Section B3, Team Five, Spring 2013 Professor Freedman, Professor Griner, Professor Morrison, & Professor Utter

April 18, 2013

i
Authenticity Statement and Intellectual Property Statement: This business plan is the original work of the undersigned. All facts and figures are authentic. All contributions from others have been appropriately acknowledged. We have not read, reviewed or used any past Core plans in any way in the development of our plan. We did not misrepresent ourselves to suppliers or to anyone else who contributed information to this plan.

We each understand that the ideas, analysis and text contained in our plan are the collective intellectual property of our team.

________________ Jacqueline Akinade

________________ Charlotte Altirs

________________ Nick Boccuzzi

________________ Joyce Chong

________________ Bryan Hansen

________________ Aysu Otova

________________ Scott Roth

________________ Edmond Santoso

________________ Stephanie Stoisits

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iii

iv Exhibit Exhibit 1: Target Segment Exhibit 2: Income vs. Purchase Intent Exhibit 3: Concerned Tipping Exhibit 4: Stroller Design Evolution Exhibit 5: Perceptual Map #1 Exhibit 6: Perceptual Map #2 Exhibit 7: Coloring Book Ad Exhibit 8: Stable Baby Logo, Slogan, and Message Exhibit 9: Sample Advertisement Exhibit 10: Packaging Exhibit 11: Profile of the Retail Environment Exhibit 12: Base Case ACV Exhibit 13: Revenue Maximizing Margins Exhibit 14: Yearly Prices and Margins Exhibit 15: Hospital Locations Exhibit 16: Year 1 Sales Breakdown Exhibit 17: Year 5 Sales Breakdown Exhibit 18: Comparison of Sales Forces Salary Scenarios Exhibit 19: Purchase Intent vs. Price Exhibit 20: Bases Model Year 5 Sales Exhibit 21: Sales Projection Line Graph Exhibit 22: ACV Optimistic Exhibit 23: Pessimistic BASES Model Exhibit 24: ACV Pessimistic Exhibit 25: Website Landing Page Exhibit 26: Website HTML Meta Tags Exhibit 27: Website HTML Meta Tags For Crawlers Exhibit 28: Stable Baby Facebook Exhibit 29: Google Analytics Acquisition Report Exhibit 30: IS/IT Annual Costs Exhibit 31: Decision Matrix for ERP Exhibit 32: House of Quality Exhibit 33: Direct Materials (Cost & Quantity Per Stroller) Exhibit 34: Make/Buy For Frame Exhibit 35: Logistics Total Shipping Costs Exhibit 36: Order Quantities Exhibit 37: Factory Layout Exhibit 38: Process Map Page 4 5 6 8 9 10 11 13 13 14 15 16 17 18 20 20 21 22 24 25 25 27 27 28 32 35 35 36 38 39 41 43 46 47 48 48 51 52

v Exhibit 39: Organizational Chart Exhibit 40: Production Capacity Exhibit 41: Annual Cash Flows- Scenario Comparison Exhibit 42: Year 0 Startup Costs Exhibit 43: COGS vs. Gross Margin Exhibit 44: Financial Ratios Exhibit 45: Breakeven Analysis Exhibit 46: Comparables Ratio Assumptions Exhibit 47: List of Potential Risks 54 55 58 60 62 63 63 64 65

vi Appendix Appendix 1: Purchase Intent Appendix 2: List of Interviewees Appendix 3: Interview Questions Appendix 4: Focus Group Results Appendix 5: House of Quality Appendix 6: Promotion Schedules and Pictures Appendix 7: Billboard Locations Appendix 8: Print Advertisements Appendix 9: Profile of the Retail Environment Appendix 10: ACV Calculations Appendix 11: Yearly Sales Prices Appendix 12: Purchase Intent Calculations Appendix 13: Base Case BASES Model Appendix 14: Optimistic BASES Model Appendix 15: Pessimistic BASES Model Appendix 16: Qualtrics Survey Example Appendix 17: KPI Activity Diagram Appendix 18: Years 0 - 5 Base Case IS Annual Costs Appendix 19: TCO Calculations Appendix 20: Stroller Blueprint Appendix 21: List of Suppliers Appendix 22: Logistics Shipping Costs Appendix 23: Raw Materials Schedule Appendix 24: Years 3 5 Process Diagrams Appendix 25: Aggregate Plan Appendix 26: Annual Cash Flows Appendix 27: Income Statement Appendix 28: Optimistic and Pessimistic Scenario Analyses Page 6 7 7 7 8 10 12 14 15 16 21 23 24 26 27 33 37 40 41 44 45 47 49 53 56 61 62 69

vii Section I: Executive Summary: The predominant hazard pattern in the stroller study was falls, with an estimated 3,206 injuries, or 51% of the total estimate. The next most prevalent pattern was tip-overs, with 1,628 injuries, or 26%of the total. 1 Consumer Product Safety Commission We have developed Stable Baby, a new type of stroller that is designed to eliminate the issue of strollers tipping over. Although umbrella strollers are lightweight and easily portable, they do tend to tip backwards if you have bags hanging on the handles of the stroller. Our product combines umbrella and full-size strollers to create a hybrid stroller that is lightweight, easy to maneuver and safe. Stable Babys key differentiating factor is a kickstand that will prevent your stroller from tipping backwards, while still having the features of a lightweight stroller. In order to launch Stable Baby, we are specifically requesting $1,014,152 from investors, which is equal to a contribution of 75% of the required initial investment for 77% ownership in our company. In addition, we request a $338,050 investment from management, friends and family, equivalent to 25% contribution for 23% ownership. As a result of our high profit margins, we forecast a positive net income in year 1 which is expected to grow throughout the next 5 years with a slight dip in year 3 due to expansion costs. Our gross margin, as a percentage of sales, peaks in year 2 at 51.9% and our average net income percentage is 14.8%. We expect a negative cash flow of $809,291 in year 1 and a positive cash flow of $7,922,211 by year 5. With a projected 70,034 units in year 1, we should have a high 75% average margin of safety for all 5 years. For all 5 years, Stable Baby will invest in over $250,000 worth of IT infrastructure, including purchasing our own server, ERP system, and security systems for the manufacturing plant. Of this total IS expense, $135,600 will be allocated to our part-time IT consultants salary, who will aid us to integrate Microsofts Dynamics CRM system into our core business structure. We also will implement ADT security systems around the perimeter of the warehouse to prevent potential theft and vandalism, which may be harmful to our business. The result we hope to gain from these investments is having an efficient process between our suppliers, retailers, and

"Durable Infant or Toddler Products." CPSC. Consumer Product Safety Commission, n.d. Web. 17 Apr. 2013.

viii customers. In addition, with this increase in information supply, we hope to manage our inventory more efficiently, with the added benefit of easing our operational activities. We have narrowed down our segment to parents/guardians of children ages 0-5 years old, as well as expectants, who are concerned with strollers tipping over. We expect that these parents/guardians will have an annual household income over $50,000, so we will target the upper middle and upper classes. In year one, we have decided that small chain stores, independent retailers, and online retailers (Amazon) are our ideal points of entrance because there are almost no barriers to entry. Stable Baby has a suggested retail selling price of $113.00, our revenue maximizing price based on the surveys we collected. In year two, we will continue to target the same distribution channels as in year one; however, we will also be targeting stores which our manufacturers representatives were unable to reach in year one. Because our channels of distribution remain relatively similar in years one and two, our retail selling price will also remain at $113.00. In year three, we will enter JCPenney as our department store and Buy Buy Baby as our targeted baby superstore. As we enter JCPenney and Buy Buy Baby, our retail selling price dips to an average weighted retail price of $95.10. Due to our impressive sales history from years one through three, we will be rewarded by our entrance into Target in year four. Here, we expect an average weighted retail price of $93.10. By our fifth year, we will not enter any new channels of distribution, causing our average weighted retail price to remain the same. Overall, Stable Babys ACV grows constantly throughout all five years. We will outsource most of our raw materials from overseas suppliers, in addition to contracting domestic suppliers. However, we will be assembling the Stable Baby stroller in house. We researched the option of buying the stroller frame instead of assembling it in-house since it is our most expensive subassembly, but we realized it would be financially wiser to not purchase a pre-assembled frame. Assembling in-house would save us approximately 50% in costs, at a price of $23.24 per frame. We believe Stable Baby is a worthy investment because we provide families with a safe, reliable, and affordable stroller that introduces key differentiating features into the market.

ix Section II: Corporate Social Responsibility Initiatives: Option A) We will use biodegradable materials to manufacture our product. At first, we considered using biodegradable materials to manufacture our product; however, after further examining this idea, we realized it would not be in our best interest. Using biodegradable materials could pose a possible safety concern for our product. Parents may not trust a stroller that is made of biodegradable materials because they may feel as if Stable Baby is not as sturdy or durable as other strollers. In order to test our hypothesis, we asked our survey respondents which material they would prefer to be used in a Stable Baby stroller. The four options were aluminum, plastic, steel, and bamboo, with bamboo being the biodegradable option. Only 11.69% of respondents who would definitely buy or probably buy a Stable Baby said they would prefer a bamboo stroller. However, 54.55% of survey respondents who would definitely buy or probably buy a Stable Baby preferred an aluminum stroller. 2 For this reason, we knew this would not be a feasible CSR initiative. Option B) We will donate 1% of our profits to St. Jude Childrens Research Hospital. St. Jude Childrens Research hospital provides research and care for life-threatening pediatric diseases. As a service that provides benefits to parents and children, we value any monetary donation that can help save a childs life. We felt that St. Jude would be a well-suited CSR initiative because both of our responsibilities are targeted towards the safety of children. The majority of individuals who purchase strollers are parents/guardians who would never wish to see their children hospitalized with a life-threatening illness. By donating 1% of our sales to St. Jude, we are not only helping children and families undergoing unfortunate circumstances, but we are also giving our customers the opportunity to feel good about purchasing a Stable Baby. Based on our survey results, 50.65% of individuals who said they would probably buy or definitely buy our product also indicated that their purchase intent would significantly increase if we donated a percentage of our profits to St. Jude Childrens Research Hospital. Also, 37.66% said their purchase intent would somewhat increase. 3 For all of these reasons combined, we have decided that St. Jude Childrens Hospital would be our CSR Initiative.
2

Online Survey Software, Customer Satisfaction Surveys, Enterprise Feedback Management, Employee Surv. Web. 20 Mar. 2013. <http://qualtrics.com>. 3 Ibid., Qualtrics

Introduction: The current stroller market is highly populated with umbrella strollers, which are lightweight and easily portable, as well as full sized strollers, which are larger, safer, and generally more durable. However, both of these strollers do not address the concern of strollers tipping over. Stable Baby is a new type of stroller that is specifically designed with a kickstand, to eliminate the risk of a stroller tipping over. While this is Stable Babys key differentiating feature, we also pride ourselves in the ability to combine key attributes of umbrella and full sized strollers in order to design a product that is regarded as highly safe, portable, and easy to use. We conclude that consumers who value a Stable Baby stroller should be expecting parents, as well as parents/guardians of children ages 0-5, who are highly concerned about the safety of their child in a stroller that may tip over. Through our surveys we also realized that the majority of individuals who specified they would definitely buy or probably buy our product had an annual household income of $50,000 and above; therefore, we adjusted our target market to specifically target parents/guardians whose annual household income exceeded this amount. In terms of social trends, it is important to note current family demographics and the changing patterns relating to this. Approximately 75% of new mothers are 20-34 years old. 4 For this reason, we have adjusted our advertising tone and tactics to directly target mothers in this age group. Specifically, we have used lighthearted and youthful colors that we felt would appeal to mothers within this age group. Another social trend we noted was the increase in single mothers. In 2008 a record fourin-ten births were to unmarried women. 5 For this reason, we made sure to design Stable Baby to be a compact stroller so that single mothers could easily use our product. With safety being our main concern, we made sure to abide by certain government regulations, such as the Consumer Product Safety Commission (CPSC) and Juvenile Products Manufacturers Association (JPMA). The CPSC states that there were numerous non-fatal incidents associated with strollers involving a variety of hazards such as instability, collapse, and

Livingston, Grethchen, and D'Vera Cohn. "The New Demography of American Motherhood." Pew Social Demographic Trends RSS. Pew Research Center, 6 May 2010. Web. 20 Mar. 2013. <http://www.pewsocialtrends.org/2010/05/06/the-new-demography-of-american-motherhood/>. 5 Livingston, Pew Social Trends.

2 non-functioning restraint systems. 6 In order to avoid these hazards, we made sure that our raw materials fully satisfy the CPSC regulations. The JPMA works alongside retailers to ensure the safety of child products. 7 We have made sure that Stable Baby also satisfies their requirements, since safety is a make-or-break factor in the baby durables category. Stable Babys key product attributes are adjustable handles and a kickstand while being lightweight. Separately these characteristics are found in different strollers, but our product is the only one that provides the whole package. The table found below provides an in-depth comparison of Stable Baby to our competitors:

Competitors Babies R Us Umbrella Stroller Peg Perego Vela Easy Drive Stroller Graco Literider Stroller Go Go Babyz Urban Advantage Stroller Stable Baby

Price $19.99 $229.99 $79.99 $145.00 $113.00

Strengths lightweight, easy to maneuver, portable adjustable handles, a lot of storage durable very durable, doesnt tip lightweight, easy to maneuver, adjustable handles, portable, doesnt tip

Weaknesses not that durable, easily tips over not that light, tips somewhat easily not that light, tips somewhat easily very heavy, not portable not that much storage

Overall, we are confident that Stable Baby will be an icon of a successful stroller that will provide consumers with utmost quality, comfort, and reliability.

"Durable Infant or Toddler Products." CPSC. Consumer Product Safety Commission, n.d. Web. 17 Apr. 2013. JPMA Juvenile Products Manufacturers Association | Dedicated to promoting the industry and the safe use of juvenile products. jpma.org. JPMA 2010. N.d. Web. 17 Mar.2013. < http://jpma.org/>
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Section III: Marketing

4 Objectives and Segmentation: Stable Baby is a new type of stroller designed to eliminate the issue of strollers tipping over. With the introduction of this new product, Stable Baby has focused its efforts on four distinct marketing objectives. Our first objective focuses on improving product awareness. We are creating a strong brand identity for our stroller by ensuring that more parents/guardians are aware that there is a solution to the issue of strollers tipping. When a parent/guardian becomes concerned with a stroller tipping, we hope that Stable Baby is the first product that comes to mind. We are developing a brand identity that creates a competitive edge in the stroller industry. Another objective of our company will be to increase our products ACV. In order to achieve this goal, we plan on placing Stable Baby on the shelves of major stroller retailers nationwide, such as Toys R Us and Babies R Us, by year six. Finally, we are striving to achieve positive growth every year. Overall, we hope that by reaching these objectives, we will be able to increase frequency that a loyal customer purchases a Stable Baby product, therefore increasing our customer retention rate. Exhibit 1: Target Segment
Households with Children Ages 0-5 (including born during the year) 26,919,793

Working Class (<25K) 6,729,948

Lower Middle Class (25K-50K) 6,595,349

Upper Middle Class/Upper Class (50K100K+) 13,594,495 Doesn't care about stroller tipping 3,834,345

Cares about stroller tipping 9,760,151

5 Stable Baby is targeting expecting parents, as well as parents and guardians with children ages 0-5, who are concerned about strollers tipping. The parents/guardians are expected to have an annual income of over $50,000, which means we will be targeting the upper middle class and the upper class, as shown in Exhibit 1. Our product is priced higher than a typical umbrella stroller, which is why we made the strategic decision to remove the lower and lower middle classes from our target market. We combined the upper middle and upper class into one segment because we found similarities in the stroller shopping habits of these two groups through our surveys. According to our survey results, 40.76% of individuals who said they would definitely buy or probably buy a Stable Baby stroller also responded that they received an annual income of over $50,000. Based on the research we have conducted, Exhibit 2 shows that these individuals would be the most likely to purchase our product. Exhibit 2: Income vs. Purchase Intent

Income vs. Purchase Intent

45% 40% Percent Purchase Intent 35% 30% 25% 20% 15% 10% 5% 0% <$25k $25k - $50k Income $50k + 3% 2% 6% 1% 24% Buy Not Buy 41%

To calculate the size of our target market, we began by looking at the US Census Bureau for households with children ages 0-5. 8 This total number proved to be 25,298,180 households. We then took the birth rate into consideration based on the trends in the fertility rate, and added
8

Number and Percentage of Family Households with Own Children under 18, by Age and Number of Children, Race/ethnicity, and Family Structure: 2008. US Census Bureau, n.d. Web. 18 Apr. 2013.

