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J.H. Reid Corporation
Marketing Plan

PRODUCTS

In the November/December 1997 issue of Upholstery Design and Manufacturing, Michael Chazin the editor wrote, "While consumers buy large-screen TVs, extra speakers, and assemble their own home theaters, upholstery makers have sat on the sideline unable to sell seating to make that home theater truly comfortable." It is not too surprising that upholstery makers are sifting on the sideline, given that the industry standard (the reclining chair) was invented in the age of radio. The La-Z-Boy was invented in 1928. These chairs are very comfortable -- for leaning back and looking at the ceiling. There have been many lifestyle changes since 1928 -- padded wall-to-wall carpeting, rec rooms, casualness at home and work, adults who exercise regularly, and an interest in ergonomics. While traditional upholstery makers are -sitting on the sideline, JHR is introducing a revolutionary new product that meets this growing market demand.

The Chicago Lounge™ is "The best chair for watching television the best way". The basis for this claim is the clear line of sight advantage for watching television as compared to traditional reclining chairs (See Attachment 5). Other substantial advantages to The Chicago Lounge™ include ergonomic features, the design, compactness, and its suitability for people who want to relax on a lounge chair while working on a laptop computer.

Why sit on the floor?

There are numerous reasons to sit on the floor. Some people spend thousands of dollars on furniture, and then sit on the floor. This may be subjective, but for many people there is a certain intimacy about sitting on the floor.

Another benefit of The Chicago Lounge™ is that it is child friendly. Parents sitting on the floor are at eye level with small children, and can conveniently tend to many needs such as helping the children get dressed. Children like to sit on The Chicago Lounge™, possibly because many like sitting on the floor anyway. At an art fair, children would literally run to sit in The Chicago Lounge™.

The chair has a number of other important features including being very compact, which makes it convenient and economical to ship. The adjustable chairs ship in a box that is about 24" x 34" x 12", which can be shipped by UPS. The fixed model ships assembled in a plastic bag. The compact shipping form makes it attractive for retail stores to stock the product, and for the consumers to carry the chair home from the store. When in use, the chair is relatively compact when compared to typical chaise lounges and the like, and the adjustable models can be folded up for storage.

The design of the chair is distinctive, but people who see it immediately understand what it is.

There will be three initial models offered - two adjustable ("Prairie" - shown in photos - and "Everest") for $429 retail and a fixed position model ("Metro") for $349 retail. These models have wooden frames; polyurethane foam cushions; and are upholstered with a quality fabric. The frames are made of fine hardwoods such as oak, birch or cherry, and will be constructed in a quality manner using mortise and tenon construction (which is considered superior to doweled joints). The polyurethane foam is a very high quality high-density foam for longer life, and will have a patented lumbar support inside. Standard upholstery fabrics will be of a Monsanto Wear Dated fiber with Scotch Guard- Protection. The stains and fabric choices have been made to enable the chair to fit into a number of decorator schemes, but JHR will look to retailers and interior designers to suggest alternative choices.

JHR will offer additional models of The Chicago Lounge™ as the sales volume and channels of distribution increase. In the second year "VISTA" and "Internasionale" will be introduced. VISTA is a folding model that has only about half the frame components of the Prairie model. Internasionale has armrests and a frame made of glue laminated wood. Other models made with a tubular steel frame or with a foam foundation instead of a frame will be introduced in the future. In addition to The Chicago Lounge™, JHR will market products that are suited for use with The Chicago Lounge™ such as a table that makes it convenient to relax while working on a laptop computer. JHR will contract with a case goods woodworking shop to make the table and then market the table with the chairs. People have indicated that the ability to work on a laptop computer is a definite plus for The Chicago Lounge™.

For simplicity of manufacturing, the upholstery system has been designed to be interchangeable on all models of The Chicago Lounge™ with wooden frames. For example, a set of upholstery components would fit on Everest, Prairie, Internasionale, Metro, or Vista models. The interchangeability of the upholstery sets gives JHR the ability to minimize the upholstery component inventory, increase customer fabric choices, and minimize changeovers in production.

Market Definition

The primary target market for The Chicago Lounge™ will be healthy and active young adults ranging in age from about 18 to 45. According to 1998 estimates based on US census data, there are about 111 million people in the United States within this target market. Within this target market, there are five market segments, which are not always distinct. The first segment to which the product will be marketed to are people who are generally upscale and have an appreciation for ergonomics and design. A second segment is high school and college age people who just want a cool chair for the floor. Probably the largest segment will be families who would want these chairs in rec rooms or dens for watching TV. Another segment is people who just like sitting on the floor, and may be older than 45. According to HFN3 , the groups buying the most furniture in 1998 (ranked by purchasing, in percent) were as follows: 1. Parents, young, 63%; 2. Singles, young, 62%; 3. Parents, middle-aged, 4. 55%, Singles, middle-aged, 48%. The target market for The Chicago Lounge™ is not only the most appropriate for the product, it is also the most lucrative. In addition to the defined markets outlined above, the promotion of The Chicago Lounge™ as "The best chair for watching TV the best way." is expected to broaden the appeal for the chair beyond the primary defined target markets.

