Executive Board Report - Eagle

Report to Executive Board Market Place Live Simulation – BUSI7216

EAGLE

Paul Crane – [email protected] – 100%

Tyler Malzahn - [email protected] – 100%

Scott Barker - [email protected] – 100%

4/28/2015

The following document discusses Eagle’s implementation of product and advertising strategies and the financial successes they obtained as well as issues absorbed and alleviated along the way to becoming the most successful in the market.

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Contents

EXECUTIVE SUMMARY ................................................................................................................................... i

FINANCIAL PERFORMANCE ........................................................................................................................... 1

MARKET PERFORMANCE............................................................................................................................... 2

STRATEGY ...................................................................................................................................................... 3

Target Markets .......................................................................................................................................... 3

Research & Development Strategy ........................................................................................................... 4

Brand Strategy .......................................................................................................................................... 5

Advertising Strategy .................................................................................................................................. 5

Pricing Strategy ......................................................................................................................................... 5

Sales Channels ........................................................................................................................................... 6

PLAN DEPARTURES ........................................................................................................................................ 7

Product ...................................................................................................................................................... 7

Pricing........................................................................................................................................................ 7

Advertising ................................................................................................................................................ 8

FUTURE PREPERATIONS ................................................................................................................................ 8

APPENDICIES ................................................................................................................................................. 9

APPENDIX A – PROFIT AND LOSS .............................................................................................................. 9

APPENDIX B – SALES VOLUME (IN UNITS) BY QUARTER AND FOR YEAR 2 ............................................. 10

APPENDIX C – MARKET SHARE BY QUARTER AND FOR YEAR 2 .............................................................. 11

APPENDIX D – SALES VOLUME (IN UNITS) BY CITY FOR YEAR 2.............................................................. 12

APPENDIX D (CONTINUED) – SALES VOLUME (IN UNITS) BY CITY FOR YEAR 2 ...................................... 13

APPENDIX E – MARKET SHARE BY CITY FOR YEAR 2 ............................................................................... 14

APPENDIX E (CONTINUED) – MARKET SHARE BY CITY FOR YEAR 2 ........................................................ 15

APPENDIX F – BRANDS AND PRICING ..................................................................................................... 16

APPENDIX G – AD COPY DESIGNS ........................................................................................................... 17

APPENDIX H – SALES FORCE AT END OF YEAR 2 ..................................................................................... 18

APPENDIX I - ASSUMPTIONS AND CALCULATIONS ................................................................................ 19

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Executive Summary

Eagle showed significant growth and had a very successful second year of business, earning $179.3

million of gross revenues and $46.8 million of profit. Eagle is a global leader in the business computer

industry, with 54,371 computers sold across twelve countries in the past year and capturing 38.7

percent of the entire market. Eagle targets four segments – Innovator, Mercedes, Traveler, and

Workhorse – and lead in three of them by a significant amount (Eagle is second in Workhorse). With a

focus on high-margin products, management was able to generate a combined 688% ROI over the past

two years.

Through heavy investment in research & development, Eagle has a reputation of creating the best and

most innovative computers over the past year. Customer Union ranked Eagle PCs number one for each

of the four segments the company is targeting, including perfect scores in the Innovator and Traveler

segments. The company has also received strong response judgement in the effectiveness of

advertisements in each segment as well. Through strong marketing efforts and offering the best brands

the industry has to offer, Eagle is in a great position to build on its success and continue to move

forward as the industry leader.

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FINANCIAL PERFORMANCE In the second year of business, Eagle led the industry with strong growth and outstanding financial

results, highlighted by $179.3 million of gross revenues and $46.8 million of profit. The success is a

direct result of being the market leader with 54,371 units sold during the year, a market share of 38.7

percent. Management’s focus on being a key player in higher-margin segments contributed to

generating a 39.7 percent operating margin. Refer to Appendix A for a detailed P&L on the division’s

performance for the past year.

Net revenues for the year were $176.56 million, which included $2.78 million of rebates. Management

did not offer rebates in year one while testing the market, but felt rebates were necessary to attract

certain segments. Analyzing market research at the beginning of the year, management determined the

market to be more price-sensitive than initially expected. Consumers were responding more positively

to rebates in advertisements, and in an effort to seize on that response mechanism management added

moderate rebates to help improve its advertising effectiveness, most notably in the workhorse segment.

Cost of goods sold were $88.44 million, or 49.3 percent of gross revenues, an increase from 47.1 percent

during the first year. The increase as a percentage of gross revenues is a result of offering advanced

features that were more expensive to manufacture without increasing prices. Management was able to

take advantage of economies of scale by selling more units throughout the year, which aided in lowering

costs, but it was not enough to offset the increase in materials. Gross profit for the year was $88.13

million, a margin of 49.1 percent, compared to $4.89 million, a margin of 52.9 percent in year one.

Sales expenses were $11.28 million, principally due to $7.97 million of personnel expense. The year

ended with 99 sales employees on a global scale, compared to 29 sales employees at the end of the

prior year. Management decided to construct five new sales offices in the first half of the past year,

providing the company with a sales office in twelve cities, resulting in $3.0 million of lease expense.

Management provided $0.31 million of sales incentives to the sales reps during the final six months of

the year.

Marketing expenses were $4.87 million, driven by $4.15 million of advertising expenses. Management

decided to invest more heavily in regional advertising beginning in Q2 of this past year, compared to

heavier local advertising in the prior year. The combination of regional advertising, improved

advertisements in reaching our target markets, and having a stronger brand all led to advertising

expenses being 2.3 percent of gross revenues for the year, compared to 4.6 percent in the prior year.

The design costs for engineering new brands resulted in $0.78 million of expense for the year.