6 1,621,613 to accommodate for the number of births per year. This number was calculated from the data provided by the US Census Bureau. There are 64.1 births per 1000 women per year. For this reason, we used 6.41% to calculate births per year. 9 In order to account for the trend of overall decreasing birthrates in the past 20 years, we added an estimated contrasting decrease rate of 0.5%. Because the birth rate varies greatly per year, we were able to conclude that a decreasing rate of 0.5% would be our best average per year. 10 We decided to include this information in our target market size because babies are being born at a decreasing rate, leading to fewer stroller purchases. This led to the total number of households with children ages 0-5, including those born during the year, to equal 26,919,793. We then made adjustments to the size of our target market based on our segments specific psychographic of parents/guardians who are concerned with strollers tipping. After conducting our survey, we were able to calculate that 71.79% of the respondents shared that concern, which can be found in Exhibit 3. More information detailing the calculation for purchase intent, price and target market size can be found in the appendix 11. In order to reach our final target size, we took 71.79% of the households with children ages 0-5 whose annual income was greater than $50,000 (13,594,495), which resulted in an overall target market size of 9,760,151. Exhibit 3: Concerned Tipping

% Concerned about Tipping

50% 40% 30% 20% 10% 0% Very Concerned Indifferent Hardly Not at all Concerned Concerned Concerned

Centers for Disease Control and Prevention. Births and Natality. Centers for Disease Control and Prevention. Office of Information Services, 18 Jan. 2013. Web. 15 Apr. 2013. <http://www.cdc.gov/nchs/fastats/births.htm>. 10 Information Please Database. "Births and Birth Rates." Infoplease. Infoplease, 2007. n.d. Web. 15 Apr. 2013. <http://www.infoplease.com/ipa/A0922289.html>. 11 Appendix 1: Purchase Intent

Market Research: The main components of our marketing research included online research, one-on-one interviews, hosting a focus group, and distributing online and paper surveys. These research tactics helped improve our knowledge of what parents/guardians value regarding strollers and the safety of their children. Through online research, we were able to grasp a solid understanding of numerical and financial data that pertains to the stroller industry. We were able to learn and distinguish many methods available for distributing our product, as well as our potential retail environments. For example, online research allowed us to conclude that we benefit most from selling Stable Baby online, in small chains, and in independent retailers in years 1 and 2, including department stores and baby superstores in year 3, and entering mass merchandisers in years 4 and 5. Our one-on-one interviews (see appendix for a detailed list of interviewees 12 and questions 13) served as a preliminary introduction to what parents/guardians valued in a stroller. We gathered that individuals valued safety, portability, and compactness in a stroller. We were able to use this information to build on our product, to recognize and understand the needs of our proposed target market. Our focus group consisted of six parents who have had experience with strollers and were willing to share their expertise on the matter. We found that all six parents have had the unfortunate experience of their stroller tipping over. Along with suggestions of how to design Stable Baby to best benefit our target market, our focus group gave us insight on other important attributes of a typical stroller. Exhibit 4 shows how the design of our stroller had changed after our focus group. After the focus group we realized that aside from preventing strollers tipping, in order to design a successful stroller, it must also be lightweight. During the focus group we discussed using weights to increase stroller stability; however, after the focus group we knew that a stroller that prevented tipping would be unattractive if it was not lightweight. More information regarding our focus group can be found in Appendix 4 14.

12 13

Appendix 2: List of Interviewees Appendix 3: Interview Questions 14 Appendix 4: Focus Group Results

8 Exhibit 4: Stroller Design Evolution

Finally, we used online and paper surveys to gain a clear understanding of what our potential target market valued most in a stroller. Through these surveys, we learned that the majority of our respondents had annual household incomes of over $50,000. 15 We were pleased to see that safety was the number one concern in strollers, making us confident that Stable Babys value of preventing strollers from tipping over would be deemed as our primary attribute. We were also reassured that lightweight, compactness, and portability were also the most important attributes in a stroller. 16 Based on these results, we combined all of these attributes to design a desirable product. We also used these survey results to rank the customer attributes and create an appropriately related House of Quality, which can be seen in detail in Appendix 5 17. Perceptual Maps: In order to find which characteristics differentiate our stroller from others on the market, we created two perceptual maps. It is difficult to quantify characteristics such as tipping and nontipping strollers; however, perceptual maps provided the best insight for comparing Stable Baby to other existing products. Both perceptual maps compare strollers based on their likelihood of tipping and not tipping. The first map also compares strollers against being lightweight and not lightweight. As seen in Exhibit 5: Perceptual Map #1, being lightweight and not tipping is

Online Survey Software, Customer Satisfaction Surveys, Enterprise Feedback Management, Employee Surv. Web. 20 Mar. 2013. <http://qualtrics.com>. 16 Ibid. 17 Appendix 5: House of Quality

15

9 something that no product in the existing stroller market can offer. Strollers such as Babies R Us umbrella stroller, Vela Driver stroller, and Graco Literider stroller are all lightweight strollers, but they also have the possibility of tipping. This is because strollers that are lightweight typically have the inclination to tip when something is placed on the handles. Stable Baby is specifically designed to prevent this issue. Our stroller is unique because it is both lightweight and does not tip over due to the kickstand on the back of the stroller.

Exhibit 5: Perceptual Map #1

Lightweight Babies R Us Umbrella Stroller $19.99; 7.6 lb Peg Perego Vela Easy Drive Stroller $229,99; 15.8 lb

Stable Baby $113; 13.36 lb NonTipping

Tipping

Graco Literider Stroller $79.99; 17.07 lb Non-Lightweight

Go Go Babyz Urban Advantage Stroller $145; 35 lb

Our second perceptual map compares strollers that tip and do not tip against strollers with adjustable and nonadjustable handles. Adjustable handles tend to be an attribute on more luxurious strollers; however, we pride ourselves on being less expensive while also providing key attributes to our customers. Peg Perego Vela Easy Driver Stroller retails for $229.99. 18 Its price is much higher than Stable Baby, which retails for $113.00. This gives Stable Baby a competitive advantage in establishing ourselves in the stroller industry. The only stroller seen in
Peg Perego Vela Easy Drive Stroller. Toysrus. N.p., n.d. <http://www.toysrus.com/product/index.jsp?productId=12539270>. Web. 16 Apr. 2013.
18

10 Exhibit 6 that has adjustable handles is the Peg Perego Vela Easy Driver Stroller. While the Peg Perego has this key differentiating feature, it does not have a mechanism that prevents it from tipping backwards. Exhibit 6: Perceptual Map #2

Promotion and Marketing Budget: Stable Baby has invested in push and pull marketing tactics to increase the overall awareness of our stroller. See Appendix 6 19 for a detailed breakdown of our promotion schedules by month, including costs and awareness percentages. Our push tactics for all five years will include trade shows, trade magazine ads, and point of purchase displays. Playtime New York is a professionals only three day trade show featuring American and International child product manufacturing companies. We will be featuring Stable Baby at this tradeshow in all five years. The All Baby & Child Kids Expo is a four day juvenile trade show. Its primary focus is on buyers for independent, national, and international retailers. In terms of trade magazine ads, we will be featuring our product in Baby Shop magazine for all five years. Each year, we increase the number of months that we advertise in Baby Shop. Finally, our point of purchase display will include a life-size cardboard shopping bag that will read, Place ALL your bags on the handles to test out the balance of this stroller.

19

Appendix 6: Promotion Schedules and Pictures

11 Our pull tactics for all five years will include online advertising, expos, coloring book distribution, and magazine awareness in Parents the First Year. Our trade show and expo set ups can also be found in Appendix 6. In years 1 through 5, we use outdoor billboards as our pull marketing tactics. In years 3, 4, and 5 we add airport advertising to our pull tactics as well. In years 4 and 5, we will also be handing out Stable Baby bibs, diaper bags and coffee thermoses at trade shows, as well as at Chuck E Cheeses. In year 5 we will also have celebrity endorsements. We will be giving away fifty Stable Baby strollers to celebrities and public figures, in hopes that they will publicly use our product.

Measuring the effectiveness of our communications: Stable Baby will measure the effectiveness of our communications strategies by using key performance indicators which will be further analyzed in IS page 37. We plan on measuring the impact of our advertising campaign by monitoring the number of people who enter the promotion code that can be found in Stable Baby coloring books as seen in Exhibit 7. The promotion codes found in the coloring books will give participants a chance to be randomly selected to win a Stable Baby stroller free of charge. These codes will be entered on our website, making it simple for us to track how many individuals have visited our site solely due to our color books. We will be giving away these coloring books at our expo; therefore, we will also use the coloring book promotion code method to keep track of the effectiveness of our presence at expos. Exhibit 7: Coloring Book Ad We will be giving away these coloring books at childrens hospitals; therefore, we will also use the coloring book promotion code method to keep track of the effectiveness of our presence at children oriented locations. Unfortunately, we do not have a direct method to measure the effectiveness of non-electronic ads; however, we were able to decide upon a few tactics, that when used together, can provide us an estimate of the effectiveness of our non-electronic integrated marketing communications (IMC).

12 We will be placing our billboards in strategic regions of the country, specifically major cities. Appendix 7 20 shows all of the locations where our billboards will be present. In order to measure the effectiveness of our billboards, we will be tracking the number of stroller purchases in the regions that the billboards are located. We will also track the shipping address provided by customers who order online, and compare it to the geographical location of our billboards versus cities without billboards. Beginning in year 3, we will be advertising in airports through airport banners. Our most efficient way to measure the success of airport advertising will be to monitor how many users are logging onto our website from within or near the airport. Although this is not optimal due to the fact that there is not free internet access at Hartsfield-Jackson Atlanta International Airport, we expect that many users will be using 3G, 4G or LTE networks via smartphone in order to log on to the internet. Therefore, to measure the effectiveness of our airport advertising, we will be tracking the number of IP addresses that come from or near the airport we advertise in. Our reasoning behind choosing this specific airport is because it is the worlds busiest airport, according to their website. 21 Based on our budget, we estimated that we could advertise there for six months; therefore, we chose the months with the most passengers (refer to Appendix 6 22). Our overall method to measure the effectiveness of our advertising tactics will be to ask a question on the home page of stablebaby.org asking where the visitor heard about Stable Baby. While we recognize that this will not be the final result of effectiveness, we believe this will give us a well-rounded estimate. We will be tracking our online advertisements through Adwords and Adsense. For Adwords, we will be able to see the results on a day-to-day basis via our Adwords reports provided by Google. 23 We will also be able to see whether our visibility under natural search results is improving. We hope that receiving high traffic through Adwords will increase our ranking in Google search, and ultimately we will be displayed on the first page under relevant searches.
20 21

Appendix 7: Billboard Locations Miller, Louis E. "Welcome from the Aviation General Manager." Hartsfield-Jackson Atlanta International Airport. Hartsfield-Jackson Atlanta International Airport, n.d. Web. 17 Apr. 2013. 22 Appendix 6: Promotion Schedules 23 Google, "Google AdWords-Online advertising by Google." Accessed April 10, 2013. <http://www.google.com/adwords/?sourceid=awo&subid=ww-et-awhp_nelsontest3_nel_p&clickid.>.

13 In terms of banner ads, we will be measuring the click-through rate and page impressions. We will also be tracking which websites people are visiting prior to arriving at stablebaby.org. This way we will be able to track which keywords that were entered on the search engine brought them to our website.

Advertising Campaign: Exhibit 8: Stable Baby Logo, Slogan, and Message

Our Logo: Our Slogan: Ride Safe, Ride Stable, Ride Stable Baby. Our Message: The stroller that does not tip over.

Exhibit 9: Sample Advertisement

For our advertising campaign, we have decided to use a slightly different tactic than current stroller companies. Most stroller companies design their advertisements to appeal to young children; however, it is not the child buying the stroller, it is the parent. We will be

14 using peach and white as our theme colors as seen in Exhibits 8 and 9. We have decided to use a soft and youthful color, and have combined these traits with a simplicity that provides a more mature feel. For more examples of advertisements, see Appendix 8 24. The messages of our advertisements are aimed to target parents who value the safety of their child. We want parents/guardians to trust our stroller enough to place their children in it. We also realize the importance of parents being able to put bags on the back of the stroller, and have designed ads to show how Stable Baby solves the problem of strollers tipping as a consequence of such actions. Even though some retailers dont require strollers to be sold packaged, we have decided to include packaging for each Stable Baby stroller. This is because most mass merchandisers, such as Target, require packaging and we want to minimize the risk of not being accepted. In addition, we want all consumers and retailers to view our product with one of utmost quality and reputation. Similar to most strollers with packaging, Stable Baby will be packaged in a rectangular cardboard box that is 4 x 1 x 1. However, in order to slightly distinguish our product, we will be using a peach box with the Stable Baby logo printed down the side in white lettering (Exhibit 10).
Exhibit 10: Packaging

Channels and Pricing:

24

Appendix 8: Print Advertisements

15 After conducting thorough research of the baby durable industry, we discovered that this category is broken down into seven different retail categories: mass merchandisers (31%), baby superstores (26%), department stores (12%), independent retailers (9%), small chains (3%), online (12%), and other (7%) as seen in Exhibit 11. Refer to Appendix 9 25 for a thorough breakdown of our retail environments profile. The dominating channels are
Exhibit 11: Profile of the Retail Environment

baby superstores and mass

merchandisers, which we will begin targeting in years 3 and 4. We cannot target these channels prior to years 3 and 4 because we will need to build a strong reputation and an impressive sales history first in order to prove our products importance. The department stores represent the middle section in terms of percentage of sales, but they are also challenging to get into, which is why we are targeting them in year 3. We have decided that small chain stores, independent retailers, and online retailers are the perfect point of entrance for us in year 1, because there are almost no barriers to entry. These stores are willing to take on new baby products and put these products on their shelves. The other category represents child specialty stores (i.e. Pottery Barn Kids), discount stores (i.e. T.J. Maxx and Marshalls) and second hand retailers (i.e. Once Upon a Child). We decided not to pursue channels from the other category because we would not be selling new strollers through second hand retailers. Nearly all child specialty stores do not sell strollers and we want to uphold our products reputation by not being sold in discount stores.

25

Appendix 9: Profile of the Retail Environment

16 Exhibit 12: Base Case ACV

Base Case ACV Mass Merchandisers Baby Superstore Department Stores Independent Retailers Online Small Chain Stores Total ACV: Year 1 2.25% 12.00% 1.32% 15.57% Year 2 3.95% 12.00% 1.32% 17.27% Year 3 3.50% 1.54% 3.15% 12.00% 1.32% 21.51% Year 4 4.00% 4.90% 2.15% 2.32% 12.00% 1.32% 26.69% Year 5 5.60% 4.90% 2.15% 2.32% 12.00% 1.32% 28.29%

Beginning in year 1, we expect to target independent retailers and small chains (less than ten stores), as well as online selling. Because Stable Baby is a small startup company, it is vital that we spend our first two years gathering retail selling history in order to expand our channels of distribution even further in years to come. Refer to Appendix 10 26 for a thorough breakdown of our optimistic and pessimistic ACV calculations. In our second year, we will continue to target the same independent retailers, small chains, and also proceed with online selling. Although we continue with the same channels of distribution, we are able to increase our ACV in year 2. As depicted in Exhibit 12, we will be increasing our ACV and will be targeting the stores our manufacturing representatives were not able to reach in year 1. In year 2, online and small chains will account for the same ACV as year 1. In year 3 we will be continuing to sell through independent retailers; however, due to channel conflict our ACV for independent stores will decrease. Online and small chain ACV will remain the same. We also plan on entering Buy Buy Baby and JCPenney in year 3. Entering JCPenney and Buy Buy Baby will contribute an additional 5.04% to our overall ACV (Exhibit 12). In light of our impressive sales history for years 1 through 3, we will be entering mass merchandisers in year 4. We hope that our market penetration rate for baby superstores will increase from 50% to 70% of Buy Buy Baby stores. Our penetration in JCPenney is also expected to increase from 50% to 70%, thus increasing ACV for department stores (Exhibit 12).
26

Appendix 10: ACV Calculations

17 Unfortunately, our ACV for independent retailers will decrease once more. This is due to the fact that we will be entering more chains; therefore, our presence in independent stores will be minimized. Finally, in year 5 only our ACV for mass merchandisers will increase. This is due to the increase in our penetration rate. We are hoping to be in 70% of Targets stores nationwide, this will increase our ACV from Target. Aside from this increase, ACV for independent retailers, baby superstores, small chains, and department stores will maintain the same. Stable Babys ACV constantly grows throughout all five years. Our ACV grows the most from years two to four because those are the years we enter JCPenney, Buy Buy Baby and Target. These three stores are Stable Babys main retail channels and are accordingly where we expect most of our distribution to come from.

