Marketing Strategy for a New Product

Here is the third example of developing a marketing strategy project for a new product. This is a fictional company developed by a team of MBA students in my marketing strategy course at the University of Houston C.T. Bauer College of Business.

Executive Summary

Avenir is a forward thinking and progressive technology company seeking to positively impact the lives of our customers, collaborators, and shareholders through the creation of new technology.  We were established in 2001 and are proud to employ 211 hardworking individuals at our Houston, TX headquarters.

Avenir designs, markets and licenses the K-1 battery, a new kinetic powered battery that will enhance cellular telephone battery life.  The K-1 battery will alleviate the need to constantly charge cellular phone batteries through electronic devices.  Our new battery offers a significant leap forward in the world of portable electronic power to the cellular customer. Our collaborators will see market demand that is unparalleled.  Avenir’s shareholders stand to increase their wealth many times over.  Our ultimate goal for the K-1 is to become the standard in battery technology for the smartphone user.   

The first key initiative is our revolutionary technology developed by our research and development team.  The K-1 is a product that is currently unmatched in the marketplace.  Our product will command a price point that is unheard of in the industry.  Customers will desire the revolutionary technology in their phones while our collaborators will benefit from increased sales and market share.  

The second key strategic initiative is to develop a key partnership with one the big 3 cellphone manufacturers.  We feel that a stand alone partnership will be key during our licensing negotiations to acquire the best deal possible for our shareholders.  A stand alone partnership will also be valuable to our collaborator by giving them the first mover advantage in the marketplace.  Our shareholders will appreciate the margin and value our new partnership will bring.

Third, Avenir plans to bring market awareness to the nation through our use of social media, television ads, and in-store product offers.  We will drive continued growth in the United States with these methods and look to move into the European and Asian marketplaces.

Our goal is to sell 32 million batteries within 2 years of release.  We feel that this is a realistic and attainable goal based on current smartphone sales projections.  We also plan to maintain at least a 30% profit margin throughout those two years.  Avenir will also quickly recover the research and development costs by receiving an upfront payment from our new collaborator upon their receipt of our design.

Mission

Our mission is our purpose.  It reflects our core business objectives and influences our actions.

·       Offering creative solutions to meet the challenges of the modern world

·       Driving change through innovative technology

·       Creating tools that simplify life

Vision

Our vision is our guide.  It shapes our decisions and actions and ensures we continually serve our mission.

1.       Commitment - Meet the demands of an ever-evolving world by consistently providing innovative and reliable products and services.

2.       Culture - Maintain a challenging yet rewarding workplace for our employees and foster a culture of continuous innovation.

3.       Capital - Create long-term value for our customers, employees, and investors by focusing on opportunities to expand, grow and build profits.

4.       Community - Strengthen and enrich our communities through contributions of time and money.

Situation Analysis

Company Overview

Avenir was established in Houston, Texas in 2001.  Our corporate headquarters remains in Houston and is the location from which we develop, design, manufacture, sell and distribute our products. It is also home to all of our 211 employees, including 47 research and development engineers, 33 sales and marketing professionals, 58 manufacturing specialists and 73 employees in general and administrative roles.

Since our creation in 2001, Avenir has built a reputation in the wireless communication industry as a top manufacturer of cellular phone batteries and accessories. With our company mission as our guide, we look ahead to the future of battery technology and realize there is opportunity to drive change through innovation. Avenir’s goal is revolutionize the battery through the use of kinetic energy.

Our core competency is our creativity. It allows us to develop solutions that meet the ever-evolving needs of our customers. Our strategic assets include our patented technology developed by our team of engineers, our specialized manufacturing facility, and our network of key partnerships, including some of the top cellular phone manufacturers.  

Avenir is currently a leading manufacturer of cellular phone batteries for Samsung and Nokia phones, and we offer an array of bluetooth devices, headsets and chargers.  Our newest product is a kinetically charged battery using our patented technology.  Our team of engineers has harnessed the existing technology of kinetic energy and successfully applied it to a cellular phone battery.

