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1 UROPEAN BUSINESS G A M E NFP (NO FUELLING PROBLEMS) Project by Line Pors Jørgensen Nick Madirazza Kristian Lykke Rasmussen Anna Josefine Sørensen Viby Higher Secondary School Aarhus C, Denmark

2 CONTENTS Contents...1 The idea...2 Development of the idea...3 Company structure...3 Types of personality...4 LINE PORS JØRGENSEN...4 KRISTIAN LYKKE SÆDAM RASMUSSEN...4 NICK HOLM MADIRAZZA...5 ANNA JOSEFINE SØRENSEN...5 Market analysis...6 THE PRICE AND RELEVANCE OF THE PRODUCT...6 ANALYSIS OF POTENTIAL CUSTOMERS FOR MARKETING PURPOSES...8 Porter s Market Analysis Model...9 THREAT FROM NEW SUPPLIERS...9 SUPPLIERS POWER...9 THE THREAT OF SUBSTITUTE PRODUCTS...10 CUSTOMERS POWER...10 COMPETITION AMONG EXISTING SUPPLIERS IN THE MARKET...10 Marketing...10 CUSTOMER CONTACT...10 SALES PROMOTION...11 TARGET GROUP AND MARKET SEGMENTATION...11 ADVERTISING SLOGANS...12 SWOT analysis...13 STRENGTHS...13 WEAKNESSES...13 OPPORTUNITIES...13 THREATS...14 Ansoff s Growth Matrix...14 Logistics...14 HIRE OF WAREHOUSING...14 TRANSPORT...15 Analysis of key figures...15 Financing...16 Side 1 af 16

3 THE IDEA Our idea is that it should not be possible to put petrol into a diesel car. It is already impossible to put diesel fuel into a petrol car, as the diesel nozzle is larger than the petrol nozzle, making it impossible to insert a diesel nozzle into a petrol filler neck. We will solve this problem with the aid of a semicircular rubber petrol nozzle barrier placed inside the diesel filler neck to prevent a petrol nozzle from entering. This petrol nozzle barrier has exactly the same circumference as a petrol nozzle, making it impossible for a petrol nozzle to enter the filler neck to release petrol into a car with a diesel engine. The semicircular rubber tube is secured by prongs approximately 10 cm inside the filler neck to allow easy access for a diesel nozzle. As the diameter of filler necks differs from one model of car to another, we will initially design the product for diesel cars made by the Ford Motor Company, as Ford is a popular brand in Denmark and the filler necks of all its various models have the same dimensions. The semicircular rubber petrol nozzle barrier is illustrated below. Figure 1. Illustration of the semicircular rubber petrol nozzle barrier Side 2 af 16

4 DEVELOPMENT OF THE IDEA We began with our own individual experiences which had opened our eyes to the problem. We then contacted various car dealers, car manufacturers, mechanics and Tokheim, the manufacturer and supplier of fuel pumps in Denmark to determine: 1 1) If there is a substitute product 2) If the problem occurs frequently at garages 3) The costs of filling a car with the wrong fuel 4) Suitable materials for the petrol nozzle barrier 5) How to design the petrol nozzle barrier. On the basis of our contacts we were able to conclude that: 1) There is currently no substitute product 2) The mechanics confirmed that the problem occurs frequently 3) The costs of filling a car with the wrong fuel are approximately DKK 30,000 if the engine is started before the error is discovered; DKK 5,000 if the error is discovered without starting the engine 4) The mechanics advised us to make the petrol nozzle barrier of rubber 5) Tokheim sent several petrol and diesel nozzles and illustrations for use in designing the petrol nozzle barrier. COMPANY STRUCTURE We have chosen to begin as a partnership in which all four of us are co-owners, and in which everyone shares equal financial responsibility jointly and severally in the event of bankruptcy. This means that our personal finances will be closely intertwined with our company s finances, and that any profits will generally be taxed as personal income. On the other hand, there are no requirements with regard to starting capital and no requirements regarding publication of accounts or audit reports. Just before opening our company, we will ask a solicitor to draw up a contract that defines the precise conditions that govern our partnership. 1 All contacts are listed in the appendix.. Side 3 af 16

