Final Business Plan

i

Business Plan

November 26, 2013

Fall Semester

Professor Parker

Professor Hibbard

Professor Chadwick

Professor Allen

Section B4, Team 3

ii

AUTHENTICITY STATEMENT & SIGNATURE PAGE

This business plan is the original work of the undersigned. All the facts and figures are

authentic. All contributions from others have been appropriately acknowledged. We have

not read, reviewed, or used any past Core plans in any way in the development of our

plan. We did not misrepresent ourselves to suppliers or to anyone else who contributed

information to this plan.

We each understand that the ideas, analysis and text contained in our plan are the

collective intellectual property of our team.

X___________________ Date:______ X___________________Date:______

Diane S. Liu John P. Weldon

X___________________ Date:______ X___________________ Date:______

Kathy Xia Hailun Lu

X___________________ Date:______ X___________________ Date:______

Chang H. Park Aadesh R. Modi

X___________________ Date:______ X___________________ Date:______

Sara E. Boretsky Snigdha V. Gupta

X___________________ Date:______

Kyle J. Peabody

iii

Table of Contents

LIST OF EXHIBITS v

LIST OF APPENDICES vii

Executive Summary: ix

Corporate Social Responsibility xi

Introduction 1

Marketing Marketing Strategy 2

Marketing Objectives 2

Bicycle Accessory Industry Analysis 3

Target Segment Analysis 4

Integrated Marketing Communication: 7

Measuring Advertising Effectiveness 14

Branding Strategy 15

Creative Strategy 16

Channels and Pricing 17

Channel Distribution 17

Pricing 20

Sales Forecasts: 21

INFORMATION SYSTEMS Is overview/strategy 27

Critical success factors (CSFs) 27

Value chain 32

Entity relationship diagram (ERD) 33

Telcom, disaster plan, and staffing 40

Website 41

OPERATIONS MANAGEMENT Product Design, Cost, Performance Goals 43

Supplier Information 45

Supply Chain 46

Facility Location 47

Capacity 51

Product Quality Check 53

Aggregate Planning 53

Inventory 54

FINANCE Industry Overview 55

Funding Request 55

Company Ownership Distribution 56

Discussion of Financial Statements 56

Income Statement 56

Statement of Cash Flows 57

Break-Even Analysis 58

Best and Worst Case Projections 59

Sensitivity Analysis 60

iv

Our Unique Product 61

How Do We Compare? 62

Risk Analysis and Mitigation 63

Investment Opportunity 64

Conclusion 65

WORKS CITED 100

QUALTRICS SURVEY 105

v

LIST OF EXHIBITS

Exhibit 1.1: Return on Investment Analysis


Exhibit 1.3: Limited Segmentation Tree

Exhibit 1.4: Bicycling Magazine Ads Y1-Y5

Exhibit 1.5: Booth Layout Exhibit 1.6: Trade Shows Y0 Exhibit 1.7: Trade Show Costs (all years) Exhibit 1.8: Logo

Exhibit 1.9: Profile of the Retail Environment

Exhibit 1.10: Major Players

Exhibit 1.11: ACV (Y3) – Channel Conflict

Exhibit 1.12: ACV (Y3)

Exhibit 1.13: Cumulative Demand Curve

Exhibit 1.14: Pricing Discounts

Exhibit 1.15: Total Sales (Base Projection) Exhibit 1.17: Worst Case Competitor Adjustment

Exhibit 1.18: Worst Case Percentage of Base Sales

Exhibit 1.19: Base vs. Best case ACV

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Exhibit 2.1: CSF 1

Exhibit 2.2: CSF 2

Exhibit 2.3: CSF 3

Exhibit 2.4: CSF 4

Exhibit 2.5: Value Chain

Exhibit 2.6: Report I

Exhibit 2.7: Report I

Exhibit 2.8: Marketing Software Comparison

Exhibit 2.9: Operations and Supply Chain Management Comparison

Exhibit 2.10: Accounting and Finance Software Comparison

Exhibit 2.11: ERP Software Comparison

Exhibit 2.12: ERP and Best of Breeds Comparison

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Exhibit 3.1: House of Quality

Exhibit 3.2: Target Costing)

Exhibit 3.3: Cost of Goods Sold

Exhibit 3.4: Supply Chain

Exhibit 3.5: Center of Gravity

Exhibit 3.6: Factor Rating

Exhibit 3.7: Facility layout)

Exhibit 3.8: Cycle Time and Capacity

Exhibit 3.9: Organizational Chart Year 1

Exhibit 3.10: Organizational Chart Year 5

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Exhibit 4.1: Start-up Costs

Exhibit 4.2: NPV and IRR

Exhibit 4.3: Net Cash Flow

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vi

Exhibit 4.4: Break-Even Analysis

Exhibit: 4.5: Weighted Net Present Value

Exhibit 4.6: Sensitivity Analysis

Exhibit 4.7: Comparison to Industry

Exhibit 4.8: Risks

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vii

LIST OF APPENDICES

Marketing MK Appendix 1 – Perceptual Map

MK Appendix 2 – Positioning Statement

MK Appendix 3 – IMC Schedule Year 1 – Base Case





MK Appendix 8 – Street Ad Locations

MK Appendix 9 – Expo Cost Breakdown

MK Appendix 10 – Ad #1




MK Appendix 14 – Packaging

MK Appendix 15 – Sales Force Pay

MK Appendix 16 – Sales Projections – Base Case

MK Appendix 17 – Channel Margin

MK Appendix 18 – Sales Volume

MK Appendix 19 – Full Segmentation Tree

MK Appendix 20 – Purchase Intention

MK Appendix 21 – Channel Conflict Breakdown

MK Appendix 22 – Competition Adjustment

MK Appendix 23 – Sales Projections – Best Case

MK Appendix 24 – Sales Projections – Worst Case

MK Appendix 25 – Cumulative Purchase Intent Demand Curve (Tranpsortaion)

MK Appendix 26 – Cumulative Purchase Intent Demand Curve (Recreation)

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Information Systems

IS Appendix 1 – ERD

IS Appendix 2 – Hardware Topology

IS Appendix 3 – Hardware Budget

IS Appendix 4 – Software Budget

IS Appendix 5 – Telcom/Backup/Website/Misc. Budget

IS Appendix 6 – Website SEO Metatag Word List

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Operations Management

OM Appendix 1 – Supplier Information

OM Appendix 2 – Make/Buy Decision

OM Appendix 3 – Facility Size Calculations

OM Appendix 4 – Process Flow Years 1-5

OM Appendix 5 – Administrative Costs

OM Appendix 6 – Aggregate Planning Year 1

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viii

OM Appendix 7 - Aggregate Planning Year 2




OM Appendix 11 – Start-Up Costs

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Finance

FE Appendix 1 – Base Case Income Statement

FE Appendix 2 – Base Case Balance Sheet

FE Appendix 3 – Base Case Cash Flow

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ix

Executive Summary

Our product, Noggin-Lock, is a bicycle helmet equipped with a built in Kevlar cable bike

lock. This feature allows our users to easily use the bike helmet to lock both their helmet and

their bike to a bike rack. It will have a personalized 4-digit code to release the lock whenever the

user returns to their bike. Noggin-Lock is a fully functional bike helmet, passing all CPSC

standards, to ensure that it is on par with the safety of all other helmets on the market, because

our user’s safety is our top priority. It is different from all of the products in the market because

nothing else currently offers the extreme convenience and value that we do. While wearing and

using the Noggin-Lock Helmet, riding your bike (and leaving it!) has never felt safer.

We plan on targeting urban recreational and transportation bicycle riders who get out and

bike over three times per month. We plan on accessing this market through a series of

aggressive advertising campaigns. These campaigns include, but are not limited to, magazine

ads, outdoor and bus ads, expo and trade show booths, and many more. Since Noggin-Lock is

solidly within the Bicycle Accessory Industry, our channel of distribution is narrow. We are

only selling this product through online retailers and independent bike shops. We made this

executive decision in order to maximize our All Commodity Volume and to limit channel

conflict.

We want Noggin-Lock to be priced at its revenue-maximizing price of $60.65 by year 5.

To achieve this, our retail-selling price is $70.00 in year 1, and we will lower this throughout our

first five years to increase our purchase intent and to attain our highest revenue. With these retail

prices, we will have manufacturer’s selling prices of $31.50 (to Independent Bike Shops) and

$40.50 (to online sellers) in year 5. This allows us to maintain decent profits while still allowing

each retail location to markup the helmet as necessary.

As a new company, it is essential that we follow and manage obtainable critical success

factors. Since our key benefits that our product offers are convenience, safety, and security, it is

vital that we have critical success factors reflect that. In the software analysis stage, we have to

choose between best of breeds and enterprise resource planning (ERP’s). We selected the ERP

software due to its effectiveness in cross-functionality and assistance with our CSFs and value

chain.

We implemented customer needs from our surveys into our product design, fulfilling a

x

niche market in the helmet accessory industry. Through extensive research we were also able to

create a wholesome network of suppliers who provide us with the precise materials for our

product while complying to industry standards.

Through this network of suppliers we were able to minimize costs of materials, while not

detracting from quality. We estimated costs for our facility in Salt Lake City, labor, machines,

and overall production to produce our remarkable product. We also created a process that

optimizes our production, while satisfying the workforce. Our process consists of multiple

assembly procedures as well as inspection stations to ensure the high quality of Noggin-Lock is

universal.

Our company has a total initial funding request of $443,052 from investors (and a total

funding request for $590,736). In return, our project earns a return of 37% with NPV of

$251,278 in our base case, which is above the cost of capital. Secondly, Noggin-Lock is a highly

profitable company, which breaks even in our second year and starts to earn positive profit.

According to the income statement (FE Appendix 1 – Income Statement), our company shows

a stable increase in net income and net income margin throughout all 5 years. Based on our

analysis and our current plans for mitigation of internal and external risks, Noggin-Lock is also a

safe company to invest in. Taking all of these factors into account, Noggin-Lock is an investment

with high returns and would be a smart move for potential investors.

xi

Corporate Social Responsibility

When developing a business, it is increasingly important to show compassion for the

community and to reach out and help the society that we are placed in. We see our Corporate

Social Responsibility (CSR) as being a large part of our foundation and want to continue to give

back to our community.

One of our first CSR initiatives is to use recycled plastics in the outer shell of our helmet.

Frequently, when new plastics are factory made, not only do they take a toll on our natural

resources and everything that is required to formulate them, but the factories also expel vast

amounts of CO2 and toxins into our air and water supplies. By using recycled materials, we are

lessening our impact on the environment – helping to preserve it for future generations.

Our second CSR initiative it to reach out to programs such as Ride2Recovery. They are a

program that hosts a series of bike races, rides, and challenges that help injured US soldiers

recover from injuries they received in combat. Cycling is a great way for injuries to recuperate

and heal due to the minimum amounts of physical impact on the body. Additionally, there are a

variety of special bicycles that are manufactured specifically for people with disabilities to be

able to keep active. By partnering with Ride2Recovery, we are giving back to America and

those soldiers who put their lives on the line to keep us safe.

1

Introduction

Our product, the Noggin-Lock, is a bike helmet that is equipped with a Kevlar cable that

enables bicyclists to securely lock their bike. It provides the safety features of a standard bike

helmet as well as a high quality, durable Kevlar cable that prevents theft. The Noggin-Lock

offers a convenient way for bicyclists to lock their bike and eliminates the need to lock your

helmet and bike with a separate locking mechanism.

The Noggin-Lock is aimed at bicyclists in urban environments who use their bike for

transportation and recreation. There is an increased emphasis on sustainability in today’s world

and as a result, a growing number of people are using their bikes for transportation purposes.

Bicyclists who use their bikes for transportation typically need to lock up their bikes as well as

their helmets, which creates an attractive market opportunity for the Noggin-Lock. Our product

also appeals to consumers who bike recreationally, particularly in urban environments. Bike theft

is on the rise in major cities, which increases the need for a product like Noggin-Lock that offers

a convenient and secure way for bicyclists to lock their bikes.

Our product will compete in the bicycle accessory industry with companies that manufacture

helmets and locks including Easton-Bell Sports and Ingersoll-Rand. Easton-Bell Sports owns

Bell and Giro, which are leading brands in the bike helmet industry. Easton-Bell Sports also

owns Blackburn, which manufactures the U-Lock in addition to other bicycle accessories.

Ingersoll-Rand owns Kryptonite, which is a leading manufacturer of locks. Although these

companies produce some of the leading products in the bicycle accessory industry, none of them

offer the innovative benefits of the Noggin-Lock. Over the course of this business plan we will

go into more detail about Noggin-Lock, our action proposals, marketing tactics, cost estimates,

projected results, and our overall business strategy. The business plan is divided into the four

cross-functional areas: Marketing, Information Systems, Operations Management, and Finance.

MarketinG

2

Marketing Strategy

When any company introduces a new product to consumers, it is incredibly important for

them to properly campaign their product within the current market. As a Bicycle Accessory, we

are entering a mostly saturated market. That being said, it is critical for Noggin-Lock to

aggressively penetrate the current market by being properly positioned within our competitors

(MK Appendix 1 - Perceptual Map). We plan on achieving this through a series of marketing

campaigns, designed to differentiate our product from everything currently on the market. We

have these goals in order to maximize our sales revenues and to become a profitable and

competitive company.

Marketing Objectives

1. Achieve awareness of 15% by year 5.

Due to some of the limitations within our target market, it is increasingly

important for us to focus on achieving as much awareness as possible. This is an

important factor because the greater the awareness, the greater the number of

potential customers who are conscious of our product. Because of this, awareness

is a significant influence on our sales projections. When awareness within our

target market increases, sales increase; they are directly proportional. Based on

our current model, we have plans to achieve awareness of 16.5% in year 5 (refer

to MK Appendix 7 - IMC Schedule Year 5).

2. To get our ROI to increase to 650%.

One very important measure of our advertising schedule is a Return on

Investment (ROI) evaluation. In order to estimate the cost effectiveness of our

yearly advertising expenses, we compare our yearly sales and advertising costs.

The higher the ROI, the greater return we are getting on every dollar spent on

advertising. We currently plan to achieve an ROI of 650% by year 5. This proves

that all of the money that we are spending in advertising is worthwhile. (See

Exhibit 1.1: Return on Investment Analysis).

3


Sales $968,766 $1,849,600 $3,134,195 $3,924,742 $4,491,176

IMC $276,780 $287,153 $556,081 $570,831 $587,991

ROI 250% 544% 464% 588% 664%

3. For our cumulative increase in sales to be over 50% each year.

We want our advertising efforts and ACV to translate into direct increases in

sales. However, since we estimate competition to enter relatively early for

our company, it affects our yearly increases in sales. Once competition enters,

they will take away portions of our sales, hence, we want the cumulative

increase to exceed 50% each year starting in year 1.

4. Move towards a revenue-maximizing price by year 5.

We want to focus on sales throughout our product life cycle and increase our

revenue during the five years. The revenue-maximizing price, according to the

cumulative demand curve, is $61 and the retail price for our product in year 1 is

$70. Over our first five years as a company we need to drop our price in order to

maximize purchase intent and reach our profit-maximizing price. We currently

have plans to do this by at least $2 per year.

Bicycle Accessory Industry Analysis

The bicycle industry consists of bicycle manufacturers, part manufacturers, and

accessory manufacturers. The bicycle industry as a whole generated sales of approximately 6.1

billion through all channels of distribution in 20121. Furthermore, the industry is expected to

experience moderate growth over the next five years due to growing fitness consciousness,

increased awareness of sustainability, and rising traffic congestion on the roads. Our industry

analysis is primarily focused on the bicycle accessory segment of the overall bicycle industry.

Our two most significant competitors are Easton-Bell Sports and Ingersoll-Rand. Easton-Bell

Sports is a developer and manufacturer of sports equipment, and they own various brands that

sell bicycle helmets and locks. The company recorded sales of $827,200,000 in 2012. 2 Our

1 A Look at the Bicycle Industry's Vital Statistics. Rep. National Bicycle Dealers Association,Web. Nov. 2013. 2 "Easton-Bell Sports, Inc. Reports Fourth Quarter and Full Year 2012 Financial Results." Newsroom. Easton-Bell

Sports, 2013. Web. Oct. 2013.

4

other main competitor is Ingersoll-Rand, which owns the bike lock manufacturer Kryptonite. The

Kryptonite segment of Ingersoll-Rand generated sales of $1,625,600 in 2012. 3 In addition to

Easton-Bell Sports and Ingersoll-Rand, there are a series of other bicycle accessory

manufacturers that Noggin-Lock will compete against. We believe that the innovative benefits of

our product will allow us to gain a market share of 1% after year 3. Furthermore, we intend to

capitalize on the overall growth in the bicycle industry.

