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Serena Lee

KeepSwitch does not have a marketing plan and is unsure of their budget. The group recommends Option 4: increasing prices to $200+$100 per additional person, aiming for a 1% market share with an advertising budget of 8.1% of sales. Option 4 returns the highest net profit of $161,705 with a breakeven of 732 units, allowing KeepSwitch to invest in features like photography and expand to more cities quickly. The recommendations are supported by market research and industry benchmarks.

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Case 2 - Group #6 KeepSwitch Recommendations: We recommend that KeepSwitch change their price strategy to cover their fixed and variable costs and set a minimum ad budget of 8.10% of sales (1) Problem KeepSwitch does not have a marketing plan and is not sure what they should have as a marketing budget. Develop a marketing plan that will help KeepSwitch obtain at least 1 % market share and 8% marketing budget. (2) SMART objectives/measure of success a) Turn a profitinthe firstyear b) Obtainat least1% marketshare or 2135 customersinthe firstyear c) Generate a4$ return onmarketinginvestment (3) Describe alternatives sufficiently to understand the assumptions used in your Pro-forma Market Share Potential Total Millennial 8000000 Average # of trips 0.566666667 Total Domestic Trips 4,533,333 % of Vacation Rentals 20% Est Market Size 906666.6667 % that lives on their own 62% Potential Swappers 562133.3333 Break Down by Target City Vancouver 21,929.60 Montreal 81,950.70 Toronto 109,589.37 Option Details Op 1 - Presentation selling price - 1% of market share VC: hospitality package, professional photography, online payment processing, one time insurance Potential Market Share Targets by City 1% Market Share 2% Market Share Vancouver 219.3 438.59 Montreal 819.51 1,639.01 Toronto 1,095.89 2,191.79 Total 2,134.70 4,269.39
Op 2 - Presentation selling price - 2% of market share VC: hospitality package, online payment processing, one time insurance Op 3 - Increased selling price - 100 per person - 1% Market share, no photography, 80$ one time insurances Op 4 (Recommended) - Increased selling price - (200 + 100 for an additional person) - 1% market share - all possible VC - increased ad budget to 8.1% of sales Fixed Costs: Price Additional Details App $50,000 Customer Support x 1 Salary $20,250 (Minimum wage) $11.25 * 37.5 * 4 * 12 Website Domain $120 $10 (Domain name)/month Variable Costs: Photography $50 Hospitality Package $2.00 Paymentech $1.20 Insurance 80 Option 4 – Direct Marketing Strategy Tactic Cost of Tactic Number of Contacts Expected RR% Expected # Swaps Total Cost Cost per response ROI Targeted Mail 0.8 37,500 3.70% 1387.5 30000 21.6 13.875 Online Marketing 1 10,000 1.10% 110 10000 90.91 3.3 Email 0.15 28,500 2.10% 598.5 4275 7.14 42 Telephone 15 500 9.50% 47.5 7500 157.89 1.9 (4) Complete Proforma/breakeven analysis
Assumptions  % Change are all based on base of originally presented information (option 1)  Quantity is 2 homes or 1 swap  Travel for 1 week - millennials are likely to travel longer  Selling price is based on two people. 