5 Here at the outset, we are hobby entrepreneurs 2. Our salaries will consist of any profits we can withdraw from the company and divide equally among the four owners, though we expect to transfer any profits in the beginning from our first year of operations to the next second fiscal year. Nicky will be employed part-time to transport petrol nozzle barriers from the manufacturer to the warehouse and retailers, as well as to pack the product. We estimate that our part-time employee will need to work five hours per week during the first year and that this number of hours will rise during the coming years. If we in future expand our production activities, we expect that we all will become parttime employees. Our company will be the intermediary between our two manufacturers and our retailer. Our manufacturers are Aalborg Gummivarefabrik and Mammens Emballage, and our retailer is THansen. The contracts between our company and our business partners are listed in the appendix. TYPES OF PERSONALITY LINE PORS JØRGENSEN The integrator (Managing Director) Line is the top manager whose job is to ensure optimal collaboration within our company. Line is also our problem solver and our social gathering point. Line s personality test results revealed that she is an all-round person in relation to the four types of personality. We have selected her to be our integrator, as there were better candidates for the positions of manufacturer and administrator. It is important for a managing director to be able to maintain their overview of the company, and the personality test indicates that Line has all the right preconditions. KRISTIAN LYKKE SÆDAM RASMUSSEN Andersen, Michael: Erhvervsøkonomi i videnssamfundet (Business Economics in the Knowledge Society), page Side 4 af 16

6 The administrator (Accounts Manager) The personality test indicated that Kristian is also an all-round type, though predominantly the administrator type. This type of personality has the instinct for steering a company s operations and systematising everyday activities. As an administrator, Kristian is pensive and precise. He will be good at planning projects and steering finances, which is why we have appointed him as our administrator. Kristian has no actual weaknesses, which is very useful in a company that is as small as ours. Kristian will be a good stand-in or deputy for any of the other co-owners. NICK HOLM MADIRAZZA The manufacturer (Logistics Manager) Nick is a good entrepreneur because he is very industrious and makes sure that tasks are completed on time. Nick is the type who is always prepared to take on an extra task or to work late. He generally knows what he wants and prefers not to waste time on unnecessary discussions or considerations. This makes it necessary for the Managing Directory (Line) to be capable of ending a discussion and imposing her decision. Nick s personal qualities are important for our new company because he is the type who can help get the wheels rolling and get our business started. In relation to the other three coowners, Nick will primarily concentrate on one main area, as he is a characteristic manufacturer. On the basis of these qualities, we have appointed Nick to the post of Logistics Manager. ANNA JOSEFINE SØRENSEN Side 5 af 16

7 Entrepreneur (Product Development Manager) Anna Josefine is a good entrepreneur because she has many innovative ideas and understands how to put them into practice. Anna Josefine is the type whose head is filled with interesting projects and is continually devising new plans. This makes her good at defining long-term goals and discerning how our company can develop. It is important for our company to have a person like Anna Josefine who can take the initiative and lead out with good ideas. She is well suited to working with product development and setting long-term goals. For these reasons, we have made her our Product Development Manager. MARKET ANALYSIS The market analysis contains a questionnaire for personal interviews and a survey of the number of diesel cars in Denmark. To ensure that our survey was representative, we conducted it at three different petrol stations (Q8, Jet and Statoil) in Viby Jutland. Furthermore, we were informed that the most diverse spectrum of automobile owners purchased petrol between the hours of 8 a.m. and 10 a.m. The questionnaire is listed in the appendix. THE PRICE AND RELEVANCE OF THE PRODUCT The extent of the problem % of the respondents had inadvertently filled a diesel car with petrol or had almost done so. There was equal distribution between men and women (3 men and 2 women) % of the respondents had heard of others by mistake filling a diesel car with petrol. - Conclusion: the problem is relatively large and there is widespread awareness of the problem. Interest in NFP Petrol Nozzle Barrier % of the respondents were interested in our product. Side 6 af 16

8 Answer Yes No Total Have put petrol into a diesel car Have heard of others doing so Interested in product Willingness to pay - The price respondents were willing to pay varied rather much. - The average price respondents were willing to pay is approximately DKK 320. Willingness to pay Total Less than DKK Between DKK 100 & DKK Between DKK 200 & DKK Between DKK 300 & DKK Between DKK 400 & DKK More than DKK Don t know 2 Total 28 Number of Ford diesel cars Side 7 af 16