Target Segment Analysis

Over the course of the past few months, we have conducted a substantial amount of

research to organize and define our ideal target market. Initially, we had two target segments: the

frequent urban recreation/transportation rider (5.9 Mil) and the occasional urban transportation

rider (6.3 Mil). After further discussion, we concluded that the psychographics were not

different enough to merit two separate markets, so we combined them into one market that we

will target using the same methods. Additionally, after analyzing our questionnaire results, we

found that the purchase intent for both target groups was approximately the same (see Exhibit

1.2: Purchase Intent Cross-Tab) so it further backed up our original decision to combine our

two target markets into one larger market.

Exhibit 1.2: Purchase Intent Cross-Tab

At the price you just indicated, what is the likelihood that you will buy our product?

Probably Buy (30%)

Definitely Buy (80%)

Total Purchase Intent

What kind of area do you

live in?

Urban 14.79% 7.89% 22.68%

Suburban 12.58% 10.32% 22.90%

3 Ingersoll-Rand Plc. Rep. Mergent Online, 2013. Web. Oct. 2013.

5

We determined that US bikers were going

to be the most critical demographic to target for

obvious reasons (Exhibit 1.3: Limited Segmentation Tree). Based off

of data from the Bureau of Transportation, we found that there are

currently 32.3 million total current bikers in the

United States4. In this context, ‘current bikers’

is defined as anyone who bikes at least once a

month and who is over the age of 18. We

considered including young adults as

well, but after conducting our focus

groups, the parents in our discussion we

not particularly interested in buying the

product for their

offspring, so we

are targeting

only legal

adults. After targeting everyone who bikes, we realized that we needed to break down the biker

segment based on his or her frequency of participation. We only want to target riders who bike

fairly frequently, rather than users who only bike once or twice a month. We further narrowed

our market by only targeting riders who bike more than three times a month. This broke US

bikers into two sections for us to target: the 32% who bike six or more days per month and the

34% who bike three to five days a month.

Another important factor that we included in our target market segmentation was

distinguishing between the geographic locations of customers. After conducting our focus

group, we found that suburban/rural bike riders would not be as interested in our product because

they tend not to need bike locks as desperately as city-dwellers. In urban areas, bike theft and

bike safety are both serious issues; therefore, the Noggin-Lock applies itself better to this type of

living rather than the more casual and laid back life of suburbia. We defined urban by the U.S.

4 "Figure 2Frequency of Bicycle Use by Gender, Income, and Age." Figure 2Frequency of Bicycle Use by Gender,

Income, and Age (in Millions) | Bureau of Transportation Statistics. US Bureau of Transportation Statistics, n.d.

Web. Oct. 2013.

<http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/omnistats/volume_02_issue_06/html/figure2.h

tml>.

Exhibit 1.3: Limited Segmentation Tree

US Bikers 18+

(32.3M)

Bike 6 or more days / month

(10.4M)

Urban (8.52M)

Recreation (2.22M)

Transportation (3.68M)

Bike 3-5 days / month

(11.1M)

Urban (9.10M)

Recreation (2.37M)

Transportation (3.93M)

6

Census Bureau’s standards: “urban areas represent densely developed territory, and encompass

residential, commercial, and other non-residential urban land uses….The Census Bureau

identifies two types of urban areas: Urbanized Areas (UAs) of 50,000 or more people [and]

urban Clusters (UCs) of at least 2,500 and less than 50,000 people”5. After deciding to use the

Census data for urban versus rural, we found that 81.5% of the current population of the United

States lives in urban areas6. We contemplated downsizing this number so that only major US

cities were targeted, but through research and customer analysis, we found that potential

customers in smaller urban areas, such as Rochester, NY (where many of our survey results

came from), were still willing to buy our product and considered Noggin-Lock useful in their

everyday lives.

Our final psychographic that we used to complete our target market was the reason why

our bikers were hitting the roads. Some of the major reasons why people in the US are biking

includes: recreation, transportation, exercise / health, and other7. After evaluating all of these

options, we found that while all bikers should wear helmets, bikers who bike for transportation

and recreation are the most prone to needing a bike lock as well. This final breakdown puts 26%

of bikers in recreation and 43.2% of bikers into the transportation category.

As it can be seen in Exhibit 1.3: Limited Segmentation Tree, our two target

segments are 4.59 million recreation riders and 7.61 million transportation riders. This puts our

total target segment at approximately 12.2 million people.

The ideal candidate for Noggin-Lock is a biker who enjoys going outdoors and biking

fairly frequently, whether for recreation or as a means of transportation. He or she lives in an

urban location and typically lives a fast-paced life, where convenience is a key factor. We aim to

market Noggin-Lock to these hurried individuals by portraying the convenient and multipurpose

uses of Noggin-Lock as invaluable and necessary for their lifestyle. See MK Appendix 2 -

Positioning Statement.

5 "Geography." Urban and Rural Classification. United States Census Bureau, Web. Sept. 2013.

<http://www.census.gov/geo/reference/urban-rural.html>. 6 "Urban and Rural Population Breakdown." Census.gov. United States Census Bureau, Web. Oct. 2013.

<http://www.census.gov/geo/www/ua/ua_2k.html>. 7 "General Bicycling Statistics." Bicyclinginfo.org:. Pedestrian and Bicycle Information Center, n.d. Web. Nov.

2013. <http://www.bicyclinginfo.org/facts/statistics.cfm>.

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Integrated Marketing Communications

Throughout the first five years as a company, it will be incredibly important for us to

increase our awareness through a complete advertising campaign using both push and pull

marketing strategies. By increasing our brand awareness, we can considerably increase our sales

revenue through these years. We plan on increasing our awareness through a variety of

methods. We currently have plans for a series of magazine, online, blog, bus, and street

advertisements; bike expo presentations; trade show presentations; and trade magazine ads to

attain a reliable awareness within our target market. We also intend to generate a good amount

of awareness through word of mouth due to the public nature of our product. By having a well-

planned advertising strategy, we hope to increase the popularity and sales of Noggin-Lock.

Push Schedule

Magazine Ads

Right away in year 1, we are going to start advertising in Bicycling Magazine four times a

year with half page, full color ads. We chose Bicycling Magazine because of its high percentage

of readers in our target market of urban recreation and transportation riders. We approximated

that Bicycling Magazine readers are 80% within our targeted market. We were able to make

these assumptions due to the fact that we were not able to find any explicit data on the readership

of our market in the magazine besides basic demographic information8. We concluded due to the

content of the magazine that it is typically read by serious bikers (commuters and passionate

recreation riders) who ride frequently. After some discussion, we concluded that we would place

these ads in March, June, July, and September to try and scatter them throughout peak biking

season. These ads would cost us about $155,820 per year and would yield an awareness of

1.78% in year 1. With a cost per thousand impressions of $111.39, Bicycling Magazine is an

excellent deal for us to employ to achieve a decent amount of awareness for our spending (shown

in Exhibit 1.4: Bicycling Magazine Ads Y1-Y5). Throughout years 2 through 5, the awareness

created will decrease slightly due to the rapid growth of our target segment, but we find that it

will still be viable for us to continue advertising with this magazine.

8 "Bicycling Media Kits | Bicycling Magazine." Bicycling Media Kits | Bicycling Magazine. Bicycling, n.d. Web.

Oct. 2013. <http://www.bicycling.com/node/4854>.

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Exhibit 1.4: Bicycling Magazine Ads Y1-Y5

Bicycling Magazine Total Cost CPM Awareness

Year 1 $155,820.00 $111.39 1.78%

Year 2

1.68%

Year 3

1.59%

Year 4

1.50%

Year 5

1.42%

Starting in year 3 we will begin advertising with half page, color ads in Outside Magazine

in addition to our advertisements in Bicycling Magazine. Again, we chose Outside Magazine

because it appeals to a large number of bikers and consumers within our target market (an

estimated 65% of total circulation). We want to publish these ads in February, May, August, and

November so that we can access our customers who participate in winter sports as well as

biking. With a cost of $215,460 to run four ads per year, we wanted to wait until our third year

before adding these advertisements due to the additional expense. However, with a cost per

thousand of $124.42, it is still an excellent deal for us to utilize for an added awareness of 1.91%

during its year of implementation. Similarly to Bicycling Magazine, the awareness created by

these ads will decrease slightly throughout their campaign due to our increasing target market

size.

Outdoor and Bus Ads

Starting in year 1 and continuing through the campaign, we plan on making use of street

and bus advertisements. We are creating our outdoor ads to be displayed at bus stops to appeal

to pedestrians and bikers as opposed to the driving population. Our bus ads are designed to

attract the same consumers as the outdoor ads but will be roving around the cities to reach a

larger audience. We chose to advertise using these mediums due to their high visibility among

our target market; our targeted consumers live in metropolitan areas where they frequently bike

outdoors. By placing these ads on buses and various eye-level locations around cities, we will

guarantee that a significant number of our desired market will see our advertisements. We also

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plan on placing these ads in cities with large bike commuter and transportation rider

populations9. In year 1, we will display these ads in a total of six cities and will gradually add a

city or two each year until we obtain advertising space in 12 cities by year 5. Refer to MK

Appendix 8 - Street Ad Locations.

By running these ad campaigns, we hope to maximize our awareness to 2.09% for these

combined ad efforts in year 5. These marketing efforts would cost us around $36,000 for 4 ads

per city across 12 cities for bus advertisements and $36,300 for our outdoor ads. By generating a

combined awareness of 2.09% for a total cost of $72,300, we are undeniably utilizing a very

productive and economical series of advertisements within target cities. We understand that the

Noggin-Lock is a national product, but we have chosen to advertise in these select cities due to

their increasing biker populations. Moreover, we are a small start-up company so it is not

economically feasible for us to advertise nationally with street and bus ads.

Bike Expos and Fairs

Along with using various types of print ads to increase our awareness among customers,

we intend to attend various bike expos and fairs to exhibit our product to potential customers.

Currently in our IMC plan we will attend two fairs in year 1 and then add an additional expo

every year up until year 4. By years 4 and 5, we will be attending a total of five expos each year.

Adding more expos after year 1 is a great investment for us because we will only have to pay

registration and travel costs per fair since we already purchased booth materials. By having a

presence at these expos, we will be able to focus on some of the more avid bikers in our target

segment and will get a better one-on-one experience with them to further explain the Noggin-

Lock. We are planning on exploiting the one-on-one interactions by having a bike and bike rack

within our booth so the customers have an opportunity to try out our product and see it in action.

We also want to have a set of bolt-cutters so customers can test out the strength of our Kevlar

cable. (See Exhibit 1.5: Booth Layout).

9 "2000 to 2010 Bike Commuters_largest 70 (2) - Zoho Sheet." 2000 to 2010 Bike Commuters_largest 70 (2) - Zoho

Sheet. N.p., n.d. Web. Oct. 2013.

<https://docs.zoho.com/sheet/published.do?rid=b0tmjb34e59c0d6f645899baab2d1ddb1ed2c>.

10

Exhibit 1.5: Booth Layout

In year 1, we will attend the Seattle Bicycle Expo in March and the Subaru VeloSwap in

Denver in October. These are some of the largest expos in the country, so it is critical that we

start exhibiting in them as soon as possible. Industry manufacturers, retailers, media, and

consumers attend the Seattle Expo so we can utilize our booth to appeal to a large variety of

purchasers10

. The Subaru VeloSwap is a completely different type of expo. It is targeted mostly

to consumers by allowing some booths and visitors to trade bike products instead of purchasing

them11

. While we still plan on attending this event, we will only allow our products to be bought

and displayed.

In year 2, we will continue to visit and campaign in the above expos while adding the

Bike Expo New York in May. This is a great addition to our schedule because it attracts

typically over 43,000 attendees and even had a crowd of over 50,000 in 2013. It is also located

in New York City, which is a mecca for urban cyclists12

and is perfect for targeting our intended

market.

10

"Exhibitors." Cascade Bicycle Club. Web. Oct. 2013. <http://www.cascade.org/exhibitors>. 11

"About." VeloSwap RSS. Competitor Group, Inc., 2013. Web. 15 Oct. 2013.

<http://veloswap.competitor.com/about/>. 12

"About Bike Expo New York." Bike New York About Bike Expo New York Comments. Bike New York, 2013.

Web. Oct. 2013. <http://www.bikenewyork.org/bike-expo-new-york/conceptanddesign/>.

11

In year 3, we will reach out to the Boston Cycling and Health Expo in June to further our

growth progress. While this is a newer expo and does not have a consistent history of past

performances13

, we still want to acquire a booth here because Boston is a renowned biking city

and newer expos are often more lenient on accepting newer products to advertise.

In years 4 and 5 we will add the PDX Bike Show in Portland in March. We chose this

expo due to Portland’s reputation as being “Bike Town, USA.” Advertising for the expo claims,

“you have the opportunity to increase your company’s brand recognition, showcase your new

gear and services face to face with passionate bicyclists, and attract post-show traffic to your

business store front or website” 14

. By utilizing all of the fairs and expos at our disposal, we will

be able to add .97% to our total awareness by years 4 and 5. Please refer to MK Appendix 9 -

Expo Cost Breakdown to further examine the exact costs.

Online

With around 30-50% of our sales being generated online, we found it incredibly

important for us to fully exploit online marketing tactics to better produce these results and raise

awareness. We plan on doing this by engaging Search Engine Optimization (SEO) and by

purchasing ad space with vendors such as Google and major biking webpages.

Our most important online device to generate awareness and sales is our website,

http://sites.google.com/site/bikehelmetlock/home. Our website’s purpose is to provide product

information to potential customers, retailers, and the general public and to allow consumers and

retailers to be able to use it as an online shopping portal for the Noggin-Lock. With effective

SEO, we can ensure that our webpage is consistently placed high on Google’s search results with

the use of certain keywords (IS Appendix 6 - Website SEO Metatag Word List). Some of

these keywords are: Noggin-Lock, bike helmet, bike lock, Kevlar, bike safety, and more. We also

have plans to affiliate our page with other biking websites in order to acquire a better PageRank.

Along with using SEO to achieve high Google rankings, we are also purchasing ad space

on major biking and recreation websites. These ads will be top and side of the screen banner ads

that allow the Noggin-Lock to be viewed by a larger online audience. Moreover, these ads will

link to our website to let customers further research our helmet.

13

"Boston Cycling and Health Expo." Boston Cycling and Health Expo. Web. Oct. 2013.

<http://www.bostoncyclinghealthexpo.com>. 14

"Pedal Nation." The PDX Bicycle Show Exhibitor Information. Pedal Nation Events, Web. Oct. 2013.

<http://pedalnationevents.com/exhibitor>.

12

Public Relations and Blogs

To further assist our marketing campaign, we plan on sending media kits to biking and

outdoor magazines and biking blogs for positive press releases to further push our product

towards our target market. Our kits will, of course, include a couple of Noggin-Locks to allow

the groups to try it and then spread positive word of mouth. Along with our product, we will send

these kits with press releases that our Chief Marketing Officer will draw up. You can find a list

of the blogs and magazines that we will send these kits to in MK Appendix 9 - IMC Schedule

Year 1 – Base Case, and all of the subsequent IMC schedules afterwards. We are currently

allocating $5,000 to these media kits and have determined that they will produce 1% awareness.

Word of Mouth

Due to the extremely public nature of the Noggin-Lock, we plan on achieving good

amounts of awareness due to word of mouth. Starting in year 2, we will receive 0.59%

awareness simply from our current customers passing on good reviews of our product to

potential future buyers. Word of mouth is a great vehicle for generating awareness for us to

capitalize on because it creates a loop: the more sales we produce, the higher our word of mouth,

and the higher our word of mouth, the greater number of sales within that year. By the end of

year 5, our year with the greatest sales, we will be capable of yielding a word of mouth

awareness of 2.35% at zero cost to us.

Pull Schedule

Trade Shows

While trade shows are similar to expos and fairs, there is one major difference that

accounts for one being under push strategies and the other being under pull: the final consumers

attend Expos and retailers / manufacturers attend trade shows. Due to this alteration, there is one

major difference between our trade show and expo strategies besides location. In year 0, before

the Noggin-Lock is even officially released, we will be attending trade shows to increase hype

and to get retailer attention (see Exhibit 1.6: Trade Shows Y0 below). The shows that we

propose to target are Interbike (Las Vegas), Specialty Bike Expo (Tampa), and the Iowa Bike

Expo (Des Moines). All of these shows will be attended from year 0 through year 5. For pricing

of trade show appearances, see Exhibit 1.7: Trade Show Costs (all years).

13

Exhibit 1.6: Trade Shows Y0

Jan Feb -- Aug Sep Oct Nov Dec Cost

Trade Shows $19,100.00

Interbike -- Las Vegas xx $11,750.00

Specialty Bike Expo -- Tampa xxx $5,400.00

Iowa Bike Expo xxx $1,950.00

Interbike is by far the most prominent trade show for us to attend as it is the biggest

congregation for the Bicycle Industry within North America15

. As shown in Exhibit 1.8: Trade

Shows Y0, Interbike occurs in September and lasts for three days. One key benefit that Interbike

offers a company such as Noggin-Lock is the ability to choose what area we want to have our

booth located in; we have the option to pick Urban (which is our preference), Electric, Mountain

Bike, Electric, BMX, Triathalon, or Women’s16

. By having these options, they give us the

ability to market (almost) exclusively to our target segment. Another key aspect of Interbike is

their attendance numbers: in 2012 they had over 25,000 attendees with a store count of 4,160

independent bike shops attending. We are only selling the Noggin-Lock in Independent Bike

Retail locations, so getting this exposure in all years 0-5 is critical for our success and for our

manufacturer’s representatives.