85% of people are more likely to travel in pairs or more. Option 1 Option 2 Option 3 Option 4 Quantity 2135 4270 2135 2135 1 Selling Price $120 $120 $200 $300 2 VC/Unit $53.20 $3.20 $83.2 $133 3 Contribution/per unit $66.80 $116.80 $116.80 $167.00 4 5 Pro-forma Income Statement Sales $256,200.00 $512,400.00 $427,000 $640,500 6 COGS $113,582.00 $13,664.00 $249,368 $356,545.00 7 Gross Profit $142,618.00 $498,736.00 $177,632 $283,955 8 Advertising Costs $8,967.00 $86,001.22 $14,945 $51,881 9 Other Fixed costs $70,370.00 $70,370.00 $70,370.00 $70,370.00 10 Total Fixed Costs $79,337.00 $156,371.22 $85,315 $122,251 11 Net Profit $63,281.00 $342,364.78 $92,317 $161,705 12 Analysis Gross Margin 55.67% 97.33% 41.60% 44.33% 13 Net Profit Margin 24.70% 66.82% 21.62% 25.25% 14 Advertising as % of sales 3.50% 16.78% 3.50% 8.10% 15 % Change in Sales n/a 100.00% 66.67% 150.00% 16 % Change in COGS n/a -87.97% 119.55% 213.91% 17 % Change in Advertising n/a 859.09% 66.67% 478.57% 18 % Change in Net Profit n/a 441.02% 45.88% 155.53% 19 Breakeven 1188 1339 731 732 20 Margin of Safety 44.37% 68.65% 65.76% 65.71% 21 ROMI 14.90 4.80 10.89 4.47 22 23
(5) Recommendation: Option 4 1. Returns highest net profit of $161,705  And will still allow you to invest in more luxury features like professional photography 2. Breakeven of 732 units (lowest out of the 4 options) 3. More conservative market share 1% 4. Highest contribution $133 5. Lower ad % of sales at 8% but high acquisition (6) Conclusions Overall, we wanted to deliver an option that would allow KeepSwitch to be available in more cities more quickly. By developing a healthy bottom line in the first year, they will have enough capital to do so. Sources: Insurance costing: http://www.lovehomeswap.com/swap-protection Ad budget: http://rentalsunited.com/blog/vacation-rental-industry-stats-infographic/ Market Potential http://en.destinationcanada.com/sites/default/files/pdf/Research/Industry- research/millennialreport_en.pdf Response benchmarks http://www.marketingcharts.com/traditional/direct-media-response-rate-cpa-and-roi- benchmarks-53645/ Media Cost Benchmarks https://www.onlinemarketinginstitute.org/blog/2013/06/why-direct-mail-still-yields-the-lowest- cost-per-lead-and-highest-conversion-rate/ Peer Evaluation Group Member/Record # Evaluation Veronika Bidlova Rec#1 30 Leona Houston Rec#14 30 Arda Ozcelik Rec #46 10 Gayoung Lee Rec#22 30

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  • 1. Case 2 - Group #6 KeepSwitch Recommendations: We recommend that KeepSwitch change their price strategy to cover their fixed and variable costs and set a minimum ad budget of 8.10% of sales (1) Problem KeepSwitch does not have a marketing plan and is not sure what they should have as a marketing budget. Develop a marketing plan that will help KeepSwitch obtain at least 1 % market share and 8% marketing budget. (2) SMART objectives/measure of success a) Turn a profitinthe firstyear b) Obtainat least1% marketshare or 2135 customersinthe firstyear c) Generate a4$ return onmarketinginvestment (3) Describe alternatives sufficiently to understand the assumptions used in your Pro-forma Market Share Potential Total Millennial 8000000 Average # of trips 0.566666667 Total Domestic Trips 4,533,333 % of Vacation Rentals 20% Est Market Size 906666.6667 % that lives on their own 62% Potential Swappers 562133.3333 Break Down by Target City Vancouver 21,929.60 Montreal 81,950.70 Toronto 109,589.37 Option Details Op 1 - Presentation selling price - 1% of market share VC: hospitality package, professional photography, online payment processing, one time insurance Potential Market Share Targets by City 1% Market Share 2% Market Share Vancouver 219.3 438.59 Montreal 819.51 1,639.01 Toronto 1,095.89 2,191.79 Total 2,134.70 4,269.39