Retail Selling Price/Channel Margins: Exhibit 13: Revenue Maximizing Price

Revenue Maximizing Price

300,000,000 250,000,000 Revenue ($) 200,000,000 150,000,000 100,000,000 50,000,000 0 87.5 113 138 Price ($) 163 $257,164,096 $249,283,125 $196,577,550

$114,033,860

$64,969,546 188

For independent stores, small chain stores and on Amazon, Stable Baby has a suggested retail price of $113 (Exhibit 13) because it is our revenue maximizing price based on the surveys we collected. However, this would be Stable Babys retail price only in years 1 and 2. As we enter JCPenney and Buy Buy Baby in year 3, Stable Babys price of $113 will no longer be

18 feasible because we are in a highly competitive industry. The stroller industry is already highly populated with existing competitors; therefore, we can expect Graco and similar stroller manufacturers to enter in year 3. Graco, one of our main competitors, is a well-known stroller manufacturer whose product features are similar to those of Stable Baby strollers. We have chosen to refer to Graco as our competitor because they are a relatively lightweight stroller who is well known and is in the similar price range. Due to these criteria, we felt that using Graco as a comparison to ourselves in terms of competition is most relevant. This is also why we expect to lower Stable Babys average weighted retail price to $95.10 in order to remain price competitive. As shown in Exhibit 14, the retail price of Stable Baby decreases year to year alongside manufacturers price. Specifically, in year 3 we would suggest Stable Baby to sell for $99 to independent retailers and small chains, $96 to JCPenney and Amazon, and $90 to Buy Buy Baby. As we begin selling to Target in years 4 and 5, Stable Babys average weighted retail selling price will decrease to $93.10. Stable Babys price of $99 will remain the same for both independent retailers and small chain stores. Stable Babys price will decline by $1 to $95 for all units sold at JCPenney and Amazon. Stable Babys price of $90 will remain the same for Buy Buy Baby and will also be our suggested retail price for Target in the following year. All of year 4s prices will be identical to the prices in year 5. Exhibit 14: Yearly Prices & Margins Stable Baby Yearly Prices & Margins
100%

Each channel of distribution has a different retail

$113 $113 $95.10 $93.10 $93.10

Margins (%)

80% 60% 40% 20% 0%

margin. Independent retailers and small chain stores have a 50% retail margin, which is why

$66.67 $66.67 $52.74 $53.26 $53.26

they have the highest suggested retail price throughout all 5

Years Average Weighted Retail Price Average Weighted Selling Price

years. JCPenney and Buy Buy Baby have a 45% retail margin, while Target has a 40% retail margin, and units sold on

Amazon have a 35% retail margin. Amazons retail margin includes the business to consumer

19 shipping cost. The retail margins for each distribution channel determine the price we expect to charge our channel intermediaries. The average weighted selling price to the different channels would decline from $66.67 to $53.26 over a span of five years. In years 1 and 2, we would charge $73.45 to Amazon, and $56.50 to independent retailers and small chain stores. In year 3, our selling price would be $62.40 to Amazon, $52.80 to JCPenney, and $49.50 to Buy Buy Baby, independent retailers, and small chain stores. In years 4 and 5, we would still be charging $49.50 to Buy Buy Baby, independent retailers and small chain stores. Our selling price in year 4 would decline to $52.25 for JCPenney and $61.75 for Amazon; and the selling price would be $54 to Target.

Discounts and Promotions: Our primary promotional tactic will be creating childrens coloring books and distributing these to ten different childrens hospitals throughout the country. We will have a total of 200 coloring books donated to each hospital, totaling 2,000 coloring books per year. Exhibit 15 shows a list of all of the hospitals that we will be donating our color books to. We chose these hospitals because they are some of the most prominent and well known childrens hospitals in the nation. There will be twelve pages in each coloring book. Ten of these pages will have pictures for the children to color. Within these coloring books there will be an advertisement for Stable Baby that includes a promotional code, as well as a cover page that includes Stable Babys logo and company name. This promotional code can be entered online and will automatically enter individuals in a chance to win a free Stable Baby stroller. Ten of these codes will be winning codes, and individuals will then have the opportunity to enter their personal information and shipping address in order to receive their free Stable Baby stroller.

20 Exhibit 15: Hospital Locations

Hospitals Mattel Children's Hospital Children's Hospital of Los Angeles UCSF Children's Hospital Children's Hospital of Philadelphia Cincinnati Children's Hospital Medical Center Boston Children's Hospital Texas Children's Hospital Riley Hospital for Children Children's National Medical Center Yale-New Haven Children's Hospital Location Los Angeles, CA Los Angeles, CA San Francisco, CA Philadelphia, PA Cincinnati, OH Boston, MA Houston, TX Indianapolis, IN Washington D.C. New Haven, CT

Channel Conflict: We expect to see channel conflict through independent retailers. As we begin distributing through more channels, such as Buy Buy Baby, JCPenney, and Target, the number of independent retailers who carry our product will decrease. As stated earlier, we expect to lose 40% of our independent retailers in year 3. We assume that department stores, baby superstores, and mass merchandisers will have a competitive advantage because of their ability to offer lower prices. We expect our sales/manufacturer representatives to build and maintain strong relationships with independent stores, which would result in some, even if minimal, independent stores to continue carrying Stable Baby.

Sales Volume: As you can see in Exhibit 16, in year 1, 60% of Stable Babys units will be devoted to online sales; specifically we expect most of them to be sold through Amazon. The rest of Stable Babys units will be split 20% into independent stores and 20% into small chain stores. Since Stable Baby is a new company looking to build awareness and a solid customer base, we

Exhibit 16: Year 1 Sales Breakdown

hope that devoting most of our sales online would generate a solid retail selling history.

21 In year 2, since we do not change our distribution channels, Amazon will once again generate 60% of Stable Babys sales. Independent stores and small chain stores will generate the remaining 40% evenly. For detailed numbers about yearly sales prices for years 2 through 4, refer to Appendix 11 27. In year 3, Stable Baby will begin to create a majority of sales in Buy Buy Baby and JCPenney which should help us target a wider audience than in the first two years. Because Buy Buy Baby and JCPenney have a greater audience than small chains and independent stores we intend for most of our sales to be generated through these two channels. Specifically, thirty percent of our sales will come from Buy Buy Baby, and JCPenney will generate an additional 20% of our yearly sales. As Stable Baby enters into Target stores in year 4, we would expect a greater distribution of sales volumes by using all six of our distribution channels. Buy Buy Baby and Amazon will remain a constant percentage, while Targets entrance should generate 20% of sales. JCPenney will decrease to 15% of total sales, while independent stores and small chains continue to generate the least amount of sales. The smaller stores generate the least amount of sales because their retail selling price is the highest and fewer people visit these stores. Looking at our growth alone we would expect to be in larger Baby Superstores, such as Babies R Us, in year 5. However, due to an increase in competition, we are conservative with our estimates which are displayed in Exhibit 17. For this reason, we account for being present in the same stores as year 4. Because we are not selling to any new retailers, our sales volume distribution will not change.
Exhibit 17: Year 5 Sales Breakdown

27

Appendix 11: Yearly Sales Prices

22 Sales Force: We are going to use manufacturers representatives in years 1 and 2 to sell the Stable Baby. In year 3, we are going to hire our own sales force to sell to all our retailers, except for online. Our company decided to use our own sales force as soon as possible, for several qualitative reasons. We want representatives who are loyal to our company and who we can personally hire in order to ensure that they will represent Stable Babys values in the way that we prefer. In addition, in any scenario (base, optimistic, or pessimistic), it is cheaper to switch over to a complete sales force beginning in year 3. We analyzed the cost differences between
Salary ($)

Exhibit 18: Comparison of Sales Force Salary Scenarios

$1,200,000.00 $1,000,000.00 $800,000.00 $600,000.00 $400,000.00 $200,000.00 $0.00 0 1 2 3 4 5

Year

Mixed Rep Salary Sales Rep Only Salary Mfg. Rep Only Salary

using a mix of manufacturers and sales reps, only manufacturers reps, and only sales reps for years 3, 4, and 5 (as that is when we enter more types of retailers). This analysis is displayed in Exhibit 18. The reason we do not move to 100% sales reps before year 3 is because for the first 2 years, based on the fact that we are only in independent retailers and small chains, it is not yet necessary to hire, train and utilize our own employees. Every year after year 2, it is more costefficient to use our own sales reps.

Commission for Manufacturers Representatives: We only use manufacturers reps in years 1 and 2. They receive 10% commission on the sales they make, which comes from those in the independent retailers and small chains. As we sell only in independent retailers, small chains, and the internet for these 2 years, the manufacturers representatives are receiving 40% of sales, as the other 60% are from online sales. In year 1, with this 10% commission, manufacturers reps are paid $158,277; in year 2, they receive $237,865.

23 Commission for our own Sales Force: Our sales reps salary begins at $50,000, and they will obtain a bonus of $5,000 each year, on top of commission. We calculate commission as a percent of sales, excluding what is sold online (as online units do not require the efforts of a sales rep). Specifically, the sales rep receives 2% of sales, which is calculated by the average manufacturers selling price for that year, multiplied by the percent of units that go to the retailers at which the representative is selling. Because we are only using sales reps in years 3, 4, and 5, the percent of sales that go to the sales reps retailers is everything except the online salesonline sales are 20% of sales in years 3 through 5. As with all of our salaries, the sales reps also receive an additional 25% to their base salary, which accounts for expenses such as benefits and retirement accounts. Overall, this equates to a total sales rep salary of $170,511 (2.008% of sales) in year 3, $251,378 (2.194% of sales) in year 4, and $294,958 (2.138% of sales) in year 5.

Sales Projections: We used our BASES model to ultimately decide what our five year sales projections would be. Our target market size was determined through the US Census for year 1 and we made adjustments for the subsequent years. Stable Babys adjusted purchase intent was derived from our target market survey results. We have adjusted our purchase intent for 80% of individuals who said they would definitely buy our product, as well as 30% who said they would probably buy our product, based on their preferred stroller price. Our total purchase intent increased by 4.84% between years 2 and 3, as shown in Exhibit 19, due to our lowered selling price. Included in our overall purchase intent is the potential purchase increase based on our donations to St. Jude Childrens Research Hospital, which is our CSR initiative. Refer to Appendix 1228 for detailed purchase intent calculations.

28

Appendix 12: Purchase Intent Calculations

24

Exhibit 19: Purchase Intent vs. Price

Awareness and ACV are positively correlated and increase throughout all five years. We earn enough money in the earlier years to be able to spend a large amount of money on advertising in magazine ads, on billboards, transit ads, etc. As we are accepted into Buy Buy Baby, JC Penney and Target in our later years, it is safe to assume that consumers can more easily find our products. Units at trial and units at repeat will be one unit per consumer because it is generally unexpected for consumers purchase more than one stroller at a time. Our repeat rate was determined through survey results and was distributed accordingly in our BASES model (Refer to the full base case BASES model in Appendix 13 29). 14.29% would repurchase one year after, 18.18% two years after, 20.13% three years later and 5.84% 4 years after. So in year 5, the total repeat households would be a total of year 1 repeat rate times year 4 trial units, year 2 repeat rate times year 3 trial units, year 3 repeat rate times year 2 trial units and year 5 repeat rate times year 1 trial units.

29

Appendix 13: Base Case BASES Model

25 Exhibit 20: BASES Model Year 5 Sales

As seen in Exhibit 20, our forecasted units, which are derived from our BASES model, escalate at an increasing rate for all 5 years. This is why we assume that competitors, such as Graco, will take 20% of our sales in year 3, 30% in year 4 and eventually 35% in year 5.

Optimistic/Pessimistic: Exhibit 21: Sales Projection Line Graph

26 In our optimistic scenario sales projection, which is depicted in Exhibit 21, we expect a high volume of sales compared to our base case scenario. Due to this high volume, we should expect competitors to enter earlier and stronger than in the base case. These competitors should enter in year 3 and take 35% of our yearly sales. They should subsequently take 45% in year 4 and an enormous 55% of our sales in year 5. Stable Babys retail price will be $113 in year 1, as with our base case. However, as competition increases, we expect the retail price of Stable Baby to increase in year 2 due to our high volume in sales and success in year 1. This increase is also caused by our strong reputation and word of mouth among consumers. Due to such favorable sales in the year before, we plan to sell for a higher price in year 2 and expect that this increase in our retail selling price will not change consumers willingness to pay. Since competition will most likely enter in year 3, Stable Babys price should dip to an average weighted retail price of $107.50 and continue to decrease accordingly in our fourth and fifth year. Stable Baby will not be able to sell as many units in our later three years if we do not lower our retail price as an adjustment for competition. As displayed in Appendix 1430, a breakdown of the optimistic BASES model, awareness increases in our optimistic case. We estimate that it will take consumers 3 impressions to become aware of Stable Baby, compared to 4 impressions in our base case. In Exhibit 22, our ACV increases as well because we expect a higher penetration and acceptance rate from retailers, as well as a lower percentage of channel conflict between independent retailers and chain stores that carry Stable Baby. We expect an early acceptance in year 3 into Target and an upgrade into Walmart stores by year 5. Consumers should also expect to find Stable Baby at Babies R Us stores rather than at Buy Buy Baby. Walmart and Babies R US are both leaders in their respective industry markets, which results in a much higher ACV of 33.89% in year 5 compared to our base case. Because our awareness and ACV are much higher, we have made the assumption that our repeat rate will increase 50% in comparison to our base case. More awareness and a higher level of distribution should directly affect the chances of consumers repurchasing a Stable Baby.

30

Appendix 14: Optimistic BASES Model

27 Exhibit 22: ACV Optimistic

Optimistic Case ACV Mass Merchandisers Baby Superstore Department Stores Independent Retailers Online Small Chain Stores Total ACV: Year 1 2.25% 12.00% 1.32% 15.57% Year 2 3.95% 12.00% 1.32% 17.27% Year 3 4.00% 6.00% 1.54% 3.68% 12.00% 1.32% 28.53% Year 4 5.60% 8.40% 2.15% 3.02% 12.00% 1.32% 32.49% Year 5 7.00% 8.40% 2.15% 3.02% 12.00% 1.32% 33.89%

On the other hand, our pessimistic scenario has very different outcomes compared to base and optimistic. Stable Baby sales are predicted to start off with slower sales in year 1, but increase by nearly $7 million by year 5. Stable Babys pessimistic unit sales increase yearly, as can be found in Exhibit 23. Further details regarding the pessimistic BASES model can be found in Appendix 15 31. Exhibit 23: Pessimistic BASES Model
Pessimistic BASES Model Total Stable Baby Units Year 1 56,979 Year 2 82,293 Year 3 151,788 Year 4 152,968 Year 5 207,818

Sales only slightly increase in years 3 to 4 compared to years 1 through 3. For this reason, we should expect competition to enter later than in our base case, and also take a smaller percentage of our sales. Competition should eventually take 20% of our yearly sales in year 4 and 25% of sales in our 5th year. Stable Babys retail price should once again start off at $113 in both years 1 and 2 because our sales volume is still fairly low and increasing the price would lower our consumers incentive of purchasing. We expect to lower Stable Babys retail price in years 3, 4 and 5 because we begin to enter multiple channels of distribution and therefore our strollers will be surrounded by increasing competition.

31

Appendix 15: Pessimistic BASES Model

28 Exhibit 24: ACV Pessimistic

Pessimistic Case ACV Mass Merchandisers Baby Superstore Department Stores Independent Retailers Online Small Chain Stores Total ACV: Year 1 1.52% 12.00% 1.32% 14.84% Year 2 2.79% 12.00% 1.32% 16.11% Year 3 2.80% 1.23% 1.93% 12.00% 1.32% 19.28% Year 4 3.50% 1.54% 1.26% 12.00% 1.32% 19.61% Year 5 4.00% 4.20% 1.84% 0.77% 12.00% 1.32% 24.14%

Stable Babys awareness and ACV would both be lower than our base case in our pessimistic scenario. Awareness is lower because in this scenario, it takes a typical consumer 5 impressions to become aware of Stable Baby, rather than 4 impressions in our base case. In terms of distribution, independent retailers are less accepting of our product, and consequently we are admitted into fewer stores. We also expect to delay our entrance into Target until year 5 due to our decreased penetration rate into independent retailers. Lastly, we account for a slower penetration rate into both Buy Buy Baby and JC Penney stores as well. A lower penetration rate and smaller acceptance rate will ultimately result in a lower ACV throughout all 5 years ending with 24.14% ACV, as depicted in Exhibit 24, which is approximately four percent less than our base case. A decreased ACV and awareness affects our consumers rate of repurchasing. We assume consumers would not repurchase a stroller as often as our base case and assume that the repeat rates decrease by 50%.

29

Section IV: Information Systems

30 Introduction: In todays society, almost everything runs and revolves around the use of computers and technology. Whether it stems from mundane tasks to the most intricate jobs, information technology plays an essential role in our day-to-day activities, specifically in aiding our business processes to be efficient and productive. We can use information technology to gain insightful data, increase awareness through online marketing tactics, and tie a closer relationship with our customers.

Strategy: Stable Baby follows a Red Ocean strategy, as we use existing technology targeted towards existing customers, positioned in saturated market spaces. There are many consumers who, in fear of their childs safety, have opted to purchase baby strollers that are less likely to tip. Avoiding this problem would require consumers to purchase heavier strollers, which, at times, tend to become cumbersome for parents on-the-go. Storage, mobility, and portability are all hindered by the bulky design, and as a result, Stable Baby is directed towards existing demand as we try to beat the competition by offering a lightweight stroller that prevents tipping. For the first two years, we will primarily follow a long-tail strategy, as the majority of our sales are online. However, we also plan to start distributing through independent offline retailers and small chain stores beginning from the introductory phase (refer to Appendix 11). In later years, we shift towards a short-tail approach as we enter into department stores and massmerchandisers. Thus, we strive to have a simple user-interface for our website, enabling parents who normally dont shop online to easily navigate through pages. This is specifically because one part of our website informs potential customers where our product can be purchased offline.

