Turn your spoil into soil!
BUS 346-111 Group #2 Fall 2017 Prof. Simon 1
CitySprout is a compact, multifunctional composter for your countertop with an automatic scrap turner and a built-in flower pot
GROUP #2: Melanie Liu, Christopher Shahrabani, Joe Burkhart & Jackson Chihuly
TABLE OF CONTENTS 3 SWOT Analysis 4 Segmenting, Targeting, and Positioning 5 Pricing Strategy & Financials 6 Product Strategy 7 Distribution Strategy 8 Promotion Strategy 9 Qualtrics 12 Appendix
SWOT ANALYSIS Strengths
• Versatile and Compact: The CitySprout is designed for people who do not have a yard or have a very small house interior. Using this product will allow urban residents to participate in creating a more sustainable environment. • Sustainable: CitySprout allows urban residents to easily and sustainably dispose of their compostable waste while growing their very own plant, which is provided extra nutrients through food scraps. The entire design is constructed of recycled materials adding to green efforts. • Low-Time-Commitment: An automated, copost-turning motor allows hands free maintenance of food scraps. Thus lowering the time commitment for the customer.
• Increasing Environmental Concern: Growing environmental concern has led to a boom in sales for the U.S. environmental industry. • Growing Urbanization: Studies show a steady increase in U.S. urbanization. CitySprout is targeted towards meeting this growing demographics’ environmental concerns. • Low Barriers to Entry: Main competition such as Bokashi and Nature’s Footprint are locally- based and have not dominated the market. Bokashi is based in Australia while Nature’s Footprint is based in Washington. • Horticultural Industry Growth: The horticulture industry is expected to grow 5% from 2017-2021 conveying stable growth and demand for the market.
Weaknesses • Slow Process: Food scraps will need to be left in the CitySprout for about three months in order to provide nutrients for the plant. Therefore, the scraps cannot be removed as often and the container may fill up quickly. • Size Limitations: There is an inevitable trade-off between size and compost holding capacity, as well as maintaining design as a flower pot. • Design Limitations: CitySprout has a rigid shape that may not accommodate a specifically preferred space in the home.
Threats • Competitors: Some competitor compost bins are small enough to be kept underneath the sink and out of sight. Some consumers may not be willing to adopt a more intrusive system. • Dependent Demand: Demand for both indoor decoration plants and outdoor landscaping products is subject to economic conditions, as residential and commercial construction drive demand for these products. Any slumps in these markets can have ill effects on demand. • DIY: Do it yourself composting projects are generally fairly easy and cost effective. With the ease and low budget, DIY projects are very popular in the composting community. Potential consumers may build their own composter rather than buying one.
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SEGMENTING, TARGETING & POSITIONING Segmenting
CitySprout will focus its attention on the cities considered best at recycling waste. The top four cities are San Francisco, Seattle, Los Angeles, and Minneapolis. San Francisco and Seattle in particular score high in this area. Both are considered among some of the â€œgreenestâ€? cities in North America. Referencing MRI, people with a postgraduate education are 54% more likely than all adults to express interest. People between the ages of 45 and 54 are 31% more likely than all adults to have an interest. Employees of management, business, and financial occupations are 38% more likely than all adults to hold an interest. Individuals with a high income level ($75,000-$149,000) are 48% more likely to have an interest. Readers of National Geographic and Travel and Leisure are 44% and 70% more likely than all adults to hold an interest, respectively.
Brendan is a 46-year-old male living in San Francisco. Brendan has an M.B.A. in Finance from UC Santa Barbara and currently works as a Financial Analyst. Brendan lives in a town home in the city. He cares about the world and is interested in traveling. With his passion for the world comes his desire to keep the planet sustainable and clean. Brendan is always looking for new technologies to help him reduce his impact on the environment, and loves to instill values of green thinking to those around him. These traits indicate that Brendan is a perfect candidate for CitySprout.
Targeting CitySprout will build a comprehensive marketing plan in order to target professional consumers in the middle age bracket (45-55 years). This marketing strategy will focus on targeting educated urban residents who have an interest in the world and the environment. Many of these residents will likely be the heads of family households (45-55 years old) who live in urban western cities such as San Francisco and Seattle, which have notoriously green-conscious cultures.
Positioning CitySprout stands out in the industry from competitors like Bokashi Bucket by making composting more exciting. The product will be unique in its sleek, modern design. Its versatility will be valued since it doubles as a compost bin with automated turning functionalities, and a flower pot. This will be a big draw to consumers, especially those raising families in urban environments. CitySprout will allow these people to exercise their concern for the planet without forcing a large investment or time commitment. The product will be compact, effective, and rewarding to those who care to make a difference in the world, even if they do not have much room or time to spare.
