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Overdrive

Guitars
Business Plan
Prepared By: Cody Tillman

December 6th, 2012


Overdrive Guitars December 2012 Cody Tillman
Table of Contents
Executive Summary....................................................................................................................................... 3
Overdrive Guitars the Company ......................................................................................................................................... 3
Corporate Plan .................................................................................................................................................................... 3
Introduction .................................................................................................................................................. 4
Industry ............................................................................................................................................................................... 4
Mission Statement .............................................................................................................................................................. 5
Goals & Objectives .............................................................................................................................................................. 5
Store Hours ......................................................................................................................................................................... 5
Location............................................................................................................................................................................... 6
Floor Plan ............................................................................................................................................................................ 7
Business Cycles.................................................................................................................................................................... 8
Average Business Day ..................................................................................................................................................... 8
Average Business Week .................................................................................................................................................. 8
Average Business Month ................................................................................................................................................ 8
Average Fiscal Year ......................................................................................................................................................... 9
Supply Analysis ................................................................................................................................................................ 9
Capital Budget ..................................................................................................................................................................... 9
Table 1 Capital Cost Expenditures.............................................................................................................................. 10
Operating Expenses .......................................................................................................................................................... 10
Table 2 Monthly Operating Expenditures .................................................................................................................. 10
General Manager .............................................................................................................................................................. 11
Sales & Repair Staff ........................................................................................................................................................... 11
Scheduling ......................................................................................................................................................................... 12
Labour Costs...................................................................................................................................................................... 13
Table 3 Labour Cost Projections................................................................................................................................. 13
Training ............................................................................................................................................................................. 13
Marketing Plan ............................................................................................................................................ 14
Products & Services .......................................................................................................................................................... 14
Pricing................................................................................................................................................................................ 16
Promotions........................................................................................................................................................................ 17
Place .................................................................................................................................................................................. 17
Positioning, Targeting & Segmentation ............................................................................................................................ 17

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Specific Market Analysis ................................................................................................................................................... 18
Marketing Strategy ........................................................................................................................................................... 18
Selling & Advertising ......................................................................................................................................................... 19
Table 4 - Marketing Budget .............................................................................................................................................. 20
Financial Plan .............................................................................................................................................. 20
Financial Structure ............................................................................................................................................................ 20
Owner Compensation ....................................................................................................................................................... 21
Sensitivity Analysis ............................................................................................................................................................ 21
Financial Analysis .............................................................................................................................................................. 21
Conclusion ......................................................................................................................................................................... 22

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Executive Summary

Overdrive Guitars the Company


This new guitar store aims to penetrate the Edmonton music/guitar market by offering a new style of guitars to hungry
guitarists. Being incorporated, this company will look to attract guitarists of all sorts of ages that are seeking a way to
afford popular guitars and their coveted sounds.

Corporate Plan
Our goal is to supply the city of Edmonton with a guitar-specialized retail store that provides uniquely blemished guitars
that are of classic look and sound to customers looking to afford them. We want to have our store in place by first-
quarter 2013 in the location on Parsons Road in Edmonton. We would currently be the only guitar retailer in that
southern area, so it is important that we secure that location.

The goal in the first couple of years is to remain feasible and operate with a positive cash flow to sustain growth in the
subsequent years. We will use different advertising and promotional mediums to reach the desired target markets in the
city. If the first few years prove successful, then the company could look into expanding outside of just guitar inventory
and obviously shifting into other instrument inventories as well.

Financially, the business must provide the owner/manager with an income that is greater than what their opportunity
cost could be in doing what they are currently doing. It must be worth the risk to him that there is solid chance of
greater income in this business. The strong predictions and financial models look favourable when accompanied by sales
and marketing experience.

The following is a plan that explains everything necessary to the business including operations, marketing and key
financial plans. It serves as a proposal to the business and whether it is something worth pursuing. Financial models will
be attached in spreadsheet form to go along with this report.

