COMM132 MID-TERM

FALL 2015
INSTRUCTIONS

Your mid-term has two parts:

a) a take-home part done with one other person worth 25 marks. Your mark on this
part will be converted to a grade out of 25 (e.g., 80% = 20/25)
b) an in-class case done solo worth 5 marks that will happen Friday of mid-term
week at the scheduled time (this is open book so bring your course manual plus
a calculator). The actual rooms for the midterm havent been posted yet.

Your take-home comprises the questions and instructions at the end of the EnviroPower
case. See page 10 at the back here.

Make sure the names and sections of both partners are on the title page.

I know you will do well on this and look forward to seeing your work!!

ENVIROPOWER TURBINES (EPT)

I am very concerned about renewable and alternate energy resources.
I want to make a difference in Canada and help consumers save money,
while also improving our wonderful Canadian environment.
It was August 2014, and Michelle Erikas had worked at a 21-person internet-support
corporation for the past six years since she graduated from university. Her employer, EZ Corp.,
specialized in helping businesses improve their ecommerce, social media, search engine
optimization (SEO), web design and web traffic analytics. Due to her passion for the
environment and dream of owning a business, Michelle liked her job but used her spare time to
develop a unique wind turbine for regions where winds averaged from 8 mph and up.
One month ago, Michelle had assembled her first full-scale prototype in a rented, 200 square
meter work shop. She calculated that two of these windmills, together with a battery/diversion
system, would be capable of easily supplying the normal electrical energy requirements for
many types of buildings (e.g., schools, farms or business).
With further development, she believed the wind turbines could also be used in private homes.
However, the turbine might have to be redesigned to better complement or blend in with
residential locations.

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Michelle planned to target farmers since she was raised on a farm. She had many connections
with farming associations and was a member of the Canadian Wind Energy Association
(www.canwea.ca), which further increased her access to additional farming and environmentally
oriented organizations.
Michelle had started developing prototypes while studying Commerce at Ryerson University,
where she met and moved in with an engineering student and childhood friend, Kurtis
Alexandre. Kurtis had helped Erika with her wind projects and was also passionate about
environmental causes. They were still friends even though they currently lived separate lives.

Power
Wind turbines have a power rating in kilowatts (kW). Utility bills are measured in kilowatthours (kWh) (i.e., power usage multiplied by time). For example, a 100-watt light bulb used for
10 hours uses one kWh (1,000 watts = 1kW). Michelles turbine could produce a maximum of 10
kW/hr. Therefore, under perfect conditions, it could theoretically generate 87,600 kW per year
(10kW/hr x 24 hours x 365 days). In soft breezes, though, it would only generate a handful of
watts. In many communities, excess watts could be diverted and sold to utility companies which
would provide additional revenue to help off-set the cost of the turbine system. A colleague had
told Erikas that hydro companies were currently paying anywhere from $0.08/Kw to $0.19/Kw in
some parts of Canada.
Michelle found that a small rural farm (e.g., 3 bdrm house with A/C and fuel heating, a barn, and
an irrigation system) uses about 2,500 kw/m in an area with a 4-month winter. An average home
in a similar area (3 bdrms, A/C, appliances, fuel heat) would use 1,500 kW/month.
Calculating the real power output of a wind turbine involves multiplying the mechanical
efficiency by the wind speed, air density, and rotor blade length. Up until Michelles design, most
windmill systems needed at least 10 mph winds to produce significant power. Above the 10 mph
threshold, energy increases exponentially with speed (e.g., a site with 12 mph winds can
produce 70 percent more energy than at 10 mph).
Also, a 10-foot windmill blade has a 58 percent larger sweep area than an 8-foot blade, thus
causing a 58 percent increase in energy production, per blade rotation. The chart below
highlights the relationship between wind speed and kW production and was developed by a
friend of Michelles.

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MPH

Michelles new system was a revolutionary 3-meter spiral model with the power output of the
standard 4 and 5-meter models currently on the market. Below are images of a traditional wind
turbine with 4-meter blades beside Michelles unique spiral system.
TRADITIONAL DESIGN

MICHELLES DESIGN

Typically, a 3-bedroom home in Ontario averages 18,000 kilowatts (kW) per year assuming a 4month winter period, air conditioning, and fuel heating. A 2-bedroom home in Victoria, with
warmer winters and a smaller living space, would average 11,000 kW/yr. The same 2-bedroom
home in Labrador, with colder temperatures, would average 17,000 kW/yr.

