1. Executive Summary
With China’s rapid economic growth, the level of income is higher than ever. Increasing numbers of Chinese are willing to spend money on traveling. According to the recent official data published by China National Tourism Administration, more people are increasing their spending on traveling. Also, the recent on-line research issued by ACNielsen showed that more than half (53%) of the Chinese customers were planning to spend their saving on traveling, the highest among 14 Asian countries. Although the market is growing significantly, due to various reasons including the high cost of overseas trip, time constraint and other concerns include the fear of flying, language barrier and travel visa issue, the problem of jet lag and the travel difficulty due to age or other health concerns discourage Chinese people from traveling oversea. Virtual reality is one of the best alternatives to traditional traveling since it addresses all the potential issues related to traveling. This business plan presents an innovation named Beyond Borders® a product that combines cutting-edge motion sensing technology with advanced virtual reality and applies this technology to the travel industry.
2. Target Market, Potential Market Size and Market Trend
2.1 Target Market and Segmentation
The marketing campaign of Beyond Borders® will be based on a phase approach in order to set the appropriate price and marketing strategy to meet different customers’ needs and build customers’ intimacy. For each of the stages, I aim to maximize the value derived for customers based on their needs. Specifically, in the first phase, the target segment will be the technologically-inclined group who seek the opportunity to experience the latest technology and services. The rationale for adopting a concentrated marketing strategy during the first phase is mainly driven by two objectives: to recover the high research and development costs associated with the proposed innovation and to generate credibility for the product early on through the acceptance from these innovators. The project will benefit from niche marketing as these technology enthusiasts prefer to be the first in trying out the latest offerings and will therefore pay a premium to enjoy the service. In response to this market segment’s need, the latest virtual reality and motion technology aspect of Beyond Borders® will be the focal point of the campaign. The target segment of the second phase of the project will be affluent customers who love traveling, but due to time constraint, are not able to spend much time traveling to different places. The focus of this campaign will be the delivery of high quality and high tech virtual stimulations to demonstrate the core activity of traveling, emphasizing on the little amount of time that is required to go to faraway destinations. During the third phase of the marketing strategy, this new product will be targeted at the general public who enjoy traveling but is discouraged due to various concerns including budget constraint, the fear of flying, language barrier and travel visa issue and other health or regulation issues. In response to these concerns, I will tailor the campaign to highlight the ease of use and high degree of flexibility of the service. Throughout all phases of the strategy, I will emphasize the unique advantage of the product, which is the idea of “green traveling”. I believe in the positive impact of corporate social responsibility (CSR) has on the different stakeholders including the society and the environment, and this genuine interest in CSR will transfer business value to the proposal and to the customers. The present proposition will focus on the first phase of the marketing campaign and will target technology enthusiasts.
2.2 Market Size and Trend: Refer to Appendix Two.
3. Product Strategy
3.1 Product Concept and Core Technology
Beyond Borders® involves projecting computerized images of a room, building, campus, city or imaginary world onto a computer monitor or a tiny screen directly in front of the eyes. Ideally, participants in virtual reality feel they’re actually inside a different environment, so that if they turn around, they see the view behind them, and if they run, the foreground approaches more quickly. The innovation allows users to explore virtual worlds while moving around safely in their real physical environment. As for the selection of primary travel destinations that will be offered by Beyond Borders®, I plan to produce 10 scenery clips as the first production. The selection of destinations will be based upon the secondary data that are gathered by syndicated-service research firms. I will also perform primary research in Hong Kong, Beijing and Shanghai since I will have retail locations in these three cities.
3.2 Core Product Benefits
Beyond Borders® provides an alternative to traditional travel methods. Traditional travel involves taking some forms of transportation to get to the desired destination in order to experience the real scenery. Current available ways of transportation include airplanes, trains or by car. These methods are usually expensive and/or time-consuming. Also, one of the downsides of long haul traveling is that travelers might be especially disappointed if, upon 14 hours of staying on a plane, they are not satisfied with the chosen destination, possibly due to bad weather conditions or crowdedness during high-season periods. Not only will the system allow the traveler to use the “stop”, “pause”, “next”, “previous” functions to customize his/her travel experience it will also provide audio and virtual travel guide to the customers to enhance the ease of visiting different places. Customers will also be able to travel back and forth in time to look at how a destination used to look or to stimulating the condition 10 years from now. For instance, how Niagara Falls would look like 10 years from now formulated based on data from global environmental research. Also, the concept of green traveling will appeal to the technology enthusiasts on a psychological level since I believe that this group of customers shares a common notion that technology can improve the living conditions for human life and make a positive impact in the world. The product fulfills this expectation since it eliminates the emission of harmful substances in the air, thereby decreasing air pollution and alleviating the effect of global warming and other environmental impacts.
