3M Company Marketing - Essay Example

BUSINESS PLAN (Degree for which this dissertation is being submitted) Submitted in part fulfillment of the Submission 1. Executive Summary 1.1 Purpose of the assignment This proposal is going to provide a 3M Company to organize a new subsidiary and to develop an “innovative” product within the office stationery industry and write a business plan for this product. The focus of the report is to show via any organization what marketing is, how this organization uses marketing strategies and techniques, why marketing is essential to 3M Company organization and how its use of marketing has changed and will change in the future. 2. Marketing Marketing is one of the operative functions (as distinct from managerial function) of management. Modern concept of marketing is different from the traditional concept. According to modern view, marketing consists of sensing, stimulating, servicing and satisfying the needs and wants of present and potential customers in more effective and efficient manner than its competitors. The modern concept of marketing holds that the key task of organization is to determine the needs wants and values of the customers and to adopt the organization to delivering the desired satisfaction more effectively and efficiently than its competitors. There are two key elements in this concept. Customer orientation and Integrated marketing planning and control with those of other departments like manufacturing, finance, inventory control and so on. Elements of modern concept of marketing The modern concept of marketing of marketing has the following two elements as under: (a) Customer Orientation - identifying and determining the wants and requirements of customers through marketing surveys, forecasting and researches (b) Integrating the marking planning and control with those of other departments (like manufacturing, finance purchase, inventory control, personnel research and development) keeping in view the ultimate goal of customers’ satisfaction. It may be noted that the customers expect satisfaction not only in terms of genuine and wholesome products and services but also several other considerations such as prompt and regular supply of production/services reasonable price, availability of efficient after sales service and so on. 3. Marketing Management Marketing management consists of planning, organizing, directing and controlling the activities related to the marketing of goods and services to satisfy the customer’s wants. According to Philip Kotle, “Marketing management is the analysis, planning, implementation and control of programmes designed to create, build maintain mutually beneficial exchanges and relationship with target markets for the purpose of achieving organizational goals.” 4. Description of the product and the business 3M Company Learning System is a new generation of microcomputer-aided education device that uses an innovative dot matrix coding technology to combine traditional paper book with microprocessor technology for electronic publishing. The system consists of textbooks printed with dot matrix codes as light background and/or as small icons inserted between texts, an electronic pen with optical sensor, a hand-held device with microprocessor, and a flash memory card stored with digital audio contents of paper textbooks. The dot matrix coding system and the speech processing and comparison was first-time innovation that transforms traditional paper books into digital books. As a breakthrough, the 3M Company has adapted the speech recognition technology into an intelligent speech comparison technology and applied it on a single-board microprocessor-based product. Compared to other products in the current market, 3M Company’s paper-based, no-display design and intelligent interaction functions make it much more convenient to use, and offer superior user-machine interaction. 5. SWOT analysis and its success factors in 3M COMPANY 5.1 SWOT analysis Strength within the company are that it caters for a wide rage of aspects involved in good financial position, company can afford expand product range in future. Product is locally produced, company can get production material anytime without delay, and do not really on other country to supply production material. Company is not big can respond to changes very quickly. Resources for more products, capacity to produce more in the case demand increases, ability to cope with demand. Weaknesses, which will occur in the company is that it is new in the market so it would be hard to get consumers and a good reputation. It’s going to be hard for the company to get work due to the lack of consumers compared to existing competitors. This is because of the reputation they had built over the years, which I intend my company to have in the future. 