Cosmetics Market For XXCosm Ventures - Case Study Example

Cosmetics Market For The Xxcosm Ventures TABLE OF CONTENTS 1.executive summary 3 2.Introduction 4 2.1.Purpose 4 2.2.Description of the Products 4 2.3.Background 5 2.4.Scope 5 2.5.Assumptions 6 The assumption is that the Australian market is a matured and well-exposed market and that consumers know what they want from cosmetics products. Another assumption is that multilevel marketing partners are “Sales Associates” level for the purposes of calculating their bonus income. 6 2.6.Definitions 6 3.GENERAL analysis 6 3.1.Business Mission 6 3.2.Business Structure and Management 7 3.3.Market Environment 9 3.4.Plant & Equipment 10 3.5.Skills Assessment 10 3.6.Risk Analysis 10 4.operational plan 11 4.1.Key Business Objectives 11 4.2.Marketing 12 4.3.Financial Plan 16 APPENDICES 1. executive summary The key objective of this paper is to detail marketing of the three cosmetic products of the XXCosm Company which are the Virgin Coconut Oil manufactured by the SUBAX Farm Product, anti-mole and wart solution by the NO more Mole and Warts, Philippines and the skin whitener from the Australia Aborigine community. The enterprise is privately-owned. There is a need to raise additional capital to enter the other big markets. So investing new, which would secure the cash flow would be a smart move on side of an investor. We want to help people to feel beautiful in a way that cannot be reached by covering cosmetics. Weight loss and removal of visible moles in many cases is the first step to be more self-confident and hence, feel more beautiful or the way they want to look. The majority of our target group lives in urban areas, which more and more is reachable by the internet. Due to the current limitation of funds, we choose a form of Multilevel Marketing by using modern technology to avoid some of the shortcomings of the traditional system (the handling of ordered goods). The success of our business is based on basically two pillars, the internet and personal sales. The internet will also be our advantage: We can recruit people who are fairly familiar with the internet and might be able to acquire good sales agents by promising training in a field they probably already feel is influencing their field of work. Sidney with it 4.5 million inhabitants is the center from where we start, even if this statement is sort of taken lightly because we are also considered us an Internet-based enterprise. Brisbane with the 2 million and Adelaide with 1.2 million inhabitants are the two other places we will visit and set-up recruiting activities and meetings. In some other bigger towns, we will place classified advertisements to find interesting marketers, not to mention the internet of course. The cosmetic market is a market with high profits, hence with high competition. There are companies which sell their products in stores or malls. There are also those that sell wholesale via the multilevel marketing business. In addition there is almost no drugstore which does not have a small section to help the beauty-aware customer to get some fast cosmetic help. The Internet after twenty (20) years still seems to be no competition. Overall, these products will be huge success in the Australian market. 2. Introduction 2.1. Purpose The purpose of this plan is to set the direction that the XXCosm Ventures will go to promote its cosmetics business. From the process of writing the plan, the company wants to focus on strategies to build a customer base as well as to determine any opportunities to make profits. 2.2. Description of the Products XXCosm Ventures managed to find two suppliers from the Philippines which granted the company with the right to distribute and market their products in Australia. The companies are the SUBAX Farm which produces virgin coconut oil. Another company is the No More Mole and Warts Enterprise, an inventor of a Philippine product which treats moles and warts. This company has won several awards internationally. The third product is manufactured locally from an Aborigine community. The product is a skin whitener. Prof. Dr. E. Lhowtharg did some social study of the rites of the aborigines. He also described some skin problems after the mask for the rite was removed. It normally stays on more for an extended period of time. His friend, an American Sociologist who is married to a Filipina and closely observing the pictures identified it as an imbalance in the melanin production. Together with the Australian Chemist, Dr. Pison, they discovered a simple chemical reaction that will whiten the skin fast but for a short period only. Currently, they developed two products, soap and cream, which will be marketed by the XXCosm Ventures. These three products will be private-label, hence, distribution rights will be for the XXCosm Ventures. Currently, our company is trying to acquire the necessary import licenses. Technologies are continuously evolving. Customer preferances on cosmetics keeps on changing.Even in early stages, there is a critical mass. As the three products is introduced to the market, there is certain market segment that has enough emotional need to buy these products. Later segment is those enthusiasts. This