Marketing Strategy

JHR will first market the chair through upscale stores such as Room & Board, Dania, Crate & Barrel, Pottery Barn, Relax the Back Stores, Ethan Allen, and the like. Room & Board is a Minneapolis based company that sells high-end contemporary furniture (See A-6). Room & Board has seven stores, three in Minnesota, one in Denver, and three in Chicago, including one on Michigan Avenue in downtown Chicago. Room & Board has annual sales of about $60 million, with the Michigan Avenue store having about $12 million in annual sales. Room & Board has been selected because its stores attract customers who are interested in quality contemporary furniture; the company states in its sales literature that it deals with small furniture manufacturers; and the quality image of the company can enhance the image of The Chicago Lounge™. Though many people like sifting on the floor, especially for watching television, virtually all the "chairs" for sitting on the floor are cheap -like "back jacks", video rockers, and bean bags. For this reason, JHR has made it a priority to market the chair in upscale stores in the beginning to insure that the chair is perceived as a serious piece of furniture. Relax the Back StoreTM is a franchiser headquartered in El Segundo California with about 120 outlets. Relax the Back StoreTM caters to consumers interested in ergonomic features, and carries a number of fairly upscale reclining chairs. According to Business Wire, May 29, 1998, Relax the Back was expected to have sales in excess of $75 million in 1998, and is adding about two new stores a month. The franchisee of the Chicago franchise was very positive about The Chicago Lounge™, using words like "cool" and "awesome". After selling through upscale stores, any stores in which the chair can profitably be sold would be considered.

There are substantial opportunities to promote the chair using free or inexpensive public relations type advertising. The distinctive look of the chair makes it a likely candidate to be featured in magazines. Attempts will be made to have the product shown in publications such as the take Note: The Goods pages of Metropolitan Home and the Form & Function column of the Wall Street Journal which has featured interesting chairs in the past. Publications which feature the chairs will be given the e-mail address: jhreid.com so that interested consumers can learn more about the chair and easily find a retailer near them that carries the chair. For customers in areas with no retailer, internet sales will be made for the retail price to insure that retailers will be undersold. The chair will also be entered in various contests such as the Pinnacle Awards, for new furniture designs. Any success in these contests will be promoted to get further publicity. Also, various high profile people will be sent a chair to get further exposure. One television anchor in Chicago is specifically known to sit on the floor, and he would receive one. It is hoped that retailers will advertise the chair in their advertising literature to give it give it exposure. Room & Board runs numerous ads featuring some of its more unusual furniture, and it is hoped that they would feature The Chicago Lounge™.

In the first year, $12,000 has been designated for marketing expenses to cover the costs of getting national coverage through the media. Some of the money will be designated toward getting home entertainment theater manufacturers to use the chair in their ads. Firms that are willing, can get custom-made chairs to use in their ads. Attempts will be made to accommodate any set designers who may wish the chairs for movies or television shows. Also, efforts will be made to accommodate interior designers having special requests for chairs, such as special coverings, woods, etc. JHR will not attempt to do specialized work in-house, but will deal with limited production specialty furniture makers to assist interior designers in getting what they need. While this will not be profitable in the short run, it is a necessary step to get acceptance in the design community, and is expected to open doors to further publicity.

For the first years Mr. Albecker and contract sales representatives will handle sales to retailers. Mr. Albecker has been successful in selling in the past, most notably in working with Everest Construction Co. where he did all the sales.

Actual sales in stores will be promoted by product literature hanging on chairs, and special events where Mr. Albecker as the designer will be at the stores during busy periods promoting the chairs. The arrangement of chairs in front of a large screen television will be encouraged, so that people can immediately appreciate the value of the chairs.

Market Response

People who have seen the chair at the Navy Pier Arts & Crafts Show, as well as on other occasions, have almost universally commented on how comfortable the chair looks. Then, a very large percentage said almost verbatim, "...but you'd never get me out of it." The meaning of this was two fold -- that the chair was so comfortable they would never want to get out, and also that getting out of the chair would be so hard that they wouldn't want to get into it. The second meaning of the comment was especially expressed by older people, or people who did not appear very physically fit. About 6% of the people who saw the chair expressed some genuine interest in the chair. Of this group, most were people who like to sit on the floor, or were at least open to the idea. For some, the response was almost like a left handed person finding a rare tool made for lefties. They would tell of how they always liked to sit on the floor. Others were intrigued by the striking design and concept, and had an openness to try it.

