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External Surprises

13 May, 2016 - 13:23

Carol Wolfe and Jane Barnes have been friends for six years, sharing carpool responsibilities, a common love of sewing, and a belief that being self-employed would be a dream come true. After two years of tinkering, they produced a child carrier that they felt would appeal to devoted moms who wanted their baby to be physically attached to the parent in a secure and comfortable manner. They knew they would need lots of help getting this business off the ground, but never realized how difficult and complicated it would be to obtain such assistance.

They contacted the chairman of the marketing department at a local college and were told they could be considered as a student project for the capstone marketing course. One month later, they were given a preliminary report. The report began by listing the various agencies and intermediaries they would need to contact in order to start their business. The list included the following: personal attorney, patent attorney, accountant, commercial banker, raw materials providers (e.g. denim, thread, staples), distributors (wholesalers and retailers), advertising agency, marketing research firm, and fulfillment house. Further, they would have to understand the capabilities, options, and costs associated with each agency or intermediary.

Since they lived in a relatively small city (population 185,000), many of these agencies or intermediaries were not readily available. A local attorney put them in touch with a patent attorney and a marketing research company in a nearby large city. The estimated cost of doing the patent search was USD 5,500 while the cost of preliminary research was USD 9,300. Their combined savings totalled USD 18,000. Clearly, they were underfunded. A quick call to the local bank produced another list of requirements they would have to meet in order to qualify for a business loan, including a business plan, a pro forma statement, and so forth.

The initial business plan developed by the student group indicated that there were several competitors selling a product very similar to Carol and Jane's baby carrier. Also, the sources for denim were limited and required a minimum purchase of 500 bolts of fabric. Finally, because most retailers selling similar products were already committed to other manufacturers, it was unlikely that they would find retail distributors. The expected cost of manufacturing and marketing 30,000 units the first year was USD 1.4 million with a maximum possible profit of USD 146,000. Carol and Jane gave up on their idea.

While this scenario is quite depressing, it is not that unusual. It is critical that a business identify and evaluate the various agencies and intermediaries that it must deal with. Throughout this book, we will constantly identify these external agencies and attempt to assess their influence on a marketing organization.