Klean Industries Ltd.

Klean Industries Ltd. intends to start selling its main product, Klean in-room Air purifiers. Despite a diverse product range, the firm has established that the Klean Air Purifiers provide the optimum market entry product for the competitive USA market. The company has a lengthy history in Europe, where it has successfully built and commercialized industry-leading air filtration systems, mostly for enterprise and medical applications. Continued success in the European and Asian markets has driven further expansion into the US market, necessitating the need to position the company as a top choice for this product category. To provide our clients with the most efficient, quiet, and reliable in-room air purification systems that improve people’s health and lives.

Vision: Become the leader in in-room purification systems.

Company Goals

The company aims to make personal air purification accessible to all at an affordable cost. In the past, most manufacturers have focused on enterprise market due to the costs associated with developing air filtration systems. However, with advances in technology, the process has gained increased cost-effectiveness allowing additional savings to consumers. While most people associate air pollution with the outdoors, data from the environmental protection agency shows that indoor pollution is a growing problem in the USA and can be up to 500% of the outdoor pollution levels. Harmful particles are released into the air from multiple sources such as benzene, xylene, ammonia, formaldehyde, and trichloroethylene (Chen et al., 2015). Short-term exposure leads to minor health complications, but long-term exposure can lead to the development of cancer.

Core Competencies

Having already participated in the industry for years, Klean Industries will mainly depend on the economies of scale found in production and distribution to create a competitive edge. Most of the companies in the US have relatively small operations which leads to high research and development costs. Moreover, over the years, our Research and Development teams have generated additional inefficiencies in the production process in addition to integrating technological innovations. Additionally, the company’s success in the new market will leverage brand awareness and reputation to induce consumer trust.

Klean In-room air Purifier

As an indoor air-purifier, the Klean in-room air purifier is designed to be as unobtrusive as possible. Therefore, it is designed as a multi-part flowerpot. The larger flowerpot houses a technology unit with an attached fan that directs air from the room’s interior through the filtration system and the plant’s roots to detoxify it. In the 1990s, scientists discovered that some plants naturally removed the toxins from air although they did it through their roots rather than leaves. Therefore, the modified flowerpot design pushes air through a filtration system and the roots enhancing the quality of purified air. The technology unit also houses temperature, air quality, and humidity sensors that continually evaluate the air quality in the room. Additionally, a built-in module sends the data to a smartphone app in real time keeping the user updated.

Since the humidity and temperature of a room affect the toxicity of elements within, Klean air-purifier keeps a constant watch on them while the smartphone app provides tips on how to change and improve the air quality determinants in the room to reduce toxicity. The app has an inbuilt database that provides information about the most common sources of toxins such as smoking, heated plastics, and chemical compounds such as ammonia. In addition to informing users about the primary causative factors of toxicity, Klean helps in solving it. The product targets three core areas, particulate matter such as pollen, dust and pet fur, organic compounds such as gases and household chemicals, and bacteria that combine with elements in the air to form moldy surfaces.

Product Production

The technology used in Klean in-room air-purifier has been developed laboriously for decades hence its effectiveness has been confirmed. However, labor costs are also a determining factor in the end retail prices. Therefore, production will occur in the current manufacturing facilities in Asia which have established economies of scale in sourcing raw materials and production.

Situation Analysis

Strengths

One of the company’s strengths is its established history as a product leader in other markets. The long history of producing air purifiers and filtration systems gives us advantages not available to start-ups. For example, the company already has established manufacturing operations that will facilitate the production efficiency needed to maintain affordable prices. Moreover, since they have an existing market in Europe and Asia, Klean Industries has the necessary expertise in marketing and distribution of this product. As a result, labor and expertise costs associated with the expansion will be kept to a minimum.

Klean Industry’s main challenge in launching this product is the lack of existing distribution networks in the USA. Most manufactures form partnerships with local chain store retailers to advertise their products in prominent shelf spaces as most US customers make decisions based on brand awareness. However, with no history of operations in the USA, Klean Industries has no such relationships. With the increasing number of local companies entering the industry, it becomes essential to ensure potential markets are aware of the company’s offerings. The lack of a local perspective may also influence our ability to understand the business regulations in the country especially tax and employee benefits laws which are different from each country (Armstrong, Kotler, Harker, & Brennan, 2015). Therefore, rather than creating a wholly owned subsidiary, the company will establish a joint partnership with a local company who will provide the needed expertise and distribution channels. A joint operation allows for quick product penetration without the initial costs associated with setting up advertising and distribution channels.

