Home Automation System Start Up

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Introduction

This research is aimed at starting up a company in the market of a household technology company that deals with high-tech installations aimed at improving home security or increasing ease of access around the home. The company will therefore focus on the market penetration of household technological systems such as remotely controlled access to various parts of domestic residences and computerized surveillance and security systems. The focus of the company will be in the wealthy neighborhoods and cities within the Arabian Gulf countries such as the UAE, Saudi Arabia, Qatar, and Bahrain.

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Market Competition

In order to fully understand the market potential of the company, a close examination of the companies carrying out similar businesses in the same region has to be done. There are currently very many small businesses in each of the Arabian Gulf countries that deal with surveillance camera and systems installations within each major city in all the countries in the Arabian Gulf, except for Dubai City in UAE. This is an indicator that the domestic surveillance business is generally booming all over the region, but it also means that breaking into the business could prove to be difficult in any of the countries unless the business has a unique model or a different and better product that stands out among the many other similar businesses.

The Product

The company’s main product is to offer remote mechanisms such as mobile phone apps to monitor household security or to control various equipment and processes within the household which is less common in the Arabian Gulf than surveillance. This is mainly because starting a business that does such technologically advanced installation requires a lot of technical skills such as coding and programming, and most of the current market holding companies either have limited resources or they are unwilling to take the risk of investing in that kind of technology. There is also a great concern among that businesses that most people will be less willing to adopt new technologies in their households because they may view such technologies as too complex for their understanding.

Market Segment

There is however a chance that most people will be receptive to new technological systems in their houses, as long as they are shown how to use the equipment or software. Most people in the Arabian Gulf countries already use their smartphones to carry out many activities such as monetary transactions, online shopping, and even ordering taxi rides through Uber. It is, therefore, reasonable to speculate that people will be willing to use mobile apps to monitor their house surveillance cameras, control the lighting in their households, and even do things like opening and closing garage doors and gates, and controlling climate. When structuring the company and employing the technical experts to carry out the household installations, the employees of the company must be trained on how to teach the clients so that they may be more receptive to the products of the company without being intimidated or put off by the complexity of the technology being used.

Market data in Saudi Arabia, the United Arab Emirates, Bahrain, and Qatar shows that young people are likely to be more receptive to new technology. This means that the company’s household technology and security system is more likely to sell if it was marketed to the younger populations, especially households where the homeowners were below forty years. The vast majority of young house owners are highly likely to be excited or at least curious if a new kind of home access technology is presented to them, and they are therefore more likely to consider purchasing the equipment or ordering an installation. Their young people should therefore be the primary target market of the company, and any kind of advertisements created by the company should be tailor-made to arrest their attention.

The Substitute

The market for surveillance equipment in the larger cities, especially in high-end residences in Saudi Arabia and the United Arab Emirates has been greatly undercut by security companies. There are many different security companies that provide armed guards and watchmen in relatively affluent neighborhoods, thus eliminating the need for a surveillance system. Additionally, many of the rich people have domestic employees who are tasked with performing some of the duties that the mobile apps are created to perform. In order for the company to thrive in such places, the products of the company have to be marketed as cost-cutting and more efficient than the current employees and contractors. However, it is realistic to assume that many homeowners are unlikely to replace armed guards and security contractors with an electronic or computerized security system. The most security-conscious among this group can at least be persuaded to supplement their current security measures with the technology that the company has to offer.

The downside of the household surveillance and home access technology is that some of the equipment installed in the houses require a lot of maintenance, servicing, and repair. This in turn requires that the company should have numerous employees and technicians to carry out house calls in case of equipment failure or any other technical difficulties encountered by the clients. This means that for the company to have customers within a specific city or area, there has to be an established branch that is well equipped and offers round-the-clock customer support. However, in the case of the use of a mobile application, there is little maintenance that is involved, and one call center set up in one of the cities could service the customers in all the four Arabian gulf countries where the business exists.

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Pricing

Creating household access and security company is certainly a lucrative venture, especially in the urban areas of Saudi Arabia, the UAE, Qatar, and Bahrain. However, starting such a business requires a lot of initial capital investment, and the proprietor has to be willing to handle a lot of stiff completion at the start. The business also requires a lot of technical expertise as well as manual labor since coding software and installing hardware for homeowners is mandatory. Finally, the business will require a lot of marketing in form of advertisements and customer outreach. If the proprietors of the business are willing to take all these into consideration, the end result could be a successful household technology franchise that has the potential to expand far beyond the market for which it was initially intended.

It has been indicated that the market of home security is highly competitive and no single seller or buyer has the ability to influence the market price. Therefore, both sellers and customers are price takers. The average market price is the price charged by different companies operating in the competitive market. Each firm in the market is sensitive to the average market price. The pricing of a product in a competitive market should cover the total cost of production in the long run. However, it should cover the average total cost of production in the short run. The company can charge a price over the average market price based on product differentiation. The company would use technology in its products that are difficult to imitate and highly costly for other firms to take the risk investing. The price of the new security product along with a remote application is determined as $1,500 per installation with one-year coverage.