5.2 Success Factors in 3M COMPANY English-learning market is huge and growing rapidly. There is an immense demand for products that can help users improve their listening and speaking abilities and skills. Over one billion people in the world and over 300 million people developing countries are learning English, and the population is still growing; 3M Company offers greater user convenience and superior intelligent interactivity at an appealing price/functionality ratio. With its speech processing and comparison technology based on a single board microprocessor machine, 3M Company offers many advanced speech interactive functions that no other products can match; Priced at 30-50 $ for basic model and 100-150 $ for advanced model, 3M Company offers superior functionality at a competitive price; The 3M Company has conducted a comprehensive competitive study and concluded that its product offers superior value over competing products. 3M Company has a well-educated and experienced management team possessing technology, industry and management expertise. The four founders of 3M Company are all graduated from universities and graduate schools. So they have professional knowledge and skills. And what’s more, the parent company of 3M Company is a famous group in electronic computer industry. They have great experiences in managing and developing electronic products. Opportunities that the company will have are that five or six years on it will expand to a limited company. By then the company will have achieved a high reputation, good customers’ base and a number of consumers; can compete with competitors as product has the quality to compete with its competitors. The main threats of the company are that the product in maturity stage in domestic and some international countries could go in decline. Company is very small that can be pushed out by competitors who are the key players in electronic dictionary market. Competing with price, which is, very dangerous, could result in price war, against the big companies will suffers loss, possibly go out of business. 6. 3M Company Learning System- Business Plan 6.1 Product concept 3M Company Learning System will be a pocket-sized, light-weighted handheld device available in two versions: the basic model and the advanced model. The basic model offers simple “book-content reading” and “machine-user dialogue” functions. The advanced model provides all the interactive features as described above. In brief, 3M Company can serve as a “virtual” private language tutor. In addition to all the functions related to language learning, 3M Company can also be a multimedia (MP3, MPEG, and AVI) player and a digital recording machine. With an optional high resolution LCD, 3M Company will become a powerful Palm PC with superior language learning features. Technology innovation as competitive advantages The key technologies in 3M Company Learning System are briefly described in the following sections. 1 Traditional Paper Book Content Positioning and Recognition Technology Currently, electronic publishing technologies can be divided into two categories. One uses graphics and multimedia technology to transfer a book into digital format such as CD/VCD/DVD and plays back on computers. Users need to use mouse, screen, keyboard and multimedia system to browse book contents. Books published in computer multimedia format require users to sit in front of a complete multimedia computer system. When students sit before a computer, look at the monitor, use the mouse and keyboard at the same time, it is very hard for them to concentrate on the book contents. The computer games and Internet are two other big distractions. The other electronic publishing technology uses microprocessors and LCD displays. In order to lower cost, reduce size and weight, this type of electronic devices use very small LCD panels. Because of the small size and low resolution of the LCD panels used, these kinds of devices cannot display an entire book page on the LCD. Therefore, these devices are not suitable for school textbooks, and are only used for products like electronic dictionary. Both technologies have to rely on display panel, which is harmful to students’ eyesight if they stare at it for long time. However, students study with 3M Company in the same way as they usually use regular pens pointing to the book contents. Because content on each page has its unique dot matrix code, students can select any content on the page by simply touching the dot matrix code corresponding to it. The elimination of display device reduces the size, weight and cost of the machine, making it more portable and affordable. Thus, in comparison with other products, the 3M Company’s dot matrix coding system is a more mature and commercially viable technology to be used to encode paper book contents. The two-dimensional background dot matrix coding system is a first-time innovation. 