Management decided to continually improve the brand of every product every quarter, resulting in 13

new brands throughout the year. The C100 was the only brand that was not revised as it was removed

from sale after one quarter, a result of poor performance in the cost-cutter segment and cannibalizing

the higher-margined workhorse brands. The I400 was the only brand that did not need to be revised

heading into the fourth quarter this past year because it had a perfect score of 100 in brand judgement.

Total operating profit, also referred to as new marketing contribution profit, for the year was $71.20

million, or 39.7 percent of gross revenues, compared to $2.17 million, or 23.6 percent, in the prior year.

The increase can be attributed to increased demand of the computer industry as a whole and more

efficient sales & marketing in year two of business. Marketing ROI was 420.6 percent, compared to 80.2

percent in the prior year.

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Management decided to construct five new sales offices in the first half of the year, resulting in an

expense of $0.37 million, less than the $0.82 million spent on the seven offices constructed in the prior

year. The decrease is a result of opening two fewer offices and in smaller markets.

Research & Development (R&D) expenses were $24.02 million for the year, compared to zero in the

prior year. Management had an aggressive strategy to invest heavily in R&D and be the first to market

with many features. Having initially been construed to only two projects in the first quarter of the year

at an expense of $4.12 million, management was aggressive in the second quarter spending $9.38

million in an effort to have many features available to the Innovator, Workhorse, and Mercedes

segments. An additional $6.68 million was invested in the third quarter, most of which was to appeal to

the Traveler segment, which lacked a strong product and had little competition. Management decided

to leverage the financial success the company had and invest in a superior laptop product the market

was lacking. The final quarter of the year had $3.84 million invested in remaining features to aid long-

term growth, including a touchscreen feature to help gain back market share in the workhorse segment.

Net income for the year was $46.81 million, or 26.1 percent of gross revenues, compared to $1.35

million, or 14.7 of revenues, the prior year. For the two years in operations, net income was $48.16

million, a return on investment of 688%.

MARKET PERFORMANCE Eagle had unit sales consisting of 54,371 computers sold during the year. The workhorse segment

accounted for 29.3 percent of sales volume, with 15,951 units sold. The Innovator and Traveler

segments followed with 26.3 percent and 25.3 percent of the annual sales volume respectively. The

Mercedes segment represented 14.9 percent of sales during the year, with 43.5 percent of such sales

occurring in the final quarter. The remaining 4.1 percent of sales volume occurred in the cost-cutter

segment.

Refer to Appendix B for a breakdown of the quarterly and annual sales volume and Appendix C for

market share for Eagle and the industry. For the year, Eagle was the market leader with 38.7 percent

market share at an aggregate level, and led the industry in the Mercedes (54.3 percent), Innovator (50.4

percent), and Traveler (45.8 percent) segments. Market share was 32.4 percent, or second best, in the

Workhorse segment (RISE led with 39.9 percent). The cost-cutter segment was represented by Eagle

with 12.4 percent of the market, a result of management not focusing efforts in the low-margin

segment.

Management was able to obtain significantly large market share as a result of having strong brand

recognition, effective advertising, and a large sales presence in twelve cities, allowing no competitor to

seize market share without competition. Refer to Appendix D for a breakdown of sales volume and

Appendix E for market share by city for the final quarter. Most cities tell a similar story, representing the

global market share, with Eagle leading in the Innovator, Mercedes, and Traveler segments in every city.

Eagle was second in market share in the Workhorse segment in every city, with the exception of Sydney

and Mumbai, where Eagle led the market, a result of RISE not having a presence.

Upon analyzing the global market performance, Eagle led the market in seven of twelve cities. The five

cities that Eagle had the second largest market share is a result of the market demand having

significantly more percentage of its consumers preferring the workhorse and/or cost-cutter brands.

Management feels analyzing the most recent quarter is the best representation of Eagle’s position in the

market on a go-forward basis and management expects the status quo.

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STRATEGY

Target Markets Management entered the year with a plan to focus on the Innovator and Workhorse segments, while

continuing to sell products in the Traveler segment with the legacy laptop I100. Management further

intended to implement a product to appeal to the rising demands of the high-margin Mercedes

segment. Management had no intentions of competing in the cost-cutter segment due to the low

margins it offered. Results for the first year of operations provided optimism, recognizing key

competitors in Pikainen Tech for the Innovator segment and RISE in the Workhorse segment.

Management recognized that to win the market, the company must outperform these two companies in

these specific segments.

At the beginning of the year, management expected to have strong performance in the Innovator

segment. The intent was to develop a strong brand offering, and with effective advertising and a large

sales force presence across the globe, the company would outperform any competitor in this segment.

This plan essentially went to script, with Pikainen Tech, nor any other competitor, causing much of a

threat. Management invested heavily early in the year with features that would benefit the segment

significantly. By the third quarter of the year, Eagle was awarded by Customer Union as offering the

perfect product for the Innovator segment with two different models, the I400 and the M200, the latter

which was designed for the Mercedes segment.

At the end of the prior year, management recognized a large portion within the Workhorse segment was

buying the cost-cutter product offered by RISE. Believing consumers preferred the price point offered as

a result of neither firm offering a strong brand that the segment desired, management expected the

Endeavor brand to fade away once a strong brand for the Workhorse segment was developed. By the

second quarter of this past year, management realized the segment was much more price-sensitive than

initially thought as the market continued to purchase products priced between $1,800 and $2,000,

targeted towards the cost-cutter segment. RISE had its own cost-cutter product cannibalizing its own

sales, leading Eagle management to accept that the product was not the issue. Extensive efforts put

forth by management, including additional advertising, an increased sales force, and an improved brand

offering was not enough to counter the multiple low-priced products RISE was offering. In the second

quarter, Eagle management introduced its own workhorse product targeted towards the price-sensitive

portion of the segment with the C100 offered at $2,200 net of a $200 rebate to test market reaction

(compared to the W300 priced at $3,000). When results showed how much of our own sales were likely

cannibalized by this lower product, in addition to poor sales in the cost-cutter segment, management

decided to cut the C100 entirely after one quarter. Management decided it would continue to sell only a

brand in the $2,800 - $3,000 price point to the portion of the segment that was willing to pay more for a

quality product and accept that RISE would lead in market share as a result of targeting the price-

sensitive portion of the segment. It was at this point that Eagle management decided to begin focusing

efforts on the Mercedes and Traveler segments.