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Introduction

Industry
The musical instrument industry covers a vast amount of area including wind, brass, percussion and string instruments
as well as their respective accessories and sound equipment requirements. The guitar industry specifically narrows focus
to electric and acoustic guitars, guitar amplifiers, pedals and respective accessories (strings, picks, cables and sheet
music). Industry research done by Music Trades shows that musical instrument retailers achieved a third consecutive
quarter of sales growth in the first quarter of 2012. This growth is being driven by guitars primarily due to its explosion
in becoming the instrument of choice for young musicians as well as for musical schools. UK figures as well show growth
in the industry with increases of between 150,000 and 200,000 guitars purchased in 2010 compared to 2004. Music
Trades states that fretted instruments have risen 3.6% this past year with amplifiers and sound reinforcement products
up 1.5% and 3.3% respectively. It is a strong sign for guitar and music retailers to see consistent growth in the industry,
especially for prospective small business entrepreneurs looking to enter the market.
Lower average prices for guitars have sparked a growth in guitar purchases by both ends of the age spectrum. More and
more youth are starting out with guitars due to influences such as Guitar Hero, and more middle-aged (50+) players
have begun to join bands once again since their younger days. The reason for this being that these older people now
have disposable income that allows for easier purchases of guitars and equipment than when they were much younger.
Demographics therefore have made for a larger and more expansive market for opportunity.

Music and guitars have always been an intriguing and popular hobby, even profession that has continued to attract both
young and old to the art. Guitars have endured the test of time and are still a necessity for almost all music genres.
Rarely ever will a person hear a track recording that has not included the work of a guitar to some extent.

Guitar is a skill that requires patience and work, with results that open the door for so much musical opportunity. It is art
that has many different styles and techniques that an individual can discover on their own. Each guitarist is unique and
can create his/her unique sound for recreation, hobby or even profession. The endurance of these instruments has
made them a continuous powerhouse for instrument choice and continues to drive bands as well as music industry
growth. There will always be those both young and old who discover their love for the guitars catchy riffs and sweeping
solos, meaning a market that will continue to endure over time.

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Mission Statement
Overdrive Guitars is committed to supporting the music sector within Edmonton by serving its new and distinguished
guitarists through the supply of uniquely blemished guitars, excellent accessories, sound equipment and repair servicing.
All of this through a friendly and knowledgeable-local staff dedicated to providing the best service to our customers.

Goals & Objectives


Effectively establish an image and brand that is well respected and known among local guitarists

Serve Edmontons guitarists with uniquely affordable guitars and necessary guitar equipment
Help to increase the amount of aspiring guitarists in Edmonton and encourage other musicians to also try guitar
Support local guitarists and artists by providing them with some service and equipment
Maximize sales at $950,000 by the fifth year of operation
Achieve a consistent number of equal to or over 10 customers per day spending on average $175
Become profitable and pass break-even by the second year of operation

Operations Plan
Overdrive Guitars will be both a direct sales company that will specialize in selling uniquely blemished guitars and new,
popular guitar accessories and equipment to the established and prospective guitarists of Edmonton, Alberta. Sales will
be achieved through both in-store and online retailing. Our in-store staff will be very hospitable to the customers as well
as providing them with product knowledge and expertise. Our online web-site will aesthetically attract customers and
close sales through easy navigation and informative product descriptions.

Store Hours
Monday-Wednesday 10am 6pm
Thursday Friday 10am 9pm
Saturday 10am 6pm
Sunday Closed
We want to accommodate the high level of customer relations that Overdrive has aimed to achieve and we shall do that
by having two consistent employees working during hours of operation. Cody Tillman will act as General Manager,
providing sales, marketing and bookkeeping needs of the company. His Bachelor of Commerce degree provides the
skillset needed to effectively start-up and run the business. He will serve as owner and manager. With the need for

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excellent repair service for customers, another employee with knowledge of guitar mechanics will be hired to conduct
both repairs and additional sales service.

Location
Overdrive Guitars will be located at 425 Parsons Rd SW, Edmonton, shown in Figure 1 below. The location is a modern-
looking commercial space of 1200 square feet that will be leased at $25 per square foot including basic utilities. In total,
the monthly cost for lease will equal $2500. We have chosen this location based on the following reasons:

1. Financial Flexibility The location is relatively inexpensive for the Edmonton area, providing adequate
space and excellent positioning for the start-up all for a price that will give the owner more flexibility in
budgeting. The building provides the preferable size for inventories and space requirements as well.
2. Distance Relative to Competitors With the location on Parsons Road, Overdrive Guitars will be situated at a
minimum 15 kilometers from its nearest competitor Long & McQuade Musical
3. Instruments. The distance will allow for more freedom of movement in our marketing strategies and customer
relations as there is and will be a established and developing customer base in that area of the city.
4. Cohesiveness of Surrounding Consumer Amenities Parsons Road provides the surrounding population with all
necessary shopping amenities including grocery, banking, vehicle service, sporting goods and more. With all
shopping and consumption amenities in one place, the opening of Overdrive Guitars would provide the
population with a guitar store that is not an out of their way destination. The location near the Ellerslie,
Summerside and South Edmonton Common area will provide the needed consumer traffic for the businesss
sales goals.

