Positioning for the Future Profitability for Today

1
Positioning for the Future Profitability for
Today

• XSInc.com

Bill Golden Erika Lehman Jeri Stroade
Kansas State University
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The Presentation

• Erika will present an overview of the company and
  industry and will state the problem.
• Jeri will present our view of the future,
  strategic alternatives for future operations, and
  how XS Inc. should position itself to take
  advantage of an evolving market.
• Bill will outline our marketing plan and
  implementation to insure profitability today and
  positioning for the future.

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Industry Competitive Analysis

• SWOT Analysis
• Five-Forces Model
• Key Success Factors
• Problem Statement

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SWOT Analysis

• Strengths
• Brand name
• Proprietary software
• Manufacturer affiliation
• Agriculture on-line auction

• Weaknesses
• Financial situation
• Exclusively virtual
• Provides few services
• Portfolio management

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SWOT Analysis

• Opportunities
• Globalization breaks down spatial barriers
• Willingness to use technology will increase in
  future
• Existence of excess inventory likely to continue

• Threats
• Losing major customers
• Logistical improvements
• E-bay (agriculture auctions)
• Technological change
• Government regulations

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Five-Forces Model

• Rivalry among sellers
• Strong
• Substitute products
• Many
• Potential entry of new competitors
• High probability
• Bargaining power of suppliers
• High
• Bargaining power of customers
• High

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Key Success Factors

• Strategic fit
• Profitability today
• Brand name equity
• Technology management
• Strategic alliances throughout chain
• Brick and click combination

• Poor
• Poor
• Good
• Good
• Average
• Poor

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The Problem

• Benefits of e-commerce undeniable but slower in
  occurring than expected
• Most successful e-commerce businesses are brick
  and click but XS Inc. has no brick and mortar
  component
• XS Inc. must find a successful strategy to
  maintain flexibility and survive until
  e-commerce proves profitable

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Positioning for the Future

• Assumptions
• XS Inc. is not profitable today
• Auction side has not performed satisfactorily
• Nterline looked like a way to salvage XS Inc.
• Investors are nervous

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Positioning for the Future

• Alternatives
• Do nothing
• Get out of the business
• Continue with product line expansion and
  diversification
• Restructure and refocus

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Positioning for the Future

• Drivers of Change
• Globalization Profitability Concentration
• Concentration Internet Evolving Supply Chain
• Will change come fast?
• NO
• Why?
• Friction with and investment in existing supply
  chain
• Target markets reluctance to purchase on the
  Internet
• Fear of something new
• Security concerns
• Time lag

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Positioning for the Future

• Uncertainty about future
• Most manufacturers of agriculture inputs have a
  strategic contingency plan for selling direct to
  producers
• They would prefer not to, but are not sure how
  the supply chain will evolve

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Positioning for the Future

• The Chemical Supply Chain

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Positioning for the Future

• The Seed Supply Chain

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Positioning for the Future

• Focus on your competitive advantage
• Core competency in the chemical and seed
  industries
• Strategic advantage in logistical management
• Brand name in agricultural markets
• Specific knowledge of on-line auctions

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Positioning for the Future

• Maintain strategic fit
• Corporate culture must be consistent with
  ventures
• Products must be consistent with mix

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Positioning for the Future

• Implications
• Concentrate on the original plan for making XS
  Inc. profitable
• Divest Nterline
• Do not expand the agricultural parts category

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Positioning for the Future

• Develop strategic alliances
• Supply control
• Brick and click
• Improve financial strength
• With whom?
• Manufacturers
• E-bay
• National Association of Crop Consultants

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Profitability for Today

• What went wrong?
• Expertise in the chemical industry
• Expertise in wholesaling
• Expertise in business
• Expertise in e-commerce
• XS Inc. did not identify or understand the target
  market
• Crops are not generic
• Producers are not generic
• Savings does not equal customer value
• Producers need personal attention
• Timing and delivery issues are critical
• Lets address these issues

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Profitability for Today

• The issue of timing/delivery
• Producers have a hard time planning chemical use
• Financially and emotionally producers do not like
  to carry inventory
• XS Inc.s delivery schedule of 7-10 days does not
  create value or meet customers needs
• Solution
• Use XS Inc.s strategic advantage in logistics
  and liquidation to offer a guaranteed return
  policy with a 5 restocking fee
• This will generate profitable additional sales

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Profitability for Today

• Target Market by Crop

Source USDA
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Profitability for Today

• Target Market by Area

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Profitability for Today

• Target by customer

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Profitability for Today

• How do we reach the target market?
• Personal contact
• 1 national manager and 4 territory managers
• Hire from competitive pool
• Preferably from area
• Advertising
• Crop specific magazines
• CPM
• NACC
• DTN

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Profitability for Today

• How do we create customer value?
• Personal contact
• Territory managers
• Timing
• 5 restocking fee
• Security and technology
• XS Inc. has handled
• Farmers are ready

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Profitability for Today

• How do we price our product?
• 100 access fee is too cheap for information
• Incrementally raise to 250 at 25 per quarter
• 3 is too cheap for an auction commission
• Incrementally raise to 5 at 0.25 per quarter

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Profitability for Today

• Breakeven analysis
• Cost of sales force 4 _at_ 65,000 260,000
• Sales manager 1 _at_ 100,000 100,000
• Travel and entertainment 250,000
• Advertising 100,000
• Total 610,000
• Breakeven sales _at_ 5 commission 12,200,000
• Breakeven per territory 3,050,000

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Profitability for Today

• Can they do it?
• Per territory
• 3,050,000 _at_ 60/acre _at_ 600 acre/producer
• 90 new customers per year
• Less than 8 per month

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Profitability for Today

• How do you value a customer?
• HBS asserts that customers should be valued at
  their lifetime value

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Profitability for Today
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Profitability for Today

• Bottom line
• 360 new customers per year _at_ 7200 lifetime value
• Yearly increase in NPV of 2,600,000

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Implementation

• Divest Nterline by January 2002
• Create strategic alliance with Rhone-Poulenc by
  2002
• Create alliance with Dupont and Monsanto by June
  2002
• Have sales force in place prior to October 2001
• Start advertising immediately
• Identify 4 new territories by June 2002

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Questions and Comments

• Thank you for your attention
• We will now entertain questions and comments