2. Context
Context - There is growing awareness for ‘reduce-reuse-recycle’ of energy and water
2
¨ Energy
¤ By 2030 electricity usage growth of 40%
¤ Limited resources, cost will continue to rise in future
¤ Washer-Drier units leading consumers of electricity at home
¨ Water
¤ 22% of US water usage is for washing purposes1
¤ Typically 1.2B gallons a day is used for washing1
¨ Environment awareness for reduce-reuse-recycle
¤ Waterless car washes, urinals, low water sprinklers
¤ Energy star appliances
1 – American water works association estimates
3. The waterless washing machine
Context
- New patented ‘nylon beads’ technology saves 90% water and 30% electricity
3
¨
¤ R&D partnership with University of
Leeds (UK)
¤ Currently in stealth mode
¨ Key product features
¤ No dryer unit required
¤ 90% less water
¤ 30% less electricity
¤ Uses patented nylon beads – stains
get attracted and get diffused in
nylon beads, beads are recycled
¤ Currently in prototype, first product
available in end of 2010
Note: See appendix for details on how the Xeros washer works
4. Customers
Context
- Commercial cleaners & hotels will derive most benefit from Xeros’ offering
4
Xeros Value
proposition
Value drivers à
Customer Segments à
Note: Quantification of these value drivers and market size for each segment done later in pricing and value creation section
Commercial cleaners = professional dry cleaners who have significant volume of regular laundry cleaning
5. Competitors
Context
- Key direct competitors are traditional washer/dryers and ‘air washers’
5
Primary Competition Secondary Competition
Traditional Natural Air
Air washers Dry Cleaning
Washer/Dryer drying
• Mature technology • New technology • Mature technology • Very low
• Many strong • Uses recycled • High quality total cost
companies water • Preserves delicate
• Huge market share • Can be used for fabric
Advantages • Established delicate washing
channels and
manufacturing
process
• Significant Energy • Uses ozone • Expensive • Time
consumption and • Only removes bio- • Need special skills consuming
water usage (~30% degradable stains and equipments • Low quality
Disadvantages
of utility bill) • Newer unproven • Use of abrasive
technology chemicals
6. Collaborators/Channels
Context
- Xeros should partner with some existing players like GE in both segments
6
Motivation /
Decision Drivers
Distribution
Production Branding Promotion • Startup company needs
Channels
good cash flow to sustain
License Brand as Use Direct Sales Existing retail (e.g. • Xeros’ patent is on nylon
technology for ‘XEROS’ Force for Sears) and online beads technology, it can
Commercial production to washer promotion (Amazon) channels take advantage of GE’s
product established commercial expertise in production
player like GE outlets and distribution
• Xeros needs to maintain its
License Brand as Let GE take care Existing retail (e.g. brand recognition as
technology for GE washer of promotion Sears) and online innovation leader in
production to + ‘Powered (Amazon) channels commercial segment
Residential
product established by XEROS’ • Residential customers are
player like GE very fragmented and need
a wide distribution network
– requires deep pockets
• For commercial space,
This project is pricing only for the commercial washer product (not
Xeros’ sales force is in best
residential product) and will cover pricing for (1) washer unit (2) position to demonstrate the
nylon beads refills (3) service contracts new technology and value
proposition
Note: The collaboration assumes that the license agreement drafted between GE and Xeros take care of no-compete clauses and
restricts the freedom of use for certain allowed fields only (e.g. commercial, residential etc..)
