In 1993, government funded research projects will purchase a total of 5,000 Whale Awayä units for field testing. These tests will provide scientific data to validate the effectiveness of our Whale Awayä product. If any issues arise during the test phase, time will still be available to address and validate these issues before full market roll-out in early to mid-1994. Development money has been included in the budget for just such an occurrence. This test phase will also generate publicity among fishermen for our product. A detailed, promotional launch plan will run as follows:
|June 1993||Field Test, Conception Bay, NFLD.||500 units|
|Field Test, Placentia Bay, NFLD.||500 units|
|September 1993||Ad Roll-out in Trade Journals|
|October 1993||Market Intro., Fish EXPO, Seattle, WA|
|NMFS Field Test, Portsmouth, NH, USA||4000 units|
|February 1994||NMFS Field Test Results Available|
|March 1994||National Sales Begin, 1994 Fishing Season|
|Sales Projection||72,000 units|
Integral to the launch and the continued success of Whale Awayä, will be personal contacts with every member of the gill net fishing community (of which there are only about 2,025 vessels domestically). Maintaining close contact with our customers will be the cornerstone of our approach and commitment to the marketplace. To assist this objective, a database of customer information and potential customers will be maintained. Data will be gathered at trade shows, through direct mailings and by visiting ports.
Successful adoption of Whale Awayä is primarily dependent on building lead-user trial and rapid imitation. To accomplish this, a promotion plan has been developed to stimulate recognition and familiarity on the part of the general fishing population and to target the lead-users in each port. These lead-users will be at the Fish Expo trade show in Seattle (October 1993). We will collect names, phone numbers and addresses of the fishermen attending the show and provide them with promotional materials. At the same time, advertisements and favorable editorials (which are already in the process of being written by independent editors) will be published in leading trade journals.
For ports not covered by Fish Expo attendees, and as a follow up to Fish Expo, we will use direct mailings to stimulate sales prior to the beginning of cetacean migration through each region. In addition, port visits will be conducted by managers and sales representatives and will be timed so as to occur just prior to the arrival of migrating cetaceans in the area in order to promote our company and product coincidentally with demand. Total promotion expenses for 1993 are budgeted at $85,500 (please see Appendix II and Figure 6 for further details).
For a long term market development strategy, public relations will be used to create a consumer demand for "whale-safe" fish, similar to recent demands for "dolphin-free" tuna. This plan will be conducted in coordination with academic and conservation groups.
Fishermen are a rugged breed of individuals that are very family-oriented and highly individualistic. People in this industry enjoy the challenge of beating the elements, beating the odds and being in charge of their own destinies (please see Appendix III for a detailed description of our buyer behavior). Most vessels are owner operated.
Initially, fishermen will be encouraged to order Whale Awayä directly from Independence Marine via a 1-800 toll-free number through direct mailings to Fish Expo contacts. Toll-free numbers are a very common method for equipment procurement in the industry and allow Independence Marine to keep control of the channel. Additionally, this distribution channel selection bypasses the strong resistance to new products that exists in other standard industry channels and allows Independence Marine to monitor how effectively it is developing a "pull" marketing strategy.
The toll-free number also allows Independence Marine to leverage the vessel owners' independent nature and provides another opportunity to learn more about our customers by developing a direct relationship with each of them. This approach is also complementary to the development and monitoring of the customer data base. By being close to the market, we will be able to respond immediately and effectively to changing customer needs as sales grow dramatically through 1994.
As the other channels develop an interest in providing Whale Awayä based on the "pull" of the marketplace, Independence Marine intends to allow movement of Whale Awayä through these other channels of equipment distribution. Since these channels provide services that Independence Marine cannot (e.g., assembly of finished nets and immediate local access), they will be important assets in our channel strategy to satisfy all segments of our customer base. Volume price discounts will be provided to these channel distributors in order to prevent them from undercutting our price.
Current Industry Channels
Most net manufacturers make fishing nets and equipment as secondary items. They usually fabricate construction nets, safety nets, etc. as their primary product. They sell fishing equipment to distributors of varying sizes who then either sell directly to the fishermen or else assemble the nets for the fishermen. The distributors use direct sales, catalogs, direct mail and toll-free telephone numbers to reach fishermen. The fishermen either buy all the equipment components themselves and have a third party assemble the nets for them, or they have a local shop buy everything and assemble it for them so that they can purchase the net ready to use.
Many small manufacturers receive business because "they have been around for a long time." The fishermen personally know these owners and will give them business because they always have in the past. Some small manufacturers will even make nets to individualized customer orders. When the manufacturers introduce new products, they tend to select a lead-user fisherman in the specific area and give him the equipment to try.
In order to create an effective barrier to entry for later competitors, Independence Marine will pursue a pricing strategy of market penetration. A low price for Whale Awayä will represent an attractive deal for fishermen. For a price, they can continue to fish during the most profitable part of the year uninterrupted. They will also realize savings from lower net damage and experience higher revenues (less damaged and lost nets yield higher catches). One study showed a 300% catch increase with whale alarms because the nets were fully functioning and undisturbed by marine mammals.