The decision to exit the Workhorse segment as a secondary target was merely to focus on the higher-

margined segments. With all of the research & development that was put into the W-series brands, and

recognizing the market was still very large, management continued to engineer new brands every

quarter and have a strong sales presence as there was still a large market to capture and benefit from.

Entering the Traveler segment was initially a decision by management as a way to add more revenues

and increase profitability while focusing on the Innovator and Workhorse segments. After the first

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quarter of the year, management was surprised that the I100 continued to sell as well as it did, despite a

poor brand review and no advertising. Observing that there were very few competitors in this segment,

management leveraged its financial position and decided to test the market in the second quarter with

the T100, which turned out to be the highest-rated brand of the quarter and referred by Customer

Union. Recognizing that the Workhorse segment was struggling and an opportunity had opened,

management invested heavily in R&D during the third quarter to create the ultimate laptop for the

business traveler. With outstanding results during the third quarter without a superior product, Eagle

had the T1000 available for sale in the final quarter, which earned a perfect brand review from

Customer Union, in addition to extremely positive reviews to our ad copies. With the management team

being flexible and deciding to change course throughout the year with an increased focus on the T-series

brands, the decision to invest more in R&D, increased advertising, and having dedicated sales was a

profitable decision and puts the company on a once unintended path for future success.

When Eagle first began two years ago, management had the idea to focus on the Mercedes segment.

Understanding that certain features the market demanded were not readily available, the decision was

to wait to put more focus on this segment once those features became available through research &

development efforts. While management had intended to be a key player in the Mercedes segment by

the end of this past year, the decision for it to be a secondary target market behind the Innovator

segment was a combination of the result of the Workhorse segment struggling, having invested in a

similar I400 brand that sold very well in the Mercedes segment, and market research leading

management to believe that no competitor was developing a product that appealed to the Mercedes

segment. During the third quarter, management engineered the M200, which combined with the I400,

dominated the market with 66 percent market share. Pikainen Tech entered the market in the last

quarter and at a price point much lower than the M1000 and M200 brands offered, which negatively

impacted sales, reducing market share to 53 percent. Management has decided to reduce its prices

going forward, understanding that the market can no longer tolerate the high prices now that

competition has increased in the segment.

Research & Development Strategy The decision to invest heavily in research & development during the first two quarters of the year was

the most important decision made during the year. Management had the mindset that to win the

market, Eagle must offer the best products and to get the best products out to market as quickly as

possible. As a result of strong profitability and financial success, management was able to invest heavily

in R&D throughout the year to the cost of $24.0 million, of which $13.5 million was during the first half

of the year. Management recognized that Eagle was the market leader and was in a financial situation

that its competitors were not in, so management leveraged that positioning by investing more than its

competitors could in order to beat them to market in most features that other companies were working

on.

R&D efforts were $4.1 million during the first quarter, investing in a security suite and high-speed

networking as it appealed to both the Innovator and Workhorse segments. Leveraging on the financial

success the company had to-date, management decided to invest an additional $9.4 million in R&D to

produce stronger machines through faster processors, larger hard drives, office software upgrades, a

32” high resolution monitor, and a high-comfort keyboard. The decision to invest heavily in R&D, despite

warnings from the company’s auditors, was necessary to provide the best products management felt

could be engineered in the Workhorse and Innovator segments, as well as to prepare for entry into the

Mercedes segment. Despite the large investment in the second quarter, the company continued to earn

a profit of $4.8 million and used that success during the third quarter to invest an additional $6.7 million

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in features that were necessary for the Traveler segment that management realized it could seize on

(other R&D features during the quarter included a stylish desktop for the Mercedes and Workhorse

segments). The heavy investments each quarter paid off, having produced the perfect brand in the

Innovator and Traveler segments. During the fourth quarter, management recognized the need for a

touch screen in the Workhorse segment, investing $3.8 million, which management believes will help

lead to a perfect product in the Workhorse segment during the upcoming quarter. The latest R&D

investment also included investment in a slim laptop that was not as stylish, which will be used to target

price-sensitive customers within the Traveler segment.

Brand Strategy Upon the completion of each quarter, management reviewed market research to compare how the

company faired against the competition in each segment. With the exception of the W300, each brand

continued to improve in the eyes of consumers. Management was able to generate the perfect brand

through R&D efforts in the Innovator and Traveler segments. Improving the Mercedes brands was also

through additional R&D as the company always led the market with the best products. The Workhorse

brands improved through a combination of R&D and analyzing competitor brands, as certain features

that were expected to do well, ended up not doing well, such as the 32” high-resolution monitor. Refer

to Appendix F for a listing of selected brands available for sale during the fourth quarter.

Advertising Strategy Compared to the first year of operations, where advertising was done at the local level, management

decided to transition into regional advertising over this past year. Management eased into regional

advertising during the first quarter, limiting itself to the Americas where it had three offices open. With

offices set up in ten of the twelve offices it had constructed by the second quarter of the year, regional

advertising efforts increased significantly and local advertising slowly faded away. Minimal local

advertising was done by the fourth quarter.

