Wateless washer launch

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  • 1. PRICING STRATEGY WATERLESS WASHING MACHINE - Amitabh Misra - Harshal Pimphalkhute - Shreyas Murthi - Tapan Kamdar
  • 2. Context Context - There is growing awareness for ‘reduce-reuse-recycle’ of energy and water 2 ¨ Energy ¤ By 2030 electricity usage growth of 40% ¤ Limited resources, cost will continue to rise in future ¤ Washer-Drier units leading consumers of electricity at home ¨ Water ¤ 22% of US water usage is for washing purposes1 ¤ Typically 1.2B gallons a day is used for washing1 ¨ Environment awareness for reduce-reuse-recycle ¤ Waterless car washes, urinals, low water sprinklers ¤ Energy star appliances 1 – American water works association estimates
  • 3. The waterless washing machine Context - New patented ‘nylon beads’ technology saves 90% water and 30% electricity 3 ¨ ¤ R&D partnership with University of Leeds (UK) ¤ Currently in stealth mode ¨ Key product features ¤ No dryer unit required ¤ 90% less water ¤ 30% less electricity ¤ Uses patented nylon beads – stains get attracted and get diffused in nylon beads, beads are recycled ¤ Currently in prototype, first product available in end of 2010 Note: See appendix for details on how the Xeros washer works
  • 4. Customers Context - Commercial cleaners & hotels will derive most benefit from Xeros’ offering 4 Xeros Value proposition Value drivers à Customer Segments à Note: Quantification of these value drivers and market size for each segment done later in pricing and value creation section Commercial cleaners = professional dry cleaners who have significant volume of regular laundry cleaning
  • 5. Competitors Context - Key direct competitors are traditional washer/dryers and ‘air washers’ 5 Primary Competition Secondary Competition Traditional Natural Air Air washers Dry Cleaning Washer/Dryer drying • Mature technology • New technology • Mature technology • Very low • Many strong • Uses recycled • High quality total cost companies water • Preserves delicate • Huge market share • Can be used for fabric Advantages • Established delicate washing channels and manufacturing process • Significant Energy • Uses ozone • Expensive • Time consumption and • Only removes bio- • Need special skills consuming water usage (~30% degradable stains and equipments • Low quality Disadvantages of utility bill) • Newer unproven • Use of abrasive technology chemicals
  • 6. Collaborators/Channels Context - Xeros should partner with some existing players like GE in both segments 6 Motivation / Decision Drivers Distribution Production Branding Promotion • Startup company needs Channels good cash flow to sustain License Brand as Use Direct Sales Existing retail (e.g. • Xeros’ patent is on nylon technology for ‘XEROS’ Force for Sears) and online beads technology, it can Commercial production to washer promotion (Amazon) channels take advantage of GE’s product established commercial expertise in production player like GE outlets and distribution • Xeros needs to maintain its License Brand as Let GE take care Existing retail (e.g. brand recognition as technology for GE washer of promotion Sears) and online innovation leader in production to + ‘Powered (Amazon) channels commercial segment Residential product established by XEROS’ • Residential customers are player like GE very fragmented and need a wide distribution network – requires deep pockets • For commercial space, This project is pricing only for the commercial washer product (not Xeros’ sales force is in best residential product) and will cover pricing for (1) washer unit (2) position to demonstrate the nylon beads refills (3) service contracts new technology and value proposition Note: The collaboration assumes that the license agreement drafted between GE and Xeros take care of no-compete clauses and restricts the freedom of use for certain allowed fields only (e.g. commercial, residential etc..)