Opportunities

Some people believe that climate change is a hoax and should be ignored. However, scientists have ascertained a positive correlations between air toxicity and numerous respiratory conditions such as asthma, bronchitis, and even cancer from prolonged exposure to toxic air. Additionally, as America’s population progressively gets older, there is an increasing need for air purification and filtration to maintain and prolong their health. Therefore, the aggressive introduction of in-room air purification product will position the company in a prime position to capture a growing market. The Klean in-room air purifier will also create business relationships and channels that may facilitate the parent company to introduce additional products later.

Threats

The main threat is the existing competition which is dominated by large vendors such as Conway, Honeywell, Philips, IQAir, and Camphill all of whom have decades of experience. Moreover, most of them employ a mergers and acquisition strategy to gain market share. Moreover, most of them focus heavily on technological innovations as they allow the improvement of production capacity and improved efficiency. However, there is a growing threat in the form of government regulations. The US government is strict about healthcare products due to their long-term effect on the population. Therefore, Klean Industries Ltd will need to continue innovating its product offering regularly. Moreover, the growing threat of new entrants and technologies may create additional competition later. Moreover, the short life-span of air purifier filters may make some consumers hesitant to purchase them as they represent a recurring cost every 2-3 years. The company also faces the threat of legislative changes that would make business operations less efficient or profitable such as the Obamacare act that burdened businesses with increased taxes (Center et al., 2017). Therefore, to decrease such risks, the company will collaborate with an experienced local distributor to establish warehousing and courier operations that facilitate same-day delivery. Moreover, with improved customer services, Klean can gain a larger market share from its competitors thus increasing profitability in the long run.

Target Market

The product is mainly effective for indoor use in small spaces less than 500 sq ft. Therefore, the target market is the domestic, residential, and small-scale commercial customers. The domestic customers are households, families, and students in hostel rooms. The small-scale commercial clients include small offices, hospitals, small and medium-sized workshops, and in some cases, small shop.

The main demographics of Klean in-room air purifier are those with higher than average income levels. In the US, these are mainly people aged above 20 and working in above minimum wage jobs with their tax status falling under Sections A and B. Additionally, owners of small-scale manufacturing or warehousing facilities will form some of the key clients due to the hazardous nature of their work environments. The market psychographics is mainly health-conscious people or those with respiratory conditions worsened by air toxicity. Hospitals require in-door air purifiers to minimize hospital-induced infections among their patients through the provision of hygienic environments.

According to a market Report by Zion Research, the residential market for air purifiers in the USA is estimated at $2.02 billion in 2015 with the capitalization expected to rise to approximately $3 billion by 2021 thus representing an average annual growth of 5.07%. Additionally, the population of seniors (over 65 years in the USA) has been steadily rising as baby boomers retire. Since this generation has high limits for their disposable income, it represents an expanding market (Prince et al. 2015). Moreover, the government is expected to enact more stringent air pollution laws as concerns over global warming gain prominence. These factors contribute to an increasing demand for air-purifiers with emphasis on quiet, energy efficiency, and price.

Price

Initially, clean will use a one-price strategy since the product is homogenous with an elastic price market and plenty of close substitutes. After identifying the specific consumer segments, price discrimination may be applied to determine the willingness of consumers to pay increased costs thus preventing price wars against competitors.

Klean’s retail price reflects that each unit is priced at $879.99 with a variable cost of $200 while the fixed costs are $500. The total initial cost for would net 424 sales to break even every year. Conversely, with similar fixed costs, Klean Industries would need to sell 609 units priced at 899.99 to break even in the same period. However, Klein expects not to breakeven during the first period due to the high investment costs.

Klean Industries Limited

Sales

Recommended Retail Price

899

Items sold

3000

Total Sales

2697000

Variable Costs:

Shipping

Packaging

Unit variable Cost

$70

Total variable costs

210000

Margin per Unit

$90

Gross Margin

270000

Fixed Costs

Wages and Salaries

120,000

Warehouse Rent

16000

Packaging

5000

Shipping

24000

Total

165000

Profit/Loss

2532000

Break-even Analysis

Items Sold

3000

Retail Price

899

Fixed Costs

165000

Variable Costs

210000

Costs of Sales

375000

Sales Revenue

2697000

Net Profit/Loss

2322000

Place

The company will be located in Florida, especially Los Angeles. The region has a high average per capita income in addition to having multiple communities of retirees and health-conscious people. Therefore, it represents an immediate market for our products helping in the launch to reach breakeven. Furthermore, the city also hosts other organizations in the industry including start-ups thus facilitating established distribution and sales channels. Products will be produced in China and shipped to warehouses nearby. To keep expenses low, only 1000 units will be hosted at any time. Warehousing these products locally allows us to offer same-day deliveries thus increasing consumer satisfaction and positive brand image in the long run.