Figure 1 Above

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Floor Plan
The proposed floor plan for Overdrive Guitars is designed to have an appeal and feel that well-suits guitarists and what
they want in a buying experience. There will be a main open space where inventories will be held and viewed allowing
for a very smooth-flow of customer traffic on the floor as shown in Figure 2 below. There will also be places where
customers can test out guitars and equipment that they are interested in. This area will be located against the west wall
in the main area, containing guitars, pedals and amplifiers. Guitar accessories will be located on the east side of the
store in the main area on shelves and various merchandise racks for easy viewing and access. There will also be two
sound-proofed rooms at the front of the store where customers can go to sample guitars and equipment in case they
wish to escape the noise from the main area. These two rooms will also hold guitars on the wall and against windows as
well as amplifiers in the space along the floor. Customers will find these rooms convenient to really distinguish the
sound they are searching for in a guitar and to have easy access to equipment in the room. The repairs and utilities
rooms will then be located at the back-end of the store as depicted below. The utility room will contain excess
inventories which will be relatively small in number as well as maintenance and cleaning supplies for the main area. The
repairs room will contain benches as depicted that will hold tools and other equipment needed for the guitar repairs.

Figure 2 Above

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Business Cycles
Average Business Day
Typical business days at Overdrive will be very similar year-round. The owner/manager will arrive at least an hour prior
to opening in order to check over necessary inventory lists and store needs such as product placement. The other
sales/repair staff member will then arrive a half hour prior to opening and will get his or herself prepared for the day by
assessing the required repair tools and inventory as well as assisting the manager with his needs. The doors will then
open at the specified time and the focus will be on assisting customers to the best of their ability whether in sales or in
repairs. The staff knowledge about the guitar and equipment inventory will be instrumental in promoting the sales of
the inventory. Guitarists will have more respect for knowledgeable staff that are willing to spend time discussing the
products in question. We anticipate that weekday afternoons from 1pm until close will be busier times for business
while mornings we expect to be slower. Weekends we expect to be fairly steady throughout the day yet still being
slightly slower in the mornings.

Slow times will involve time for the other sales/repair employee to work exclusively on guitar repairs that will have been
brought in on earlier occasions. The owner/manager will then work on bookkeeping, marketing strategies and daily
purchase orders for inventory as well as handling sales duties if any are needed. The end of a business day will involve
nightly cash-outs and bank deposits to be done by the owner/manager and cleaning to be done by both of the staff. The
two will also prepare the floor if necessary for the next day as well as making final inventory purchase orders based on
inventory sold during the day, and then they will exit the store for the night.

Average Business Week


The owner/manager will have some major duties during a weeks time in the business month including inventory
management and payroll. The owner/manager will have to be making inventory orders for guitars, equipment on a daily
basis in order to make inventory delivery and payment staggered and easy to operate. The advertisements and online
updates for the website will also need to be conducted by the owner/manager during the week in order to be prepared
for the following week. Payroll will also need to be done bi-weekly, but, for only two staff, it will be q relatively quick
and simple task.

Average Business Month


Moving from month to month will not involve much change required tasking. Since our business will not be seasonal, we
do not have to worry about radically changing inventories that will be stocked. Monthly sales and inventory analyses
will need to be done for each month as to which guitars and equipment were most popular with customers in order to
stock accordingly for the next month. The owner/manager will produce statements indicating these results and will
provide them to the shareholders. Customer feedback will also be important in determining the type of guitars that will

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be stocked if they are available. It will also be necessary for the owner/manager to conduct monthly environmental
analyses of Edmonton and its demographics in order to plan marketing strategies accordingly.