is the market segment which is composed of those eager to be first to use any new product.They have enough free cash to spend. A critical mass of these customers makes our project viable. Ultimately these three products will satisfy underlying needs of the mainstream customers to sustain in the market place. Emotional needs will not make these three products successful in the long run. The opportunity is real, so, this is what will sustain the marketability of these products. The XXCosm Ventures has the ability to create real value proposition. It has the capability to serve profitably along with its ability to sustain it in long run. This company possess the ability to satisfy various real customer problems. This will work well for the XXCosm Ventures since value conscious mainstream customers look for utilities rather than fancy features. The Filipinas are known for their desire for a white complexion. There also seems to be tendency to develop warts, and last but not least to become overweight when in economically sound conditions. This makes them the ideal target group for our three products. 2.3. Background Worldwide, there is a tendency for obesity, when people can afford to indulge in various food and food preparations. Seen under this light, the XXCosm Ventures also plan to see this project as a trial on a big scale, before we enter the American or European market or any international market. For the skin lightening products, Africa is a huge market, which we would address second after the successful operation and positive feedbacks here in Australia. For the No more Moles and Warts Company, we are certain that we will ensure the rights to enter the Philippine market too, even if the founder and owner of the production company is located there. We, the three owners of this new enterprise, will need to raise additional capital to enter the other big markets. So investing now, which would secure our Cash Flow, would be a smart move on the side of an investor. 2.4. Scope The scope of this plan is the creation of a structured plan that clearly identifies all activities that will take place over a 12-month period (2011-2012). 2.5. Assumptions The assumption is that the Australian market is a matured and well-exposed market and that consumers know what they want from cosmetics products. Another assumption is that multilevel marketing partners are “Sales Associates” level for the purposes of calculating their bonus income. 2.6. Definitions Marketing plan is a written plan that outlines the specific actions thar are intended to carry out to interest potential customers and clients in the service or product being offered. Through the marketing plan, the would-be buyers can be persuaded to buy what is being offered to them. Marketing strategy, on the other hand, is also a written plan that illustrates the interplay of the promotion, product development, pricing and costing approaches and the distribution of the product or service. This identifies the enterprise’s marketing goals. It also explains how the goals will be achieved within a stated timeframe. It also determines the positioning, the choice of the target market segment, marketing mix as well as allocation of resources. Cosmetics refer to the preparations that are designed to beautify the body by direct application. Examples of which are skin cream, powder preparation and others. 3. GENERAL analysis 3.1. Business Mission The values of the organization are appreciation of beauty, nature and pleasures of life, balance and optimism. The purpose of the products is to offer a great alternative to expensive cosmetics. This purpose needs to be fulfilled by creating arrays of exotic products from nature that efficiently enhance beauty. The market that will be served by these cosmetic products are the Filipinas in Australia. The company’s commitment to customers is to provide the beauty needs of the people. XXCosm Ventures’ commitment to shareholders is a sustainable business that provides biologically-extracted products that abound in nature. The goals of the enterprise is to penetrate the Australian market proliferated by beauty and health-conscious customers. The nature of the business is sole proprietorship. 3.2. Business Structure and Management XXCosm Ventures is aware that, in general, the term cosmetic is used in a more specific way. But it also can be used in a broad sense. The company wants to help people to feel beautiful in a way that cannot be addressed by just covering with cosmetics. Weight loss and removal of visible moles, in many cases, are the first steps to be more self-confident and hence feel more beautiful or be the way they want to look. The majority of our target group lives in urban areas. These are places which are more and more is reachable by the internet. Due to the currently limited funds, XXCosm Ventures chooses a form of Multilevel Marketing, by using modern technology to avoid some of the shortcomings of the traditional system of handling ordered goods. The proposed business is privately-owned, therefore not listed on the Australian Securities Exchange. (ASX). The operational structure of the business is shown below: Staffing Duties of the Key Personnel President The President is the key legal point-of-contact for the XXCosm Ventures. The president deals with day-to-day operations and bottom-line performance.  