9 We contacted Mr Niels Damkjær of the Danish Car Importers Association, who informed us that there were 25,066 Ford diesel cars in Denmark as of 25 January In principle, there are 16,720 potential customers, but as the market for our product is as yet unknown, we have estimated that we realistically will be able to sell 3000 petrol nozzle barriers during our first year of operation. In reaching this figure, we consulted Ms Louise Bjørg Fensten, Business Customer Consultant, Jyske Bank, Viby Jutland. Conclusion on the market potential of the product As the problem occurs frequently and as a large share of the respondents are interested in the product (approximately 65%), it may be concluded that there is a market for the product. However, the market is limited, as our sales target only Ford diesel cars and the market will soon be saturated. It is therefore necessary to expand production to include other brands of car and to expand sales geographically. ANALYSIS OF POTENTIAL CUSTOMERS FOR MARKETING PURPOSES Gender As more men than women were questioned, the gender distribution of responses was established. 62 % of the men were interested. 71 % of the women were interested. More women than men were interested, though the share of interested men is relatively high. As such, we do not believe that marketing should target women more than men. Men Women Total Interested Not interested Total Per cent interested 62% 71% Age As the same number of respondents was not questioned in each age group, the age distribution of responses was established. Side 8 af 16

10 Significantly more respondents were interested in the age group (100 %) and age group (89 %) than in the other age groups. This indicates that marketing should target the age group. Age I alt Interested Not interested Total Per cent interested 33% 50% 100% 89% 20% 33% PORTER S MARKET ANALYSIS MODEL THREAT FROM NEW SUPPLIERS As there are no manufacturers of a similar product, there will be no competition from existing suppliers. Although it is quite possible that there will soon be a threat from new suppliers, we intend to patent our product to minimise this threat. Following a conversation with Mr Christian Neve of CNTS Consultants, we have learned that it will probably be possible to obtain a patent investigation free of charge (the company supports young entrepreneurs who have a promising idea), and to obtain a patent for approximately DKK 120,000. SUPPLIERS POWER Side 9 af 16

11 We will be relatively dependent on our supplier, as our supplier is also our manufacturer. As our product must have a specific design, the manufacturer will make a mould which we are dependent on, because it is expensive to have it reproduced. However, there are many potential suppliers, and if we wish to expand our production activities, we will be able to play a number of potential suppliers against each other to obtain the best possible offer. THE THREAT OF SUBSTITUTE PRODUCTS As it already is impossible to put diesel fuel into a car with a petrol engine, we can focus solely on the diesel car problem. In the light of our correspondence with car manufacturers, car mechanics and car dealers, we have established that there is currently no other product that has the same effect as ours. The threat of substitute products is therefore minimal at the moment. However, if our product is successful, it is likely that substitute products will come. This makes it important for us always to be one step ahead of our competitors and continually to optimise our product. At this point in time, there is a great deal of focus on CO 2 pollution, which has led to good alternatives to cars that operate on fossil fuels. One of the major new competitors is the electric car. Developments have been very positive for electric cars during the last couple of years, making it more attractive to buy an electric car than it used to be. CUSTOMERS POWER The customers power is the determining factor in the success of our product. For this reason, we conducted a market survey at a number of petrol stations that gave us an indication of how large the problem is and how much customers are prepared to pay for our product. The market survey is included on page 7. COMPETITION AMONG EXISTING SUPPLIERS IN THE MARKET As mentioned above, there are currently no other products that have the same function as our product. Because we intend to patent our product, we expect little or no competition during our start phase. However, it is difficult to predict how much competition there will be if our product is successful. MARKETING CUSTOMER CONTACT Side 10 af 16

12 We are currently in the process of negotiating with THansen on how they will market and sell our product. Our preliminary conclusion is that our sales price must be DKK 150 when we sell the product to THansen, and that THansen will retail the product at approximately DKK 300 as stated in our market survey. THansen will be responsible for marketing our product by means of bulk mail / free local publications and other forms of advertising. We hope to have a long-term contract with THansen, as we believe the company is an ideal business partner. SALES PROMOTION To promote awareness of our product, we will have a small stand at the automobile trade show at the Bella Center in Copenhagen, known in Danish as Biler i Bella. On contacting the Bella Center, we learned that the price of a small stand will be DKK 25,000. Additional promotion will also cost DKK 25,000. TARGET GROUP AND MARKET SEGMENTATION Our marketing will first and foremost target owners of diesel cars. As the costs of operating a diesel car are less than those of operating a petrol car, it is reasonable to assume that owners of diesel cars drive many kilometres, primarily in connection with their work. The target group therefore consists of business people and persons who generally travel a great deal. With reference to the RISC market segmentation model, this means that we must capture the blue market segment which is comprised of career-oriented and liberal consumers. However, the number of diesel cars appears to be rising because: - their horsepower has been improved - they have become far more friendly to the environment and now get approximately 30 % more mileage per litre than a petrol car - registration costs have been lowered - the recent boom pushed up the price of oil, making it cheaper to choose a diesel car because diesel fuel is cheaper than petrol in Denmark. We can therefore expect our target group to expand in future, while the other segments may well become more interesting. For example, environmentalists will no longer be able to reject diesel cars for the same environmental reasons. Our market analysis also showed that our main target group is in the age group, which is consistent with the target group for car shows and accessories retailers such as THansen. The Side 11 af 16

