Week 11

This week we watched a video from Shark Tank about a new product called Fresh Patch. Fresh patch is a patch of grass that is designed for dogs to go to the bathroom on. The creator, Andrew Feld, designed this product as a way to support his growing family when he discovered that his wife was pregnant with their first child. As of right now, he sends his orders out to a manufacturer to create the patches, and then has to pay to ship them back to his home, and then he ships them from his home to the consumer.

Who is his target market? At first glance, we would obviously just state "pet owners," but because we have studied ways to determine the target market in depth, we know that owning a pet is not the only factor when it comes to buying this product. When we learned about the different product types, we learned about specialty products. Specialty products are particular items for which consumers search extensively and are very reluctant to accept substitutes. Distribution is often limited to one or a very few outlets in a geographic area. I believe that Fresh Patch is an example of a specialty product. People who usually invest in specialty products have a high income that makes them price insensitive. This high income narrows our target market down a bit. Additionally, his market is controlled based on the amount of people who would actually use it.

Who would use it? Yeah, pet owners is a given, and we did establish that it is a specialty product, so it would cater high income consumers, but what else? Why wouldn’t people just walk their dog along the streets or take their pet to a park? Well, that brings location into play. People who are of urban culture, who live in the city, who do not have a backyard- would be interested in this product. Pee pads are similar to Fresh Patch but they do not look as appealing to the homeowner, to the guests of the homeowner, and even to the dog. Additionally, people do not want to go through the hassle of taking their dog on a walk during the winter months. When it is cold, rainy or snowy, the last thing a person wants to do is spend time in the horrid weather, nor do they want to want to deal with it while picking up their dog’s feces. Fresh patches solve these problems and show that they have a functional purpose, as described on the elements of value pyramid. Fresh patch is a convenient product, for it saves time and makes many people’s lives a lot easier, but there is a reason for why it is ranked as the lowest level on the elements of value pyramid. Every product needs to have a functional value in order to even be considered as a business venture. No one would need the product if it was not functional. The likelihood for customers to return depends on the corresponding value. This is called retention rate.  As you go up the elements of value pyramid, the value strengthens, therefore also strengthening your ability to retain a customer.

Barbara Corcoran brought up a point that helped add value to Fresh Patch. Not only do people want to use the product for functional purposes, but it also makes the customer feel good about themselves by doing something great for their dogs. When they are not treating their pets like royalty, owners start to feel bad. Fresh patch could bring more joy to their pets instead of using pee pads or just letting them go to the bathroom on the cement. With giving their pet this added benefit of their lifestyle, it makes the owner feel less like they are neglecting their pet by living in a city or by not taking them out in the cold winter for walks. This builds a relationship between Fresh Patch and dog owners. If customers continue to purchase this product because it is classified as a “feel-good” product, then the probability for them to continue subscribing to Fresh Patch increases highly. Barbara decides to invest in this product because she wants to make the product something that would make customers feel guilty if they did not purchase  it. She presents this as an advantage to the product that Andrew Feld was not even truly aware of. The sharks asked about the amount of subscribers they have for their business. At the time of Feld’s pitch to the sharks, about 75% of the customers had tried the product out, but then discontinued their subscription. By advertising this as a “feel-good” product, Barbara believes she can improve this number. Additionally, with $1M in sales, she is willing to take the risk because she believed that she could augment that dollar amount tremendously. She teamed up with Mark Cuban and landed a deal with Fresh Patch.

Mark Cuban brought another skill set to the table. Barbara wanted to bring this into retail as well as having the website for the business. At the time, Fresh Patch was only being sold through online orders, but Barbara wanted to introduce the product into retail by putting the product in pet stores alongside pet necessities and luxuries. Mark would handle the website and online orders. This would allow Andrew Feld to do what he does best, which is to come up with ideas for the company.