Ad copies had a constant theme throughout the year. Management decided to limit itself to seven

features per ad as it felt more features caused too much clutter. Focusing on customer needs and use

patterns via market research identified what was to be displayed in an advertisement. Advanced R&D

efforts aided in our efforts as deceptive advertising was never considered. Appendix G offers a few

selected samples of advertisements run during the fourth quarter.

Pricing Strategy Management’s philosophy was to sell the best product at the price the majority of the market was

willing to pay and not sacrifice margins to be a market segment leader. This proved effective as

SmartBox decided not to lower its prices and suffered significantly as the Traveler market was much

more price-sensitive. The decision to not match RISE on the cheaper workhorse products was a decision

to go after the majority of the market that was willing to pay more so that the company would not

sacrifice margins.

Pricing was monitored each quarter to ensure the pricing on Eagle brands were competitive with that of

its customers and in most situations the pricing was very similar to competing brands. Rebates were

introduced this year as market research suggested that not offering rebates may have hurt potential

sales in the prior year, especially in the Workhorse segment. Appendix F details fourth quarter prices by

brand in the Americas Region. Pricing was relatively similar across the globe, with the exception of the

M1000 and M200 priced lower near $4,300 in Asia (vs $4,600 in the Americas and Europe).

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Pricing was relatively flat throughout the past year as the company introduced newer brands each

quarter with upgraded features. Legacy products would drop in price by about $200 and the new

product would come in at the same, or similar, price the market was already familiar with. With the

exception of the M200, management did not increase its prices on revised brands as a result of

increased materials expense when offering upgraded features. The exception was made in the

Mercedes segment, where management introduced a $4,200 M100 knowing it did not offer a brand that

was state-of-the-art. When the M200 became available, the pricing increased to $4,600 to reflect the

additional features offered. It is management’s intent to evaluate its pricing strategies in this market in

an effort to align with Eagle’s competitors.

Sales Channels Having constructed seven offices during its first year, management expected to open up five more

offices early in the year and that was implemented as planned. During the first quarter, offices were

constructed in Sao Paulo, providing Eagle with a presence throughout the Americas, as well as in

Johannesburg and Sydney. The second quarter of the year had offices constructed in Mumbai and

Warsaw, which placed Eagle in twelve cities, ready to take advantage of upcoming seasonal swings in

sales volume.

Building on the successful efforts of a large sales team during the first year, management continued that

strategy. For newer markets, such as Tokyo which first opened during the first quarter, the size of the

sales team was limited to reflect seasonality in sales. By the third quarter, sales teams were fully

ramped, with the size of the sales teams reflecting the size of the markets. Refer to Appendix H to view

the current sales team by city. Eagle currently has 99 sales employees across the globe.

During the final two quarters, management decided to reallocate its sales reps, dedicating fewer sales

reps to the Workhorse segment and have more of them dedicated to the Traveler and Mercedes

segments to increase sales on the higher-margin products. The Workhorse segment still represents the

largest amount of dedicated sales reps as this segment has the largest market demand and management

does not want RISE to earn a competitive advantage within the higher-margin portion of this segment.

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PLAN DEPARTURES

Product Frustrated by continued loss in market share in the Workhorse segment to the competitors cost-cutter

product line, management decided to engage competition in the cost-cutter segment as well with a

product specifically designed for the market rather than allowing the legacy Workhorse product lines

matriculate into the cost-cutter market as originally planned. The strategy behind this decision was to

both appeal to the low-end Workhorse segment but also appeal to the high-end cost-cutter segment in

attempt to steal market share and revenues from the competitor. The plan failed in execution however

as management did not buy fully into their own plan as their pricing strategy did not align with its

competitor’s, resulting in few sales in cost-cutter and a cannibalization of Eagle’s Workhorse segment,

while the competitor continued to be successful with its cost-cutter product in both market segments.

After receiving the sales results from that experiment, management decided it had no interest in delving

further into the low-margin cost-cutter segment and immediately discontinued the product line.

Although management continued to invest heavily in R&D targeted at the Workhorse segment, Eagle

continued to lose market share to Rise as Rise was content to own a large market share at a reduced

margin. At the end of most recent quarter management had created a workhorse product that exceeded

its competitor’s direct comparable product in brand rating, price, sales force, sales priority and

advertising, while also mimicking its competitors advertising placement strategies (admittedly not fully),

only to be outsold by the competitor in all markets, even markets where Eagle had established a brand

presence and Rise was selling in for the first time. Fortunately, management decided early in the current

year to increase efforts in the Traveler and Mercedes segments which aided in offsetting lost market

share.

Management from the beginning felt that the Mercedes and Innovator market segments most closely

aligned in regards to user preferences and offered some of the highest margins. However, management

understood the product put forth in early development would never prove adequate to the Mercedes

consumers, so it and the segment were put on the back shelf in terms of priority. As Eagle continued to

lose share to Rise, management invested heavily into R&D early in the fiscal year in an effort to position

itself to be first to market with a segment specific to the Mercedes product line. Management’s initial

intent was always to delve into the Mercedes segment, but more as an ancillary product line. By the last

quarter management moved its Mercedes product into its second priority position behind its Innovator

brand.

Pricing Management initially was a firm believer that by providing a superior product a superior price could be

demanded and the consumers would follow. It also believed that offering rebates cheapened the brand

and the perceived value of the product line. However, management realized that pricing its products

competitively and offering rebates on continuously revamped product lines provided continued success

in terms of generating revenue. This revamped pricing strategy was implemented across all new product

lines at introduction, except in market segments management felt it lacked competition and the market

could withstand the higher prices.

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Advertising As R&D completed, management tweaked its tried and true formula for advertising and the result was

continued improvement in advertising judgement. However, at one point management tested a theory

to see if there was a correlation between the increased technological demand of a segment and the

amount of content on the ad itself. This theory was tested on a Mercedes advertisement and the result

was not as expected, resulting in a lower rating than the innovator product line ad, though still above

80, for the same quarter. At this point management returned to its successful strategies of the past,

which resulted in a score over 90.

