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In the Pipeline – Marketing
The market potential for Snapfix is enormous. Modern Plastics, a leading trade journal, reports that U.S. sales of PVC pipe in 1996 were in excess of 5.36 billion pounds, an increase of 10% over 1995. Furthermore, there has been an estimated 45 billion pounds of PVC pipe installed since 1980, a Substantial amount is buried underground, encasing telecommunications and electrical cables. On average 0.1% of the total installed pipe network fails and needs repair or replacement annually. This is an average of 45 million pounds per year.
Launch Market – California
According to Bob Adams, of the Pacific Bell Engineering Department, there are very few sections of California’s pipe network which have not sustained earthquake damage. For this reason, it has been selected as the geographic launch market for Snapfix. The region has an installed base of 6.2 billion pounds of PVC pipe, 700 million pounds of it installed in 1996.
Converting this enormous number of installed pounds to feet of two inch pipe indicates that 29 billion feet of pipe have been laid in California. In addition, an estimated 3.2 billion feet will be added to the network in 1997. With a failure rate of 0.1% it suggests 29 million feet of PVC pipe will need to be repaired in 1997.
Snapfix’s expected and worst case scenarios for market share are based on: test market experience in Australia and market surveying of selected U.S. telecommunications and electrical organizations. These are set out below in Table 3:
Table 3: Expected and Worst Case Scenarios for Market Share for California
Based on the above market share scenarios, the expected and worst case sales revenues of Snapfix in California are set out below in Table 4 and illustrated graphically in Figure 2.
Table 4: Sales Volume Projections for California
|Sales Volumes(thousands of ft.)||1998||1999||2000||2001||2002|
ITP’s competitive advantages lie in the identification and marketing of new products. The commercialization of Snapfix also requires access to an established manufacturing base and distribution network.
Establishing a manufacturing operation and distribution network is not cost effective for ITP. Therefore, ITP’s strategy is to merge its competitive advantages with a company that has complementary strengths in plastics manufacturing and distribution, and an existing customer base. ITP will seek an incorporated joint venture who meet the following criteria:
- be located in our launch market
- have excess manufacturing capacity
- have a distribution network covering the specified region
- be progressive and growth oriented
- be established in the industry
- be an accredited member of the National Electrical Distributors’ Association
- be compatible to managerial expectations
- satisfy due diligence investigations.
The joint venture will allow shareholders to capitalize on each other’s strengths, ensuring mutual benefit and success. Shareholders in an incorporated joint venture have the advantage of limited liability protection.
At present, the PVC pipe industry is characterized by an excess production capacity of 10%. It is also growing at a rate of 10% per annum. According to the California Manufacturer’s Register, there are 19 specialty PVC pipe manufacturers statewide and initial investigations have found that at least 10 meet the above requirements. ITP has already commenced negotiations with the preferred candidate.
ITP’s joint venture contribution will be intellectual property and distribution rights to Snapfix, $150,000 in working capital, management’s marketing expertise and customer service and support. In return, the manufacturing company provides $64,000 in working capital, the manufacture and distribution of the Snapfix line, and access to their existing customer base.
The major consumers of PVC pipe can be divided into two distinct market segments: (1) Telecommunications and power utility firms with installed pipe networks; and (2) electrical wholesalers and contractors. According to the 1996 California Guide to Wholesaler’s and Service Companies, there are 12 firms in Segment 1 and 776 companies in Segment 2. ITP has tailored its marketing strategies to address the distinct characteristics of each market.
The 12 firms in the first market are the heaviest users of PVC pipe and tend to purchase the vast majority of this product in large quantities, at infrequent intervals. A series of informal interviews was conducted with decision makers in this segment to identify their key purchasing criteria. The following are the key purchasing criteria for pipe repair systems:
- Total installed cost – firm pays labor, material cost
- Quality specifications – especially product reliability and lifespan
- Product capabilities – meet expectations and claims
- Delivery time – reliable, regular
- Post sales service – customer support, education and training
Snapfix provides the product benefits and advantages which meet these key purchasing criteria. One of Snapfix’s most significant product benefits is the total installed cost savings it provides. A second is that Snapfix is made of impact resistant PVC and sold with a lifetime replacement warranty. These specific benefits coincide with this market’s most valued product criteria. Therefore, these attributes will be highlighted when targeting this market. ITP will reach this market primarily through:
1. Creating awareness for the product by:
- advertising in trade journals such as: Modem Plastics, Plastics News and PVC Insight
- attending trade shows such as: The Western Building Show, Tube and Pipe International Expo and the Plastics USA Exhibition.
2. Direct marketing by ITP’s sales force through:
- providing demonstrations of product use and applications
- creating a private internet site for every customer to facilitate on-line ordering and customer support
3. Educational efforts targeting industry accredited trade schools, with the intention of establishing Snapfix as the repair standard.
4. Meeting the companies’ specific needs through individually negotiated:
- packaging, product sizes and quantifies
- payment terms
These companies purchase pipe in smaller quantities, at more frequent intervals. Surveys identified their most significant purchasing criteria to be:
- Product retail cost – contractor may charge for labor, but pay for materials
- Ease of installation – purchaser often effects the repair
- Warranty – provides added guarantee as to the standard of the contractor’s work
- Past performance record – desire for a proven repair solution
- Quality specifications – provides a repair which meets industry specifications
When targeting this market, Snapfix will highlight its retail cost competitiveness and its ease of use. ITP will reach this market primarily through:
1. Indirect marketing, such as:
- brochure mail outs
- listing in catalogs of the joint venture partners
- dissemination of a brochure describing Snapfix’s benefits.
2. Direct sales by the joint venture partner’s manufacturer’s representatives.
3. In store promotions:
- point of sale displays
- free samples
4. Standardized packaging of the product with basic instruction details.
5. Publicly accessible internet home page to advertise ITP’s product ranges and provide customer support.
|In the Pipeline|
|Table of Contents||Appendices|
|1. Executive Summary
2. Company & Product
4. Operational Plan
5. Financial Plan
6. Offer to Investors
|The information and ideas herein are the confidential,
proprietary, sole, and exclusive property of the company’s founders.