yorktown technologies

YORKTOWN TECHNOLOGIES

CHUBBYMATTIAS

Chubby MattiasPresented by:

CONTEXT ANALYSIS MARKETING PROGRAMS RECOMMENDATIONS IMPLEMENTATION

Quick snapshot of Yorktown

+$

® NUS/Cellflash & FSG

First to market

5M value2004: 500k Glofish sales36 investors

Holds exclusive licenses

The only company to sell to the public

Yorktown’s marketing mix

4 Ps

• Genetically-modified zebrafish• 4 colours• Colours last a lifetime and can

be transmitted to offspring

• MSRP $5• More expensive than

traditional fish at $1

• 2 large distributors 5D & Segrest• Smaller independent stores• Large chains such as Walmart &

PETCO

• No national campaign• Pre-launch PR blitz• Ads in 2 fish trade magazines

🐠 📍

💰 🗣

PRODUCT

PRICE

PLACE

PROMOTION


SET THE TARGET FIRST!

Devise a marketing strategy that willenable the sale of GloFish to generate $4Min profit over 5 years, thus reaching its fullpotential and meeting the expectations ofthe company’s investors.

Yorktown requires a focused marketing strategy

Which distribution channels would be most conducive to maximizing sales of GloFish while showcasing product differentiation?

Which promotional methods would be most effective in educating both consumers and retailers about the product?

Should Yorktown Technologies consider expanding sales of GloFish into foreign markets?

Yorktown has three main issues to address in the changing market landscape

🚦

🗣

🌏


Resources

Capabilities

Competencies

• 500K in capital• R&D institution• Co-exclusive

distribution • Access to R&D• Access to the

market• Generation of

earned media

• Exclusive patents• Full control over

fluorescent fish market

Yorktown provides a differentiated product in a niche market

💰🔬

🛡


S W

TO

Strengths

• Exclusive license agreement• First to market• Longer lasting colour• Lower price (vs. foreign)

Opportunities

• High market growth• International expansion• Bundles & kits• Untapped California market

Weaknesses

• Ineffective marketing strategy• Inability to convert sales• Licensing structure• Not present in PetSmart

Threats

• Ongoing lawsuit• Low demand• Direct foreign competitor• Biotech sales are illegal in most

countries

Yorktown must go beyond their current strategy to reach their full potential in a niche market


SOCIOCULTURAL REGULATORY TECHNOLOGICAL

• High consumer acceptance

• California is more environmentally conscious

• International expansion possible in Asia only

• California has many procedural obstacles

• Sterilization of fish for IP protection abroad

• Innovative appeal to tropical fish enthusiasts

There are three main environmental factors to address in their market landscape

😃 🏛 🖥


Market Size

700m

200m

14m

US sales annually

Fishes sold annually

$1.93

Households own a fresh water aquarium

Avg. cost

Freshwater ornamental fish industry figures in the US

⭐

⭐

⭐


200 producers 5000 retailers

24 regional wholesalers

7% increase in sales annually

Prices are controlled at the retail end of distribution

🐠

🏪📈

🏬


• Tropical fish enthusiasts• People seeking convenience (e.g. expertise

of staff)

• Price-sensitive consumers• First-time buyers

4 segments of consumers across 2 main distribution channels

🏠 🏘Small stores Chain stores


Assumptions

Cost of producing zebrafish is negligible, so COGS is related to licensing and distributor/retailer margins (~ 6.5 cents/day for a tank full)*

* http://www.alnmag.com/articles/2014/06/are-zebrafish-new-mice1

Distribution margin structure is similar for both traditional zebrafish and GloFish2The 2004 operating loss of $120,000 is dependent on the MSP/operating3Sales for each of the four colours available in 2004 accounted for 25% of the total revenue of $500,0004

The underlying assumptions for the recommendation


19%

70%

11%

Distribution margin structure for GloFish (MSRP $5.00)

Distributor marginRetailer marginManufacturer margin

Most of the profit goes to distributors & retailers


16%

20%

11% $0.55 per 🐠

NUS royalty

Operating margin

$1.00 for FSG royalty

$0.80 for

The operating margin is too low to cover the licensing expenses ($0.80 - $1.00)


Increase price while maintaining distributor & retailer margins

Renegotiate

Licensing agreements1

Feasibility

Infeasible✖

Considerations

High bargaining power from NUS & FSG


Renegotiate

Licensing agreements1Distributor margins2

Feasibility

Infeasible✖Infeasible✖

Considerations


High bargaining power from distributors



Renegotiate


Retailer margins3

Feasibility

Infeasible✖Infeasible✖Infeasible✖

Considerations



Prices are controlled by retailers



Renegotiate


Retailer margins3Increase MSRP4

Feasibility

Infeasible✖Infeasible✖Infeasible✖Feasible✓

Considerations



Prices are controlled by retailers

Differentiation based advantage



Independent pet stores Chain stores🏠 🏘

🎪 🖥Kiosks Online

There are 4 distribution alternatives for Yorktown


Positioning statement!

