Summary

Dexit is a new electronic payment system that designs for low-value transactions. Based on
Radio Frequency Identification (RFID) technology, customers can use a small electronic tag
to pay for goods and services without entering password on a specialized reader at the
retail stores, which is obviously faster than any other payment methods, such as cash, debit
cards and credit cards. With this high reliable and convenient payment system, customers
can save much time on waiting queues and eliminate the troubles for carrying loose coins
and exact change for small-money purchases. In addition, merchants will also benefit a lot
from Dexit to increase their revenues by improving cashier efficiency, decreasing the cashhanding costs, reducing cash counting and depositing charges, as well as avoiding the
bothers on checking for counterfeit money.
Although other electronic payment systems have already been accepted by most
consumers and retailers because of the easier and efficient solutions they provide, no
service is as effective as Dexit has that addresses to small-ticket purchases. Therefore,
Dexit has attracted three powerful partners as early investors to contribute on this new
system. Dexit seems has large potential markets, however the failures of previous two
companies who provided similar system suggested that the success isn't guaranteed.
Hence it is critical for the CEO of Dexit to make the best decisions on target market,
marketing mix and appropriate launch plan in a short time in order to become the electronic
payment standard for low-value transactions in Canada.
Question 1: Who are the Competitors of Dexit? Do you think Dexit can replace the
traditional electronic payment system?
Advanced technology in electronic payment system allows money be transformed from
traditional currency to newer forms including credit card, debit cards, electronic cheque, and
electronic transactions using computing and communications devices. All kinds of secure
electronic transactions can result in more efficient resource allocation, cheaper and more
convenient transactions, and greater control on how goods and services are purchased.
In Canada, people are already used to purchasing through electronic payment system and
are familiar with the process that allows people to easily accept the new concept of Dexit.
Credit cards and debit cards systems are the main payment forms that influence the
development of Dexit in the electronic payment industry, but the concept of Dexit system
does not mean to compete with credit card and debit card in the high-value transaction.
Instead, it wants to replace cash and debit card for low-value transactions through the RFID
technology to increase the efficiency of purchasing process both for merchants and
customers.
Dexit is the way to settle the low-value transaction instead of cash, using Dexit tag allows

people purchasing without small changes of money and swiping the payment card. But with
the current form, Dexit is not able to replace debit card systems in some aspects such as
Interact system and online payment systems. Since Dexit is designed as a replacement of
cash for small payment without the PIN number during purchasing process, the tag is
require certain mount of funds pre-loaded in the account and needs to be refilled when the
pre-paid balance had been used up.
Question 2: What should be the segmentation strategy for Dexit?
Before Dexit's launch, Dexit has to decide who the target customers are with respect to both
consumer (the user of the Dexit tag) and merchants (the users of the Dexit POS terminals).
Dexit considered segmenting the consumer market based on psychological factors, while
segmenting the merchants, mainly retailers, geographically. However there are still many
uncertainties:
For Customer Market: whether the early adopter who would be attracted by the innovative
technology would turn out to be the heavy users eventually?
For Merchant Market: with this electronic payment facilitate service, which retailers Dexit
should target on?
The goal of Dexit was to provide low-value electronic payment service which would offer the
customer with convenience, efficiency, reliability and faster cashless transactions.
According to the case, the market size of Canadian payment industry, estimated in 2003,
was $536 billion and the estimated market sizes for cash/cheque, debit, and
Visa/MasterCard, were $270billion, $115billion and $151 billions respectively. The average
transaction size for Cash/Cheque was approximately $4.5 and the total Cash/Cheque
transactions occurred in 2003 was about 60 billion.
The service provided by Dexit is Low-value and Quick Prepaid Transaction. When
segmenting the market, we should put the value proposition into consideration. For
Customers market, Dexit aimed at offering a convenient and quick way that the consumers
could use anywhere and anytime. In this way, the Dexit tag would be more than a way of
payment, but a part of their life. Consumer acquisition will be another factor that would
influence the Dexit's Segmentation Strategy--how the early adopters would become the
heavy users or "habitual users". Initially, the consumer questions the value of trying a new
payment method. While this may sound obvious, the key to getting over this hurdle is to
make it as simple as possible for them to get started. It would be always stressed to get the
consumers to try new things and most important is how to generate the interests and
capture the attentions. The best way is to attract the consumers with the advantages of the
Dexit tag. The simplicity and speed of the tag are quite attractive. In addition, looking for
partners with high reputation will also build up the consumer confidence in Dexit tag. Once