Vice-President for Marketing and Sales The Vice-President for Marketing and Sales heads the Marketing and Sales Department. He or she reports directly to the President on the marketing and sales affairs and transactions of the company. Vice-President for Operations The Vice-President for Operations heads the Operations department. He or she reports directly to the President on the operations of the company. Vice-President for Finance and Administration The Vice-President for Operations heads the Finance and Administration Department. He or she reports directly to the President on the finance and administration matters of the company. Managers The Managers handles specific sections of the company. He or she is accountable for the section that he or she is managing. Professional Counsels The professional counsels that will be hired by the enterprise are the consultants and legal adviser. The Technical consultant will The marketing consultant will The legal adviser will advise on every legal matters related to the XXCosm Ventures. 3.3. Market Environment The cosmetic market is a market with high profits, hence, high competition. There are companies which sell their products in stores or / malls but also the whole set of the Multilevel Marketing business. In addition, there is almost no drugstore which does not have a small section to help the beauty-aware customer to get some fast help. The Internet, after 20 years, still seems to be no competition. Entry and exit barriers In a basically saturated market, the entry barrier is high because the valuable money in the consumers' pocket is already known where to spend. The "where" is not a fixed state but with a tighter budget, might move from one player in favor of another player. The same applies to the market segment that is occupied by the current Multilevel Marketing companies. But even here there seems to be a life cycle occurrence. In smaller MLM schemes the whole of the company vanished, where in the mayor players (Avon, Amway…) rather have a product change. We are aware of this structure and will research which company currently is in the down cycle and try to recruit their top leaders. Pricing and service standards in the industry Being confident that our products will do as promised, we do not tend to compete on the price. We currently do not have the tendency to be high priced, but neither will we be cheap, which would rather make people think that our claims might not be true. As a startup, our company has no previous figures. 3.4. Plant & Equipment Our two main products, the mole and wart remover cream and the coconut oil, both will be imported. In both cases it is not a new product, but has established production plants, which in a fairly short period of time could be expanded should the demand widely surpass our calculations. Both manufacturers assured us, that they could double their output within 2 month time. The import license does not include a limiting paragraph. 3.5. Skills Assessment The success of our business is based on basically two pillars, the internet and personal sales. The internet will also be our advantage: We can recruit people who are fairly familiar with the internet and might be able to acquire good sales agents by promising training in a field they probably already feel is influencing their field of work. As much as current multilevel marketing companies will spend time on meeting and motivation, we will cut this time in half but add the same amount of time to training, which will be partly in meetings and 2/3 online, which makes us more environmental friendly. 3.6. Risk Analysis Sidney with it 4.5 Mio inhabitants is the center from where we start, even if this statement is sort of taken lightly, because we also consider us a internet based enterprise. Brisbane with the 2 million, and Adelaide with 1,2 million inhabitants are the two other places we will visit and set up recruiting meetings. In some other bigger town we will place classifieds to find interesting marketers, not to mention the Internet of course. After we have started, we have a 6 month window, to find suitable marketers that can recruit "masses". In case we fail within the 6 month window, we will expand it by 6 more months, but at the same time will restructure the organization to be fully able to start as an Internet company only. 4. operational plan 4.1. Key Business Objectives By utilizing the data and information above, the goals and objectives of the XXCosm Ventures was restructured. The goals and objectives for this company were devised via the SMART system. S – Specific The target group is defined. It is know as a conservative group with a strong tendency to the family at home. This together with the able "Produced in the Philippines and marketed by a Filipino" will open many doors and wallets. M – Measurable Due to the fact that the whole system is computer and internet bases everything is measurable and printable with the press of a button. A – Achievable "What men can think of is also doable, but it might cost great efforts". Based on the owners experience and enthusiasm and the conservative goals, if there is no divine interventions the goal is definitely achievable! R – Results orientated Criteria 1 is obtaining the necessary Licenses and clearances ( 1 month) Criteria 2 is acquiring the sales key personal (continuous process but 4 "directors" at the end of the 5th month is a must) Criteria 3 Ordering and stuffing warehouse (beginning of month 6) Criteria 4 Setting up (location and press releases etc) week 24 Criteria 5 Recruiting Sales force (online and offline) Goal 50 agents StartDate+8 weeks Criteria 6 sales after 2 month having sold the initial stock. 