Economic Analysis
This finalised break down was approximately 20% of the original estimate and gave a much more realistic production cost of to $191.5 for one off production. (note. Buying components in bulk would reduce the cost per unit for mass production. Researching the market place for competing products, it was found that most competitors were around the $200-$300 mark. Selling the TXIVsmart meter at the market minimum value of $200 would yield approx. 5% profit from a one off device. With consideration of reduced cost for mass production this profit margin would increase. With these things in consideration, with the production cost confirmed and of acceptable amount the TXIV smart meter with it’s new and finalised design could now proceed to the next step, the making of a prototype.
Besides the production cost, four other keys factors will determine the value of the TXIV smart meter to its stakeholders. These include the price of similar technology (gadgets), the benefits of replacing a manual system, capacity to sustain the marketing processes, and consumer acceptance. An earlier examination of the production cost against the retail prices of competing smart meters in the market indicate that much more measures are needed to make the production of TXIV smart meter commercially viable. A profit margin of 5% is too low to support the whole process of making the product available to potential customers. It is worth to note that the product is not in the category of commodities that move out quickly from the stores. Therefore, there is need to increase this profit margin. One way of enhancing profits is through mass production of the TXIV smart meter which involves mass procurement of raw materials. This means huge capital investment is needed to support mass production and mass procurement processes. The table below illustrates the degree to which mass procurement of 10,000 units of each raw material would minimize production cost if a discount of 10% was given.
Table 1. An estimation of reduced production cost with mass procurement
The table above indicates that immense savings or cost reductions would be achieved with mass production. An estimated $195,100 would be saved in the production of 10,000 units of TXIV smart meter if raw materials were obtained at a discounted rate.
The value of the TXIV smart meter is further demonstrated by the cost benefits of replacing the manual process of collecting and conveying electricity data with a smart meter system.
Cross analysis of the smart meter system against the manual process of data collection and conveyance
The ability to receive data remotely eliminates the manual process that involves physical data collection, paper invoices, and physical bill payments. The smart meter provides an opportunity for the electricity suppliers and consumer to minimize costs involved in this process. A look at the cost of the manual process is essential to allow a conceptualization of the value of a smart meter.
Table 1. An estimation of the direct cost of a manual process per client
Table 2. An estimation of the direct cost of an electronic process per client
Key assumptions
The key assumptions are as follow:
- The participants are operating within an area of 100km and use a means of transport that is fuel economical; that is, one that uses about 1 liter of fuel in 10 kilometers. The price of fuel is assumed to be stable and retail at $1.16 per liter.
- The data collection process is the responsibility of the electricity provider. The invoicing is electronic for the smart meter system, while the manual process uses paper invoicing. The cost of invoicing is ultimately transferred to the consumer.
- Bills payment is manual for the manual system and electronic for the smart meter system.
The high cost involved in a manual process when compared to the smart meter system in the collection of electricity data and conveying information to the electricity consumer and provider justifies the economic value of the smart meter. The total cost of collecting data and conveying it to both the electricity retailer and consumer manually involves printed invoices, physical meter reading, and physical payments processes that require high operational expenses. The smart meter system would substantially reduce the amount of these costs. Note that the cost of implementing a smart meter system would be justifiable in the long run given the competitive price of the smart meter to that of conventional meters and the huge benefits of the automated system. The benefits of smart metering are supported by the current trends whereby electricity vendors are switching towards this technology –smart metering is supported by smart grids systems. This phenomenon is crucial in seeking consumer acceptance and competitiveness in the electricity meter market.
Consumer acceptance
Cost, trends, and aesthetics determine consumer acceptance, which in our case determines the commercial viability of the TXIV smart meter. This meter is distinctively qualified for low-cost mass production, a factor that is vital in maintaining the low price of our product. The aesthetic value is not of fundamental importance, although ‘mass customizability” will allow the production of TXIV smart meter on a large scale while meeting customer aesthetic preferences. This would be achieved through the use of advanced tooling technologies that will allow the production of TXIV smart meters in unique shapes and colors. The trends in smart metering point to the significance of developing cost-effective systems. Most electricity retailers are switching to this new technology as illustrated in the increasing development of smart grids that support smart metering.
On the other hand, consumer acceptance is important in facing the negatives effects of a sluggish economy. An economic slowdown is often characterized by a high unemployment rate, low purchasing power, and reduce income for companies. Sometimes, a sluggish economy makes the rescheduling of projects that require huge investments is inevitable. Therefore, consumer acceptance will allow us to proceed against the current adversities of the global economic slowdown.
A marketing Analysis
Overview
The viability of our TXIV smart meter project will be determined to a large extent by its market as well as the marketing approach. Marketing and sales is a vital component in the valuation of a product (Porter, 1985). The factors that will critical be critical in making marketing decisions include both the current and future size of the market, its growth rate, trends, and profitability as well as the cost structure of the industry and distribution channels.
Market size, growth, and trends
As stated earlier, the meter will be sold to both the domestic market of Australia and the international market. The main customers are electricity retailers because it is their prerogative to install electricity meters for consumers; that is, to use a smart meter the electricity distribution company must be willing to support it. Therefore, our market is limited to countries whose electricity retailers support smart metering. These are mainly the developed countries such as Italy, Japan, Canada, United States, Turkey, Australia, New Zealand, Netherlands, and the Nordic countries. These countries have already implemented smart metering systems while countries such as France, Ireland, and the United Kingdom are in the process of adopting the technology (Hammerschmidt 2009 and Niepokulczycka, et. Al 2009). There is imminent growth of the smart meter market, which is substantiated by the global trend in smart metering. Several governments and electricity stakeholders have proposed and supported the adoption of smart meter technology. Furthermore, the benefits of this technology are huge.