As the first biotech animal for sale in the U.S., GloFish haspositioned itself as an industry pioneer. With innovation at thecore of the brand’s ethos, GloFish is dedicated to offering itscustomers a wide and exclusive selection of fish that are uniqueand safe for the environment. From amateurs to collectors,GloFish’s differentiated product assortment is great for anyonelooking for something truly eye-catching!

Yorktown requires a focused marketing strategy

First-time buyers of aquarium kitsTropical fish enthusiasts

Use variety & innovation to attract the target segments

1 2

a. Less price sensitiveb. Shop mostly at small storesc. Values variety & innovation

a. More likely to purchase fish in bundles

b. Shop mostly at larger chainsc. Values variety & innovation

Use variety & innovation Use variety & innovation


Increase the variety of GloFish offerings

🔬

💚

Invest more in R&D with NUS

Launch branded aquarium kits & supplies

Tanks & lightsDecorations & food

More coloursMore species of fish


1

2

3 $7.99 per 🐠

Match price of online distributors

Premium pricing to convey differentiation

$14.99 per 🐠Premium pricing to compete with foreign competitors

$5.99 for$7.99 for

All pricing options maintain the existing distributor & retailer margins


8 for $56.994 for $29.991 2

• Targets first-time buyers filling their aquarium• Leverages the fact that zebrafish do best in groups• “Build Your Bundle” to maximize customizability• Yorktown will absorb cost of bundle discounts

Bundle pricing increases basket size for first-time buyers


Sustained in-store sales require an investment

Internet

In-store

• Maintain distribution in both smaller stores and larger chains

• Invest in providing GloFish branded display aquariums to the largest chains

• Launch online sales on GloFishwebsite

• Offer free US overnight delivery on orders over $40.00

🖥

🏠


Kiosks enable a diversification of targeting

California

Kiosks

• Leverages high growth• Seasonal targeting of youth• November and December only• High visibility will increase brand

awareness

• Population greatly values innovation• Contains 12% of total US population

• Invest in a report for commercialization

🎪

🏝


Targeted approach for tropical fish enthusiasts

Mass approach for first-time buyers

Finding Dory sponsorship

Invest in optimal store displays

Communicate bundling pricing as a KPI booster

Offer competitive margins on GloFishaquarium kits + supplies

Use both push & pull to attract the target segment


• Social media campaign + contest: #FindingGloFish• Playing #FindingGloFish game -> chance of winning GloFish + kits• Posting a picture with your GloFish -> chance to win tickets to Finding Dory

premiere• Sponsorship embeds positive associations into GloFish brand

Sponsorship to target youth and increase brand awareness


• R&D + kit production

• Store displays

• Promotional pull

JANUARY-

MARCH

• Internet logistics

• California expansion


APRIL-

MAY

• Finding Dory sponsorship


JUNE-

JULY


AUGUST-

OCTOBER

• Kiosks


NOVEMBER-

DECEMBER

Implementing the recommendation in one year


$60,000

$30,000

$15,000

$10,000$10,000

$75,000

$50,000

$250,000 breakdown of the first year marketing strategy

KiosksStore displaysR&DInternet logisticsCalifornia expansionPromotion pullFinding Dory sponsorship

The biggest portion is spent on the pull strategy


0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

Year 1 Year 2 Year 3 Year 4 Year 5

5-year sales forecast

UnitsRevenueExpensesProfit

4m in profit after 5 years


• Expansion into Singapore 5 years from now• Global market is small (US accounts for 35% of global sales)• Success of Taikong in Taiwan means there is consumer interest in East Asia • Leverage relationship with NUS as a marketing element

Possibility for long term international expansion into Singapore


IMC

TROPICAL FISH ENTHUSIASTS• Print & online ads in relevant media

• Sponsored content about GloFish’s innovation

• Targeted SEO marketing on specific keywords

• Emphasize first-to-market, R&D, variety

FIRST-TIME BUYERS• Earned media on increased variety and California

• Online targeting of first-time aquarium buyers

• National TV ads (with holiday blitz)

