These trends indicate that EcoClear is being launched at an opportune time.
Political, Legal and Regulatory
Present Market Situation
The US domestic pool market can be divided into three major product segments: 1) above-ground pools; 2) in-ground pools; and 3) spas/hot tubs. Although the commercial pool market is significant, it will not be considered in this plan as the product requires modification to best satisfy that market's demand. These modifications will be made as part of ongoing R&D, and it is expected that a suitable product will be ready for this market during the third or fourth year of operation. The revenue from commercial pools, or from any other market application of the technology, will not be considered in this plan, but will instead be treated as part of the 'blue sky' potential. Thus, this plan limits its focus to domestic pools and spas of 35,000 gallons and less.
Pool filter purchasers can be divided into two separate categories. The 'first-time' pool purchaser is typically guided by the pool builder or pool designer, as they usually have minimal experience with pool filters. The 4replacement' filter purchaser is more informed in their filter purchase decision, though typically requires updated information from pool service providers or retailers on technology and product developments.
In 1995 there were 9.7 million domestic pools and spas in the US. New pool and spa construction in 1995 totaled 883,000 units, a 9% increase. Filter sales are seasonal with the majority of sales occurring between April and September. New pool and spa purchases are sensitive to macroeconomic cycles, but since these cycles are difficult to predict, this plan conservatively assumes that pool and spa construction will increase at the trend growth rate of 5%. Replacement of existing filters occurs on average every 7.5 years for pools and every 10 years for spas. This accounted for a further 1,066,000 unit sales in 1995. Thus total pool and spa filter sales were 1.899 million units in 1995 (which represents $450 million at wholesale) and are forecast to grow to 3.115 million units in 2001.
The estimated 1996 breakdown of sales by filter types is as follows:
|Filter Type||% Market Share|
|Number of Units|
Sold (1996 est.)
|US$ Retail Sales|
Major Filter Manufacturers in the North American Market
There are over 30 manufacturers of pool filter products in the US, five of whom hold approximately 80% of the market. The industry is price competitive with regular discounting of list prices by up to 50%.
The following table compares direct production costs, deep discount prices, expected prices and manufacturers' dollar margins.
Comparative Cost and Pricing Data
|Filter Type||Direct Cost|
Sustainable Competitive Advantages
Water clarity and price are the major criteria in the pool filter purchase decision. The diagram below demonstrates the potential positioning of EcoClear in these two dimensions relative to the other filter types. (There is a range of water quality and price for sand and cartridge filters). As can be seen, EcoClear can be positioned above the existing value frontier which win facilitate its market penetration.
When a new product enters a market with such a pronounced value advantage, competitor retaliation should be expected. In this case however, competitor retaliation is constrained as EcoClear has a substantial manufacturing cost advantage and its quality advantage is legally protected. Other sustainable competitive advantages include EcoClear's saving of water, chemicals, maintenance time, electricity, installation cost and poolside space.
The strategic options have been reduced to three, which are shown in the following table along with the perceived advantages and disadvantages of each option.
|1. EcoClear Inc. manufactures and distributes in the US.|
|2. EcoClear Inc. sub-contracts the manufacture in conjunction with a retail chain (e.g. Leslie's Poolmart).||
|3. EcoClear Inc, licenses the technology to a major manufacturer in the pool industry.||
Mutual Benefits of a Strategic Alliance
|Benefits to EcoClear Inc.||Benefits to the Licensee|
All five of the major manufacturers produce each of the three types of pool filter. No manufacturer dominates a particular filter market and each has a national distribution system. 90% of filter products are manufactured in the US with the "Made in USA" label being highly valued by consumers.
Hayward Pool Products is the market leader with annual sales in excess of $200 million. Sales are generated almost entirely from pool products in the US with exports to Canada and Europe representing less than 8% of total sales. The company has 1500 employees and 80% of its stock is owned by the existing directors who have controlled the company since 1964. The Chairman has outright control with 66% of the stock. Hayward's market share has come under considerable threat in recent times by aggressive moves from American Products and Sta-rite.
Pac-Fab has sales in excess of $90 million, generated entirely from pool products in the US and exports to Canada and Europe. They have 450 employees and are 100% owned by Essef Corporation which gained control in 1971. Pac-Fab relies more heavily on sand filters and thus its market share is being undermined by the trend towards cartridge filters, but they have maintained market share via a number of competitor acquisitions.
Sta-rite has a similar filter market share to Pac-Fab. Its total sales exceed $270 million from a wider range of pool products and electrical pumps, with exports accounting for 30% of sales. They have 1700 employees and are 100% owned by Wicor Inc., which has sales in excess of $850 million. Sta-rite is expanding its market share with a strategy of price competition, product bundling, competitor acquisitions and some innovation in pool filtration.
American Products has sales in excess of $40 million generated entirely from pool products, with 12% of sales to Canada and Europe. In 1995 they became a wholly owned subsidiary of General Aquatics, a major pool builder with sales of $90 million. American Products has rapidly gained market share in recent years, particularly in the 'sun belt' region.
Jacuzzi has sales in excess of $270 million and is a wholly owned subsidiary of US Industries, who in turn have sales of $2 billion. This group has experienced difficulties in recent years with few profitable subsidiaries.
The following graph outlines the market share position for each of the "Big Five" manufacturers.
EcoClear's primary market consists of pool filter manufacturers. Pool builders, wholesalers, retail stores and the end consumer are EcoClear's secondary market. By exceeding the expectations of the secondary market, EcoClear will generate 'pull' through the distribution channel.
Telephone contact has been made with senior executives from each of the companies in the target market. Initial interest has been positive and meetings have been arranged and will be conducted in May. Once a confidentiality agreement has been signed, a video presentation will be made and a product presentation and demonstration will occur for each of the manufacturers. At some point we would expect a preferred candidate to emerge. Before further technical details would be revealed, a 'heads of agreement' would be signed outlining the future licensing agreement. This process is expected to be completed by November 1996, with a view to launching the-product in time for the 1997 summer season.
The following are a suggested basis for an exclusive license agreement.
Marketing Objectives and Sales Forecasts
Marketing and pricing strategies for the secondary market will be set by the licensee. For the purpose of this plan we have conservatively assumed a $200 wholesale price in the expected scenario and therefore a $20 royalty payment per unit. At a wholesale price of $200, EcoClear Inc. expects to attain, over the first five years, a 10% share of the pool filter market for domestic pools. EcoClear's market share is expected to achieve this market penetration following typical diffusion patterns. The following table indicates the sales forecast figures based on the above marketing assumptions.
|Table of Contents||Appendices|
1. Executive Summary|
2. The Company
3. Marketing Plan
4. Operational Plan
5. Financial Plan
Proforma Financial Statements|
Sources and Uses of Funds
Break Even Analysis
Worse Case Scenario
Direct Production Costs
|All information herein is confidential and belongs to EcoClear,Inc.|