2 Intelligent Speech Processing and Comparison Technology Speech recognition technology has been rapidly developed in recent years. However, most of the speech recognition technologies require huge acoustics database/model and are CPU and memory intensive. In 3M Company, it adapts speech recognition technology into an intelligent speech comparison technology and applies it on a single-board microprocessor-based product. The intelligent speech processing technology enables 3M Company product to distinguish itself from all other electronic education products in the market. It evaluates and determines if the student’s pronunciation is close enough to the standard pronunciation, dialoging and chatting with students. In summary, compared to alternative technologies and products, 3M Company has many unique features and advantages. First, 3M Company is easier to use as it directly uses paper textbooks as content media and reading interface. Second, it provides superior interactive speech functions such as pronunciation evaluation and machine-person dialogue that no other current products can match. Third, it has excellent portability as its size and weight are similar to those of a mobile phone. 6.2 Competitive analysis Business is taking place in a steeply competitive, volatile environment, so it is important to understand the competition. (SBA, Competitive Analysis.) Currently, there is no product in the market that uses the same technology as that of 3M Company. 3M Company’s broad patent coverage will prohibit other market participants from legally marketing any products with the same technology in the next ten years of patent valid period. 7. The Market and Customer Analysis “According to the American Marketing Association, marketing research is the systematic gathering, recording, and analysing of data about problems relating to the marketing of goods and services.” (SBA, Marketing research.) Although market research is imperfect science, it deals with customers and their continual changes feels and behaviours, which are influenced by innumerable subjective causes. (SBA, Marketing research.) 7.1 The market and its customers Based on end user’s age, there are five segments for 3M Company products, pre-school children, primary school students, secondary school students, college students and adults. In the initial phase, we plan to target at primary to secondary school students, due to their much larger size, relatively common textbook material, easier accessibility, and greater needs of learning English well. In the second half of 2004, the 3M Company team conducted four focus groups in four major cities. The focus group had the following key findings through our focus group studies: Primary school students currently mainly use Paperback while secondary school students mainly Ajanta and electronic dictionaries. Market penetration rate for electronic learning devices is low. Basic model product is more suitable for primary school students, while advanced model product is more suitable for secondary school students. Primary school students are very much attracted to 3M Company products because it is fun to play with. This product will effectively enhance students’ interest in learning English, which is critical in the early stage of English learning. Responses from large cities are more positive than smaller cities. Based on these findings, we plan to launch basic model product in the first year, targeting at primary school students at selected cities. In the second year, we will launch the advanced model product, targeting at high grades of primary schools and secondary schools Table ：Focus Group Results on Basic Model Product Segments (Number of respondents in parenthesis) Value Purchase Intent Large Value Value Very Much Intend to Buy Primary School (60) Parents (30) 27% 73% 60% 40% Students (30) 67% 33% 100% Secondary School (20) Students (20) 100% 100% Total (80) 35% 65% 60% 40% Table ：Focus Group Results on Advanced Model Product Segments (Number of respondents in parenthesis) Value Purchase Intent Large Value Value Very Much Intend to Buy Not Sure Primary School (60) Parents (30) 33% 67% 53% 40% 7% Students (30) 93% 7% NA NA NA Secondary School (20) Students (20) 100% 90% 10% Total (80) 48% 52% 32% 60% 8% Factors influencing buying behavior Inputs Channels Processor Output (Response) Factors influencing buying behavior 8. Resource for the Business 8.1 Manufacturing Plan In order to reduce capital requirement and shorten the product launch cycle, we plan to import ready-made integrated chip and optical sensor in the initial phase. After the production reaches a certain scale and the company accumulates certain amount of capital from its operations, we will design and localize the customized chip to further reduce product cost. For the same reason, we plan to outsource manufacturing to an external company at the initial phase. After the production reaches certain amount of volumes, we may start internal assembly in order to lower product cost and better control product quality. 8.2 Product Development Plan 3M Company Co. already has a fully functional engineering prototype of the 3M Company product developed by its development group. 