Questions?

Define the problem in the case and Recommend a solution to solve the problem.

Helix Replication The RePet Di'icision1 Udo, Alan Bartsch's golden retriever puppy, scampered up to Bartsch and looked up expectantly. Bartsch absent-mindedly gave Udo a treat without turning his attention away 'om his laptop screen. As director of marketing for Helix Replication, Bartsch had been under a lot of stress ever since the RePet announcement two weeks earlier. Helix Replication, a company that cloned household pets, had served a niche market of wealthy pet owners for several years; aer all, a procedure that cost tens of thousands of dollars would not have been adopted on a large scale. But on November 1 equired to provide oocytes and to serve as surrogates; cells and embryos needed to be extracted, cultured, and stored; laboratory equipment was required and needed maintenance and updating. The Company Helix Replication In 2011, Carrie Theroux founded Helix Replication (Helix) to take advantage of the research and technology that existed. A research scientist by training, she did most of the early hands-on work herself, building the company up despite no revenue coming in for the rst two years of the company's existence. She gradually built a small team, including Alan Bartsch. He recalled, \"I had previously worked as a marketing consultant on political campaigns; because of the ethical questions around cloning, Carrie believed that a background in politics would be an asset.\" Theroux and Bartsch worked closely and found their rst customers in 2013. The price for the procedure had remained the same since those days, despite ination. Because of advances in the science and technology involved, the company could slowly lower variable costs, and therefore increase contribution margin even if revenue remained relatively stable. Helix became protable in 2019 (see exhibit one for selected nancial information). Between 2013 and 2021, Helix cloned thirty dogs and seventy cats for customers, with a relatively constant demand. Revenue also came from 'extraction and storage' (ES) of embryos. Customers needed to store their pets' genetic material before the pet died, as cellular information deteriorated quickly after death. Helix's clients had cells harvested while the pet was young (extraction), a procedure that cost $200, and stored the cells at company premises (storage), at a price of $250 per year. Both of these charges were separate from the cloning fee, and ultimately only about one quarter of those who paid for ES opted to buy a clone. \"Because of the lifespan of their pets, customers engaged in ES years before cloning, leading to small, consistent revenues for several years before the opportunity for a big sale,\" Bartsch explained. As a small company, Helix had not received very much media attention, though the concept of cloning household pets was occasionally addressed in major newspapers and other media outlets. For example, CNN ran a story in 2020 commenting on a couple in California who cloned their pet dog. Numerous stories about the topic had appeared in 2018 when celebrity Barbra Streisand told Variety magazine that she had purchased two clones of her beloved pet dog, and Simon Cowell reportedly considered cloning his pet as well. Whenever a story like this emerged, Bartsch had to answer questions from the press, as there were many activists opposed to cloning. Marketing Strategies Alan Bartsch had very little experience in marketing consumer products prior to arriving at Helix. He had been hired for his political expertise, not his consumer marketing skills. Even so, because of the small target market for this product (leading up to 2021), he was able to succeed. He developed a positioning that attempted to pull focus away from the ethical and moral questions around cloning; \"I sell the product as one that is, fundamentally, about love,\" Bartsch claimed. For many pet owners, the household dog or cat was a member of the family. For those who could afford it, Helix offered a way for that family member to always be there. Using a network of highly regarded veterinarians and ethical pet breeders near maj or cities like Toronto, New York, and Los Angeles, Bartsch worked to generate awareness about Helix. The company did no traditional advertising and clients would need to bring the pet to their ofces in Seattle, Washington, for the cell extraction and, when ready, the cloned animal. This created extra costs for the client, but as far as Bartsch knew this did not cost Helix any potential revenue. The RePet Announcement Carrie Theroux had, for years, talked about a time when Helix would be able to broaden its customer base. Though serving high net worth clients had worked for the company, it also put a limit on how quickly it could grow. The main stumbling block had been the cost involved, in variable and xed costs, in cloning pets. Prior to 2020 this cost had been reduced signicantly but was still high because of the 10% success rate; this meant that to ensure a happy customer, Helix Replication had to attempt to create many clones (usually between 30 and 50 embryos were implanted in surrogates) to ensure at least one success,2 making a mass market unreachable. In 2021, however, scientic breakthroughs brought the overall