Product

Avenir has been granted a design patent by the United States Government for the new K-1 battery. Our Kinetic battery works by using the energy of motion. When a person moves his or her telephone it causes oscillating weights to rotate within the battery.  A magnetic charge passes over a coil causing an electrical charge. This shift allows the battery to make and store energy and ultimately to operate.  Initially we intend to use our new technology in cellular phones.  

Avenir’s revolutionary battery will allow the cellular phone user to recharge their telephone with the kinetic energy produced by the user’s movements. Thirty minutes of gentle motion will be enough to power a phone for a full day.  The K-1 will forgo the need for constant electrical charging.  We promise a 3 to 5 year life span for the K-1 battery.

In the fourth quarter of 2014 we plan to release the first generation of K-1 batteries in conjunction with Samsung Cellular Phones.  We are negotiating with Samsung to assist in the start-up costs of manufacturing and marketing the K-1 on a large scale.  In return, we will offer Samsung an exclusive 2 year contract that will allow them to be the lone provider of the K-1 product during that 2 year period.   Our second choice will be to partner with Apple if Samsung falls through. We plan to negotiate with all three major providers (Samsung, Apple, and Nokia) in order to gain leverage for the best long term deal possible.

Goals

Our overriding goal is to create value for our shareholders. We expect to generate 4 billion dollars in sales revenue within two years of the K-1 product rollout.  We have chosen Samsung as our primary partner due to their position as the worldwide leader in cellular hardware.  Avenir feels that we can create a blue ocean market that no one else can currently compete with.

We are in negotiations with Samsung agreed to put the K-1 into their existing smartphone product line in the United States.  We both agree that smartphone users will be the most receptive of all market segments to the additional cost associated with the K -1 battery.  All of our projections are based on the average of 2011 through 2013 Samsung and Apple sales numbers.   In 2013 Samsung and Apple sold over 100 million cellular phones, of which 55 million were smartphones (source Gartner Consulting Inc.).     

In year one, we expect Samsung or to purchase 50 million K-1 units for use in their cellular smart phones. In year two we expect them to purchase 212 million K-1 units at a purchase price of $50 per unit.

Samsung will expect the end cellular customer to bear the cost of the unit.  We feel that at our price point we will be competitive in the marketplace with the traditional external charger.  Within the next three to five years we expect the traditional electric charger to be dead technology.

Value Proposition

The K-1 battery offers benefits to our shareholders, collaborators, and consumers:

·       Increased Convenience. The end consumer will enjoy the use of their cellular phone without having to electronically charge it.  The consumer will be freed of the need to carry multiple electronic charging devices at all times.

·       Greater Market penetration. Samsung will have the opportunity to increase sales through the use of our technology that no other device manufacturer can offer.

·       Exponential Growth. The K-1 offers our shareholders new marketplaces that our competitors cannot currently offer competing products.

Market Overview

Customers  

Avenir’s current customer base spans the world. With cellular phone use rapidly growing across the globe, our potential customer base for new mobile technology is vast. Our existing product offerings are marketed to lower and middle-income customers seeking reliable mobile accessories at an affordable price. Our current demographic is males and females ages 15-45, who consistently adopt new technology.  We want to expand our market scope by offering a new solution to customers seeking limitless cellular phone battery life.  Business travelers, blue-collar workers, and individuals with active lifestyles are likely to benefit from extended cellular phone battery life, so we aim to capture these user segments.  Our initial launch will target smartphone users in the United States.

Competitors

As cellular phone technology advances, the need for lasting and reliable battery life has increased. The battery market can be differentiated into two segments: the rechargeable lithium-ion battery market and portable charger market.  There are battery manufacturers that continue using current technology to extend battery life while a handful of players attempt to extend battery life through the use of innovative technology.  

The rechargeable lithium ion battery is a traditional technique developed in the 1970’s. Consumers widely use lithium ion batteries for their cellular phones because the battery comes with a cellular phone device when the cellular phone is purchased. It requires consumers to charge the phone periodically for continuous use.  Although the lithium ion batteries are generally used in the cellular phone market, they have many drawbacks, such as:

·       Shortage of battery lifetime. The most unattractive and challenging factor of the cellular phone is limited battery life. When the battery is fully charged, the battery lasts for about 6 -10 hours, depending on the usage of the cellular phone.