3M Company Co. will take the following key steps from this engineering prototype to a production-ready commercial product: Select major components (micro-processor and controller) based on cost and manufacturing process Develop host and pen hardware (PCB based) Develop software Develop manufacturing process (mechanical solution) Build production prototype, test and certify quality standards 3M Company Solutions are now working in India to jointly conduct these steps. In this way, we will be able to leverage high-quality design and suitable production in the Indian plant. It is estimated that the entire cost of basic model product development and the majority cost of advanced model product development (all except production prototype) will be around 2 million Indian Rupees, and the whole process will take up to nine months. 9. The marketing activities 9.1 Marketing mix Marketing mix represents the total marketing programme of 3M COMPANY LEARNING. It involves decision, with regards to product, price, place and promotion. Marketing mix serves the linkage between a business firm and its customer. Thus marketing mix is a blending of decisions in the 4 P’s. It is a system comprising the subsystems of product, promotion and distribution. These elements of the marketing mix are interrelated because decisions in one area affect the others. Marketing mix is a dynamic concept as it keeps on changing with changes in markets and the environment Philip Kotler has defined the term marketing mix as “ the set of controllable variables that the firm can use to influence the buyer’s response”. (59) The marketing mix denotes a combination of various elements, which in their totality constitute 3M COMPANY LEARNING ‘s “ marketing system”. These elements are often described as FOUR P’s: Product, Price, Distribution (Place) and Promotion. Concept of Market Mix In order to fulfill the objectives there are several variables that have to be incorporated into the elements of the marketing mix: Product – must be high in quality. Price – must be at a premium price/high value. Promotion – media and merchandising coverage. Place – must be available at local shops, supermarkets and other retail outlets. People – people provide most services. Physical evidence – must illustrate the service quality through physical evidence. Process – choose among different processes to deliver the service. Thus, Human Resource in 3M COMPANY LEARNING system has designed a marketing mix to analyze the mark the marketing problems. The problems are analyzed: (a) By utilizing the importance emanating from the market, which influences the marketing problems operations of 3M COMPANY LEARNING. For example, product acceptance, demand, price etc. (b) Adopting, procedures and policies for an efficient marketing programme. For example, distribution policies, promotional policies, etc. The product will effectively be introduced into its new market incorporating the main factors and variables which consumers deemed important/wanted in an electronic dictionary market. Positioning the product as a product ‘high in quality’ will satisfy the needs of the consumer. It will also portray the product as being fashionable. This will form the basis of the products unique selling point (USP). However, using the USP alone to generate sales will be insufficient. To further assist in forming favorable attitudes and creating intentions to purchase, other elements within the marketing mix should be considered. Simply relying upon price and the actual product as a differentiator from the competitors would be inadequate (KOTLER, 2003). 10. Distribution Channels 3M Company team will use the following three distribution channels for its product: 1. direct sales from the company to consumer; 2. sales through an intermediate organization; and 3. sales through retail channels. 10.1 Direct sales from the company to consumer At the initial product launch, we will prioritize to use direct sales to schools as our major distribution channel. As one of our group has a background in Ministry of Education and the parent company has a close relationship with the educational system at the national, provincial and local level, it’s easier for us to identify those areas which are less sensitive to financial burdens to students/parents, or those schools which are more eager to adopt advanced technologies to improve English teaching/learning qualities. 10.2 Sales through an intermediate organization Sales through an intermediate organization are a vital distribution channel for 3M Company products because it provides an easier and large-scale access to our target customers. H R M in 3M Company Solutions will work closely with the educational entities owned by, or affiliated to local education bureaus such as teaching instruments/textbooks companies, students’ extracurricular activity centers or teacher-training centers. Since they are closely related to the education bureaus and schools in the localities, they are the best agents for us to work directly with the schools and promote our products among the students. 