Specialty Bike Expo and the Iowa Bike Expo are the other trade shows that we have

plans to attend. While they are not nearly as well known as Interbike, it is still imperative for us

to make the Noggin-Lock name well-known among the Bike Retailer community. The Iowa Bike

Expo only hosts approximately 4,500 Midwesterners17

, but it is still worth the added costs to

attend because we already have booth materials. For both of these trade shows, getting exposure

in the beginning of our fiscal year in January is a great way for us to initiate our publicity18

.

15

"Interbike: The Largest Annual Gathering of the Bicycle Industry in North America." Interbike. Interbike, n.d.

Web. Oct. 2013. <http://www.interbike.com/show-info/show-overview.htm>. 16

Interbike. Interbike, 2013. Web. 15 Oct. 2013.

<http://www.interbike.com/static/pdf/IB14_early_bird_contract_AK.pdf>. 17

"About the Expo." Iowa Bike Expo. Iowa Bike Expo, 9 Sept. 2013. Web. Oct. 2013.

<http://iowabikeexpo.com/about/>. 18

"About." Specialty Bike Expo. Specialty Bike Expo, 2013. Web. Oct. 2013.

<http://specialtybikeexpo.com/about/>.

14

Exhibit 1.7: Trade Show Costs (all years)

Initial Booth

Materials Cost

Exhibitor Cost

(10x10 Booth)

Other Costs Total Costs

Interbike $5,000 $2,250 $4,500 $11,750

Specialty Bike Expo -- $1,800 $3,600 $5,400

Iowa Bike Expo -- $650 $1,300 $1,950

$19,100

Trade Magazine Ads

Similar to our Bicycle Industry Trade Show campaign, we are going to begin advertising

in trade magazines, such as Bicycle Retailer, starting in year 0 and continuing through year 5.

This will cost us around $15,180 and will not generate any consumer awareness, but is essential

for us to develop awareness within retailers and to create excitement for the Noggin-Lock before

its release.

Measuring Advertising Effectiveness

After spending a large amount of money on an advertising plan, it is of the utmost

importance for us to consistently and accurately measure the efficacy of our proposal. We will

use a variety of analyses such as yearly focus groups, competitor analysis, yearly sales

examinations, and customer surveys delivered via our website.

We will have multiple types of focus groups. In one version, we will ask known

customers and avid bikers to attend. We will then ask them to discuss our ad campaign and

explain what drove them to purchase Noggin-Lock. By analyzing these responses, we can gage

which ad campaigns connect the most with customers. In our second type of focus groups, we

will collect a probability sampling of Salt Lake City to achieve a random selection of people. In

these groups, we will present copies of our ads and get feedback and reactions from the group.

This will allow us to determine how new customers will respond so we can better lure them in.

We can utilize competitor analysis to check our impact on their sales and to compare our

campaigns with theirs to ensure that we are on even playing fields. Once we look over their

financials, we can approximate whether our advertisements are effective in comparison to theirs.

15

Additionally, we plan on analyzing their ad campaigns to guarantee that the organization of our

IMC schedule is comparable to the industry.

One aspect of our communication schedule that we can fully utilize to help us gather

effectiveness information is our webpage. On our site, we will have surveys that customers can

easily access. These surveys will ask customers how they heard about our product, so we can

alter our future advertising schedules to reflect the most effective methods.

Branding Strategy

After accessing our audience, it is important for us to create a brand and to build

customer loyalty along with product differentiation from Giro and Bell.

To create our specific brand, we had to first

come up with an image and personality that we

wanted to embody. We concluded that we wanted

our product to mimic the personality of our target

market. Therefore, we are trying to come off as a

simplistic, fast-paced company that highly values

convenience within an urban lifestyle. We also

needed to come up with a name for our product that demonstrated all of these characteristics.

We decided on Noggin-Lock for a few reasons. First, we thought that it was catchy and would

grab the customer’s eye in a store. Secondly, the customer can get an idea of what our product

does simply by reading the name: it is a lock that is somehow incorporated with your head.

Our logo is designed to be plain and simple. Our product is basic in its function and we

desired a logo that reflects that. The small helmet in the corner with the lock on the side

indicates the uses of the product, and it includes our concise slogan: “SAFE. SECURE.

SMART.” (see Exhibit 1.8: Logo). Our slogan is important to include because it tells

consumers exactly what to expect from our product. Furthermore, in the future we hope that

Noggin-Lock will be the household name associated with safety and security.

Exhibit 1.8: Logo

16

Creative Strategy

With our advertisements, we are aiming to utilize a series of tactics to relate to our

customers:

One of our first ad ideas is black and white and depicts a criminal stealing a bike (see MK

Appendix 10 - Ad #1). This ad relays a problem that our potential customers may have or are at

least concerned about – bicycle theft. We left this ad in B&W to continue to evoke a sense of

fear in our customers and the dark image is used to echo this fear or theft. We included the

slogan ‘Lock your helmet and your bike. Tell the thieves to take a hike.’ as a way to convey that

our product allows you to do just that. The idea is to touch on the fear a customer may have of

bike theft and capitalize on that.

Our second ad depicts a bike enthusiast giving his verification of Noggin-Lock (see MK

Appendix 11 - Ad #2). This ad aims at a testimonial-style effort to convince potential customers

to buy our product. It puts a positive human element to the campaign while explaining the

concept and uses of our product. It also incorporates our slogan ‘Safe. Secure. Smart.’ which is a

succinct way to summarize our Noggin-Lock’s benefits.

The third ad presents another bike theft in progress, except in this situation it is being

prevented by the Noggin-Lock (see MK Appendix 12 - Ad #3). The ad seeks to demonstrate the

effectiveness of the product to protect the bike from thieves and their tools. The reason for

emphasizing the bike safety over the helmet effectiveness was due to our own data and personal

thinking that most people will assume that the helmet adheres to government and industry

standards, but that the lock may not provide the highest levels of security. This ad seeks to

alleviate these concerns.

Our fourth and final ad shows a doctor and a thief, each with their own statement (see

MK Appendix 13 - Ad #4). This ad touches on the two main benefits of our product: safety and

security. The doctor on the top indicates that health professionals recognize the benefits of

wearing a helmet for personal safety and protection, while the criminal at the bottom who “hopes

that you don’t use a Noggin Lock” shows that thieves will recognize the difficulty of stealing a

bike secured with a Noggin Lock.

Our packaging features an open-face box that allows total visibility of our product so

potential buyers can get up close and see our entire product. We also place out logo on the top of

17

the box. This simple design allows us to create a customized design without becoming

prohibitively expensive. The packaging will include the Noggin Lock, a user guide, legal and

warrantee information, information on registering with us through our website, and contact info

for support. For a visual, see MK Appendix 14 - Packaging.

Channels and Pricing

Channel Distribution

It did not take us much research to realize that the Noggin-Lock falls into the Bicycle

Accessory Industry. This is a fairly large subsidiary of the larger Bicycle Industry. The Bicycle

Accessory Industry generates total revenue of approximately $2.5 billion every year and sales are

spread throughout independent bike shops, mass merchandisers, chain sporting goods stores,

online, and others19

(see Exhibit 1.9: Profile of the Retail Environment).

Exhibit 1.9: Profile of the Retail Environment

As shown, the

independent bike shops

take up a large proportion

of retail sales. This is due

to a large propensity of

serious bikers wanting to

get a more personalized

shopping experience. We

had to alter these values

slightly to better represent the environment we were entering. For starters, the original research

we found had the “other” slice representing 17% of sales, but it included all online sales. Since

we need to be able to target the online retail environment, we pulled out 12% based on our

estimations of the online market, made it its own separate percentage, and left the remaining 5%

19

Bicycle Retailer and Industry News 22 (1 July 2013): n. pag. Bicycleretailer.com. National Bicycle Dealers

Association, 1 July 2013. Web. Oct. 2013.

<http://www.bicycleretailer.com/sites/default/files/downloads/resource/Stats1%2C26%2C27%2C28%2C29%2C3

0%2C31_email.pdf>.

Independent Bike Shops

47%

Mass Merchandisers

23%

Chain Sporting Goods Stores

13%

Online 12%

Other 5%

18

as hardware stores, mail orders, specialty orders, etc. Another small alteration that we had to

make was in the division of Chain Sporting Good Stores. After a lengthy amount of research

into the breakdown within the stores20

, we found that many of the chain stores lumped into the

“other” category in the major players analysis, shown in Exhibit 1.10: Major Players, could

actually be categorized as independent bike shops, which would allow us to differentiate them

and later market them. To account for this, we removed 7.65% of the “other” part of Chain

Sporting Goods stores and transferred it up to Independents. We left 4% alone to account for

specialty stores such as Foot Locker, Inc., which we would never be able to access.

Exhibit 1.10: Major Players

Independent Bike Shops: -------------------------------------- 46.65%

Bike Shops 39.00%

Small Chains 7.65%

Mass Merchants: -------------------------------------- 23.00%

Wal-Mart 8.76%

Target 8.74%

Kmart 4.41%

Other 1.09%

Chain Sporting Goods Stores: -------------------------------------- 13.35%

Dicks Sporting Goods 4.54%

Sports Authority 3.11%

Recreational Equipment, Inc. 1.03%

Academy Ltd. 0.67%

Other 4.00%

Online: -------------------------------------- 12.00% 12.00%

Other: -------------------------------------- 5.00% 5.00%

In years 1 and 2, we plan on distributing solely through online retailers, such as Amazon

and our own website, and independent bike shops. With around 4,100 independent retailers

20

"Major Companies." Ibisworld.com. IBISWorld, 2013. Web. Nov. 2013.

<http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1079>.

http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1079

19

nationally21

, it is crucial for us to hire manufacturers’ representatives to try and access this vast

market. We chose manufacturers’ reps due to their knowledge and experience within the

industry. We plan on paying them 10% of the manufacturers’ price of their sales to keep them

motivated to push our product (see MK Appendix 1 - Sales Force Pay). For these two years, we

hope to reach an ACV of 23.20% (year 1) and 31.70% (year 2). For both of these years, 12% of

the ACV is from online, with the remainder being generated from penetrating independent bike

shops. To calculate this infiltration, we are assuming that our manufacturers’ reps will be able to

contact 80% of the independent retailers and that we will have a 30% acceptance rate.

In year 3, we will have a strong enough sales history to start targeting chain sporting

goods stores (Exhibit 1.10: Major Players). The only problem with adding large, national

brands is that within the bicycle industry there is channel conflict between these stores and the

independent retailers. This means that when national stores begin to carry our product, some of

the independent stores that we are in will drop our product. We discovered this by comparing

products carried in independent locations, such as Landry’s Bicycles on Commonwealth Ave.,

and products carried in Target, Wal-Mart, and Dicks. After running these tests, we estimate that

once we start adding chain stores, we will lose about 10% of our independent retailers yearly,

with this number rising the more chain stores we enter. On top of losing our presence in some

stores, we will also cease to enter new independent

stores. If we grow into chain sports

stores, our ACV will only reach 37.12%

(Exhibit 1.11: ACV (Y3) – Channel

Conflict). If we do not extend Noggin-

Lock into these stores, we will continue to approach new independent retailers and will achieve a

year 3 ACV of 38.17% (Exhibit 1.12: ACV (Y3)). Due to these numbers, we have decided to

keep targeting online and independent retailer sales rather than expanding into chain sporting

goods stores and mass merchants to optimize our ACV.

21

A Look at the Bicycle Industry's Vital Statistics. Rep. National Bicycle Dealers Association,Web. Nov. 2013.

<http://nbda.com/articles/industry-overview-2012-pg34.htm>.

Exhibit 1.11: ACV (Y3) – Channel Conflict

20

Exhibit 1.13: Cumulative Demand Curve

Exhibit 1.12: ACV (Y3)

Year Online Independents

Chain Sporting

Goods

Mass

Merchants

TOTAL

ACV

3 12.00% 26.17% 0.00% 0.00% 38.17%

In year 4, we will continue to use our manufacturers’ representatives to reach new

independents and to maximize our presence within the Bike Accessory Industry. In this year, we

will reach an ACV of 43.09% divided between Internet sales and independent retailers (see MK

Appendix 16 - Sales Projections – Base Case). We understand that it is impossible for us to

achieve complete market saturation of the independent retailers so we are approximating that, in

our base case, we will achieve our maximum permeation of these retailers with 31.09% of the

total 46.65% independent retailers. This ACV will then be carried over to year 5 because we

will have fully saturated our market of independent retailers.

Pricing

To select an optimal price for our product, we ran two separate demand curves for our

two segments. As indicated by the two demand curves below, the retail price and cumulative

purchase intent are inversely related – as the retail prices decreases, purchase intent increases.

After analyzing our two demand curves (MK Appendices - 25/26), the revenue-

maximizing price was approximately

$60 for our transportation rider

segment and approximately $80 for

our recreational rider segment. We

considered trade-offs between higher

purchase intent and higher margins in

respect to profit maximization and

chose a middle retail price of $70.00

for the first year. We also created a

cumulative demand curve by adding

the two segments together, and as

indicated below, it gave us $61.00 as the revenue-maximizing price.

RM Price: $60.65

Cumulative PI: 19.3

Total Revenue: $142,815,303

21

As a result, we decided to drop the price to $60.00 by the end of the fifth year. We do not

want to reduce the price too significantly since our willingness to pay for both segments was the

same and we want to maximize profit to breakeven in the first few years. We want to ease our

way to the price of $60 since that is our revenue-maximizing price.

In order to increase our short-term demand in our

initial year, we plan on offering quantity discounts to

independent stores. We will be selling in 459

independent stores across the US with approximately

25 units per retailer. The discounts (see Exhibit 1.14:

Pricing Discounts) would incentivize independent stores to carry our product in our first year of

sale.

Channel Margin

For the first year we are retailing at $70 to both online and independent sellers. In order

to calculate the manufacturer’s selling price, we used the standard of 50% retail margin for

Independent stores and 30% for online retailers that gave us the manufactures price of $35 and

$45 respectively. These margins remain constant from years 1 through 5 for base, best and worst

case. (See MK Appendix 17 - Channel Margin).

Sales Volume

Since we are only selling within Independent and Online stores, the percentage of units

sold in independent stores increases each year. This is because we only sell in 12% of the online

stores each year, but the chunk of independent stores continues to increase. This raises our total

units we sell in independents each year. Consequently, the weighted average of the manufactures

selling price is dependent on the number of units sold in each channel and moves closer to the

manufactures retail price each year. (See MK Appendix 18 - Sales Volume).

Sales Forecasts

Base Case Sales Forecast

To achieve the size of our target market for year 1, for the top portion of our Bases

Model, we used the calculated size of our recreation riders and transportation riders (see MK

Appendix 19 - Full Segmentation Tree). For every subsequent year, we increased each portion

Quantity Discount Manufacturers Selling Price

30-40 5% 33.25

41-60 10% 31.5

60+ 15% 29.75

Exhibit 1.14: Pricing Discounts

22

Exhibit 1.15: Total Sales (Base Projection)

with 6% growth in transportation riders and 2% growth in recreation riders. We found these

growth rates representative of the growing bike community due to studies we found22

and due to

our knowledge of the environmental and anti-obesity movement coursing through America.

In order to calculate our purchase intention, the next step in the Bases Model, we needed

to distribute surveys to our target market and poll their responses to our product idea. We

received 106 accurate survey responses with 50% of them within our target market. (We

actually have over 220 online responses and 20 written surveys to add, but due to some mistakes

with the software we used to issue the surveys (Qualtrics), our responses were skewed and only

our initial 106 were usable.) After running those reactions, we used the 80/20 rule for those

respondents who answered that their purchase intent was “Definitely Buy” or “Probably Buy”

(see MK Appendix 20 -

Purchase Intention). In

congruence with this

purchase intention, our PI

increases throughout our

first 5 years due to a

decreasing price point.

The third aspect of

the Bases Model is

awareness. We plan on

generating awareness through our Integrated Marketing Communications schedule. To calculate

our base awareness, we are using the common marketing assumption that four impressions are

needed to create awareness. Throughout these first 5 years, our awareness drastically increases

due to additional spending to make our product a common name (MK Appendix 3 - IMC

Schedule Year 1).

The next critical piece of the Bases Model is All Commodity Value (ACV). As

mentioned earlier, throughout our product lifespan we only want to target online sales and those

from independent bike stores. We made this executive decision after fully analyzing channel

conflict between independent retailers, chain stores, and mass merchants (MK Appendix 21 -

22

Snyder, Tanya. "Streetsblog Capitol Hill." Census: American Bike Commuting Up Nine Percent in 2012.

