The Target Market in the UK - Essay Example

Opportunity Analysis of New Business Venture – “A Research Report to Critically Analyse the Opportunities of Introducing a New Rainwater Harvesting Mechanism in UK”

Table of Contents

1.0 Introduction3

2.0 Business Details3

3.0 Industry and Market Analysis4

3.1 Products and Services4

3.2 Market Segmentation6

3.3 Target Market8

3.4 Industry Attractiveness Analysis using Michael Porter’s Five Forces Model8

3.5 Market Potential – SWOT Analysis11

3.6 Location and Site13

3.7 Current and Projected Demand Analysis for Rainwater Harvesting in UK13

3.8 Results Based on Questionnaire14

4.0 Technical Feasibility16

5.0 Financial Model17

6.0 Conclusion18

7.0 Reference List19

8.0 Appendices22

8.1 Questionnaire22

8.2 Financial Estimates27

• 1.0 Introduction

It is always beneficial to search, analyse and develop own business opportunities than relying on opinions suggested by management and scientists, since these may not meet the requirement of the new business venture (Lawrence, 2013). In this report, probable scope for introducing a rainwater harvesting project in different locations across UK has been discussed. The market of UK, potential threats from rivals, entry barriers, competitive advantages and expected response from its Government has been critically evaluated in the context of Porter’s Five-Forces Model. This report gives an overview of the target market in UK for this business plan. It provides a feasibility study of the project.

Earlier in UK, rainwater was stored in containers for domestic use by households and laundries for washing clothes or cleaning other materials. European countries like Germany is quite proficient in this technology and 35% of the new buildings built have a rainwater harvesting mechanism (Environment Agency, 2010a), while UK does not have such a good infrastructure in this aspect.

• 2.0 Business Details

This business plan aims to introduce a new rainwater harvesting mechanism in the markets of UK. Presently, there is immense scarcity of water all over the world. Due to this reason, rainwater harvesting is crucial for preservation and judicious utilisation of water. Rainwater is highly pure, sustainable and renewable source of water for households. This mechanism paves a way for reducing floods, diminishing water-bills and creating abundance of drinking water in households and community (SARG Water Solutions, 2013).

At present, there is significant amount of pressure on the water resources of UK. Many areas in UK like the Eastern and South-Eastern parts have less or negligible water resources. Moreover, climatic changes, rising population and rapid development of residential complexes have resulted in reduction of ground water-level and difficulties in water management (Environment Agency, 2010b). Therefore the requirement for rainwater harvesting in UK is immense. This will cater to the maintenance of ground water-level and management of water-crisis. There are some problems related to rainwater harvesting by traditional roofing, since this creates a chance for the pollutants to leach into the environment (Harvest H2O, 2016). This depicts the feasibility of the business plan as, it will facilitate rainwater harvesting without polluting the environment.

• 3.0 Industry and Market Analysis
  • 3.1 Products and Services

The products of a company which sells rainwater harvesting systems are:

• Catchments - These directly collect the rainwater and supplies the same to the whole system.
• Coarse Mesh – This prevents the debris on the roofs of the houses to enter into the tank.
• Gutters – Channels surrounding the edge of a sloping-roof which collects and serves the rainwater to the tank.
• Conduits – Pipelines or drains transporting rainwater from the catchment to the harvesting system.
• First-Flushing – Valves ensuring the release of first spell of rainwater from the storage tank since this carries pollutants from the air and catchments.
• Filters – It removes suspended pollutants from the rainwater collected.
• Storage Facility – Huge cylindrical or rectangular tank for storing the filtered rainwater.
• Recharge Structures – These are used for charging groundwater aquifers through dugwells, borewells, recharge trenches and recharge pits. (The Constructor, 2015)

Figure 1: A Typical Rainwater Harvesting Tank

(Source: Saving Water, 2016)

• • 3.2 Market Segmentation

The market for rainwater harvesting is divided into three broad segments.

• Schools, Colleges, Universities, Institutes and offices in UK may utilise this mechanism, since there are several staffs, members and students who need plenty of drinking water every day.
• Households will require this mechanism for storing water for future use, especially where there is scarcity of water.
• Hotels and Restaurants which require huge amount of water can save bills by using this facility.