·       Needs to recharge frequently. After a certain time, the cellular phone needs to be recharged and the consumers have to look for a wall socket. When you are traveling or away from home, it all leads to a mad scramble to bring along the right mix of cables, plugs and adapters so that the devices never run out of power.  

·       Long recharging time. To complete the charge, it normally takes about 2 – 6 hours to fully charge the cellular phone.

As a result, many inventors developed portable battery chargers that can assist in charging the battery.  Duracell Powermat, Mophie JuicePack, myFC Power Trekk and Nokero are all examples. Duracell Powermat and Mophie JuicePack are portable lithium ion battery chargers that still require charging the cellular device to keep the battery life longer. On the other hand, myFC Power Trekk and Nokero use different energy sources, such as, fuel cellular and solar energy. They are free from charging via the wall socket but consumers need to carry the devices and look for water or solar energy to charge the battery. All in all, these are short-term solutions to a lack of the battery life. Consumers still have to carry the portable chargers and energy sources to extend the battery life.  

Creative inventors are trying to develop batteries or portable battery chargers that last longer or forever with different energy sources and technologies. There is a portable charger with different energy sources but not with a new energy battery. However, finding the battery that never dies is the key factor for most cellular phone users. Our potential disruptor will be the company that brings a new battery with much longer lifetime at a lower price segment.   

Collaborators

At Avenir we plan to collaborate with hardware manufacturers like Samsung, Apple and Nokia, who are leaders of innovation and technology. We believe that this will help us bring to the world an innovative product while offering world class service. The collaborations will take place bearing in mind the current energy crisis and the motto to bring everyone closer.

Samsung, a manufacturing leader in cellular phones, has provided the most lucrative offer so far. This provides Avenir an opportunity to deliver the benefits of advanced kinetic technology to the world.  We are in negotiations with Samsung to help us set up manufacturing units, which will help us meet the global demand for our product in the market. In turn, Samsung will be able to utilize the design of kinetic battery developed by Avenir, with a contract signed between the two companies. At the end of the contract Avenir will decide whether to continue the exclusive service with Samsung or to collaborate with other leading cellular phone manufacturers such as Apple Inc. and Nokia to expand our business.

Avenir has also looking at potential collaborations with major network providers in the United States that include: AT&T, T-Mobile, Sprint and Verizon Wireless. Their retail locations serve as the major centers from where cellular phones are purchased by end users. Network providers also act as physical centers that would assist users facing technical issues. Similarly, Avenir could potentially collaborate with leading retail stores, which includes Walmart, Target and Best Buy.  These collaborations will help enhance growth and stimulate expansion of business helping us attain the targeted results.

SWOT ANALYSIS

Strengths

1.     Avenir has the first mover advantage in the market by introducing cellular batteries that can be recharged with kinetic energy.

2.     Monopolistic advantages can be optimized utilizing the Patent Rights sought for a period of 14 years for the design of kinetic battery developed.

3.     Anytime-Anywhere feature of the battery will attract businessmen, tourists and several millions of others who work off site.

4.     The unique feature is expected to capture a potential market of 1.8 billion cellular phones sold annually.

5.     A 2 year contract that will expire in 2016, which allows our mobile phone provider the ability to use Avenir’s kinetic battery design in their cellular phones.  This relationship will generate consistent cash flow to overcome investment and expansion cost.

6.     The dual adaptability feature will attract customers.  Avenir’s K-1 batteries enable the use of kinetic energy as well as the traditional AC/DC current outlets to charge the cellular phone.

7.     Avenir’s battery is a cost effective innovation and easily accessible for users.

Weaknesses

1.      The process of Research, development, patent filing, and intellectual property protection involves a large capital expenditure investment.

2.      Because Avenir’s Kinetic batteries are first to the market, sales projections could prove difficult in the beginning.

3.      Avenir’s manufacturing plants and R&D labs reside within the United States.  Managing the supply chain to meet the demands of a world wide market will prove to be a challenging task.

4.      Chances of facing substitute competition are high due to several manufacturers wanting to innovate a battery such as ours.