4. Sales Plan
4.1 Distribution Strategy
In order to communicate and deliver the new idea to the target niche market, I will employ a hybrid-channel model with the use of e-channel, phone hotline and the retail locations. I will also partner with some of the existing travel agencies and leverage the commissioned sales force to increase the opportunity of reaching the target customers. Through e-channel, I can explain in detail how the innovation works with technological terminology in order to connect with the innovation enthusiasts. The use of the e-channel is highly flexible in terms of ease of use and adapting the website’s interface to cater to different customers, which will be desirable during the later phases on the campaign. The website will offer prospects the option to complete the transaction online and to print out the e-travel ticket. For instance, the customer can select the desire destination, the use of virtual and/or audio tour guide and other services. The potential customers can also call the service hotline to talk to a customer representative and inquire about the product or to book a trip. Through the hotline channel, I will leverage the well-informed sales force to distribute information and to promote the service. On a more physical level, prospects can learn about the business through the partnered travel agencies, tour operators and the own retail locations in Hong Kong, Beijing and Shanghai. Though I am applying concentrated targeting, it is still an economical and efficient way to reach the target segment with many existing travel agencies and tour operators since most people have already known about or have previously used the service of these travel agencies. In order to facilitate the partnership with these travel agencies, I will have a team of commissioned sales reps to expand the distribution networks. Commission methodology is chosen because this would motivate the agents to increase the business volume in the shortest period of time.
4.2 Pricing Strategy
As previously discussed in the target market section, the main priority during the initial launch of the product is to recover the sizeable research and development costs invested in the business model. Therefore, I will emphasize on obtaining maximum current profit as a goal. I will apply the price-quality inferences when setting the initial price to attract the technology enthusiasts. I consider that a high price is necessary to serve as a signal of superior quality of the innovation. Pricing should be based on the estimated utility to the consumer in terms of money or sacrifice that he or she is willing to pay for. As a pioneer with intensive technological and patent investments in the service, I expect that there will not be any competitors offering similar services in at least two years after the initial launch. Due to a number of factors, namely the distinctive nature of the product, low numbers of close substitutes in the market and the perception of exclusiveness and novelty, price sensitivity of the product will be low. The relatively inelastic demand for the product will allow me to set a price at a premium and would not result in a large decrease in demand. Initially, I will set the price at $400 for each 15-minute session. It is set at $400 because it is equivalent to the price of the new technological products that an enthusiast is willing to pay. Moreover, it is important to make use of this 16% of influential opinion leaders to spread the words around. With the relatively low operating costs, the importance is to boost up the number of visits and to fully utilize the daily operating time at the retail locations. In the long run, I can have different price strategy depending on the target markets and the virtual location of the chosen destination.
5. Promotional Strategy
5.1 Direct Marketing, Advertising and Public Relations
Since Beyond Borders® is in the introduction stage of the product life cycle, I propose the use of advertising and publicity. Informative advertising will be particularly useful since potential consumers are not familiar with the company brand and the product. Based on the target market, which is the technologically inclined segment, I can make use of the following external marketing strategy. The aim of the strategy is to increase the exposure of the services to the target segment in the shortest period of time:
Direct marketing – channels include the official website, customer hotline and retail locations. Customers can obtain information directly from the representatives, who understand the products thoroughly and will be trained to exhibit competence, courtesy, credibility and reliability.
Brochure – Brochure will be handed out in different department in universities, where many innovators are located. Academic department such as computer science and engineering department will be chosen as the pilot locations.
Exhibitions – I will promote Beyond Borders® in exhibitions with technology theme. This is an especially effective way for us to reach the concentrated target segment since the people who come to these exhibitions are follow the “learn-free-do” sequence as explained in various response hierarchy models. By renting a booth in these conventions and providing the real equipment such as the headset, I influence the cognitive, affective and possibly behavioral stage of the prospects. For example, though it might not be feasible to offer trial experience on the spot due to technical difficulty, I can help increase people’s awareness about the brand and the product via pre-recorded video demonstration.