3M Company Solutions partner publishers’ existing distribution channels are also very important for us to promote the authorized textbooks if we can work together and manage them well. We are now in discussion with PEP Book Distribution Center regarding 3M Company product promotion. 10.3 Sales through retail channels Human Resource Management in 3M Company Solutions plans to use Manoroma bookstore chains as a major retail channel, which is the main traditional bookshop. When sales cannot take place inside school, we have to refer students to a retail outlet easy to remember and have access to such as Manoroma bookstore. And then, as Manoroma bookstores can only choose to market a limited number of products closely related to books, it is easier for us to get shelf space there. Moreover, H R M in 3M Company Solutions team member’s established relationship with top management at Manoroma bookstore system will also help the future cooperation. When marketing through retail channel, we will do advertisement, mainly on student newspaper in the first year. Human Resource Management in 3M Company Solutions will consider TV commercial if the first year sales result is very positive. 11. Pricing Strategy and Financial Forecasting 11.1 Business Model and Pricing Strategy 3M Company product consists of three parts: a book printed with dot matrix codes, a flash memory card (or a ROM card for basic model) stored with the book content, and a hand-held device. In the beginning, we will bundle the three parts and sell them together. Later on, we will market different parts separately through different channels. For instance, the books will be sold through bookstores and other book distribution channels. We also plan to use re-writable cards, and ask users to go back to point of sales to download content for next books. The company’s revenue will come from two sources: book and hand-held device. How the company set prices for book and hand-held device will determine which will be the major source for its profits. Such a decision is subject to three factors: consumers’ acceptance, distribution channel used and the company’s financial capability. We intend to delay this decision to a later phase after obtaining more information about the above three factors. Besides selling 3M Company learning device and its encoded textbooks, in the future we would develop additional English learning products and services centered on Bookman Learning System, with special focus on improving users’ English speaking and listening skills. Our management already has extensive experience and in-depth knowledge about the English-learning market. We may consider working with publishers and English training companies to jointly develop new training courses and textbooks based on 3M Company’s technology. 11.2 Financial Forecasting According to our plan, it will take up to one year to start up the company. Based on our detailed cost analysis, we will require 5.6 million dollars for company startup and operations, and 1.7 million dollars for the working capital during the first year. After the product launch, the financial situation will vary. It will depend on a number of factors: sales volume (as the main factor), ability to charge a higher price, ability to use school direct sales, sales payment term and sales cycle time. Given the uncertainties at this early stage, we have made three different scenarios in our financial projection. In the worst case scenario, the company will only be able to sell 10K units of products during its second-year operation (first year sales), then the company’s sales will grow at 50% in the next three years, and at 10% in the subsequent five years. The company will turn into positive cash flow after three years of operation, with a total capital requirement of around 10 million. In the most likely scenario, the company will sell 20K units of products during the second year. Then, the company’s sales will grow at 75% in the next three years, and at 20% in the subsequent five years. Similar to the worst case scenario, the company will turn into positive cash flow after three years of operation, with a total capital requirement of around 15 million. In the best case scenario, the company will sell 50K units of products during the second year. Then, its sales will grow at 100% in the next three years, and at 30% in the subsequent five years. The company will turn into positive cash flow after two years of operation, with a total capital requirement of around 10 million. Detailed financial analysis can be found in Appendix 3. Based on these assumptions and analysis, we are seeking 10 million of initial investment. This amount of capital will be used on the following purposes before the company generates enough cash on its own: 3 million for general and administration including salary and daily operations expenses 3 million for research, development and engineering 1 million for sales expense including advertisement and promotion 3 million for working capital After this initial investment, in the best case scenario, the company will be self-sufficient with this initial investment. In the worst case, the company will need an additional 5 million capital. 