Management may have underestimated to an extent the effect of correctly placed regional advertising.

Eagle’s brands finished the year with an equal or higher judgement in all segments compared to its

competitor’s direct counterpart. Management implemented a regional placement strategy in the top

four magazines, derived directly from the media preferences obtained in market research. Eagle’s

competitor, Rise, continued to market in a general news magazine, not highly preferred per market

research. Entering the final quarter, management added placement in this magazine despite its poorer

rating, but did match to the extent equal to its competitors. This may have been a contributing factor as

to why Eagle continued to trail Rise in the Workhorse segment. Perhaps Rise was appealing to the

worker themselves rather than to who was purchasing the product and it was the workers voice that

swayed the purchasing decision between marginally different products. Management neglected in this

aspect to evaluate the information of what actually occurred correctly and overvalued the original

media placement market research.

FUTURE PREPERATIONS During the entire process, management’s intent was to expand globally quickly; this was achieved by Q3

of this past year and to purchase as much relevant R&D as possible early as possible which was achieved

by the latest quarter. In the final quarter of this past year, management invested in the final two R&D

arenas available. This positioned our product development team to be able to react quickly to the needs

of the market and also allows for multiple tiers of product within a single market segment.

Management also continued to purchase market research for all regions to prepare for the upcoming

quarter. This was a continuation of management’s strategy for the previous two years as well. The

information provided invaluable insight into our customers’ needs and changed the trajectory of our

product designs. Knowledge of competitor product, pricing and marketing strategies was imperative to

maintain a competitive edge in the markets as competition begins to increase across all regions.

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APPENDICIES

APPENDIX A – PROFIT AND LOSS

Q5 Q6 Q7 Q8 Year 2 Year 1

Gross Revenue $ 20,449,300 $ 36,479,495 $ 52,173,630 $ 70,240,170 $ 179,342,595 $ 9,234,650

Rebates (156,780) (620,980) (660,500) (1,339,832) (2,778,092) -

Net Revenue 20,292,520 35,858,515 51,513,130 68,900,338 176,564,503 9,234,650

Cost of Goods Sold 9,381,070 17,477,558 26,628,513 34,950,608 88,437,749 4,347,620

Gross Profit 10,911,450 18,380,957 24,884,617 33,949,730 88,126,754 4,887,030

Margin 53.4% 50.4% 47.7% 48.3% 49.1% 52.9%

Operating Expenses:

Sales Office Leases 580,000 740,000 840,000 840,000 3,000,000 460,000

Sales Personnel 1,284,549 2,079,457 2,323,686 2,282,500 7,970,192 1,276,368

Brand Promotions - - 63,550 48,000 111,550 -

Special Programs - - 116,400 82,900 199,300 -

Ad Creation / Revision 60,000 90,000 150,000 120,000 420,000 120,000

Point of Purchase Displays 5,600 16,000 16,800 21,600 60,000 2,600

Advertising Expenses 959,621 802,358 1,327,737 1,058,531 4,148,247 420,449

Market Research 60,000 60,000 60,000 60,000 240,000 192,800

Engineering Cost for New Brands 60,000 300,000 240,000 180,000 780,000 240,000

Total Operating Expenses 3,009,770 4,087,815 5,138,173 4,693,531 16,929,289 2,712,217

Operating Profit 7,901,680 14,293,142 19,746,444 29,256,199 71,197,465 2,174,813

Operating Margin 38.6% 39.2% 37.8% 41.7% 39.7% 23.6%

Other Expenses:

Setup Costs for New Sales Offices 220,000 150,000 - - 370,000 820,000

Research & Development 4,121,725 9,380,478 6,680,039 3,837,469 24,019,711 -

Net Profit / (Loss) 3,559,955$ 4,762,664$ 13,066,405$ 25,418,730$ 46,807,754$ 1,354,813$

Profit Margin 17.4% 13.1% 25.0% 36.2% 26.1% 14.7%

Cumulative Net Profit $ 4,914,768 $ 9,677,432 $ 22,743,837 $ 48,162,567 $ 48,162,567 $ 1,354,814