the consumers sign up the service and have their own tag, the combination of simplicity and
speed will impress them and with this positive image, the consumers would like to try the
tags in all the merchant locations where will accept the tag, for it would be a better way to
satisfy their needs and wants and a better way to save the consumers time and worries
from dealing with cash. So the target segment of the consumer market should be all the
customers who want a low-value, cashless payment with ease and speed and will simplify
their life
With the regard to merchants, we can see that there are still many stores dealing with cash
payments, which decreased the efficiency of the cashiers. Convenience stores and fast
food restaurants would benefit from this service most. Consumers who shop at those
merchant locations want fast service, but most of those stores deal with cash or debit cards,
which would take long time to process very payment or transaction. We believe that most
people living in Canada had the experience of waiting in a long queue in Tim Horton's for a
cup of coffee and finally had to walk away because of no time or no patience to wait any
longer. However the transaction made with Dexit tag only takes less than 3 seconds, which
would result in increased cashier efficiency and reduced "walk-aways". By simply adopting
the Dexit product and service, merchants would clearly benefit from quicker processing time
and increased per unit sales, which would lead to increased revenue. So the most
promising potential market for Dexit would be merchants in the following industry: fast food
industry, such as Tim Horton's, Mc Donald's and KFC and cafeteria on campus and big
companies; national chained convenience store, such as Avondale and 7-11; gasoline
stations. Because time and efficiency were major issues for those industries, the Dexit RFID
product and service would be a better solution for them.
Recommendation:
With this simplified, fastened electronic payment method, which would give an alternative to
cash payment, Dexit should target their market at retail locations with average ticket sizes of
less than $25. In addition, Dexit should target on those customers who want a convenient
and quick way of paying goods and services.
Question 3: Dexit plans to charge both consumers and merchants for using the Dexit
service. Do you think it is an appropriate and feasible pricing strategy?
Dexit plans to generate revenues from charging both customers and merchants. However,
they are also worried the feasibility of this strategy because of the uncertain responses from
customers on the extra fee, as well as how to charge merchants.
It is very important for the company to come up with the best pricing strategy that should
consistent and reinforce with the other marketing mix strategies, and price will be influenced
indirectly by strategic positioning. Dexit is designed for customers to facilitate the fast speed
with high-frequency and low-value transactions in retail businesses. Although it will bring

benefits which add two percent to four percent of the transaction value for customers that
are suggested on early consulting report, it actually doesn't make sense and becomes less
attractive for many customers if Dexit decided to charge fees on each transaction.
Customers will possibly generate psychological resistance to this new product because of
the extra fees which they don't expect. According to the failure test of Mondex, who
provided similar system as Dexit, got poor responses from customers despite the incentives
of $15 credit they offered. On the other hand, many of Dexit's competitors, such as credit
cards, debit cards and cash, do not charge transactions fees on customers directly.
Therefore, it is difficult for Dexit to penetrate in the market and be embraced by most
customers without incentives but extra charge.
For merchants, who will benefit a lot from Dexit on solving various problems and increasing
revenues accordingly, it is common and reasonable to charge service fees from them. First,
customer's expectations of retail businesses are usually convenient, shorter waiting time
and faster customer service, especially during peak hours when they are making small
money purchases. Thus, retailers are constantly looking for a new and effective ways to
improve the customer satisfaction and differentiate themselves on the basis of convenience,
price and customer service. In this connection, Dexit is best fit to the needs of retailers to
reducing the waiting line, increase efficiency of service and improve customer satisfaction,
as well as retain loyal customers and attract new ones consequently. Second, retailers are
usually facing the difficulties of costing big cash to manage small transactions, which will
impact profits and productivity. Employee fraud, theft and counterfeit currency result in
financial losses, while manual recording processes for cash transaction purchases and time
spent looking for change lead to productivity losses. Therefore, Dexit could help retailers to
minimize these business costs and improve profits.
Recommendation:
Instead of charging customers directly, Dexit can let customers to deposit at least $15 in
their account to earn the interest on these funds. Because customers have to fill the
account before using it, and Dexit estimates that the customer might use it to purchase as
large as $25, so we think $15 deposit is reasonable and can be accepted by most
customers. In addition, customers should pay $2-$3 that is the cost of tag to get the new
one if they lose it.
We suggest that Dexit should using penetration pricing to enter into the market first,
charging lower fees to merchants, at least lower than credit cards do. Since profit is not the
goal for companies in early stage of entering the market, it is more critical for them to get
into and win markets successfully. Therefore, Dexit could also charge merchants by a set
subscription fee per month and give them lower price or free trial for first three months,
which could give more incentives for retailers to try this new product.

