Please only answer question one ONLY!

QUESTION ONE STATES:

Question 1: Based on the data in the case and after making logical assumptions make an estimate of the Revenues, Costs and Profits of the firm for each of the first five years. That is, please make Revenue, Cost and Revenue forecasts for Yr 1, Yr 2, Yr3, Yr 4 and Yr 5 separately. Please specify the assumptions behind your calculations and show how you have arrived at your 'numbers.' There is enough numerical information in the case to make these estimates, which will help you to understand the business. In your calculations basically assume that the firm is functioning at its current level, except for the changes in replacement sales of filters.

ARTICLE NUMBERS:

Initial capital; $20,000

Monthly Operating Budget: $4,500

Each Device sells for: $395

Replacement Filters: $80

Wholesale Price: $275 with mark up of 33% usually

Manufacturers. Cost $200

Sales by salesperson with their own clients: $100

Sales by salesperson with companies clients: $80

Average salesperson sells 20 units per month

Manny hopes salesperson can sell 40 units

thanks

16 Enviro Pure Water, Inc.* Manish (Manny) Krishna established his company, Enviro Pure Water, Inc. (Enviro), to market a product designed to purify drinking water. The product, branded as the PURITY II Naturalizer Water Unit, is produced by Environmental Control, Inc., a corporation that focuses primarily on water purification and filtering products for industrial markets. Enviro Pure Water is a small but growing business. Manny started the business with initial capital of only $20,000 --- which came from his savings and loans from *The original version of this case was developed by Professor Ben Enis of the University of Southern California, and it is adapted for use here with his permission. several relatives. Manny manages the company himself. He has a secretary and six full-time salespeople. In addition, he employs two college students part-time, they make telephone calls to prospect for customers and set up appointments for a salesperson to demonstrate the unit in the consumer's home. By holding spending to a minimum, Manny has kept the firm's monthly operating budget at only $4,500-and most of that goes for rent, his secretary's salary, and other necesi ties like computer supplies and telephone bills. The PURITY II system uses a reverse Osmosis purifica tion process. Reverse Oumosis is the most effective technology known for improving drinking water. The device is certified by the Environmental Protection Agency to reduce levels of most foreign substances, including mercury, rust, sediment arsenic, lead, phosphate, bacteria, and most insecticides. Each PURITY II unit consists of a high-quality 1-micron sediment removal cartridge, a carbon filter, a sediment filter, a housing, a faucet, and mounting hardware. The compact system fits under a kitchen sink or a wet bar sink. An invito salesperson can typically install the PURITY II in about a half hour. Installation involves attaching the unit to the cold-water supply line, drilling a hole in the sink, and fas tening the special faucet. It works equally well with water from a municipal system or well water and it can purify up to 15 gallons daily. Enviro sells the PURITY II to consumers for $395, which includes installation The system has no movable parts of electrical connec tions and it has no internal metal parts that will corrode or rust. However, the system does use a set of filters that must be replaced after about two years. Enviro sells the replace ment filters for $80. Taking into consideration the cost of the filters, the system provides water at a cost of approximately $.05 per gallon for the average family. There are two major benefits from using the PURITY LI system. First, water treated by this system tastes better. Blind taste tests confirm that most consumers can tell the differ- ence between water treated with the PURITY II and ordi- nary tapwater. Consequently, the unit improves the taste of coffee, tea, frozen juices, Ice cubes, mixed drinks, soup, and vegetables cooked in water. Perhaps more important, the PURITY IIS ability to remove potentially harmful foreign matter makes the product of special interest to people who are concerned about health and the safety of the water they consume The number of people with those concerns is growing In spite of increased efforts to protect the environment and water supplies, there are many problems. Hundreds of new chemical compounds--ranging from insecticides to industrial chemicals to commercial cleaning agents-are put into use each year. Some of the residue from chemicals and toxic waste eventually enters water supply sources. Further, floods and hurricanes have damaged or completely shut down water treatment facilities in some cities. Problems like these have led to rumors of possible epidemics of such dread diseases as cholera and typhoid--and more than one city has recently experi ced near-panic buying of bottled water Given these problems and the need for pure water, Manny believes that the market potential for the PURITY II system is very large. Residences, both single family and part- ment, are one obvious target. The unit is also suitable for use in boats and recreational vehicles, in fact, the PURITY II is standard equipment on several upscale RVs. And it can be used in taverns and restaurants, in institutions such as schools and hospitals, and in commercial and industrial buildings There are several competing ways for customers to solve the problem of getting pure watet. Some purchase bottled water. Companies such as Ozarka deliver water monthly for an average price of $.60 per gallon. The best type of bottled water is distilled water; it