StreetsBlog, 19 Sept. 2013. Web. Nov. 2013. <http://dc.streetsblog.org/2013/09/19/census-american-bike-

commuting-up-nine-percent-in-2012/>.

http://dc.streetsblog.org/2013/09/19/census-american-bike-commuting-up-nine-percent-in-2012/

http://dc.streetsblog.org/2013/09/19/census-american-bike-commuting-up-nine-percent-in-2012/

23

Channel Conflict Breakdown). This allows us to optimize our ACV in year 4 and then keep it

consistent, rather than experience a decreasing ACV.

Within the bike accessory industry, helmets are not a frequently repeated product;

therefore, we do not have to account for repeat units. We found out from our focus group that

people only really need to buy a new helmet every two or three years, and only if they have

experienced a bike accident.

After analyzing our financials, we found that we have a relatively high IRR of 37%.

Since we have a promising IRR, it is very likely that competitors will enter the market, and will

enter sooner than marketing assumptions. Typically, new firms assume that competition will

begin taking away their sales in year 3. Due to our high IRR, we are making the conservative

assumption that competition will want in on our profits and will replicate our product starting in

year 2 (MK Appendix 22 - Competition Adjustment). They will enter in year 2, taking away

20% of sales, then remove an additional 7%, 6%, and 5% each year thereafter (respectively).

If you refer to MK Exhibit 1.15: Total Sales (Base Projection) you can get a better idea

of how our sales projections pan out in our base case. In year 1, we almost generate $1 million

in sales, with our sales consistently increasing to just under $4.5 million in year 5. For an in-

depth evaluation of these sales projections, please refer to MK Appendix 16 - Sales Projections

– Base Case.

Worst Case Sales Forecast:

While our worst case sales scenario was calculated using the same basic methods as our

base case, we had to alter some numbers to account for changes within the Bicycle Accessory

Industry which affected our assumptions. We did not alter the purchase intent due to the fact that

our retail price is unwavering. When the price remains the same across base and worst-case

scenarios, our customers are still willing to purchase Noggin-Lock.

One of the first changes we made was in the growth rate of our target market. In our

worst case forecast, we lessened the growth rate, which would limit our potential customer base.

We decreased the growth rate for transportation riders to 5% (as opposed to the previous 6%)

and altered the recreation rider growth rate from 2% to 1%. We changed these growth rates

because we are not positive to what extent the biking community is growing. We are fairly

24

certain that it is growing due to green initiatives and the increasing push for Americans to limit

their use of oil, but nothing is absolutely guaranteed.

Another major change that strongly affected our pessimistic sales projections is a dip in

our ACV. To account for this, we assumed a lower acceptance rate by the independent bike

stores. While we are still using manufacturers’ reps to access retailers and they are still able to

contact 80% of the stores, but only 20% of stores will accept our product as opposed to the 30%

that were in our base case. Similar to our base case, we plan on saturating to our maximum by

year 4. However, since this is our worst case, we can only reach a total 23.42% of the

independents instead of 31.09% in the base case. We find this to be an accurate representation

of a pessimistic scenario because while we will want to be present in a greater percentage of

independent retailers, it is highly unlikely that we will achieve a presence in all of them, and we

need to account for a good number of them not accepting the Noggin-Lock. For the full sales

forecast, see MK Appendix 24 - Sales Projections – Worst Case.

Our level of awareness is another fluctuating influence that changes our sales projections

in our pessimistic scenario. For magazine ads, we manage to achieve the same level of awareness

but we have to purchase and run an additional ad in each magazine every year. While these

changes to magazine ad costs do not change our sales, it directly affects our profitability for this

scenario. Another aspect of our integrated marketing communications that changes between

base and worst cases is our awareness generated by our bus and outdoor advertisements. For this

situation, we are assuming that we will not be

able to access as many cities and their public

advertisement mediums as we aspire to. Due to

setting up bus and outdoor ads in fewer cities, our

awareness is not able to achieve the percentage it

reached in any of our base case years.

A final assumption that we make that affects our worst case sales projections is the way

that competition enters and takes away our sales. In this pessimistic case, we

estimate that competition will enter in year 2, as it does for our base case, due to our high IRR.

But, differently from our base case, they take away a greater number of sales than they did

Year 1 2 3 4 5

*Competition

Adjustment

-- 20% 29% 35% 40%

Exhibit 1.17: Worst Case Competitor Adjustment

25

initially. In years 2-5, our competitors will take away a maximum of 40% of our sales (Exhibit

1.17: Worst Case Competitor Adjustment).

With all of these adjustments and assumptions taken into account, our sales projections

for our pessimistic scenario are not drastically beneath our base case. If you look at Exhibit

1.18: Worst Case Percentage of Base Sales, you can see that our sales projections for our

worst-case scenario, at most, are 75% of our initial projections. This shows that even when we

consider everything going wrong at the same time, our sales do not suffer too terribly.

Best Case Sales Forecast:

The Best Case Sales

Forecast was calculated using

the same basic calculations as the base case, though we did alter some of the major assumptions

to accurately forecast an optimistic scenario. We did not alter the purchase intent due to the fact

that our retail price is unwavering. When the price remains the same across base and best-case

scenarios, our customers are still willing to purchase Noggin-Lock.

One of the key differences was the increased growth rates for our two target segments.

We chose an annual growth rate of 8% for commuters and chose a 3% growth rate for

recreational riders. We chose this growth rate for consumers, as opposed to the base case rate of

6%, because we wanted it to be

a closer representation to the

9% growth rate reported by the

U.S. census23

while still

remaining conservative about

our assumptions. We raised the

base case recreational growth

rate from 2% to 3% because

although we are not positive

about the specific recreational

23


StreetsBlog, 19 Sept. 2013. Web. Nov. 2013. <http://dc.streetsblog.org/2013/09/19/census-american-bike-

commuting-up-nine-percent-in-2012/>.

Year 1 2 3 4 5

Percent of Base Case Sales 77% 75% 73% 72% 71%

Exhibit 1.18: Worst Case Percentage of Base Sales

Exhibit 1.19: Base vs. Best Cast ACV

26

rider growth rate, we are fairly certain it is growing due to the push for greener initiatives and

Americans becoming more invested in having a healthier lifestyle.

The second key difference that affected our best-case sales forecast is Noggin-Lock’s

ACV. In our base case, we are assuming that once the manufacturers’ reps contact a retailer, we

will have a 30% acceptance rate. In our most optimistic case, we can safely assume that 35% of

contact retailers will accept Noggin-Lock for display in their store. This small change allows us

to estimate a high ACV of 46.11% in years 4 and 5 (see Exhibit 1.19: Base vs. Best case ACV).

Awareness is another factor that fluctuates between our base case and our best-case

predictions. Optimistically, consumers will only need three views of an ad to generate an

impression. Because of this, we will only purchase three ads per magazine to create the same

awareness. This will greatly help lower our costs, which, in return, will increase our IRR. Along

with cheaper magazine awareness, optimistically, we will be able to target and penetrate a

greater number of biker friendly cities sooner, and will be able to add more throughout our first

five years. By accessing more cities, we will be able to increase our awareness (see MK

Appendix 3 - IMC Schedule Year 1 – Best Case).

A final assumption that we changed that affects our sales projections is when competition

enters and how aggressively they take away our sales. In our base case, we are estimating that

they will come in around year 2 and start taking away 20% of our sales. Best-case scenario, they

will enter the market a year later and therefore, throughout the first 5 years of our life cycle, will

only take about a maximum of 35% of our sales in year 5 (see MK Appendix 23 - Sales

Projections – Best Case).

INFORMATION

SYSTEMS

27

Information Systems (IS) is an integral part of our business at Noggin-Lock. We will

leverage IS to unify the three other major cross-functional areas: finance, operations, and

marketing. The job of IS is to develop and procure systems that efficiently and effectively

manage both internal and external resources. IS will be a backbone for business solutions that

the other groups will be able to rely on to be successful.

IS OVERVIEW/STRATEGY

The Noggin-Lock is a purple ocean product; we have no direct competitors at this time in

terms of products that combine the functionality of a secure locking mechanism and a safe

helmet solution in one package. Many consumers currently opt to select two independent items,

i.e.: a helmet and a lock, to fulfill their needs. We will have to aggressively compete with these

products. We have designed our critical success factors around this reality.

CRITICAL SUCCESS FACTORS (CSFs)

1. Kevlar Cables and Locks cannot be more than 1% defective.

Security is one of the key benefits offered by our product. We plan on implementing this

critical success factor through Operations Management and Marketing business processes. Our

Operations teams would be responsible for the quality inspection of the Kevlar locking straps.

This inspection would involve random sampling and testing 5 out of every batch of 125 Kevlar

cords used in each batch of helmets, and recording and discarding the defective materials.

Operations would also be in charge of scheduling and running machine maintenance testing

every six months. We will measure the defect rate every year by combining failed tests that we

find in-house along with returned failed locking mechanisms from customers over the total

number of production. At the end of each batch there will be a performance and defect rate report

(Exhibit 2.6: Report I). Our Marketing Team will be responsible for the business processes of

promoting the security of our product. We will stand by the quality of our locking mechanisms

on the helmets by offering a three-year warranty. The marketing team will promote free

replacements for any locking mechanism failure that is the result of a defect of our

responsibilities for up to three years from the time of purchase. Offering this warranty will help

to reassure our potential buyers of our quality. Also, finance will effectively manage resources

28

so that we can keep our promise with this warranty. Finance will have to manage our overhead

and direct materials costs to ensure that we will be able to afford quality materials for our

products to ensure their performance in the field.

(Exhibit 2.1: CSF 1)

2. 98% of helmets will achieve a minimum rating of 175 g on the drop test quality check to

comply with CPSC standards.

Our company will be outsourcing our helmets to ProRider. They will provide us with a

high quality product that meets the required helmet standards of the Consumer Product Safety

Commission (CPSC) and the Bicycle Helmet Safety Council (BHSC)24 as well as conducting

additional quality testing on the helmets before shipping them to us. They will be providing us

with the results of the tests for our records and review for our operations team. In addition to

24

"How Bicycle Helmets Are Tested." How Bicycle Helmets Are Tested. Bicycle Helmet Safety Institute, 09 Apr.

2009. Web. 24 Nov. 2013. <http://www.helmets.org/testing.htm>.

29

these outside quality tests, we plan to have our operations team perform in-house quality control

inspections for our helmet strength. In order to follow through with this CSF it would require

business processes from the operations and finance teams. For the operations team, this begins

with the process of randomly sampling 5 out of each batch of 125 helmets and testing their

groove sizing and testing the helmet strength in the drop test machine. They will also be

responsible for collecting the number of defective materials and if necessary, reordering new raw

materials to replace defective parts. They will also conduct semi-annual maintenance checks on

the drop test machine to ensure that the machine is working at an optimal level.

Business processes for finance would involve keeping track of our assets and managing

accurate ratios. This way we could easily track the dollar amount of how much each resource is

being used per batch of products.


30

3. Increase sales of our product by 25% every year for 3 years and try to maintain an even

sales percentage for the remaining years.

In order to achieve growth in sales, the business processes of the Marketing segment will

conduct rigorous push and pull marketing to create awareness. Creating at least four impressions

of advertisements throughout the year in magazines, bus, and street ads, as well as other forms of

pull marketing will do this. The marketing team is also responsible for researching which types

of advertisement and marketing techniques would create the most awareness per dollar spent,

since awareness is directly correlated with the amount of sales. For the marketing team to be

able to figure out which marketing strategies have the highest awareness generated to dollar

amount spent, they would have to rely on the Finance team to keep an accurate record of

advertising expenses.

A good product will always be able to generate sales. The Operations team is responsible

for creating quality products. Their business processes would consist of ensuring the quality of

our helmets with routine quality inspections on the finished goods, machine maintenance, as well

as raw material inspection (see Exhibit 2.3: CSF 3).


31

4. Decrease the COGS per unit by 10% from first year, and a decrease of 1% after year 2.

Maintaining low costs per unit is a key factor in the growth of a new company. Having

lower costs would decrease retail prices of our product, thus generating higher purchase intent

and therefore a higher demand. The increase in demand will then increase sales revenues. The

task of completing this CSF would fall primarily in the hands of the operations team. They

would need to keep track of capacities and produce enough products to take advantage of

economies of scale within their available capacities. Along with knowing and producing the ideal

amounts of our product by maximizing economies of scale, they would also be responsible for

creating and ensuring quality products by running regular quality control on raw materials.

Lastly, they are responsible for maintaining proper equipment usage and running proper machine

maintenance.

Finance would play a small part in completing this CSF. Their normal business processes

will consist of accurate documentation of variable and fixed costs per unit. They will be

responsible for relaying all their findings to the marketing team and reporting the annual

reduction of the retail price of the product. By performing these processes, it would generate an

overall increase in our revenues and manufacturing margin (see Exhibit 2.4: CSF 4 for exact

detail).


32

VALUE CHAIN

We designed our value chain based on our conceptualization of how our company will

operate. Inbound logistics make up about 15% of our value chain, as we are outsourcing our

materials and need to ensure their quality and timely delivery. Operations are where 25% of our

value is created, as this process of assembling (OM Appendix 4 – Process Flow) the helmet and

lock is where a good portion of our value stands. After this, outbound logistics make up another

25% of our value chain. As our product is new to the market, we will need to constantly monitor

outbound logistics such as shipping and sales to ensure that our product is arriving to retailers

and consumers in high quality condition and in a timely manner. These three operations areas

combined (inbound / outbound logistics and operations) constitute wholly 65% of our value

chain, representing how important operations are to our strategy.

Beyond this, marketing forms 20% of our value chain, since we are a new product to the

market and will require a significant amount of effort to establish our brand and raise awareness

of our product. Finally, service represents 15% of our value chain as we are planning to stand by

our product through warrantees that guarantees the service and performance.

(Exhibit 2.5: Value Chain)

33

ENTITY RELATIONSHIP DIAGRAM (ERD)

We have designed our entity relationship diagram, which details multiple elements and

associated attributes throughout our operation, as shown in IS Appendix 1 - ERD around the

operations aspect of our business. Our value chain shows how operations is a major part of our

process, so we built our ERD around connecting and monitoring these areas and being able to

analyze quantitative data across them. Our ERD is specifically designed to allow us to monitor

large amounts of data, especially those relevant to our CSFs.

Using our ERD, we will run weekly and monthly reports that will be transmitted to our

operations team that will analyze the data. From there they will explore areas for improvement

and changes to our process that may be required to maintain top performance.

DAILY & MONTHLY REPORTS

An example of a daily report in the operations management field would be the report on

the raw material defect rate per batch received from the supplier. Exhibit 2.6: Report I shows a

sample report on the daily defect rates on the helmets received from ProRider. This report would

be able to show the number of defective helmets per batch in numerical and percentage form.

Most importantly, it would show whether or not the operations team would need to reorder a

batch because of too many defective parts.

(Exhibit 2.6: Report I)

The operations management field would perform the second report monthly. It would

show the amount of raw materials used every month and whether any of the monthly production

impacted the raw materials safety stocks. Overall the report will be able to inform the OM team

of the total order quantity for the month. Exhibit 2.7: Report II is a sample report on the

monthly ordering quantity report.

34

(Exhibit 2.7: Report II)

SOFTWARE PROCUREMENT

Software will be a big part of our operations, and will be used to streamline processes and

improve accuracy and quality for internal and external users. We evaluated multiple software,

and based off of those comparisons, we configured an appropriate hardware portfolio.

For starters, we will be utilizing the Microsoft Office suite of software for all machines

that we purchase. Office is an industry standard and is priced very affordably for small

organizations such as ours25. In addition, we will opt to use the Mcafee business security suite,

as it is also priced at an affordable point and highly regarded across industries26. The suite will

provide individual computers and the server(s) that we set up with comprehensive anti-virus,

anti-malware, anti-spam, firewall, web controls, and other security features.

For marketing, we first compared two software options, Hubspot and Eloqua. Hubspot is

a full-service integrated marketing machine. It carries with it a full complement of in and

outbound marketing tools, and has exceptional product support. Also, being a web-based

application, it provides excellent web marketing, e-mail, and social media integration27. All these

features come at the relatively steep cost of $9,600 per year for up to three users, including

online-based training segments. Eloqua, on the other hand, is a return-on-investment oriented

product that focuses on target and lead management 28 . It also has a powerful customer

relationship management module. Eloqua has a less robust social media integration capability,

but we believe that it is still powerful enough to accomplish our marketing targets. Eloqua also

25

"Office Home & Business 2013." Buy Microsoft. Microsoft Corporation, Web. Nov. 2013.

<http://office.microsoft.com/en-us/>. 26

"McAfee Small Business SaaS Security Solutions." McAfee-Antivirus, Encryption, Firewall, Email Security, Web

Security, Risk & Compliance. McAfee Inc., n.d. Web. 24 Nov. 2013. <http://www.mcafee.com/us/small-business-

security/1-99-employees.html>. 27

"Inbound Marketing Software." Overview. HubSpot Inc., n.d. Web. 23 Nov. 2013.