13 marketing approach must be serious, but it would not hurt if there were a hint of sarcasm in the advertising. ADVERTISING SLOGANS Below are three ways of wording our advertising texts: 1) Do you often feel rushed on your way to work in the morning? We make it easy for you to avoid mistakes! A nozzle barrier solves your fuelling problems! 2) Are you tired and worn out after a long day at work? We make it easy for you to avoid mistakes! A nozzle barrier solves your fuelling problems! 3) Do you cross your fingers every time your wife drives to the petrol station? We make it easy for her to avoid mistakes!! A nozzle barrier solves her fuelling problems! Side 12 af 16

14 SWOT ANALYSIS STRENGTHS Our strength is that we have developed a new product, so we are the only ones on the market offering the product. As we intend to patent our product, we have a head start on any possible competitors. Because our product has not required research, our costs are low, and as we do not expect any salaries during the start phase, apart from part-time wages for Nick, there will be no large expenditures here, either. Moreover, there will be increasing numbers of diesel cars in comparison with petrol cars, as diesel cars best meet the needs of Danish motorists. This means that our target group will also grow, which presumably will benefit our sales. Last but not least, Denmark has recently introduced parrot number plates which make it cheaper to buy a car with yellow number plates. Cars with yellow number plates generally have diesel engines, which means that it may also be possible to expand our market here. WEAKNESSES Our primary weakness is the risk of our financial resources running dry. We will initially address this by attempting to find investors. If we do not succeed in this, we will attempt to borrow more money in the bank. Moreover, none of us has any experience in business or any particular knowledge of the market for our product. OPPORTUNITIES Due to the good response we have received from various dealers and auto mechanics, it would obviously be a good idea to look for investors. Danfoss is a potential investor, as the above mentioned Christian Neve has informed us that Danfoss is interested in investing in new companies, and we have been in contact with Danfoss through Christian Neve. In the long term, we intend to expand production so our petrol nozzle barrier will fit other brands of car than Ford, and make our target group much larger. In addition to this, there is the possibility of expanding internationally, as fuel nozzles have standard dimensions in Europe, in any case. Germany would be an obvious choice because there is a high percentage of diesel cars. We consequently contacted D&W which is Germany s equivalent of THansen and Europe s largest spare parts dealer for cars. They were extremely interested in our product and believe there is a market for it, but wished to have a prototype to examine before signing a fictitious contract. We can also sell our product to car manufacturers, so it is installed in the filler necks before cars are sold to customers. Side 13 af 16

15 THREATS As mentioned above, Porter s market analysis indicates that electric cars are a potential threat. In addition, Danish politicians have increased their focus on improving public transport, which could hamper the car industry. Lastly, there is the threat of car manufacturers inventing a similar product that can circumvent our patent and make our product less attractive. ANSOFF S GROWTH MATRIX As we have a patent on our idea, we dominate the market and do not currently need to increase our market share. However, the opportunity exists to develop both the product and the market. Markets will be developed by launching the product on the other continents, and the product will be developed through ongoing changes in its dimensions, enabling it to be sold for additional brands of car. LOGISTICS HIRE OF WAREHOUSING We have hired warehouse space to store our petrol nozzle barrier near our homes. Side 14 af 16

16 TRANSPORT We have a van at our disposal, for which our only expenses are petrol, taxes, and other operating costs. The estimated costs are DKK 10,000 the first year, DKK 12,000 the second year, and DKK 15,000 the third year, as we progressively expand our stock of goods. ANALYSIS OF KEY FIGURES Key figures enable analysts and shareholders to analyse a company. We therefore decided to analyse our own key figures which are included in the appendix. The first key figure is the return on capital invested (ROI), i.e. the result of primary operations multiplied by 100 per cent, divided by the company s total assets. The normal ROI is approximately 6 per cent. Our company s ROI will be 31.7 per cent the first year, after which it will be 62.5 per cent in the second year and 54.1 per cent in the third year. It is obvious that our ROI is very high in relation to standard figures, but this is due primarily to our having very few assets during the first few years of operations. The next key figure in our accounts is the return on equity capital (ROE). ROE is calculated on the pre-tax profit multiplied by 100 per cent, divided by the equity capital. ROE should be at least 8 per cent, whereas ours is 53.7, 90.8 and 66.7, respectively over the next three years, which is extremely satisfactory. If the ROE is higher than the ROI, the company has earned money on its borrowed capital. Our analysis allows for our high ROE being due primarily to our low equity capital. The contribution ratio is the next key figure in our accounts. The contribution ratio is the contribution margin multiplied by 100 per cent, divided by the turnover. The contribution ratio is not well-suited for comparing companies in different types of business, but a rule of thumb says that a sustained rise in the contribution ratio over a period of several years is a positive development. Our contribution ratio rises from 89.1 per cent to 89.4 per cent over three years, which is a good stable development, though not sensational. The next key figure is the solvency ratio, which is the equity capital multiplied by 100 per cent, divided by the assets in the company. The solvency ratio indicates the percentage of assets financed by the owners themselves. The solvency ratio should preferably be more than 15 per cent. If it is more than 30 per cent, it is a good result. Our solvency ratio will be 44.8 per cent the first year, after which it will rise to 66.0 per cent and 79.8 per cent in the second and third years. The rules of the European Side 15 af 16

