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Application Tech – Marketing Analysis
Application Technologies’ prime market is the packaging industry. When considering the packaging industry it is most important to understand the nature of the market. Packaging is a major point of differentiation in most consumable goods, where competition is intense, prices are already low, and packaging can provide a tremendous marketing advantage at the point of sale. Packaging is also a major cost component in the majority of consumable products. For example, 48 cents out of every dollar (48%) of Coke’s product cost is from packaging.
Target Markets and Competition
The US packaging industry is an $86 billion market. Of this, $51 billion lies in the areas of primary containers and flexible packaging; the containers and wrappers that give immediate protection to the packaged product. We are targeting the unit dose applications segment, which is one of the fastest growing segments in packaging sector, according to Brand Packaging Magazine.
We face direct competition from companies that utilize unit-dose, stable packaging. Our main competitor here is R. P. Scherer. R. P. Scherer is the worldwide leader in unit-dose encapsulation technology, with sales of approximately $700 million. R.P. Scherer is present in both the pharmaceutical and cosmetics industries and has been pursuing innovative technologies. However, their technology does not address built in application at all, and is merely a unit dose package.
During the initial three years of our strategy our primary focus will be on the topical applications described below.
Tier 1: Licensing
Pharmaceutical Topical Drugs
Topical drugs account for $2.1 billion in sales. Competitors in this market include TheraTech and Applied Pharma Research (APR). TheraTech provides innovative pharmaceutical and a core competency is topical drug delivery technologies. They have launched products with both SmithKline Beecham and Proctor and Gamble. 1997 saw $15.5 million in sales for TheraTech. APR also specializes in topical drug delivery systems, several of which are patented.
Burn and Wound Treatments
2 million people are treated for bums in the US and Canada each year, making this a large category for the Appli-K pouch. Other players on the market include CarePro Inc., Brennen and Integra Lifesciences Corporation. Integra manufactures and markets burn and wound treatments and has annual revenues of $15 million. CarePro specializes in sterile wound and burn dressings with treatment that are rolled-out and then applied. Brennen has a FDA-approved bum dressing with treatment.
Alcohol Swab (Tier 2) and Surgical Cleanser Industry (Tier 1)
For alcohol swabs and surgical cleansers, the end-user will be the hospitals and medical service providers. Alcohol swabs alone is an enormous market when you consider how frequently they are used for giving injections and similar applications. Precise figures were not available for market size in this category, but we believe the market speaks for itself.
Tier 2: Private Label
There are many players on this market, however none of them offer an applicator. Skin care companies with a line of products have exfoliating scrubs to complement their lines. These companies include giants such as Clinique, and Mary Kay (sales of $2 billion).
Tier 3:Stategic Marketing Partnerships
Over-the-Counter Acne Treatment Market
The Appli-K pouch is a very appropriate packaging technology for acne treatments due to its ability to create optimal efficacy by keeping ingredients sterile, allowing a catalytic effect by not exposing ingredients to oxygen before opening and the potential for dual chambers so that ingredients can be mixed upon application. Over-the-Counter Acne treatments account for $380 million in sales annually. The major player on the market is Clearasil with $80 million in sales.
We conducted primary extensive research, encompassing focus groups, expert interviews and email surveys. Consumer need was clearly validated.
Two consumer focus groups were conducted to validate the Appli-K Pouch concept. The product concept was understandable to all participants. There were no concerns that did not disappear once the product concept had been explained, although consumer education will be required. Placing instructions on the pouch can do this. Instructions were developed and tested positively in the groups. Infomercials are another effective method of consumer education. Consumer need and want was validated based on the sterile and convenient application, all in one, of the pouch.
The above diagram represents a quasi-quantitative, SPOT (not SWOT) analysis that analyses product attributes. This tool is especially beneficial to examine new product introductions. The SPOT analysis is based on ratings gathered from respondents. Respondents were asked to:
- Rate the expected performance of the Appli-K Pouch on key attributes (based on prototypes available in the groups).
- Rate the importance of those attributes to them personally.
Results were then mapped as a quadrant analysis of importance/performance:
- S = Strengths (low importance, high performance)
- W = Weaknesses (low importance, low performance)
- 0 = Opportunities (high importance, high performance)
- T = Threats (high importance, low performance).
The areas of the quadrant that are most critical are the yellow and red. Opportunities (yellow) are areas that should be concentrated on in the marketing message because they perform highly and they are important to the consumer. Threats (red) are areas that need further R&D because they are of high importance to the consumer but they are not performing highly.
The above SWOT from the focus group illustrates that there are no perceived threats. The product is not under performing on features that are of high performance to the end-user.
The largest opportunities to highlight are that the pouch is sterile, needs only one-step usage and it is convenient.
Ten expert interviews were conducted with pharmacists, a skin care product developer, an industrial designer and nurses. All experts gave positive reactions to the pouch. It was stated that it was a “good idea” and a “good product”. There were no questions regarding the product concept. All experts felt that it was understandable and “pretty simple”.
Experts immediately related the Appli-K pouch to certain applications based on its sterile nature, ease of application and stability benefits. Experts felt that the pouch would be best suited to topical medications (both consumer and surgical), skin care applications, wound dressings, alcohol swabs, burn treatments, dental applications, and all applications where hands should not touch ingredients.
For experts the most appealing aspects of the pouch were accurate unit-dose applications (identified unaided by all experts), sterile applications, better ingredient efficacy and convenient one-step usage.
One product design improvement was made based on an expert’s suggestion.
90 email surveys were conducted with a database of skin care product users to investigate effective marketing strategies, specifically pricing, for the Appli-K Pouch. Two important points are highlighted by this research. Firstly premium pricing is justified.
Pricing is an important component of any marketing strategy, and always more difficult in the case of a new-to-the-world technology. With nothing on the market to benchmark against, pricing tolerance at various price points was analyzed. The investigation began with high pricing and tiering down to low pricing. To do this, it was assumed that a particular brand (Clearasil) was offered at $4 and that this same brand was offered in the Appli-K pouch at differing price points. By keeping the ingredient the same, we are able to examine the premium that can be charged based on the new technology. Purchase interest at each price point was rated on a scale from 1 to 7, where 7 is “very likely” and 1 is “not at all likely”. The results are represented in the line graph below. It can be seen that at $5.50 (a 38% price premium based upon the technology) Application Technologies would be able to achieve a 20% market share, based upon serious purchase intentions with a rating of 6 or 7, which was stated as their financial goal. However, for $0.50 less there is the potential to double this market share.
This analysis shows that the consumer is prepared to pay a premium, although pricing structures will have to be developed for each category individually.
Secondly, the most important communications message identified in the research emphasizes convenience and ease of use.
Application Technologies has erected barriers to entry against the competition. The Appli-K pouch has a worldwide utility patent pending; a strategic partnership in unique product formulation; the manufacturing process is being patented and we will control tooling.
Entry barriers that are faced by Application Technologies are the need for consumer education, capital requirements for tooling and the limited window of opportunity to gain market share.
|Application Technologies Inc.|
|Table of Contents||Appendices|
|1. Executive Summary
2. Business Description
3. Management Team
4. Market Analysis
5. Marketing Strategy
6. Operations Strategy
7. Critical Risks
8. Deal Structure
|Notes on Financials
|All information herein is confidential and belongs to Application Technologies Inc.|