Articles – I will publish advertising articles in Technology and Science magazines and travel magazines. For the innovation and travel enthusiasts, advertising articles with detailed discussions on the technology and product will surely spark curiosity and increase product awareness.
Loyalty program – To reward loyalty customers and to encourage virtual travel all over the places, a loyalty program can achieve this goal. For example, the customers can redeem their virtual mileage points for future free virtual travels or 5% Cash Back or other products such as free magazine subscription (e.g. Science magazines).
Online Advertising – For technology lovers, searching via Google and Yahoo! is their daily activities. By drawing the most attention in the web world, I should place ourselves in the top search results when the users type in key words like travel, virtual, technology, green, etc.
Overall, Beyond Borders® serves the purpose of fulfilling a latent demand of virtual traveling. This innovation provides attractive bottom line results. As explained throughout this document, Beyond Borders® provides multiple layers of benefits to different potential market segments. I am confident that Beyond Borders® will not only generate significant profits for but also help to conserve
the eco-environment. With the aforementioned competitive advantages of Beyond Borders® , the premier technology will allow us to support a sustainable long-term growth in the competitive travel industry.
Apple iPhone http://www.apple.com/iphone/
China National Tourism Administration http://en.cnta.gov.cn/lyen/index.asp
National Bureau of Statistic of China http://www.stats.gov.cn/english/
Wikipedia – Film Budget http://en.wikipedia.org/wiki/Film_budgeting
Kotler, P. et al. (2006) Marketing Management: An Asian Perspective. 4th Ed. Singapore:
Appendix One: The Macro-Environment
The change in the political, economic, cultural, and population structure have great influence on the touring industry. With rapid growth in economy and a higher level of personal wealth and living standard, Chinese people’s expectations are increasingly difficult to be fulfilled. To enhance the quality of life, they are willing to spend more money on traveling and entertainment. The most obvious change is the dramatically increase in the domestic traveling and overseas traveling since 2000. Some world organizations even predicted that China will rank no. 1 in the traveling destination and no. 4 in the output of tourists by 2020. This offers a great opportunity for the boom of the whole tourist industry.
On the issue of protecting the natural environment, greenhouse effect has become a major global concern. More resources and efforts are placed to rectify the damages. However, as one of the main contributors of carbon dioxide and pollutants, the fast growing travel industry is responsible for 1.5 percent of climate-damaging emission worldwide according to the recent reports from UN. Unfortunately, tourists might also contribute to the damage of the eco-environment by polluting the scenic spots. To address this issue while making travel available, virtual travel using the latest motion sensing and virtual reality technologies is much more environmental friendly. It is also a good opportunity to educate customers on how important environmental protection is.
In 2005, the frequency of travel increase by more than 300M, representing a 300% increase from 2001. From the detailed market analysis in Appendix, by 2010, the spending on overseas travel can reach a massive amount RMB80B (1USD=8RMB), i.e. the sum of Beijing and Shanghai with an overseas travel frequency of 100M.
Market Size Analysis
Because of the rapid expansion of China’s economy, people are capable to spend more on travel. From the analysis below, I found that there is a significant positive relationship between the growth of travel industry and GDP. GDP post 2006 was unavailable so regression analysis was used to estimate the overseas traveling frequency.
According to Deutsche Bank‘s estimation, the growth of China’s GDP will be 5.2% from 2006 to 2020. Then I can further estimate oversea travel frequency from 2007~2010 as shown in the following table.
Overseas Travel Frequency
GDP:RMB per Capital
Because the population of Beijing and Shanghai accounts for 1.2% and 1.4% in national total’s population, I weight the overseas travel frequency and get the overseas travel amount for each region. Moreover, as business trip usually accounts for 25% of the total amount, I can get a more accurate figure in 2007 by multiplying 75%.
Overseas Travel Frequency
None Business Travel Frequency
Source: China National Tourism Administrations
Then I can further estimate the overseas travel frequency between 2007 and 2010. According to the ACNielsen’s research, the average spending on traveling abroad is USD987 which ranks no.2 in the world. Therefore, I can get the forecast of total overseas traveling spending in the cities.
Appendix Three: Demand, Investment Scale and Sales Forecast
Apple’s iPhone is an excellent point of reference for benchmarking due to the technological nature of the product. Apple achieved its first millionth unit sales in just 74 days; the US domestic market has mainly driven the sales since iPhone is not largely available worldwide. The forecasted sales of iPhone would be 4.5M units in 2007. Using this information as the benchmark comparison (1% population
penetration), with a combined population of 50M, annual tourists of 40M in the three cities and 0.2% assumed penetration rate (one fifth of iPhone due to Brand Awareness) in the first year, there will be 180,000 visits to the retail locations.