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PRICING & FINANCIALS Pricing Strategy
Facebook’s current average CPM (cost per mille) is $5.21. CitySprout will be spending $2,000 on Facebook ads for the first year, allowing up to 383,877 views. After the first year with a $126,050 profit, CitySprouts will be able to raise the yearly budget on Facebook ads to $5,000, resulting in 959,692 views.
CitySprout costs $35 per unit: $7 for the electric motor and mixer assembly and $28 in plastic materials costs and assembly labor,. CitySprout will sell to retailers for $40 leading to a $5 profit per unit and a 12.5% profit margin. The price elasticity of demand for CitySprout is 1.63, elastic. A 1% increase in price will Financials lead to a 1.63% decrease in quantity demanded. A $40 price would bring in $126,049.96 in profit while for CitySprout will use an initial investment of $60, it’d be $117,219.20. $40 was chosen as the target $80,000 to cover the total expenses for the first year. price due to the to higher profit. This will cover cost of goods sold, marketing expens CitySprout’s fixed manufacturing cost is es, and other expenses. CitySprout’s marketing budget $4,500, which accounts for the reusable plastic mold. will increase from $9,560 to $12,560 due to greater CitySprout will incur costs in the wholesale distribution Facebook marketing. By spending more on social network as well, including costs for warehouse storage. media marketing in year 2, the number of units sold It will cost $25 to store each pallet of 160 units, genwould increase by 98.33% with a total of 50,000 sales erating expenses of $3,939 in year one and $7,813 in in year two. This would lead to a $123,945 gross profit year two. CitySprout’s trucking costs will be dependent increase. See CitySprout’s income statement below. on units produced. In the first year 25,211 units will be produced and transported via truck; each truck can hold 24 pallets, which amount to 160 units per truck. The first year of production will require 6.5 truckloads at a cost of $2,000 per truck for a total of $13,000 per year. This will increase to 13 truckloads in year two as production is raised to 50,000 units, increasing total cost to $26,000 per year. Marketing expenses total $9,560 for the first year. CitySprout will attend three expos for the first two years of business. One of the expos CitySprout will exhibit at is the Natural Products Expo in Colorado. An 8’x10’ booth costs $5,225, giving CitySprout the opportunity to market to over 80,000 attendees. CitySprout will have 10’x10’ booths at the Green Festival Expo and Earth Day festival, which cost $1,790 and $545 respectively for a booth and travel. Total exhibiting costs amount to $7,560 for the first year. According to CitySprout’s survey results, the most effective advertising strategy for the target market 5 is Facebook. GROUP 2
PRODUCT STRATEGY Main Features
CitySprout is a flower pot with a composting system made out of recycled plastic collected from the ocean. The product is designed to help urban residents sustainably eliminate food waste in small spaces. The product meets urban consumers’ needs through its versatility and compact design. CitySprout makes composting both accessible and easy, and the incorporated flower pot allows the product to blend with typical decor. The flower pot receives its nutrients from the compost, creating a simple, efficient, and renewable system for urban livers. As it works to filter the smell of the compost, CitySprout automatically shifts its contents to speed decomposition and reduce time commitment for the consumer. As the figure below demonstrates, most consumers only wish to allocate 1-2 hours per week to earth conscious activities, CitySprout’s automated motor function allows customers to make an eco-friendly impact without a large time investment.
CitySprout will mainly gain brand recognition through the logo. The logo is clean, welcoming, and simple just like the product. In efforts to represent “green thinking,” the logo’s font and colors are friendly and earthy. According to psychological studies, people generally associate the color green with health and nature. The logo also features two arrows on the “S” to symbolize sustainability. A simple sprout design acts as the “t” in order to represent the idea of continual growth. CitySprout will continue to develop brand recognition through its slogan, “Turn your spoil into soil,” which clearly emphasizes the purpose of the product: to get rid of kitchen scraps, while providing nutrients to the soil or a plant in the built-in flower pot.
Packaging CitySprout’s packaging will reflect a strive for green practices by using recycled materials to create a sustainable, non-laminated cardboard box to contain the product. CitySprout’s primary packaging will be white, which conveys the purity and cleanliness that CitySprout strives to promote for the environment. Additionally, the box’s exterior will display the CitySprout logo and simple pictorial directions to convey product functionalities. More in-depth directions will be available inside the packaging.
Warranty CitySprout will offer a 5-year warranty covering parts and labor for manufacturer defects in order to stay competitive with our main competitors; Bokashi, our main competitor, has a two-year warranty, while Nature’s Footprint offers five-year warranties. Additionally, phone support will be offered for inquiries about the use of the products as well as warranty details.