Table 1: Market Segments in UK for Rainwater Harvesting Machines

Market Segments

Estimated Sale of the Equipments

Educational Institutes and Offices

11%

Households

50%

Hotels and Restaurants

39%

(Source: Author’s Creation)

Figure 2: Market Segments in UK for Rainwater Harvesting Machines

(Source: Author’s Creation)

• • 3.3 Target Market

Target Market for Rainwater Harvesting in UK is the market segments chosen, viz. households, hotels, restaurants, schools, colleges, offices and buildings. However, factories and hydro-electric power plants also require huge amount of water, still they would not be the target market for this business plan since water required by these sectors is quite high and meeting such a requirement through rainwater harvesting is difficult. These production sectors cannot reach their desired output-level with supply of filtered rainwater and thus, they would hardly invest in this project. The locations which are devoid of adequate water-supply will be the main target, such as South-Eastern and Eastern England.

• • 3.4 Industry Attractiveness Analysis using Michael Porter’s Five Forces Model

In today’s business world, simply concentrating on the customers will not be effective in increasing market-shares. There is immense need for analysing competitors and the industry in order to keep a track of the business activities of potential rivalries and plan out strategies for outnumbering those competitors. The global marketing managers are feeling the need to analyse the competitive environment in formulating strategies. Porter’s Five-Forces Model is helpful for the analysis of competitors’ power and market attractiveness (Rahmani and Tehrani, 2014).

Rural people in UK use traditional rainwater harvesting system by collecting rainwater from roof-tops, filtering them and storing them for future use. Rainwater contains chemical or microbiological constituents, although it is considered to be much pure (Anal, et al., 2015). Therefore, it should be filtered enough so that it is free from pollutants, which is not possible by traditional method. In this context, this mechanism of rainwater harvesting will be greatly accepted in UK.

Figure 3: Michael Porter’s Five Forces Model

(Source: Author’s Creation)

The various forces identified by Porter are:

• Rivalry

Since, this mechanism is not much popular in UK and only a few companies sell rainwater harvesting systems, the degree of rivalry will be comparatively low. However, this is not zero at all. Rainwater Harvesting Systems Ltd. is the oldest rainwater harvesting company in UK and has supplies a wide-range of systems (Rainwater Harvesting Systems, 2016). Companies like these are potential rivals to this business. Moreover, attaining the position of a cost-leader by delivering quality products at low cost is much tough at the initial level.

• Barriers to Entry

The initial cost of setting up a Rainwater Harvesting System is high and depends on numerous factors. The occurrence and amount of rainfall cannot be predicted beforehand. Rainwater tastes bad and despite proper filtering, it may still contain environmental pollutants (Mtshall and Vilane, 2015). These are negative factors to this business venture.

• Bargaining Power of Buyers

Bargaining power of buyers will be high because rainwater harvesting system is a new idea and the seller needs to convince the buyers. Moreover, a customer can choose not to purchase the system but still do not face any immediate harm. Rainwater does not taste good but serves multiple household requirements. Another benefit of rainwater is that it is naturally distilled, pure and pollutants-free (Olaniyan and Olaoye, 2012). This might attract customers to purchase the system. In addition, this will also help to save water-bills.

• Bargaining Power of Suppliers

Supply of raw materials and parts of the machine is a determining factor in the success of the business. The suppliers will be in a highly bargaining position since this is a new venture in UK and will require components in bulk. However, being a start-up company, purchasing materials in bulk will be cost-effective.

• Threat of Substitutes

Many people in urban-UK would not show interest in rainwater harvesting since availability of water is not an issue to them, given that water facilities are sufficient in urban areas. However, purification of water is an important concern which is addressed by the leading water purifier brands. Threat of substitutes is moderate since there are not many companies selling this system.

• • 3.5 Market Potential – SWOT Analysis
• Strengths

The main strength of the business lies in its innovative nature and uniqueness because this is a very rare business venture and not many companies operate in this field. Further, it has a scope to extend a lot given that the awareness about water-preservation is increasing day by day.

