Business Plan: iPod, an Education Tool
Production of the software and development of the iPod technology will be done domestically as foreign labor presents too complex a series of obstacles and problems to result in a winning cost/benefit ratio. Apple has sold more than 40 million i-Pods, so the potential demographic from the iPod-lecturer software would be 100% of these users. Two separate products will be manufactured: the i-Lecture software, alone, and the i-Lecture Pod with software already installed. Obviously, production and manufacturing of these products will be concurrent as will advertising, distribution, and considerations of pricing.
Software, once developed, can be replicated relatively cost-efficiently, whereas the manufacturing of the I-lecture Pods would bear a larger burden of production costs. Production of the I-lecture pods would be done by out-sourcing, specifically, purchasing the parts of assembly and then assembling them with company laborers. The components for I-lecture Pods may be ordered en mass and may be manufactured overseas. The fluctuation of supply and demand will dictate the number of units to be manufactured.
This is a JIT (Just in Time) production strategy which will enable the company to minimize costs of both assembly and storage of wholesale units. A JIT system will reduce set-up times, the streamlined flow of goods from production to shelf will eliminate many quality control issues and assure a higher quality of production and stock. Employees will be able to spend more time on each step of the manufacturing process and stay focused on specific goals and needs. Simplification of employee functions and duties and elimination of warehouse crowding will do a lot to improve the bottom line.
If demand drops, employees can either be channeled elsewhere or kept away from wage-earning tasks which will help cut production costs. A JIT system will also help improve relations and logistics with suppliers as there will be order made only when necessary and there will be less of risk of a supply shortage happening simultaneously with a rise in product-demand. Improved customer service, enhanced quality control, the conservation of labor and wage-expenditures, the meeting of demand and the clearing of space are among many other benefits of the JUT system.
Sales of the i-Lecture software and I-lecture Pod would be made by brick and mortar as well as online methods. Two main lines of sales are envisioned: 1). iPods users can purchase the software directly off the Internet for download or they may purchase packaged software in brick and mortar stores. 2) Students without iPods would purchase i-Lecture Pods with program already installed for an increased. In consideration of pricing for the latter package — the i-Lecture Pod with software installed, a rival product, the Blackberry, debuted at a sale price of $399.
00 and the i-Pod itself costs an average of $100. 00 – $400. 00 retail. Considerations of the JIT strategies for production an anticipated supply and demand indicate that some form of penetration pricing would not only be suitable for the i-Lecture Pod (and i-Lecture software), but almost mandatory. In summary: Product Retail Price 1) Blackberry $399. 00 2) i-Pod $100. 00-400. 00 3) i-Lecture Pod w/software $50. 00 4) i-Lecture Software $20. 00
By undercutting the prices of competitors, a greater demand will greet initial production and sales attempts. All modes of pricing are, in effect, modes of cost benefit analysis; however, pricing carries with it, not only considerations of direct financial cost/benefit but in buyer psychology and consumer attitudes as well. Defining the price of your production many ways defines the product itself. An example of how consumer psychology impacts issues of pricing is the fact that, once a “penetration” price is associated with a product it is often very difficult to sway consumers to purchase the product at a skimming or neutral price.
So, more considerations than merely those of perceived immediate profitability should be considered in pricing; there are also long-term consumer associations at play. However, the strategy for sales of the i-Lecture software will rely heavily on Internet sales and marketing, viral marketing, and Internet downloading. Since production costs associated with the software are so low, profits from the sales to I-pod owners who merely download the i-Lecture software will off-set production and storage costs of the i-Lecture Pods, which have the software already installed.
The i-Lecture products demonstrates our company’s astute gauging of market-needs and technological development, and art of the exploitation of this opportunity dictates that pricing of Eth software be very low, while pricing of the i-Lecture Pod units may be a bit higher. Another factor which will factor into consumer demand is personal disposable income and this aspect of economics is influenced by many things including: unemployment levels, interest rates, and inflation. The JIT strategy will allow the more expensive units to be manufactured only when necessary, freeing up workers and other resources to sales of the software.
Estimated revenues for the first year need not show a profit for the i-Lecture Pod units with software already installed. These units may, in fact, show very little profit due to the costs associated with manufacturing, distribution, and wholesale discounts. However, sales of the i-Lecture software are estimated to gain a considerable share of the existing i-Pod users, which as mentioned stands at over 40 million units sold.
The profitability for the i-Lecture products lies in the relative cheapness of the replication of the software once developed.because the software is already developed and easily implemented, costs associated with this product are negligible. The units which would sell (wholesale) for $20. 000 each could be expected to sell to upwards of 25% of i-Pod users in the first year, which would result in 10 million sales.
Of those 10 million sales, 50% would be redirected into marketing efforts with an eventual sloping down of sales of the -i-Lecture Pod, and a spiking of sales (or saturation of sales) at whatever peak holds for I-pod and i-Lecture Pod users combined.
Sales of the software can be anticipated to provide a very sharp increase in profits. The exploitation of the market gap with a relatively low production cost, a JIT productions strategy, online marketing and distribution, and penetration pricing form a winning formula for this product and this company which could expect to see upwards of $100 million dollars of profit in the first year by attaining only 25% of an existing market-share.