3 month selling 1000 creams, 4000l cooking oil and 1000 l VCO(initial stock). From then on 10% growth each month T – Time line From Date "0" we have 6 month to set up the sales structure and the internet based sales and delivery operation. If there are obstacles, we can extend this timeline by another 6 month, but at the same time restructure, the convert the whole operation into a online company. Objectives Employing a programmer to set up and adjust the web presentation and adapting the Back office Web presentation is 2 month and adapting the back office with some functions to show to the prospects Researching existing MLM companies and attending some of their meetings with the tendency to hire key personal Researching starts Date "0", hiring when the web is preset Creating print media (Fliers etc.) Outsource Date "0" + 2 month 4.2. Marketing 4.2.1. Positioning in the Market Our niche market is the Filipinas consumers and Australians with a Filipino ancestry. We serve their needs and likes. We address this group as marketers and ask them to focus on their kin to market, because our products are from the Philippines. Even if we mainly talk about The Filipinas as the target group as marketers and customers, all other people will be welcomed. And for sure a healthy oil is good for all humans. 4.2.2. Pricing Strategy We have an innovative approach. The ordering can be done by the sales agent directly to the company. And we have the option for the customer to get the goods delivered directly to the door, which means our sales agent do not need to move the goods anymore. This lessens the costs which we partly add to the profit and to offer a lower price, compared to our MLM competitors. Most Filipinas have the attitude of "as Cheap as possible", we try to take this into account, by offering small units. Filipinas also have the attitudes to be supportive to the family. This is the reason we try to recruit Filipinos as sales agents. In addition we plan to have at least one flier in Filipino, their mother tongue. 4.2.3. Target Market Motivation It s the human nature to be willing to support the "own" people, if one reaches a status where s/he can afford. In this case the products are from the Philippines, and using them here does not create and extra financial burden. And having marketers which speak the same native tongue will stimulate this effect. Actually we hope that contact in the native language will support to win a first time customer as a "pogi" (regular, long time customer). Their Buying Patterns We offer our marketers the option to have a little stock and especially when visiting people that live a more remote, have a some oil and soap in the car. The regular ordering can be done in the Internet on an individual base. But we offer the chance to order for a certain date (the marketer can pre set it) and it will be delivered to the marketer (online payment during order). The marketer then can set up a "meeting" or a delivery party, for the customers to come together. How much they will buy? The first step will be to make them switch from their regular cooking oil to our product. This should become regular after the second order, where we offer a subscription to a slightly better price! The sales agents will be trained to give health tips, that help our customer to a better food intake (quality food) and more awareness about causes of poor eating habits. So starting at the second meeting VCO becomes an issue, which will be underlined but further contacts as well as the internet support group (one of our marketing and after sales measurements). How much they will spend and level of price sensitivity Our goal is to become the sole supplier of their cooking oil, which - depending on the size of the family - will be 2 or more liters of cooking oil each month and we go for 1 l VCO every other month and a one time No Mole and Wart. The skin lightning soap should be 2 bars per month. Communication channels to reach this group As in historic MLM companies the personal contact plays and important role. But in the Internet age online contact even for the first time meeting get more and more important. We train our marketers to be at certain times online to serve as direct contacts to their customers, and at a different time to communicate and motivate and even train their downline. 