7. Pricing strategy pyramid
- Framework used for pricing the new washer units + beads
7
Price
Level
Product value
Pricing
Policy
Cash flow, Market Share
Value Communication
Economic Benefit, Positioning
Price Structure
Bundling, Fencing, Services
Value Creation
Economic Value, Offering Design, Segmentation
8. Value Creation
- Savings come from lower operational costs, space reduction & lack of dryer unit
8
Space savings Total value
Operational Dryer machine creation
cost reduction + due to lack of
dryer
+ Savings = (relative to current
costs for customer)
Conventional Xeros
cleaning cleaning
9. Value Creation
- The highest value add from Xeros’ washer is in Hotels segment
9
Commercial Hopitals Hotels
Loads Loads Loads
Weight (lbs) 10,000,000 Weight (lbs) 15,000,000 Weight (lbs) 5,000,000
/ Weight/load 150 / Weight/load 150 / Weight/load 150
= Annual Loads 66,667 = Annual Loads 100,000 = Annual Loads 33,333
Operational Savings Operational Savings Operational Savings
Labor 2.50 Labor 2.50 Labor 2.50
+ Water 0.10 + Water 0.10 + Water 0.10
+ Electricty 0.10 + Electricty 0.10 + Electricty 0.10
+ Detergent 0.25 + Detergent 0.25 + Detergent 0.25
- Beads (0.40) - Beads (0.40) - Beads (0.40)
= VC/load 2.55 = VC/load 2.55 = VC/load 2.55
Value created by
* Annual Loads 66,667 * Annual Loads 100,000 * Annual Loads 33,333
Xeros washer is
= Savings $ 170,001 = Savings $ 255,000 = Savings $ 84,999
in addition to the
savings from not
Space savings Space savings Space savings
Laundry (sq ft) 1000 Laundry (sq ft) 3000 Laundry (sq ft) 2000
buying the dryer
* Annual Rent $36 * Annual Rent $12 * Annual Rent $24 units
* Utilization 25% * Utilization 80% * Utilization 80%
= Savings $ 9,000 = Savings $ 28,800 = Savings $ 38,400
Savings Savings Savings
Operational 170,001 Operational 255,000 Operational 84,999 Dryer
+ Space 9,000 + Space 28,800 + Space 38,400 machine
= Net Savings $ 179,001 = Net Savings $ 283,800 = Net Savings $ 123,399 + Savings
/ # Machines 30 / # Machines 30 / # Machines 10
= Value Created $ 5,967 = Value Created $ 9,460 = Value Created $ 12,340
(~$15K)
Note: Refer to appendix for more details on calculations, data sources and assumptions
10. Market Sizing and Targeting
- The hotels and hospital segments also have the highest market potential
10
Commercial Hospitals Hotels Xeros should only
look at targets in
No. of cities in USA 100 100 100 cities/metros since
x No. of accounts/city 2 3 10 sales/marketing
= Total accounts 200 300 1,000 cost are significant
in rural areas for a
Value created per machine $5,967 $9,460 $12,340 startup company
x No. of machine per account 30 30 10
x Total accounts 200 300 1000
= Total value for segment $ 35,800,170 $ 85,140,000 $ 123,399,150
Expected share is
Ease of converting to Xeros High Low High a function of the
Fragmentation of segment DMU High Low Low Decision Making
Expected share 3% 6% 6% Process by
customers
Exp value $ 1,074,005 $ 5,108,400 $ 7,403,949
Hotel segment is the best
Commercial segment
starting target segment with
has a lower expected
highest expected market
market potential
potential
Note: Number of commercial accounts per city is assumed based on central cleaners who collect laundry from multiple locations
Hotel segmented is assumed to be less fragmented due to centralized decision making by hotel chains / groups
11. Price Structure
- Revenue will come from washer unit, beads and service are secondary sources
11
Washer unit Beads Service
¨ Beads will be sold at 10 % ¨ Pricing based on industry
margin per load – sold in 20 benchmark for conventional
¨ Washer machine unit will be
pound packs washing systems – 10-20%
priced as per value provided
machine of sale price
to customer - see next
section for price level ¨ Cost to customer = 40 cents
(20 cents manufacturing cost + ¨ A contract agreement based
10cents for distributors + 10 on hours of operation,
¨ Fences could potentially be
created for Hospital cents margin) would be an additional tool
in endorsing product quality
segments by creating some
product differentiation (e.g. ¨ For higher bead profits,
anti-bacterial lining for warranty could be written such ¨ SLA structured to deliver
washers etc..) – phase 2 that Xeros beads are used service within promised
exclusively period of request
12. Value Communication Strategy
- Justify price based on value of each differentiating value driver.