11.3 The Cash flow for the most likely scenario Based on our financial analysis, in the best case, the company will require 10 million to finance the company for two years. In the most likely and worst case scenarios, the company will need 15 million capital to finance its first three years of operation. Here, we just suppose the most likely scenario in the first 6 selling months as an example. Table below is the first-six-month financial projection based on the most likely scenario. Table 5：First-six-month financial projection based on the most likely scenario (In Million ) Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Sales Volume (K) 0 20.0 35.0 61.3 107.2 128.6 Revenue 0 6.2 13.5 26.0 49.4 64.6 Cost 5.6 9.8 18.2 22.8 43.3 49.9 Net Income -5.6 -3.6 -4.7 3.2 6.1 9.8 WC Change 1.7 1.9 -2.3 1.2 2.3 1.5 Free Cash Flow -7.4 -5.4 -2.4 1.9 3.7 8.3 12. Risks and Contingency Plan 12.1 Market uncertainties To be an entrepreneur who has ideas that occur on a daily essence. The real challenge, though, is to gather good ideas. Good ideas are more than just ideas – they are opportunities. (MULLINS, 2004) As a new product concept, 3M Company product has not been tested in the market. While we are confident about the technology and product, we are in the process of conducting both consumer and competitive research to prove more accurately the market potential for 3M Company products. 12.2 Threats from imitation As protection of intellectual property rights is rather weak in India, even though 3M Company is patented, it is still possible that other companies, especially those that are producing similar products may imitate our concept and technology. When this kind of scenario happens, we will seek legal counsel and fight against the imitators. 12.3 Technical Risk With technology advancement, there always exists the possibility that disruptive or superior technology would replace 3M Company or provide the same benefits at a lower cost. Thus, Human Resource Management should maintain a strong R&D team and continuously improve our technology and products in order to meet consumers’ ever-changing needs. Human Resource Management in 3M Company Solutions also plan to develop a wide range of electronic products for toys and English learning, in order to reduce and ramify the risk of relying on a single product. 13. Marketing Environment Marketing activities are influenced by several factors inside and outside the business firm. These factors or forces influencing marketing decision-making are collectively called marketing environment. It comprises all these factors, which have san impact on market and marketing efforts of the enterprise. According to Philip Kotler, marketing environment refers to “Eternal factors and forces that affects the company’s ability to develop and maintain successful transactions and relationships with its target customer.” The marketing environment may be broadly divided into two parts Microenvironment Macro environment Microenvironment implies the factors and forces in the immediate environment, which affect the company’s ability to serve its market. These factors are given below: Suppliers Market intermediaries Customers Public Macro environment refers to those factors, which are external forces in the company’s activities and do not concern the immediate environment. Macro environment are uncontroable factors, which indirectly affect the concerns ability to operate in the market effectively. The components of macro environment affecting the company are as stated under (a) Demographic forces (b) Economic forces (c) Political and legal forces (d) Social and cultural forces (e) Physical forces (f) Technological forces Competition in the market had been growing. One of the competitors covered nearly 90% of the total demand in the country. The balance of 10% alone was shared by a number of small manufacturers. To seize a share in the market held by the competitors, the management of 3M Company felt they would need an entirely different type of approach to the marketing environment. They had plenty of financial resources, but were in two minds. Before a decision was taken, the management was examining the sales possibilities if a revised marketing strategy was adopted. 