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DISTRIBUTION STRATEGY Channel Strategy
CitySprout will be manufactured by Envision Plastics and Spin Products, Inc., both located in Chino, CA. Envision Plastics is a recognized industry leader in plastics recycling. Envision Plastics’ ability to recycle plastic for commercial products enables CitySprout’s product materials to be earth friendly. Envision Plastics will provide the materials to Spin Products, who will manufacture and assemble the CitySprout product. Since both manufacturers are located in close proximity to each other in Chino, transporting the materials for final assembly will be relatively inexpensive. Spin Products, Inc. has experience manufacturing unique, nontraditional plastic products. Spin Products already manufactures “decorative flower pots,” so it should be relatively easy for them to adopt the CitySprout. For in-store retailers, CitySprout will be distributed to Home Depot, Lowes, Target and Walmarts across the West Coast by the wholesale distributor, West Coast Distribution, Inc. According to Qualtrics, these retailers are where consumers expect to find CitySprout. The West Coast is CitySprout’s main geographic area of concentration because cities such as Seattle and San Francisco tend to practice recycling habits more frequently. They are considered some of the “greenest” cities in North America. West Coast Distribution’s headquarters in Southern California is in an excellent location relative to CitySprout’s manufacturers. Once the product is acquired by West Coast Distribution, the distributor will have easy access to major nearby ports and trucking options, which will greatly expedite shipping. West Coast Distribution also has extensive experience with Walmart and Target, two retailers that CitySprout aims to make main retailers.
Once CitySprout is manufactured and boxed in its secondary packaging, the product will be placed onto pallets for compact transportation. These pallets will be wrapped to ensure CitySprout’s products are secured. The pallets will be trucked to the various retailers across the West Coast. CitySprout chose trucks for distribution due to the inexpensive costs and the ease of transportation along highways 5, 405, and 101 that span across the entire geographic target. Channel Management The management of the entire channel will be undertaken by West Coast Distribution, Inc. West Coast Distribution offers full channel management from manufacturer to retailer. West Coast Distribution’s presence and expertise on the west coast makes them the ideal choice for this role as they will already have the expertise and resources for logistic management. The company offers a variety of services to best meet overall distribution goals, and they also pride themselves in “complete supply chain management and integration” that will assist in a small company such as CitySprout.
7 GROUP 2
PROMOTION STRATEGY Pull Strategy
CitySprout’s vision revolves around sustainability and earth-friendly practices. This is exemplified in the slogan, “Turn your spoil into soil!”. To promote these core values, CitySprout will be marketed at a handful of festivals and trade shows. In order for CitySprout to successfully be distributed to Home Depot, Lowe’s, Walmart and Target, the product needs to build a relevant consumer base in addition to West Coast’s connections to our targeted corporations. To expand our consumer base, it is necessary for CitySprout to participate in and exhibit at expos. CitySprout will connect with targeted consumers by attending and offering promotions in community events such as the Green Festival Expo and the Earth Day Festival in San Francisco, which both generally attract more than 10,000 eco-minded consumers. Statistics from past Green Festival Expos indicate that 88% of attendees would pay high prices for a safe environmental product, and 75% of past attendees have made purchases at the festival. Festivals such as these give CitySprout the ability to reach the target customer base and interact directly with potential consumers by offering trialability and demonstrating the product’s convenience. In accordance with a Qualtrics survey, 85% of respondents said that they expect to hear about CitySprout from Facebook advertisements. This data will allow us to take the opportunity to post on Facebook and easily obtain data to analyze and reevaluate CitySprout’s pull strategy for future marketing plans. Through research, the best time for CitySprout to post on Facebook is between 1:00 p.m. and 4:00 p.m. every day for one month. Only advertising for a month will allow CitySprout to collect data and reevaluate its pull strategy for future advertisements.
Natural Products Expo West noted 3,100 exhibiting companies and a record-breaking attendance of over 80,000 in 2017, speaking to the increasing popularity of “green” living. The Natural Products Expo is an ideal environment for showcasing since CitySprout will be among hundreds of other pioneers in the natural, organic and healthy living industries. Expos such as this give CitySprout the opportunity to connect with potential retailers. Any retailers interested in CitySprout during a trade show will be given retailer coupons which offer a discount on initial orders. Promotions such as these retailer coupons will entice new retailers to consider CitySprout. Furthermore, CitySprout’s attendance at the Natural Products Expo will allow for improved networking with other businesses in the industry, helping to establish relationships that could help push CitySprout through the sales channel more efficiently and potentially set up partnerships with related companies such as ReGrained, that line up with CitySprout’s vision to fight food waste.
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QUALTRICS Positioning Maps Figure 1 - Versatility vs. Size
Figure 3 - Convenient vs. Safe
Figure 2 - Ecofriendly vs. Aesthetically Pleasing
9 GROUP 2
QUALTRICS Figure 4 - Education Level
Figure 6 - Composting Knowledge
This figure illustrates respondent demographics by looking at the respondentsâ€™ highest education level. CitySprout is geared towards high education and high income consumers (Qualtrics, 2017).