success rate to 30%. This meant that only seven or eight embryos would need to be implanted to have a high likelihood (95%) of at least one successful birth. This, coupled with overall declining costs and economies of scale, meant that bringing pet cloning to everyone was possible. Theroux immediately started planning for a new direction for the company, which she branded RePet. On November 1'\The high level of responsibility required in owning a pet was balanced by the emotional connection most pet owners felt towards their dog or cat. Life, in many ways, revolved around the pet's schedule and needs; vacations were planned with the need to board the pet or decide to bring the pet, and space in the home was devoted to the pet. Pet owners perceived a unique personality of their animal companion, and it was usually a very important part of their life. Even so, there was a lot of uncertainty around the idea of cloning pets. A 2008 study found that 63% of Europeans felt that animal cloning (for pets or meat) was unethical. More recently, a 2018 US. study indicated that 40% of those surveyed found animal cloning \"morally acceptable,\" up from 32% the previous year. Major concerns around cloning had to do with ethics, religion, and that animal cloning would lead to human cloning. \"Even if some of the population is indifferent to cloning, there is still a core group of people, I estimate about 30-35%, that just think it's wrong,\" according to Bartsch. Furthermore, not everyone thought that cloning was simply always right or always wrong. A friend of Bartsch's had indicated that while she thought that it was generally unethical, she could see value in animal cloning if the pet owner was mentally and/or emotionally suffering due to the death of their dog or cat. Bartsch also noted that just because a particular customer did not have a problem with the idea of cloning did not mean that they were willing to do it. Many pet owners simply wanted to move on after the death of a family dog or cat. This could mean that they went without a pet for a while, or it could mean that they sought out a new pet. Bartsch estimated that of those pet owners not fundamentally opposed to cloning only 15-3 0% would be willing to take steps like ES. Marketing Communications \"For a company like ours, that doesn't even have an Instagram or Twitter account, trying to sell a controversial product to all pet owners in North America is a challenge,\" Bartsch admitted (the company maintained a Facebook account and YouTube channel but did not publicize them widely). Social media would form a key part of the company's move to the mass market, and Bartsch was in the process of hiring a rm to handle content creation and engagement. As a result, he was not concerning himself with that channel to start. He also knew that a large portion of the market consisted of heads-ofhouseholds who would be typically over 30 years of age, employed in a full-time job, and likely had children. This portion of the market could be reached via digital marketing and social media, but they could also be reached through more traditional advertising. While there did not exist a budget to produce a major media advertising campaign (e.g. he could not advertise RePet during the Super Bowl), he could place some carefully selected ads during television programming like news, in-season sports (not playoffs), and reality television. This would need to be traded off with the options of advertising on the radio, placing billboards in high-trafc locations, and advertising in general- interest and pet-related magazines. The advertising budget for the fnst year was $700,000. A key part of the marketing communications decision-making was to develop a message that would tie advertising channels together. He knew that the positioning of the campaign was 'enduring love' but did not have a tagline or brand statement to guide the various posts and ads; Bartsch also lacked an 'idea customer prole,' meaning a detailed, personalized description of a typical customer. Finally, there would be the opportunity to drive awareness and word-of-mouth through the channel activities. Bartsch intended to continue to employ a network similar to the one he had previously used, made up of veterinarians and breeders, but on a larger scale. The plan had to all t together, with charmel partners helping with advertising, and with RePet adding value to its partners. Marketing Channels National organizations like The Canadian Veterinary Medical Association, the American Veterinary Medical Association, and the Kennel Clubs of the United States and Canada could provide a starting point for Bartsch to begin building his networks. He could leverage his existing relationships with luxury breeders and veterinarians to meet new ones, but he understood not all animal professionals would have a positive attitude about what Helix and RePet were doing. Bartsch estimated that the same one-third of individuals that had a moral problem with animal cloning would extend to those who worked in the eld as well. The rst option was to tap into the network of 74,000 veterinarians in the United States and the 13,000 veterinarians in Canada (approximately half worked with farm animals, and the other half household pets). A network of 5-10% of the total would