Average Fiscal Year


The year-end financial statements will need to be prepared by the owner/manager once a year, most likely at year-end
on December 31 of each year. The complete business analysis will also be produced to examine sales, marketing efforts,
successes, failures as well as a external environmental analysis. These year-end analyses will be the driver on necessary
changes to the different divisions of the business. It will tease out strategies that are not yielding sales and inventory
products that are not selling. In a general sense, it will help to remove inefficiencies within the business, allowing for
better-spent finances and for more fruitful strategies/sales to be used.

Supply Analysis
All products in the line will be purchased from respected manufacturers that have strong reputation amongst the music
and guitar industry. Guitars will be purchased specifically from manufacturers such as Fender, Gibson/Epiphone,
Gretsch, Taylor and more. Amplifier products will be purchased from brands including Crate, Marshall, Line 6, Fender
and pedals/equipment will be purchased from BOSS, Ernie Ball and Line 6. All guitar accessory products will be
purchased from Ernie Ball and American Musical for example. All products will be purchased directly from
manufacturers which eliminates middleman costs. These manufacturers (suppliers) have been chosen based on brand,
quality, product availability and overall service level. New suppliers will be proposed and analyzed by the staff to
determine if they should become aligned with Overdrive.

Capital Budget
The total capital requirement for Overdrive Guitars is $62,286. This cost includes leasehold improvements for the space
assumed at $35 a square foot, furniture and fixtures including computer equipment and custom design costs. The
detailed schedule of these costs is found in Table 1. Inventories are estimated based on the $600 per guitar cost and
average prices for new amplifiers, pedals and accessory inventories. This inventory cost breakdown can be found in Cost
of Goods Sold - Appendix A. There will be no accounts receivable as all payments involving only cash and cards will be
accepted both in-store and online. Accounts payable is based on the purchase of these inventories from manufacturers.
The bulk of the capital costing is attributed to inventories. The liquidity value of these inventories is much higher than
their cost, meaning that profits will increase high above purchase costs. For example, we foresee high margins for the
sale of guitars as we can increase price based on their cost to purchase on discount.

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Table 1 Capital Cost Expenditures

Description: Estimated Cost


Leasehold Improvements $42,000
Incorp. Expense $200
Custom Signage $5,000
Custom Website $5,000
Total Business Space Costs $52,200
Furniture and Fixtures:
Computers $2,400
Cash Registers $2,000
Shelving $600
Stools $2,000
Work Counter/Benches $1,386
Office Supplies $300
Printer $200
Inventory Hangers $500
Display Cases $700
Total Furniture and Fixtures $10,086
Working Capital:
Inventories $27,679
Accounts Payable $24,481
Total Net Working Capital $52,159
Total Capital Requirements $114,445

Operating Expenses
Overdrive will be open 6 days every week for 52 weeks a year obviously excluding statutory holidays. The estimated
monthly operating costs are listed as follows in Table 2. The building lease presents a good opportunity as it is relatively
inexpensive for the prime location it gives the store. Insurance will be necessary for the inventories as there will always
be risk of damage due to vandalism, accident or weather conditions. We do anticipate that advertising expenses could
rise if opportunity to reach more customers presents itself. Parts and tools inventory supplies will be a continuous
expense and will likely vary each month in connection with the amount and nature of repairs requested. Companies
such as Culligan, Rogers and Westcan Wireless have also conveniently provided us with accurate monthly costing for
services. As you can see, monthly operating expenses are kept relatively low with wages and repair parts and tools
taking up most of the cost.

Table 2 Monthly Operating Expenditures

Business Space: Estimated Costs


Building Lease (25x1200/12) $2,500
Water/Sewer $204
Utilities (Power, Heat) - (.20x1200) $240

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Total Business Space Expenses $2,944
Sales/Floor Expenses:
Water Delivery $250
Guitar Repair Parts Inventory $2,000
Guitar Repair Supplies (tools, glues) $1,000
Internet $60
Telephone $23
Office Supplies $100
Insurance (Space & Product) $2,000
Advertising $500
Repair/Maintenance Tools $167
Other Variable Costs $758
Total Sales/Floor Expenses $6,858
HR Expenses:
Employee Salaries $4,950
Employee Benefits (15%) $756
CCA $196
Total HR Expenses $5,902
Total Operating Costs $15,704

Human Resources Plan


General Manager
Cody Tillman will be the owner and manager of Overdrive Guitars. He will have to perform duties that include the
following:
Hiring of employee/employees
Perform daily and weekly inventory orders to maintain levels
Organize and initiate marketing efforts for the store
Perform direct sales to customers when the store is busy
Try and connect with local guitarists and venues in Edmonton
Bookkeeping duties
Payroll duties
Necessary website updates/upgrades