To set a price for Whale Awayä, a value-in-use analysis was performed to determine a rational, market-oriented price point. The additional benefits due to lower net damage were not included in this analysis. The analysis was performed using revenue information provided by fishermen. The variable costs of operation (labor, fuel, gear, food, etc.) were deducted from revenues along with the average fixed costs (boat costs and salaries) to arrive at a "profit" for the owner. Industry data allowed us to divide fishermen into economic quartiles. The value-in-use analysis can be seen in Figure 7. Our calculations show that, for the majority of fishermen, the value of being able to operate while marine mammals are in their area is in excess of $46 per unit. For the lowest quartile, the value is approximately $26 per unit. Again, this does not consider any other economic benefits.
In addition, the focus groups conducted by company management with the lead users in Portsmouth, NH confirmed this price point information for the use of this technology. The lead users suggested that they would be willing to pay as much as $3,000 per boat for the benefits provided. Considering the number of nets these fishermen deployed, this correlated well with the $40 per unit price threshold.
Based on this analysis, Whale Awayä will be priced at $20 per unit, undercutting the value-in-use price while still maintaining a healthy contribution margin of 63% (with a delivered unit variable cost of $7.35) for Independence Marine. The reason for the low price is to promote rapid product diffusion and to make competitive entry both more difficult and less economically attractive for potential entrants.
Fishermen will need five units per 300 feet of net (which is the common net size), therefore, packaged sets of five units will be sold for $100. Individual replacement units will also be sold, but at a price of $22.50 per unit to cover additional shipping costs. As an incentive for trial by lead users, Independence Marine will offer a trade discount to first-time buyers, such as a discount toward the next year's purchases (this discount is already factored into the financial statements under the reserve for commissions and promotional discounts).
For 1993, Independence Marine will be manufacturing 5,000 units for field tests in Newfoundland and New Hampshire. Sale of these units to the Whale Research Centre of Memorial University will result in $100,000 in revenue for 1993. Purchasing Dr. Lien's device as originally designed for this test would cost approximately $250,000, so we are already serving the needs of our secondary customer quite favorably.
Beyond 1993, projections are based on a Bass model of new product diffusion. This model is based on assumptions concerning market size, adoption rate and associated revenues, costs, profits, and returns. Federal regulations will help drive trial and adoption rates. In order to assure a conservative approach, the model includes the entry of competitors after Whale Awayä's second year in the market. These competitors are assumed to immediately capture one third of the market.
Under these assumptions Independence Marine's revenues for the Whale Awayä product are projected to grow from $1.2 million in 1994 to $2.0 million by 1998. The five year projections for Whale Awayä by region are shown in Appendix IV.
Barriers to entry into our industry are potentially low. Most of the technology is not patentable because much of Dr. Lien's research has been published in the academic press. However, the design can be copyrighted. Capital requirements for entry are modest; however, competitors will face some significant testing and engineering costs that Independence Marine is not having to face if they attempt to copy and certify the product.
With regard to the threat of vertical integration into our product category, there are no large equipment manufacturing suppliers to the fishing industry that pose a threat to Independence Marine. Fishing equipment is a mature sideline niche for these equipment suppliers.
To establish a stronger market position, Independence Marine will use its first mover advantage in the market to create an artificial barrier to entry. Independence Marine will quickly "fill the void" in the market by using penetration pricing and positive relationships developed with the NWS through the test projects in the Fall of 1993 to ensure that Whale Awayä is the approved solution to the marine mammal by-catch problem. Approval of our product as the benchmark solution will create a barrier by forcing competitors to demonstrate their products via similar extensive and expensive testing. The NMFS is unlikely to fund additional research on other solutions once ours has already been proven effective.
Despite the relatively small size of this market and our aggressive approach, competitive entry is a possibility. Historically, when a second entrant comes into a new market, the original provider may lose up to one third of its market share. This market share may be somewhat attractive to competitors, but it will be a lot of work for a small piece of this market, given the low unit price being offered by Independence Marine. Our sales projections and financials use the conservative assumption that competitors will enter the market in 1996.
Once established, we will defend our market position by pursuing a low cost manufacturing strategy with continuing refinements to the product design. Efficient design and manufacturing capabilities are the distinctive competencies of the founders. By staying ahead of the competition through innovation and our experience curve, we will discourage entry, or at least keep imitators' profits low.
Another potential threat comes from those fishermen who choose not to comply with the federal regulations that created the impetus for Whale Awayä. In order to protect our law-abiding customers from unfair competition, we will provide local NMFS regulators with lists of registered users from our sales database in order to diminish the impact of cheating within the market. This could be presented as a service to our customers, removing the burden of proof from them and helping the licensing process to run smoothly. We will also promote the importance of lower net damage and loss rates along with higher catch yields for undamaged nets as a significant economic benefit of using Whale Awayä.
Self-manufacture by fisherman is another competitive threat. However, it is not viewed as very strong because the manufacturing costs associated with self-made units are in excess of the $20 unit price. Dr. Lien at one point circulated an inexpensive "do it yourself" design version. The cost of similar off-the-shelf materials purchased at retail prices is greater than $24, plus the unit was much less effective, less durable and considerably more bulky than our product.
The only similar product we have found in the market is an acoustic alarm sold to frighten seals away from fishing nets in the Pacific Northwest. This device has proven to be a technological failure. No other substitute products or technologies have been developed to date.
|Table of Contents||Appendices|
0. Executive Summary|
1. Product Description
2. Market Need
4. Future Opportunities
7. Financial Overview
Advertising & Promotion
Market Size & Profits
|©1993 Independence Marine|