This figure illustrates the amount of knowledge the respondents hold on composting. CitySprout uses this information to figure out how much of our marketing should be focused on compost education (Qualtrics, 2017).
Figure 5 - Hours Willing to Spend on Earth-Friendly Practices
This figure shows the respondentsâ€™ proportions of green habits by focusing on number of hours respondents are willing to spend on earth friendly tasks. CitySprout used this data to find the level of time consumers would be willing to spend on the composter product a week (Qualtrics, 2017).
Figure 7 - Purchase Likelihood Depending on Price
This figure illustrates how likely the respondents are to purchase CitySprout depending on varying prices of $40 and $60. CitySprout used this information to set the product price at $40 (Qualtrics, 2017).
QUALTRICS Figure 8 - Expected Ways to Hear About CitySprout
Figure 10 - Ranking of Characteristics: CitySprout vs. Bokashi Bucket
This figure illustrates the different ways in which CitySprout is expected to be seen and advertised. CitySprout will focus its marketing and promotion on Facebook and social media, the channel of media consumers preferred (Qualtrics, 2017).
This figure illustrates how important each characteristic is to respondents and describes how well CitySprout and Bokashi Bucket fulfil those characteristics. CitySprout ranks better on all characteristics but safety and convenience (Qualtrics, 2017).
Figure 9 - Expected Places to Purhcase CitySprout
Figure 11 - Personal Importance of Ecofriendly Activities
This graph describes the stores that consumers expect to find CitySprout products in. CitySprout will focus on the stores such as Home Depot, Loweâ€™s, Target, and Walmart for retailers (Qualtrics, 2017).
This figure illustrates the percentage of responses on each of the level of importance from a scale of 1 to 4, with 1 being the lowest score of importance. CitySprout will use this data to target those who are most interested in being eco-friendly (Qualtrics, 2017).
11 GROUP 2
APPENDIX Figure 1 - Logo
Figure 2 - Product Design
Price Elasticity Price Elasticity of Demand = | (%∆ Quantity Demanded) / (%∆ Price) | = | (%∆Qd) / (%∆P) | %∆Qd = [(Quantity Demanded at High Price) (Quantity Demanded at Low Price)] / (Quantity Demanded at Low Price) = (QdH - QdL) / QdL %∆P = ( (High Price) - (Low Price) ) / (Low Price) = (PH - PL) / PL %Qd = (QdH - QdL) / QdL = (0.00969 - 0.0521) / 0.0521 = -0.8140 %∆P = (PH - PL) / PL = ($60 - $40) / $40 = 0.5 Price Elasticity of Demand = | (%∆Qd) / (%∆P) | = | (-0.8140) / (0.5) | = | -1.6280 | = 1.63 1.63 > 1 | Demand for CitySprout is Elastic This means relatively small changes in price will generate fairly large changes in quantity demanded. With a 1% increase in price, the quantity demanded of CitySprout will decrease by 1.63%.
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APPENDIX Discount for Intent Low Price of $40
Discount for Intent High Price of $60
Qualtrics Responses (#): Very Likely: Likely: Somewhat Likely: Purchasing Likelihood: Very Likely Likely Somewhat Likely
Qualtrics Responses (#): Very Likely: Likely: Somewhat Likely: Purchasing Likelihood: Very Likely: Likely: Somewhat Likely:
6 3 7 6 x 25% = 1.5 3 x 5% = 0.15 7 x 1% = 0.07
0 3 16 0 x 25% = 0 3 x 5% = 0.15 16 x 1% = 0.16
Sum of Products = 1.5 + 0.15 + 0.07 = 1.72
Sum of Products = 0 + 0.15 + 0.16 = 0.31
Quantity Demanded = Sum of Products / Total # of Responses for Price $40 Quantity Demanded = 1.72 / 33 = 0.0521 = 5.21%
Quantity Demanded = Sum of Products / Total # of Responses for Price $60 Quantity Demanded = 0.31 / 32 = 0.00969 = 0.97%
At a price of $40, 5.21% of customers aware of CitySprout would actually purchase the product.
At a price of $60, 0.97% of customers aware of CitySprout would actually purchase the product.
Target Price Low Price of $40
Target Price High Price of $60
Total Profit = (# of People Exposed) x (Discount for Intent) x (Price - Cost)
Total Profit = (# of People Exposed) x (Discount for Intent) x (Price - Cost)
Cost of Production per Unit = $35/unit # of People Exposed = 483,877 [estimate based on promotion strategy]
Cost of Production per Unit = $35/unit # of People Exposed = 483,877 [estimate based on promotion strategy]
Total Profit = 483,877 x 0.0521 x ($40 - $35) = $126,049.96
Total Profit = 483,877 x 0.00969 x ($60 - $35) = $117,219.20
$126,049.96 > $117,219.20 The target price of $40 was chosen due to its larger profit potential 13 GROUP 2
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14 GROUP 2