• Weaknesses

Many customers cannot afford to invest in this system due to its high installation cost. Areas where there is no or less rainfall may not be a prospective.

Figure 4: Monthly Rainfall for Lowland England (2010 to 2012)

(Source: Met Office, 2013)

The above figure depicts a considerably low rainfall in South-Eastern England and Wales during 2010 to 2012. The reason is the warmth experienced during Autumn and Spring.

• Opportunities

Households in UK require quantum amount of water for daily purposes. However, rising scarcity of water due to rapid development of residential complexes and increasing population is common in developed countries like UK. Therefore, rainwater harvesting will help in water-storage for future usage by households. There is ample amount of rainfall in UK throughout the year and a temperate climate, except some parts such as south-eastern and eastern England. This indicates that, rainwater harvesting will be beneficial in UK due to its abundance of rainfall (World Weather & Climate Information, 2010).

• Threats

Substantial amount of threats exist in the effective implementation of this new venture. These are threats from substitutes and various barriers to entry such as Government restrictions and legal constraints.

• • 3.6 Location and Site

Rainwater harvesting mechanism will get good response in UK in the areas where there is adequate amount of rainfall since rainwater is the main input to utilise this equipment. Places like Martinstown, Dorset has plenty of rainfall throughout the year which received the Award of England’s wettest place by experiencing 279 mm of rainfall within 24 hours on 18th July 1955. Yorkshire and Cumbria are also among the places which experience heavy rainfall (The Telegraph, 2016).

• • 3.7 Current and Projected Demand Analysis for Rainwater Harvesting in UK

Demand for rainwater harvesting in UK is growing with due course of time because of its rising population and development of residential complexes. This population pressure is resulting in over-consumption of water, thus reducing the ground water-level. Furthermore, rainwater is a decentralised form of potable water-supply. It is pure and can be stored for future use, thereby reducing water-bills and fighting against water-crisis. This mechanism will reduce soil erosion in urban areas and recognise the need for water-preservation (Panday and Sharma, 2016).

Rainwater being the purest form of water is best for irrigation. Ecosystem depends on availability and quality of rainwater for its sustainable growth and productivity. Therefore, rainwater harvesting is an ideal solution for water problems where there is water-crisis both quantitatively and qualitatively (Bhadauria and Dwivedi, 2009).

Figure 5: Household Demand for Mains Water in UK (2009 - 2010)

(Source: DIY Doctor Ltd., 2016)

• • 3.8 Results Based on Questionnaire

Responses of the prospective customers as derived from the questionnaire reveals that, most of the customers are willing to buy the rainwater harvesting system for irrigation and agricultural requirements, since rainwater is the most distilled form of water and is highly beneficial for growing crops and watering plants and fields. The survey shows that, most of the buyers are from rural areas, remote locations and villages and therefore want to invest in this venture for household purposes. However, a part of the urban population has also shown interest in this business. They want to preserve rainwater for future purpose because they are conscious about environment and water crisis. The response to this business venture will be a mixed one.

• 4.0 Technical Feasibility

Rainwater harvesting system does not require much complex mechanism to work. It is easy to install and user-friendly.

Figure 6: Working of a typical Rainwater Harvesting System

(Source: Water Eco Technologies & Treatment, 2016)

A rainwater harvesting system collects water from rainfall, channelizes it through a gutter, passes it through a filter and stores the filtered water in a tank. It removes the microbiological pollutants present in the rainwater. Therefore, the new venture is technically feasible.

• 5.0 Financial Model

The financing aspects are quite important in setting up a new business. For a start-up company, capital employment is the prime area of concern.

Figure 7: Relationship between the Cost and Volume of Rainwater Harvesting Tank

(Source: Sustainable Home Energy Solutions, 2016)

The above graph shows the relationship between cost and volume of rainwater harvesting tanks in US Dollar. This gives an idea of the estimated cost in UK.

Refer to Appendices (8.2 Financial Estimates, Table: 4) for Estimation of Annual Profits.