Sales & Repair Staff


Overdrive will need one more full time employee for the first year of operations to work at the store. The other
employee will not only have sales experience, but will also have specific knowledge about guitars and guitar repair. This

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employee will be required to work on repairs brought in by customers when times are slow and when the
owner/manager can alleviate some sales pressure for them to be completed. This employee will need to provide that
knowledge with curious customers to go along with hospitable sales service. He or she will directly report to the
owner/manager. The duties specific to this position include:
Direct sales to in-store customers
Provide customers with superior guitar product knowledge
Inventory restocking
Guitar and equipment repairs in slow times
Cleaning duties with assistance of owner/manager
Miscellaneous tasks assigned by the owner/manager

The employee will also receive a deal for purchasing equipment equal to cost plus 10% to a reasonable extent. These
purchases will have to be approved by the owner/manager. We believe that allowing this will encourage our
employee/employees to keep a strong work culture at Overdrive.

Scheduling
At Overdrive, we want to maintain the best level of customer service that we can deliver. For that reason, we will always
have the owner/manager and employee at the store during the hours of operation in a week. Since we only anticipate
ten customers a day for the first year, there will be slow times where the other employee can work on repairs and
occasionally take a break. When the owner/manager (Cody) is on shift, then he can work at the computer office station
in the center of the store on his duties outside of sales and will assist in sales when the store becomes too busy for the
other sales employee. The sample schedule shown in figure 3 below displays a typical work week where the sales
employee will work 40 hours a week while Cody will work upwards of 45-50 hours staying longer hours to perform
needed daily duties. If there is a designated day where sales are known to be slower, then the sales employee may get
one other day off in the week.

Day of Week Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Employee
Cody - Owner 10-6 10-6 10-6 10-9 10-9 10-6 Closed
Sales Staff - 1 10-6 10-6 10-6 10-6 10-6 10-6 if
necessay
Figure 3 Above

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Labour Costs
The 5-year cost projection for Overdrive is shown here in Table 3. The figures are based on one full-time sale and repair
staff and one full-time owner/manager position with the sales employee working 40 hours a week and Cody taking a set
salary for the year. This does not account for sick days and holidays because the figures would not change accordingly.

Table 3 Labour Cost Projections


2013 2014 2015 2016 2017
Total Labour Wages
Wage $15.00 $15.38 $15.76 $16.15 $16.56
Hours per worker 1960 1960 1960 1960 1960
Total wages (Wage x Hrs x Staff) $29,400.00 $30,135.00 $30,888.38 $31,660.58 $32,452.10
Total Direct Labour $29,400.00 $30,135.00 $30,888.38 $31,660.58 $32,452.10

Benefits for Labour


Estimated 15% of wages $4,410.00 $4,520.25 $4,633.26 $4,749.09 $4,867.81
Total Direct Labour + Benefits $33,810.00 $34,655.25 $35,521.63 $36,409.67 $37,319.91

Total Annual Salaries


Manager $30,000.00 $30,750.00 $31,518.75 $32,306.72 $33,114.39
Total Salaries $30,000.00 $30,750.00 $31,518.75 $32,306.72 $33,114.39

Benefits for Manager


Estimated 15% of salary $4,500.00 $4,612.50 $4,727.81 $4,846.01 $4,967.16
Total Benefits for Salary
$4,500.00 $4,612.50 $4,727.81 $4,846.01 $4,967.16
Employees

Total Salaried Employees $34,500.00 $35,362.50 $36,246.56 $37,152.73 $38,081.54


Total Salary and Wages Paid $68,310.00 $70,017.75 $71,768.19 $73,562.40 $75,401.46

Training
No additional training will be needed for the two staff at Overdrive. Cody Tillman recently convocated from the
University of Saskatchewan Bachelor of Commerce program at the Edwards School of Business and will have all of the
skills necessary to conduct bookkeeping and inventory duties for the company. He is an avid guitarist who currently
plays in a band, fully understanding the products in the store and how to relate to musicians who become customers in
it. The other sales and repair employee will also have the experience and knowledge of the equipment within the store
and will also be proficient in understanding/conducting guitar repairs. When new and unknown products come into the
store, the two staff will spend time learning about them so that they are capable of presenting the information and

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advantages to customers. If there was reason to hire some part time casual staff, some training as to the product lines
would be provided by the owner/manager on a needed basis.