17 Business Game stipulate that we must have 30 per cent of the equity capital from the beginning, and this contributes to our high solvency ratio. Moreover, our assets play a major role again, as they are used to divide the equity capital multiplied by 100 per cent. As we have relatively few assets, the final result is high. The profit ratio shows the company s earning capacity with no influence from interest, extraordinary items or taxes. The profit ratio is a result of primary operations multiplied by 100 per cent, divided by the turnover. The normal profit ratio is approximately 5 per cent, whereas our profit ratio is 20.2 per cent, 58.2 per cent, and 63.5 per cent, respectively, during our first three years of operations, and is an extremely good result. The turnover rate of assets is simply the turnover divided by the company s assets. The turnover rate of assets compares the turnover with the assets. It is a positive sign if the turnover rate of assets rises over the years. Our turnover rate of assets will be 1.6 per cent the first year, after which it will fall to 1.1 per cent the second year, and will end at 0.9 per cent the third year. As such, the turnover rate of assets is the first key figure that has a negative influence on our company s budget. The liquidity ratio is the last key figure we will consider. The liquidity ratio indicates if a company s current assets make it capable of meeting its current liabilities during the coming year. If the figure is more than 1, it indicates that the company is capable of paying its debts. Our liquidity ratio will be 3.6 per cent in the first year, 3.2 per cent in the second year, and 4.2 percent in the third, which is an excellent result. As we have no short-term debts, however, we will not benefit from using our liquidity ratio. And as the liquidity ratio consists of current assets divided by short-term debts, this result does not play any role in our situation. FINANCING On the basis of a conversation with Ms Louise Bjørg Fensten, Business Customer Consultant, Jyske Bank, Viby Jutland, we have obtained a fictitious loan of DKK 183,470 to be repaid at an interest rate of between 11 and 12 per cent (quarterly adjustment). Of the total amount, DKK 40,000 will be an overdraft, as this beløb er, hvad der ligger i vores bankbeholdning. The overdraft will be established to avoid a lack of liquidity in situations in which payment from the retailer is not remitted on the due date. This loan will also be repaid over three years. The contract is included in the appendix. Side 16 af 16

18 Spørgeskema vedr. NoFuellingProblems (NFP) Køn Mand Kvinde Alder og ældre Bilmodel Har du nogensinde fyldt benzin på en dieseltank ved en fejl, eller været ved at gøre det? Ja Nej Har du hørt om andre, der har været uheldige? Ja Nej I tilfælde af at man ved en fejl kommer til ar fylde benzin på en dieselmotor, er det til stor skade for motoren, og det har store økonomiske konsekvenser. Vi er ved at udvikle et produkt, som man kan købe til sin bil, og som kan placeres i tanken, således at det ikke er muligt at fylde benzin på en dieselmotor. Kunne du være interesseret i et sådant produkt? Ja Nej Hvad er du villig til at betale for et sådant produkt? Under 100 kr kr kr kr kr. Over 500 kr. Køn Mand Kvinde Alder og ældre Bilmodel Har du nogensinde fyldt benzin på en dieseltank ved en fejl, eller været ved at gøre det? Ja Nej Har du hørt om andre, der har været uheldige? Ja Nej I tilfælde af at man ved en fejl kommer til ar fylde benzin på en dieselmotor, er det til stor skade for motoren, og det har store økonomiske konsekvenser. Vi er ved at udvikle et produkt, som man kan købe til sin bil, og som kan placeres i tanken, således at det ikke er muligt at fylde benzin på en dieselmotor. Kunne du være interesseret i et sådant produkt? Ja Nej Hvad er du villig til at betale for et sådant produkt? Under 100 kr kr kr kr kr. Over 500 kr.

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