I estimate that the total investment cost of the systems for each site as shown here.
System Investment / Unit Total
Virtual Space (Projector)
Head Mounted Display
VR Data Base
I plan to start with three locations; Hong Kong, Beijing, Shanghai with two shops in each location. Each location will have 10 specially designed rooms. Therefore, the initial required number of equipment set would be 60 units. In order to keep the business running smoothly and to prevent business interruption due to equipment failure, I would include an additional 50% extra equipment inventory, contributing to the final total number of units needed to 90. For data storage, I need two storages for each location as one is for usual operation and the other for disaster recovery and scheduled maintenance. Estimated total investment is USD$1,810,000. The investment cost will be depreciated in 10 years so that the annual depreciation cost will be USD$181,000. Next, I estimate that the computer graphic (CG) cost. Each scenery clip production costs approximately USD$270,800. Initially I plan to produce 10 clips so that I estimate USD$2,780,000.
Rationale of the Estimation
Beyond Borders® involves projecting computerized images of a travel destination. To estimate the CG development cost, I used the example of the development costs for making a movie that contains computerized image of actual landscapes. Some movies recreate images of town precisely by the combination of photographed images and CG technology. For example, “Lara Croft Tomb Raider”, the famous adventure film, showed computerized images of Egypt and its pyramids; “Spider-Man 2” also showed computerized images of cluster of high-rise buildings in Manhattan, New York. I can use such CG technology for the innovation to create the computerized images of travel sites that customers see through the head-mounted display. The development costs for making these computerized images in movies is high. The figures below are the examples of costs in some movies.
CG making Cost (USD)
Lara Croft Tomb Raider: The Cradle of Life
Terminator 3: Rise of the Machines
It is still difficult to estimate only the development costs for making computerized images for Beyond Borders® based on the costs shown above because the costs contain all of CG making, including computerized characters such as fictional animated enemies or special effects which are not necessary for The product. Two decisions have been made when estimating the costs associated with the product:
1. Use the data of “Lara Croft Tomb Rader” as a reference because this film has less CG for the computerized characters or special effect compared to the other “sci-fi” films.
2. A quarter of the CG making cost was used to make the computerized images of locations.
Therefore, I calculate that the CG making cost to make the computerized images in the film was USD$3,250,000. The film lasts 2 hours. So I estimate that each scenery clip (10 minutes running time) costs USD$270,800. Because I plan to make 10 clips initially, I estimate that the total development cost for the project is USD$2,708,000.
Operating Cost and Sales Forecast
In order to serve the 180,000 visits, assuming 15 minutes each session and 20% utilization rate, I will need 6 locations with 10 rooms per location and 12-hour daily operation. The average monthly cost of operation in each location is estimated to be USD$20,000 on average (1USD=8HKD ; 8RMB) with assumptions of 200 sq meter, technicians and 5 staff at each location. Therefore, the operating cost for each admission of 15 minute session will be roughly USD$8. With this low operating cost, if sales are excellent in the first few months, I should consider expanding to other cities in a short period of time. Based on the assumptions above and USD$50 for each admission, I can estimate that the first year revenue would be USD$9M with a total annual operating cost of USD$1.44M, a remarkable profit margin of over 80% excluding the equipment and sales costs.
INITIAL INVESTMENT AMOUNT (M USD)
Initial Equipment for Retailing Location
OPERATING COST (MONTHLY)
Sales (assume 20% of Rev.)
Marketing (assume 20% of Rev.)
Office / Officer Compensation
PAYBACK PERIOD (MONTH)
The above figures exclude the initial overhead costs which are relatively minimal compared to the clip production. I assume that the sales relevant costs such as the commission and costs of distribution channels accounts for 20% of the revenue. Moreover, I also need relatively high marketing costs for the product launch. Thus, I assume a monthly amount of $150,000 marketing costs, i.e. $50,000 in each city. According to the analysis, with the 0.2% penetration rate and cost assumptions, I will
achieve a payback period of 19 months. At this conservative level, I have strong confidence that the timeframe of breakeven point in the return of investment would be less than 2 years. As a market leader in technological services, I need to keep ourselves up to date with the latest technology and the patent ownership to enact high entry barrier for new comers, which will be very likely to use price competition to capture market share.