<http://www.hubspot.com/products>. 28

"Eloqua Marketing Automation Software | Modern Marketing Management | Eloqua Products." Eloqua. Oracle,

n.d. Web. 24 Nov. 2013. <http://www.eloqua.com/products.html>

35

costs significantly less, at $2,000 a year per user, with only an additional $1,000 for set up and

training.

(Exhibit 2.8: Marketing Software Comparison)

Product Hubspot Eloqua

Features 8/10 7/10

Value 5/10 7/10

Ease of Integration 7/10 7/10

Total 20/30 21/30

We feel that of these two options, Eloqua is the software that is better for our

organization, as its lead-focused build will better help us to achieve a sizeable all commodity

volume, which is a key part of our marketing and sales strategy.

For operations and supply chain management, we compared Fishbowl Inventory and

Snapfulfill. Fishbowl offers a lightweight software package that provides detailed process

mapping for manufacturing processes and asset tracking. It also integrates wholesale distribution

management. This is essential for us because we will be dealing with a large number of

independent retailers, as they make up the most significant portion of our product category’s

sales. Fishbowl also automatically generates bills of materials and tracks batches through

production and shipping29. The price for this option is $4,395 per year for up to five users. In

addition, one-time training costs are estimated at $4,500. Comparatively, Snapfulfill is a web-

based solution that includes a barcode system and integrates the distribution process with third

parties from the supply side and on the demand side. It also has a full warehouse management

module that can track our inventory and defect rates, which is important for our critical success

factors30. Snapfulfill is closely priced, at $4,000 per year per user. Training costs for Snapfulfill

would run about $2,000.

29

"Fishbowl Inventory - QuickBooks Inventory Management Software | Fishbowl Inventory."Fishbowl Inventory -

QuickBooks Inventory Management Software | Fishbowl Inventory. Fishbowl, n.d. Web. 24 Nov. 2013.

<http://www.fishbowlinventory.com/products/fishbowl-inventory/>. 30

"Solutions." Solutions. Synergy Logistics, n.d. Web. 23 Nov. 2013. <http://www.snapfulfil.com/en-

US/warehouse-management-solutions>.

36

(Exhibit 2.9: Operations and Supply Chain Management Comparison)

Product Fishbowl Snapfulfill

Features 8/10 7/10

Value 7/10 8/10 (with no server)

5/10 (with server)


Total 21/30 19/30 (22/30)

While our chart may indicate a close advantage for Snapfulfill, we opted to favor

Fishbowl. The main reason was that the high value ranking given to Snapfulfill is only in its

independent state - that is to say, the savings that we get from not needing a server or other

capital investment for the web-based Snapfulfill is only recognized if we only use web-based

software. Since we will need a server for our organization, we will not be able to recognize these

savings, so the better solution is to use Fishbowl.

For accounting and finance, we compared PeachTree Accounting from Sage to

AccountEdge. PeachTree is powerful software that is great for automating financial tasks, which

is important for us given our limited staffing resources in this area. PeachTree also offers full

vendor management as well as job and batch management capabilities31. This option would cost

us $3,149 upfront, along with a $1,339 annual upgrade fee for up to five users. AccountEdge, on

the other hand, is more about general company financial management. These include bill

processing, payroll automation, customer management, and basic inventory management 32 .

While the specific job costing features are less powerful, the cost is significantly lower, at $1,299

upfront along with a $199 annual upgrade fee for up to five users.

31

"Sage 50 Accounting US." Business Management Software. Sage, n.d. Web. 24 Nov. 2013.

<http://na.sage.com/sage-50-accounting-us/products/quantum>. 32

"AccountEdge." AccountEdge. Acclivity Group LLC., n.d. Web. 24 Nov. 2013.

<http://accountedge.com/products/>

37

(Exhibit 2.10: Accounting and Finance Software Comparison)

Product PeachTree AccountEdge

Features 8/10 6/10

Value 7/10 6/10


Total 22/30 19/30

Based upon our internal review, we feel that PeachTree is the better software solution for

our company. The better order and batch management will more effectively help us to hit our

target costs and minimize the cost of things such as product defects, which will help us to

achieve our defect critical success factor. In addition, the automated power of PeachTree will be

essential given our small staffing levels for finance and accounting.

For enterprise resource planning (ERP) software, we chose to compare Microsoft

Dynamics with Netsuite. Dynamics offers full client relationship management, finance, human

resources, manufacturing, and supply chain management modules. There are also robust

business intelligence capabilities that can create useful reports that compare and analyze data

from the cross-functional areas33. Dynamics also has a master production scheduler and quality

assurance manager. The initial cost for Dynamics would be $10,000, plus $5,600 per year for up

to five users. Training, setup, and upgrade costs are projected at $10,000 initially and $4,000 per

year following that. In addition, we estimate that server costs increase by approximately $3,000

above what we would otherwise use without this ERP software.

Netsuite, on the other hand, is a web-based ERP solution, meaning that the additional

server power need and cost would be avoided. It also offers full client relationship management,

human resources manufacturing, and supply chain management in one package. Netsuite also

has a unique product development module that would be useful for us in continuing to develop

our new product, and may be useful if we were to expand our product or create accessory items34.

The client relationship management module in Netsuite is much more advanced than in

33

"Microsoft Dynamics: Business Insights That Engage Your Customers." Microsoft Dynamics:

Business Insights That Engage Your Customers. N.p., n.d. Web. 24 Nov. 2013.

<http://www.microsoft.com/en-us/dynamics/>. 34

"The World's #1 Cloud ERP Solution." ERP (Enterprise Resource Planning) System, ERP Software. NetSuite Inc.,

n.d. Web. 22 Nov. 2013. <http://www.netsuite.com/portal/products/netsuite/erp/main.shtml>.

38

Dynamics, and Netsuite also has impressive supply chain management and production planning

features, such as batch tracking and third party integration. The cost for five Netsuite users

would be $10,991 per year, with additional training and configuration costs estimated at $4,500

per year.

(Exhibit 2.11: ERP Software Comparison)

Product Microsoft Dynamics Netsuite

Finance/Accounting 8/10 7/10

Operations/Supply Chain 8/10 8/10

Marketing 7/10 8/10

Additional Features 8/10 7/10


Value 7/10 6/10

Total 45/60 43/60

Based upon our review of both packages, we feel that Microsoft Dynamics is a better

solution. Relating back to our critical success factors, Dynamics provides more support towards

achieving these goals, such as better modules for monitoring and improving the assembly and

manufacturing process to minimize defects, along with process design for our quality checks and

procedures. In addition, having the software in-house allows our IS personnel to specialize in

the software and troubleshoot it directly, rather than calling an agent about a remote piece of

hardware.

When comparing the Dynamics ERD solution to the three individual best-of-breed

software selections - Eloqua, Fishbowl, and PeachTree, there are a few major factors that we

considered. First, we considered cost - including training, software, upgrades, and middleware,

we estimate the best-of-breed option to cost approximately $42,000 over the first five years. We

estimate that Dynamics will cost approximately $53,000 over the first five years. In addition to

cost there is the issue of usability. All software options will require training and there will be an

associate learning curve. A key part of our IS strategy is integration across functions, so there is

the risk that by selecting the best-of-breed solution, each area will become proficient in their

specific software suite. By selecting an ERP, the entire organization can have exposure to other

39

areas. We feel that this high-level view will provide additional value to our organization.

Finally, in terms of actual functionality, Dynamics is a much more powerful piece of software

and will be able to do more for us than using individual software packages and Oracle

middleware.

(Exhibit 2.12: ERP and Best of Breeds Comparison)

Product Microsoft Dynamics Best of Breeds

Finance/Accounting 8/10 7.3/10

Operations/Supply Chain 8/10 7/10

Marketing 7/10 7/10

Additional Features

(cumulative)

8/10 5/10

Ease of Integration

(cumulative)

7/10 7/10

Value (cumulative) 7/10 8/10

Total 45/60 41.3/60

In summary, we strongly feel that Microsoft Dynamics is the best software solution for

our company. MS Dynamics is a powerful ERP solution that will enhance all areas of our

business. The integration of all systems in one package will further serve us in cross-

functionality and value of our information systems. A full costing of all software products that

we will use can be seen in IS Appendix 4 – Software Budget.

HARDWARE PROCUREMENT

For hardware, we designed our hardware topology around the needs of our ERP system,

as can be seen in IS Appendix 2 – Hardware Topology. For our system’s backbone we opted

for Lenovo servers and laptops. Lenovo is the top provider of computers in terms of volume

worldwide, and is used by thousands of businesses. Our fully configured RD630 server will cost

approximately $3,000 for raw components, with an additional $3,500 for power supply, housing,

storage, switches, and setup. The RD 630 is a premium server in the Lenovo server family

40

(models range from economy RD330 to top-end RD830)35. In addition, we will be acquiring

ThinkPad T440p laptops for all managers. The T440p is a powerful business laptop, which, at

just over $1,000 each, provides a blend of quality and value36. All of the Lenovo products come

with a three-year onsite warranty, at the end of which we have budgeted 25% of the initial

purchase cost for upgrades. Additional Cisco network hardware, including switches and routers

are packaged and supported through Lenovo at purchase.

For the production floor, we are investing approximately $3,000 in a Panasonic

Toughbook tablet. This is an extremely durable machine that is designed for use in shops and

unforgiving environments, and carries a three-year warranty37. This machine will allow our

assemblers access to a computer that they can transport around the shop without worrying about

it failure.

Finally, we will purchase Norstar telephones for each managers’ office and the shop floor.

We will also purchase a Xerox commercial copy/print/fax machine for approximately $35038. All

of these costs can be seen in detail in IS Appendix 3 – Hardware Budget.

TELCOM, DISASTER PLAN, AND STAFFING

For communications, we will use Comcast business solutions and their Internet and

phone package. Internet speeds of 50Mbps and five dedicated phone lines will be available for

approximately $2,400 per year. At this time we see no need for a higher capacity Internet plan or

additional phone lines or communications, such as cable television.

For disaster recovery, we will have a multi-faceted approach. First, we will seek to

control potential damage by monitoring both electronic and physical access to our information

systems. In addition, our security suite should be able to handle internal and external threats to

35

"Lenovo ThinkServer RD330 Rack Server." Lenovo. Lenovo, Web. Nov. 2013.

<http://shop.lenovo.com/us/en/servers/thinkserver/rack-servers/rd330/>. 36

"ThinkPad T440p." Lenovo. Lenovo, Web. Nov. 2013. <http://shop.lenovo.com/us/en/laptops/thinkpad/t-

series/t440p/>. 37

"Panasonic Toughbook 19 Rugged Tablet PC - Panasonic Toughbook 19 Convertible Laptop." Panasonic

Toughbook 19 Rugged Tablet PC - Panasonic Toughbook 19 Convertible Laptop. Panasonic Corporation., n.d. Web.

24 Nov. 2013. <http://www.panasonic.com/business/toughbook/fully-rugged-laptop-toughbook-19.asp>. 38

"Newegg.com - Computer Parts, PC Components, Laptop Computers, LED LCD TV, Digital Cameras and More!"

Newegg.com - Computer Parts, PC Components, Laptop Computers, LED LCD TV, Digital Cameras and More!

Newegg Inc., Web. Nov. 2013.

<http://www.newegg.com/Product/Product.aspx?gclid=CLO8gKDy2roCFQlb3godkncAbg&Item=N82E168334204

84&nm_mc=KNC-GoogleAdwords&cm_mmc=KNC-GoogleAdwords-_-pla-_-Wired+Routers-_-

N82E16833420484&ef_id=Un6rogAABeUYyR0S:20131110185409:s>.

41

our system. We have selected Carbonite backup our backup provider. Carbonite will run remote

cloud backups of all of our machines as well as our server. This service will also complete full,

real-time backups of our live applications, i.e.: the ERD and related databases. This service will

cost approximately $1,000 per year.39

In terms of staffing, for the first three years, we will have one operations and IT manager

split their time across the two areas. Specifically, 40% of their time will be scheduled to IS-

related tasks. Beyond year three, we will have a dedicated IT manager that will be wholly

responsible for our systems. This person will also be responsible for the aggressive training and

integration of IS across our entire organization in order to maximize our return on the expensive

ERP package.

WEBSITE

We have selected GoDaddy.com as our web host. We have budgeted for a Virtual Private

Server (VPS) from GoDaddy that can handle significant amounts of traffic and also handle

online transactions in a secure environment40. Having a VPS will also allow us to have a backup

way to connect to our Virtual Private Network (VPN) remotely, which will be useful for

managers who are travelling or working from home. At this time we plan to develop the website

itself in-house by using the tools provided by GoDaddy. In the future it may be necessary to hire

a firm to produce a more professional website.

The purpose of the website is mainly to provide a central location and presence for

information on our product and an integrated shopping portal for buyers. There will also be

basic support, such as a free PDF user manual, and an FAQ section. Finally, we will incorporate

contact information for those who wish to reach out, be it customers or potential commercial

partners.

To drive traffic to the website, we will run banner ads on popular biking websites and

blogs, as well as offering an affiliate/link-trading program to biking and outdoor-related

websites. We will also integrate with social media via Twitter, Facebook, YouTube, and e-mail

marketing to drive visitors via direct links, and drive sales via promotional codes and offers. We

39

"Your Time Is One of Them." Carbonite Cloud Backup Services: Online Computer Data Backup. Carbonite,

Web. Nov. 2013. <www.carbonite.com>. 40

"VPS Hosting." GoDaddy. N.p., n.d. Web. 24 Nov. 2013. <http://www.godaddy.com/hosting/vps-

hosting.aspx?ci=9013>.

42

will track analytics with Google Analytics (no charge) and bbClone (free php-based detailed

visitor tracking). We will utilize meta tags and free GoDaddy SEO and SEM tools to improve

our PageRank and search result showing. Specific SEO keywords can be seen in the table in IS

Appendix 6 – Website SEO Metatag Word List.

For online sales we will use Fulfillment by Amazon, which operates by having us send

Amazon a set amount of product that they hold for us, and when someone purchases it, they pack

and ship it for us41. Amazon handles all of the logistics, unless there is a return, in which case it

is forwarded to us. Costs are approximately $2-3 per order. The full cost for the website,

communications, training, and disaster recovery can be seen in IS Appendix 5 –

Telecom/Backup/Website/Misc. Budget.

41

"Fulfillment by Amazon." Boost Your Sales with Amazon’s World-class Fulfillment.Amazon

Services LLC., n.d. Web. 24 Nov. 2013. <http://services.amazon.com/fulfillment-by-

amazon/benefits.htm>.

OPERATIONS

MANAGEMENT

43

Operations management is a key aspect of our product, the Noggin-Lock, which includes

house of quality, costs, supply chain, facility location, process flow, capacity, organizational

structure, inventory and aggregate planning.

Product Design, Cost, Performance Goals

Our product design is built to protect and convenience our customers. The House of

Quality (Exhibit 3.1: House of Quality) lists the key benefits that consumers would receive

from our product. We have learned from our marketing focus groups and surveys (See Qualtrics

section at end of report) that the most important attributes to customers were safety (in their

helmets), security (in the lock), durability and comfort overall. The customers look for a helmet

that gives them the convenience of not having to carry their helmet around with them.

(Exhibit 3.1: House of Quality)

Through market research and identification of competitors, we realized that a good

quality helmet42 is sold for around $40 and a strong lock43 sells for around $40. A majority of

42

"Bell Helmets." Main Website. Easton-Bell Sports, 2013. Web. Nov. 2013.

<http://www.bellhelmets.com/cycling/helmets/piston>

44

customers suggested that they would be willing to purchase our product for up to $89.99, and we

intend to have a retail price of $70, which is a reasonable price for a product like ours. According

to our target costing, we must have Cost of Goods Sold per unit to be $17.50 or lower. (Exhibit

3.2: Target Costing) Our research indicated that the cost of parts and materials for our product

ranged greatly, which is why it is essential to pick the appropriate suppliers with the right

materials for a good economic value. Our Cost of Goods Sold (COGS) per unit is $15.82 for the

first year (Exhibit 3.3: Cost of Goods Sold) with an $11.50 direct material cost, $2.55 direct

labor cost, and $1.78 manufacturing overhead cost. Our direct labor cost and overhead per unit

decreases as demand increases during the five years. Subsequently, reducing COGS per unit over

the years.

(Exhibit 3.2: Target Costing)

(Exhibit 3.3: Cost of Goods Sold)

In our optimistic scenario, the COGS will be lower per unit because our demand

increases by an average of 23% per year. This also means that our capacity requirement will be

higher, which results in employment for more assemblers and the need to purchase new

machines. In the pessimistic scenario, our COGS will be higher per unit since the demand is

lower. However, unlike the optimistic level, there will not be any changes to the labor force

because we need a minimum of two assemblers in our facility to be operational. Similarly, we

will not need to buy new machines since the old machines will be able to handle the capacity of

all five years of production.

43

"FOLSOM U-LOCK." Blackburn. Blackburn, 2013. Web. 24 Nov. 2013.