Of the people who purchased the chair, one was an oral surgeon with two teenage sons who love to sit on the floor. The kids tried it, said they wanted it, and the father negotiated a quantity discount to buy two of the chairs. Another customer was a teacher about 43 years old, who just wanted it for himself. He saw it once, came back and tried it, then he came back and bought. A psychologist seriously considered purchasing the chair for his practice. Apparently he saw it as a way for people to sit while talking about their lives. He did not purchase one, but commented that the price certainly was not unreasonable. Others echoed his sentiment at the $250 price. A man who had some dealings with the art community who was about 55 years old bought one. Two other people ordered chairs and put down a $20 deposit, but then did not take delivery. In at least one case it was clear that not taking credit cards was the cause of not being able to conclude the deal.

Market Size

The American Furniture Manufacturers Association predicted upholstered furniture sales to reach $10.31 Billion in 19994 . According to Michael Chazin (Editor of Upholstery Design & Manufacturing) in a November 1998 phone conversation with Mr. Albecker, motion furniture accounts for approximately half of this total. Motion furniture, which includes recliners and couches generally used for watching TV is probably the category The Chicago Lounge™ best fits in. A 1993 Industry Analysis by Gale Research Inc5 . estimated the recliner market to be 17.09% of the total upholstered furniture market. JHR's estimated market share based on projected fifth year sales is .32% of the motion furniture market, or .16% of the total upholstered furniture market.

The actual sales of The Chicago Lounge™ during the 1996 market test at the Navy Pier County Fair Arts and Crafts Show could be an indicator of the market size. Approximately 40,000 people viewed the Arts and Crafts area, and four sales were made. Though the 40,000 people were not part of a scientifically chosen sample, they were generally representative of a fairly wide cross section of ages and incomes, and for the rough estimating purposes used here, the sample characteristics seem satisfactory. Using this information, to project US sales (4 sales/40,000 people x US population of about 271 million people) one might expect about 27,000 US sales at approximately $200 each, for total factory level sales of $5.4 million. This figure might be considered very conservative for the following reasons:

  1. Most people at the show were not there to consider furniture.
  2. People had never seen the product before.
  3. Chairs were not available for immediate pick-up. People were required to make a deposit and wait 8 weeks for delivery.
  4. Credit cards were not accepted.
  5. The event was very unprofitable for most of the artists showing their work.

Sales Plan & Projections

First Year

We are projecting first year sales of 5,000 units with an average wholesale price of $204, for total factory sales of $1,020,000. The average retail price would be $408, resulting in retail sales of about $2 million. These projections are based on sales through stores like Room & Board and Relax the Back Stores.

A number of incentives will be offered to a store like Room & Board to make them favorably inclined to both carry The Chicago Lounge™, as well as to seriously promote it. One incentive would be the possibility of having an exclusive on certain models in their markets for a certain period of time. Third, JHR will do joint promotions with Room & Board, including having Mr. Albecker as designer of The Chicago Lounge™ attend promotional events, and sell signed and numbered limited first editions of each model as they are introduced. Stores have not been formally approached to assess their interest in such an arrangement is because there have been many changes to the chairs since the limited production run following the arts & crafts show. Finished prototypes are being developed to reflect the changes. JHR will soon be fully prepared to make a strong first impression on the selected buyers.

The Contemporary Furniture Show in Fall of 1999 will be considered to give the product exposure to the interior design community.

Second Year

Second year sales are projected at 12,000 units at an average wholesale price of $174, for total sales of $2.1 million. The average price will decrease for a few reasons. A less expensive model, "Vista" will be introduced to sell for less than $220 retail. Vista has already been developed, and the frame has only half of the components of the Prairie or Everest models. Also, as the volume grows, economies of scale will be achieved and there will be learning that comes with the production experience, enabling JHR to manufacture chairs for less money. To achieve the projected sales, additional outlets such as high quality department stores which carry furniture such as Marshal Field's, Carson Pirie Scott & Co., and their equivalents around the country, Eddie Bauer Home stores, etc. will be approached.

During the second year, The Chicago Lounge™ will be shown at Decorex, the international interior design show that is part of the Neocon show in Chicago. This is an opportunity to expose thousands of interior designers to the chair.

