After reading the history and background story behind the development of Squirrel Defense Inc. (SDI), I have become rather intrigued about the bird feeder industry and the opportunities that exist in the market. SDI has come up with a very unique and innovative product that is very marketable and has the potential to produce profits. After reading more about the background information, there is plenty of information to support that there is a potential market to feed the demand of solar feeders. I have come to the conclusion that there are some underlying problems with the way things are currently being handled but there is room for improvement and I feel the business has potential if the problems are addressed and the proper changes are made.
There are several problems that came to my attention when reviewing this case. For starters, cash is more or less non-existent. The owners of the company have stressed that they have a huge demand for their product, however they are unable to produce the product at a low enough cost that will allow for cash to generate. Without cash the company cannot purchase the ample supplies to meet demand. No supplies, no product, and no cash. The second problem I have discovered is a big problem. The year-end income statement for 1999 reveals that SDI is loosing money. They are generating a gross profit of $33,356 with expenses totaling $59,963. The company is in the red at $26,607 price tag. Another issue I have discovered is the pricing strategies SDI is currently using. Bo stated, “Originally I priced the feeders based on how much I wanted to make per unit”. He later says that he set the price based on what the market demands. Finally in another section Bo estimates the cost of his feeders between $100-$110. There is no real clear answer what the cost to produce these feeders is and this is the root problem for all of the financials. The last problem I would like to address is the advertising plan SDI currently uses. The retro-style advertising does not seem to fit the product and could use some help to target the market better.
For SDI to turn things around they need to go back to basics and rebuild the foundation of the company. To do this, I suggest they invest in consulting an engineer to reinvent the product so that it can be put in mass production. Mass production will allow the company to produce these solar feeders in mass quantities to keep up with demand while decreasing costs. Lower costs will generate much more revenue and in the end giving the company more cash on hand. If the plant is pushed to max capacity the owners have projected costs to drop to approximately $50 for the town feeder and $85 for the cedar. This is much lower compared to current operating costs. Another suggestion to lower costs is to look into alternative material that is cheaper and easier to access compared to the expensive cedar wood they are currently using.
The next problem that needs to be addressed is the pricing methods being used by SDI to price their product. Based on the information given, SDI is practically throwing a dart at a board to come up with a price. SDI needs to break down all materials and expenses that go into producing and shipping a complete product in order to find an accurate price. By utilizing the break even equation the company can come to a number that is bare minimum sales that needs to be generated in order to offset costs and break even.
The last problem that I have found with the current operations at SDI is in the advertising. Currently SDI is using a retro style advertising campaign primarily in the 1950’s “mom-and-pop” styled layouts. Print ads use a psychedelic color scheme that to me can be off putting to customers. The target market SDI has indentified is middle to late aged men and typically women that are purchasing these feeders for their homes. Another portion of the target market are…