Target Markets & Distribution

Through discussions with friends and colleagues, and via analysis of sample wind and
weather charts, Michelle felt there were two major farming markets she wanted to target. Firstly,

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there would be the three Canadian Prairie Provinces with 14,600 registered farms and 47,700
businesses of sufficient size to be in her target market. Secondly, there were the American
central states with 9,900 registered farms and 119,900 businesses. North American business
and farm totals, of the size she targeted, had remained steady for the past few years due to
new-start and closure rates. Through conducting research, Michelle found there were 3
companies already selling the more-traditional windmills to farms and businesses in Canada.
Also, she discovered there were 5 firms competing in the Canadian solar panel market. She
was unable to find out how successful were these companies.
Michelle had seen a recent report that suggested 92 percent of farms and businesses had not
yet installed alternative power systems because of consumer issues related to:
a) Weak brand recognition of products (e.g., which is the best brand?);
b) Perceived high cost of installation (e.g., ROI?);
c) What happens if a part breaks or service is needed? (e.g., how close and reliable are
the service providers?); and
d) Poor quality and training of sales people in this industry (i.e., high staff turnover,
weak product knowledge, inability to answer all questions).
The report also suggested that there was an opportunity for alternative-energy companies to
develop a more-professional, marketing-oriented approach to selling and demonstrating their
energy systems. Typically, alternate energy providers would distribute their products and
services in one of three ways:
a) directly from the factory to the consumer; or
b) from factory to a company-owned dealer who would sell to the consumer; or
c) from a factory to a farm implement dealer (e.g., John Deere, Massey Ferguson,
Kubota, New Holland) who would sell to the consumer (see Appendix 1).
Sales approaches for alternative energy varied, but often included booths at tradeshows, faceto-face home calls and visits, video demonstrations with testimonials, fact sheets with costs and
potential-savings details, warranty information, and technical specifications. Warranties ranged
from 1 to 3 years of full coverage. Michelle had planned to use a farm implement dealer network
to distribute, service and help sell her turbines.
She had not decided which one to approach or how best to sell these dealers on partnering
with her. Commissions to dealers typically ranged from 10% to 15% of selling price. She also
wondered if there might be a better way to sell.

Pricing & Costs

Michelles competition sold comparable kW-rated systems ranging in price from $15,000
to $29,000 in Canada and the USA. She estimated that a sales price of $18,000 (in either US or
Canadian dollars) would be competitive for a complete system and installation. Michelle
envisioned that each of her systems would comprise:
two turbines,
a battery/diversion system, and
estimated costs of $1,000 for installation, $1,000 for transportation, and $1,000
for the three-year warranty.

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At this selling price, Michelle estimated she could net $4,400 per system, a figure that did not
account for any commissions.
Michelle estimated that a turbine owner could expect to save enough on her or his electricity
charges to recover their investment within 4 to 5 years, and wouldnt have to replace the battery
system for up to 10 years. Based upon her estimates, costs would be $4,800 per turbine for the
first years production. For her projected first year of business (see Table 1), full assembly would
require a building with approximately 400 square meters of space. Michelle had found a building
that she was ready to lease for $60 per square meter per year. This building had a total of 1,200
square meters of space available. She could rent extra space at this rate, as needed.
The $4,800 cost comprised materials and factory wages, assuming production of 60 turbines
per 5-day week, 8-hour-per-day shift with 3 full-time plant workers. Using this one shift of
workers per week, she estimated this was 55% of total possible capacity. After her first year, and
as production techniques improved, she believed the materials and wages costs could be
reduced by 1/3 for each turbine because of purchase volumes and partial use of robotics.
Michelle worried that customers might be concerned about the payback period because of
further advances in windmill design or technological advances in other fields that might cheapen
energy options within the next few years. Michelle also believed that her present turbine design
could be made more efficient with further research, and from the utilization of improved battery
systems currently being developed by other companies. Although the Danish-made
battery/diversion system that Michelle had chosen to sell with her system was very reliable,
individual cells might occasionally need to be replaced.