ROI 70.2% 138.2% 324.9% 688.0% 688.0% 67.7%

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APPENDIX B – SALES VOLUME (IN UNITS) BY QUARTER AND FOR YEAR 2

Company Costcutter Innovator Mercedes Workhorse Traveler Total

T12 - Eagle 601 2,087 582 2,685 681 6,636

RISE 754 198 84 1,114 2 2,152

Pikainen Tech 352 1,374 655 1,348 1,465 5,194

SmartBox 8 390 185 100 561 1,244

Adroit Inc. 869 110 0 597 707 2,283

Total 2,584 4,159 1,506 5,844 3,416 17,509


T12 - Eagle 835 2,604 1,125 3,851 3,572 11,987

RISE 2,015 549 247 4,027 13 6,851

Pikainen Tech 419 1,722 840 1,794 1,578 6,353

SmartBox 5 313 174 91 488 1,071

Adroit Inc. 751 89 0 527 641 2,008

Total 4,025 5,277 2,386 10,290 6,292 28,270


T12 - Eagle 436 4,505 2,881 4,028 3,605 15,455

RISE 2,362 780 320 5,510 15 8,987

Pikainen Tech 435 1,972 955 2,414 1,636 7,412

SmartBox 13 468 215 160 728 1,584

Adroit Inc. 1,449 161 1 1,318 1,094 4,023

Total 4,695 7,886 4,372 13,430 7,078 37,461


T12 - Eagle 358 5,094 3,534 5,387 5,920 20,293

RISE 3,992 1,666 796 8,968 1,634 17,056

Pikainen Tech 2,071 353 19 2,534 2,082 7,059

SmartBox 237 2,955 1,999 2,446 2,142 9,779

Adroit Inc. 27 946 333 320 1,517 3,143

Total 6,685 11,014 6,681 19,655 13,295 57,330


T12 - Eagle 2,230 14,290 8,122 15,951 13,778 54,371

RISE 9,123 3,193 1,447 19,619 1,664 35,046

Pikainen Tech 3,277 5,421 2,469 8,090 6,761 26,018

SmartBox 263 4,126 2,573 2,797 3,919 13,678

Adroit Inc. 3,096 1,306 334 2,762 3,959 11,457

Total 17,989 28,336 14,945 49,219 30,081 140,570

Year 2 Market Demand

Q8 Market Demand

Q7 Market Demand

Q6 Market Demand

Q5 Market Demand

11

APPENDIX C – MARKET SHARE BY QUARTER AND FOR YEAR 2


T12 - Eagle 23.3% 50.2% 38.6% 45.9% 19.9% 37.9%

RISE 29.2% 4.8% 5.6% 19.1% 0.1% 12.3%

Pikainen Tech 13.6% 33.0% 43.5% 23.1% 42.9% 29.7%

SmartBox 0.3% 9.4% 12.3% 1.7% 16.4% 7.1%

Adroit Inc. 33.6% 2.6% 0.0% 10.2% 20.7% 13.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle 20.7% 49.3% 47.2% 37.4% 56.8% 42.4%

RISE 50.1% 10.4% 10.4% 39.1% 0.2% 24.2%

Pikainen Tech 10.4% 32.6% 35.2% 17.4% 25.1% 22.5%

SmartBox 0.1% 5.9% 7.3% 0.9% 7.8% 3.8%

Adroit Inc. 18.7% 1.7% 0.0% 5.1% 10.2% 7.1%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle 9.3% 57.1% 65.9% 30.0% 50.9% 41.3%

RISE 50.3% 9.9% 7.3% 41.0% 0.2% 24.0%

Pikainen Tech 9.3% 25.0% 21.8% 18.0% 23.1% 19.8%

SmartBox 0.3% 5.9% 4.9% 1.2% 10.3% 4.2%

Adroit Inc. 30.9% 2.0% 0.0% 9.8% 15.5% 10.7%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle 5.4% 46.3% 52.9% 27.4% 44.5% 35.4%

RISE 59.7% 15.1% 11.9% 45.6% 12.3% 29.8%

Pikainen Tech 31.0% 3.2% 0.3% 12.9% 15.7% 12.3%

SmartBox 3.5% 26.8% 29.9% 12.4% 16.1% 17.1%

Adroit Inc. 0.4% 8.6% 5.0% 1.6% 11.4% 5.5%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle 12.4% 50.4% 54.3% 32.4% 45.8% 38.7%

RISE 50.7% 11.3% 9.7% 39.9% 5.5% 24.9%

Pikainen Tech 18.2% 19.1% 16.5% 16.4% 22.5% 18.5%

SmartBox 1.5% 14.6% 17.2% 5.7% 13.0% 9.7%

Adroit Inc. 17.2% 4.6% 2.2% 5.6% 13.2% 8.2%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Q5 Market Share