<http://www.blackburndesign.com/locks/folsom-u-lock-382.html#.UpK9FETRIXy>

45

Noggin-Lock will not fail to benefit our customers through convenience, safety, and

security. We believe it will outperform the other helmets and locks in the industry to provide

greater satisfaction to the customers. Compared to any other similar products on the market,

Noggin-Lock will be more secure, due to the Kevlar cable, and more convenient because of the

design.

Supplier Information

We meet our customer requirements by creating a network of qualified and certified

suppliers to construct the product. Our helmet manufacturer is ProRider44 from Kent, WA who is

certified with ISO 9000 and is producing a custom helmet for us. It is a one-size-fits-all, blue,

360 bicycle helmet with an ergo dial fit system and an adjustable turn ring for a variety of sizes.

We selected ProRider because they were certified, could provide us with high quality helmets

according to the Consumer Product Safety Commission45, and were willing to customize the

helmets for us for an additional $1 per helmet. The latter was the key selling point on this

supplier because they were willing to imprint the logo and create two extra grooves along the rim

of the helmet, which would be where the Kevlar cable would rest. For custom orders, ProRider

mentioned a lead-time of 60 days from their supplier to their factory and 30 days from ProRider

to our facility. We were able to eliminate their 60-day lead-time by informing ProRider about our

forecasted annual orders beforehand. This will allow them to inform their suppliers about

upcoming demand to prepare for our orders prior to actual ordering dates, preventing the

bullwhip effect. The Kevlar we are acquiring is from US Rope and Cable46, based in Erie, PA.

They procure the Kevlar from Dupont in a paste called “bomb” and braid it into a cable-like

form according to our specifications. They supply us with a 12-strand Single Braid Kevlar Rope

(1/2 in. thick), which is exactly what we need to fit inside the groove of the helmet. We selected

US Rope and Cable because they delivered the right form of Kevlar that we need for Noggin-

44

"360 Bike Helmets with TurningRing Free Shipping [360-TS14]." $3.95 Bike Helmets for Children Safety Event.

ProRider Inc., 2013. Web. Nov. 2013. <http://www.prorider.com/cns/360-Bike-Helmets-with-TurningRing-free-

shipping> 45

"CPSC Issues New Safety Standard for Bike Helmets | CPSC.gov." U.S. Consumer Product Safety Commission.

U.S. Consumer Product Safety Commission, 1 Feb. 1999. Web. 24 Nov. 2013.

<http://www.cpsc.gov/en/Newsroom/News-Releases/1998/CPSC-Issues-New-Safety-Standard-for-Bike-Helmets/ > 46

"U.S. Rope & Cable." Kevlar Rope. NTG Products Group, 2013. Web. Nov. 2013 <http://www.us-rope-

cable.com/kevlar-rope.html>

46

Lock and it was one of the more economical options. Our lock supplier is Hanmaster

Corporation47, which is based in Guangdong, China and provides us with 4-digit number lock for

the locking mechanism within our product. We chose Hanmaster Corporation because they were

the best supplier of locks at a cost-effective price. We have also selected to use Yebo to supply us

with customized and labeled packaging boxes. We choose Yebo48 because of their low price and

easy customization to fulfill our needs. For contact information of our suppliers please see OM

Appendix 1 – Supplier Contact Information.

Supply Chain

Our supply chain (Exhibit 3.4: Supply Chain) is a

highly integrated network

between an elite certified

helmet producer (ProRider), a

strong Kevlar manufacturer

(US Rope and Cable), an

economic lock manufacturer

(Hanmaster Corporation), and a

packaging company (Yebo),

who provide us with the correct

materials to produce our high

quality Noggin-Lock helmet.

After contacting ProRider for costs, we decided to perform a make or buy analysis for the

helmet component of our product. After researching the production requirements for helmets we

found out that an EPS machine is required to shape the plastic around the Styrofoam of the

47

Ju, Julia. "High Security Number Lockbicycle Frame Lock/bicycle Lock Digital." Www.alibaba.com. Panyu

District, Guangzhou City, Hengmao Metals Management Division, Web. Nov. 2013.

<http://www.alibaba.com/product-gs/733303642/High_security_number_lockbicycle_frame_lock.html > 48

"Custom Boxes and Packaging." Retail Packaging. The Yebo Group, Web. Nov. 2013.

<http://www.customboxesandpackaging.com/retail-packaging.html>

(Exhibit 3.4: Supply Chain)

47

helmet. This machine would cost $382,00049, which would give us a helmet unit cost of $11.35

for first two years and $8.34 for next three years. (OM Appendix 2 – Make Buy Decision) The

reason the unit cost does not decrease significantly is because we purchased a second EPS

machine to meet the required capacity for years three to five. The make option is fairly high

compared to our buy option of $7.45 per unit from ProRider, which is why we decided to

purchase the helmet. After this analysis we decided to procure all of our materials from suppliers

because it is more economical than making our own.

Facility Location

According to the Center of Gravity (Exhibit 3.5: Center of Gravity) analysis we should

be located near Casper, Wyoming. Unfortunately this is not close to any part of our target market

and required us to perform a factor rating analysis to find the ideal location.

(Exhibit 3.5: Center of Gravity)

We then did a Factor Rating (Exhibit 3.6 – Factor Rating Analysis) analysis comparing

the nearest large cities: Salt Lake City, Utah; Denver, Colorado; and Boise, Idaho. For this

analysis, we chose to assess labor costs, land price, and proximity to customers. The average

wage for an assembler in Salt Lake City is $12.7250 compared to Denver’s $13.4151 and Boise’s

$11.1552. We rated them 90, 80 and 100 respectively. We also found out that average land price

49

Du, CoCo. "Plastic Helmet Making Injection Machine." Www.alibaba.com. Foshan Powerjet Plastic Machinery

Co., Ltd., Web. Nov. 2013. <http://www.alibaba.com/product-

gs/600857615/Plastic_Helmet_Making_Injection_Machine.html> 50

"Salt Lake City, UT - May 2012 OES Metropolitan and Nonmetropolitan Area Occupational Employment and

Wage Estimates." U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, 29 Mar. 2013. Web. 21

Nov. 2013. <http://www.bls.gov/oes/current/oes_41620.htm#51-0000> 51

"Denver-Aurora-Broomfield, CO - May 2012 OES Metropolitan and Nonmetropolitan Area Occupational

Employment and Wage Estimates." U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, Web.

21 Nov. 2013. <http://www.bls.gov/oes/current/oes_19740.htm#51-0000>

52

"Boise City-Nampa, ID - May 2012 OES Metropolitan and Nonmetropolitan Area Occupational Employment and

Wage Estimates." U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, Web. 21 Nov. 2013.

<http://www.bls.gov/oes/current/oes_14260.htm#51-0000>

48

per acre in Salt Lake City is $170,000, compared to Denver’s $1,200,000 and Boise’s $200,000

price. We decided to score this factor 100, 60, and 85 respectively. According to some additional

research53 we found out that most commuters live on the West Coast with Davis, CA leading the

way with 16.6% of their population commuting by bicycle. Since Salt Lake City, Utah was closer

to our customers than Boise and closest to our suppliers, overall, it was clearly the better choice.

These three factors are important to us because they would determine the cost of production and

shipping of Noggin-Lock. After completing our research we decided to locate our office and

production facility at 1832 W Research Way, Salt Lake City, Utah.

(Exhibit 3.6: Factor Rating)

All four of our suppliers include shipping in the price of each unit. The helmet is being

transported from Kent, WA; the Kevlar will be transported from Erie, PA; and the packaging

boxes will be sent from Irvine, CA; all by truck. The lock part of our product will be shipped

from Guangdong, China to the port of Los Angeles, CA and then it will be transported by truck

from the port of to our facility in Salt Lake City.

Our facility size calculations determined a part of the financial start-up costs (OM

Appendix 3 – Facility Size). These costs include safety stock of both raw materials and finished

good inventory, which has been derived from the marketing forecasts. With our forecasted

annual raw materials inventory and finished good inventory we calculated the facility size

required to house our in-house operations, which came to 2500 square feet for the first two years

and expanding into an additional 3600 square feet from years three to five in the same facility.

Our facility (Exhibit 3.7: Facility Layout) consists of a room for the CEO/CFO, a room

for managers’ offices, a receptionist area, a conference room, a lounge and kitchen, and a

53

Maciag, Mike. "New Data Shows Where Americans Bike to Work." New Data Shows Where Americans Bike to

Work. Governing the States and Localities, 16 Oct. 2012. Web. 21 Nov. 2013.

<http://www.governing.com/blogs/by-the-numbers/bike-to-work-map-us-cities-census-data.html>

49

production area. The production area includes a raw materials inventory storage space, finished

good inventory space, and U-shaped production line.

(Exhibit 3.7: Facility layout)

Process Flow

Our process flow consists of a U-shaped production line, which will stay consistent

through the first five years. The production process consists of four stations:

1. Kevlar Cutting Machine: Worker cuts Kevlar cable to 1.75ft in length.

2. Crimping Machine: Worker uses the crimping machine to attach the Kevlar cable

to the lock.

3. Stamping Machine: Worker uses the stamping machine to connect the lock to

helmet and fit the Kevlar cable inside the ½ inch groove.

4. Packaging: Worker will package the finished Noggin-Lock in the Yebo packaging

boxes and then put on a pallet to transport to the finished goods inventory. Each

box provided by Yebo will contain a unique barcode to identify the helmet that

correlates to the batch number.

*For Process Flow chart please see OM Appendix 4 – Process Flow.

*For cycle time and process times please see Exhibit 3.8: Cycle Time and Capacity.

50

(Exhibit 3.8: Cycle Time and Capacity)

In the first two years of our production we will have two workers in which Worker A will

complete the production process individually and Worker B will manage and document

inventory related items, operate the forklift to transport raw materials to the production line, and

transport the product from the production line to finished good inventory storage. Worker A and

B will switch jobs daily because differentiating their tasks will further motivate them and prevent

them from boredom. The qualifications for both jobs are to be physically and psychologically

healthy.

For years three to five we will employ an additional person and change the employees’

tasks in the process flow (OM Appendix 4 – Process Flow). Since we have a U-shaped

production line, the stations will be in close proximity to one another, making it easier for

workers to go from one station to another. Worker A will work at stations 1 and 4, which has an

overall process time of 40 seconds, and Worker B will be at stations 2 and 3, which has an

overall process time of 45 seconds. This minor adjustment in our process flow will allow us to

decrease our bottleneck, which will reduce our cycle time from 85 seconds to 45 seconds and

increase our capacity across those years. This helps us significantly because our demand

increases from year three onwards. Worker C will manage and document inventory related items,

operate the forklift to transport the raw materials to the production line, and transport the product

from the production line to finished good inventory storage. All three of the employees will

alternate every day to change their jobs, which will not only motivate them to work but also even

out the amount of work done amongst the employees.

51

Capacity

In year 1 our capacity is 76,235 units and the capacity utilization is 31.43%. The reason

we have a low capacity utilization in year one is because we only have one worker in the

production process and our demand is low. The capacity utilization is for the production capacity

because only one of our two employees will be managing the production line each day. The

second employee will be working the forklift, bringing batches to and from the production line,

checking on the raw materials and finished goods inventory, and performing light maintenance

on our machines. Due to our significant increase in demand, which resulted from higher ACV,

awareness, and purchase intent, (MK Appendix 16 – Base Case Sales) we hired a third

employee in year 3. As a result year 5 has a capacity of 288,000 units and thus capacity

utilization of 47.97%.

Staffing

As shown in our organizational chart (Exhibit 3.9: Organizational Chart Year 1) our

company in year 1 will consist of executive offices for CEO/CFO, CMO/Sales and COO/IT.

There will also be two assembly workers and an outsourced accountant. We decided to hire a

CEO/CFO with a master’s degree in finance and multiple years of experience working with a big

firm. We would pay him $110,000 with an additional 5% per year. We assumed a qualified

CMO/Sales executive with a master’s degree in marketing and some experience in sales would

earn $90,000, which would also increase by 4% annually. We also concluded that a qualified

COO/IT executive with a master’s degree in operations, a bachelor’s degree in Information

Systems, and some experience would earn $90,000 and also increase by 4% every year, but only

up until year 3. We outsourced our accountant throughout the five years starting at $44,500 and

increasing by 4% per year. (For salaries check OM Appendix 5 – Administrative Cost)

52

(Exhibit 3.9: Organizational Chart Year 1)

In years 4 and 5 (Exhibit 3.10: Organizational Chart Year 5) we plan on having the

COO/IT executive focus just on operations, which would be more extensive work since our

demand increases. We will also hire a new IT manager who will be in charge of maintaining the

ERP and everything related to information technology for our company. We will pay the COO

and IT manager $107,321 in year 5, which continues with the same increase of 4% per year.

(Exhibit 3.10: Organizational Chart Year 5)

53

Product Quality Check

To ensure optimal quality in our product we have implemented inspections at the

beginning and end of our production line. All of our quality checks are acceptance sampling

because they appear only at the beginning and end of our production. For each of the raw

materials inspections the worker will test five helmets out of every batch (batch size = 125

helmets). If more than three out of the five helmets being inspected are faulty, the whole batch

will be sent back to the supplier.

Our first raw materials inspection is to measure the ½ inch groove in the helmet with a

sample Kevlar cable and test the helmet protection factor by using the Uniaxial Impact Monorail

drop test machine54. This machine complies with standards from Snell, ASTM, CPSC, DOT and

multiple others 55 . The drop test machine measures the G-force resistance for the helmet.

Anything under 300 g’s is adequate protection and meets the required CPSC and Snell standards,

which is why we will make sure that Noggin-lock helmets will not exceed our internal standard

of 175 g’s.

The second raw materials inspection is to test the Kevlar strength with our Kevlar rope-

cutting machine. The worker will inspect the Kevlar strength by adjusting the machine pressure

to 4,000 pounds of force, which is approximately the force that the 36” heavy-duty bolt cutter by

Klein56 generates. In the third finished good inspection the worker will inspect if the lock works

and if the Kevlar lock is correctly stamped into the helmet.

Aggregate Planning

Through our computations in the aggregate planning for year one (OM Appendix 6 –

Aggregate Planning Year 1) we were able to identify the regular production, overproduction,

and part-time quantities per month. From years one through four, we are using the chase strategy,

where our regular production quantities will directly follow the forecasted demand. This is due to

the idle production capacity that will allow us to have production flexibilities. Except for

54

"Uniaxial Impact Monorail." Impact Machines:. Cadex Inc., Web. 21 Nov. 2013.

<http://www.cadexinc.com/uniaxial_monorail.php> 55

"Bicycle Helmet Standards." Bicycle Helmet Standards. Bicycle Helmet Safety Institute, 13 Apr. 2012. Web. 21

Nov. 2013. <http://helmets.org/standard.htm> 56

“36'' Bolt Cutter Heavy-Duty with Steel Handles." Kleintools.com. Klein Tools, Inc., 2013. Web. Nov. 2013.

"10,000 Pound Hyster Fork Lift." EBay. Web. 21 Nov. 2013. <http://www.kleintools.com/catalog/bolt-cutters-

heavy-duty/36-bolt-cutter-heavy-duty-steel-handles>

54

December of year two, our production would always be lower than the regular capacity. Since

the forecasted demand generated from marketing research has high probability to be inaccurate,

there will be idle capacity to meet the fluctuations in demand. In order to meet the safety stock

requirement for the beginning of year three, there would be overproduction and part-time

production, as the required production quantity would overpass our regular capacity. In year five,

we will change to the level strategy because our forecasted demand is higher than the production

capacity; thus, we are producing certain quantities beforehand and will carry inventory for the

future. Since our inventory carrying cost per unit is cheaper than overproduction cost per unit,

we will produce beforehand and hold the inventory to meet our forecasted future demand.

Holding inventory for longer than two months is more expensive than the overproduction costs,

which is why the longest time we carry more inventory than our safety stock is two months (See

OM Appendix 10 – Aggregate Planning Year 5 for actual quantities).

Inventory

Our cycle and safety stock quantities are derived from the sales forecast with the PERT

distribution. This enabled us to determine our inventory investment for our financial start-up

costs. (See OM Appendix 11 – Start-up Costs) Due to the marketing forecast we were able to

find the mean demand and standard deviation per week, which allows us to derive our raw

material demand, service level, and economic order quantity. From the forecasted demand we are

able to develop our aggregate planning for the monthly production for years 1 to 5 (OM

Appendices 6 through 10). Thereafter, we forecasted annual raw materials inventory and

finished good inventory to calculate the facility size required to house our in-house operations

(OM Appendix 3 – Facility Size).

In conjunction with Information Systems, our ERP will manage our materials

requirement planning (MRP), which will enable us to carry the right amount of raw materials and

finished good inventory at the right time, taking into account the lead time as well as minimum

required order quantity. This will minimize inventory-holding cost and provide our retailers with

the product at the appropriate time in order to optimize our inventory management.