Advantages of Information Systems/Technologies: Taking advantage of IS can help aid our processes, specifically between our retailers, suppliers, and ourselves. As the industry giant Walmart was able to [gain] command over its suppliers and effectively [penetrate] their executive decision-making using the Retail Link

31 System (RLS) 32, we too would like to maximize and utilize our information flow along the supply chain. However, the RLS system is most beneficial to companies who sell a wide array of products at high volume because fixed costs tend to run fairly high. Therefore, we have focused our attention on Microsofts Dynamics CRM as our main Enterprise Resource Planning system. With the Dynamics CRM system, clients can track, view, edit, create, and search for records. Since it is a Microsoft product, CRM seamlessly integrates with Outlook, as opposed to Salesforce, which requires each client to pay $60.00 per year to integrate with Outlook. 33 Dynamics CRM also allows us to efficiently manage our inventory, track sales, and offers a customer service platform. After comparing Salesforce and Dynamics CRM, the final decision was based on price, because both systems offer all the services that we need. When a product is purchased, whether through Amazon or retailers, the data is sent to our manufacturing headquarters. This automated process will help ease reordering processes when a certain number of purchases trigger a notification to suppliers to ship in more raw materials. Information systems and technology will also be utilized to create tactical alliances with highly visited sites, such as Amazon. By allowing us to place inbound links from their site, we expect to generate more awareness and visitors to ours.

Website Design: We design our website to link our innovative product with the familiarity of existing strollers. Stable Baby operates in the same way as a normal stroller, with the added benefits of not tipping and having adjustable handles. Because we want to show these distinctive characteristics over our competitors, the first image our visitors will see on our website (www.stablebaby.org) is a simple, yet attractive, baby stroller. Once their interest has been seized, we can explicate the true benefits of our product. Our websites landing page, as shown in Exhibit 25, displays our products non-tipping feature through the use of informative images, text, and video. We strive to distinguish ourselves from our competitors by designing a website that differs from the more popular child-themed
32

Matthews, Christopher. "Data-Driven Management." 10 Ways Walmart Changed the World. (2012): n. page. Web. 5 Apr. 2013. <http://business.time.com/2012/07/02/ten-ways-walmart-changed-the-world/slide/data-drivenmanagement/>. 33 Quartano, Leah. "Microsoft Dynamics CRM vs. Salesforce.com Comparison Outlook Integration Part 2." CRM Software Blog. (2013): n. page. Web. 10 Apr. 2013. <http://www.crmsoftwareblog.com/2013/02/microsoftdynamics-crm-vs-salesforce-com-comparison-outlook-integration-part-2/>.

32 layout. We do this because we realize that the family member who ultimately browses for and purchases the stroller would be the parent, and not the child. Upon designing the theme, we hold the following traits in mind: innovative, trustworthy, and high quality. By using clear, glossy texts, artistic backgrounds, and revolving images, we strive to keep these traits evident. The image of our companys website is vital because it reflects upon the perception of our strollers quality. Not only will our website affect our brands image, but also future sales.

Exhibit 25: Website Landing Page

As mentioned above and in Exhibit 1 (page 4), our primary target audience consists of parents and guardians with children ages 0-5 years who are mainly concerned about their stroller tipping. Price is a less sensitive factor, as we are targeting middle to upper class parents and guardians with an expected annual income of over $50,000. Noted by our survey results from Qualtrics 34, most respondents answered safety as their primary concern. An example of such a

34

Online Survey Software, Customer Satisfaction Surveys, Enterprise Feedback Management, Employee Surv. Web. 20 Mar. 2013. <http://qualtrics.com>.

33 survey can be found in Appendix 1635. These results led us to use our website to focus consumer attention towards our products differentiating safety feature. Another goal we keep in mind while designing our website is maintaining a user friendly interface. This attribute is important because websites that are difficult to navigate may drive potential customers away. Additionally, we want visitors to feel connected to us because they will be placing their childs safety in our care. By utilizing Web 2.0, an interactive Internetbased [service], 36 we are not only able to display images and videos to our site, but also receive important user feedback and reviews from customers. Should consumers feel the need to voice their concerns, there is a contact form that directly links to our companys Gmail account. We then receive the complaint immediately, and are able to address the concern. Our ultimate goal is to get customers to purchase our strollers. The call-to-action purchase now button on our webpage directs visitors to Amazon.com, where our online sales will be held. Finally, we want to reinsure visitors that we are a trustworthy company, and that our strollers are manufactured with great attention to detail. We will measure the effectiveness of our website by observing user behavior in the following ways: stickiness, conversion rate, and retention rate. Google Analytics 37 is a tool designed to measure such rates. After considering various methods of measuring website effectiveness, we chose not to measure bounce rate because our call-to-action button is located on the landing page. Instead, we decided to measure stickiness in order to examine users interest levels in learning about our product. The longer the visitor stays on our website, the better. This measurement may also correlate with our goal of maintaining a user friendly interface. The stickiness rate also measures whether or not visitors will take the time to interact with our website, which includes reading/writing reviews and learning about our product. The conversion rate will generate enough information for us to measure the success of our websites purpose of turning visitors into customers. Retention rate will measure the rate of returning customers, which we account for in our base case model (Appendix 13).

35 36

Appendix 16: Qualtrics Survey Example Olver, James M., Theresa K. Lant, Robert Plant, Karl D. Majeske, and Steven R. Kursh. Business Resources. Boston, MA: Pearson Learning Solutions, 2013. 298. Print. 37 "Google Analytics.". Google, 03 Apr 2013. Web. 14 Apr 2013. <https://support.google.com/analytics/answer/2731565?hl=en>.

34 Search Engine Optimization (SEO) On-Site Strategy: To increase the flow of visitors to our website, we will use On-Site and Off-Site search engine optimization tools. Improving the former requires the following traits: using relevant keywords on our website, having clean and consistent HTML codes (Meta tags), using a sitemap to ease navigation, the use of videos, images, and informative headers. Having relevant Meta tags enables our website to be indexed by Google to appear in the organic search results page. There are four primary tags that need to be considered: title tag, Meta description tag, Meta keywords tag, and the Meta robots tag. 38 The title tag comprises of our company name, Stable Baby, as well as a few short descriptions of who we are. Having a relevant title tag is important as this will be what [appears] in the clickable link on the search engine results page (SERP)changing them may result in more click-throughs. 39 We created a title tag, Stable Baby stroller that doesnt tip, and people who are familiar with our company name can search for our site by entering Stable Baby. Additionally, our webpage will appear when shoppers type in keywords such as stroller and non-tip. Not only does this enable us to build our brand, associating Stable Baby with a non-tipping stroller, but it also increases our SERP rankings. One benefit of our company name is that we have the word Baby already included in the title, which means that typing in baby and stroller together in the search page will automatically narrow the results down to our site. Next, we focused on the Meta description tag. Although this will not directly affect our ranking, it may contribute to our click-through rate. Having a precise, descriptive phrase of our product under the title tag will inform people what our site is about, as it [draws] readers to a website from the results page. 40 Ultimately, the higher the click-through rate to our webpage, the higher up we will appear on the rankings page. To better help search engines index our page, we have coded our webpage to include HTML Meta keyword tags that describes our product, as displayed in Exhibit 26.

38

"Meta tags: title, keywords, description." SiteGround. N.p., 2013. Web. Web. 14 Apr. 2013. <http://www.siteground.com/metatag_optimization.htm>. 39 Whalen, Jill. "All About Title Tags." High Rankings. N.p., 24 Jan 2012. Web. Web. 14 Apr. 2013. <http://www.highrankings.com/allabouttitles>. 40 "Meta Description: Best Practices for Search Engine Optimization." 2013. N.p., Online Posting toSEOMOZ. Web. 14 Apr. 2013. <http://www.seomoz.org/learn-seo/meta-description>.

35

Exhibit 26: Website HTML Meta tags

Since most popular search engines nowadays use Web crawlers 41 to index sites into large databases, making sure these crawlers do not ignore our webpage is another important aspect we have considered. To eliminate this possibility, we wrote additional Meta tags to make sure all robots crawl our website. This will further increase the number of searchable keywords and improve our SERP rankings because it will index additional pages from our site. The following format can be used:

Exhibit 27: Website HTML Meta tags for crawlers

In addition to writing the HTML codes with a consistent manner (to optimize our SEO), the code in Exhibit 27 will make sure that they index all of our pages. Although some may say its superfluous to add in these codes, as mostsearch engine crawlers will index your pageeven if you do not have a robot tag, 42 we take precautionary steps to ensure it. Non-customers will only be able to read the content rather than write reviews, due to the fact that only customers who register with our website can post reviews. Therefore, we need not worry about potential spammers degrading our rankings. Aside from having clear and concise HTML tags, we also make our website neat and easy to navigate with informative headers and a site map bar at the top of every page. This allows users to travel within our site without running into dead-ends. We also use clear, legible texts, as well as images and videos to enhance user experience. With our images, as many search

41

Olver, James M., Theresa K. Lant, Robert Plant, Karl D. Majeske, and Steven R. Kursh. Business Resources. Boston, MA: Pearson Learning Solutions, 2013. 298. Print. 42 "Meta tags: title, keywords, description." SiteGround. N.p., 2013. Web. Web. 14 Apr. 2013. <http://www.siteground.com/metatag_optimization.htm>.

36 engines (until very recently) cannot read and analyze images, we have decided to include ALT text to our images to let search engines associate it with some short phrase or description.

Off-site Strategy: To improve our SEO through Off-Site tactics, we will resort to negotiations with hightrafficked sites and our retailers to place inbound links from their websites to ours. Since we plan to distribute our online sales through Amazon.com all five years (Appendix 11) having an inbound link directed from their website to ours will be mutually beneficial, since we too will place an outbound link to their site. We will turn to popular social media sites such as Facebook or Twitter to help promote consumer awareness and visitors to our site, as shown in Exhibit 28. With a higher rank in the Search Engine Results Page, we will ultimately yield a wider audience.

Exhibit 28: Stable Baby Facebook

Internet Marketing: We will generate online awareness using social media tactics, an opt-in email program, and Google AdWords. Our CMO will be responsible for fulfilling all duties correlated with these internet marketing techniques. In terms of social media, Stable Babys marketing efforts will be present on Facebook, Twitter, YouTube, and Instagram. We believe that word of mouth will play a significant role in generating awareness to our website; however, much of this word of mouth is expected to be generated virally. Because we will have our web address and product information listed throughout our Facebook page, the more likes we receive on the page, the

37 better chance we will increase our website awareness. Similarly, we will be able to track the number of Twitter and Instagram followers with increased visits to our web page. Through YouTube, we will post advertisements for Stable Baby. These advertisements will consist of videos, and be directly uploaded to YouTube using Stable Babys username. These ads will be informative, sharing information about Stable Babys purpose as a product, as well as how we contribute to St. Jude Childrens Hospital. In order to generate increased and positive viral word of mouth, our CMO will need to keep our social media sites relevant and captivating. Our opt-in email program will be an alternative approach to increasing the flow of visitors to our website. Although email sent without the permission of the recipient is considered spam, email that consumers opt-in to receive can be considered as an internet marketing technique. We will use our social media platforms to give consumers access to sign up for emails that provide Stable Baby updates. These e-mails will ask for post-purchase feedback, while providing a preview of our current web page. In addition, Google AdWords will also be used to create higher volume of visitors to our webpage. These costs are accounted for within the online portion of our advertising and promotion tactics schedule. We will be purchasing keywords such as safe, stroller, baby, stable, and tip-over. Purchasing these words will enable us to increase our relevance in Google searches, which will help consumers to find our site, and ultimately increase our sales.

Information Systems for Internal Operations Management: One of the key performance indicators we want to measure is the acquisition rate. Refer to Appendix 17 43 for the activity diagrams of our key performance indicators. The acquisition rate is important to us because it is a measurable key performance indicator that expresses customer satisfaction. This allows us to gain insight into both quantitative and qualitative feedback. As previously mentioned, our website features a reviews page that only customers may write on and interact with via Web 2.0. Those who havent purchased our stroller are unable to write reviews, because we do not want false critiques or spammers on our page. To differentiate between true customers and non-customers, each sale is

43

Appendix 17: KPI Activity Diagram

38 associated with a specific identity key. Upon registering for an account, they must either enter the credit card information they used to purchase the stroller, or this unique identity key. To get the acquisition rate, we will calculate the number of purchases online compared to how many customers decide to register within that group. We only sample online customers because we expect that the majority of our online users will be the most motivated to create an online account, compared to all of our customers. We will monitor this data monthly, using Google Analytics to help us measure our source of visitors. 44 An example of this information can be seen in Exhibit 29 below.

Exhibit 29: Google Analytics Acquisition Report

From these numerical statistics, we can identify and filter the number of returning customers, and take the percentage of those who actually register with our website. The second key performance indicator we will monitor deals with daily internal operations. We will measure the number of defective strollers that come off our assembly line. In order to standardize what our company considers to be defective, we created a list of requirements necessary to pass JPMA standards. These standards include whether the stroller vibrates when pushed, if the adjustable handles feel oiled enough to eliminate harsh resistance when utilized, and if the stroller can withstand the necessary weight capacity. If one part does not pass the necessary requirements, the stroller is considered a defect and will be disassembled for remanufacturing or discarded. We will collect this data by first having an inspection test in the manufacturing plant once the stroller is taken off of the finished goods assembly line. Then we can measure, out of all the
44

Peters, Meghan. "How to Get the Most Out of Google Analytics." Mashable. N.p., 04 Jan 2012. Web. Web. 16 Apr. 2013. <http://mashable.com/2012/01/04/google-analytics-guide/>.

39 strollers we produce, what percentage of them are defective. After the final worker of the production line identifies a defect, the COO is responsible for entering this data into the system. Based on the percentage we collect each day from the number of defects over the number of strollers produced, we will continually try to improve in comparison to previous days percentages. We have chosen not to measure the strollers defect rate per hour because that would be an unnecessary use of resources. In addition, measuring defects every day allows us to compare data over long periods of time. Using this strategy, we can measure 100% of our total sample population size, which increases the accuracy of our data. We compare these rates against ourselves because the only defect rate that matters is our own. Even if our competitors have product recalls, we will not have access to their detailed manufacturing facility statistics. We will enter our KPI information into our ERP as soon as it is received. This will measure our defect rate over the next five years. If, for example, we happen to have unreliable raw materials, Stable Baby will have back up suppliers to order from. It is vital to our company that we monitor our number of defects because it will be a preventative measure in reducing costs and upholding a positive brand identity.

Investments in Information Systems:

IS Expenses Fixed Office Supplies Production Related Sales-Related Variable Office Supplies Production Related Additional TCO Computers Projectors Printing Expense Total IS Expense Total Salary Expenses Total Costs Year 0 $40,823 $4,740 $9,995 $960 $444 $49 Year 1 $0 $0 $0 $960 $444 $49 Year 2 $0 $0 $0 $960 $444 $49 Year 3 $4,675 $0 $5,999 $960 $444 $49 Year 4 $7,752 $0 $999 $960 $444 $49 Year 5 $4,874 $0 $0 $960 $444 $49

$0 $0 $0

$0 $0 $2,570

$0 $100 $2,741

$7,500 $317 $2,741

$3,500 $100 $2,741

$3,500 $217 $2,741

$57,011 $1,453 $1,453 $6,000 $24,000 $24,000 $63,011 $28,022 $28,294 Exhibit 30: IS/IT Annual Costs

$24,000 $46,685

$12,127

$10,204 $28,800 $45,345

$6,327 $28,800 $41,585

40 Exhibit 30 provides a summarized view of the annual costs for our IS/IT infrastructure. We categorize the main expenses into three sections: office supplies, production related, and Sales/Additional. The first category comprises mostly of computer/server expenses. For this, we choose to run Dell computers, due to their customizable traits, performance, and stability. The second category consists of security systems to protect our productions headquarters, and the third deals with licenses for our Microsoft Dynamics CRM system. In year 0, we will invest in a Dell PowerEdge T110 II tower server, not only for its affordable price at $6,135 with upgrades, but also for its customer reviews and reliability. The server was chosen because we believe it is one of the best entry level servers on the market. Additionally, since we will run our ERP system on-premise, the T110, with 32GB Memory at 16000MHz, provides the performance to handle necessary tasks. Also, since space is not a major concern for us, we can opt out from using blade servers for our startup years. Also, we will purchase seven Dell XPS 8500 desktops and XPS 13 MLK Ultrabooks. These computers allow for each user to take their work with them and still have access to our database off-site using a VPN network. We chose these products for their performance and reliability. We are willing to pay for high quality products to have uninterrupted work flow, because slow and unstable computers can harm our main businesses processes. In the first two years, there will only be five computer users, but as a necessary precaution, we will purchase two more of each for backup. (For a more detailed view, refer to Appendix 18 45). As the main enterprise resource planning system, we will use Microsoft Dynamics CRM. It provides all the necessary features to manage sales with customers, as well as the ability to integrate with Microsoft Outlook. For security, latency, and virtualization reasons, we have decided to use an on-premise system. 46 Exhibit 31 displays the decision matrix for the rationale of our choice.

45 46

Appendix 18: Years 0 5 Base Case IS Annual Cost Howell, David. "On-site servers or the cloud?." techradar. (2013): n. page. Web. 10 Apr. 2013. <http://www.techradar.com/us/news/world-of-tech/roundup/on-site-servers-or-the-cloud-1133159>.