• 6.0 Conclusion

The above analysis of the prospects and risks of launching a new venture of rainwater harvesting systems in UK suggests that, there are multiple scopes and threats to its effective implementation. There are places in UK which experience plenty of rainfall. These will be the target-market of this business. However, places in Southern and South-Eastern England hardly experience any rainfall. These market segments will not be profitable for this business, since if there is no rainfall, then this system will not be able to work and the customers in those areas will not show interest in purchasing.

This business should be aimed at the rural people since they will require to store rainwater for future irrigation purpose when there will be seasons of no rain. Households in the urban sectors will also be a target for this venture. The hotels and institutes, offices and buildings should be taken into consideration while launching this new venture.

• 7.0 Reference List

Anal, A.K., Salam, P.A., Shrestha, S. and Valk, M.V.D., 2015. Managing Water Resources Under Climate Uncertainty: Examples from Asia, Europe, Latin America and Australia. Switzerland: Springer International Publishing

Bhadauria, S.S. and Dwivedi, A.K., 2009. Domestic Rooftop Water Harvesting - A Case Study. ARPN Journal of Engineering and Applied Sciences, 4(6), P. 31

DIY Doctor Ltd., 2016. Rainwater Harvesting Systems. [online] Available at: <http://www.diydoctor.org.uk/green-living/green-living-projects/rainwater-harvesting-systems.htm> [Accessed 12 July 2016]

Environment Agency, 2010a. Harvesting Rain Water for Domestic Uses: An Information Guide. [PDF] Available at: <http://webarchive.nationalarchives.gov.uk/20140328084622/http:/cdn.environment-agency.gov.uk/geho1110bten-e-e.pdf> [Accessed 08 July 2016]

Environment Agency, 2010b. Evidence: Energy and Carbon Implications of Rainwater Harvesting and Greywater Recycling. [PDF] Available at: <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/291745/scho0610bsmq-e-e.pdf> [Accessed 09 July 2016]

Harvest H2o, 2016. Rainwater Harvesting for Landscape Irrigation: The Good, The Bad, and The Ugly side of Roof Runoff. [online] Available at: <http://www.harvesth2o.com/RWH_good_bad_ugly.shtml> [Accessed 09 July 2016]

Lawrence, N.I., 2013. Analysis of Business Opportunities and Entrepreneurial Success in Nigeria: An Emphasis. An International Multidisciplinary Journal, 7(2), p. 47

Met Office, 2013. England and Wales drought 2010 to 2012. [online] Available at: <http://www.metoffice.gov.uk/climate/uk/interesting/2012-drought> [Accessed 11 July 2016]

Mtshall, C.S. and Vilane, B.R.T., 2015. An Assessment of the Quality of Rooftop Rainwater Harvested at Nhlambeni, Swaziland. Direct Research Journal of Agriculture and Food Science (DRJAFS), 3(1), P. 18

Olaniyan, O.S. and Olaoye, R.A., 2012. Quality of Rainwater from Different Roof Material. International Journal of Engineering and Technology, 2(8), p. 1413

Panday, M. and Sharma, T., 2016. Rain Water Harvesting - A Systematic Study of Hold of Water Where It Falls. Imperial Journal of Interdisciplinary Research (IJIR), 2(7), pp. 183 - 184

Rahmani, F. and Tehrani, M.B., 2014. Evaluation Strategy Michael Porter's Five Forces Model of the Competitive Environment on the Dairy Industry (Case Study: Amoll Haraz Dvshh Dairy Company). American Journal of Engineering Research (AJER), 3(5), P. 85

Rainwater Harvesting Systems, 2016. Rainwater Harvesting Specialists. [online] Available at: <http://rainharvesting.co.uk/> [Accessed 11 July 2016]

SARG Water Solutions, 2013. Why Harvest Rainwater? [online] Available at: <http://www.sargwatersolutions.com/rainwater-harvesting.html> [Accessed 08 July 2016]

Saving Water, 2016. Aquarista: Gallery. [online] Available at: <http://www.savingwater.co.za/gallery/> [Accessed 09 July 2016]