is absolutely pure because it is pro- duced by the process of evaporation. However, it may be too pure. The distilling process removes needed elements such as calcium and phosphate and there is some evidence that removing these trace elements contributes to heart disease. In fact, some health-action groups recommend that con- sumers not drink distilled water. A second way to obtain pure water is to use some sy tem to treat tapwater. PURITY II is one such system Another system uses an ion exchange process that replaces ions of harmful substances like Iron and mercury with ions that are not harmful Ion exchange is somewhat less expen- sive than the PURITY Il process, but it is not well suited for residential use because bacteria can build up before the water is used. In addition, there are a number of other filtering and softening systems. In general, these are less expensive and les reliable than the PURITY II. For example, water softenen remove minerals but do not remove bacteria or germs. Manny's first year with his young company has gone quite well. Customers who have purchased the system like it, and there appear to be several ways to expand the business and increase profits. For example, so far he has had little time to make sales calls on potential commercial and institutional users or residential builders. He also sees other possibilities such as expanding his promotion effort or targeting con- sumers in a broader geographic area. At present, Enviro distributes the PURITY II in the 13. county gulf cost region of Texas. Because of the Robinson- Patman Act, the manufacturer cannot grant an exclusive distributorship. However, Enviro is currently the only PURITY II distributor in this region. In addition, Enviro has the right of first refusal to set up distributorships in other areas of Texas. The manufacturer has indicated that it might even give Enviro distribution rights in a large section of northern Mexico The agreement with the manufacturer allows Enviro to distribute the product to retailers, including hardware stores, plumbing supply dealers, and the like. Manny has not yet pursued this channel, but a PURITY II distributor in Florida reported some limited success selling the system to retailers at a wholesale price of $275. Retailers for this type of prod. uct typically expect a markup of about 33 percent of their selling price Environmental Control, Inc., ships the PURITY II units directly from its warehouse to the Enviro office via UPS. The manufacturer's $200 per unit selling price includes the cost of shipping. Enviro only needs to keep a few units on hand because the manufacturer accepts faxed orders and then ships immediately delivery never takes more than a few days. Further, the units are small enough to inventory in the back room of the Enviro sales office. Several of the easy to handle units will fit in the trunk of a salesperson's car. Manny is thinking about recruiting additional salespeo- ple. Finding capable people has not been a problem so far. However, there has already been some turnover, and one of the current salespeople is complaining that the compensation is not high enough. Manny pays salespeople on a straight commission basis. A salesperson who develops his or her own prospects gets $100 per sale; the commission is $80 per unit on sales leads generated by the company's telemarketing peo- ple. For most salespeople, the mix of sales is about half and half. Enviro pays the students who make the telephone con- tacts $4 per appointment set up and $10 per unit sold from an appointment "An average Enviro salesperson can easily sell 20 units per month. However, Manny believes that a really effective and well-prepared salesperson can sell much more, perhaps 40 units per month. Enviro and its salespeople get good promotion support from Environmental Control, Inc. For example, Environ- mental Control supplies sales training manuals and sales entation flip charts. The materials are also well done, in part because Environment Control's promotion manager previ- ously worked for Electrolux vacuum cleaners, which are sold in a similar way. The company also supplies print copy for magazine and newspaper advertising and tapes of commer- cials for radio and television. Thus, all Enviro has to do is buy media space or time. In addition, Environmental Con- trol furnishes each salesperson with a portable demonstration unit, and the company recently gave Enviro three units to be placed in models of condominium apartments. Manny has worked long hours to get his company going but he realizes that he has to find time to think about how his strategy is working and to plan for the future. pres- Enviro-Pure Case - After Studying the Case given to you as the associated file, answer the following two questions: Some Guidance When you examine this case and the business, you should realize that such businesses are entered into not only for the sales of the primary product (water purifier installations) but over time the earnings come from secondary, residual or recurring sales (the sale of replacement filters). This is true for a number of products such as printers, some medical devices, and so on. Strategies and estimates must cover these residual or recurring sales. Question 1: Based on the data in the case and after making logical assumptions make an estimate of the Revenues, Costs and Profits of the firm for five years. Please specify the assumptions behind your calculations and show how you have arrived at your 'numbers.' There is enough numerical information in the case to make these estimates, which will help you to understand the business. In your calculations basically assume that the firm is functioning at its current level, except for the changes in replacement sales of filters. Question 2: Taking the cue from your calculations develop a marketing strategy to IMPROVE the revenues and profitability. Cover ALL areas of marketing strategy, including Product and Product Portfolio issues, Pricing, Distribution, and Promotion. Also think in terms of the immediate future as well as with a more strategic long term perspective. Make sure that you consider strategies that suggest products that are suitable additions to the present product, so that over time the firm has a product portfolio to offer in the long run. 16 Enviro Pure Water, Inc.