Variables

  1. The total cost of the new security product and its remote application includes fixed costs and variable costs (Lipsey and Harbury 21). The fixed costs related to the business are provided in the following table.
    Table 1
    Fixed Costs

    Description Amount
    $
    Fixed Costs (FC)
    Application Development / Coding / Testing (AD) 35,000
    Salaries (Marketing) (SM) 15,000
    Salaries (Administrative) (SA) 20,000
    Office Rent (OR) 17,000
    Warehouse Rent (WR) 15,000
    Insurance Cost (IC) 1,000
    Utilities Cost (UC) 1,200
    Total Fixed Cost (TFC) 104,200

    The total fixed costs include application development/coding/testing (AD), salaries (Marketing) (SM), salaries (Administrative) (SA), office rent (OR), warehouse rent (WR), insurance cost (IC), and utility cost (UC). These costs are related to the development of the new application that will be integrated with the security systems to be offered by the company. The integration of web or mobile applications in the security system is the feature that will provide the company an opportunity to differentiate itself from other companies in the competitive market. In addition to this, the company will require an office to operate and a warehouse to keep its inventory. The marketing expenditure to be incurred has both fixed and variable elements (Hubbard, Garnett, and Lewis 237). The fixed marketing expenditure includes the salaries of employees who are responsible for selling and promoting the security systems of the company.

  2. The variable costs are determined on the basis of per installation to be made by the company. These include commissions (CS) paid to the employees for every sale they make. Also, it includes the equipment cost. The equipment will be acquired from a third party and its price is determined as the cost incurred plus the profit margin set by the company. The variable costs are provided in the following table.
    Table 2
    Variable Costs

    Description Amount
    $
    Variable Costs (VC)
    Commission (CS) $50 per installation
    Equipment for Sale (ES) $600 per installation

    The variable costs change with the number of units of security systems sold. They are not static and they increase as the company sells more units of security systems (Mukherjee, Mukherjee and Ghose 39). The variable costs are determined on the basis of the company’s agreement with the vendor of the security system. Therefore, it can change if the terms of supply change between the company and the vendor.

  3. The total cost (TC)of the business is provided as follows.
    TC = FC + VC
    TC = (AD + SM + SA + OR + WR + IC + UC) + (Q * (CS + ES))
    TC = 104,200 + Q * 650
    Using the information provided above, the following table is prepared to indicate the total cost, average total cost (ATC), average fixed cost (AFC), average variable cost (AVC), and marginal cost (MC) for different quantities of security systems to be sold.
    Table 3
    Cost Analysis

    Q VC FC TC AFC AVC ATC MC
    104,200 104,200 n/a n/a n/a n/a
    1 650 104,200 104,850 104,200 650 104,850 650
    2 1,950 104,200 106,150 52,100 975 53,075 1,300
    3 3,900 104,200 108,100 34,733 1,300 36,033 1,950
    4 6,500 104,200 110,700 26,050 1,625 27,675 2,600
    5 9,750 104,200 113,950 20,840 1,950 22,790 3,250
    6 13,650 104,200 117,850 17,367 2,275 19,642 3,900
    7 18,200 104,200 122,400 14,886 2,600 17,486 4,550
    8 23,400 104,200 127,600 13,025 2,925 15,950 5,200

    The table provided above indicates that the fixed costs remain the same for any quantity of security systems sold by the company (Mankiw 43). However, the average fixed costs decrease as the number of units sold increases. The variable cost per installation is $650. Therefore, the average variable cost is also $650. The average total cost also declines as sales of the company increase. The marginal cost of each additional unit is $650.

  4. The profit is maximized when the marginal revenue is equal to the marginal cost of the business. Based on the market-determined in Part One, it could be estimated that the profit will be maximized at the level when the number of units sold is between two and three when MC=MR (Hubbard, Garnett and Lewis 56).

References

Hubbard, ‎R. Glenn, ‎Anne M. Garnett, and Philip Lewis. Microeconomics. Frenchs Forest: Pearson Australia, 2014. Print.

Lipsey, ‎Richard G., and Colin Harbury. First Principles of Economics. Oxford: Oxford University Press, 1992. Print.

Mankiw, N. Gregory. Principles of Economics. Stamford: Cengage Learning, 2015. Print.

Mukherjee, ‎Sampat, ‎Mallinath Mukherjee and Amitava Ghose. Microeconomics. New Delhi: PHI Learning Pvt. Ltd., 2003. Print.

Moschandreas, Maria. Business Economics. London: Cengage Learning EMEA, 2000. Print.

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BusinessEssay. (2022, May 29). Home Automation System Start Up. Retrieved from https://business-essay.com/home-automation-system-start-up/

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BusinessEssay. (2022) 'Home Automation System Start Up'. 29 May.

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BusinessEssay. 2022. "Home Automation System Start Up." May 29, 2022. https://business-essay.com/home-automation-system-start-up/.

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BusinessEssay. "Home Automation System Start Up." May 29, 2022. https://business-essay.com/home-automation-system-start-up/.