Third Year

In the third year, sales are projected to be 30,000 units at an average wholesale price of $150, for total sales of $4.5 million. In the third year, a new model "internasionale" will be introduced. Internasionale is made of glue laminated wood, has armrests, and has an "international" look. The international style is identified with architects such as Mies Van Der Rohe, and is known for simplicity and clean lines. Additional outlets for the chairs that will be sought in year three include the middle market furniture outlets including J. C. Penney, Sears Homelife Stores (or whatever they are called after the recent takeover and restructuring), John M. Smyth's Homemakers, and the national equivalents.

In the spring of 2,000, JHR will show the chairs at the International Home Furnishings Show in High Point, North Carolina. This is the largest furniture show in the US, and will expose the chairs to the vast majority of furniture buyers in America, and many from around the world. There are a number of high traff ic areas in High Point which can be rented for the show.

Also in the third year, television/consumer electronics stores will be targeted. Although a non-traditional marketing channel for furniture, this product is ideal for watching television, and it is ships in a box similar to the boxes of the products already in these stores.

Fourth Year

Fourth year sales are projected to be 60,000 units at an average wholesale price of $144 per unit, for total sales of $8.6 million. The same distribution channels will be used, but with a market penetration strategy to build on the established base.

Fifth Year

Fifth year sales are projected to be 120,000 units at an average wholesale price of $138 per unit, for total sales of $16.6 million. A goal of deeper market penetration will be achieved.

Marketing Philosophy

While there is merit in carefully analyzing markets and developing products that most closely appeal to those markets, JHR chooses to temper that approach with the philosophy of the furniture company Herman Miller, the world's second largest furniture manufacturer. George Nelson, one of its early designers described Herman Millers attitude: "The attitude that governs Herman Miller's behavior, as far as I can make out, is compounded of the following set of principles:"

"What you make is important. Herman Miller, like all other companies, is governed by the rules of the American economy, but I have yet to see quality of construction or finish skimped to meet a popular price bracket, or for any other reason."

"Design is an integral part of the business. The designer's decisions are as important as those of the sales or production departments. If the design is changed, it is with the designer's participation and approval. There is no pressure on him to modify to meet the market."

"You decide what you will make. Herman Miller has never done any market research or any pretesting of its products to determine what the market 'will accept'. If designer and management like a solution to a particular furniture problem, it is put into production. There is no attempt to conform to the so-called norms of 'public taste', nor any special faith in the methods used to evaluate the 'buying public'."

"There is a market for good design. The assumption has been more than confirmed, but it took a great deal of courage to make it and stick to it."6

This is not to say that JHR is not sensitive to the market, or that serious analysis has not been done, but we believe we have a winner and that the "level of analysis should reflect the tradeoffs between time to market and completeness.7

Competition and Other Influences

Current Competitors

Since The Chicago Lounge™ is different from products currently on the market, there are only indirect current competitors. Though there are no direct competitors, there are a number of products that people can purchase instead of The Chicago Lounge™. Accordingly, probably the largest indirect current competitors include La-Z-Boy, Lane (A division of Furniture Brands International), and other companies that make reclining chairs. Reclining chairs are considered to be the primary indirect competitor because there are similarities in use, cost, and in some cases the upholstery fabric. The next major indirect competitors would be manufacturers of easy chairs with ottomans. Other competitors would include manufacturers of bean chairs, video rockers, "back jacks", and other products that enable people to sit close to the floor. These items cost substantially less than The Chicago Lounge™.

It is recognized that many people in the targeted market segments will not be convinced to switch to The Chicago Lounge™. Many people will feel that The Chicago Lounge™ just does not fit in with their other furniture or that they simply don't want to sit on the floor. The response to the chairs displayed at the Navy Pier Art Fair confirms that there is a niche market of people who like to sit on the floor, or are willing to try it. These people are likely to consider purchasing the product for the unique benefits it provides. An example that supports this premise is the success of the video rocker or bean chairs.

3 HFN (Home Furnishing News), April 27,1998 p. 6
4 Upholstery News, Upholstery Design & Manufacturing, February 1999, p. 6
5 Manufacturing USA, A Wards Business Directory, Arsen J. Darnay, Editor, p. 555, 1993, Gale Research Inc.
6 The Design of Herman Miller, by Ralph Caplan, 1976
7 Design and Marketing of New Products, Glen L. Urban and John R. Hauser, Prentice-Hall 1993

J.H. Reid Corporation
Table of ContentsAppendices
1. Executive Summary
2. Business Overview
3. Marketing Plan
4. Risks
5. Operations Plan
6. Management
7. Financial Plan
8. Offering
Cost of Manufacturing
United States Patent
Manufacturing Process
Resume
Ads
Income Statement
Cash Flow Statement
Balance Sheet
Break Even Point
All information herein is confidential and belongs to J.H. Reid Corporation