Financial Considerations
Development of her turbine had already cost Michelle more than $190,000, which was
financed by mortgaging the family home. Initial equipment expenses had been $45,000, while
materials for ten beta-test prototype turbines had cost $37,000. This did not include the
battery/diversion systems which would be ordered from the manufacturer as required. Michelle
had already purchased the equipment and materials, and had used most while developing her
prototypes. This was all part of her star-up costs for new venture that she had planned carefully.
With the help of an accountant, Michelle estimated the expenses to open and operate her plant
would average $5,000/day (5 days per week, 50 weeks per year) for management salaries,
benefits, utilities, and miscellaneous expenses. Recently, a consultant had advised her that a
$1,600,000 first-year marketing budget would provide sufficient coverage for her targeted
markets if she hired a marketing agency to manage her marketing campaigns and execution.
The bank would finance another $450,000 if Michelle increased her home mortgage by
$175,000 and assumed a mortgage on the building if she decided to buy it.
Through a Canadian Federal government new-venture grant, Michelle had hired a top-ranked
alternative energy consultant who prepared a concise four-page marketing feasibility study. This
study suggested Michelles turbines could get 2% of Canadas registered prairie farmers and
1.5% of its businesses as clients in her first year of operations. In the second year of business,
the consultant believed it would be possible for Michelle to obtain 1.5% of farmers and 1.5% of
businesses in both the USA and Canada. The consultant also believed expenses would remain
the same for both years due to economies of scale (see Table 1).

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Other Issues
Michelle believed her turbine might also be suitable for any area where the unique
design would not be to the detriment of the neighbourhood (e.g., industrial parks). To date, she
had applied for a patent for her EnviroPower brand turbine system. She also had started
contemplating how best to manufacture, distribute, sell and service her wind turbines.
Initially, she thought setting up a site such as www.enviropower.info would help promote her
product. She had searched www.nameboy.com to see if she could register this site name, and it
was still available. She budgeted $5,000 per month for her possible Internet-related expenses
(e.g., site development, social media, search engine optimization, content development, etc.).
She was also wondering if an ecommerce support business like www.shopify.com or
www.volusion.com would be the best way for her to quickly launch a Web site.
Kurtis, however, was becoming a little worried about the additional debt her plans might cause.
He reminded Michelle that starting a new business had the potential to impact her lifestyle,
especially due to the recent addition of twins to her family. Business colleagues had also
suggested to Michelle that her venture might require additional funds for cash flow to sustain
operations until sales targets were achieved.
Lastly, she had been told that there were unique issues related to selling and servicing in
American markets. Michelle knew she would need additional expertise, since her skills were in
research and she little experience in hiring or starting a business.
As she reviewed the consultants estimates below (Table 1), Michelle was both excited and
nervous, and wondered what her next steps should be if she wanted to make and market her
turbines.

TABLE 1
CONSULTANTS PRELIMINARY MARKET FEASIBILITY PROJECTIONS FOR FIRST YEAR
($ 000's)

1st Year
Canada
Only

1st Yr Assumptions & Explanation

REVENUES
Canadian Farm Turbines

$5,256.0

1st yr = 14,600 farms x 2% = 292

systems x $18K

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Canadian Business Turbines

US Farm Turbines
US Business Turbines
Total Revenues

$12,888.0
$18,144.0

47.7K x 1.5% = 716 systems x $18K

Materials & Wages

$9,676.8

Deliver, install, warranty, battery

Total CoG
Total Gross Profit

$4,032.0
$13,708.8
$4,435.2

1st yr = $4.8K x 2 x (292 + 716

systems)
1st yr = $4K x 1008 systems
addition
Total revenues Total CoG

addition

COST OF GOODS

EXPENSES
Marketing
Internet
Salaries, benefits, utilities
Building lease

$1,600.0
60.0
$1,250.0
$24.0

Given
$5K/m x 12
($5K/d x 5 days) x 50 wks
$60/m2 x 400 m2

Total Expenses

$2,934.0

addition

$1,501.2

TGProfits Exp = NProfit

NET PROFIT (LOSS)

Appendix 1
Sample Photo of John Deere Dealership

http://www.google.ca/imgres?
q=John+Deere+dealer&hl=en&biw=1920&bih=971&tbm=isch&tbnid=irhAsfbhqPOVGM:&imgrefurl=http://businessequipment.blogspot.com/2011/02/new-john-deere-tractors-dealers-in.html&docid=zr9IA4auo3TKM&imgurl=http://3.bp.blogspot.com/_3a6arY_xCJ0/TUgo4CfMBMI/AAAAAAAAADA/QEEMnoBvu88/s1600/John_Deere_
Dealer.jpg&w=638&h=427&ei=4YkqULr0DKm4yQGVv4HwCg&zoom=1&iact=rc&dur=475&sig=103429371451643581079&page=1
&tbnh=144&tbnw=201&start=0&ndsp=40&ved=1t:429,r:29,s:0,i:162&tx=135&ty=90