  • 7. Pricing strategy pyramid - Framework used for pricing the new washer units + beads 7 Price Level Product value Pricing Policy Cash flow, Market Share Value Communication Economic Benefit, Positioning Price Structure Bundling, Fencing, Services Value Creation Economic Value, Offering Design, Segmentation
  • 8. Value Creation - Savings come from lower operational costs, space reduction & lack of dryer unit 8 Space savings Total value Operational Dryer machine creation cost reduction + due to lack of dryer + Savings = (relative to current costs for customer) Conventional Xeros cleaning cleaning
  • 9. Value Creation - The highest value add from Xeros’ washer is in Hotels segment 9 Commercial Hopitals Hotels Loads Loads Loads Weight (lbs) 10,000,000 Weight (lbs) 15,000,000 Weight (lbs) 5,000,000 / Weight/load 150 / Weight/load 150 / Weight/load 150 = Annual Loads 66,667 = Annual Loads 100,000 = Annual Loads 33,333 Operational Savings Operational Savings Operational Savings Labor 2.50 Labor 2.50 Labor 2.50 + Water 0.10 + Water 0.10 + Water 0.10 + Electricty 0.10 + Electricty 0.10 + Electricty 0.10 + Detergent 0.25 + Detergent 0.25 + Detergent 0.25 - Beads (0.40) - Beads (0.40) - Beads (0.40) = VC/load 2.55 = VC/load 2.55 = VC/load 2.55 Value created by * Annual Loads 66,667 * Annual Loads 100,000 * Annual Loads 33,333 Xeros washer is = Savings $ 170,001 = Savings $ 255,000 = Savings $ 84,999 in addition to the savings from not Space savings Space savings Space savings Laundry (sq ft) 1000 Laundry (sq ft) 3000 Laundry (sq ft) 2000 buying the dryer * Annual Rent $36 * Annual Rent $12 * Annual Rent $24 units * Utilization 25% * Utilization 80% * Utilization 80% = Savings $ 9,000 = Savings $ 28,800 = Savings $ 38,400 Savings Savings Savings Operational 170,001 Operational 255,000 Operational 84,999 Dryer + Space 9,000 + Space 28,800 + Space 38,400 machine = Net Savings $ 179,001 = Net Savings $ 283,800 = Net Savings $ 123,399 + Savings / # Machines 30 / # Machines 30 / # Machines 10 = Value Created $ 5,967 = Value Created $ 9,460 = Value Created $ 12,340 (~$15K) Note: Refer to appendix for more details on calculations, data sources and assumptions
  • 10. Market Sizing and Targeting - The hotels and hospital segments also have the highest market potential 10 Commercial Hospitals Hotels Xeros should only look at targets in No. of cities in USA 100 100 100 cities/metros since x No. of accounts/city 2 3 10 sales/marketing = Total accounts 200 300 1,000 cost are significant in rural areas for a Value created per machine $5,967 $9,460 $12,340 startup company x No. of machine per account 30 30 10 x Total accounts 200 300 1000 = Total value for segment $ 35,800,170 $ 85,140,000 $ 123,399,150 Expected share is Ease of converting to Xeros High Low High a function of the Fragmentation of segment DMU High Low Low Decision Making Expected share 3% 6% 6% Process by customers Exp value $ 1,074,005 $ 5,108,400 $ 7,403,949 Hotel segment is the best Commercial segment starting target segment with has a lower expected highest expected market market potential potential Note: Number of commercial accounts per city is assumed based on central cleaners who collect laundry from multiple locations Hotel segmented is assumed to be less fragmented due to centralized decision making by hotel chains / groups
  • 11. Price Structure - Revenue will come from washer unit, beads and service are secondary sources 11 Washer unit Beads Service ¨ Beads will be sold at 10 % ¨ Pricing based on industry margin per load – sold in 20 benchmark for conventional ¨ Washer machine unit will be pound packs washing systems – 10-20% priced as per value provided machine of sale price to customer - see next section for price level ¨ Cost to customer = 40 cents (20 cents manufacturing cost + ¨ A contract agreement based 10cents for distributors + 10 on hours of operation, ¨ Fences could potentially be created for Hospital cents margin) would be an additional tool in endorsing product quality segments by creating some product differentiation (e.g. ¨ For higher bead profits, anti-bacterial lining for warranty could be written such ¨ SLA structured to deliver washers etc..) – phase 2 that Xeros beads are used service within promised exclusively period of request
  • 12. Value Communication Strategy - Justify price based on value of each differentiating value driver. 12 Communication Positioning Positioning Factors Benefits and Relative Cost to find Value Low High • Relatively Low cost to Simple “Search” Goods Complex “Experience” Goods determine benefits because: • Hotels and Commercial cleaners Psychological Economic are EXPERT customers Benefit • Product expenditure is HIGH. Waterless • Purchases likely to be in BULK Washing • Some benefits such as no water, Machine less power and no dryer are obvious Air • Limited psychological benefits: • Less detergent, water and Benefit Dryers Traditional Dry electricity washers Cleaners • But business has to be competitive. ¨ Use ‘Economic Value Communication’ Strategy n Communication to focus on justifying price based on value of each differentiating value driver.