4.2.4. Distribution We offer a website where people can order online and pay online and have the goods delivered within 2 days. They can have a markering website with a store (for their customers). It is up to them where they will focus (selling or building their downline). To enable our sales agents to be successful online, we offer them a training. A very basic one that will serve as a door opener and after they sign, they get a more detailed online training for a small fee, that can be compensated in cash, by bringing in agents or by selling. This way the agent can invite a person for training and can add his sales talk. It is up to the agent to determine how much contact and motivation the new member needs or can stand. 4.2.5. Promotional Strategy Advertising to print media Advertise our new business(press release and ads - 50 000 AUD We will place biweekly classifieds looking for sale agents alternating with a product advertisement offering a health/beauty product - 25 000 AUD The Internet is our prime means to operate and to communicate. We offer a sound training to our marketers and basic communication training for our customers. This way we reduce our communication costs and create a means for our customers to reach new people in their family which hopefully (to a certain extend) become customers too. We will use the internet for announcements, announcing the calendars (public accessible), a weekly newsletter and regular training material that also will have a section for marketing out products and of course a regular newsletter. Publicity For the start of the campaign we will place as many press releases as will be accepted in the print media. In the internet we will offer pre-launch. We will hire some article writers for article marketing and a blog writer. The blog will address MLM and we hope to get some customers and "builders" this way. 4.2.6. Sales Targets As mentioned earlier the prime target group are the Filipinos about 135 619 and Australians with Filipino heritage 0.08% of the total population of 22,601,795 makes total of 183 074 + 135 619 makes 318 693 in the direct target group. We are sure, that these recruits will sell outside their race bracket! Currently the Banaban Virgin Coconut Oil is sold for about 19 Aus$/750 ml. We can offer in a similar price bracket but aim for 24.5 Aus$. Our target is to reach 5% of the target group using 1 liter of VCO each month for health and beauty reasons. This is about 2000 l/ month with 10% increase. The standard coconut oil also is said to have similar property and we could sell for as low as 5 Aus$/ liter for the kitchen use. Target will be 4000 l/month with 10% increase. 4.3. Financial Plan 4.3.1. Start-up Capital The owner invested 250 000 AUS$, well aware that it is a comparatively small amount. He is willing to add 100 000$ more, if Target ONE cannot be reached. He is also willing to change the owner's status, if an investor can be found who is willing to stay the junior partner (less than 50% of the shares). The second batch for investing, the 100 000 otherwise would be in the form of a bank credit. 4.3.2. Start-up Capital The owner wants the investment back after 2.5 years and expects the lifespan of the company/these products to be 6 years in Australia. (This is a worst case scenario.) Due to the niche market we will have a Chief Director (L0) for each of our selected towns and later for each territory, with a downline of 4 levels. A L0 gets a salary of 1000 AUD/month. The calculation is as follows: prime costs + transport costs +operational expenses (30%) + payback/interest(owner=1.3 AUD) + profit 12% + 10% (L0) + 25%(L1) + 15% (L2) + 5% (L3) + 3% (L4). {L0 is always paid to the Chief director. L1 is the direct selling span. If there is no L3,L3,L4 the value is for the company and primaly intended for expansion. If not needed or spend, it is part of the owners profit or bonus} The investment of 250 000 AUD has to be earned in 2.5 years. To reach this goal we need to earn 7577 AUD per month for the payback. With our projected sales, we add 1.1 AUD to each sold unit to make the 7577 AUD/month! Is this sales level achievable? Yes. Our target group is 310 000 heads and we are talking about less than 10,000 units which is about 1 unit to 3% of the target group. The cooking oil is needed anyway and healthy living (VCO) is modern, so that 10% should be archied easily! (This does not take the selling outside the target group into consideration) Formula Looking at the formula: prime costs + transport costs +operational expenses (30%) + payback/interest(owner=1.1 AUD) + profit 12% + 10% (L0) + 25%(L1) + 15% (L2) + 5% (L3) + 3% (L4) We can simplify it to: prime costs + transport costs +operational expenses (30%) + payback/interest(owner=1.1 AUD) + profit 12% = prime costs + transport costs +operational expenses (30%) payback/interest(owner=1.1 AUD) + profit 12%, The part we shorted is the payment for the Marketing and is an add on to the normal calculation. This makes the brake even point: units x profit 12%= (prime costs + transport costs)/shipping units +operational expenses (30%) + payback/interest(owner=1.1 AUD) x units The amount paid to the Sales force is unit cost x 0.58 The operational expenses are: Rent (office and 1 car) Internet Salieries(Staff (secretary/ webmaster and L0) Utility costs Travel cost Total= 7534 AUD Transportation costs: Cooking oil 1 AUD/l VCO 1AUD/l Cream 1 cent/pack Unit costs: Profit of 10% Coocing oil: 1.7 AUD/L 