Background and an Invitation to the "Piranha Pen"
Imagine that you have developed a new dog leash and harness called "2Chainz". The product features a unique double helix, chain-like structure made out of nylon that helps prevent dogs from pulling their owner during walks. You also recently received an invitation to present "2Chainz" on an episode of a television show called "Piranha Pen". The show gives entrepreneurs the opportunity to pitch their products to a panel of wealthy businesspeople (aka "Piranhas") in the hopes of landing an investment deal. The Piranhas are known to be savvy negotiators and are famous for asking tough questions and having high standards before making an investment. Therefore, it is critical that you be well-prepared.
In preparation for the show, you pull together the following data from a variety of sources.
Market Research Data
Segment Profiles
You obtain a market research report profiling the different segments of dog owners in the United States. The report suggests that there are approximately 40 million households in the U. S. that own dogs and they typically fall into one of four segments: (1) Working Dog, (2) Child Substitute, (3) Family Dog, and (4) Golden Years Companion. Table 1 provides a general profile of each segment as well as the estimated proportion of dog owning households that fall into each category.
Segment Name
Working Dog Child Substitute Family Dog Golden Years Companion
Motivation for having a dog For protection
Watchdog Dog serves as a replacement for a child Dog as a playmate for kids Keep active/activity partner
Avoiding loneliness
Demographics Lower income
Ages 25 to 45 High income
Ages 25 - 35 Middle income
Ages 30 - 45 High income
Ages 50 - 65
Attachment/Attention Less attached Highly attached
High level of attention to dog Medium attachment
Lower attention to dog Medium/High attachment
High level of attention to dog
Type of Dog Large dog
Lives outdoors Small dog
Dog lives indoors Medium to large dog Medium to large dog
% of Households in the U. S. Owning a Dog in this Segment 20% 25% 25% 30%
Pricing Survey
You paid a market research firm to conduct a nationally representative survey of 700 dog owners during which they were shown a 2Chainz prototype and asked how likely they would be to purchase it. Approximately 30% of those surveyed indicated that they would purchase the product from a retail store at your planned price of $40.
Dog Behavior Survey
You also discovered a national survey by a dog training organization called the American Association of Dog Whisperers. The survey suggests that pulling on a leash is one of the most commonly reported behavioral problems reported by dog owners, with about 60% of dog owners nationwide reporting that pulling on a leash is a problem they have experienced. Out of these dog owners that report leash pulling, 33% report that they have not yet to found a solution to this problem.
Internal Company Accounting Data
Rent: $25,000
Design and Prototyping: $100,000
Manager’s Salaries: $75,000
Advertising: $10,000
Production Cost: $12 per unit
Sales Price to Retailers: $19 per unit
Questions
Looking at the market segment profiles, which segment would you target? Note: Assume you only have the resources to target one of the segments for now. Explain your reasoning.
Calculate the market potential for the product in terms of units sold. To do this, you will have to make some decisions about targeting of segment(s), what numbers to use, etc. Please clearly explain your reasoning and your calculations. Note: At the end, you should have an estimated value that you believe reasonably characterizes the market potential for your product.
What are the fixed costs? Note: Fixed costs are those that remain the same regardless of how many units are produced.
What are the variable costs per unit produced? Note: Variable costs are those that depend on the number of units produced.
What is the break even quantity for the product? What is the break even revenue? Show your calculations. Assume that you will be selling the product primarily through a retailer.
Given your market potential and break even calculations, do you believe that moving forward with bringing the product to market is a good decision? Explain.
You’ve always dreamed of making your first million dollars. Calculate the number of units you need to sell to make $1,000,000 in profit.
Imagine that you’ve been offered deals by two of the Piranhas. One piranha, named Mark Dominican, offers you an investment of $100,000 in exchange for 20% ownership of your company. Another piranha, named Daymond Jim, has offered you $100,000 in exchange for a $1 royalty paid to him for each unit sold for the life of the product.
Which offer would you choose? Explain.
Did your market potential and break even calculations influence this decision? Explain why or why not.