Promotions

Klean Industries will employ the AIDA model as the basis of its in-room air purifier product promotion. Implementation will be done through Cult Branding as defined in the 52 Types of Marketing Strategies where we educate our target market about the benefits afforded by the air purifiers, especially in an increasingly toxic environment. The promotion will also happen through reserving booths at trade shows to highlight the technological and aesthetic advantages of the product. In the age of social media, it is important to maintain an online presence where customers can leave feedback and reviews about our products (Armstrong et al., 2015). Research shows that customers are more likely to purchase products from companies that have favorable reviews from others who have also used the same product. In this instance, direct selling will not be necessary as we will focus on the online channel exclusively during a product launch.

The company will also place advertisements in major media networks and collaborate with key partners in the industry to promote our products to the target audience. Furthermore, an aggressive social media and search engine campaign will also increase brand awareness while helping to create social proof and developing brand loyalty for certain consumer demographics.

Profit/Loss Statement

Jasper Clothing Industries

PRIOR PERIOD

BUDGET

Current Period

Sales Revenue

Purifiers

140000

0

1200000

Filters

0

20000

Total

140000

0

1220000

Cost of Sales

Purifiers

80000

0

697142.86

Filters

0

12000

Gross Profit

60000

0

510857.14

Operating Expense: S & M

Total

0

0

Operating Expense: Gen.

Wages and salaries

120000

0

90000

Shipping

50000

35000

Overhead

3000

Returns

2500

Rent

120000

Packaging

25000

Total

320500

0

Total Operating Expenses

320500

0

Income from Operations

-260500

0

Other Income

0

Taxes

0

Total

-260500

0

Net Profit/Loss

-260500

0

Gross Margin

0

#DIV/0!

Return on Sales

#DIV/0!

As seen from the profit/loss statement, the first year is expected to make a loss of $260500. The first year will feature heavy investment regarding rent, wages, and shipping, as Klein industries establish operations in a new jurisdiction. The lack of profitability also arises due to the lack of brand awareness and the initial capital costs of setting up a long-term operation in the country. Moreover, the high competition among air purifier manufacturers in the brick and mortar segment makes it difficult to sell to consumers directly especially among the seniors who may not be comfortable with e-commerce product offerings.

The product will be positioned as a premium offering targeted to the health conscious people. Mostly, the target consumers have above average incomes and can afford to consume goods still considered a luxury by many. However, in time, we hope to reduce the operational expenses thus allowing us to pass the cost savings to the consumer. Therefore, it would position us as an affordable alternative to expensive models. As the market share increases, we will use the existing distribution channels to introduce additional and higher-priced products that can allow product differentiation or target the enterprise market.

References

Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2015). Marketing: an introduction. Pearson Education.

Center, H., Woods, C. A., Urbana-Champaign, I. L., Manchikanti, L., & Purdue Pharma, L. P. (2017). A Critical Analysis of Obamacare: Affordable Care or Insurance for Many and Coverage for Few?. Pain physician, 20, 111-138.

Chen, R., Zhao, A., Chen, H., Zhao, Z., Cai, J., Wang, C., ... & Li, T. (2015). Cardiopulmonary benefits of reducing indoor particles of outdoor origin: a randomized, double-blind crossover trial of air purifiers. Journal of the American College of Cardiology, 65(21), 2279-2287.

Cult branding. 52 Types of Marketing Strategies. Retrieved from http://www.slideshare.net/cult

branding.com/52-types-of-marketing-strategies-31453870/23

Ortman, J. M., Velkoff, V. A., & Hogan, H. (2014). An aging nation: the older population in the United States (pp. 25-1140). United States Census Bureau, Economics and Statistics Administration, US Department of Commerce.

Prince, M. J., Wu, F., Guo, Y., Robledo, L. M. G., O’Donnell, M., Sullivan, R., & Yusuf, S. (2015). The burden of disease in older people and implications for health policy and practice. The Lancet, 385(9967), 549-562.