Question 4: What promotion strategies should Dexit implement during the launch period?
As analyzed above that the key to success is to make the usage of Dexit tag more prevalent
in the electronic payment system, reach a critical mass of users and participating
merchants. Since a new transaction service form to the customer, marketing
communications play a critical role in informing prospect about Dexit, including how to use
the tag, where they can be get, especially the benefits to the users, and in creating
favorable images and perception. For this product, there are some different methods can be
implement to promote and advertise the product. Considering the more effective benefit of
economy, we recommend the combined strategies of push and pull to promote Dexit. Push
strategy is mainly focus on getting the joints of merchants. In this strategy, a sales force
should be hired to inform, persuade and influence the potential cooperation in the launch
period. Accepting the transaction of Dexit can be considered as a process of changing the
consumption habits, so personnel selling could achieve an objective of fully explain all
attributes of the product and service, and the benefits both to the merchant and customer.
Second, personnel selling have another important function of persuasion which could help
distinguish attributes of Dexit from those of competitors, encourage customer to have a trial
and evaluate the product and the service and build the long-term relationship.
The cost of personnel selling per contact is high, but it is necessary to use for the launch
period. According to the target industries, including food industry, cafeteria on campus and
companies; national chained convenience store and gasoline stations, we recommend that
5-6 salespeople would be needed to service in the Toronto. It could be increase as the
number of jointed merchants increase. For the long-term, it would be easier to manage
since the industries familiar with the process of transaction.
Pull Strategy is focus on tag users. The strategies involve traditional advertising through
television, radio, newspapers, subway shelters, and indoor and outdoor kiosks directly at
customers to encourage them to ask for the service of Dexit. It also makes sense for brand
development. As we know that getting the merchants just half the battle, acquiring
customers counts the same amount of significance. Since the users of Dexit tag could be
ranged from all level of age or income and from much kind of industries, the wider the
advertisement could cover the more effective the outcome would be. On the other hand,
once Dexit cooperates with the merchants who are the company with certain scope or
goodwill, it would enhance the confidences both to merchant and customer.
The first three months advertisement planned as: Once per day both through local television
and radio; every weekend on the newspaper; three months lasting in the subway at 60
sites; one indoor kiosk set in busy mall and one at 8 high-traffic site. The total cost of
advertisement for three months simply is approximate $1,889,100 (See Exhibit 1)
Question 5: What is the launch strategy for Dexit's future development?

The key to Dexit's success is to establish the largest possible customer (merchants and
consumers) base. In order to achieve this goal, Dexit's distribution strategy is very
important. Dexit need to decide where to launch its service. Alternatives such as to launch it
nationally or just Ontario, or even just a particular area like Toronto were being considered.
Hence, Dexit has to understand the pros and cons of each of these alternatives.
National Rollout
To launch Dexit's services nationally is no doubt the best way to expose to the largest
possible customer base and then give Dexit the first mover advantage across the country.
However, accompanying with the benefit, the risk of taking a national rollout is fairly high
because it simply requires larger financial losses. Further more, if the launch failed to meet
expectations, press coverage will cause a very negative influence. Dexit as a small
company certainly could not afford to conduct a national rollout despite it looks very
attractive.
Toronto Rollout
As we discussed, the key to success is to quickly reach a critical mass of users and
participating merchants. Toronto launch, comparing to the national rollout, is less expensive
and more focus. Downtown Toronto area not only has a right mix and density of Merchants,
but also has a critical mass of potential consumers who could be expected to habitually
purchase goods at participating Dexit merchants. Furthermore, to launch in Toronto is
easier to manage and control their service quality. However, Toronto is a limited market that
should not be Dexit's ultimate target Ontario Rollout
To launch Dexit's service in Ontario the alternative in between of the above two. It can give
Dexit a larger customer base than to launch in Toronto only, also requires more resource. In
addition, as the statistics mentioned in this case, during the period of 2001, there were
116,241 merchants in Ontario adopted interact direct payment method and 775 million
transactions occurred. But everything is less than having a national rollout. However, not
every city in the Ontario province is very influential.
Recommendation
After analyze the three alternatives, we believe that Dexit should rollout the launch in
phases, which allows them to manage the launch very closely and hence minimize risks
associated with the launch of a new product. This is particularly important to them given that
they are launching in Canada's largest city with some of Canada's leading Financial
Institutions and one of Canada's largest mobile operators as our partners. Dexit's has a
potential to succeed, since it was rolled quickly to a large number of stores in an area. This

makes the system more attractive to residents of the area, and they are more likely to
embrace the system. If the system proves to be a success in Toronto, it should be rolled out
on a larger scale quickly.
Conclusion
Based on our analysis, Dexit has a very great market potential and the simplified and
fastened electronic payment method. Dexit offers to both customers and merchants will be
very competitive as it will provide an easy and efficient alternative to cash payment.
However besides what mentioned in this case, we also suggest that there are many Dexit
could focus on in the future.
For Dexit's future development, we recommend Dexit to keep using the cross industry
merchant strategy to get access to a larger customer base. That is to say, in other words, to
allow consumers to use their Dexit tag at a wide variety of merchant types and brands.
Dexit should take the successful experience of Octopus Card in Hong Kong, trying to reach
each corner of the city by offering a ubiquitous service. By doing so, consumers tend to use
the tag more than once per day thereby not only strengthening the influence of their
purchase behavior, but also reinforcing the Dexit service as a lifestyle device; one that
simplifies their day to the point that they do not want to be caught without their tag.
Because of Toronto is a pilot market, hence Dexit should set a great example in Toronto to
attract more markets. Therefore, not only the industries mentioned above should be Dexit's
target, also Dexit should make their presence in the other industries such as parking, bus,
underground, railway, and video rental and movie theater. In short, Dexit's goal is to make
their tag as a "Toronto Pass", one tag does it all.
To summarize, Dexit is in the business of replacing cash for small value transactions by
offering a ubiquitous, smart and simple cashless payment solution that not only offers quick
and convenient payment at the point of sale, but that ultimately simplifies people's life