Augat Electronics, Case Study Example

Executive Summary

The challenges facing the Canadian cable market are similar to growing pains. Canada has a problem with the manner the environmental humidity influences the quality of the signal sent by the cable company for cable services, phone services and internet services. Considering the problems that the cable service companies are addressing, it would be advantageous for Augat Electronics to enter the market with its Snap N Seal connector. The present high end product, The Raychem connector is efficient. The costs that are desired to be avoided arise from service calls to which a technician must be dispatched. The rate of service calls subsequent to installation for the organizationsusing the Raychem product is 5%. The 5% rate of service calls translates into substantial service costs when a technician must be dispatched to the location. The Snap –N- Seal Connector has the capacity of eradicating a majority of the 5% of the service calls that are dispatched by the cable service providers.  Theintroductionprice of the Snap –N- seal connector and the Snap -N -Seal connecting tool was reviewed in this case study.

Alternative Pricing Decision

The cable television service industry in Canada is composed of five major actors. These actors are Shaw, Maclean Hunter, Videotron, Cogeco and Rogers Cable. Each of these cable service providers is dominant in one of the Canadian regions. The challenges that the cable service providers have been experiencing are service calls to consumers as a result of the noisy signals. This is attributed to moisture penetrating the outer casing of the connector and causing the electrical signal to become impacted. The advent of two way connections due to internet connectivity has caused this problem of electrical interference in the cable connectors to become a serious concern.

The marketing approach that was applied by Augat Electronics was to contract an established organization, White Radio. The challenge with White Radio was that their organizational ethic was not in favour of promoting competing products that performed the same task.  The manufactureexpense for the Snap – N – Seal product was assessed to be $0.12 – $0.14 per unit. The perception that was held by Augat was that the Snap- N -Seal product could be priced 20 % less than the competing Raychem product. The Raychem product was able to retails at $0.72 due to its superior service. The Snap – N – Seal connector could be marketed at a price 20% less than the comparableRaychemproduct. 2. Category product

The next challenge was the pricing of the Snap- N – Seal connecting tool.  The new tool would be difficult for the cable service organization manager to justify as the retail cost of the connecting tool for the Snap – N – Seal connector. The tool was anticipated to be marketed at a price that was equivalent to Raychem’sproduct. In order to make the tool attractive and enable the cable service provider operator s to purchase the Snap – N- Seal connectors, it would have to be marketed at a significantly lower price. However, the increased sales volume of the Snap – N – Seal connectors would offset the cost of the Snap- N seal tool.The market share that was experienced by Raychem was anticipated to climb higher in 2004.

Value Proposition

The value proposition that was provided by the Snap – N – Seal connector was that it provided a watertight seal against the environmental hazards of water and moisture. This watertight environmental seal would translate in 5% reduction of the service calls. Considering that there were 8 million households in Canada that used the connector, the 5% of the client translated to approximately 400,000 households. Each service call cost between $50 up to $150, depending on the problems that were faced. The Snap- N- Seal connector would eradicate this cost. The price of the connector was competitive, however, the managers required convincing in order to accept the tool at the price of $62.50, which was a breakeven point on the tool for Augat.

Customers and the Purchasing Process

The customers would be the major cable service providers in Canada. This consisted of Shaw, Maclean Hunter, Videotron, Cogeco and Rogers Cable. The major challenge for Augat would be distributing the product through White Radio, whose management felt ethically opposed to the presentation of the product.

Competitors

The competitors in the market were Gilbert and Stirling. These organizations would offer resistance as their livelihoods would be at risk. This includes the potential adverse actions that would be taken by the cable service organization when they acquired knowledge that the products that they were purchasing from these organization in order to provide service to their cable and internet service clients was inferior in its moisture excluding properties.

20% Market Share

If the Augat Electronics Company sold the tools at $0.52, they would sell to 1, 600,000 households. The cost of each connector is $0.13 this infers that at $0.52, the profits would be (0.52- 0.13) x 1, 600,000 = 0.39 x 1, 600,000 = 576,000 x 14 connectors per home. The total revenues would be $8, 736,000. The number of connectors is derived by taking the number 8 and taking the number 20 and adding the two together in order to get 28. The number twenty eight is divided in two to get an average.  The average is 14. If the Augat Electronics company decided to market the Snap and Seal at $0.62, this would be demonstrated as (0.62- 0.13) x 1, 600,000 x 14. The total revenues would be $10,976,000. If the Augat Electronics company decided to market the Snap and Seal at $0.70 each, the profits that would be realized by the Augat Electronic Company would be (0.70- 0.13) x 1, 600,000 , the gross revenues realized by the Augat Electronics company would be 864000 x 14 = $12, 768,000.

The tool, costs $50.00. Augat Electronics tried to make 25% on all of its items. This would infer that the tool would require a price of $62.50. The tool would be used by one technician who would have 3000- 5000 customers. The average would be (3000 + 5000)/ 2 = 4000 customers. In order to gain access to slightly more than 6 million customers, Augat Electronics must sell over 1500 of the Snap and Seal crimping tools. In order for Augat Electronics to break even on the tools, they must sell slightly more over 1,500 tools. This would make the breakeven point 1,500 units at a price of $62.50. 1500 x $6.50 = $93750 gross revenue would be realized from the sale of 1500 tools. The cost of the tools is $50 x 1500 – $75,000. The gross profits would be $18, 750. Taxes and warehousing would be required to be paid on the tools.