be sufcient to cover enough of the pet- owning population. While the veterinary ofces provided access to pet owners, Helix had to determine what value it offered to them. There was ES, which, if done by the veterinarians, could provide revenue for them with a fee paid to Helix for equipment. One idea that Bartsch was considering was giving or leasing 'eezers to the veterinarians for a xed annual fee, and then the veterinarians could charge the pet owners for ES instead of that money being paid to Helix. Another avenue for partnership and channel management was pet stores. There were approximately 15,000 pet stores in North America, with one chain (PetSmart) owning 10% of these. Only approximately one-quarter of such stores sold pets (a number that was declining) and the rest only sold supplies and equipment. Bartsch wondered if he could partner with the stores but expected that he would need to pay a fee to the store or chain to promote RePet or provide space in the store for ES activities and equipment. The nal option was to for Helix to establish RePet locations across North America (he expected that he would need to set up about 120 ofces to start, growing to 500-700 within ve years). The advantage was in the control, and relatively small spaces would be required, thereby lowering rent. He believed he could cover sufcient geography with such a plan. It would be, though, the most expensive, with rent and staff costs being high. The uncertainty of future demand made this option less attractive in the short term. Pricing Carrie Theroux's initial email had suggested that prices should fall by 90% to $5,000 to clone a dog and $3,500 to clone a cat; Bartsch saw these as guidelines rather than specic prices to charge (the future costs of cloning, along with other relevant costs, are shown in exhibit 2). Bartsch needed to not only choose a set of launch prices for RePet, but he also needed to provide reasoning for those prices backed up by analysis. One decision he needed to make was about ES, because even though cloning costs were lower, freezer space costs had not changed. Aer all, almost all of the revenue from RePet in the initial few years would be from ES, not cloning. \"On the one hand,\" he said, \"a member of the family like a cat or dog is priceless; on the other hand, these families have budgets.\" Bartsch had often wondered whether he would have taken steps to clone Udo at some point in the future, if he had the net worth to do so. With the expected launch of RePet he suddenly needed to change that thinking from idle speculation to what he would actually pay to make sure that his dog would always be there. \"There's no doubt that the value exists, but I don't know that I would risk nancial security to do it,\" he admitted. The Marketing Plan Though Bartsch had considered the advertising, channel, and pricing decisions independently, they all needed to t together in a cohesive marketing plan. For example, the prices he chose for Helix's services would affect any breakeven analysis on the channel options. Guiding that plan would be decisions about target market and application of the positioning. It was this complete plan that he was expected to nalize by the end of November, and it was this complete plan that his future, and Helix Replication's future, relied upon. There was one other future-looking decision to make, and that was research and development. Theroux would want Bartsch input as to where the company should focus its product-innovation efforts. The rst option was to look for ways to rene the process and lower the cloning costs overall, which would allow Helix to lower prices or earn a bigger margin on each sale. The second option was to do genetic research to improve the features and benets of the product, such as more intelligent pets, disease-resistance, or longer lifespans. The end goal of the second option would be to have a basic RePet and a high-value RePet+, for which a higher price could be charged. Part of Bartsch's goal was personal. \"I want to prove to myself that I can do this,\" he explained. \"I have experience in political marketing, I have experience now in marketing a niche product, but I want to show Carrie, and everyone at Helix, and, well, everyone, that I can market a service like this on a mass scale.\" With high hopes, big dreams, and a nervous feeling in his stomach, Bartsch pushed away 'om his desk and got out his knapsack. It was time for Udo's walk, and he planned to use the time to gure some of this out. Exhibit 1 Selected Financial Information for Helix Replication, 2013-2020 2013 2014 2015 2016 2017 2018 2019 2020 Revenue 120,000 275,000 410,000 525,000 660,000 850,000 1,100,000 1,700,000 Cloning Costs 20,000 40,000 125,000 185,000 280,000 400,000 525,000 765,000 Storage Costs 70,000 160,000 180,000 190,000 210,000 245,000 250,000 260,000 Total Costs 90,000 200,000 305,000 375,000 490,000 645,000 775,000 1,025,000 Gross Prot 30,000 75,000 105,000 150,000 170,000 205,000 325,000 675,000 Fixed Costs 150,000 150,000 175,000 175,000 200,000 215,000 230,000 300,000 Net Prot - 120,000 -75,000 -70,000 -25,000 -30,000 -10,000 95,000 375,000 Exhibit Two Expected Future Costs, 2022-2024 2022 2023 2024 Cloning - Dog (per unit) $3,200 $3,000 $2,750 Cloning Cat (per unit) $2,400 $2,250 $2,050