Additionally, electricity retailers are inclined towards the use of smart meter systems. Besides acceptance and proposition by electricity consumers to install a smart meter, several governments are initiating or supporting projects for smart metering (International Energy Agency 2007). This is critical in the growth of the market. The increased demand for smart metering is also forcing companies into the innovation of smart meters in a bid to satisfy the increasing market. This results in increased competition for our smart meter.
Market segmentation
The smart meter market is almost homogenous. The main customers are big companies that retail gas energy and electricity, while governments form a small proportion. In Australia, energy distribution is the domain of privately-owned companies such as Ergon Energy, Origin Energy, AGL, and ESAA. The retailer of gas energy and electricity constitutes the only market for smart meters; water suppliers rarely fall into this category. That is, some companies have developed integrated smart meters systems that can read both gas and electricity consumptions, as opposed to one that incorporates water reading. Therefore, the smart meter market is only segmented into the domestic market of Australia and the international market to represent the level of demand for smart meter systems.
Target market
The TXIV smart meter will be marketed to the domestic market of Australia and the larger international market. The international market will comprise mainly Italy, Japan, Canada, United States, Turkey, New Zealand, Netherlands, and the Nordic countries, while France, Ireland, and the United Kingdom will form the subsequent market. The initial distribution will only target the Australian market, because of our financial limitations. With the low budget, we would not be in a position to meet the minimum requirements necessary to distribute the smart meter to the global market. The Australian market will also be our testing ground for customer acceptance. The key targets in Australia are Ergon Energy, Origin Energy, AGL, and ESAA.
Competitors
There is already a significant number of companies developing smart meter technology (Infiniti Research Limited 2009). The competing brands that are significant to us include the TRU Energy meter, Western Power meter, EnBW smart meter, and Siemens’ AMIS series smart meter. These products are superior in some way having pioneered in the research of smart meters. The notable advantages of these competitor’s brands over the TXIV smart meter include small and compact size form factor, support of remote connection and disconnection, and provision of supply capacity control.
The competitor companies are also well-positioned financially and are able to fund their projects for more innovation into smart metering. Furthermore, although, smart meter technology has been a recent innovation, these companies have established themselves in the electricity meter market.
These competitors, nonetheless, have not captured fully some basic requirements that are also significant in defining a product of high quality. These basic factors are low price and ease of installation. The competitor’s brands are sophisticated such that a technician is required to effect their installations. Also, the prices are relatively high. The TXIV smart meter offers the same capabilities at a lower retail price.
Value proposition
There are two benefits that customers would experience with the use of the TXIV smart meter. These are quality products and at competitive prices.
Quality product: TXIV smart meter is designed to fulfill a range of customer needs. Besides the reliability, efficiency, and high-performance factors, the meter will allow the following: importation and exportation of energy recording in real-time, remote reading of interval data (both routine and special reads), local reading by handheld device and via a visual display, time clock synchronization, controlled load management at the meter, quality of supply and another event recording, interface for in-home displays, loss of supply and outage detection, tamper detection, communications, and data security, customer supply monitoring, interface to a Home Area Network, and ease of setting up.
Competitive price: The price of the TXIV smart meter is generally low when compared to that of the competing brands in the smart meter market. Given that our smart meter has all the significant features and capabilities available in the competing brands, the low price makes it very competitive in the market.
Competitive edge
The TXIV smart meter has its advantages over the competitors. The low price and ease of installation are the two distinguishing advantages of the TXIV smart meter among the currently available smart meter brands. This is our competitive edge. The marketing and promotion of the TXIV smart meter will largely rely on these two factors to inform our potential customers about the superiority of the smart meter with the aim of generating more sales.
Marketing strategy
While the strengths and weaknesses of the competitors represent our threats and advantages in the smart meter market, they inform us on what should be our focus in drafting strategies to market the TXIV smart meter. The initial target market for the meter will be the Australian market because, as a domestic market, it allows us to conduct our marketing activities with a limited budget. A marketing plan will be used to organize and harmonize all the marketing and sales activities to achieve the best results.
Marketing plan
Our marketing strategy will include a promotion, use of brochures, and incentives. The initial promotion activities will entail advertisements on both print and electronic media. These include television, radio, newspapers, and magazines. Later on, advertisements through these media will be cut down considerably and only used occasionally. However, the internet will remain the backbone of our regular advertising efforts. Online technology forums will be exploited to inform potential customers of the TXIV smart meter. Brochures and posters will also be used in informing the market about TXIV smart meter. The meter will be sold under the brand name TXIV smart meter.
Pricing and sales strategy
Initially, the smart meter will be sold at a much lower price than the normal retail price to allow easy penetration into the market. While this will provide an opportunity to remedy any fault in the system, it will serve as an incentive to our customers. The meters will be distributed at this reduced price to targeted recipients, whose feedback will help in improving the performance of the smart meter. Afterward, the mater will be sold at the full retail price, which is way below the prices of competing brands. Full-scale sales will be launched when there is sufficient funding and confidence in the performance of the TXIV smart meter.
Profits generated from sales will be used in the development of the TXIV smart meter as well as in enhancing the generation of more sales. They will also be vital in sustaining the company and winning investor confidence to inject capital for mass production.
References
Hammerschmidt, C 2009, Smart meters face uneven acceptance across Europe, Web.
Infiniti Research Limited, 2009, Global smart energy meter market 2008-2012, Infiniti Research Limited, United States.
International Energy Agency 2007, Energy policies of IEA countries, OECD Publishing, United Kingdom.
Niepokulczycka, M, Rokicka, G, Kaliś, H, Skoczkowski, T, Swora, M 2009, Declaration concerning the introduction of smart metering into Polish power system, Web.
Porter, M 1985, Competitive Advantage, Free Press, New York.