The Growing Smartphone Market in the UK - Essay Example

?INTRODUCTION This report focuses on launching Smart Phones in the growing market of the UK. The of our company is Vertigo and the smart phone we are introducing is ‘Alo’. As there are already global brands operative in the market, the company has to match its product with the international standards. This would need state-of-the art production facilities and recruiting quality engineers to show their quality with the manufacturing of the smart phone. The company already has its production facilities and required technology in order to launch the venture of ALO PART A Past year sales figures show that smart phone users have increased to 11 million buyers and the market itself has registered a growth of 70%. (comscore.com/press_events). There has been a surge in smart phone ownership, with growth particularly strong over the last year, up by 81 per cent from 7.2 million users in May 2009 to 12.8 million in May 2010. In June 2010, over a quarter of people in the UK (26.5 per cent) said they had a smart phone; more than double the number two years previously (media.ofcom.org.uk). This data can be used to imply that the Smart Phone would have wide acceptability in the market. One of the important assumptions which we can make here is that the growth in the market will make smart phone more affordable majority of people in the United Kingdom, their proliferation will increase and also lead to a surge in the contents of the mobile and data consumption. A new report regarding the geography of smart phones indicates that the shipment of smart phones in the first quarter of the year was 55.2 million with the growth hitting 67% year-on-year. (microscope.co.uk). It is assumed further that it provides a substantial opportunity for different people in the mobile ecosystem – from operators and manufacturers to publishers and advertisers – who adapt to this dynamic market. It will also underscore the importance of competing for customers who could now engender long-term loyalty. (comscore.com/press_events). Moreover, all the new products that are being launched in the market, are currently viewed as premium priced with somewhat same features (experts.thelink.co.uk). Therefore, we assume a high market growth rate and to attract more customers, we will position ourselves as a moderately priced high quality product to gain penetration in the markets run by global giants. On 7th May, 2009, a long-awaited recommendation on the mobile termination rates to reduce termination charges was adapted by EU by the end of 2012. (berr.gov.uk). On 1st April, 2010, a statement with a further consultation was issued to the mobile number porting process in which the porting time took one day (berr.gov.uk). The standard Value Added Tax rate is 17.5%, however, it will be increased to 20% in January 2011 (hmrc.gov.uk). The call tariffs indicate that calls may be charged by any residential or business package selected as the Charge Costing Package (telecom-tarriffs.co.uk). This implies that the market for mobile phone users is likely to be damaged as the call rates may rise because of the increases in tariffs mentioned above. Apart from that, the mobile operator companies are likely to introduce new packages to attract more consumers. This would directly have an impact on Vertigo as the demand for cell phones would rise pertaining to offers and packages introduced by Operators (Gruber, 2005). PART B 1. Financial Budget and Forecast for 3 year (Apple iphone; Assumed) The sales forecast is assumed on the basis of iPhone units sold by Apple in the past year when it was launched. As reported by O2, Vodaphone, Tesco and Apple’s management, iPhones were set to reach 2.5 million units. Furthermore, 10.7 million units were sold throughout Europe and 11 million units are expected to be sold in the year 2010 therefore, these figures are assumed to be the UK’s share in the latter. (ipodrepublic.com; Wordpress.com). Prices are kept constant however; they are adjusted with an expected inflation rate of 4%. The Annexure at the end of this report contains all the details about the 3 year forecast and Sales forecasts respectively which shows the startup costs which stand at ?90 million. The business will begin to be profitable after one year and four months as the Annexure shows that the invested amount will be earned back in the latter time period. 1.1. Marketing Expense Budget: As projected in the Annexure, The Marketing Budget is estimated to be higher than that of Apple, which spent ?20 million at the time of launching the iPhone campaign in 2007 (Reuters.com). We will undertake the promotional and advertising campaigns of this magnitude at least four times a year which will bring our marketing costs from ?80 million to ?90 million from 2011 to 2013. 2. Competitive Advantages 2.1. Segmentation In UK, England has the highest number of mobile ownership with 85%, compared to 81% in Scotland, 82% in Wales and 85% in Ireland. (stakeholders.ofcom.org.uk). 55% males use mobile phones in UK compared to 45% females. Distribution of mobile phones users according to age; 29% are 16-24 years old, 30% are 25-34 years old, 30% are 35-50 years old and 11% are above 50 years of age. (unanimis.co.uk). UK’s average monthly spending on mobile by an individual is ?23. (stakeholders.ofcom.org.uk). 