* Manish (Manny) Krishna established his company, Enviro Pure Water, Inc. (Enviro), to market a product designed to purify drinking water. The product, branded as the PURITY II Naturalizer Water Unit, is produced by Environmental Control, Inc., a corporation that focuses primarily on water purification and filtering products for industrial markets. Enviro Pure Water is a small but growing business. Manny started the business with initial capital of only $20,000 --- which came from his savings and loans from *The original version of this case was developed by Professor Ben Enis of the University of Southern California, and it is adapted for use here with his permission. several relatives. Manny manages the company himself. He has a secretary and six full-time salespeople. In addition, he employs two college students part-time, they make telephone calls to prospect for customers and set up appointments for a salesperson to demonstrate the unit in the consumer's home. By holding spending to a minimum, Manny has kept the firm's monthly operating budget at only $4,500-and most of that goes for rent, his secretary's salary, and other necesi ties like computer supplies and telephone bills. The PURITY II system uses a reverse Osmosis purifica tion process. Reverse Oumosis is the most effective technology known for improving drinking water. The device is certified by the Environmental Protection Agency to reduce levels of most foreign substances, including mercury, rust, sediment arsenic, lead, phosphate, bacteria, and most insecticides. Each PURITY II unit consists of a high-quality 1-micron sediment removal cartridge, a carbon filter, a sediment filter, a housing, a faucet, and mounting hardware. The compact system fits under a kitchen sink or a wet bar sink. An invito salesperson can typically install the PURITY II in about a half hour. Installation involves attaching the unit to the cold-water supply line, drilling a hole in the sink, and fas tening the special faucet. It works equally well with water from a municipal system or well water and it can purify up to 15 gallons daily. Enviro sells the PURITY II to consumers for $395, which includes installation The system has no movable parts of electrical connec tions and it has no internal metal parts that will corrode or rust. However, the system does use a set of filters that must be replaced after about two years. Enviro sells the replace ment filters for $80. Taking into consideration the cost of the filters, the system provides water at a cost of approximately $.05 per gallon for the average family. There are two major benefits from using the PURITY LI system. First, water treated by this system tastes better. Blind taste tests confirm that most consumers can tell the differ- ence between water treated with the PURITY II and ordi- nary tapwater. Consequently, the unit improves the taste of coffee, tea, frozen juices, Ice cubes, mixed drinks, soup, and vegetables cooked in water. Perhaps more important, the PURITY IIS ability to remove potentially harmful foreign matter makes the product of special interest to people who are concerned about health and the safety of the water they consume The number of people with those concerns is growing In spite of increased efforts to protect the environment and water supplies, there are many problems. Hundreds of new chemical compounds--ranging from insecticides to industrial chemicals to commercial cleaning agents-are put into use each year. Some of the residue from chemicals and toxic waste eventually enters water supply sources. Further, floods and hurricanes have damaged or completely shut down water treatment facilities in some cities. Problems like these have led to rumors of possible epidemics of such dread diseases as cholera and typhoid--and more than one city has recently experi ced near-panic buying of bottled water Given these problems and the need for pure water, Manny believes that the market potential for the PURITY II system is very large. Residences, both single family and part- ment, are one obvious target. The unit is also suitable for use in boats and recreational vehicles, in fact, the PURITY II is standard equipment on several upscale RVs. And it can be used in taverns and restaurants, in institutions such as schools and hospitals, and in commercial and industrial buildings There are several competing ways for customers to solve the problem of getting pure watet. Some purchase bottled water. Companies such as Ozarka deliver water monthly for an average price of $.60 per gallon. The best type of bottled water is distilled water; it is absolutely pure because it is pro- duced by the process of evaporation. However, it may be too pure. The distilling process removes needed elements such as calcium and phosphate and there is some evidence that removing these trace elements contributes to heart disease. In fact, some health-action groups recommend that con- sumers not drink distilled water. A second way to obtain pure water is to use some sy tem to treat tapwater. PURITY II is one such system Another system uses an ion exchange process that replaces ions of harmful substances like Iron