Executive Summary
In this case study, Katie, a 23-year old university graduate, wishes to venture into the lucrative custom logos engraving business with an aim of creating a market niche that will allow her business take the advantage of the existing need for dedicated and skilled digital engraving individuals. Katie, although fresh from college, is both skilled and talented in this art and science having spent several years as a part-time worker at Bullets Award Inc, a renowned trophy and awards store in Red Deer, Alberta.
Here, the young entrepreneur realised some potentials with customised digital logos. She learnt to make digital logos and selling them online to prospective clients. She gained skills in computer hardware and sophisticated software used to engrave customised logos on trophies and awards. Due to this experience, Katie has seen the need to diversify from the award and trophy business to full-time business dealing with customised logos in the city. She expects to set a general price of between $40 (for simple logos) and $80 (for sophisticated logo images). Her initial anticipation is that she needs some $27,000 to invest in software and hardware for the business.
One important thing to note is that the business will mainly deal with online buyers, thus the need for an e-commerce platform that will allow her advertise her business, communicate with clients and send them their products without the need to physically present them at her stores. Katie has further noted that the city of Red Deer has a population of 90,000 people, but with only 5 trophy and awards business that are the main competitors.
Moreover, she has determined that there are few businesses that deal with customised logos as the only business in her city, which means that she is in a position to monopolise and create a competitive advantage over the award and trophy businesses. However, she should solve few problems before venturing into the business. First, she needs to obtain additional information to determine the market potential of her venture and to estimate her market share. She also needs to know her specific break-even point in sales, the size of the market and the specific customer needs in the market. In addition, the source of capital is an issue that she needs to determine before she ventures into the lucrative business.
Background
With the increasing need for business organizations to own digital logo, custom engraving for logos has increasingly become a profitable area. E-commerce, an internet-based business model, has allowed business organizations to relate with their customers, suppliers and other parties with little need to cover geographical distances. The new paradigm allows business organizations to advertise, relate their customers and transact online with a wider online community. In fact, it allows businesses to venture into a wider market, reduce travel, communication and office costs because only a few employees are needed to handle the business.
Katie’s venture can be considered an online business that is taking the advantage of the opportunities presented internet technology. In addition, customization and digitalization of logos is an example of digital goods that are increasingly becoming some of the most important forms of trade goods for online business, deviating from the old traditions of tangible goods and services.
Statement of the problem
Although Katie’s business is expected to venture into a relatively new business model that requires minimal capital but gain high profits, it is clear that there are as many weaknesses in this business model as there are potentials. In fact, the future of online business and e-commerce in general remains largely unknown, although analysts argue that e-commerce is the future for all organizations that need to venture into a globalized market.
Although Katie has identified a highly profitable and less risky business, her accessibility to information on the market is largely lacking. For instance, her knowledge on the market size, market potential and customer needs is generally limited. In addition, Katie requires adequate financial information to determine the amount of sales she should target to pass the break-even point. In other words, Katie needs a reliable source of information to determine her business strengths, weakness, opportunities and threats.
SWOT Analysis
Strengths
Katie’s online business model has advantages over conventional models for a number of reasons. First, online business has a global location. In other words, it is ‘boundary less’, meaning that there is no geographical boundary that limits a business based on this model to deal with clients. It enables organizations to expand their business beyond the local boundaries and reach global markets. Secondly, the model allows Katie to establish a business that will operate under minimal time constraints. Since her business will deal with digital goods (customised logos), it is clear that the time needed for transportation will be saved for other activities.
In addition, she can work from her office and still reach out to customers located in remote places within a short time. The business model also allows Katie’s customers to compare prices and products efficiently and effectively within a short time. The types of customised logos, their nature and other details will be displayed alongside their prices on the customers’ screen, giving the enough time and space to compare prices before placing an order.
E-commerce also requires Katie and her customers to complete a transaction through electronic fund transfer methods available, including PayPal, Wire, Master card pay and other methods available in the modern world. In fact, these methods are real-time and instant, allowing the two parties to transact from anywhere in the world. Since Katie targets the North American market, she has a wide range of electronic fund transfer channels available for her business.
Unlike other business models, e-commerce requires minimum capital investment because the internet is readily available, while computer and allied technologies come in various prices and varieties. Katie’s initial capital is relatively low when compared with localised business organizations that need to set up multiple offices in various locations.
Weaknesses
E-commerce business model exposes both the client and the business to a substantial amount of risks. For instance, both parties must be cautious of the integrity and genuineness of the other. While Katie is sure of providing customised logos to her remote clients, it is difficult for her to establish her genuine they are. On the other hand, clients will shy away from dealing with Katie because they cannot establish the worthiness of her business. Both parties will be cautious of fraudulent parties on the internet.
Threats
The internet is increasingly becoming the primary channels of communication and business model. It is free for anybody to use, in addition to being cheaper to use in business dealings. This means that Katie’s idea will be easily copied and duplicated by other companies or individuals, thus threatening her business. Competition is likely to increase as more people seek to copy the idea. In addition, companies with massive resources are likely to venture into the business and take a large market share, thus limiting Katie’s position in the market.
Apart from the model, the business process is also under constant threats. For instance, Katie’s software and hardware used in customising logos is not her business idea, neither is it her own innovation. In other words, her only business competitive advantage is her knowledge, talent and skills used to develop customised logos. She therefore runs at a risk of losing out to more skilled and resourceful organizations that are willing to train and employ skilled and talented personnel.
Opportunities
Katie’s business model comes at a time when e-commerce has placed a wide range of opportunities for business organizations to enter into profitable ventures. The opening of the global market is on the process, while more and more people are seeking to trade online in order to reduce time and resources used in travelling, transportation and communication. Secondly, Katie has an opportunity to expand her skills and talent because software and hardware supporting her art skills keep propping up every year. She has the opportunity to learn more and improve her skills in the art of engraving.
Alternatives
Alternative 1: Online information systems
In this case, Katie has the opportunity to obtain the information she requires from online sources. For example, e-bay, Google, Yellow pages and other online support databases have a wide range of information that can help Katie know the size of her market and customer needs and behaviour at the market. In addition, social sites may support her search for clients and allow her communicate with them in order to note their behaviour, needs and potential to purchase.
Advantages
The online source of information is wide and unlimited. With this information, she can determine her break-even point and the price of her products.
Disadvantages
Online source of information are unreliable for a number of reasons. For instance, it is difficult to establish exactly what the customers need. It is also difficult to determine how customers behave, which makes it difficult to establish a clear and applicable break-even point.
Alternative 2: concentrate on the Red Deer market in the initial stages
Advantages
By concentrating on the local market, Katie will have the opportunity to concentrate with few but reliable customers. She will have the opportunity to learn them, know their behaviour and needs.
Disadvantages
The Red Deer market is narrow, with only 90,000 people. The number of orders will generally be low, while her profitability will be limited. In addition, her rate of expansion is limited.
Recommendations
It is important for Katie to establish two business models- an online business and a localised office. From her office in Alberta, she will have the opportunity to deal with Red Deer customers both physically and online. Secondly, the online business will allow her deal with remote customers in various parts of America through her website as well as social sites. She will have the opportunity to learn their needs and behaviour and use this information to determine her break-even point, pricing, promotion and advertising strategies.
It is advisable that she establish the localised business to reach out for the De Beer market in order to create loyalty and trust among the local businesses. This will allow her do a pilot study that will help her determine the needs and behaviour of local customers. With such information, she will have adequate knowledge to decide the best strategies for dealing with remote customers once she adopts the online alternative.