Marketing Plan
Products & Services
Overdrive Guitars will be a unique value guitar and guitar equipment store that provides affordable products,
knowledgeable and engaging staff and excellent service in South Edmonton Common, Ellerslie and Summerside areas of
Southeast Edmonton. Overdrive will sell to a specific market carrying uniquely blemished guitars that make top models
very affordable, sound amplifier products, pedal effects products and general guitar accessories. The Products can be
viewed below in figures 5-13.

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Pricing
Overdrive will be entering a competitive music and instrument retail industry within Edmonton. In the city, there are a
number of smaller music and guitar shops mostly located in the North and Downtown areas of the city. Notable
competitors include Canadas largest music retailer in Long & McQuade which provides a vast array of music products
and instruments to a large consumer base. Appendix B shows the current competitor analysis within Edmonton.

Overdrive will use a mix between penetration pricing and value-based pricing to enter the music and guitar retail
industry in Edmonton. The strategy is much different than almost all usual music and guitar retail stores because it is
based on the unique value of each guitar. Overdrive will be focused on selling uniquely blemished guitars for a price that
will create lots of margin whilst still creating a lot of value to the customers. With the ability to purchase these guitars as
factory-second grade from manufacturers, it is feasible to sell them at a cost-plus price. (i.e. purchase a blemished guitar

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for $500 and sell it to a consumer for a gained margin of roughly 38%). The advantage of using this strategy is that
guitarists especially take a personalized view to their guitars, and by providing unique guitars for them to purchase, we
will create value for them and profit for our business. The feasibility of the business is centered on this concept.

Amplifiers, pedals and effects and accessories will be sold with a different pricing strategy. Since these products are
brand new, they will need to be sold at prices that are competitive yet feasible to the store meaning higher prices than
that of a Long & McQuade store. For this reason, we calculate lower margins that are around 10 and 15% for these
products.

The pricing strategy for repairs will be competitive pricing, as there are no lost margins for repairs, we will charge prices
that equal to or just below are industry averages for repairs

Promotions
Overdrives promotion strategy will be based on the specific pricing and services strategies for the divisions of products.
We aim to be to be recognized as a unique guitar store that sells guitars that no one else will ever have, providing
knowledgeable service and repairs for its customers as well. We will focus on our competitive advantage to get our
name out to the market of guitarists and musicians.

Place
Overdrive Guitars will be established in the Parsons Road shopping centre in Edmonton which is central to the South
Edmonton Common, Ellerslie and Summerside districts. The large Parsons road shopping centre attracts a large
population from surrounding areas to supply all of their consumer needs. With its short distance to the South Edmonton
Common shopping centre as well, Overdrive Guitars will serve as the only music/guitar store in that area. It is an
excellent opportunity to attract nearby customers.

Positioning, Targeting & Segmentation


The target market will be residents of Edmonton, Alberta. Edmonton houses approximately 812,000 citizens with an age
distribution shown in Appendix C. Municipalities and towns to the south of Edmonton will also be targeted because
Overdrive will be the closest music/guitar store for them to access with Edmonton being a hub for Alberta. Generally,
the target market for the guitars and products will be individuals at low-average or even high incomes who are
interested in guitar and music.

Specifically, we will aim at targeting people aged between 12 and 55 focusing on younger individuals who are up and
coming guitarists who are searching for ways to afford popular guitar models and sounds and on middle-aged
individuals-mainly men who have been playing for many years.

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Our positioning statement will read: For aspiring guitarists, Overdrive Guitars provides excellent-sounding and uniquely
blemished guitars from the best-known brands at affordable prices along with quality accessories and diligent repair
services. This positioning statement communicates our intentions and offering as well as how we differentiate from
other guitar stores in the area.

Specific Market Analysis


Overdrive will be a strong match for the residents in the surrounding area because it is the only guitar store in that area.
To go along with sales from advertising, Overdrive will seek to bring walk-in customers that are shopping near the
Parsons Road Centre into the store. We will draw musicians and guitarists to the store because of its unique approach to
what guitars it stocks and the prices available to the consumers. Additionally, Classic sounds, best prices will serve as
our brand image, representing our ability to provide popular guitars that are cheaper due to their unique blemishes.