5.      Our first mover advantage lifespan may be limited by future innovation.

Opportunities

1.     Kinetic technology could be applied to other electronic devices, the military and several other commercial applications.

2.     Provides opportunity to continue research to improve and create quicker and effective charging for a wide range of applications.

3.     Doc stations can be developed as artificial sources for kinetic energy when users are in meetings, placed at work desk and resting.

4.     Service centers can be expanded globally and customer relationship can be improved to maintain the reputation as a prestigious company and provide quality service.

5.     Increase investments in research and development of such high throughput technologies and grow branches globally.

6.     Knowledge base and awareness of market scenarios can be improved to retain the advantage position as a pioneer in kinetic battery technology.

Threats

1.       Unexploited markets include high competition and higher risk of losing the uniqueness of being the first to produce cellular phone chargers using kinetic energy.

2.       As Avenir processes legal contracts with Samsung for the sole use of kinetic battery technology, other leading cellular phone manufacturers have an opportunity to utilize the same approach and take advantage of a virgin market.

3.       Huge support service groups need to be created to maintain customer satisfaction.

4.       Continuous features need to be added to keep up with new innovations and technology in the market.

Marketing Mix

At Avenir, we understand the success of our marketing efforts rests on our ability to create value for our company, customers, and collaborators.  The greatest value for each of these groups is achieved when we optimize the value of our product, price, place and promotion.

Product

The ultimate end cellular phone user will hire the K-1 to extend the life of their battery to the point that electronic recharging will rarely become necessary. Our market research suggests that there is a viable market for  K-1.  Specifically, we intend to reach the smartphone user who demands the latest in technology as well as the heavy cellular phone user who does not want to be burdened by constant electronic recharging of their phone.

At Avenir we feel that the K-1 is in perfect alignment with our goals of offering creative solutions to meet the challenges of the modern world and driving change through innovative technology.  The K-1 will project the exact image that we seek.

Now that the initial research and development stage has been completed we feel that we will be able to bring this new technology to the marketplace by the end of the fiscal year.   Our release date will put us leaps and bounds ahead of our competitors as they struggle to catch up will our technology.

This new technology will make use of existing cellular phone designs.  We will license the technology to the existing cellular phone manufacturers in order to remove the overhead costs of manufacturing the devices on our own. This will also allow the large cellular phone conglomerates to take advantage of their large economies of scale.

The K-1 offers the possibility of new products and or businesses being developed.  This technology offers the possibility of advancement in other mobile devices as well as any electronic device that needs to be recharged on a regular basis.  Unfortunately the K-1 will also diminish sales of other existing product lines of chargers and batteries.

Potential disruptors exist in the form of inexpensive smartphones being provided by companies such as Freedom Pop. These inexpensive phones coupled with inexpensive service plans provide a potentially “good enough” alternative to more costly feature based devices.

Place

By offering our patented design exclusively to Samsung and allowing them to manufacture and distribute our K-1 battery with the release of their latest smartphone models, we create value for our company, our collaborators and our customers.

First, as a company, we benefit simply because we are not obligated to manufacture and distribute the battery in house.  By sourcing these activities to Samsung, we minimize the operating expenses required to expand our manufacturing and distribution sites to meet customer demand.  This also minimizes the operational impact by eliminating the need to ramp up our workforce, increase our cash requirements and fixed asset requirements and develop new operating procedures.

Second, Samsung will benefit from the increased control over the production of the K-1 battery.  They can maintain a close eye on the manufacturing activities and establish quality assurance guidelines to meet their specifications.  Also, the network providers, including AT&T, T-Mobile, Sprint and Verizon will benefit from the ease of transaction with this new product.  Instead of receiving our K-1 battery separate from the Samsung phone and installing it in-store, the network providers will receive the phone and battery in one package from Samsung.  This is more convenient and cost effective for Avenir, Samsung and the network providers.

Finally, our customers benefit from the ability to purchase the K-1 battery at any network provider location carrying Samsung phones.  For a society that values time as money, offering an easy and convenient way to purchase the battery is valuable.  