Although Andrew Feld had an amazing product, he definitely needed help with some business strategies. For instance, he was paying quite a bit to ship his product from the west coast to the east coast, and then he still had to deliver them to the consumer. There are multiple forms of distribution channels and he had an interesting one. A marketing channel is a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer. Andrew Feld, who is the owner of Fresh Patch, is considered to be the merchant wholesaler. A merchant wholesaler is an institution that buys goods from manufacturers and resells them to businesses, government agencies, and other wholesalers or retailers and that receives and takes title to goods, stores them in its own warehouses, and later ships them. The manufacturer, the person who actually makes the patches of grass and distributes them, is paid by Andrew Feld to make his product. Then, Andrew Feld uses a transport company to receive Fresh Patch at his home in Florida. Because Andrew Feld handles the direct channel to the consumer, he hires this transport company and pays them to transport the patches back to him, the merchant wholesaler. In order to make his sales, Fresh Patch used their website as an a intermediary in business exchanges. Their website helps facilitate its sale from producer to end user. Additionally, their website is considered to be transactional. It serves to contact and communicate with prospective buyers to make them aware of existing products and explain features, advantages, and benefits. Even though the internet and their website serves as a channel, it is not the way the customer receives the product. The direct channel, due to online shopping, is the distribution channel in which producers sell directly to customers. Lastly, the customer received the shipment of fresh patch after ordering the product via internet. As you can see, this is a pretty tricky method for how to distribute the product to the consumers, and Barbara and Mark are willing to advise him along the way, and help him make Fresh Patch a huge success.

From the beginning of Andrew’s pitch, he expressed that he would want to use the money from the sharks to open up an east coast distribution center so he was not only shipping from California. In order to see if that was a good investment or not, our class investigated through the analysis of an Income Statement for Fresh Patch. It is good to utilize an income statement to determine what areas you need to improve in as you go into business. First we measured the sales revenue for the company. Fresh patch produced $1M in sales. Then, we looked at the cost of goods sold. At $5 a patch, we calculated the amount of money used to make the product by multiplying the cost of a unit by the number of units sold. After that, we looked at variable costs. For this business, the variable cost would be the shipping costs. By subtracting the cost of goods sold and the shipping costs from sale revenue, we get an estimation of what gross margin is. After that, we would account for the fixed costs. These costs do not change regardless of how many units are sold, for it is a set price of cost. For Fresh Patch, we assumed that salary for Andrew Feld would be a fixed cost, in addition to the cost of managing the website. When subtracting the fixed costs from gross margin, you end up with a number that represents net income for Fresh Patch. By completing this exercise, we were able to figure out a marketing strategy and pricing strategy for this business. It was helpful to see what accounts could be adjusted in order to increase the net profit. For example, if Andrew was able to decrease the amount of money he spends on shipping, then his gross margin, and his net income, would be increased substantially. Similarly, if he cuts his own salary or cuts some of his website costs, then he will make a bigger profit from his sales. Since his sales are already pretty high, and the product is considered be a specialty, and the market is inelastic due to price insensitivity, this wants him to take a profit-oriented approach for a marketing strategy. In order to succeed, the company could use price skimming as a strategic pricing method. It is important to keep track of the assumptions you make on your estimated income statement because it could drastically change the way you go about your business and could change your entire marketing strategy.

Mark Cuban stated in the show that he wants to accelerate the growth of this product. What does he mean by this? Well, this is a product that is newly introduced. According to the adoption curve, it is likely that the first people to invest in a product like this are innovators or early adopters. He wants to make this product reach the remaining, and most of, the adoption curve. He does not want Andrew Feld to settle for where his product is, for he believes that he needs to continue setting goals for himself and Fresh Patch, and Cuban wants to grow to have the early majority, late majority, and laggards, also adopt this new product.

Andrew Feld was lucky enough to get a deal with the sharks. By analyzing his product, we would agree that his shipping costs could be diminished, and that is something that he needs to work on. Additionally, he needs to build a greater relationship with his subscribers so his retention rate increases to a higher percentage. Utilizing discounts and promotions for the subscription could help his business quite a bit. For example, I think that seasonal discounts would be beneficial. In the summer months, it should be cheaper to give the incentive of the continuation of the subscription, regardless if the weather is good enough to go out and walk the dog to a park or not. Winter months could be increased since that is most likely when customers would be purchasing the product.

Looking at Fresh Patch allowed my OK TO DRIVE team to think about and analyze our own product. What type of distribution channel will we have? What type of product is it? How big is our market? What types of marketing and pricing strategies should we utilize? These are great questions to think about when our smart project team meets. Additionally, it is important to include the engineers in this process and show them that simplifying processes could be beneficial to the business in the long run. This Tuesday, we will have collected the surveys from bar owners and potential customers of bars. (21+ years old obviously) This will be really interesting to evaluate and to discover what our project, and our product, can improve on in multiple areas of the business and engineering processes.