  • 2. Op 2 - Presentation selling price - 2% of market share VC: hospitality package, online payment processing, one time insurance Op 3 - Increased selling price - 100 per person - 1% Market share, no photography, 80$ one time insurances Op 4 (Recommended) - Increased selling price - (200 + 100 for an additional person) - 1% market share - all possible VC - increased ad budget to 8.1% of sales Fixed Costs: Price Additional Details App $50,000 Customer Support x 1 Salary $20,250 (Minimum wage) $11.25 * 37.5 * 4 * 12 Website Domain $120 $10 (Domain name)/month Variable Costs: Photography $50 Hospitality Package $2.00 Paymentech $1.20 Insurance 80 Option 4 – Direct Marketing Strategy Tactic Cost of Tactic Number of Contacts Expected RR% Expected # Swaps Total Cost Cost per response ROI Targeted Mail 0.8 37,500 3.70% 1387.5 30000 21.6 13.875 Online Marketing 1 10,000 1.10% 110 10000 90.91 3.3 Email 0.15 28,500 2.10% 598.5 4275 7.14 42 Telephone 15 500 9.50% 47.5 7500 157.89 1.9 (4) Complete Proforma/breakeven analysis
  • 3. Assumptions  % Change are all based on base of originally presented information (option 1)  Quantity is 2 homes or 1 swap  Travel for 1 week - millennials are likely to travel longer  Selling price is based on two people. 85% of people are more likely to travel in pairs or more. Option 1 Option 2 Option 3 Option 4 Quantity 2135 4270 2135 2135 1 Selling Price $120 $120 $200 $300 2 VC/Unit $53.20 $3.20 $83.2 $133 3 Contribution/per unit $66.80 $116.80 $116.80 $167.00 4 5 Pro-forma Income Statement Sales $256,200.00 $512,400.00 $427,000 $640,500 6 COGS $113,582.00 $13,664.00 $249,368 $356,545.00 7 Gross Profit $142,618.00 $498,736.00 $177,632 $283,955 8 Advertising Costs $8,967.00 $86,001.22 $14,945 $51,881 9 Other Fixed costs $70,370.00 $70,370.00 $70,370.00 $70,370.00 10 Total Fixed Costs $79,337.00 $156,371.22 $85,315 $122,251 11 Net Profit $63,281.00 $342,364.78 $92,317 $161,705 12 Analysis Gross Margin 55.67% 97.33% 41.60% 44.33% 13 Net Profit Margin 24.70% 66.82% 21.62% 25.25% 14 Advertising as % of sales 3.50% 16.78% 3.50% 8.10% 15 % Change in Sales n/a 100.00% 66.67% 150.00% 16 % Change in COGS n/a -87.97% 119.55% 213.91% 17 % Change in Advertising n/a 859.09% 66.67% 478.57% 18 % Change in Net Profit n/a 441.02% 45.88% 155.53% 19 Breakeven 1188 1339 731 732 20 Margin of Safety 44.37% 68.65% 65.76% 65.71% 21 ROMI 14.90 4.80 10.89 4.47 22 23
  • 4. (5) Recommendation: Option 4 1. Returns highest net profit of $161,705  And will still allow you to invest in more luxury features like professional photography 2. Breakeven of 732 units (lowest out of the 4 options) 3. More conservative market share 1% 4. Highest contribution $133 5. Lower ad % of sales at 8% but high acquisition (6) Conclusions Overall, we wanted to deliver an option that would allow KeepSwitch to be available in more cities more quickly. By developing a healthy bottom line in the first year, they will have enough capital to do so. Sources: Insurance costing: http://www.lovehomeswap.com/swap-protection Ad budget: http://rentalsunited.com/blog/vacation-rental-industry-stats-infographic/ Market Potential http://en.destinationcanada.com/sites/default/files/pdf/Research/Industry- research/millennialreport_en.pdf Response benchmarks http://www.marketingcharts.com/traditional/direct-media-response-rate-cpa-and-roi- benchmarks-53645/ Media Cost Benchmarks https://www.onlinemarketinginstitute.org/blog/2013/06/why-direct-mail-still-yields-the-lowest- cost-per-lead-and-highest-conversion-rate/ Peer Evaluation Group Member/Record # Evaluation Veronika Bidlova Rec#1 30 Leona Houston Rec#14 30 Arda Ozcelik Rec #46 10 Gayoung Lee Rec#22 30