FINANCE

55

Industry Overview

The industry that Noggin-Lock will exist in is the bicycle accessory industry. It is a

steady industry that is complimentary to the growth of the U.S. bicycle industry. In 2012, the

bicycle and accessory industry saw $6.1 billion in direct effect sales. The industry has an

extremely strong foundation, with around 2,000 companies involved in creation and distribution

of products to retailers. The industry is also showing incredible stability in sales, selling around

15-20 million bicycle units annually (including accessories). The bicycle accessory category

itself demonstrated an overall growth of 8% in dollars this past year, showing a promising future

for the specific category57

. Current national trends such as the green movement, environmental

sustainability, and the need to have a healthy lifestyle also boost the future of the bike industry58

.

Funding Request

Our company estimates a start-up funding request of $407,720, which sums up Noggin-

Lock’s start-up costs. Exhibit 4.1: Start-up Costs shows how this investment will be allocated

towards several start-up expenses. Initial (Exhibit 4.1: Total Start-up Costs)

investment in fixed assets composes

of 22% of this request, which

includes our hardware, total machine

cost, and total furniture costs. The

largest component of our funding

request is our miscellaneous cost,

which composes of 29% of total

start-up costs. This is composed of

start-up company costs (such as

licenses, permits, legal fees, salaries,

rent, etcetera), total software costs,

and total business solutions cost (includes all information systems costs besides hardware and

57

“Annual Stats Issue.” Bicycle Retailer And Industry News. July. 2013. Web. Nov. 2013


%2C31_email.pdf>. 58

"Industry Overview 2012." National Bicycle Dealers Association. N.p., n.d. Web. 24 Nov. 2013.

<http://nbda.com/articles/industry-overview-2012-pg34.htm>.

Cash 24%

Fixed Assets 22%

Pre-marketing Expenses

16% Product

Development 1%

Miscellaneous 29%

Raw material & WIP

inventory 5%

Finish goods inventory

3%

56

software). Initial working capital consists of 24% of the cost, which we assumed would be

around one month’s worth of our first year expense. We chose to include this to ensure we had

sufficient capital to keep the business going from year 0. The rest of the cost consists of raw

materials and WIP inventory, finished goods inventory, product and prototype development, and

pre-marketing expenses. We require 1% or around $1,740 to hire an engineer to assist us in

engineering and producing our prototype. We want to include $19,640 in raw material and WIP

inventory and $11,887 in finished goods inventory to ensure we have sufficient safety stock for

year 1 as well as giveaways for our tradeshows. Lastly, our pre-marketing expenses require 16%

of this investment to generate awareness with retailers and consumers who we want to be

familiar with Noggin-Lock.

Our amount for total funding is slightly larger. As you can see from our Statement of

Cash Flows (FE Appendix 3 – Base Case Statements of Cash Flows), we will have a negative

net cash flow of $183,016. To compensate for this, we’re adding this amount to our initial

funding request. In result, our total funding request will be $590,736. We are requesting that

investors fund 75%, totaling a value of $443,052. The remaining 25% will be funded by family,

friends, and management (FFM), which totals to be $147,684.

Company Ownership Distribution

For investor ownership positions, investor ownership will account for 55% whereas

family, friends, and management (FFM) ownership will account for 45%. Investors will own the

majority of Noggin-Lock because they contribute 75% whilst FFM will contribute the remaining

25% of funding. To recompense the investors for their contribution, they will be earning a 26%

IRR, as seen in the Statement of Cash Flows. The high NPV and rate of return makes Noggin-

Lock an attractive opportunity for investment.

Discussion of Financial Statements

Income Statement

When initially looking at Noggin-Lock’s Income Statement (FE Appendix 1 – Base

Case Income Statement), our company becomes profitable in our 2nd

year of operation. Also by

year 2, our net income is already 11.27% of that year’s revenue. In our first 5 years, Noggin-

57

Lock is a steadily growing company. The revenue increases every year due to our growing

awareness and target market. The net income margin also increases by every year, and by year 5,

we forecast a net income that is 19.88% of our sales revenues. Though our all commodity

volume (ACV) of 43.09% saturates in year 4, we still show growing profit in year 5 due to our

growing target market, which contributes to growing awareness.

Statement of Cash Flows

As demonstrated in our Statement of Cash Flows, we start to have a positive cash flow in

year 2 due to our jump in revenue from year 1 to year 2. This jump in revenue is due to the

increased ACV and awareness that occurs in year 2. The cash flows grow at an increasing rate.

They reach a growth rate of 325% from year 3 to year 4 because our ACV is saturated after year

4. After year 4, our cash flows grow at a decreasing rate until Year 7, where the net cash flow

starts to decline.

Exhibit 4.2: NPV and IRR show Noggin-Lock’s project NPV and IRR as well as those

for investors and FFM.

Exhibit 4.2: NPV and IRR

NPV IRR

Project $251,278 37%

Investors $34,493 27%

FFM $216,786 57%

With the current project cash flows for Noggin-Lock’s first five years, we have a total project

NPV of $251,278 with a total project IRR of 37%. The NPV is $34,492 for investors and

$216,786 for FFM. The IRR is 27% and 57%,

respectively. The reason for the difference in

the rates is due to the percentage of their

contribution to Noggin-Lock in the beginning.

We carefully budgeted salaries and marketing

expenses to achieve a positive NPV and high

IRR to signify a good investment.

In estimating the terminal value for -400000

-200000

0

200000

400000

600000

800000

1000000

-1 1 3 5 7

Exhibit 4.3: Net Cash Flow

58

Noggin-Lock, we chose to use the product life cycle and declining perpetuity model for 7 years.

As you can see from Exhibit 4.3: Net Cash Flow, we conducted a sales assessment which

demonstrated that our product will enter the growth stage in year 2. From our cash flow

projections, the net cash flow will peak in year 6. Our product will enter maturity in year 4 and

reach the decline stage in year 6. As stated before, our biggest drivers for our demand are

awareness and target market size. Unlike ACV and purchase intent, our awareness expense is

something we can control. The reason for our life cycle assumption is because our ACV saturates

in year 4 and we have chosen not to retail in any channels apart from independent and online.

Subsequently, our ACV actually declines due to channel conflict. We are still retailing Noggin-

Lock for $60 (revenue-maximizing price) to maintain the same purchase intent. Using year 6 for

our peak year and seeing the percentage growth in cash flows we estimate the cash flows to

increase by 15% from year 5. Because our product enters maturity in year 4, cash flows increase

at a decreasing rate from year 4 and we believed that 15% would be a reasonable estimate for the

growth. We then used a growth rate of -50% for calculating the terminal value in year 6 and

discounted it back by 25% for year 5. We assumed this because the bicycle accessory industry is

highly competitive. After experiencing a decline in our sales, Noggin-Lock would be in the

decline of the product life cycle. After our calculations, we reached a terminal value of

$832,091.

Break-Even Analysis

We conducted a Break-Even Analysis and our results are shown below in Exhibit 4.4:

Break-Even Analysis. We conducted several break-even calculations for Noggin-Lock,

primarily focusing on accounting and cash breakeven.

Exhibit 4.4: Break-Even Analysis

Year 1 2 3 4 5

Sales $968,766 $1,840,600 $3,134,195 $3,925,742 $4,491,176

Fixed Costs $760,380 $849,331 $1,407,730 $1,503,166 $1,295,048

CM/Unit $26.38 $25.06 $22.94 $21.74 $20.23

Cash Breakeven (in units) 28,820 34,436 61,363 69,156 64,013

Margin of Safety (%) -20.28% 29.51% 30.37% 39.86% 53.67%

Depreciation $20,562 $20,562 $20,562 $26,936 $26,936

59

Accounting Breakeven (in units) 29,599 35,256 62,259 70,395 65,344

Margin of Safety (%) -23.53% 27.83% 39.35% 38.78% 52.70%

Our analysis demonstrates that Noggin-Lock will show a positive cash break even by

year 2 and continue this through year 5. We have an increasing margin of safety as well. Once

we factored in depreciation expense, our accounting break-even also occurs in year 2, and we

then maintain a positive and increasing margin of safety for accounting break even. By year 5,

we have large margin of safety of 52.70%

Best and Worst Case Projections

Whilst calculating our base case, we also wanted to forecast other possible financial

outcomes of Noggin-Lock through our Best Case and Worst Case Projections.

In our Best Case Scenario, we adjusted several variables. The first aspect we focused on

was demand. We increased the demand through increasing growth in target market, ACV,

awareness, and adjusting competition. In our base case forecast, we use the assumption that we

will have a 30% acceptance rate with retailers once our manufacturer’s reps contact them.

However, in our best case, we are assuming that 35% of the retailers we contact will accept

Noggin-Lock in their store, which in turn, boosts our ACV. Awareness also fluctuates between

scenarios. Optimistically, we assume that our consumers will only need 3 views of an ad to

generate an impression, which led to our decision to purchase only 3 ads per magazine, which

greatly reduces our advertising expenses. This, in turn, raises the net income. Thirdly, we also

adjusted competition by having it enter in year 3 rather than in year 2, which is forecasted in our

base case. With the growth of our ACV, awareness, and the adjustment to competition, our

product demand increases, thus raising our revenue. The second aspect we focused on was our

manufacturer’s price. In our best case, we assumed a slight decrease in our channel margins

from 50% to 47.25%, which would then increase our manufacturer’s price for each year. This

increase greatly increases our revenue for all five years. With these changes, Noggin-Lock has a

NPV of $1,304,802.97 and an IRR of 79%.

In our Worst Case scenario, we conducted our calculations by following the same model

as the Best Case and by fluctuating the same variables in a pessimistic manner. We again

focused on two aspects: changing demand and changing manufacturer’s price. We lowered the

growth rate of our target market and assumed that only 20% of stores would accept our product,

60

which decreases our ACV to 31.09% in the year 4 when it saturates. We also assume a lower

awareness occurrence, which results us to further our expense by purchasing an additional ad in

each magazine annually, thereby decreasing our net income. We assume that competition will

have higher presence from year 2 onwards, which results in a decrease of our revenue.

Manufacturer’s price still remains the second aspect we focus in our pessimistic scenario. We

take the assumption that our channel margins will increase from the base case margin of 50% to

52.5%, resulting in our manufacturer’s price to decrease, which then decreases our revenue. With

these changes to our scenario to form worst case, our NPV is -$625,466.34 and our IRR is -15%.

Finally, we calculated a weighted average of the NPV’s following the probabilities of

50%, 25%, and 25%, for Base, Best, and Worst, respectively. These numbers are shown in

Exhibit: 4.5 Weighted Net Present Value. We calculated a total weighted average NPV of

$304,473.30. After taking in account various financial situations, it is reasonable to assume that

Noggin-Lock

will be profitable

with a high,

positive NPV.

Sensitivity

Analysis

We conducted several

sensitivity analyses for our

projections. The chosen

variables along with their results

are shown in Exhibit 4.6:

Sensitivity Analysis. As you

can see from below, we based

the sensitivity of each variable

on the NPV.

The analysis determines

that our least sensitive item is

Exhibit 4.5: Weighted Net Present Value

Case Percent Chance Project NPV NPV Weighted

Base 50% $251,278.28 $125,639.14

Best 25% $1,340,802.97 $335,200.74

Worst 25% -$625,466.34 -$156,366.59

Total Weighted Average NPV $304,473.30

Exhibit 4.6: Sensitivity Analysis

Rank Variable Sensitivity to have Project NPV=0

1 Manufacturing Price -5.25%

2 Demand -8.46%

Awareness -8.46%

ACV -8.46%

3 Helmet Cost 21.87%

4 Competition 22.82%

5 Marketing Expense 27.77%

6 Terminal Value -82.67%

61

terminal value. Our terminal value must drop 82.6% in order to drop our NPV to 0. Helmet

cost, competition, and marketing expense are fairly sensitive variables in our forecast. Helmet

cost is our most expensive manufacturing component for Noggin-Lock; therefore, if the price per

helmet rises to 21.87%, this will decrease our NPV to 0. Competition relates to the amount of

lost revenue we incur due to competition entrance. If our competition rises 22.82%, this will also

have our NPV compute to 0. Third, our marketing expense is also fairly sensitive. This includes

all marketing expenses except for the sales force. If this increase by 27.77%, our NPV will equal

to 0.

Our two most sensitive variables are demand and manufacturing price. Within the

variable of demand, we also included awareness and ACV because they directly affect demand.

We calculated that demand must decrease by 8.46% in order for Noggin-Lock to have a NPV of

0. Lastly, our most sensitive variable was manufacturing price. This is the average weighted

manufacturer’s selling price in which we would be selling to our channels. If this were to

decrease by just 5.25%, it would cause us to have an NPV of 0. This is the most sensitive since it

is our source of revenue.

Our Unique Product

We believe that Noggin-Lock is an incredibly distinctive product. Our product can be

broken down into two important features: the helmet and the bicycle lock. Currently, there is no

product in the market that combines both features. By integrating these two features together,

Noggin-Lock has a higher level of convenience and ease of use for the user than if they had to

purchase a separate helmet and lock. Besides convenience, our product also focuses on safety of

the helmet and security of the lock. We strive towards the highest quality, and to ensure this, we

have purchased proper testing equipment to maintain excellent quality. Because our product is

unique to the current market, the retail price is $70.00 in year 1. Through our market research,

Noggin-Lock’s target market demonstrates high purchase intent with this price. This price,

doubled with our low variable costs, allow our contribution margin per unit to be relatively high.

Subsequently, we are able to breakeven early in our business. These product traits will allow the

company to have a positive NPV that leads to a very profitable business.

62

How Do We Compare?

As stated above, there

are no similar products to

Noggin-Lock that offer the

convenience of the combined

helmet and bicycle lock in

the current market. However,

we conducted a comparison

analysis with Dorel (DIIBF),

the largest companies of

bicycle products. We chose

to analyze Dorel because it owns many of our competitors, including GT, Schwinn, Mongoose,

and Cannondale59

. We calculated and analyzed our company’s ratios with our projections from

our balance sheet (See FE Appendix 2 – Base Case Balance Sheet) and compared them side by

side with those of Dorel’s in Exhibit 4.7: Comparison to Industry. To calculate Noggin-Lock’s

ratios, we took the average of all five years.

Noggin-Lock shows similar Accounts Receivable (as percentage of revenue), Days

Receivable and Accounts Payable (as percentage of COGS) relative to Dorel. However, because

we are a start-up company, Noggin-Lock has significantly less assets and requires more cash

than a large company like Dorel. Subsequently, our average cash (% of revenue) and assets (% of

revenue) are lower in comparison. Since our operation uses the chase strategy, our inventory is

significantly lower than the industry’s as most the companies in the industry follow the level

strategy, where they hold more inventory than safety stocks per month. Successively, having

lower inventory would result us in having a lower days inventory.

59

"Dorel Industries." Dorel. MAISONBRISON COMMUNICATIONS, 2013. Web. Sept. 2013.

<http://www.dorel.com/eng/>.

Exhibit 4.7: Comparison to Industry

Year Noggin-Lock 2012 2011 2010

Cash (% of Revenue) 3% 1.5% 1.3% 0.7%

Assets (% of Revenue) 25.94% 89.0% 89.1% 89.2%

A/R (% of Revenue) 17.2% 20.1% 19.2% 17.7%

A/P (% of COGS) 13% 13.6% 13.8% 14.1%

Days Receivable 62.78 73.4 70.1 64.62

Days Inventory 54.9 96.2 87.4 104.8

63

Risk Analysis and Mitigation

We have conducted research to identify and assess the risks associated with our business

plan. We have also thought about mitigation strategies that will hedge these potential risks.

Below is a list of all the identifiable

risks that our firm will face:

Manufacturing Price

Demand

Competition

Liability

Cost of Materials

Supplier Disruptions

Our sensitivity analysis and subjective evaluation have led us to believe that manufacturing

price, demand, liability, and competition are our greatest sources of risk. As a result, our risk

analysis is primarily focused on these four variables. Exhibit 4.8: Risks below outlines these

major sources of risk:

Manufacturing price is our most significant risk. We determined this based on our

sensitivity analysis, which indicated that manufacturing price is our most sensitive variable in

terms of how it affects our net present value. Manufacturing price had a sensitivity level of -

5.25% which means that a small decrease in the price at which we sell the Noggin-Lock to

retailers will result in a substantial decrease in our investor’s net present value. We will hedge

the risk of a decrease in manufacturing price by controlling our channel margins and locking in

contracts with the retailers that buy the Noggin-Lock. In the event that the manufacturing price

does go down, we will look into the possibility of decreasing our operations expenses in order to

offset the decrease in manufacturing price.

Demand is another major source of risk for the Noggin-Lock. Similar to the

manufacturing price, demand is also very sensitive. Two of the main factors that drive demand

are awareness and ACV. Accordingly, we plan on managing these two factors in order to

mitigate the risk of a decrease in demand. If demand decreases we will allocate more resources

to promotion and advertising, which will generate more awareness. Furthermore, we have the

option of altering our distribution strategy in a way that would increase our ACV.