Sustainable Home Energy Solutions, 2016. Hotel Solar Thermal Study – Part 3: Finance and Design. [online] Available at: <http://www.sustainableexperts.com/renewable-energy-research/hotel-solar-thermal-study-part-3-finance-and-design.html> [Accessed 12 July 2016]

The Constructor, 2015. Components of Rainwater Harvesting System. [online] Available at: <http://theconstructor.org/water-resources/rainwater-harvesting-components/6739/> [Accessed 09 July 2016]

The Telegraph, 2016. Britain’s Wettest Places. [online] Available at: <http://www.telegraph.co.uk/travel/destinations/europe/united-kingdom/galleries/britains-wettest-places/> [Accessed 11 July 2016]

Water Eco Technologies & Treatment, 2016. Rainwater Harvesting. [online] Available at: <http://www.wett.co.za/services/rainwater-harvesting-in-cape-town> [Accessed 12 July 2016]

World Weather & Climate Information, 2010. Weather Averages and Climate in United Kingdom. [online] Available at: <https://weather-and-climate.com/average-monthly-Rainfall-Temperature-Sunshine-in-United-Kingdom> [Accessed 11 July 2016]

• 8.0 Appendices
  • 8.1 Questionnaire

1) What is your view on Rainwater Harvesting System?

• Excellent
• Very much useful
• Not that required
• Good enough

2) Would you like to purchase a Rainwater Harvesting System?

• Definitely
• May be
• Not sure
• Never

3) Why should you purchase a Rainwater Harvesting System?

• For Irrigation and Agricultural purposes
• For household needs
• For distribution to retailers
• For an Institution or Office or Hotels/Restaurants

4) How far are you ready to invest in a Rainwater Harvesting System?

• £ 1200 - £ 1500
• £ 1500 - £ 2000
• £ 2000 - £ 3000
• £ 3000 - £ 5000
• Any amount above the previous options

5) Do you currently use a Rainwater Harvesting System?

• Yes
• No
• Looking forward to install a system
• I do not have an interest in it

6) Do you think it is difficult to use a Rainwater Harvesting system?

• Not at all
• May be it is
• Very difficult
• I do not have any idea

7) Are you conscious about Water Preservation, Water Crisis and Water Storage?

• Obviously
• A bit concerned about it
• Not at all
• It does not affect me at all. So, I am least bothered.

8) How much water do you use every day?

• 1000 litres
• 1200 litres
• 1500 litres
• Above 1500 litres

9) How much water do you waste every day?

• Not a single drop
• Not more than 2 to 3 litres a day
• Sometimes it gets wasted due to negligence
• It gets wasted very much
• I do not keep an account of this

10) Would you suggest your companions to purchase a Rainwater Harvesting System?

• Yes
• Definitely
• May be
• I will have to use at first to give advice about it
• Never
  • 8.2 Financial Estimates

Table 2: Estimated Cost of the Project

Factors

Amount (£)

Land for setting up Factories

4000000

Site Development

1200000

Plant and Machinery

8500000

Buildings required

6500000

Electric Charges

650000

Preliminary Expenses

1450000

Miscellaneous Fixed Assets

250000

Working Capital

3500000

Provision for Contingencies

200000

Total Estimated Cost

32150000

(Source: Author’s Creation)

Table 3: Sources of Finance

Sources

Amount (£)

Contribution by the Owners of the Business

12150000

Term - Loans from Banks and other Financial Institutions

20000000

Total

32150000

(Source: Author’s Creation)

Table 4: Estimation of Annual Profits

Particulars

Estimated Figures (£)

Total Sales

(40 Systems @ £5000, 25 Systems @ £7000 and 30 Systems @ £4500)

510000

Raw Material Costs

80000

Labour Costs

45000

Storage Costs/Go-down expenses

20000

Electricity Charges

10000

Depreciation Charges (@ 10% for 5 years)

20000

Financial Charges

40000

Repair and Maintenance Costs

20000

Factory Overheads

15500

Administration Overheads

40000

Selling and Distribution Charges

10000

Insurance Expenses

80000

Gross Profit

129500

Payment of Corporate Tax (@ 35%)

45325

Net Annual Profit

84175

(Source: Author’s Creation)