41

ERP
Price Upgradable Operating System RFID (Yes/No) Electronic Data Interchange (Yes/No) Cost of Maintenance Customization Ratings Missing?

Dynamics CRM
$44 per month - Base 9 Yes 10 Windows, OSX, Linux 9 Yes 10 Yes 10 16% Annual Cost 4 Codeless (Simple) 10 90/100 - reviews.com 9 Offline Functionality (at this rate) 4 Microsoft Lync (autoupdate CRM records), CRM Care Center, Blog 9

SalesForce
$65 per month - Base 6 Yes 10 Windows, OSX, Linux 10 Yes 10 No 9 Included 10 Codeless (Simple) 10 95/100 - reviews.com 10 N/A 8 "Socially Connected," Forum, Over-Web 7

Weight
9 7 1 8 10 2 7 5 4

Customer Support

Exhibit 31: Decision Matrix for ERP

To ensure the safety of our staff in our operations plant, we implement security systems via ADT to guard the perimeter around our warehouse. In addition, we will install controlled access swipe to prevent intruders. Cameras, mostly to monitor outside the warehouse, can demotivate theft and vandalism on our property. For the base case scenario, we will hire an IT consultant part-time, with an hourly salary of $125. This brings salary expense for Year 0 to $6,000, which will slightly increase in later years (refer to Appendix 19 47 for salary calculations).

47

Appendix 19: TCO Calculations

42

Section V: Operations

43 Make of Stable Baby We have designed Stable Baby to meet and exceed consumer expectations. Currently, the market consists of two types of strollers: inexpensive umbrella strollers that generally tip over, and expensive full-sized strollers that are slightly more stable. With Stable Baby, we look to sell a stroller that combines the best features from both categories. This includes a strong focus on the consumers primary concern about safety. Stable Baby is made of durable materials that will allow for the longevity of higher priced strollers, but continue to have the portability of umbrella strollers.

House of Quality Through surveys, focus groups, and interviews (see Appendix 3), we have built a house of quality (Exhibit 32) which takes the various consumer stroller preferences and weighs them based on the functions importance to the consumer. We have found that the safety and weight of the stroller are valued most; both attributes have 5 points out of the possible 5 on the customer attribute scale. These are followed by portability and adjustable handles, which were both given 4s. Seeing these results posed the question as to why there are so few high quality umbrella strollers on the market at this point in time. Stable Baby has been designed from the ground up to these specifications, with the key attribute a no-tip mechanism. All umbrella strollers today have the same problem: tipping over when given too much weight on the handles. Our company took into consideration how much parents value the safety of their child, which is why were surprised to see that such a problem
Exhibit 32: House of Quality

44 has not been addressed. With these problems in mind, we came up with our innovative solution: Stable Baby strollers. A view of the complete HOQ can be found in Appendix 5.

Part Breakdown We have drawn up blueprints which provide details regarding various components of the Stable Baby stroller, which can be viewed in Appendix 2048. These blueprints feature a built-in kickstand, designed to catch a falling stroller. The curved shape of the kickstand allows the user to move freely, without the kickstand interfering with his/her movements. In addition, the kickstand provides ease of use due to its ability to be secured in either an upright or downward position. For the majority of our parts, we will outsource to various Chinese manufacturers and import them overseas. The simplistic design of Stable Baby consists of a base aluminum frame (including the kickstand), seatbelts, 8-inch wheels, plastic hinges, a mesh back for storage, and fabric for both the sun-hood and seat. Below in Exhibit 33 is a list of the direct materials cost and quantity per stroller. With the exception of the nuts, bolts, and washers used in the frame, we will purchase all of Stable Babys items from China. LuoXiang Aluminum Products Co. will supply us with the aluminum rods used for the strollers frame. The rods are currently the highest cost out of our entire cost of goods sold per stroller, at approximately $1.23 per pole 49. Our fabrics will be supplied by three different Chinese suppliers. Huzhou Hanyork Textile Co., Ltd. will be supplying the fabric needed for both the seat and sun-hood at a cost of $.03 50 and $.08 51 respectively per stroller. Shenzhen Gacent String & Webbing Co., Ltd. will

48 49

Appendix 20: Stroller Blueprint Co., Luoxiang Aluminum, Ltd. "Luoxiang Aluminium Products Co., Ltd. - Foshan China - Casement Window Aluminium Profiles Door Aluminium Profiles Manufacturer." Luoxiang Aluminium Products Co., Ltd. - Foshan China - Casement Window Aluminium Profiles Door Aluminium Profiles Manufacturer. GlobalMarket, n.d. Web. 16 Apr. 2013. 50 Co., Huzhou Hanyork Textile, Ltd. "Alibaba.com." Huzhou Hanyork Textile Co., Ltd. Alibaba, n.d. Web. 16 Apr. 2013.
51

Ibid.

45 supply seatbelts at a price of $.50 52 per part. Wujing Fengqiu Weaving Factory will be used for our mesh bag material, which will be sewn in-house, adding $.15 53 per stroller. Ningbo Xihe Children Products Co., Ltd. will supply us with 8 inch wheels at a cost of $.40 per wheel. This will equate to $1.60 per stroller, considering we are using 4 wheels per stroller. Through Xiamen Yirong Hardware Co., Ltd., we will purchase swivels for Stable Babys two front wheels, at a cost of $1.50 55 per swivel. Shenzhen Xinyinte Rubber Products Co., Ltd. will supply the plastic handles at a cost of $.50 56 per handle, and finally, Xiamen Lindas Hardware Industrial Co., Ltd. will supply our hinges at a cost of $.02 57 per hinge. As previously mentioned, we decided to purchase our nuts, bolts, and washers through a domestic source. We chose to do this because there is a negligible price difference between international and local suppliers. Therefore, the nuts, bolts, and washers will be purchased from Circle Bolt & Nut, Inc., adding a cost of $.03 58 per stroller. We chose this supplier because it is located in North Carolina, which will result low shipping costs. We have thoroughly explored each of these suppliers, ensuring their quality through ISO 9000 standards. On top of this, Shenzhen Xinyinte Rubber Products Co., Ltd. has an ISO 14000 certification, which guarantees the protection of the environment from at least one of our suppliers. A list of suppliers and their contact information can be found in Appendix 21 59.
54

52

Co., Shenzen Gacent String & Webbing, Ltd. "Shenzhen Gacent String & Webbing Co., Ltd." - Webbing, String, Rigilene. Alibaba, n.d. Web. 16 Apr. 2013. 53 Wujing Fengqiu Weaving Factory. "Wujing Fengqiu Weaving Factory." Company Overview -. Alibaba, n.d. Web. 16 Apr. 2013. 54 Co., Ningbo Xihe Children Products, Ltd. "Home Page." Seedling. 300.cn, n.d. Web. 16 Apr. 2013. 55 Co., Xiamen Yirong Hardware, Ltd. "Xiamen Yirong Hardware Co., Ltd." Xiamen Yirong Hardware Co., Ltd. Alibaba, n.d. Web. 16 Apr. 2013. 56 Co., Shenzen Xinyinte Rubber Products, Ltd. Shenzen Xinyinte Rubber Products Co., Ltd.Alibaba, n.d. Web. 16 Apr. 2013. 57 Co., Xiamen Lindas Hardware, Ltd. "Xiamen Lindas Hardware." XIAMEN LINDAS HARDWARE INDUSTRIAL CO.,LTD. ICP, n.d. Web. 16 Apr. 2013. 58 Co., Circle Bolt & Nut, Inc. "Supply Management | Fasteners | Specialty Hardware | Circle Bolt and Nut." Supply Management | Fasteners | Specialty Hardware | Circle Bolt and Nut. Circlebolt, n.d. Web. 16 Apr. 2013. 59 Appendix 21: List of Suppliers

46

Item Bolts/ Washers/ Nuts Aluminum Poles Fabric Seat Mesh bag Wheels Wheel Swivel Seatbelt Hinge Sunhood Packing foam Box Plastic Handles Total Materials Cost

#/unit 14 17 1 1 4 2 1 4 1 2 1 2

Cost/piece $ 0.0258 $ 1.2294 $ 0.0300 $ 1.1500 $ 0.4000 $ 1.5000 $ 0.5000 $ 0.0200 $ 0.0800 $ 0.0100 $ 0.1500 $ 0.5000

$ $ $ $ $ $ $ $ $ $ $ $

Cost/Unit 0.3612 20.9000 0.0300 1.1500 1.6000 3.0000 0.5000 0.0800 0.0800 0.0200 0.1500 1.0000 $ 27.8712

Exhibit 33: Direct Materials Make / Buy: We explored the idea of buying our most expensive subassembly, the stroller frame, instead of assembling it in-house. After speaking with various suppliers, were concluded that the cost of buying the assembled frame would be around $40 to $50 per unit 60. With the additional cost of freight, this would come out to an average cost of $46.43 per stroller frame. However, assembling in-house would cost $23.19 per frame, which is nearly half the cost (refer to Exhibit 34). Assembling in-house will significantly increase our profit margin. This is due to the fact that our costs are significantly lower than what we will be charging our retailers.

60

Co., Kunshan Babylove Business, Ltd. "2012 Basic Style Aluminum Frame Baby Stroller."Www.alibaba.com. Alibaba, n.d. Web. 16 Apr. 2013.

47
Exhibit 34:Make/Buy for Frame Year 1 Make Total Direct Materials $ 1,477,863 Labor $ 58,926 Equipment $ 1,800 Freight $ 101,290 Total Buy COGS Freight Total $ 1,639,879 Best Price Total $ 2,828,446 $ 101,290 $ 2,929,736

per unit $ 20.90 $ 0.83 $ 0.03 $ 1.43 $ 23.19 Worst Price Total $ 3,535,558 $ 101,290 $ 3,636,848

Per unit $ 40 $ 1.43 $ 41.43

Per unit $ 50 $ 1.43 $ 51.43

Logistics Given our various international partners, we have accounted for the lead time of each part of the stroller that we buy. The domestic items have much shorter lead times. Specifically, the nuts, bolts, and washers, box, and plastic foam all have lead times of 1 week. The rest of the parts, which are shipped overseas from China, have lead times ranging from 4.9 to 7.5 weeks. Our domestic items will be shipped by trucks, costing $.37 per ton-mile 61. This adds up to $147 in total shipping costs, including free shipping for boxes and packing foam. However, for international shipping, our expenses are much more costly. The individual costs of our international parts, which travel by boat at $.10 per ton-mile, train at $.03 per tonmile, and truck for .37 per ton-mile 62. This adds up to a total of $155,795 shipping costs for year 1, as you can see in Exhibit 35. A detailed breakdown of each shipping cost can be found in Appendix 22 63. In years 2 through 5, these costs increase relative to our changing order sizes). While the shipping expense appears high, we have calculated the economic order quantity for each part used in the production of the stroller. In doing so, we have found the optimal quantity of stock per order for each part of the stroller. In order to find the most accurate

61

U.S Department of Transportation. "U.S. International Trade and Freight Transportation Trends | Bureau of Transportation Statistics." U.S. International Trade and Freight Transportation Trends | Bureau of Transportation Statistics. U.S. Department of Transportation Bureau of Transportation Statistics, 2003. Web. 16 Apr. 2013. 62 U.S Department of Transportation. "U.S. International Trade and Freight Transportation Trends | Bureau of Transportation Statistics." U.S. International Trade and Freight Transportation Trends | Bureau of Transportation Statistics. U.S. Department of Transportation Bureau of Transportation Statistics, 2003. Web. 16 Apr. 2013. 63 Appendix 22: Logistics Shipping Costs

48 shipping costs, we also calculated the total number of orders we need to make per month for each part. Thus, we were able to accurately calculate total shipping cost per year (see Exhibit 36). Exhibit 35: Logistics Total Shipping Cost $482,404.38 $410,221.28 $331,787.01

$500,000 $400,000 $300,000

$221,462.93 $155,795.24 $200,000

$100,000 $0

Year 1

Year 2

Year 3

Year 4

Year 5

Inventories: Our inventories need to be able to cover demand and any fluctuations that may occur throughout the year. In years 1 and 2, we want to maintain a service level around 95%. This level will allow us to cover as many demand fluctuations as possible, helping us develop and maintain good relationships with our retailers. A stock-out in our early years could end up hurting our relationships, and consequently inhibit the possibility of entering target retailers in future years. In years 3 through 5, our service level drops to an acceptable 91%-92%. This is a result of our price and COGS decreasing, and our knowledge of consumer demand and our ability to supply retailers increasing.
Exhibit 36: Order Quantities Bolts/ Washers/ Nuts Aluminum Poles Fabric Seat Mesh bag Wheels Wheel Swivel Seatbelt Hinge Sunhood Packing foam Box Plastic Handles Total pieces Year 1 217,863 34,778 53,997 8,721 29,575 10,799 13,226 132,265 33,066 132,265 24,148 18,705 709,409 Year 2 266,786 42,588 66,122 10,680 36,217 13,224 16,197 161,966 40,492 161,966 29,571 22,905 868,714 Year 3 334,989 53,475 83,026 13,410 45,475 16,605 20,337 203,372 50,843 203,372 37,130 28,761 1,090,797 Year 4 376,794 60,149 93,388 15,083 51,150 18,678 22,875 228,752 57,188 228,752 41,764 32,350 1,226,924 Year 5 411,886 65,750 102,085 16,488 55,914 20,417 25,006 250,056 62,514 250,056 45,654 35,363 1,341,191

49 In year 1, we have a total raw materials safety stock investment of $199,875, which is equal to 263,484 pieces of material. In year 5 the raw materials safety stock investment goes up to a total of $451,396, which is equal to 580,956 units of material. These levels of raw materials safety stock equate to a cover stock of around 7,100 strollers in year 1 and 16,000 strollers in year 5. A detailed breakdown of our raw materials schedule is located in Appendix 23 64. A raw materials cycle stock investment of $57,000 equates to 354,705 units of materialthis is needed to cover production requirements in year 1 and increases to $108,005 by year 5. For finished goods, the safety stock levels will be kept at a level of 2,275 finished units in year 1, eventually rising to a level of 6,858 in year 4 and decreasing to 5,039 in year 5. In year 5, competition takes a portion of our demand and our relationships with our retailers improve, resulting in a decrease of finished goods stock.

Location: After a thorough evaluation using a center of gravity analysis, we have concluded that Stable Baby will be based out of Randleman, North Carolina. We calculated this by weighing the number of Buy Buy Baby stores within a 25-mile radius of a 71 cities in the U.S. By choosing this location, we will be able to reduce shipping cost to individual stores during the growth phase of Stable Baby; a time we believe to be most crucial in the development of our company, and therefore an important time to reduce what costs we can. Specifically, in year 3, Buy Buy Baby will account for 30% of our sales, which is more than any individual retail channel. The address we have chosen, 500 Pointe South Drive, Randleman, North Carolina 65, fulfills our requirements for warehouse operations while also containing needed office space for our other departments. We have devoted 25% of our 10,000 square foot warehouse space to finished goods inventory. We will triple our storage capacity in this space in year 3, after the purchase of 417 leveled racks. These racks will add an additional cost of $302.95 66 per rack, which adds up to an additional expense of $126,230.18 in year 3. Through this purchase we will be able to reduce holding cost per unit.
64 65

Appendix 23: Raw Materials Schedule McKenzie, Jenna. "Access Denied." LoopNet -. Loopnet, 9 Apr. 2013. Web. 16 Apr. 2013.

66

Uline Shipping Supply Specialists. "ULINE - Shipping Boxes, Shipping Supplies, Packaging Materials, Packing Supplies." ULINE - Shipping Boxes, Shipping Supplies, Packaging Materials, Packing Supplies. Uline, n.d. Web. 16 Apr. 2013.

50 We have also taken into account the purchase of pallets, which are needed to store our product. Each Stable Baby stroller is contained in a 1x1x4 box, allowing for 9 to be stored on each 3 x 3 pallet. Based on our cycle stock, we calculated the number of pallets we need to purchase, which total 1,000 for the first 2 years and an additional purchase of 358 in year 3. With each pallet costing $15, we have calculated the total cost to equal $20,358 plus the purchase of 3 pallet trucks at $900 each, for an overall total of $21,258. 67 The remaining 75% of the manufacturing facility is distributed between raw materials inventory and the production line. Based on our analyses, we have concluded that we do not need to expand further after year 5. However, if production in the years following year 5 necessitate more space, several warehouses can be leased within the same lot (see Exhibit 37). Each warehouse includes 1,600 square feet of office space. The amount of space is more than enough to comfortably situate all of our office workers, while leaving space for offices, a conference room, a break area, and bathrooms. We have allocated a large amount of space in our office portion of the facility for a break room that is easily accessible from both the facility and the offices and contains chairs, couches, a refrigerator, and a microwave for lunch breaks. The going rate of this lot is $1.81 per SF per year 68. With a total of 11,600 SF 69, this totals to $20,996 per year. This cost has been allocated to our manufacturing overhead (MOH) as well as the office portion in administrative costs. Additionally, we have calculated the cost for insurance and utilities for our warehouse, also included in MOH.

Facility Our facility will be set up to decrease the time taken for each unfinished stroller to move through the production process. The raw materials inventory will be located in the far right corner, furthest away from the dock area (refer to Exhibit 37). From there, the raw materials are inspected and separated into bins, which are then rolled towards the production floor.