79% of UK’s population uses a mobile phone for texting, compared to 57% who use for voice mail and 52% to use to take/store photos. (stakeholders.ofcom.org.uk). Smart phone usage based on income in UK is characterized by 4% with income lesser than ?15,000, 13% with income ranging ?15,000 - ?35,000, 12% with income ranging ?35,000 - ?50,000, 20% with income ranging ?50,000 - ?75,000, 17% with income ranging ?75,000 - ?100,000 and 34% with income greater than ?100,000. (blog.neilson.com). 49% of small business owners use smart phones. (areatrade.co.uk). The lifestyle of people using mobile phones in UK indicates that the mid to low tier adaption of smart phones in UK is 76%, while the high-tier adaption is 60% (newstatesman.com). There has been a surge in smart phone ownership, with growth particularly strong over the last year, up by 81 per cent from 7.2 million users in May 2009 to 12.8 million in May 2010. In June 2010, over a quarter of people in the UK (26.5 per cent) said they had a smart phone; more than double the number two years previously (media.ofcom.org.uk). This data can be used to imply that the Smart Phone would have wide acceptability in the market. We should target the youth as they can influence the decision of purchasing for their parents. This is because parents believe in the myth that the new generation children know more about technology compared to them. Moreover, smart phones are mostly used by corporate personnel and most brands in the market target these high-end users (newstatesman.com). We will have a different approach as we will aim to introduce ALO with competitive pricing to exploit the benefits of a larger market of youth. 2.2. Targeting Our focus will be on the age group of 16-24 with an annual income of more than ?15,000 (13% of smart phone users) in England as they are the ones who apart from using the mobile phones also influence others to buy the one they like. Parents buy mobile phones as suggested by their teenage kids as parents believe they know more about technology and their choice will be more suitable. We target this market because we see a gap in the market as the selected segment is not targeted by any brand in the UK. This reason is further elaborated in the heading below. 2.3. Positioning: The young people of urban and sub-urban areas can be targeted if we focus primarily on methods that can attract youth. As they are more engaged with socializing, we will show video conference advertisements for them to know how convenient it is using Smart Phones. Our competitive prices along with ease-of-use will be our Unique Selling Proposition. As young ones move a lot with friends, we will also show how easy it is to handle wherever a person goes for a hang out with friends and fellow peers. It will be better with our smart phone as smart phones of other companies are of greater weight which is not easy to carry in a casual way. This will be helpful as younger ones try to live in a casual way. Other brands that govern the rest of the market are usually high-tier ones who target the high-income earners of the corporate sector (newstatesman.com). This leaves a large room for Vertigo to tap in to the youth market who cannot afford these premium brands in the first place. We will position our brand with the Point of Parity of being a high quality smart phone with all the features and the Point of Difference would be that ALO will be more affordable and will be easy to use, hence the gap of this market in the Deep Blue Ocean of smart phone brands will enable Vertigo to be competitive in the presence of global giants. 3. Operational Activity Since our product will be launched in spring 2011, we will design our promotional campaigns according to special occasions such as Easter (which falls in April) and later, during the months of May onwards, we will have special summer promotions/discounts and yearly seasonal discounts will follow in the winter and summer a year after the launch of ALO. These promotional schemes will be such that if a person who books his Vertigo on the Boxing Day of 2011, he/she will receive a 20 percent discount. Our initial promotional campaign will be that a when a person who purchases Vertigo within two months after its launch will receive a 10 percent discount. Besides this, we will also undertake CSR initiatives and conduct BTL activities which will help us maximize our revenue. The tangible resources available for the introduction of smart phone include the production facilities of our company which already exist. Our main strength is our ability to develop hardware and software systems which we have developed through our extensive Research and Development (Apple.Inc). The quality, method and organization of the current production process are already available. The production requirements can be met by existing state-of-the-art facilities. The marketing management process remains the same and the same distribution channels though which our competitors sell their smart phones, will be used. The IT systems are already developed which makes it easy to integrate with our customers and suppliers. The intangible assets available include our Goodwill in the market. The reputation of delivering the objects on time is also important. The key commercial rights protected by patents and trademark will work as an asset for our company. However, introducing this new smart phone will increase our labor cost by ?10 per person as more workers will be needed. The R&D department will need more labor therefore it will be increased by 500 men working at the rate of ?10 per hour and there will be 30 more employees for managerial work. As the existing production facilities will be used, there is no need of extra physical capacity. However, to improve and modify our facilities, a financial injection of ?500,000 will be needed which we will raise through debts as raising through equity will increase our interest expense. (Deutschman; Useem). This assumption is based on the resources available to Apple Corporation (Apple.Inc). 