Overdrives competition will be the other guitar stores in Edmonton that sell similar products, none will sell the type of
guitars that we do, but for amplifiers, pedals and accessories, much will be the same. The current competition and their
analysis are shown in Appendix B, same as earlier competition one. To summarize, competition exists, but Overdrive has
a significant advantage in its location away from other competitors and in its guitar offering to customers. Unlike other
competitors, Overdrive focuses on its guitar purchasing and selling strategy in order to entice consumers to the store.
The store will be known for its new way of bringing popular guitars and sounds to customers who cannot afford the
brand new non-blemished models.

The future for music and guitars is always bright as previously mentioned; the amount of sales for guitars specifically has
increased in the U.S. and Canada over the past year. The demographics of Edmonton also show that there is a growing
customer base that Is eager to get into music and specifically, guitars.

Marketing Strategy
The objectives of Overdrives sales and profits are respectively:

Maximize sales at $950,000 by year 5


Reach daily sales of $1,750 (10 customers at $175 spent)
Earn an average owner compensation salary of $82,000 over the first 5 years, keeping in mind the first years
extra equity will eventually have to be paid off

There are two channels of distribution for Overdrive Guitars, in-store purchasing and online purchasing. The in-store,
direct model of purchasing will be the most prominent for the business because customers will get to experience the
quality service of the staff as well as being able to try out the guitars first-hand. The on-line selling will become a
stronger medium once the store has been established for some time. It primarily serves to bolster the chances of
meeting the desired daily sales level and is inexpensive to operate once in place.

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Overdrive wants to establish itself as the new, unique and quality guitar store in Edmonton. With the strategy and
foreseen success for the business, new customers may enter the market over time. The location and new selling
strategy will place Overdrive in a strong position within the market, which will have to be continuously evaluated in
order to maximize position on a consistent basis.

Overdrive can meet its objectives by achieving the forecasts shown in the financial model. It must reach a sales level of
$455,000 in year one and increase it to $954,000 by year 5. The sales predictions are fairly conservative with the base
case in the first year being 10 customers per day spending $175 each. This is made more achievable by the repairs sector
of the business and the online offering although it will take time for that channel to become consistent. With the store
being open for 260 days a year and being potentially open for more if needed, there is room for Overdrive to reach its
goals. The advantage of a greater margin in guitars will be a strong advantage as these margins are not attainable for un-
blemished guitars from competitors.

Overdrives different methods of selling guitars will distinguish it among competitors and will be difficult to duplicate.
Our reputation will be built upon our ability to offer personal and knowledgeable customer service as well as our
uniquely blemished guitar inventory provided to the customers.

Selling & Advertising


The main advertising objective in the first two years of business will be to create awareness in the city and to persuade
customers that we offer unique and quality products as well as personalized customer service. In the following years,
advertising objectives will focus on cementing Overdrives brand in the minds of the citys consumers. Exposure is key
for the business, so most of the advertising methods have been focused on creating more and more awareness.

The different advertising channels that will be used will include:

Newspaper/Magazine Advertisements This type of advertising specifically in newspapers and on newspaper sites that
focus on the arts and music will reach some of the market we are targeting although large responses from these are not
expected when compared to other mediums. VUE Weekly is an example of an Edmonton entertainment source that
allows advertising both online and in the paper. These ads are inexpensive and can last for the duration of the 5-year
plan changing with new offerings and promotions done by our store.

Website The internet is obviously the largest and fastest growing advertising channel in the world. Consumers almost
expect their prospective stores to have some sort of web presence where they can scout and purchase possible
products from their home. Overdrive aims to set up a professionally designed website that will display store info,
products and promotions in an aesthetically appealing way. The website also serves the purpose of boosting sales
through the availability of online purchases.

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Overdrive Guitars December 2012 Cody Tillman
Online Advertisements/Social Media In addition to having a website, it will also be beneficial for our business to
purchase advertisements on popular guitar websites such as ultimate-guitar.com where many guitarists from around
the world can be exposed to the awareness for our store. It will then entice them to visit our own website. Facebook will
also be a good and free tool to use for advertisements. In-store promotions and events can be shared through this
medium online.

