising and promotional campaign schedule

Illustration-16: Three year marketing budget

Page- 19

8.0 F I N A N C I A L A N A L Y S I S A N D

P R O J E C T I O N S

8.1 Financial statement assumptions

Total original and flavored nicotine gum production proportion is 50:50.

The wages of production staff increased by BDT 300 yearly started from BDT 4200.

Wholesale price of both original gum and flavored gum is BDT 6.5/ piece.

Salaries of employees increased by BDT 1000 yearly.

Marketing and promotion expense is the highest indirect expense and the marketing

budget is calculated using affordable method.

Office rent includes the rent of Dhaka office and warehouse.

Accounts receivable is 10% of sales revenue each year.

Accounts payable is 35% of the raw materials cost.

8.2 Accounting assumptions

Depreciation policy is straight line method.

Depreciation rate is 5% for long term assets.

Inventory valuation is done by FIFO method.

Tax rate is assumed to be 40% on net income before tax which is payable annually.

8.3 Financial assumptions

The firm’s initial investment is BDT 8,493,500 which is financed by 69% equity and

31% debt.

The cost of capital or discount rate is assumed to be 20%.

Interest for loans is 15% per annum repayable annually.

Page- 20

8.4 Initial investments

Loan repayment schedule

Page- 21

Amounts in BDT

Startup Expenses:

License and approval 52,000

Patent and trademarks 25,000

Product development cost 64,000

Infrastructure development 327,500

Others 45,000

Total startup expenses 513500

Startup Assets:

Land and registration 722,500

Building 600,000

Machinery and equipment 4,302,600

Vehicle 606,300

Cash requirement 1,698,600

Other short-term assets 50,000

Total startup assets 7,980,000

Total Requirement 8,493,500

Means of finance Amount in BDT % of Total

Equity 5,870,775 69%

Debt 2,662,725 31%

Loan taken ( in BDT) 2,622,725

Date of loan taken July 1, 2012

Repayment years 10

No. of installation per year 1

Interest rate 15%

Periodic loan repayment 522,583

Period Beginning Balance Loan Repayment Interest Principal Ending Balance

1 2,622,725 522,583 393,409 129,174 2,493,551

2 2,493,551 522,583 374,033 148,550 2,345,000

3 2,345,000 522,583 351,750 170,833 2,174,167

4 2,174,167 522,583 326,125 196,458 1,977,710

5 1,977,710 522,583 296,656 225,927 1,751,783

8.5 Projected Income Statement

2012-13 2013-14 2014-15

Operating revenue

Sales revenue 15,200,000 41,800,000 51,300,000

Less: Cost of goods sold 8,232,000 20,739,500 24,166,100

Gross Margin 6,968,000 21,060,500 27,133,900

Less: Operating expenses

Salaries 825,000 1,782,000 1,914,000

Marketing expenses 4,300,000 6,300,000 6,600,000

Office rent and utilities 210,000 420,000 480,000

Depreciation 275,445 275,445 275,445

Insurance and others 210,000 220,000 225,000

Total operating expenses 5,820,445 8,997,445 9,494,445

Income from operations 1,147,555 12,063,055 17,639,455

Less: interest expense@ 15% 393,409 374,033 351,750

Net income before tax 754,146 11,689,022 17,287,705

Less: income tax @ 40% 301,659 4,675,609 6,915,082

Net income after tax 452,488 7,013,413 10,372,623

Estimation of cost of goods sold

Page- 22

Page- 23

2012-13 2013-14 2014-15

Purchase of ingredients 4,390,000 10,820,000 12,070,000

Transportation cost 550,000 1,100,000 1,400,000

Packaging cost 1,520,000 4,180,000 5,130,000

wages 756,000 1,782,000 2,073,600

utility 960,000 2,700,000 3,300,000

Other direct expenses 56,000 157,000 192,500

Cost of goods sold 8,232,000 20,739,500 24,166,100

8.6 Projected Balance Sheet

2012-13 2013-14 2014-15

Cash 2,082,550 4,668,825 9,664,310

Accounts receivable 1,520,000 4,180,000 5,130,000

Inventory 3,800,000 9,500,000 10,450,000

Other current assets 64,229 3,266,461 8,767,107

Total current assets 7,470,779 21,615,287 34,011,418

Long term assets 6,231,400 6,231,400 6,231,400

Accumulated depreciation 275,445 550,890 826,335

Total long term assets 5,955,955 5,680,510 5,405,065

Total assets 13,426,734 27,295,797 39,416,483

Accounts payable 2,881,200 7,258,825 8,458,135

Other current liabilities 1,728,720 4,355,295 5,074,881

Total current liabilities 4,609,920 11,614,120 13,533,016

Long term liabilities 2,493,551 2,345,000 2,174,167

Total liabilities 7,103,471 13,959,120 15,707,183

Paid up capital 5,870,775 5,870,775 5,870,775

Retained earnings 452,488 7,465,901 17,838,524

Total equity 6,323,263 13,336,676 23,709,299

Total liability and equity 13,426,734 27,295,797 39,416,483

8.7 Projected Cash flow Statement

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2012-13 2013-14 2014-15

Cash flow from operating activities

Cash received from buyers 13,680,000 37,620,000 46,170,000

Cash paid for cost of sales (8,232,000) (20,739,500) (24,166,100)

Cash paid to employees (825,000) (1,782,000) (1,914,000)

Cash paid for promotion (4,300,000) (6,300,000) (6,600,000)

Cash paid for rent and utilities (210,000) (420,000) (480,000)

Cash paid for other purposes (210,000) (220,000) (225,000)

Cash paid for interest (393,409) (374,033) (351,750)

Cash paid for income tax (301,659) (4,675,609) (6,915,082)

Net cash provided by operating activities (792,067) 3,108,858 5,518,068

Cash flow from investing activities

Cash paid for startup assets (6,281,400) 0 0

Cash paid for startup assets expenses (513,500) 0 0

Net cash provided by investing activities (6,794,900) 0 0

Cash flow from financing activities

Cash received from loan term loan 2,622,725 0 0

Cash received from paid up capital 5,870,775 0 0

Cash paid for loan payment (522,583) (522,583) (522,583)

Net cash provided by financing activities 7,970,917 (522,583) (522,583)

Net increase in cash 383,950 2,586,275 4,995,485

Cash balance at the beginning of the year 1,698,600 2,082,550 4,668,825

Cash balance at the end of the year 2,082,550 4,668,825 9,664,310

8.8 Break even analysis

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2012-13 2013-14 2014-15

Total costs 14,445,854 30,110,978 34,012,295

Per unit selling price (BDT) 6.50 6.50 6.50

Break even selling unit 2,222,439 4,632,458 5,232,660

30 piece /packet 74,081 154,416 174,422

9.0 C O N T I N G E N C Y P L A N

Nicotino will use tight control measures to closely monitor Quality and consumer

satisfaction. It will enable us to react quickly in correcting problems that may occur. If there

comes any crisis that pushes Nicotino to exit the market, then we have the following

strategies to lessen the risk-

Firm’s primary exit strategy is converted into private limited company from

partnership firm to reduce capital problem (if occurs) and skill managing.

Firm’s secondary exit strategy will be to convert the product from nicotine chewing

gum to a usual chewing gum. This will lessen the risk of being dissolute.

10.0 A P P E N D I X

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Nicotino’s product offerings

Nicotino Drug facts

Quit Smoke Smartly!

Page- 27

Ingredients Purpose source

Nicotine Polacrilex Stop smoking aid Nicotine compound, solid,

n.o.s. UN1655

Chewing gum base,

containing butylated hydroxy

toluene (E321)

Carrier of ingredients and

mouth freshener

Produced from chicle or

rubber

Sorbitol Sweetener Obtained by reduction of

glucose

Sodium carbonate, anhydrous Reduces acidic taste Produced from soda ash

Sodium bicarbonate Works as mouthwash Produced from soda ash,

dissolved in water treated

with carbon dioxide

Flavor for smoker Flavor Vegetable based

(cinnamon, mint)

Haverstroo flavor Flavor Produced from Haverstroo

compound ZD 4932

Glycerol Sweetener and mouth

bacteria cleaner

By product of biodiesel

Talcum Creates gum substance Produced from talc carbonate

Calcium carbonate Works as gastric antacid Retrieved from calcium

carbonate compound