Background and an Invitation to the "Piranha Pen"
Imagine that you have developed a new dog leash and harness called "2Chainz". The product features a unique double helix, chain-like structure made out of nylon that helps prevent dogs from pulling their owner during walks. You also recently received an invitation to present "2Chainz" on an episode of a television show called "Piranha Pen". The show gives entrepreneurs the opportunity to pitch their products to a panel of wealthy businesspeople (aka "Piranhas") in the hopes of landing an investment deal. The Piranhas are known to be savvy negotiators and are famous for asking tough questions and having high standards before making an investment. Therefore, it is critical that you be well-prepared.
In preparation for the show, you pull together the following data from a variety of sources.
Market Research Data
Segment Profiles
You obtain a market research report profiling the different segments of dog owners in the United States. The report suggests that there are approximately 40 million households in the U. S. that own dogs and they typically fall into one of four segments: (1) Working Dog, (2) Child Substitute, (3) Family Dog, and (4) Golden Years Companion. Table 1 provides a general profile of each segment as well as the estimated proportion of dog owning households that fall into each category.
Segment Name
Working Dog Child Substitute Family Dog Golden Years Companion
Motivation for having a dog For protection
Watchdog Dog serves as a replacement for a child Dog as a playmate for kids Keep active/activity partner
Avoiding loneliness
Demographics Lower income
Ages 25 to 45 High income
Ages 25 - 35 Middle income
Ages 30 - 45 High income
Ages 50 - 65
Attachment/Attention Less attached Highly attached
High level of attention to dog Medium attachment
Lower attention to dog Medium/High attachment
High level of attention to dog
Type of Dog Large dog
Lives outdoors Small dog
Dog lives indoors Medium to large dog Medium to large dog
% of Households in the U. S. Owning a Dog in this Segment 20% 25% 25% 30%
Pricing Survey
You paid a market research firm to conduct a nationally representative survey of 700 dog owners during which they were shown a 2Chainz prototype and asked how likely they would be to purchase it. Approximately 30% of those surveyed indicated that they would purchase the product from a retail store at your planned price of $40.
Dog Behavior Survey
You also discovered a national survey by a dog training organization called the American Association of Dog Whisperers. The survey suggests that pulling on a leash is one of the most commonly reported behavioral problems reported by dog owners, with about 60% of dog owners nationwide reporting that pulling on a leash is a problem they have experienced. Out of these dog owners that report leash pulling, 33% report that they have not yet to found a solution to this problem.
Internal Company Accounting Data
Rent: $25,000
Design and Prototyping: $100,000
Manager’s Salaries: $75,000
Advertising: $10,000
Production Cost: $12 per unit
Sales Price to Retailers: $19 per unit
Questions
Looking at the market segment profiles, which segment would you target? Note: Assume you only have the resources to target one of the segments for now. Explain your reasoning.
Calculate the market potential for the product in terms of units sold. To do this, you will have to make some decisions about targeting of segment(s), what numbers to use, etc. Please clearly explain your reasoning and your calculations. Note: At the end, you should have an estimated value that you believe reasonably characterizes the market potential for your product.
What are the fixed costs? Note: Fixed costs are those that remain the same regardless of how many units are produced.
What are the variable costs per unit produced? Note: Variable costs are those that depend on the number of units produced.
What is the break even quantity for the product? What is the break even revenue? Show your calculations. Assume that you will be selling the product primarily through a retailer.
Given your market potential and break even calculations, do you believe that moving forward with bringing the product to market is a good decision? Explain.
You’ve always dreamed of making your first million dollars. Calculate the number of units you need to sell to make $1,000,000 in profit.
Imagine that you’ve been offered deals by two of the Piranhas. One piranha, named Mark Dominican, offers you an investment of $100,000 in exchange for 20% ownership of your company. Another piranha, named Daymond Jim, has offered you $100,000 in exchange for a $1 royalty paid to him for each unit sold for the life of the product.
Which offer would you choose? Explain.
Did your market potential and break even calculations influence this decision? Explain why or why not.

Complete Question:

Check the attached files for a well formatted question in word format

Answer and explanation:

1. Looking at the market segment profiles, which segment would you target? Note: Assume you only have the resources to target one of the segments for now. Explain your reasoning.    

A- Golden years companion group are welling to buy the product because they have high income and they have the highest percentage of households in the U.S owning a dog ( 30%)

2. Calculate the market potential for the product in terms of units sold. To do this, you will have to make some decisions about targeting of segment(s), what numbers to use, etc. Please clearly explain your reasoning and your calculations. Note: At the end, you should have an estimated value that you believe reasonably characterizes the market potential for your product.            

A- 40,000,000 the total population but I need to exclude 20% working dog because the dogs live outside, and less attach to the owner. Also, exclude 12% from child substitute group because not all of the owner willing to buy expensive leash but some of the owner (13%) maybe willing to try a new innovation because they have high level of attention to their dogs. Moreover, exclude 20% from the family dog because the owners have low attention to their dog but some owners (10%) maybe will try the new leash. Additionally , I will exclude 20% from owners who believe that there is no solution to pulling leash problem. 40,000,000* ( 20% x12% x20% x20%) = 38,400 the number of people welling to buy the leash

3. What are the fixed costs? Note: Fixed costs are those that remain the same regardless of how many units are produced.

Fixed price = $25,000 +$100,000 + $75,000 + $10,000 = $210,000

4. What are the variable costs per unit produced? Note: Variable costs are those that depend on the number of units produced.

$12 per unit

5. What is the breakeven quantity for the product? What is the breakeven revenue? Show your calculations. Assume that you will be selling the product primarily through a retailer.

Break even number of unit = Fixed cost/ ( sales price per unit- Variable cost per unit)

= 210,000/ ( 19 -12)

=30,000 unit

Break even revenue = Sales price per unit x Break even unit

                                           = $19 per unit x 30,000

= $570,000

6. Given your market potential and break even calculations, do you believe that moving forward with bringing the product to market is a good decision? Explain.

Yes , bringing the products to the market is a good decision because the break-even revenue shows that selling the products at $19 per unit will cover the fixed prices of the product and the company still making a profit ( 570,000- 210,000= $360,000 ) . Also, the potential market shows that there are 38,000             people willing to buy the product so the company can sell more than the break-even unit which is 30,000 units.

7. You’ve always dreamed of making your first million dollars. Calculate the number of units you need to sell to make $1,000,000 in profit.

                       # Unit to achieve desired profit = {Desired profit/ Contribution Margin per unit} + Break even # of unit

                                                                       = {1,000,000/ 7}+ 30,000

                                                                       =172,857 unit.

Stretch Question

8. Imagine that you’ve been offered deals by two of the Piranhas. One piranha, named Mark Dominican, offers you an investment of $100,000 in exchange for 20% ownership of your company. Another piranha, named Daymond Jim, has offered you $100,000 in exchange for a $1 royalty paid to him for each unit sold for the life of the product.

Which offer would you choose? Explain

I will choose the second offer which is paying 1$ for each unit sold for the life of the product. However , I need to work hard to improve my unit sale and improve my product to convince more people to buy the product. I refuse the first option because I don’t need to lose control over my product and get shareholder in my company so they start exercise some level of control, influence, or participation in the activities of the company.

Did your market potential and break-even calculations influence this decision? Explain why or why not.

I took my decision because I want to have a full control over my product. Also, my decision gives me a hope that the product will stay on the market for a long time and the market potential gives me an indicate that there are a lot of people willing to buy the product for their dogs.

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