3.1. Control Measures We expect 55000 units to be sold on average each month of the first year which will generate enough revenue for the firm. There will be 100 workers working for 8 hours per day. There will be 2 hour meetings after every quarter to assess results. The units to be sold in the second and third year are expected to be 50000 and 55000 respectively. The Sales figures will be monitored at the end to every year to see whether the business is meeting its targets or not. Moreover, the sales force will also be closely monitored by the Area and Territory Sales Managers who will come under the Marketing department. These Sales Managers will ensure that the sales representatives are meeting the above mentioned monthly targets which will be broken down to daily and weekly numbers. Moreover, the marketing activities will also be monitored and resulting effects in the sales figures will be recorded to gauge the mileage of the activity. Secondly, new promotional campaigns, both ATL and BTL and sales promotions would have to be launched if there is a reaction from the competition. To execute this, the marketing team will be given the responsibility to design, plan, manage, execute and control the marketing campaigns. 4. People There will be a separate sales force dedicated to the selling to Vertigo employed by the company. These sales representatives will be deployed on our retails outlets and our on field sales representatives will educate mobile operators about the product features and get business contracts from them. We will also recruit Brand Ambassadors who will be young and energetic. They will be given training on how to promote our product amongst the consumers and small independent retailers and will convey product specifications and details and features will be thoroughly explained to the customers and retailers, including the methods and modes of purchasing which they can follow in order to make their purchase. A sales representative will be given a 5 percent commission per sale while the Brand Ambassadors will be given ?50 per day as long as their services are engaged. The Brand Ambassadors of our company will also have to wear t-shirts with the name and picture of our product which will be given to them after they are recruited. The on-field sales representatives will be given the incentive of free fuel on all the sales calls which they make till the time they are permanently employed by the company. 5. Conclusion It can be deduced from all the demographics mentioned throughout the course of this paper, that there are strong prospects for ALO to be launched in the market as it has registered 70% growth (comscore.com/press_events). Moreover, all the competitors target the corporate sector and the high income earners, which leaves a large market ignored (newstatesman.com). The analysis made in the report points towards a direction that Vertigo is in a strong position to launch ALO in the UK market as the market is in its growing phase. Moreover, ALO’s competitive pricing will enable to penetrate in the said market and would challenge global giants who are still in the process of skimming the market with its high prices. Building and managing an effective system of inventory management, Supply Chain, smooth flow of information within and outside the organization, and timely response to the customers’ needs and expectations are prerequisites to successfully launch and manage a business Vertigo must therefore ensure that it has all the necessary human resources, unique segmentation, innovation, marketing expertise, investment backing to be successful in this competitive environment (Small Business Research Centre (Cambridge), 1992). Annexure 1 CASH FLOW STATEMENT Enter Tax Rate Here: 36%         Year: 1 2 3 Relevant benefits: Total Sales ?197,600,000 ?214,480,000 ?252,540,000 Relevant controllable costs: Advertisements ? 37,500,000 ? 39,000,000 ? 30,000,000 Promotions & Discounts ? 10,000,000 ? 9,750,000 ? 9,500,000 Training Costs ? 500,000 ? 350,000 ? - Salaries ? 1,000,000 ? 1,000,000 ? 1,000,000 Websites ? 2,000,000 ? 1,000,000 ? 1,000,000 Sponsorships ? 6,000,000 ? 4,400,000 ? 3,500,000 Administrative Costs ? 3,000,000 ? 4,500,000 ? 5,000,000 CSR Costs ? 30,000,000 ? 30,000,000 ? 30,000,000 Other Costs ? 6,000 ? 6,000 ? 6,000 Total costs ? 90,006,000 ? 90,006,000 ? 80,006,000 EBITDA ?107,594,000 ?124,474,000 ?172,534,000 Less: Depreciation ? - ? - ? - Income before taxes ?107,594,000 ?124,474,000 ?172,534,000 Less: Taxes ? 38,733,840 ? 44,810,640 ? 62,112,240 Net income ? 68,860,160 ? 79,663,360 ?110,421,760 Plus: Depreciation ? - ? - ? - Net Cash Flow ? 68,860,160 ? 79,663,360 ?110,421,760         IRR = 14% NPV ? 1,653,104 Payback 1 year 4 months     (Initial Investment = ?90,006,000) ARR = 27%  References Department for Business Innovation and Skills, viewed 21 December, 2010. 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