• Owned media about environmental friendliness

• Emphasize FDA approval, aquarium kits, and bundle pricing

Bronfman Chair Model: overall focus is on variety & innovation

FIRMCONTEXT ANALYSIS MARKETING PROGRAMS RECOMMENDATIONS IMPLEMENTATION

Appendix

1. Variable costs 2. Distribution margin structure for traditional zebrafish3. Distribution margin structure for GloFish4. Distribution margin structure for GloFish cont.5. Operating income statement (2004)6. Operating income statement corrected for loss (2004)7. Pricing option 1: match internet distribution price8. Pricing option 2: premium pricing for differentiation9. Pricing option 3: premium pricing for foreign competition10.Bundle pricing 111.Bundle pricing 212.Bundle pricing’s effect on operating margins13.Breakeven analysis for mall kiosks

• (assuming only VC in 2004 are licensing expenses)

• NUS royalty rate of 16% of revenue = (0.16)($5.00) = $0.80/fish -> for yellow, orange, and green fish(or $150,000 annual minimum royalty)

• FSG royalty rate of 20% of revenue = (0.20)($5.00) = $1.00/fish -> for red fish

Variable costs (2004 operating income statement)

• $500,000 in sales revenue -> 100,000 sales volume for $5.00/fish

• (assuming each of the 4 colours accounted for 25% of sales volume)

• Licensing expensesNUS royalty:$0.80(25k yellow fish) + $0.80(25k orange fish) + $0.80(25k green fish) = $60,000* However, licensing agreement stipulates an annual minimum royalty of $150,000

• FSG royalty:$1.00(25k red fish) = $25,000

• Total licensing expenses = $150,000 + $25,000 = $175,000

Distribution margin structure for traditional zebrafish

• Manufacturer’s selling price (MSP) = $0.05

Wholesaler’s selling price (WSP) = $0.25

Manufacturer’s suggested retail price (MSRP) = $0.75-$1.00

• Wholesaler margin = (WSP-MSP)/WSP = (0.25 - 0.05)/0.25 = 80% -> $0.20 profit

• Retailer margin = (MSRP -WSP)/MSRP = (0.75-0.25)/0.75 = 66.7% -> $0.50 profit

= (1.00-0.25)/1.00 = 75% -> $0.75 profit

• Manufacturer operating margin = $0.05 -> 5.0% - 6.7% of MSRP

(assuming cost of producing zebrafish is so negligible that it’s ~ $0.00)

(source: http://www.alnmag.com/articles/2014/06/are-zebrafish-new-mice)

• Wholesaler margin = $0.20 -> 20% of MSRP of $1.00

Retailer margin = $0.75 -> 75% of MSRP

Manufacturer margin = $0.05 -> 5% of MSRP

Distribution margin structure for GloFish

• Manufacturer’s selling price (MSP) = ???

Distributor’s selling price (DSP) = $1.50

Manufacturer’s suggested retail price (MSRP) = $5.00

• Retailer margin = (MSRP -DSP)/MSRP = (5.00-1.50)/5.00 = 70% -> $3.50 profit

• (assuming Distributor margin is consistent with traditional zebrafish, thus is 80% with $1.20 profit)

MSP = DSP - (Distributor margin)(WSP) = $1.50 - (0.80)(1.50) = $0.30

• Manufacturer operating margin = $0.30 -> 6.0% of MSRP

(assuming cost of producing zebrafish is so negligible that it’s ~ $0.00)

(source: http://www.alnmag.com/articles/2014/06/are-zebrafish-new-mice)

Distribution margin structure for GloFish cont.

• Distributor margin = $1.20 -> 24% of MSRP of $5.00


Manufacturer margin = $0.30 -> 6% of MSRP

• $500,000 in sales revenue

Distributor margin = 24% of $500k = $120,000

Retailer margin = 70% of $500k = $350,000

Manufacturer margin = 6% of MSRP = $30,000

• Total distributor + retailer margin = $120k + $350k = $470,000

2004 operating income

• Revenues -> $500,000

Licensing expenses -> ($175,000)

Distributor + retailer margin -> ($470,000)

• Operating income (loss) -> ($145,000)

* However, the case states there was an operating loss of $120,000, thus there is $25,000 in over-accounted loss