67 68 69

Ibid.
McKenzie, Jenna. "Access Denied." LoopNet -. Loopnet, 9 Apr. 2013. Web. 16 Apr. 2013.

Ibid.

51
Exhibit 37: Factory Layout

The production area will start in the middle of the floor, with easy access to both the raw materials and the finished goods inventory areas. The production area will be arranged in a line, with bins to store scrap at various intervals. Any additional raw materials that are not included in the assembly bin will be rolled down to where each worker needs them. In year 1, we will have one worker sorting and distributing the raw materials. In year 5, we will have two workers due to the addition of a second assembly line. Once the finished good is assembled, it will be boxed and transported over to the finished goods inventory area for storage until shipped. With the finished goods located nearest to the dock area, loading trucks for shipment will be a fast, smooth process.

52 Additionally, there will be an easily accessible restroom on the production floor. The operations floor managers office will be located inside the production facility with a view of the factory floor. As for the office portion, there will be four offices for the CEO, CMO, customer
Exhibit 38: Process Map

service representative, and an accountant who will share an office with our customer service representative in the 3rd year. The fourth office will be a conference room, and the rest of the space will be taken up by the break-room, kitchenette, and bathrooms.

Process Map: The entire process consists of nine different stations divided among the nine line workers. The first process is raw materials inspection, which takes approximately 102 seconds. The next process is cutting the fabric for the strollers sun-hood and seat. One of the slowest stations, drilling the aluminum poles, is next. This process takes 120 seconds; however, this time is eventually reduced through contriving a machine that will expedite the process. The next step is to attach the poles which will need to be connected through hinges, followed by bolting

53 the frame together. These processes take 60 seconds and 120 seconds respectively. At this point in the process, the most time consuming steps have been finished. The next five steps, which consists of attaching the fabric seat to the frame, the fabric sun-hood to the frame, the rubber covering to the handle, the wheel swivel plastic to the frame, and the wheels to the front and back of the frame, totaling 57 seconds. The final step in the process is to package and inspect the finished product. That final station adds 60 seconds to reach a total throughput time of 538 seconds. As shown in Exhibit 38, our production process is designed to split the two most timeconsuming tasks. As stated above, assembling the frame and drilling the frames aluminum poles are the two longest processes. We decided to have two people working on each of these processes simultaneously to reduce our cycle time and overcome potential bottlenecks. After implementing this task division, we calculated that our entire production process will have a 60 second cycle time. In year 3 of our base case scenario, our demand requires that we create a second production line, duplicating the existing production line and doubling our line workers from 9 to 18. However, this expansion is only for our base case and optimistic case. Further details regarding the years 3 through 5 process diagram can be found in Appendix 24 70. In the pessimistic case, our demand is low enough to meet demand with the capacity of one production line.

Organizational Chart Stable Baby consists of 15 total employees in year 1. The organization, broken down in Exhibit 39, includes the chief executive officer who doubles as the chief financial officer, chief marketing officer, chief operations officer, customer service rep, janitor, and nine factory workers. The base salary of the factory workers and janitor is $10 an hour plus benefits (25%). Our customer service rep earns $15 an hour plus benefits. The starting salary for the COO and CMO is $90,000 a year, while the CEO earns $100,000 a year plus benefits. Over 5 years, the CEO, COO, and CMO increase their salaries based on a small percentage (1% in year 1 and 2 to 2% in years 3 through 5) of the companys net income. We have chosen to make their salary increase
70

Appendix 24: Years 3-5 Process Diagrams

54 dependent upon net income because we believe they should be rewarded for the success of the company. This should result in increased motivation for the three higher positions in Stable Baby, as a higher net income will increase the bonus they get each year. In addition, we concluded that the salary increases will cover any cost of living adjustments for inflation.
Exhibit 39: Organizational Chart
CEO/CFO (Chief Executive Officer/Chief Financial Officer) $125,000

COO (Chief Operating Officer)/ Floor Manager $112,500

CMO (Chief Marketing Officer) $112,500

Production Line 8 Workers: $25,000 each

Janitor 1 Worker: $25,000

Inventory/Dock Workers 1 Worker: $25,000

Customer Service 1 Worker: $37,500

In both the optimistic and base case, Stable Baby becomes profitable enough to require an accountant to assist the CFO (or CEO in our case). This accountant is given a base salary of $110,000 a year. The accountants pay raise is not dependent on the companys success, but is increased by 10% per year of service.

Quality Assurance: As shown in Exhibit 38, there are two stations where our product is inspected for quality. The first inspection takes place prior to the strollers construction, during the raw materials sorting process. We have chosen this time in the production to inspect for quality because Stable Baby must ensure that all material going into the construction of the stroller is of our set standards. The second inspection takes place at the end of the production. We have chosen this point because doing so allows us to check the most important feature before reaching the end consumer: the safety.

55 Stable Baby prides itself in meeting Juvenile Product Manufacturing Association (JPMA) standards 71. JPMA standards include load tests on the seat and foot rests, stability tests, restraint system integrity tests, evaluation of occupant retention, and minimum withdrawal force of caps and plugs. 72 Therefore, with the multitude of regulations set for child products, this is a necessary check. Further, we reduce the likelihood of recalls and returns if our second (and final) inspection finds that the material does not meet quality standards. The labor involved in putting together a stroller is precise. For example, if a hole isnt drilled in the correct location on one of the metal pipes, the pieces wont fit together. Thus, our worker would toss the scrap and pick up another pipe. See page 65 for more details about quality risk.

Production Capacity The total capacity of our production process is a crucial piece of information that we must know in order to guarantee that we can meet varying demand. In order to calculate the total capacity, we used the cycle time of each unit and the total time worked throughout the year. Stable Babys first year of operations has a maximum capacity of 100,500 units during regular production (see Exhibit 40). If additional units are needed, the units will be made available through part-time and overtime work.

Exhibit 40: Production Capacity

Year 1 Year 2 Year 3 Year 5 Regular Overtime Part Time Regular Overtime Part Time 1 min 1 min 1.25 min 0.5 min 0.5 min 0.62 min 9.47 min 9.47 min 11.83 min 9.47 min 11.15 min 13.94 min 90% 95% 90% 90% 95% 90%

Cycle Time Throughput time Uptime Capacity per year Capacity per month

100,500 8,375

28,500 2,375

32,160 2,680

201,000 16,750

57,000 4,750

64,320 5,360

71

Juvenile Products Manufacturers Association. "Safety Overview | Www.jpma.org: Juvenile Products Manufacturers Association." Safety Overview | Www.jpma.org: Juvenile Products Manufacturers Association. Juvenile Products Manufacturers Association, n.d. Web. 16 Apr. 2013. 72 Ibid.

56 Given an increase in cycle time due to the use of less-trained part-time workers, we expect that part-time workers can add an additional 32,160 units per year and our regular workers can add 28,500 units through overtime. With an annual demand of 70,711 units in year 1, we do not expect to exceed capacity. Meeting demand will not be a problem in year 2, given that we will use part time workers on the weekends. However, in year 3 our demand exceeds our current capacity including both part time and overtime, and we have chosen to add an additional production line. Doing so doubles regular capacity, at 201,000 units per year. This new capacity meets demand for years 3 through 5 without the need for a third line. Even with the increase in capacity, which can be examined in Appendix 25 73 (a detailed aggregate plan), by year 5 we will need to have a total of 12,656 units made during overtime and 52,751 units made during part time work on the weekends. In the summer months of June through September we will likely see a spike in demand due to seasonality, so overtime work will be needed in those months. This seasonality follows the trend that shows that more babies are born during the summer than the winter.

73

Appendix 25: Aggregate Plan

57

Section VI: Finance

58 Investing: Investors will benefit by investing in Stable Baby because after analyzing scenarios ranging from the most pessimistic to the optimistic case, it is evident that our investors will always receive a return. For example, in the pessimistic case scenario, we ask our investors for $1,311,862, and they receive $1,722,470 when we liquidate at the end of year 3. In this scenario, the IRR is 12%. By comparing our lowest IRR to the S&P 500s average 3 year return rate of $12.67 74, investors can see that while this scenario would not achieve the average return, the opportunity cost will not be significant. We ask that our investors keep in mind that there is only a 25% chance of this scenario. If we were to consider our most likely base case scenario, in which there is a 50% chance, or our optimistic scenario, in which there is a 25% chance, our investors would make significantly higher return in both. They are expected to make 62% IRR in our base scenario and 145% IRR in an optimistic scenario. If our investors were to invest in the Dow Jones Industrial Average yearly return of 12.61% 75 rather than our project, there is a 75% chance that they would be making significantly less than they could have investing in Stable Baby (see Exhibit 41).

8,000,000 6,000,000
Cash Fllow ($)

Exhibit 41: Annual Cash FlowsScenario Comparison

4,000,000 2,000,000 (2,000,000) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Optimistic (519,98 (404,04 1,466,9 1,752,9 2,756,4 20,164, Base (542,91 (809,29 589,616 107,739 365,083 7,922,2 Pessimistic -469,988 -1,124,2 -154,892 2,236,97 0 0

74

Standard & Poor's Financial Services LLC. "S&P 500 Annualized Performance Data."Standard & Poors. The McGraw-Hill Companies, Inc., 16 Apr. 2013. Web. 16 Apr. 2013. 75 CNN Money. "DJIA." CNN Money. Cable News Network, 2013. Web. 16 Apr. 2013.

59 In addition to our favorable returns, Stable Baby is a company that is committed to excellence. With our strong attention to product quality, we are offering a product that is safe, addresses problems that no other strollers address, and is sold at a price that consumers favor. Our patented no-fall kickstand, and our attention to other similar products recalls, truly differentiates our product and company. This assures our investors that our stroller and company is the best baby durables option to invest in.

Funding Requirement: We are requesting $1,352,203 to launch our product. Weve calculated this by summing our year 0 and year 1 net cash loss, at which point weve reached our peak paid-in-capital of $1,352,203. The year 0 paid-in-capital we require of $542,912 consists of multiple expenses. The remaining needed investment accounts for the year 1 net cash loss of $809,291. This cost accounts for a net income of $623,674, plus depreciation of $20,341, less $1,453,306 (from the change in net working capital between year 1 and year 0).

Startup Costs: $101,704 of the year 0 paid-in-capital is allocated to fixed asset startup costs. These fixed asset costs total the purchase of operations and information systems equipment. Operations equipment includes machine drills for $1,000, plastic molds which are to be made and sent to our raw material manufacturers for $6,000, fabric processors for $3,398, and power screwdrivers and mallets for use in-house for $848, totaling $46,146. Information systems fixed costs include $40,823 in office supplies, $4,740 in production related costs, and $9,995 in sales-related costs; a total of $55,559. Adding the two categories together estimates our fixed asset startup costs for year 0. $300,190 of the initial startup cost is derived from Stable Babys initial operating expenses for year 0. The initial operating expense has three parts: product development, premarketing expenses, and miscellaneous, broken down in Exhibit 42.

60

Exhibit 42: Year 0 Startup Costs

Initial Working Capital, $141,017

Pre-Marketing Expenses, $79,220 Initial Operating Expenses, $300,190 Product Development, $127,200 Miscellaneous, $94,047

Initial Investment in Fixed Assets, $101,704

Product Development: Our product development is the sum of the cost of an engineer, which we value at $100,000, the construction of our Stable Baby prototype at $10,000, and testing, branding, and legal expenses of $17,200. While this initial cost may appear to be excessive, especially for the engineer, the product itself is the foundation of our entire operation. Therefore, we must ensure that the root of our company is of the highest quality to guarantee our potential to grow.

Pre-Marketing Costs: Pre-marketing expenses are composed of half a years salary for our chief marketing officer at $56,250 because we expect the marketing campaign and research for our product to begin prior to the actual production of Stable Baby strollers. We value the creation of sales relationships and advertisements before our product reaches the market and believe its a necessary expense. We will be doing two trade show expos in year 0 so we have accounted for trade show booth supplies at $5,000, a 7x10 booth in the Playtime New York Trade Show at $11,970, and a 10x10 in the ABC Kids Expo Trade Show for $6,000. This reaches a total year 0 marketing expense of $79,220.

61 Miscellaneous Startup Costs: The final section of year 0 paid-in-capital, miscellaneous costs, includes non-depreciable items in both operations equipment and information systems. Miscellaneous operations expenses include one months payment of $5,249 needed for the lease on the Stable Baby facility. The insurance and utilities of $3,750 and $13,500, respectively, are tied to the lease expense. We will begin operations in December in order to match demand for the first month of year 1. Doing so also allows us to create some necessary safety stock in case of an unexpected increase in demand early in year 1. Thus, weve accounted for one months worth of supplies in raw materials and finished goods for a total cost of $41,017. To run our facility, we will need some small additions, including $22,801 for furnishing and supplying the office, along with extra pallets and tables for the warehouse. The final portion of miscellaneous costs is budgeted towards our information systems costs of office supplies, computer systems, and an IT consultant who is needed to establish our IS infrastructure. In total, the miscellaneous expenses account for $93,770.

Initial Net Working Capital: In year 0, our calculations show that we have a net working capital of $141,017, which is partially made up of the $100,000 minimum cash balance we are asking of our investors. This value is needed in case of unforeseen problems or costs that may arise in a startup company. With the addition of $41,017 for startup inventory, our net working capital reaches $141,017, given that Stable Baby does not have any current liabilities. By adding the $101,704 from the initial investment in fixed assets, the $300,190 from the initial operating expenses, and the $141,017 from the change in net working capital, we have accounted for the total investment of $542,912 needed for year 0. Appendix 26 76 shows the full distribution between year 1 and year 0 of net total paid-in-capital.

NPV and IRR: In our base, and most likely scenario, we expect an NPV of $1,987,660 and an aggregate IRR of 61% for the project. We are able to get such a high positive NPV and IRR by keeping our costs fairly low, while charging at a higher than average price at the consumer level.

76

Appendix 26: Annual Cash Flows

62 Ownership Breakdown: We are asking that our investors contribute 75% of the required initial investment for 77% ownership in our company, and that management, friends, and family contribute 25% of funds for 23% ownership in the company. These contributions will give our investors a total of 62% IRR and an NPV of $1,554,305 for the $1,014,152 investment we are asking for. Management, friends and family will receive a lower IRR of 57% due to the decreased ownership percentage, but still achieve an NPV of $433,355 for their $338,050 investment.

Profitability Ratios: We project that we will become a profitable company very early on in our products lifetime. See Appendix 27 77 for an in-depth assessment of our Income Statement. Due to the high profit margins that we keep with our retailers, we are forecasting that net income will be positive in year 1 and grow throughout the next 5 years. There is a slight dip in net income in year 3 due to our expansion costs (refer to page 53 for our year 3 process map), but that is quickly offset in years 4 and 5.

Gross margin as a percentage of sales peaks during year 2 at 51.9%, as you can see in Exhibit 43. The drop in year 3 is again due to expansion costs, and is projected to slowly recover. COGS percentage of sales

Exhibit 43: COGS vs Gross Margin (% of Sales)

100% 50% 0% 52% 48% 48%52% 61% 39% 59% 41% 58% 42%

2 COGS % Sales

Gross Margin % Sales

follows the trend of gross margin, peaking in year 3 when our COGS per unit is highest. Our sales after year 1 are enough to keep the SG&A percentage of sales low enough for us to have a high net income percentage at an average of 14.8%.

77

Appendix 27: Income Statement

63 In year 2, our return on assets (ROA) will peak at 50%. In this year sales are high, while our asset costs per unit are at their lowest. After expansion in year 3 our ROA averages at a 33% return. Our return on equity (ROE) continues to grow year after year, starting at 22% in year 1 and peaking at 72% ROE in year 5 (See Exhibit 44).
100% Percent Return 80% 60% 40% 20% 0% 1 ROA 2 ROE 3 Years 4 5 50% 34% 22% 46% 34% 27% 58% 33%

Exhibit 44: ROA and ROE

72% 37%

Breakeven: Our product will reach accounting breakeven in year 1, which is detailed in Exhibit 45. With a forecasted demand starting at 70,034 units, we will have a very high margin of safety; averaging 75% for all five years of business. The accounting breakeven units for year 1 are 19,213 and throughout the 5 years never rise above our projected demand. The NPV breakeven of our project has a much lower margin of safety, at a minimum of 24% in year 1 and maximum of 46% in year 5. However, the likelihood of becoming NPV 0 is low, since even in our most pessimistic case the level of breakeven units doesnt exceed the margin of safety.
Breakeven Analysis Year 1 Accounting Forecasted units Breakeven Margin of Safety NPV Forecasted units Breakeven Margin of Safety Cash Forecasted units Breakeven Margin of Safety 70,034 18,890 73% 70,034 53,375 24% 70,034 18,292 74% Year 2 105,250 21,052 80% 105,250 73,959 30% 105,250 20,484 81% Year 3 160,972 46,220 71% 160,972 101,104 37% 160,972 43,809 73% Year 4 215,068 50,525 77% 215,068 124,622 42% 215,068 48,145 78% Year 5 259,029 63,834 75% 259,029 141,067 46% 259,029 61,433 76%

Exhibit 45: Breakeven Analysis

64

Comparable Company Ratios: Our company has chosen to compare itself to Newell Rubbermaid Inc. (NWL) and Mattel, Inc. (MAT). While our comparisons would have been more similar to those from strollerbased companies, the majority of stroller companies are privately held, and therefore not viable options for making ratio comparisons. We chose to analyze Newell Rubbermaid because a few of its brands are included in the Baby & Parenting category; specifically, Graco, Aprica and Teutonia. All three of these brands have their own lines of strollers. In addition to its similar products, we chose to analyze Newell Rubbermaid because it shares the same supplier channel as our company. We also chose to analyze the ratios of Mattel, a toy-based company, because it shares the same retail channel as our company. Specifically, Mattel sells games to retail outlets that generally sell other products directed towards the baby durable demographic. Exhibit 46: Comparables Ratio Assumptions
Accounts Receivable (% of Total Revenue) Accounts Payable (% of COGS) 20% 7% 19% 8% 25% 8% 25% 8% 24% 7%

We use Newell Rubbermaid to calculate our accounts payable assumptions, and Mattel to calculate our accounts receivable assumptions. We acknowledge that these are larger, well established companies, and that we will have different relationships with our suppliers and retail channels. For this reason, we added 5% to our accounts receivables, and decreased our accounts payables by 5%. You can find our numbers after these adjustments in Exhibit 46. These 5% changes represent the fact that we will not be a top priority for retailers when it comes to paying our company on time. Since we are a startup company, we will also need to pay suppliers back earlier than companies that have established reliable relationships with their suppliers.