Pricing Strategy

Avenir’s marketing strategy is to engage Samsung in a sole licensing contract to manufacture and distribute the K-1 Battery for their Smartphones in the US marketplace. We will stimulate that the design and technology is not to be distributed outside of the US for the first 2 years in order to protect our intellectual property. After the first 2 year license period, we reserve the right to engage other manufacturers to distribute the K-1 for their devices.

Avenir will engage Samsung under the following pricing and royalty strategy:

·       Upfront Royalty Payment = $3.2 million which is equal to 7% of the target 30% profit based revenue.

·       On-going Royalty Payments will be based upon the following:

o   We anticipate Samsung will be able to sell the OEM K-1 Battery as a standard available for their Samsung newer Smartphones.

o   Based upon historical Samsung market shares for their Smartphones, we anticipate they will sell upwards of 45 million Smartphones in the US market, of which 35% of the consumers will purchase the newer galaxy model. This gives us a potential market of 16+ million Smartphones in the first year of sales.

o   Avenir is aggressively pursuing a 30% profit above the all in development cost, recoverable against the anticipated market, within the first year of availability. The 30% will equate to a generated profit of $10,572,044 for Avenir in the first year.

o   Based upon the anticipated market share and profit target, Avenir is requesting an on-going royalty against sales of 9.5%.

Our potential royalty rate and the expected cellular phone sales are analyzed by the variety of data and sources.

Development Cost

K-1 development cost was driven heavily by the following key elements:

·       Project Management Team (PMT) that led and executed the design (Variable Cost)

·       Prototype materials and manufacturing (Variable Cost)

·       Research & Development (R&D) Laboratory Testing  (Variable Cost)

·       Operations infrastructure and supplies (Fixed Cost)

·       Interest on the money used for development (Fixed Cost)

Phase 1 development entailed the early concept selection that looked at the mechanical and electrical engineering design and feasibility of the kinetic cellular phone battery. The variable cost expenses during this phase which lasts for six months were for initial development team, first concept manufacture and early testing in the R&D laboratory. Fixed overhead for the phase was the cost of offices and supplies.

Project Management Team (PMT) Cost

The Phase 1 Organization for the first 6 months consists of the following 9 positions:

Figure 1: Phase 1 PMT Organization

Table 1: Phase 1 PMT Cost

Job Position	Annual Salary	Benefits as %	Salary + Benefits	% Cost to Project	Employee Cost Burden
Project Management Director	$  152,000	45%	$  220,400	10%	$    11,020
Research & Development Manager	$  118,000	35%	$  159,300	25%	$    19,913
Engineering Manager	$  118,000	-	$  118,000	50%	$    29,500
Mechanical Engineer	$    86,000	-	$    86,000	100%	$    43,000
Electrical Engineer	$    86,000	-	$    86,000	100%	$    43,000
Quality Manager	$    76,000	-	$    76,000	50%	$    19,000
Lab Technician 2	$    48,000	-	$    48,000	50%	$    12,000
Manufacturing Manager	$    97,000	-	$    97,000	50%	$    24,250
Materials Specialist	$    83,000	-	$    83,000	50%	$    20,750
Phase 1 Total Cost					$ 222,433

Phase 2 of the program entailed the detailed design, full scale manufacture and R&D testing to ensure the battery met all US regulatory and safety requirements. During this time additional design and laboratory specialist were engaged as well as operations and procurement specialist.  The time period for the expenses during this phase is one year.

The Phase 2 Organization for the year consists of the following 14 positions:

Figure 2: Phase 2 PMT Organization

Table 2: Phase 2 PMT Cost

Job Position	Annual Salary	Benefits as %	Salary + Benefits	% Cost to Project	Employee Cost Burden
Project Management Director	$  152,000	45%	$  220,400	10%	$    22,040
Research & Development Manager	$  118,000	35%	$  159,300	25%	$    39,825
Engineering Manager	$  118,000	-	$  118,000	50%	$    67,850
Mechanical Engineer	$    86,000	-	$    86,000	100%	$    96,750
Electrical Engineer	$    86,000	-	$    86,000	100%	$    96,750
Mechanical Designer	$    65,000	-	$    65,000	100%	$    69,875
Electrical Designer	$    65,000	-	$    65,000	100%	$    69,875
Quality Manager	$    76,000	-	$    76,000	50%	$    43,700
Lab Technician III	$    56,000	-	$    56,000	100%	$    60,200
Lab Technician II	$    48,000	-	$    48,000	50%	$    25,800
Manufacturing Manager	$    97,000	-	$    97,000	50%	$    55,775
Operation Consultant	$    85,000	-	$    85,000	100%	$    95,625
Materials Specialist	$    83,000	-	$    83,000	50%	$    51,875
Procurement Specialist	$    83,000	-	$    83,000	50%	$    51,875
Phase 2 Total Cost					$  847,815