Sample Photo of Massey Ferguson Dealership

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http://www.google.ca/imgres?
q=Massey+Ferguson+dealer&hl=en&biw=1920&bih=971&tbm=isch&tbnid=yAL4mH7SZZkq0M:&imgrefurl=http:
//burgesssalesandservice.com/&docid=J6bbqZyOMDpRuM&imgurl=http://burgesssalesandservice.com/mediac/450_
0/media/Website%252420Pictures
%252420026.jpg&w=450&h=337&ei=TooqUKHyBfKvygHruYD4Cg&zoom=1&iact=rc&dur=398&sig=10342937
1451643581079&page=1&tbnh=145&tbnw=214&start=0&ndsp=40&ved=1t:429,r:39,s:0,i:193&tx=96&ty=72

ENVIROPOWER QUESTIONS
Q1: Any concerns about the estimates or assumptions in Table 1 in the case? (10%)
Q2: Calculate the totals for the 16 shaded cells in Table 2, below. This combines USA and
Canadian business. Show your explanations, calculations and logic. Assume results go
according to the consultants and Michelles vision as described in the case. (16%)
TABLE 2: SECOND YEAR ESTIMATES
1st Year
Canada

2nd Year

Explanation

Can + USA

REVENUES
Canadian Farm Turbines

$5,256.0

Canadian Business Turbines

$12,888.0

US Farm Turbines

US Business Turbines

Total Revenues

$18,144.0

Materials & Wages

$9,676.8

Deliver, install, warranty, battery

$4,032.0

Total CoG

$13,708.8

COST OF GOODS

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Total Gross Profit

$4,435.2

Marketing

$1,600.0

Internet

$60.0

Salaries, benefits, utilities

$1,250.0

Building lease
Other

$24.0
-

Total Expenses

$2,934.0

EXPENSES

NET PROFIT (LOSS)

$1,501.2

Q3: What would you say are 6 key marketing-related issues in this case? Briefly explain
your logic. (9%)
Q4: What are other non-marketing issues that need to be addressed? (5%)
Q5: Explain which one of the 12 Marketing Checklists you think could be most valuable
to help with this business situation and to resolve the key issues? (5%)
Q6: Pick six of the 94 Marketing Nuggets that you think hold much potential for helping
move this business forward and to help resolve the key issues. For each one, briefly
explain your logic. (9%)
Q7: Pick six of the 64 Sales Tips that you think hold much potential for helping move this
business forward and to help resolve the key issues. For each one, briefly explain your
logic. (9%)
Q8: Assuming you have the money to invest, would you invest in this new business?
Three reasons why or why not. (9%)
Q9: Imagine you are hired to develop and manage the marketing campaign and budget
for the launch of this business. Imagine the official start date is February 14, 2016, in
about 18 weeks and as of that date you will be able to sell windmills all across Canada.
Your head office and assembly plant will be just outside Toronto. Develop your grand
opening, coming out, launch campaign. Discuss what you will do, what will be your
themes or messages, where this will happen, how much of your budget you would
spend, who you would target, and how you would measure if this was a successful
launch or not. Also, talk briefly about what has to happen between now and Feb 13 th.
(20% + 5%).

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Q10: Anything else? Final thought(s)? Lagniappe? (3%)

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

ENVIROPOWER INSTRUCTIONS
- Create a formal report with title page that answers the 10 questions above.
- Use subheadings to denote each new question, please.
- Use a cover page that includes your consulting companys name, a logo or graphic,
the date, the course, my name, and names of the two people in your team.
- Only print on one side of the paper, please, because that is better for grading.
- Use page numbers and print single spaced, please, using Arial 10-size font for the
main parts of the papers. Headings can be a different size (e.g., 12 or 14 size font).
- Use standard 1 (2.54cm) margins, please.
- Show/list any citations on a separate References page at the end of the report,
please.
- You may submit either a colour-printed or black & white copy.
- There is no page limit but average submissions will likely be around 10 pages in
total.

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