Q6 Market Share

Q7 Market Share

Q8 Market Share

Year 2 Market Share

12

APPENDIX D – SALES VOLUME (IN UNITS) BY CITY FOR YEAR 2

Company City Costcutter Innovator Mercedes Workhorse Traveler Total

T12 - Eagle Abu Dhabi 19 453 356 324 285 1,437

Adroit Inc. Abu Dhabi 138 46 3 195 178 560

Pikainen Tech Abu Dhabi 13 312 216 153 142 836

RISE Abu Dhabi 256 182 92 664 119 1,313

Total Abu Dhabi 426 993 667 1,336 724 4,146


T12 - Eagle Chicago 35 777 475 621 753 2,661

Pikainen Tech Chicago 23 431 261 292 261 1,268

RISE Chicago 449 247 108 1,151 216 2,171

SmartBox Chicago 5 242 79 63 327 716

Total Chicago 512 1,697 923 2,127 1,557 6,816


T12 - Eagle Johannesburg 23 270 137 323 251 1,004

Adroit Inc. Johannesburg 178 29 1 208 168 584

Pikainen Tech Johannesburg 19 212 119 193 143 686

RISE Johannesburg 329 116 49 708 112 1,314

Total Johannesburg 549 627 306 1,432 674 3,588


T12 - Eagle Mexico City 22 295 145 331 281 1,074

Adroit Inc. Mexico City 149 31 1 201 174 556

Pikainen Tech Mexico City 20 174 123 200 146 663

RISE Mexico City 341 133 53 827 127 1,481

SmartBox Mexico City 4 114 36 42 179 375

Total Mexico City 536 747 358 1,601 907 4,149


T12 - Eagle Mumbai 30 218 158 394 352 1,152

Adroit Inc. Mumbai 247 26 1 297 175 746

Pikainen Tech Mumbai 23 155 124 220 153 675

Total Sydney 300 399 283 911 680 2,573


T12 - Eagle Paris 37 602 468 628 702 2,437

Adroit Inc. Paris 226 44 3 299 294 866

Pikainen Tech Paris 24 332 253 280 253 1,142

RISE Paris 445 186 106 1,132 203 2,072

SmartBox Paris 5 166 75 64 299 609

Total Paris 737 1,330 905 2,403 1,751 7,126

13

APPENDIX D (CONTINUED) – SALES VOLUME (IN UNITS) BY CITY FOR YEAR 2


T12 - Eagle Sao Paulo 27 396 200 391 494 1,508

Adroit Inc. Sao Paulo 170 39 2 222 220 653

Pikainen Tech Sao Paulo 19 271 132 188 178 788

RISE Sao Paulo 389 168 67 911 162 1,697

SmartBox Sao Paulo 4 144 46 47 231 472

Total Sao Paulo 609 1,018 447 1,759 1,285 5,118


T12 - Eagle Shanghai 39 245 197 459 400 1,340

Adroit Inc. Shanghai 293 28 2 290 191 804

Pikainen Tech Shanghai 28 165 145 216 167 721

RISE Shanghai 556 109 61 752 132 1,610

Total Shanghai 916 547 405 1,717 890 4,475


T12 - Eagle Sydney 24 243 198 313 338 1,116

Adroit Inc. Sydney 199 30 2 236 173 640

Total Sydney 223 273 200 549 511 1,756


T12 - Eagle Tokyo 36 683 645 559 931 2,854

Adroit Inc. Tokyo 238 56 3 305 312 914

Pikainen Tech Tokyo 24 389 301 243 289 1,246

RISE Tokyo 383 214 121 881 219 1,818

Total Tokyo 681 1,342 1,070 1,988 1,751 6,832


T12 - Eagle Toronto 32 702 404 532 756 2,426

Pikainen Tech Toronto 20 369 211 215 251 1,066

RISE Toronto 391 214 88 888 211 1,792

SmartBox Toronto 4 215 66 54 327 666

Total Toronto 447 1,500 769 1,689 1,545 5,950


T12 - Eagle Warsaw 34 210 151 512 377 1,284

Adroit Inc. Warsaw 233 24 1 281 197 736

Pikainen Tech Warsaw 24 145 114 246 159 688

RISE Warsaw 453 97 51 1,054 133 1,788

SmartBox Warsaw 5 65 31 50 154 305

Total Warsaw 749 541 348 2,143 1,020 4,801

14

APPENDIX E – MARKET SHARE BY CITY FOR YEAR 2


T12 - Eagle Abu Dhabi 4.5% 45.6% 53.4% 24.3% 39.4% 34.7%

Adroit Inc. Abu Dhabi 32.4% 4.6% 0.4% 14.6% 24.6% 13.5%

Pikainen Tech Abu Dhabi 3.1% 31.4% 32.4% 11.5% 19.6% 20.2%

RISE Abu Dhabi 60.1% 18.3% 13.8% 49.7% 16.4% 31.7%

Total Abu Dhabi 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Chicago 6.8% 45.8% 51.5% 29.2% 48.4% 39.0%

Pikainen Tech Chicago 4.5% 25.4% 28.3% 13.7% 16.8% 18.6%

RISE Chicago 87.7% 14.6% 11.7% 54.1% 13.9% 31.9%

SmartBox Chicago 1.0% 14.3% 8.6% 3.0% 21.0% 10.5%

Total Chicago 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Johannesburg 4.2% 43.1% 44.8% 22.6% 37.2% 28.0%

Adroit Inc. Johannesburg 32.4% 4.6% 0.3% 14.5% 24.9% 16.3%

Pikainen Tech Johannesburg 3.5% 33.8% 38.9% 13.5% 21.2% 19.1%

RISE Johannesburg 59.9% 18.5% 16.0% 49.4% 16.6% 36.6%

Total Johannesburg 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Mexico City 4.1% 39.5% 40.5% 20.7% 31.0% 25.9%

Adroit Inc. Mexico City 27.8% 4.1% 0.3% 12.6% 19.2% 13.4%

Pikainen Tech Mexico City 3.7% 23.3% 34.4% 12.5% 16.1% 16.0%

RISE Mexico City 63.6% 17.8% 14.8% 51.7% 14.0% 35.7%

SmartBox Mexico City 0.7% 15.3% 10.1% 2.6% 19.7% 9.0%

Total Mexico City 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Mumbai 10.0% 54.6% 55.8% 43.2% 51.8% 44.8%

Adroit Inc. Mumbai 82.3% 6.5% 0.4% 32.6% 25.7% 29.0%

Pikainen Tech Mumbai 7.7% 38.8% 43.8% 24.1% 22.5% 26.2%

Total Mumbai 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Paris 5.0% 45.3% 51.7% 26.1% 40.1% 34.2%

Adroit Inc. Paris 30.7% 3.3% 0.3% 12.4% 16.8% 12.2%

Pikainen Tech Paris 3.3% 25.0% 28.0% 11.7% 14.4% 16.0%

RISE Paris 60.4% 14.0% 11.7% 47.1% 11.6% 29.1%

SmartBox Paris 0.7% 12.5% 8.3% 2.7% 17.1% 8.5%

Total Paris 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

15

APPENDIX E (CONTINUED) – MARKET SHARE BY CITY FOR YEAR 2


T12 - Eagle Sao Paulo 4.4% 38.9% 44.7% 22.2% 38.4% 29.5%

Adroit Inc. Sao Paulo 27.9% 3.8% 0.4% 12.6% 17.1% 12.8%

Pikainen Tech Sao Paulo 3.1% 26.6% 29.5% 10.7% 13.9% 15.4%

RISE Sao Paulo 63.9% 16.5% 15.0% 51.8% 12.6% 33.2%

SmartBox Sao Paulo 0.7% 14.1% 10.3% 2.7% 18.0% 9.2%

Total Sao Paulo 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Shanghai 4.3% 44.8% 48.6% 26.7% 44.9% 29.9%

Adroit Inc. Shanghai 32.0% 5.1% 0.5% 16.9% 21.5% 18.0%

Pikainen Tech Shanghai 3.1% 30.2% 35.8% 12.6% 18.8% 16.1%

RISE Shanghai 60.7% 19.9% 15.1% 43.8% 14.8% 36.0%

Total Shanghai 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Sydney 10.8% 89.0% 99.0% 57.0% 66.1% 63.6%