and mercury with ions that are not harmful Ion exchange is somewhat less expen- sive than the PURITY Il process, but it is not well suited for residential use because bacteria can build up before the water is used. In addition, there are a number of other filtering and softening systems. In general, these are less expensive and les reliable than the PURITY II. For example, water softenen remove minerals but do not remove bacteria or germs. Manny's first year with his young company has gone quite well. Customers who have purchased the system like it, and there appear to be several ways to expand the business and increase profits. For example, so far he has had little time to make sales calls on potential commercial and institutional users or residential builders. He also sees other possibilities such as expanding his promotion effort or targeting con- sumers in a broader geographic area. At present, Enviro distributes the PURITY II in the 13. county gulf cost region of Texas. Because of the Robinson- Patman Act, the manufacturer cannot grant an exclusive distributorship. However, Enviro is currently the only PURITY II distributor in this region. In addition, Enviro has the right of first refusal to set up distributorships in other areas of Texas. The manufacturer has indicated that it might even give Enviro distribution rights in a large section of northern Mexico The agreement with the manufacturer allows Enviro to distribute the product to retailers, including hardware stores, plumbing supply dealers, and the like. Manny has not yet pursued this channel, but a PURITY II distributor in Florida reported some limited success selling the system to retailers at a wholesale price of $275. Retailers for this type of prod. uct typically expect a markup of about 33 percent of their selling price Environmental Control, Inc., ships the PURITY II units directly from its warehouse to the Enviro office via UPS. The manufacturer's $200 per unit selling price includes the cost of shipping. Enviro only needs to keep a few units on hand because the manufacturer accepts faxed orders and then ships immediately delivery never takes more than a few days. Further, the units are small enough to inventory in the back room of the Enviro sales office. Several of the easy to handle units will fit in the trunk of a salesperson's car. Manny is thinking about recruiting additional salespeo- ple. Finding capable people has not been a problem so far. However, there has already been some turnover, and one of the current salespeople is complaining that the compensation is not high enough. Manny pays salespeople on a straight commission basis. A salesperson who develops his or her own prospects gets $100 per sale; the commission is $80 per unit on sales leads generated by the company's telemarketing peo- ple. For most salespeople, the mix of sales is about half and half. Enviro pays the students who make the telephone con- tacts $4 per appointment set up and $10 per unit sold from an appointment "An average Enviro salesperson can easily sell 20 units per month. However, Manny believes that a really effective and well-prepared salesperson can sell much more, perhaps 40 units per month. Enviro and its salespeople get good promotion support from Environmental Control, Inc. For example, Environ- mental Control supplies sales training manuals and sales entation flip charts. The materials are also well done, in part because Environment Control's promotion manager previ- ously worked for Electrolux vacuum cleaners, which are sold in a similar way. The company also supplies print copy for magazine and newspaper advertising and tapes of commer- cials for radio and television. Thus, all Enviro has to do is buy media space or time. In addition, Environmental Con- trol furnishes each salesperson with a portable demonstration unit, and the company recently gave Enviro three units to be placed in models of condominium apartments. Manny has worked long hours to get his company going but he realizes that he has to find time to think about how his strategy is working and to plan for the future. pres- Enviro-Pure Case - After Studying the Case given to you as the associated file, answer the following two questions: Some Guidance When you examine this case and the business, you should realize that such businesses are entered into not only for the sales of the primary product (water purifier installations) but over time the earnings come from secondary, residual or recurring sales (the sale of replacement filters). This is true for a number of products such as printers, some medical devices, and so on. Strategies and estimates must cover these residual or recurring sales. Question 1: Based on the data in the case and after making logical assumptions make an estimate of the Revenues, Costs and Profits of the firm for five years. Please specify the assumptions behind your calculations and show how you have arrived at your 'numbers.' There is enough numerical information in the case to make these estimates, which will help you to understand the business. In your calculations basically assume that the firm is functioning at its current level, except for the changes in replacement sales of filters. Question 2: Taking the cue from your calculations develop a marketing strategy to IMPROVE the revenues and profitability. Cover ALL areas of marketing strategy, including Product and Product Portfolio issues, Pricing, Distribution, and Promotion. Also think in terms of the immediate future as well as with a more strategic long term perspective. Make sure that you consider strategies that suggest products that are suitable additions to the present product, so that over time the firm has a product portfolio to offer in the long run