Phase 3 and 4 of the project will entail the technical support. The time period for the expenses during phase 3 and 4 is six month and 2 years each. Phase 4 includes retention bonus for the whole team members. 

The Phase 3 and 4 Organization consist of the following 6 positions:

Figure 3: Phase 3&4 PMT Organization

Table 3: Phase 3&4 PMT Cost

Prototype and Materials Cost

Prototype manufacturing and materials costs were accumulated based upon actual expenditures during both Phase 1 and Phase 2 of the K-1 development process.

Avenir’s prototype manufacturing and materials cost for the life of the project equated to:

·       Phase 1 / Early Concept Select $3,336,488

·       Phase 2 / Detailed Design $12,717,225

Research & Development Cost

R&D Testing costs were accumulated on a fixed monthly basis for use of an ISO certified testing laboratory. Avenir negotiated a month flat rate for the use of the lab and testing equipment of $250,000 per month. The lab technicians were accounted for in the PMT Organization.

Avenir’s R&D Laboratory Testing cost for the life of the project equated to:

·       Phase 1 / Early Concept Select $1,500,000

·       Phase 2 / Detailed Design $3,000,000

Operations Infrastructure and Supplies

The Operations Infrastructure and Supplies cost were accumulated based upon an Aviner “all-inclusive” rate for use of our existing facilities. These cost were for offices, conference rooms and supplies charged out on a per square foot basis by the number of people on the PMT. The all-inclusive rate charged to the project was $36 / sq ft with a 250 sq ft allowance per person.  

Avenir’s Operations Infrastructure and Supplies cost for the life of the project equated to:

·       Phase 1 / Early Concept Select $486,000

·       Phase 2 / Detailed Design $1,512,000

·       Phase 3 & 4 $1,620,000

We have also included accounting and legal support into the OI&S account as it was provided as part of the all in cost for the building. There was no cost accrued during phase I for accounting, legal and marketing. Phase 3 will entail contract negotiation and preliminary marketing for six months. The contract with Samsung will start from November 2014 for two years.

·       Phase 2 / Detailed Design $500,000

·       Phase 3 & 4 $711,858

Figure 4: Phase 3&4 Marketing Team Organization

               Table 4: Phase 3&4 Marketing Cost

Cost of Investment Money

Avenir funded the development of the K-1 through private investors by guaranteeing investors an annual Rate of Return of 10% on their investment. At the time we approached investors, we anticipated the all in cost for the K-1 development to take $35 million dollars. The loan was set up for 5 years at which time all principal and interest would be repaid. 

The amortized interested based upon the 10% annualized rate, compounded monthly over the 5 years of development and sales, yielded a cost of money investment of $9,618,793.60. This, in addition to the base money invested of $35 million leaves a total cost of investment of $44, 618,793.60 to be paid back to the investors at the end of the 5 year.

Table 5: Amortized Cost of Mone

                

Capital and Profit Recovery

Analysis for Royalty Rates ranging from 3% – 10%, over the full scale of the Samsung Smartphone market in the US were run to develop curves for both base investment cost recover as well as the 30% profit on investment. See the following analysis charts.

In order to recover our base Capital investment, on the estimate the K-1 Battery would be charged at the wholesale price of $30 and we would see 35% of the future market share for the newer Samsung Smartphones, we would need to accomplish a Royalty Rate of 7.5%. To achieve our goal of the 30% profit on investment in the first year based on the 16MM unit sales, we will need to get an on-going Royalty Rate of 9.5%. If Samsung doesn’t agree with our initial propose, we are prepared to negotiate our cost recovery and 30% profit over two years, which reduce our on-going royalty rate down to 5.0%.

