A Report - Microfridge: The Concept by Group 3A
Background and concept of the product
In 1987, Mr. Robert Bennett wanted to explore and exploit his idea to combine a refrigerator, freezer, and 500-watt microwave oven into a single unit called “Microfridge”. He is 31 years old and has a Master’s degree in engineering. He had devised electronic circuitry that shut off power to the refrigerator/freezer whenever the microwave was switched on. A hot plate and a refrigerator would draw 20 amps whereas the unit he designed would never pull more than 10 amps of current.
To this end, he approached a number of major electronic goods’ manufacturers and Samsung and Sanyo agreed to consider its production. Sanyo offered to provide the product at the rate of $263 per unit. According to them, the estimation of upfront tooling payment was $170,000. Following that, Bennett ...view middle of the document...
The 52% of the respondents were ready to pay $75 and 90% were ready to pay $50 per year extra in the dorm rates.
Subsequent to the survey, Mr. Bennett met college administrators whose initial response was negative because they feared that the students would not adhere to the meal plan and there was no demand from the students. Another major concern of the administrators was safety against fires. But this was also addressed by the new product introduced to them. However, the major concern raised by some administrators was that of the proposed durability of the product of 7 years, especially considering that a microwave was also a part of the product.
• Addressing the major constraint of durability, many administrators feared that this being a new product, it has never been tested before, so there is no guarantee about the reliability.
• The next challenge is about maintaining the USP of this product as it can easily be copied by competitors down the lane. This brings the sustainability of this product into question.
• The venture Capitalists were concerned over the amount of investment required in this process as all the items involved were costly.
• Also, since Mr. Bennett was inexperienced in this field, the VCs felt that they would require to pay a lot of careful attention throughout the process of production, distribution and meeting payrolls.
The sales options we have here are 1) By keeping direct house accounts : Here the price will be $309 at a profit of 15% (assuming that Sanyo is the manufacturer). Given that the initial investment is around $530,000 for the first year (of which $230,000 is one-time investment), he has to sell around 11,500 units in one year to break even. 2) Second option is to have a distributor and retail network. Considering that Mr. Bennett, distributors and retailers have a profit margin of 15%, 15% and 30% respectively, the price to customers comes to around $462. Here, there is the benefit of an established sales network.