Posters Posters provide unique one-on-one advertising in strategic places around Edmonton. Our primary focus is to
place them in music venues and bars around the city where aspiring musicians and starter bands can learn about the
new guitar store in the city that wants to form a relationship with them. These posters will have eye-catching graphics as
well as basic information about the stores competitive advantages.

Grand Opening We will host a grand opening at the store featuring some local musical talent to create buzz. We will
offer discounts on our products to sort of kick start our business in Edmonton. We will promote this long before it
happens in order to have maximum awareness for the event.

All of these associated costs are detailed in Table 4 the Marketing Budget

Table 4 - Marketing Budget


Advertising
Posters $500
Online advertising $1,000
Newspaper/Magazine $1,500
Total Advertising Costs $3,000
Promotional/Developmental
Website $5,000
Grand Opening $7,500
Total Promotional/Developmental $12,500
Total Marketing Costs $15,500

Financial Plan
Financial Structure
To finance the near $115,000 required for start-up, we will use a combination of equity and financing from proven
willing family members/donors to provide $150,000 of equity. Cody will contribute $25,000 of his own money and the
remaining $125,000 will come from a mix of parents and close relatives who are in support of the business, they will
loan the money and expect payment back in time. The excess to $150,000 will provide cushion for the starting business
in the first year.

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Overdrive Guitars December 2012 Cody Tillman
Owner Compensation
The dividend of the company will primarily go out as owner compensation, making it a determinant of success for the
company. Alternatively, funds could be poured back into the company once there is a positive net income.

Sensitivity Analysis
As shown in figure 4 below, Overdrive Guitars is relatively sensitive to a change in customers per day which can be
attributed to the average dollar value of fixed costs relative to the average dollar amount spend by customers in
variability. We believe that 10 customers a day base level in the first year is achievable and that our marketing efforts
will bolster that prediction.

Customers/day Average 5 year Profit Avg Owner Comp


4
6 Bankrupt
8 (3,065) 32,927
10 42,877 66,455
12 88,421 98,668
14
16
Figure 4 Above

Financial Analysis
The large average owner compensation suggests that the business will be significantly profitable in future years. The
large average compensation can be attributed to the high equity investment in the first year. As shown in the figure
below, the breakeven for customers per day for the store can occur in between years 1 and 2, showing a strong position
for the future years. Projected cash flows indicate that costs will be covered especially inventory costs. The provided
financial model will show these statements further.

20

15

10

0
1 2 3 4 5

Figure 16 Above

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Overdrive Guitars December 2012 Cody Tillman
Conclusion
The city of Edmonton is ripe for another specialized guitar store to enter its market. Overdrive Guitars plans to change
the scene by offering a unique type of guitar inventory that will attract guitarists from all around. A detailed financial
analysis of this proposed business proves that Overdrive Guitars is feasible and has the opportunity to attain profits and
deliver a quality service and product line to its customers.

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Overdrive Guitars December 2012 Cody Tillman

Appendix A: Cost of Goods Sold

Category Unit Cost Units Purchased Total Cost SubTotal

Guitars $500 75 $37,500 $37.500

Amplifiers $500 20 $10,000 $47,500

Pedals & Effects $150 50 $7,500 $55,000

Accessories $15 200 $3,000 $58,000

Total $58,000

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Overdrive Guitars December 2012 Cody Tillman

Appendix B: Competitor Analysis


Competitor Positioning Prices

Higher prices - generic music store in


Better overall selection, better
Long & McQuade Musical Canada, close in location so people
aesthetics, larger product line,
Instruments would drive a litle farther for better
medium-high prices
prices.

Similar selection , school focus and Higher prices - cannot offer comparable
Heritage Music & School of
offering, higher prices for discounts, customers will search for
Music
inventory better prices

Higher prices - cannot offer comparable


Similar selection, lesser aesthetics,
Lillo's Music discounts for quality products, losing
higher prices
the lower-income customers

Higher Prices - smaller dealer with


Similar selection, wider brand
Avenue Guitars brand new guitars costing more for the
range, high population location
consumer

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Overdrive Guitars December 2012 Cody Tillman

Appendix C: Edmonton Age Demographics


Median Age 2006 2011

City of Edmonton 36.1 36.0

Edmonton Census Metropolitan Area 36.4 36.5

Alberta 36.0 36.5

Canada 39.5 40.0

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Overdrive Guitars December 2012 Cody Tillman

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