Figure 5: Royalty Rate vs. Market Share Cost Recovery Analysis

Figure 5: Royalty Rate vs. Market Share Profit Analysis

Minimum Guarantee

To secure 16 million Samsung smartphone sales each year, we will add the minimum guarantee clause as below. 

Expected Sales Units in the first year	Total (35% out of 45 Million Unit Sales)	16,000,000
	Quarter 1	2,000,000
	Quarter 2	4,000,000
	Quarter 3	5,000,000
	Quarter 4	5,000,000

Expected Sales Units in the second year	Total (35% out of 45 Million Unit Sales)	16,000,000
	Quarter 1	4,000,000
	Quarter 2	4,000,000
	Quarter 3	4,000,000
	Quarter 4	4,000,000

Project Overview

Promotion

Avenir possess a design patent for the K-1 batteries for a period of 14 years. Hence, optimizing opportunities for tie ups with world class cell-phone manufacturers, Avenir can reach the targeted profits easily.

First, by teaming up with manufacturers, Avenir is free from the efforts of manufacturing, marketing, delivering, servicing etc. Instead it can just charge a specific amount for the utilization of patents on yearly basis. This also saves advertisement, distribution and several other major costs for the company. Whereas for Samsung, it is beneficial to be given the freedom of setting up the manufacturing plants at their place, enabling effective cost of manufacturing, easier control of activities, effective labor management etc. As a promotion strategy we could decide subsidized premium to be paid by the collaborator for the initial first year. This offer may attract collaborators. The overall benefit will ultimately be transferred to the end-user who can buy the battery for the lowest price which otherwise no small firm will be able to provide due to the advantages of economies of scale that the large companies possess.

Second, large manufacturers like Samsung already have their own plants established for manufacturing of several parts. Hence, establishing a new plant may not be a difficult task for them or sometimes it may not be required due to similar machines utilized to produce the battery and cell-phone. This type of collaboration gives the company freedom to decide on the strategy of manufacturing to utilize their resources in the most optimum way. The advantages of place also reduce the cost of transportation and distribution. The rights for manufacturing by itself is a major promotion strategy due to the freedom to formulate own strategy to derive economies of scale for the product.

Third, Avenir has taken extra efforts to ensure to get the world-class engineers and researchers to design the product. The high quality and the efficiency of the battery itself will act as the promotional strategy. The product is self-impressive and is capable of impressing the collaborators and the end-users easily. For initial promotion, Avenir might decide to provide with sample battery and accept feedback on the same. This initial promotion is sufficient to capture the collaborators.

Finally, other promotion strategies can also be used such as advertising, testing etc. however the product is capable of capturing the market with minimal promotion. As this battery is going to be used along with a major gadget, the promotion cost is minimized and is taken care of by the collaborator. The major collaborator can show this as their first mover advantage and make profits.

Tactics

Avenir possesses the patent for the design of K-1 batteries for a period of 14 years. We plan to collaborate with Samsung to manufacture the batteries and provide them the license to use design of patent. The license will enable Samsung to manufacture the K-1 batteries for a wide range of cell phones launched in the United States. In order to attract the collaborators, we have planned promoting our product through social media channels such as newspapers and online media. This will help attract attention of several end users by stimulating popularity of the product among the targeted age group customers.

There are several techniques that can be used to propagate the product. However, we have chosen selected channels to do the same. The first technique agreed upon has been to apply the concept of “Product Giveaways”. We have planned to supply sample batteries to the Samsung to completely analyze and understand the mechanism. This gives Samsung an opportunity to modify any specification that would best suite their cell phones. This will not only give the clients flexibility in choosing the right product but also pose a genuine feeling to the clients regarding the company and the product.

The second approach in pipeline has been the “point of sale promotion and end-cap marketing” which is supply of batteries at the network providers across the nation who can firstly physically see and feel the usage of the product. This strategy is sure to convince the end users by providing them an opportunity to use the product at the store. The retail stores will be ready for such tie ups because of cross selling opportunities and increasing revenue. Such promotion tactics will be responsible to increase traffic in the stores benefitting the stores largely. This will also help increase the confidence in the minds of collaborators by viewing the response of the introduction of the battery among the consumers.