Liability is also a potentially harmful risk for the Noggin-Lock because it is a product

that is designed to prevent injuries. If someone sustains an injury while wearing the Noggin-

Exhibit 4.8: Risks

Risk Factor Risk Level (Scale of 1-5) Source

Manufacturing Price 4.5 Internal

Demand 4 External

Liability 3.5 External

Competition 3 External

64

Lock we could be held liable, especially if the helmet did not function properly. We will reduce

the risk of our helmets malfunctioning by conducting helmet drop tests to prevent defects. In the

event that we are faced with a lawsuit, we have purchased insurance that covers legal fees and

damages.

We have included competition rates in our sales forecasts; however, we have to consider the

possibility that these rates could be imprecise. Our sensitivity analysis indicated that our

investor’s net present value is dependent the level of competition that we face. Based on our

projected net income, we do not expect competition to enter the market until Year 2. To counter

competition, we plan on focusing on spreading more awareness. In Year 3, we plan on almost

doubling our marketing expenses to increase awareness, which will increase demand.

Though our company can face other potential risks, they are much less probable. For

example, one of our smaller risks is supplier unreliability. This includes potential shutdowns,

shortages, or delays. To prepare for this, we plan to have consistent safety stock so we can still

meet our demand if we aren’t able to get our materials on time. Another potential risk is the cost

in materials. To ensure the cost of our materials won’t increase, we have five-year contracts with

all our suppliers to keep the cost constant. Subsequently, this will keep our variable costs

consistent.

Investment Opportunity

There are several reasons why Noggin-Lock is an opportune company to invest in. The

first is that we are a highly profitable company. From our forecasts, our NPV and IRR are

extremely promising. In our base case, our company has a project IRR of 37% and an investor

IRR of 27%, which is higher than the required return of 25%. Our project NPV is a profitable

value of $251,278, with a positive investor NPV of $34,492.19. Second, we become profitable

quickly. We breakeven in year 2 and we maintain growth in revenue throughout year 5. Lastly,

we are a safe company to invest in. In our breakeven analysis, our margin of safety steadily

increases throughout the years, reaching 52.7% in year 5 for our accounting breakeven and

53.67% in year 5 for our cash breakeven. On top of these factors, Noggin-Lock steadily increases

awareness every year as well as selling to a growing target market. With these considerations in

mind, Noggin-Lock ensures a high return on investment.

65

Conclusion

We strongly believe Noggin-Lock is a great investment opportunity. Through our

forecasts, it is evident that investors will earn a high return on their investment. In our operations

strategy, our product design accurately captures our customer’s needs and wants. Our chosen

suppliers are both reliable and trustworthy that will deliver high quality raw materials. With the

purchase of our uniaxial impact monorail drop test machine and rock core cutting testing

machine, we will be able to minimize cost while still ensuring excellent quality of our product.

Our operations management team has also designed an effective process plan through a U-

shaped production line and employee satisfaction. Our marketing team has also crafted an

extremely effective marketing strategy. We will be running many advertising campaigns through

various mediums, including magazine ads, outdoor and bus ads, expo and trade show booths, and

many more. Noggin-Lock will also be exclusively selling our product through online and

independent retailers to limit channel conflict. Also, we will be utilizing web marketing to

increase awareness further. Our information systems team has chosen Microsoft Dynamics

software as our ERP to effectively integrate the four cross-functional areas. From our financial

team’s forecasts, investors will have a have an attractive IRR of 27%. In conclusion, this is an

extremely worthwhile investment. Like Noggin-Lock, your investment will be safe, secure, and

smart.

66

MK Appendix 1 – Perceptual map

Our product relative to helmets Our product relative for to bike locks

MK Appendix 2 – Positioning Statement

67


68


69


70


71


72

MK Appendix 8: Street Ad Locations

MK Appendix 9 - Expo Cost Breakdown

EXPO Seattle

Bicycle Expo

Bike Expo

NY

Subaru

Veloswap

Boston

Cycling Expo

PDX Bike

Show

Costs

Travel for 1 company

employee

$709.00 $817.00 $681.00 $861.00 $807.00 $3,875.00

Salary for 2 booth

workers

$520.00 $520.00 $360.00 $520.00 $360.00 $2,280.00

Cost to exhibit $675.00 $2,100.00 $650.00 $2,250.00 $800.00 $6,475.00

Cost to giveaways $500.00 $500.00 $500.00 $500.00 $500.00 $2,500.00

Cost to table/booth

decorations

$100.00 $100.00 $100.00 $100.00 $100.00 $500.00

Cost for shipping

materials

$120.00 $120.00 $120.00 $120.00 $120.00 $600.00

Total $2,624.00 $4,157.00 $2,411.00 $4,351.00 $2,687.00 $16,230.00

73

MK Appendix 10 - Ad #1


74



75

MK Appendix 14 – Packaging

MK Appendix 15 - Sales Force Pay

Year 1 Year 2 Year 3 Year 4 Year 5

Manufacturer's

Reps

$40,477.31 $103,232.81 $196,370.48 $261,331.55 $0.00

76

MK Appendix 16 - Sales Projections – Base Case

Year (BASE) 1 2 3 4 5

Target Market Size 12,200,000 12,748,400 13,326,032 13,934,576 14,575,813

ADJUSTED purchase

intention @ $XX

(average weighted retail

price)

16.53% 17.08% 17.96% 18.57% 19.51%

Awareness 5.12% 8.85% 13.21% 15.39% 18.19%

ACV 23.20% 31.70% 38.17% 43.09% 43.09%

Units at trial 1 1 1 1 1

Trial Units 23,960 61,066 120,720 171,623 222,842

Repeat Units - - - - -

BASES Units (before

competition)

23,960 61,066 120,720 171,623 222,842

*Competition

adjustment

0.2 0.27 0.33 0.38

TOTAL UNITS 23,960 48,853 88,126 114,987 138,162

Average WEIGHTED

manufacturer's selling

price to channel (see

chart below)

$

40.43

$

37.86

$

35.57

$

34.13

$ 32.51

Manufacturer sales ($)

$968,765.6

9

$1,849,600.4

7

$3,134,194.7

6

$3,924,742.0

3

$4,491,176.36

77

MK Appendix 17 - Channel Margin

78

MK Appendix 18 - Sales Volume

MK Appendix 19 - Full Segmentation Tree

79

MK Appendix 20 - Purchase Intention

80

MKAppendix 21 - Channel Conflict Breakdown

MK Appendix 22 - Competition Adjustment

Year (BASE) 1 2 3 4 5

*Competition

adjustment 20% 27% 33% 38%

81

MK Appendix 23 - Sales Projections – Best Case

Year (BEST) 1 2 3 4 5


ADJUSTED purchase

intention @ $XX

(average weighted

retail price)

16.53% 17.08% 17.96% 18.57% 19.51%

Awareness 5.47% 8.56% 13.98% 16.16% 18.74%

ACV 25.06% 34.47% 41.24% 46.11% 46.11%


Trial Units 27,667 64,868 140,648 198,400 255,300


BASES Units (before

competition)

27,667 64,868 140,648 198,400 255,300

*Competition

adjustment

0 0.2 0.27 0.35

TOTAL UNITS 27,667 64,868 112,518 144,832 165,945

Average WEIGHTED



chart below)

$

41.78

$ 39.25 $

36.96

$

35.53

$

33.84


$1,155,856.49

$2,546,140.25

$4,158,923.27

$5,146,481.96

$5,615,930.51

82

MK Appendix 24 - Sales Projections – Worst Case

Year 1 2 3 4 5


ADJUSTED purchase

intention @ $XX

(average weighted

retail price)

16.53% 17.08% 17.96% 18.57% 19.51%

Awareness 4.78% 8.46% 12.83% 14.82% 17.42%

ACV 19.46% 25.73% 31.00% 35.42% 35.42%


Trial Units 18,755 46,954 93,371 131,979 168,864


BASES Units (before

competition)

18,755 46,954 93,371 131,979 168,864

*Competition

adjustment

0.2 0.29 0.35 0.4

TOTAL UNITS 18,755 37,563 66,293 85,786 101,318

Average WEIGHTED



chart below)

$

39.72

$

37.06

$

34.65

$

33.13

$

31.55


$745,019.10

$1,391,962.62

$2,297,013.35

$2,841,779.58

$3,196,466.58

83

MK Appendix 25 – Cumulative Purchase Intent Demand Curve (Transporation)

MK Appendix 26 – Cumulative Purchase Intent Demand Curve (Recreation)

y = -0.217ln(x) + 1.1017 R² = 0.9928

0

0.05

0.1

0.15

0.2

0.25

0.3

0 50 100 150 200

y = -0.002x + 0.3202 R² = 0.9585

0

0.05

0.1

0.15

0.2

0.25

0 50 100 150 200

84

IS Appendix 1- ERD

IS Appendix 2 – Hardware Topology

85

IS Appendix 3 – Hardware Budget


Item CAPEX/EXP

Dep.

Per.

Unit

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost

Hardware

Cat 6 Cable

(20ft) Expense

$4 6 $21 0 $0 0 $0 0 $0 0 $0

Tripp Lite 8-

port Console

KVM Switch Capital 3 $1,320 1 $1,320 0 $0 0 $0 0 $0 0 $0

Tripp Lite Ext

Batt Pack

1500VA Rack

UPS Capital 3 $350 1 $350 0 $0 0 $0 1 $350 0 $0

Tripp Lite 42U

SmartRack

Premium

Enclosure Expense

$950 1 $950 0 $0 0 $0 0 $0 0 $0

ThinkServer

RD630 Rack

Server Capital 3 $2,773 1 $2,773 0 $0 0 $0 0.25 $693 0 $0

Lenovo

ThinkPad

T440p Capital 3 $1,009 3 $3,027 0 $0 0 $0 5 $5,045 0 $0

CISCO RV320

Dual WAN

VPN Router Capital 3 $208 1 $208 0 $0 0 $0 0 $0 0 $0

Xerox

WorkCentre

3315/DN

Copy/Print/Fax Capital 3 $349 1 $349 0 $0 0 $0 0 $0 0 $0

T7316E

Norstar Nortel

Telephone Expense

$58 4 $232 0 $0 0 $0 1 $58 0 $0

Panasonic

Toughbook 19 Capital 5 $3,561 1 $3,561 0 $0 0 $0 1 $3,561 0 $0

Total

Hardware:

$12,791

$0

$0

$9,707

$0

86

IS Appendix 4 – Software Budget


Item

Unit

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost

Software

MS

Office

2013

Business

Suite $220 4 $880 0 $0 0 $0 6 $1,320 0 $0

MS

Dynamics $5,600 1 $15,600 1 $5,600 1 $5,600 1 $5,600 1 $5,600

Macafee

Business

Security

Suite $73 4 $291 4 $291 4 $291 9 $655 9 $655

Total

Software:

$16,771

$5,891

$5,891

$7,575

$6,255

IS Appendix 5 – Telcom/Backup/Website /Misc Budget


Item

Unit

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost Q

Total

Cost

Comcast

Internet and

5-phone

bundle $195 12 $2,337 12 $2,430 12 $2,528 12 $2,629 12 $2,734

Carbonite

Server

Complete

Backup $1,000 1 $1,000 1 $1,040 1 $1,082 1 $1,125 1 $1,170

GoDaddy

VPS Hosting $36 12 $432 12 $449 12 $467 12 $486 12 $505

Training and

Misc. IS - 1 $10,000 1 $4,000 1 $4,000 1 $4,000 1 $4,000

Total

Business

Solutions:

$13,769

$7,920

$8,076

$8,239

$8,409

87

IS Appendix 6 – Website SEO Metatag Word List

Helmet Biking Lock Bike safety Bike security

Bike convenience Bike Bike commute Bike theft Giro

Bell Kryptonite U lock U bolt Bike lock

Kevlar Noggin lock Helmet lock Locking helmet Schwinn

Masterlock Combo lock Kevlar lock Dupont bicycle

88

OM Appendix 1 - Supplier Contact Information

OM Appendix 2 - Make/Buy Decision

89

OM Appendix 3 - Facility Size Calculations

OM Appendix 4 - Process Flow Year 1-5

90

OM Appendix 5 – Administrative Costs

91


92


93


94


95


96

OM Appendix 11 - Start Up Costs

97

FE Appendix 1 – Base Case Income Statement

98

FE Appendix 2 – Base Case Balance Sheet

99

FE Appendix 3 – Base Case Cash Flow

100

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105

Qualtrics Product Survey 1. Do you bike? ___ Yes ___ No

2. Please select each option that you think best describes your opinions

3. When making a decision to buy a bike helmet, how important are the following attributes

to you?

Very

Unimportant

Somewhat

Unimportant

Neither

Important nor

Unimportant

Somewhat

Important

Very

Important

Safety

Aesthetics/Style

Durability of

the helmet to

withstand

collisions

Comfort

Price

4. Please rank the top 3 most important of the following 5 attributes when purchasing a bike

helmet. (1 = most important, 3 = least important, use each number only once)

___ Safety ___ Style ___ Durability ___ Comfort ___ Price

5. When making a decision to buy a bike lock. How important are the following attributes to

you?

Very

Unimportant

Somewhat

Unimportant

Neither

Important nor

Unimportant

Somewhat

Important

Very

Important

Strongly

Disagree Disagree

Neither

Agree Nor

Disagree Agree

Strongly

Agree

Helmets should be worn

while biking

I consider myself a risk

averse person

I am concerned about

bike theft

106

Safety

Aesthetics/Style

Durability of

the lock to last

Price

6. Please rank the top 3 most important of the following 4 attributes when purchasing a bike

lock. (1 = most important, 3 = least important, use each number only once)

___ Security ___ Style ___ Durability ___ Price

Our product is a bicycle helmet equipped with a built in Kevlar, a synthetic fiber with extremely

strong resistance and tensile strength, cord bike lock. The feature would allow our user to easily

use the bike helmet to lock both their helmet and their bike to a bike rack. It will have a

personalized 4-digit code to release the lock whenever the user returns to their bike. Our product

is a fully functional bike helmet, because our user’s safety is our priority, while wearing our

helmet, riding your bike (and leaving it!) has never felt safer.

107

7. Now that you have reviewed our product concept, how interested would you be in this

product if it became available in the market?

__ Not at all interested __ Somewhat Uninterested __ Neither Uninterested or Interested

__ Somewhat Interested __ Very Interested

8. What would you be willing to pay for this product?

< $49.99 $50.00-$89.99 $90.00-$109.99 $110.00-$129.99 $130-$149.99 >$150

9. At the price you just indicated, what is the likelihood that you will buy our product?

__ Definitely Not __ Probably not __ Not Sure __ Probably Yes __ Definitely yes

10. At the price you just indicated, how many units would you purchase for your household?

__ None __ One __ Two __ Three __ More than three

11. If we were to use recycled materials in our manufacturing. Would this change your intent

to purchase?

__ My purchase intention would increase significantly

__ My purchase intention would increase slightly

__ My purchase intention would not change at all

__ My purchase intention would decrease slightly

__ My purchase intention would decrease significantly

12. If we were to donate a percentage of revenue to (and sponsor) bike races, such as Ride 2

Recovery (a series of bike races and events that sponsor and assist physical rehabilitation

programs for wounded veterans), would this change your intent to purchase? Choose one.

__ My purchase intention would increase significantly

__ My purchase intention would increase slightly

__ My purchase intention would not change at all

13. Which of the following names do you think would best fit this product?

__ Safelock __ Helmlock __ Noggin-Lock __ Other:

14. Where would you expect this product to be sold? (Check all that apply).

__ Bicycle Stores (ex: Landry’s Bicycles, Back Bay Bicycles, Cambridge Bicycle Shop)

__ Sporting Goods Stores (ex: Dicks Sporting Goods, City Sports, Olympia Sports)

__Mass Merchandisers (ex: Walmart, Target, CostCo)

__Online (ex: Amazon)|

__ Other (Specify):

15. Where would you expect to learn or find out about this product? (Check all that apply).

__ Internet Ads (on Google, blogs, Facebook)

__ T.V. Commercials

108

__ Biking and Outdoor Magazine Advertisements

__ Word of Mouth

__ Other (Please Specify):

16. What is your gender? __ Male __ Female

17. How old are you?

< 17 18-24 25-31 31-39 40+

18. Job Status?

__ Student __Working Professional __ Retired __ Unemployed

19. If you are a student, do you live on or off campus?

__ On Campus __ Off Campus

20. What kind of area do you live in?

__ Urban __ Suburban __ Rural

21. Do you own a car? __ Yes __ No

22. Annual Household income?

Less than $39,999 $40,000-$69,999 $70,000-$99,999 $100,000 or above

23. How many people are in your household?

__1 __ 2 __ 3 __ 4 __ 5+

24. How often do you go biking?

__ Never __ Less than Once a Month __ Once a month __ 2-3 Times a Month

__ Once a Week __ 2-3 Times a Week __ Daily

25. Do you ride your bike for:

__ Recreation or Leisure __ Transportation __ Exercise/Health

How far do you ride your bike in a week?

__ < 2 miles __ 3-5 miles __ 6-10 miles __ 11+ miles

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