• Therefore, the manufacturer margin must be higher, and that must be taken from the distributor margin (because the

MSRP and DSP are clearly stated in the case, but not the MSP for GloFish)

• For the operating loss to be $120,000, the distributor margin has to be $95,000

2004 operating income (corrected for loss)

• If the distributor margin is $95,000 on $500,000 in sales revenue and 100,000 in sales volume

- Unitary distributor margin = $95,000/100,000 fish = $0.95/fish -> 63.3%

- MSP = DSP - (Distributor margin)(WSP) = $1.50 - (0.633)(1.50) = $0.55

• Manufacturer operating margin = $0.55 -> 11.0% of MSRP• Distributor margin = $0.95 -> 19% of MSRP

Retailer margin = $3.50 -> 70% of MSRPManufacturer margin = $0.55 -> 11% of MSRP

• $500,000 in sales revenueDistributor margin = 19% of $500k = $95,000Retailer margin = 70% of $500k = $350,000Manufacturer margin = 11% of $500k = $55,000

• Revenues -> $500,000Licensing expenses -> ($175,000)Distributor + retailer margin -> ($445,000)Operating income (loss) -> ($120,000)

Pricing option 1: match internet distribution price

• MSRP -> $5.99/fish (yellow, orange, green)Retailer margin = $3.50 -> 58% of MSRPDistributor margin = $0.95 -> 16% of MSRPRoyalty = $0.96 -> 16% of MSRPOperating margin = $0.58 -> 9.6% of MSRP

• MSRP -> $7.99/fish (red)Retailer margin = $3.50 -> 44% of MSRPDistributor margin = $0.95 -> 12% of MSRPRoyalty = $1.60 -> 20% of MSRPOperating margin = $1.94 -> 24% of MSRP

• (assuming equal sales across all 4 colours, with a weighted operating margin of $0.92)• Sales volume required for $4M profit = ~ 4,358,000 fish -> 2.2% market share of annual US sales volume• Sales revenue required for $4M profit = $28.22M -> 4.0% of market share of annual US sales of $700M

Pricing option 2: premium pricing for differentiation

• MSRP -> $7.99/fish (all colours)


Distributor margin = $0.95 -> 12% of MSRP

Royalty = $1.28 -> 16% of MSRP (for yellow, orange, and green fish)

Royalty = $1.60 -> 20% of MSRP (for red fish)

• Operating margin = $1.94 - $2.26 -> 24% - 28% of MSRP

• (assuming equal sales across all 4 colours, with a weighted operating margin of $2.18)

• Sales volume required for $4M profit = ~ 1,835,000 fish -> 0.01% market share of annual US sales volume

• Sales revenue required for $4M profit = $14.66M -> 2.1% of market share of annual US sales of $700M

Pricing option 3: premium pricing for foreign competition



Distributor margin = $0.95 -> 6.3% of MSRP





• Sales volume required for $4M profit = ~ 501,000 fish -> 0.003% market share of annual US sales volume


Bundle pricing 1: effect on operating margins








• Sales volume required for $4M profit = ~ 501,000 fish -> 0.003% market share of annual US sales volume


Bundle pricing 2: effect on operating margins

• Bundle 2 - 8 fish for $56.99

• MSRP -> $56.99

Individual price -> $7.12/fish

Bundle discount -> $6.93

Individual bundle discount -> $0.87/fish

Retailer margin = $28.00 -> 49.1% of MSRP


(assuming two fish of each colour)

Royalty = $6.84 -> 16% of the price of 6 individual fish (for yellow, orange, and green fish)

Royalty = $2.85 -> 20% of the price of 2 individual fish (for red fish)

• Bundle operating margin = $11.70 -> 20.5% of MSRP

Individual operating margin = $1.46/fish

Bundle pricing’s effect on operating margins

• $7.99 individual pricing operating margins

- Yellow, orange, and green fish -> $2.26

- Red fish -> $1.94

• $29.99 bundle 1 pricing operating margins


- Red fish -> $1.55

• $56.99 bundle 2 pricing operating margins


- Red fish -> $1.24

Breakeven analysis for mall kiosks

• Annual cost = $12,000 - $36,000/year

Assumed monthly cost = $1,000 - $3,000/month

Assumed monthly cost for November-December = $2,000 - $6,000/month

• B/E for a monthly kiosk leasing cost of $6,000/month

# of fish = Monthly cost / Operating margin = 3,093 fish

(using smallest operating margin for red fish of $1.94)

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