Adroit Inc. Sydney 89.2% 11.0% 1.0% 43.0% 33.9% 36.4%

Total Sydney 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Tokyo 5.3% 50.9% 60.3% 28.1% 53.2% 41.8%

Adroit Inc. Tokyo 34.9% 4.2% 0.3% 15.3% 17.8% 13.4%

Pikainen Tech Tokyo 3.5% 29.0% 28.1% 12.2% 16.5% 18.2%

RISE Tokyo 56.2% 15.9% 11.3% 44.3% 12.5% 26.6%

Total Tokyo 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Toronto 7.2% 46.8% 52.5% 31.5% 48.9% 40.8%

Pikainen Tech Toronto 4.5% 24.6% 27.4% 12.7% 16.2% 17.9%

RISE Toronto 87.5% 14.3% 11.4% 52.6% 13.7% 30.1%

SmartBox Toronto 0.9% 14.3% 8.6% 3.2% 21.2% 11.2%

Total Toronto 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


T12 - Eagle Warsaw 4.5% 38.8% 43.4% 23.9% 37.0% 26.7%

Adroit Inc. Warsaw 31.1% 4.4% 0.3% 13.1% 19.3% 15.3%

Pikainen Tech Warsaw 3.2% 26.8% 32.8% 11.5% 15.6% 14.3%

RISE Warsaw 60.5% 17.9% 14.7% 49.2% 13.0% 37.2%

SmartBox Warsaw 0.7% 12.0% 8.9% 2.3% 15.1% 6.4%

Total Warsaw 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

16

APPENDIX F – BRANDS AND PRICING

Pricing is as set in the Americas Region. Pricing does not differ significantly in Europe or Asia, with the

exception of the M1000 and M200 in Asia, which is $4,300 and $4,250 respectively.

W1000 W300 M1000 M200 I400 T1000 T200

Brand Judgment 94 84 86 / 100* 86 / 100* 100 100 88

Price 3,200$ 2,950$ 4,600$ 4,500$ 3,650$ 3,400$ 3,300$

Rebate (200)$ (119)$ -$ -$ (169)$ (159)$ (119)$

Case

Standard (desktop) X X X

Stylish (desktop) X X

Standard (laptop) X

Slim stylish (laptop) X

Hard drive

Ultra capacity X

Fail-proof ultra cap. X X X X X X

Computing power

High speed X X X X

Ultra fast X X X

Office software

Office

Office upgrade X X X X X X X

Other software

Bus. graphics X X X X

Presentation X X X X X

Database X X X X X X X

Bookkeeping X X X X

Engineering X X X

Manufacturing X X

Security suite X X X X X X X

Monitor

21" high res. (desktop) X X

32" high res. (desktop) X X X

14" standard (laptop) X

17" advanced (laptop) X

Keyboard & mouse

Expanded X X X

High comfort X X X X

Special features

Auto backup system X X X X X X X

Touch screen

Networking

High speed X X X X X X X

Battery

Standard (laptop) X

Long-life (laptop) X

*Score of 100 for the M200 and M1000 was in the Innovator Segment, 86 was in Mercedes

17

APPENDIX G – AD COPY DESIGNS

Ad Copy Design for the M1000 Ad Copy Design for the T1000

- Ad Judgment a 99 - Ad Judgement a 97

Ad Copy Design for the I400 Ad Copy Design for the W1000

- Ad Judgement a 96 - Ad Judgement a 95

18

APPENDIX H – SALES FORCE AT END OF YEAR 2

CityAnnual

Salary

Total

Sales PeopleSupport Costcutter Innovator Mercedes Workhorse Traveler

Toronto 100,000 13 2 - 4 2 3 2

Chicago 100,000 13 2 - 4 2 3 2

Mexico City 40,000 5 1 - 2 - 2 -

Sao Paulo 50,000 7 1 - 2 - 2 2

Subtotal 38 6 - 12 4 10 6

CityAnnual

Salary

Total


Tokyo 110,000 14 2 - 3 3 3 3

Shanghai 40,000 6 1 - 1 - 3 1

Mumbai 40,000 5 1 - 1 - 2 1

Sydney 60,000 5 1 - 1 - 2 1

Subtotal 30 5 - 6 3 10 6

CityAnnual

Salary

Total


Paris 100,000 13 2 - 4 2 3 2

Warsaw 60,000 6 1 - 1 - 3 1

Abu Dhabi 90,000 7 1 - 2 2 2 -

Johannesburg 50,000 5 1 - 2 - 2 -

Subtotal 31 5 - 9 4 10 3

Grand Total 99 16 - 27 11 ` 30 15

EMEA

APAC

Americas

19

APPENDIX I: ASSUMPTIONS AND CALCULATIONS

Return on Investment (ROI*) = Cumulative Net Profit / Investment from Corporate

= $48.17 million / $7.0 million

= 688%

Net Marketing Contribution Profit = Operating Profit

Management assumed all operating expenses to be considered a part of sales & marketing,

including lease expense, which is a necessary operating expense to run a sales office (the

expense is allocated to the sales department). Engineering costs are also assigned to the

marketing department because the marketing department is responsible for determining what

the product features are offered in a specific brand. In future periods, research & development

will not be considered a sales & marketing expense, but any changes to brand design will

continue to be a sales & marketing expense. Construction costs to develop new sales offices will

also not be considered as a sales & marketing expense.

= $71.20 million

Marketing ROS = Net Marketing Contribution Profit / Revenue


= 39.7%

Net Marketing Contribution Profit is Operating Profit

Marketing ROI = Net Marketing Contribution Profit / Sales & Marketing Expenses


= 420.6%

Net Marketing Contribution Profit is Operating Profit

Sales & Marketing Expenses = Operating Expenses

Documents

Executive Board Report - Eagle