Final approach under discussion is tying up with several major organizations where-in this battery can be provided as an additional facility to the key employees frequently travelling abroad on projects etc. There are high chances that once the employee uses the battery, he might recommend the other employees to buy the same for their use by educating him/her about the benefits of the same. Here, customer referral or incentive scheme can be implemented where in employees referred by another employee can claim a reasonable discount. This will surely induce many employees to purchase as it is very easy for the product to be sold when the assurance comes from friends and colleagues. It will help in capturing the entire organization ultimately resulting in huge profits.

Additional tactics used to support our strategy include:

• Charging a premium price as compared to the current battery market, but remaining conscious of the pricing structure for mobile chargers as this is our direct competition.
• Licensing our patented design to large cellular phone manufacturers to produce the product.  This allows manufacturers to take advantage of their economies of scale and removes the operating expenses from Avenir’s books.
• Allowing cellular phone manufacturers to produce the product, thereby relinquishing our need to service the product in the future.
• Within our agreement with Samsung, requesting that our logo appear on all product and marketing materials.

Negotiation

We, at Avenir, have decided to license the design for the K-1 batteries to one of the world leaders in cell phone manufacturers. This one collaborator could be either Apple, Nokia or Samsung. However, we have received the most lucrative offer from Samsung. As we have completed Phase II and with the patent under possession for the K-1 battery design, we are looking at signing a 2-year contract with Samsung shortly. This will give us the opportunity to collaborate with the best offer extended by any manufacturer every two years. This gives Avenir the advantage to decide and the power to negotiate.

In this contract, we solicit:

1.     3.2 million US Dollar upfront.

2.     Pay a royalty of 9.5% per year.

3.     Incorporate Avenir’s logo on every cell phone box, on the batteries and every commercial or advertisement broadcasted during the contract period.

4.     Most importantly, Samsung will not bring to the market a battery or any product, which operates using the same or similar technology for a period of 5 years after the contract period.

In return, Avenir will offer Samsung:

1.     The design for the K-1 battery for the contract period.

2.     The benefit of being the sole cell phone manufacturer to possess this design during the contract period. This design will not be provided to Apple, Samsung or any other manufacture during the contract period of 2 years.

3.     Initial marketing assistance by utilized marketing expertise possessed by Avenir before the Samsung phones powered by K-1 batteries venture into the market

4.     An expert team for assistance and quality assurance during the initial manufacturing period.

5.     An active service team after the product has been launched in the market to resolve any technical issues pertaining to the product.

Initial Marketing Campaigns

Once Avenir finalizes negotiations with Samsung, we will begin our social media marketing campaign.  Prior to the release of the K-1 battery, we will coordinate with Samsung to create a social media communications plan focused on the product benefits.  This is a cost effective way to reach a broad audience and in particular build product interest with our younger customer base.  

Additionally, we will leverage our existing relationships with network service providers to reach customers seeking a more hands on experience.  Avenir has selected 10 major cities throughout the US, including New York, Los Angelos, Chicago, Houston, San Francisco, Boston, Seattle, Atlanta, Philadelphia, and Kansas City where we will release our K-1 prototypes at network provider locations.  We will coordinate with each of the major service providers, including AT&T, Verizon, Sprint and T-Mobile to offer a prototype of our K-1 battery in 4 of their stores within each of the 10 listed cities.  This equates to 160 stores throughout the United States.  Our goal is to allow customers to experience the benefits of K-1 before purchasing their next phone.  Much like the process of playing with the model of a new cell phone, customers will have the opportunity to touch, feel, and experience K-1 before they commit to the purchase. To ensure network providers are properly promoting the K-1 prototypes, we will offer a series of webinar trainings.  Before we agree to offer our prototype to a particular network provider location, we will require that the store attend our webinar series.

Overall, we are hoping that through social media and the release of the K-1 prototypes within major metropolitan areas, we will generate interest in the product to assist in a successful product launch and high returns.