14. Conclusion Thinking about the future 3M Company Solutions has very full line up goods in the Indian market. As a result, it will become increasingly difficult for them to make incremental strides in their acquisition of market share. HRM of 3M Company Solutions must remain adaptable and agile with the ability to make rather quick design changes to appeal to the tastes of the public, and keep up with rapid changes introduced by smaller rival in the market. At some point, upon saturation in the market, he may return to a modified “multipronged” approach, and readdresses their desire to dominate the market, altering their product strategy to meet the specific needs of the market as dictated by their cultural and economic environments. Bibliography & Reference From book: BARROW, C., BURKE, G., MOLIAN, D. and BROWN, R. (2005) Enterprise development: the challenges of starting, growing and selling businesses. London: Thomson. BURNS, P. (2001) Entrepreneurship and small business. Basingstoke: Palgrave Macmillan. DOUGLAS, E. and JEREMY, P. T. (1998) Getting Business to come to you. USA. 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[cited on 4th January 2006] http://www.startupnation.com/pages/start/Step4.asp Financial Projections Most Likely Scenario Month1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Sales Volume Hardware sales volume (K) 20.0 35.0 61.3 107.2 128.6 154.4 185.2 222.3 266.7 Basic 20.0 31.5 52.1 85.8 96.5 115.8 138.9 166.7 200.0 Advanced 3.5 9.2 21.4 32.2 38.6 46.3 55.6 66.7 Book sales (K) 40.0 110.0 232.5 446.9 704.1 1012.8 1383.3 1827.8 2361.2 All in Million RMB Revenue Simple version 6.0 9.5 15.6 25.7 28.9 34.7 41.7 50.0 60.0 Full function 0.0 3.5 9.2 21.4 32.2 38.6 46.3 55.6 66.7 Book 0.2 0.6 1.2 2.2 3.5 5.1 6.9 9.1 11.8 Total Revenue 0.0 6.2 13.5 26.0 49.4 64.6 78.4 94.9 114.7 138.5 COGS-basic 0.0 3.0 4.7 7.8 12.9 14.5 17.4 20.8 25.0 30.0 COGS-advanced 0.0 0.0 1.8 4.6 10.7 16.1 19.3 23.2 27.8 33.3 Expense 5.6 6.8 11.7 10.4 19.8 19.4 23.5 28.5 34.4 41.5 Total Cost 5.6 9.8 18.2 22.8 43.3 49.9 60.2 72.5 87.2 104.9 Operating Income -5.6 -3.6 -4.7 3.2 6.1 14.7 18.2 22.4 27.5 33.6 Operating Margin 12.2% 12.3% 22.7% 23.2% 23.6% 24.0% 24.3% Tax 0.0 0.0 0.0 0.0 0.0 4.8 6.0 7.4 9.1 11.1 Net Income -5.6 -3.6 -4.7 3.2 6.1 9.8 12.2 15.0 18.4 22.5 WC required 1.7 3.6 1.4 2.6 4.9 6.5 7.8 9.5 11.5 13.8 Change in NWC 1.7 1.9 -2.3 1.2 2.3 1.5 1.4 1.7 2.0 2.4 Free Cash flow -7.4 -5.4 -2.4 1.9 3.7 8.3 10.8 13.4 16.5 20.1 Terminal Value 296.3 Cash flow for NPV -7.4 -5.4 -2.4 1.9 3.7 8.3 10.8 13.4 16.5 316.4 NPV 136.1 Best Case Scenario Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Sales Volume Hardware sales volume (K) 50.0 100.0 200.0 400.0 520.0 676.0 878.8 1142.4 1485.2 Basic 50.0 90.0 170.0 320.0 390.0 507.0 659.1 856.8 1113.9 Advanced 10.0 30.0 80.0 130.0 169.0 219.7 285.6 371.3 Book sales (K) 100.0 300.0 700.0 1500.0 2540.0 3892.0 5649.6 7934.5 10904.8 All in Million RMB Revenue Simple version 20.0 36.0 68.0 128.0 156.0 202.8 263.6 342.7 445.6 Full function 0.0 12.0 36.0 96.0 156.0 202.8 263.6 342.7 445.6 Book 0.5 1.5 3.5 7.5 12.7 19.5 28.2 39.7 54.5 Total Revenue 0.0 20.5 49.5 107.5 231.5 324.7 425.1 555.5 725.1 945.6 COGS-basic 0.0 7.5 13.5 25.5 48.0 58.5 76.1 98.9 128.5 167.1 COGS-advanced 0.0 0.0 6.0 18.0 48.0 78.0 101.4 131.8 171.4 222.8 Expense 5.6 12.6 19.3 43.0 92.6 97.4 127.5 166.7 217.5 283.7 Total Cost 5.6 20.1 38.8 86.5 188.6 233.9 305.0 397.3 517.4 673.5 Operating Income -5.6 0.4 10.7 21.0 42.9 90.8 120.1 158.2 207.7 272.1 Operating Margin 21.5% 19.5% 18.5% 28.0% 28.3% 28.5% 28.6% 28.8% Tax 0.0 0.0 0.0 0.0 14.2 30.0 39.6 52.2 68.5 89.8 Net Income -5.6 0.4 10.7 21.0 28.7 60.8 80.5 106.0 139.2 182.3 WC required 1.7 5.1 5.0 10.8 23.2 32.5 42.5 55.6 72.5 94.6 Change in NWC 1.7 3.3 -0.1 5.8 12.4 9.3 10.0 13.0 17.0 22.0 Free Cash flow -7.4 -2.9 10.8 15.2 16.3 51.5 70.4 92.9 122.2 160.2 Terminal Value 2777.6 Cash flow for NPV -7.4 -2.9 10.8 15.2 16.3 51.5 70.4 92.9 122.2 2937.8 NPV 1312.6 Worst Case Scenario Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Sales Volume Hardware sales volume (K) 10.0 15.0 22.5 33.8 37.1 40.8 44.9 49.4 54.4 Basic 10.0 13.5 19.1 27.0 27.8 30.6 33.7 37.1 40.8 Advanced 1.5 3.4 6.8 9.3 10.2 11.2 12.4 13.6 Book sales (K) 20.0 50.0 95.0 162.5 236.8 318.4 408.3 507.1 615.8 All in Million RMB Revenue Simple version 2.5 3.4 4.8 6.8 7.0 7.7 8.4 9.3 10.2 Full function 0.0 1.2 2.7 5.4 7.4 8.2 9.0 9.9 10.9 Book 0.1 0.3 0.5 0.8 1.2 1.6 2.0 2.5 3.1 Total Revenue 0.0 2.6 4.8 8.0 13.0 15.6 17.4 19.4 21.7 24.1 COGS-basic 0.0 1.5 2.0 2.9 4.1 4.2 4.6 5.1 5.6 6.1 COGS-advanced 0.0 0.0 0.6 1.4 2.7 3.7 4.1 4.5 4.9 5.4 Expense 5.6 5.4 6.4 3.2 5.2 4.7 5.2 5.8 6.5 7.2 Total Cost 5.6 6.9 9.1 7.4 11.9 12.6 13.9 15.4 17.0 18.8 Operating Income -5.6 -4.3 -4.2 0.6 1.0 3.0 3.5 4.1 4.7 5.3 Operating Margin 7.0% 7.9% 19.3% 20.2% 20.9% 21.6% 22.2% Tax 0.0 0.0 0.0 0.0 0.0 0.0 1.2 1.3 1.5 1.8 Net Income -5.6 -4.3 -4.2 0.6 1.0 3.0 2.4 2.7 3.1 3.6 WC required 1.7 3.3 0.5 0.8 1.3 1.6 1.7 1.9 2.2 2.4 Net change in WC 1.7 1.5 -2.8 0.3 0.5 0.3 0.2 0.2 0.2 0.2 Free Cash flow -7.4 -5.9 -1.5 0.2 0.5 2.7 2.2 2.5 2.9 3.3 Terminal value 42.6 Cash flow for NPV -7.4 -5.9 -1.5 0.2 0.5 2.7 2.2 2.5 2.9 45.9 NPV 10.6 Read More