Terminal Value Calculations: At the end of our year 5 projections, we calculated a terminal value that is an NPV of the net cash flows estimated from year 6 through 15. Based on the competitive market that we are entering, we assume that starting in year 5 our competition will further escalate. We estimate that through year 7 our cash flows will continue to rise steadily at a rate around 25%, and then decrease by around 20% per year thereafter. As competition becomes fiercer and the market

65 saturated, we think that by year 15 we will liquidate our assets.

List of Risk Factors: Exhibit 47:List of Potential Risks In order of Importance # 1 2 3 4 5 6 7 8 9 10 11 Risk Lawsuits & Recalls Channel Price Direct Materials Natural Disaster Supplier Risk Purchase Intent Trial Rate Competition Ineffective Management Failure of Computer Systems Facility Fixed Costs Sensitivity % N/A 15% Decrease 23% Increase N/A N/A 36% Decrease 38% Decrease 117% Increase N/A N/A N/A

Risk Analysis and Mitigation The following analyses are based on the top 5 risks from the list in Exhibit 47.

1) Lawsuits & Product Recall: Baby durables have a generally high recall rate, which includes safety and material problems. Safety problems may include the product breaking down, trapping the child, or in our case, tipping over even when the kickstand is down. Material problems occur when there are toxins in the exposed parts of the product, posing a potential toxic ingestion risk.

66 Our company will reduce the risk of recall through two strategies. The first will be that while we are creating our product in the factory we can oversee every step that goes into creating our stroller. Refer back to page 54 for additional information regarding quality assurance. The second strategy is that our product will adhere to CPSC-enforced requirements. We will hire a third party to assess our products safety, and repeat this process whenever any changes are made to our product. We plan on exceeding expectations when it comes to safety standards in order to mitigate future risk and regulations. All of this will decrease the likelihood of lawsuits resulting from unsafe products.

2) Channel Price: Our company has the capability of taking a 15% decrease in channel price. Any decrease greater than 15% will result in a negative NPV for Stable Baby. If a retailer decides to lower their retail price by more than this amount, we will have to decrease the channel price as well and end up with a lower NPV. Our company plans on mitigating this risk by offering incentives such as promising to remain in a retailer for a set amount of time. If retailers decide that lowering the price of our stroller is necessary, then we can take action to redesign our stroller to match consumer preferences and increase value. As a last resort, we could lower our costs by trying to reduce cycle time and scrap as much as possible, or negotiate with our suppliers.

3) Direct Materials: Based on our sensitivity analysis, if the cost of our raw materials increases more than 23%, our NPV will decrease below zero. We mitigate this risk by purchasing materials from suppliers whose prices have been consistently low throughout the past several years. In addition, because our materials are not highly specialized, we have the option to choose different suppliers in the future. There is also the possibility of negotiating for purchase discounts as our demand increases, since we will need to order more materials per year.

4) Natural Disaster:

67 The most common natural disasters in North Carolina, where our facility and central office are located, are hurricanes and tornadoes 78. Our company also acknowledges that fire in a manufacturing facility is always a risk. A fire in our central location is a particular risk due to the fact that this facility is where all of our materials, finished goods, employees, and IS/IT infrastructure is located. We mitigate the IS risk by using cloud technology, so if we were to lose our hardware, our information would not be wiped out. Our company also has manufacturers insurance and renters insurance, which cover a wide array of risks, including workers compensation and natural disasters. In the event of building disasters, we will make sure that all employees know where the buildings exits are (and that there are functioning exit signs), that there are phones available for calling 911, that there are procedures for keeping themselves safe during an emergency, and that there are fire alarms, smoke detectors and sprinkler systems installed.

5) Supplier Risk: All of our materials, with the exception of nuts, bolts, and packaging come from suppliers overseas. This results in the risk of quality, or rather a lack of quality control. Due to the fact that our product category involves a higher likelihood of product recalls since an unsafe or unstable product may result in a childs death, product quality is of the utmost importance. Our company will mitigate this risk by assembling our entire product in our factory. In doing so, we can assure not only that our product is being created to par with the CPSC (Consumer Product Safety Commission) standards, but faulty materials will be recognized as they go through the assembly process. Finally, we have selected suppliers who are ISO 9000 certified.

Additional Risk Strategies Aside from creating specific strategies in order to address our top five risks, management has several strategies in place to minimize overall company risk. For example, as a new company, we will be dealing with a staff that is entirely new to each other. If we run the risk of inefficient and ineffective management, employees will not get along in the workplace. To

78

Heskett, Adam. "What Natural Disasters Are Most Likely in North Carolina?" EHow. Demand Media, 12 Apr. 2011. Web. 17 Apr. 2013.

68 ensure a collaborative environment between all employees, we have developed a comfortable area for socialization and breaks, for all employees. In addition, our company will organize company-wide social events and icebreakers, so the employees can get to know, trust and respect each other. To ensure the managements quality, our hiring process will be extensive. We will be looking for candidates with relative technical experience in their respective fields, and will assess their communication and teamwork skills. Additionally, we will evaluate whether or not their personality and moral values align with that of the companys culture. To address the possibility of a decrease in purchase intent, we have considered what may happen and what we can to do address this. Stable Baby is a high quality stroller intended to impart a high value upon its customers. We have taken this attribute into account when determining the total retail cost of our product to maximize profits. However, the United States economy is less stable than it has been in the past, which means that our consumers may be more price conscious. While all of our surveys conveyed that price was the least important factor when evaluating strollers, there still remains the possibility that a portion of our sales will be lost depending on the state of the U.S economy. To mitigate this risk, even if the economy does falter in the next few years, we are already planning on lowering our retail cost beginning in Year 2, which will make Stable Baby more appealing to those who are more sensitive to price. Also, Stable Baby will be in various types of retailers - from mass merchandise stores such as Target, to smaller independent retailers such as Magic Beans - which means that our stroller will be accessible to both the priceconscious consumers, and those who are more concerned with name-brand quality. As our company considered leasing versus owning our facility, we recognized that owning the facility would result in higher fixed costs, and therefore higher risk. For this reason we decided to lease our facility, especially after analyzing our pessimistic scenario, where we expect to liquidate in year 3.

Optimistic and Pessimistic Scenario Analyses Our awareness and ACV were adjusted by manipulating magazine impressions throughout the various case scenarios. Refer to page 26 for an in-depth analysis of magazine impressions under various scenarios. Our overall spending on advertising tactics remained the same in all three scenarios because our company felt that it is crucial to keep a strong advertising

69 campaign. Strong advertising is one of the most effective ways to get the word out about our product and its key differentiating characteristics. When estimating the new prices for the direct materials of both optimistic and pessimistic, we chose the percentage change individually for each direct material. These percentages were chosen based on the maximum and minimum price per unit provided by suppliers. For the optimistic case, we would reduce the price of each part, while for pessimistic, we would increase the price. When the supplier did not provide a price range, we left the price the same as the base case. To see the effect that our changes had on our financial statements, refer to Appendix 28 79. Changing the direct materials cost dramatically impacts our cost of goods sold as a percentage of sales in all cases. In our summary statistics of our scenarios 80, base cost of goods sold ranges between 40% and 60%, while in our optimistic case the percentage can fall below 30% of sales. However, in our pessimistic case, the percentage of cost of goods sold increases to nearly 80% of sales. Such a dramatic discrepancy results in a wide fluctuation, ranging from Stable Baby being profitable to liquidating after three years.

79 80

Appendix 28: Optimistic and Pessimistic Scenario Analyses Summary Statistics Appendix

70 Capacity Decisions: For the optimistic and pessimistic scenarios we had to decide whether to expand our facility production lines earlier or later to meet the different demand numbers. After running aggregate plans for both scenarios, we concluded that in year 2 of the optimistic scenario we would need to double the production line. This expansion will include the same costs as the expansion in the base case in year 3 (Refer back to Exhibit 40). For the pessimistic scenario we have concluded that the business will liquidate at the end of year 3, so no expansion of the facilities capacity will be needed. After seeing that both the IRR and NPV were negative in years 4 and 5, we concluded that liquidating in the pessimistic case will be necessary to pay back our investors with a reasonable return (see Appendix 29). Since we exceed expectations in the optimistic case, we calculated terminal value based on a no-growth perpetuity, keeping in mind that our cash flows growth will be impeded by competition so exponential gains would be unusual.

Scenario Based NPV and IRR Assessment: When we weigh the various scenarios, with the base case weighted 50% and optimistic and pessimistic each weighted 25%, we will still come out with a high weighted NPV of $3,095,453. This is due to the fact that our optimistic NPV is 339% higher than the base case NPV, while our pessimistic NPV is only 116% lower than the base case, while both are weighted equally. The same situation applies to our weighted IRR of 69%, where all scenarios have a positive IRR.

71 Conclusion: Stable Baby - the stroller that does not tip over. Our unique product is sure to appeal to a growing number of concerned parents, and has the potential to take advantage of an untapped market of strollers. Our marketing tactics have ensured that our product benefits and attributes are superior in regards to its competitors. From our operations strategies, we utilized the most cost-efficient materials, while still maintaining the highest standards through our suppliers and in-house assembly. We utilize information systems to maximize the flow of information through our supply chain, bringing us closer to our customers and suppliers. Even in our least optimal scenario, we offer our investors an IRR of 12%. Most likely, our investors will experience an NPV of $1,987,660.00, with an IRR of 61%. We want our investors to feel secure, and have directed our efforts towards making this our commitment and top priority. We expect to see a product with continual growth, in regards to profitability and brand equity.

Invest your future in something stable. Invest in Stable Baby.

72

Appendix

73
Appendix 1: Purchase Intent

Price
87.50 113.00 138.00 163.00 $188.0 0

Adjuste d Prob. Buy

7.64% 10.19% 6.37% 3.82% 4.46%

Adjuste d Def. Buy

3.18% 4.46% 4.46% 1.91% 2.55%

Prob. Buy*. 3
2.29% 3.06% 1.91% 1.15% 1.34%

Def. Buy*. 8
2.55% 3.57% 3.57% 1.53% 2.04%

Sum Acros s
4.84% 6.62% 5.48% 2.68% 3.38%

Cumulative Purch. Int. Quantity

22.99% 18.15% 11.53% 6.05% 3.38% 2,244,212.9 5 1,771,747.0 7 1,125,214.8 1 590,582.36 329,482.79

Revenue
196,368,633.4 7 200,207,418.7 9 155,279,643.1 1 96,264,924.08 61,942,764.19

Sample Population

157 9,760,150.52

74 Appendix 2: List of Interviewees

Interviewees list:
1. Jonathan Kaid, 32 years old. Washington. Personal interview 2. Helen Chui, 35 years old. New York. Personal interview 3. Ali Goding, 22 years old. Massachusetts. Personal interview 4. Anna Carlsen, 26 years old. New York. Personal interview 5. Paula, 37 years old. New York/ North Carolina. Personal interview 6. Julie Taylor, 28 years old. Massachusetts. Personal interview 7. Beatrice Leary, 20 years old. Massachusetts. Personal interview 8. Katie Walters, 18 years old. Vermont. Personal interview 9. Katie Johnson, 34 years old. California. Personal interview 10. Scott Spector, 29 years old. Massachusetts. Personal interview 11. Chloe Hsu, 23 years old. New York. Personal interview. 12. Daniela Valente, 29 years old. New Jersey. Personal interview 13. Emily Ratner, 35 years old. New York. Personal interview 14. Phuong Su, 39 years old. New York. Personal interview 15. Dawn Carrazzone, 35 years old. New Jersey. Personal interview 16. Charles Mans, 41 years old. New Jersey. Personal interview 17. Rocky Cash, 29 years old, Calgary, Alberta. Personal interview 18. Michelle 30 years old, Pennsylvania. Personal interview 19. Amie Young, 39 years old. Massachusetts, Personal interview 20. Emily Spring, 26 years old. New York. Personal interview 21. Lena Nikolaeva, 27 years. Moscow, Russia. Personal interview 22. Harris Bulow, 35 years old. New York. Personal interview 23. Brooke Atkins, 23 years old. North Carolina. Personal interview 24. Adrienne Salvador, 32 years old. North Carolina/Dublin, Ireland. Personal interview 25. Kylee Boucher, 21 years old. New Hampshire. Personal interview 26. Nathalie Yachouh, 35 years old. New Jersey. Personal interview 27. Nadia Altirs, 31 years old. New Jersey. Personal interview 28.Patricia Ganim, 32 years old. Texas. Personal interview 29. Elie Touma, 40 years old. New Jersey. Personal interview 30. Johnny Altirs, 28 years old, New York. Personal interview

75 Appendix 3: Interview Questions

Name: Age: Home State: How much would you be willing to pay for a stroller? (Price Range) What are the most important qualities/attributes for you when looking for a stroller? Do you have a preference on the material used for your stroller? What are your favorite features on a stroller? Who buys the stroller (makes the decision ) in your family and where do you buy it from? / What is the process you go through when deciding to buy a stroller? What are problems or frustrations you have with current strollers on the market? Why would you purchase or not purchase a stroller? How many strollers do you purchase throughout a child's lifetime (ex: one for newborns, one for toddlers) When would you like your child to stop using a stroller? What items do you generally carry with you when you are using a stroller? Where do/would you use your stroller on a typical basis? Has your stroller ever tipped backwards? We intend for our stroller to address this problem

76 Appendix 4: Focus Group Results Summary of Focus Group

Our focus group took place on February 23, 2013 2:00 p.m. at Panera Bread located in Nashua, NH. We were able to gather a group of six female parents who are currently using, or have recently used, strollers. We were able to hold an in-depth conversation with these individuals regarding their preferences concerning current strollers on the market. Prior to our focus group we had planned on designing a high class stroller that would be priced at approximately $500.00. After our focus group we realized that this was an unrealistic goal because it would significantly decrease our target size. We were then able to decide that our stroller would be priced between $100-200. We had also planned on using weights in order to increase the stability of our stroller; however, the focus group participants strongly urged us to design a stroller that was lightweight. We were also encouraged to make sure the stroller had ease of use, as this was another important attribute that consumers looked for when purchasing a stroller. We also learned that stroller purchases are generally a joint decision between husband and wife; however, the wife generally researchers the stroller online first. For this reason, we decide to create gender neutral advertisements for our product. Finally, we learned that another key attribute that consumers appreciate in strollers are adjustable handles. We were able to discuss many attributes with our focus group; however, these topics proved to be most useful as we created to develop our product.