  • 13. Value Communication Method - Use Direct Sales Force to communicate differentiation and value 13 Customer Economic Value Comparison Value Based Model • Create a customer economic value comparison • Create customizable value model software that sheet for primary competition. takes basic data from buyer as input and • Include top differentiating value drivers – water calculates net savings specific to customer. electricity, space and time. • Include inputs such as area used, operation hours, labor, machine utilization & throughput. • Calculate cost savings, new throughput, labor savings, reduced space requirements etc. - Communicate Economic Value - Use Direct Sales medium Address concerns about New Product Other Promotional Material and Switching Costs • Product demonstration video • Expert opinions from industry analysts such as • Reports on impact of current processes on JD Powers in form of reports and videos environment. • Customer testimonials • Product warranty • Demonstration videos focusing on simplicity of • Reference prices from all other alternative use in washing and bead removal. washing products. • Offer free installation and trials
  • 14. Pricing Policy - Manage Cash flow and generate long term customers 14 Objectives Tactics Manage cash flow ¨ Give discounts for non-credit purchases (i.e. effectively encourage shorter A/R period) ¨ Allow for volume discounts for big accounts (this is required to manage customer expectations and can Win large volume also be used as case studies for other customers) from big accounts ¨ Appropriately incentivize sales force to target big accounts and give them 10% pricing flexibility ¨ Bundle annual supply of beads (discounted price) with Promote beads sales initial sale of washer unit with initial product ¨ Maintain 10% margin on beads sales later, once the customer is locked in
  • 15. Price Level - Skim the market (Hotels segment) with $34K, and allow hospitals to self select 15 Hotels – Price Skimming Hospitals - Penetration $52 K Negative Diff •Cost of beads •User Training $49 K Positive Negative Diff •Cost of beads Differentiation Value returned Positive •User Training to Customer Differentiation • Savings in labor Value returned and space Dryer Cost + • Savings in labor to Customer 25% of value created and space • Reduced Dryer Cost + operational costs • Reduced 25% of value created operational costs • Dryer machine $34 K costs • Dryer machine $32 K costs $25 K $25 K Reference Reference Value Value Conventional Conventional Washing m/c Washing m/c
  • 16. Price Timing Graph - Start with skimming and then move to penetration pricing 16 Price $34K $32K $25-28K Skimming Penetration Patent Expiry Time
  • 17. Price Timing - Start with skimming and then move to penetration pricing 17 Skimming Penetration Patent Expiry • Differentiated Product • Price reduction to increase • Price on par with • Convey Long term value adoption rates commercial washers • Build Brand Image • Motivate volume purchases • Value to customer = No • Guard against competition • Increase Market Share need for dryer • Consumer feedback and • Build Service revenue • Launch non-commercial buzz stream model for residential market $31K $29K $25-27K
  • 18. 18 Appendix
  • 19. 19 Illustration of washing process using Xeros washer
  • 20. Value Creation - Calculations, data sources and assumptions 20 Savings Savings Price/unit Usage /load Cost/load (%) per load Water $0.003 39 $0.11 90% $0.10 (gallons) Detergent $0.27 1 $0.27 90% $0.25 Washer $0.25 0.12 $0.03 30% $0.01 Energy (KwH) Energy Dryer $0.25 0.36 $0.09 100% $0.09 (KwH) Sources and Assumptions: http://michaelbluejay.com/electricity/laundry.html http://timeswv.com/local/x681690753/WVUH-laundry-load-growing-to-15-million-pounds-annually Xeros website and product specifications (for savings estimates) Assumptions for space and operational savings informed through interviews with commercial washer owners