Case Study:
Case Study I: Nothing Unique to Offer
During the past four months, George Vazquez has been putting together his plan for a new venture. George wants to open a pizzeria near the local university. The area has three pizza enterprises, but George is convinced that demand is sufficient to support a forth.
The major competitor is a large national franchise unit that-in addition to its regular food-service menu of pizzas, salads, soft drinks, and desserts-offers door-to-door delivery. This delivery service is very popular with the university students and has helped the franchise unit capture approximately 40 percent of the student market. The second competitor is a "pizza wagon" that carries precooked pizzas. The driver circles the university area and sells pizzas on a first-come, first-served basis. The pizza wagon starts the evening with 50 pizzas of all varieties and sizes and usually sells 45 of them at full price. The last 5 pizzas are sold for whatever they bring. It generally takes the wagon all evening to sell the 50 pizzas, but the profit markup is much higher than that obtained from the typical pizza sales at the franchise unit. The other competitor offers only in-house services, but it is well known for the quality of its food.
George does not believe that it is possible to offer anything unique. However, he does believe that a combination of door-to-door delivery and high-quality, in-house service can help him win 15 to 20 percent of the local market. "Once the customers begin to realize that 'pizza is pizza,'" George told his partner, "we'll begin to get more business. After all, if there is no difference between one pizza place and another, they might just as well eat at our place."
Before finalizing his plans, George would like to bring in one more partner. "You can never have too much initial capital," he said. "You never know when you'll have unexpected expenses." But the individual whom George would like as a partner is reluctant to invest in the venture. "You really don't have anything unique to offer the market," he told George. "You are just another 'me too' pizzeria, and you are not going to survive." George hopes he will be able to change the potential investor's mind, but if he is not, George believes he can find someone else. "I have 90 days before I intend to open the business, and that is more than enough time to line up the third partner and get the venture under way," he told his wife yesterday.
Question 1. Is there any truth to the potential investor's comment? Is the lack of uniqueness going to hurt George's chances of success? Is it possible the lack of uniqueness allows George to introduce a different value proposition? Explain.
Question 2. If George were going to make his business venture unique, what steps might he take? Is his venture already unique? If so, in what ways? If not, what can he do differently? Provide a complete in your answer.
Question 3. In addition to the uniqueness feature, what other critical factors is George overlooking? Identify and describe three, and give your recommendations for what to do about them. Does George's idea have other merits that may be of interest to investors? If so, what are they?
Case Study II: A New Spin on Music
Following his graduation from an excellent university with a degree in entrepreneurship, Brian Wright was eager to launch a business. Brian always enjoyed working with new technologies as well as watching movies, playing video games, and listening to music. Because of the proliferation of online movie and video game rental services, he believed that a service providing the online rental of CDs made perfect sense.
Brian was confident that the success of the other online rental services proved that there was a market for the online rental of entertainment media; therefore, renting CDs online would be an easy concept for customers to grasp. Although MP3s and MP3 players were growing in popularity, Brian knew that he and his friends preferred to listen to an album in its entirety; after all, Brian believed that "any true fan of an artist would want the entire album."
When calculating potential revenue, Brian concluded that the average retail price of a CD was approximately $14. If he charged $2 per CD per rental-which would offer an 85 percent savings to the customer based on the full retail price of a CD-he could recoup his costs within seven rentals. In addition, Brian believed that he could negotiate contracts with the music labels to purchase CDs in bulk at a discount, which would in turn reduce the time it would take for him to reach the break-even point. He knew enough about music encryption technologies to know that restrictions could be built into the CDs to deter people from copying songs from them. He decided that taking such precautions would alleviate any concerns that the music labels might have regarding piracy.
As Brian began discussing his idea with his friends, their enthusiasm convinced him that he needed to act quickly before someone else seized the opportunity. At $2 per rental and an estimated two rentals per customer per month, he would only need a little over 20,000 customers to reach $1,000,000 in annual revenue. After looking at his financial forecasts, Brian decided that it was time to bring his online CD rental service to market.
Question 1. Has Brian completed the proper marketing research for this potential opportunity? Why or why not? What would you do differently than Brian? Explain.
Question 2. Based on the case, are there key mistakes that you would caution Brian about? Are there things Brian is doing well? What recommendations would you make to Brian? Explain.
Question 3. What specific steps would you recommend to Brian for him to better assess this opportunity? What specific opportunity is available to Brian and how would you describe it to a potential investor?