77 Appendix 5: House of Quality

Relationships Strong positive Positive Negative Strong negative Engineering Characteristics

Relative Importance

Competitive Evaluation

+ Number of Wheels

+Aluminum frame

+# compartments

Has adj. handles

Has kickstand

-Dimensions

S = Us G = Graco P = Peg Perego

Customer Attributes Lightweight Portability (Foldable) Low Price Safety Number of compartments Unit of measure

-Weight

(5 is best)

-Price

4 3 2 5 1 $ # # in. lbs

2 P

3 G S S

P S P/G P/G

5 S G/P G S

2.5' x 1.33' x 3' 3.3' x 1.9' x 2.9' 2.3' x .1.6' x 3.3'

Plastic

79.99

Graco's value

Aluminum

229.99

Peg Perego's value

Aluminum

113

Target value

13.23

15.8

17.07

78

PULL Online Parents:The First Year magazine Outdoor Billboards Los Angeles, CA Brooklyn, NY Denver, CO Chicago, Illinois Smithfield, NC Orlando, FL *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** Expos Baby & Kidz Expo (CA) Genuardi's Baby & Toddler Expo (PA) First Steps Baby Expo (MN) PR Magazines & Blogs Magazines: American Baby, Pregnancy and Newborn, Parents Magazine, Family Fun, *** Parenting Early Years Blogs: The Shopping Mama, Inked in Colour, Petite Biet, bonbon mini, Mommy PR, Goop, *** An Island Life, Simply Being Mommy Coloring Books TOTAL PULL PUSH
POP Trade Show Table Trade Shows Playtime New York Trade Show (7x10) ABC Kids Expo Trade Show (NV) (10x10) Trade Magazine Ads Baby Shop Magazine TOTAL PUSH TOTAL ADVERTISING SCHEDULE *** ***

***

$63,411.60 $274,990.00

1.00% 16.60% 1.78%

$11,600.00 $16,000.00 $20,000.00 $6,000.00 $1,800.00 $4,000.00

*** *** ***

***

$6,848.00

0.41%

$3,910.00

0.23%

Appendix 6: Promotion Schedules and Pictures

$2,875.00 $5,000.00

0.23% 1.00%

***

***

***

*** *** ***

***

***

$6,309.40 $422,744.00

0.38% 21.64%

$10,000.00 5,000.00 *** *** *** *** *** ***

1.00%

11,970.00 6,000.00

32,000.00 64,970.00

487,714.00

22.64%

79

Appendix 7: Billboard Locations

Outdoor Billboards Los Angeles, CA Brooklyn, NY Denver, CO Chicago, Illinois Smithfield, NC Orlando, FL

80 Appendix 8: Print Advertisement

81 Appendix 9: Profile of the Retail Environment

Baby Durables Industry Breakdown Mass Merchandisers Walmart Target Other Baby Superstores Babies "R" US Buy Buy Baby Other Child Specialty Stores The Land of Nod Pottery Barn Kids Other Department Stores JCPenney Macy's Nordstrom Other Independent Retailers Small Chains 31% 14% 8% 9% 26% 12% 7% 7% 7% 2% 2% 3% 12% 3.07% 4.33% 2.10% 2.50% 9.36% 2.64% 100% 45% 26% 29% 100% 46% 27% 27% 100% 29% 29% 43% 100% 26% 36% 18% 21%

82 Appendix 10: ACV Calculations

ACV (Optimistic) Mass Merchandisers Baby Superstore Department Stores Independent Retailers Child Specialty Stores Online Small chain stores*
Total:

1
2.25% 12.00% 1.32% 15.57%

2
3.95% 12.00% 1.32% 17.27%

3
4.00% 6.00% 1.54% 3.68% 12.00% 1.32% 28.53% -

4
5.60% 8.40% 2.15% 3.02% 12.00% 1.32% 32.49%

5
7.00% 8.40% 2.15% 3.02%

12.00% 1.32% 33.89%

ACV (Pessimistic) Mass Merchandisers Baby Superstore Department Stores Independent Retailers Child Specialty Stores Online Small chain stores*
Total:

1
1.52% 12.00% 1.32% 14.84%

2
2.79% 12.00% 1.32% 16.11%

3
2.80% 1.23% 1.93% 12.00% 1.32% 19.28% -

5
4.00%

3.50% 1.54% 1.26% 12.00% 1.32% 19.61%

4.20% 1.84% 0.77%

12.00% 1.32% 24.14%

83

Appendix 11: Yearly Sales Prices

84

85

86 Appendix 12: Purchase Intent Calculations

No-Tippin'
Segment Size Number of surveys collected within segment Selected price you will charge Definitely Buy (Adjusted at 80% and for selected price) Total Def. Buy Purch. Int. (including CSR) Probably buy (adjusted at 30% and for selected price) Total Prob. Buy Purch. Int (inlcuding CSR) Total Purchase Intent Count of CSR Purchase Intent Increase Significantly Total % of all responses CSR Increase 56 0.3590 4.00% Increase Slightly 60 0.3846 2.00% Not Change at all 40 0.2564 0.00% (blank) Grand Total 156 10.5 Million

No-Tippin'
Segment Size Number of surveys collected within segment Selected price you will charge Definitely Buy (Adjusted at 80% and for selected price) Total Def. Buy Purch. Int. (including CSR) Probably buy (adjusted at 30% and for selected price) Total Prob. Buy Purch. Int (inlcuding CSR) Total Purchase Intent 10.5 Million

108 $113

156 $90

10.70%

13.25%

12.14%

14.68%

7.45%

9.75%

8.22% 20.36%

10.51% 25.20%

Total Increase

1.44%

0.77%

0.00%

87 Appendix 13: Base Case BASES Model

Year 1 Target Market Size Adjusted purchase intent @ $113) Awareness ACV Trial Rate Units at Trial Trial HouseHolds Trial Units Units at Repeat Repeat Rate Repeat HouseHolds Occasions Repeat Units BASES Units (before competition) SALES FORECAST *Competition Adjustment TOTAL UNITS Average WEIGHTED manufacturer's selling price Donation to St. Jude's Manufacturer's Sales ($) 9,760,151 Year 2 9,711,350 Year 3 9,662,793 Year 4 9,614,479 Year 5 9,566,407

20% 23% 16% 1% 1 70,034 70,034 1 10,005 1 10,005 1 95,245 95,245 1

20% 28% 17% 1% 1 174,874 174,874 1 14% 26,340 1 26,340

25% 33% 22% 2% 1 250,843 250,843 1 18% 56,397 1 56,397

25% 39% 27% 3% 1 307,610 307,610 1 20% 90,896 1 90,896

25% 45% 28% 3%

6%

70,034 70,034

105,250 105,250

201,214 .2 160,972

307,240 .3 215,068

398,506 .35 259,029

$ 66.67 $ 46,692 $ 4,622,489

$ 66.67 $ 70,170 $ 6,946,856

$ 52.74 $ 84,896 $ 8,404,744

$ 53.26 $ 114,551 $ 11,340,504

$ 53.26 $ 137,965 $ 13,658,556

88

Appendix 14: Optimistic BASES Model

Year 1 Target Market Size Adjusted purchase intent @ $113 Awareness ACV Trial Rate Units at Trial Trial HouseHolds Trial Units Units at Repeat Repeat Rate Repeat HouseHolds Occasions Repeat Units BASES Units (before competition) SALES FORECAST *Competition Adjustment TOTAL UNITS Average WEIGHTED manufacturer's selling price to channel Donation to St. Jude's Children's Research Hospital Manufacturer's Sales ($) 9,760,150.52 Year 2 9,711,349.77 Year 3 9,662,793.02 Year 4 9,614,479.05 Year 5 9,566,406.66

20.36% 28.18% 15.57% 0.89% 1 87,151.05 87,151.05 1 0.00% 0 0 0

20.36% 33.45% 17.27% 1.18% 1 114,239.39 114,239.39 1 21.43% 18,675.22 1 18,675.22

25.20% 38.98% 28.53% 2.80% 1 270,830.27 270,830.27 1 27.27% 48,248.34 1 48,248.34

25.20% 44.41% 32.49% 3.64% 1 349,611.67 349,611.67 1 30.19% 115,506.34 1 115,506.34

25.20% 50.75% 33.89% 4.33% 1 414,670.52 414,670.52 1 8.77% 190,913.81 1 190,913.81

87,151.05

132,914.61

319,078.60 0.35 207,401.09

465,118.01 0.45 255,814.91

605,584.33 0.55 272,512.95

87,151.05

132,914.61

$66.67

$73.75

$61.56

$60.38

$58.90

$58,103.60 $5,752,256.62

$98,024.52 $9,704,427.93

$127,681.30 $12,640,448.47

$154,448.25 $15,290,376.70

$160,510.13 $15,890,502.44

89 Appendix 15: Pessimistic BASES Model

Year 1 Year 2 Year 3 Year 4 Year 5 Target Market Size 9,760,151 9,711,350 9,662,793 9,614,479 9,566,407 Adjusted purchase intent @ $113 20.36% 20.36% 25.20% 25.20% 25.20% Awareness 19.32% 24.55% 30.04% 35.42% 41.72% ACV 14.84% 16.11% 19.28% 19.61% 24.14% Trial Rate 0.58% 0.81% 1.46% 1.75% 2.54% Units at Trial 1 1 1 1 1 Trial HouseHolds 56,979 78,224 141,021 168,292 242,712 Trial Units 56,979 78,224 141,021 168,292 242,712 Units at Repeat 1 1 1 1 1 Repeat Rate 0.00% 7.14% 9.09% 10.06% 2.92% Repeat HouseHolds 0 4,069.93 10,767.32 22,919.07 34,379.09 Occasions 0 1 1 1 1 Repeat Units 0 4,069.93 10,767.32 22,919.07 34,379.09 BASES Units (before competition) SALES FORECAST 56,979.08 82,293.58 151,788.26 191,211.21 277,090.86 *Competition Adjustment 0.2 0.25 TOTAL UNITS 56,979.08 82,293.58 151,788.26 152,968.97 207,818.15 Average WEIGHTED manufacturer's selling price to channel $66.67 $59.00 $51.15 $51.01 $51.45 Donation to St. Jude's $37,987.95 $48,553.21 $77,639.69 $78,025.65 $106,912.05 Manufacturer's Sales ($) $3,760,807.23 $4,806,768.14 $7,686,329.67 $7,724,539.17 $10,584,292.56

90 Appendix 16: Customer Survey

91

92

93

94

Appendix 17: KPI Activity Diagram

95

Appendix 18: Years 0 Base Case IS Annual Costs

96

Appendix 19: TCO Calculations

Wages Expense IT Consultant Working Hrs Per Day Days Worked/Wk Working Hrs/Wk Working Wks/Month Working Hrs/Month Hrs Worked/Year Hourly Salary Annual Salary Year 0 4 1 4 1 4 48 125
$6,000

Year 1 4 1 4 4 16 192 125

$24,000

Year 2 4 1 4 4 16 192 125

$24,000

Year 3 4 1 4 4 16 192 125

$24,000

Year 4 4 1 4 4 16 192 150

$28,800

Year 5 4 1 4 4 16 192 150

$28,800

97

Appendix 20: Stroller Blueprint

98

Appendix 21: List of Suppliers Supplier Location Guangdong, Luoxiang Aluminum China (Mainland) Products Co., Ltd. Circle Bolt & Nut Co. Inc. U-Line Shipping Supply Specialists Huzhou Hanyork Textile Co., Ltd. Shenzhen Gacent String & Webbing Co., Ltd. Wujing Fengqiu Weaving Factory Ningbo Xihe Children Products Co., Ltd. Xiamen Yirong Hardware Co., Ltd. Xiamen Lindas Hardware Industrial Co., Ltd. Shenzhen Xinyinte Rubber Products Co., Ltd.

Phone 86-75766890022

Website

www.luoxiang.cn

Charlotte NC Breinigsville, PA USA Zhejiang, China (Mainland) Guangdong, China (Mainland) Jiangsu, China (Mainland Zhejiang, China (Mainland Fujian, China (Mainland)

800-548-2658

www.circlebolt.com

1-800-295-5510

www.uline.com

86-572-2205895 86-75529938730 86-51263608335 86-057462062896 86-05926097851-803

http://www.hanyork.com

http://gacent.en.alibaba.com/

http://fqsilk.en.alibaba.com

http://www.xihebaby.com/

http://www.xmyirong.com.cn/

Fujian, China (Mainland) Guangdong, China (Mainland)

86-5505655 5505658

www.xmlindas.com

86-75589631951

http://www.xyrubber.com.cn/

99
Appendix 22: Logistics Shipping Costs

Sunhood 1.17% Seat 1.64% Handles 0.16% Swivels 0.99%

Logistics: % of International Cost

Mesh Bag 0.30% Wheels 15.24%
Poles Seatbelts Swivels Hinges Handles

Hinges 7.64% Poles 68.28%

Seat Sunhood Mesh Bag Wheels

Seatbelts 4.57%

100

Appendix 23: Raw Materials Schedule

EOQ for All Materials Bolts/ Washers/ Nuts Aluminum Poles Fabric Seat Mesh bag Wheels Wheel Swivel Seatbelt Hinge Sunhood Packing foam Box Plastic Handles Total pieces

Year 1 217,863 34,778 53,997 8,721 29,575 10,799 13,226 132,265 33,066 132,265 24,148 18,705 709,409

Year 2 266,786 42,588 66,122 10,680 36,217 13,224 16,197 161,966 40,492 161,966 29,571 22,905 868,714

Year 3 334,989 53,475 83,026 13,410 45,475 16,605 20,337 203,372 50,843 203,372 37,130 28,761 1,090,797

Year 4 376,794 60,149 93,388 15,083 51,150 18,678 22,875 228,752 57,188 228,752 41,764 32,350 1,226,924

Year 5 411,886 65,750 102,085 16,488 55,914 20,417 25,006 250,056 62,514 250,056 45,654 35,363 1,341,191

101

Appendix 24: Years 3 5 Process Diagrams

102

Appendix 25: Aggregate Plan

103
Appendix 26: Annual Cash Flows Statement of Cash Flow (In US Dollars) Initial Investment in Fixed Assets

Year 0 (101,704)

Year 1

Year 2

Year 3

Year 4

Year 5

Net Income + Depreciation - Change in Net Working Capital - Change in Fixed Assets Net Cash Flow

(300,467) 630,273 20,341

1,344,510 999,310 20,341 51,143

1,681,823 52,893

2,092,538 53,867

(141,293) (1,456,345) (772,032) 592,819

(788,818) (1,360,992) (478,488) (154,008) (8,751) 107,626 364,973 (4,874) 1,663,043

(441,760) (805,731)

Terminal Value of Business * (300,467) Total Cash Flow (543,464) (805,731) 592,819 107,626 364,973

6,258,653

7,921,696

104
Appendix 27: Income Statement
Income Statement (In US Dollars) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

TOTAL REVENUES Variable Costs Fixed Production Costs TOTAL COST OF GOODS SOLD GROSS PROFIT Start Up Costs (Expenses) Fixed Administrative Costs ($) Marketing Expenses ($) Excluding Sales Force Sales Force Expense (including reps) IS Expenses New Depreciation Depreciation Earnings Before Tax Taxes Net Income (300,191) 300,191

4,669,181 2,230,495 195,614 2,426,109 2,243,071

7,017,026 3,156,782 215,427 3,372,209 3,644,817

8,489,640 4,919,761 244,668 5,164,430 3,325,211

11,455,054 6,451,772 264,657 6,716,429 4,738,625

13,796,521 7,680,638 298,296 7,978,934 5,817,587

438,183 558,792 158,277 28,022 20,341 1,039,457 415,783 623,674

518,199 599,070 237,865 28,294 20,341 2,241,048 896,419 1,344,629

684,277 717,561 170,512 36,011 30,802 20,341 1,665,708 666,283 999,425

804,755 789,783 251,378 36,594 32,552 20,341 2,803,222 1,121,289 1,681,933

1,079,486 864,823 294,959 36,711 33,527 20,341 3,487,741 1,395,096 2,092,645

Income Statement Financial Ratios COGS % Sales Gross Margin % Sales Net Income % Sales SG&A % Sales (including depreciation) Marketing Expenses % Sales

52.0% 48.0% 13.4% 25.8% 12%

48.1% 51.9% 19.2% 20.0% 9%

60.8% 39.2% 11.8% 19.5% 8%

58.6% 41.4% 14.7% 16.9% 7%

57.8% 42.2% 15.2% 16.9% 6%

Sales Revenue $ Cost of Goods Sold % Sales Total Marketing Cost % Sales General and Administrative % Sales Total IS $ % Sales Inventory $$ Days Sales Production Workers Units Cumulative Paid in Capital

Optimistic Case
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 5,810,360 9,802,452 12,768,130 15,380,871 16,047,133 1,829,795 2,772,117 4,111,156 5,081,964 5,983,237 31% 28% 32% 33% 37% 570,203 626,924 760,345 829,041 886,960 9.81% 6.40% 5.96% 5.39% 5.53% 1,210,924 1,553,738 1,979,887 2,356,380 2,705,167 21% 16% 16% 15% 17% 27,921 28,506 101,586 92,206 106,606 0.48% 0.29% 0.80% 0.60% 0.66% 29,555 278,263 451,960 510,283 556,120 533,126 17.5 16.8 14.6 13.2 12.1 9 18 18 18 18 87,151 132,915 207,401 255,815 272,447 519,988 924,036 924,036 924,036 924,036 924,036

Appendix 28: Optimistic and Pessimistic Scenario Analyses

Pessimistic Case

Year 4 Liquidate

Year 5 Liquidate

Year 0 Year 1 Year 2 Year 3 Sales Revenue $ 3,798,795 4,855,321 7,763,969 ost of Goods Sold 2,674,315 3,813,516 5,882,818 % Sales 70% 79% 76% Total Marketing Cost 550,088 577,453 710,304 % Sales 14.5% 11.9% 9.1% General and Administrative 1,164,220 1,299,783 1581945 % Sales 31% 27% 20% Total IS $ 28,022 28,294 36 % Sales 0.74% 0.58% 0.00% Inventory $$ 29,555 436,022 642,021 705,999 Days Sales 41.9 48.3 33.2 Production Workers 9 9 9 Units 56,979 82,294 151788 Cumulative Paid in Capital 469,988 1,594,258 1,749,150 1,749,150 (2) Total investment required by the end of the life of the pessimistic case.

Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate

Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate Liquidate

105

106
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