12
Communication Positioning Positioning Factors
Benefits and Relative Cost to find Value
Low High • Relatively Low cost to
Simple “Search” Goods Complex “Experience” Goods determine benefits because:
• Hotels and Commercial cleaners
Psychological Economic
are EXPERT customers
Benefit
• Product expenditure is HIGH.
Waterless • Purchases likely to be in BULK
Washing • Some benefits such as no water,
Machine less power and no dryer are
obvious
Air • Limited psychological benefits:
• Less detergent, water and
Benefit
Dryers
Traditional Dry electricity
washers Cleaners • But business has to be
competitive.
¨ Use ‘Economic Value Communication’ Strategy
n Communication to focus on justifying price based on value of each
differentiating value driver.
13. Value Communication Method
- Use Direct Sales Force to communicate differentiation and value
13
Customer Economic Value Comparison Value Based Model
• Create a customer economic value comparison • Create customizable value model software that
sheet for primary competition. takes basic data from buyer as input and
• Include top differentiating value drivers – water calculates net savings specific to customer.
electricity, space and time. • Include inputs such as area used, operation
hours, labor, machine utilization & throughput.
• Calculate cost savings, new throughput, labor
savings, reduced space requirements etc.
- Communicate Economic Value
- Use Direct Sales medium
Address concerns about New Product Other Promotional Material
and Switching Costs • Product demonstration video
• Expert opinions from industry analysts such as • Reports on impact of current processes on
JD Powers in form of reports and videos environment.
• Customer testimonials • Product warranty
• Demonstration videos focusing on simplicity of • Reference prices from all other alternative
use in washing and bead removal. washing products.
• Offer free installation and trials
14. Pricing Policy
- Manage Cash flow and generate long term customers
14
Objectives Tactics
Manage cash flow ¨ Give discounts for non-credit purchases (i.e.
effectively encourage shorter A/R period)
¨ Allow for volume discounts for big accounts (this is
required to manage customer expectations and can
Win large volume also be used as case studies for other customers)
from big accounts
¨ Appropriately incentivize sales force to target big
accounts and give them 10% pricing flexibility
¨ Bundle annual supply of beads (discounted price) with
Promote beads sales initial sale of washer unit
with initial product ¨ Maintain 10% margin on beads sales later, once the
customer is locked in
15. Price Level
- Skim the market (Hotels segment) with $34K, and allow hospitals to self select
15
Hotels – Price Skimming Hospitals - Penetration
$52 K
Negative Diff
•Cost of beads
•User Training $49 K
Positive Negative Diff
•Cost of beads
Differentiation Value returned Positive •User Training
to Customer Differentiation
• Savings in labor Value returned
and space Dryer Cost + • Savings in labor to Customer
25% of value created and space
• Reduced Dryer Cost +
operational costs • Reduced 25% of value created
operational costs
• Dryer machine $34 K
costs • Dryer machine $32 K
costs
$25 K $25 K
Reference Reference
Value Value
Conventional Conventional
Washing m/c Washing m/c
16. Price Timing Graph
- Start with skimming and then move to penetration pricing
16
Price
$34K
$32K
$25-28K
Skimming Penetration Patent Expiry Time
17. Price Timing
- Start with skimming and then move to penetration pricing
17
Skimming Penetration Patent Expiry
• Differentiated Product • Price reduction to increase • Price on par with
• Convey Long term value adoption rates commercial washers
• Build Brand Image • Motivate volume purchases • Value to customer = No
• Guard against competition • Increase Market Share need for dryer
• Consumer feedback and • Build Service revenue • Launch non-commercial
buzz stream model for residential market
$31K $29K $25-27K