0.17 AUD ->revised 0.5 AUD VCO 15.3 AUD/L 1.53 AUD Cream 10 AUD/ unit 1 AUD Units x profit 12% =(Prime costs + transport costs+1.1) + 7534 AUD Units x profit 12%)/ (prime costs+ transport cost +1,1AUD)= 7534 AUD Break even for Cooking oil: (X x 0.17)/(1.7 +1) =7534 X x 0.17=7534 x 2.7= 20342 X = 20342/0.17 -> x=119,658 Units Break even for VCO: X x 1.53=15.3 +1 + 7534 = 7547.3 X= 7534.3/1.53=4926 Units Break even for NO Mole X x 1 = 10+0.01+7534 X= 7544 Units This calculation shows, that we have to raise the profit of the cooking oil to at least 0.5 AUD/l to be able to realize the goal Revised calculation for Cooking oil: Break even for Cooking oil: (X x 0.5)/(1.7 +1) =7534 X x 0.5=7534 x 2.7= 20342 X = 20342/0.5 -> x=40,684 Units Currently it is not predicable how many units of each product ca be sold, but basically the break even point can be reached with each product alone! 4.3.3. Cash Flow/Cash Position If at all the first 6 month could be considered critical. The big advantage in our system is, that the goods are already paid, before they are delivered In the second and further years we have no problem with the cash flow at all, even are able to invest in bigger office space In the third year the investment is paid back which frees about 1.1 AUD per sold unit. This of course will increase the taxable income. 4.3.4. Balance Sheet According to the forecast we worked with very conservative figures. Point one is that we did not take into account that an L0 will bring a salesforce, but we considered them like ordinary agents with only recruiting 2 people into their downline per month. This makes the first few months seem very meager. We also predicted to have a plateu at 6318 agents. This will be fluctuating. But it is difficult to predict. Due to this the No Mole cream actually is calculated at zero, once the plateu is reached. Taking this facts into consideration the equity position is small in the beginning. We are willing to take the risk because the owner is willing to invest another 100 000 AUD is need arises. Which should not according to the forecast. After 30 month (2.5 years) the original investment is paid back which gives the chance to broaden the equity position. Actually it is saving for the expansion. 4.3.5. Ratio Calculations Using the forecast figures, the financial ratios are determined. Profitability - Return on Assets % Being a sales company we basically have no assets, hence, the return on assets does not apply. - Return on Sales % We very much depend on the sales! The ROS= 65644.02/ 173050 is 0.379 after we have reached the plateau after th3 7th month Debt - Debt to Assets - Quick Assets Ratio or Current Assets Ratio - Times Interest Earned Partners Equity – Return on Equity We are well aware, that the company basically has no assets (aside from its people) this means that it could be difficult to get overdrafts from the bank. Again the first few month are the most critical, because we are confident that if we have a throughput of payment to our salesforce and to our suppliers of 107 000 and 60 000 AUD per month that we will get overdrafts of at lest this amount. But this would only be an emergency act due to the high interest. In case the transport costs explode, we would not be the only company firm affected. Hence the problem would effect the whole industry which again should affect us least, because we cut out the handling of goods through the downline. If we master the first nine (9 month) chances are good we will stay for good and be able to expand into international markets. Due to changes in technology we might switch from the ads in printed media to online and mobile marketing, which most likely would reduce the costs. We also will try to find new products to satisfy the needs of our consumers and we might widen our product scope to address a less defined but for our marketers locally accessible consumer group. It is also useful to include a skills assessment of each of the key personnel. Skills Category Grading of Skills Underdeveloped Well Developed List of relevant skill categories 1 2 3 4 5 Marketing X Internet X communications X Creating wealth X People mover N/A Cash Flow Projections These projections are best done in Excel, however the format below will provide a guide for a very basic cash flow. The level of detail and individual categories is up to you and your particular situational requirements. Monthly for the first year (illustrated) Quarterly for the second year Annually for years 3-5 Year 1 NOTES: the conservative estimates will be that each person sells 1 VCO and 1 cooking oil per month and customer: (SF(prev month)*2)1 VCO+1 cooking oil +(SF *2-SF(prev. month)) *no mole rev.VCO= 1.53 AUD rev. Cooking Oil = 0.5 AUD rev. No Mole & Wart=1 AUD starting 7th month we expect to be it a plateau of sales agents Sales prices/unit VCO=24.17 Cooking oil=2.69 No Mole=15.8 Salesprise is prime (costs+transport+payback+profit+ op. expenses )*1.58 or unit costs * 1.58 Initial order 1000 antimole units at 500 php 500 000 4000 l cooking oil a 70 php 280 000 2000 l VCO at 500 php 1000000 1780000 PhP or 39629 AUD Year 2 Note: Rent is for new bigger office Year 3 Note: After month 30, the investment is paid back. Read More