Reference no: EM132856119
1. Brief summary of the case
Outline of the question/problem/symptoms
Robert Bennett was a computer salesman until he quit his job and sold his assets to start a company called "MicroFridge Inc". Microfridge combines a refrigerator, freezer and a 500 watt microwave. This product is targeted at university students since Bennet was aware that many fires in student dorms were started by hotplates. What makes this product different from microwaves and hotplates that can cause fires is that Bennet made the microfridge shut off power when the microwave is in use thus overheating would not be a problem.
Bennet approached multiple manufacturing companies but found two that were willing to produce, which were Samsung and Sanyo. He picked Sanyo as they offered $263/unit and that he pays upfront for specialized equipment which would total up to $170,000. With this, Bennet set $300,000 for his budget during the first year to cover selling and administration and an additional $60,000 for legalities. He aims to sell the product 15% higher than the cost per product which is $309.
To understand his targeted audience better, Bennet conducted 200 interviews with Massachusetts college students. Although there are many reported accidents with hotplates, 90% of the students still use them along with other hazardous appliances. After introducing the product, he found that the majority of students (52%) would want to have a microfridge if the price of the dorms is increased by $75/year. And 90% of the students would be likely to want it if it was only $50/year. To distribute his product, Bennet sought after colleges that might be interested. Alas to no avail, none of the colleges wanted to invest in Bennet's idea. One administrator thought that this would cause a decline in the meal plans and others thought that there was no demand for microwaves. Another pointed out that the durability of the product is questionable as it comes from a new company.
Thus Bennet thought that he could use distribution channels to sell to retailers. However, retail stores increased the retail price by 30% to be sold to the consumers. Since his target audience has now changed, Bennet surveyed motel guests whether they would pay an extra $3 to their room, majority said they would. Bennet then asked for advice from a general partner of an investment firm. He wasn't granted an investment as he has low margins and high cash flow risks, not to mention that major companies can make similar products to his.
a) How to produce?
answer :
b) For whom to produce?
answer :
c) Should he go with the Sanyo offer?
answer :
d) Should he only use distributors to supply his product to the market or go with house accounts?
answer :
e) How much should the cost of the micro fridge be that could fetch him a decent % of profit?
answer :