Assignment
LaminaHeat, a German company, has developed a thin film, carbon fiber heating technology for underfloor heating in bathrooms, kitchens, bedrooms, recreation rooms and other residential and commercial applications called "ComfortFilm". This material is very thin, easy to install and can be placed under most all types of flooring materials including ceramic tile, vinyl and linoleum flooring, and "laminate" floating floor systems. Typical heated flooring systems are powered by normal 110/120v "house power" from a standard wall outlet and are controlled by a wall mounted thermostat with a floor sensor that turns the power on to start the floor heating process floor and turns it off once the floor has reached its desired temperature. The most common technology used today is a resistive copper wire system similar to what is commonly used in heated car seating, but in much larger areas and at higher voltage. ComfortFilm's unique selling points (USPs) are as follows:
A. Very thin and light weight
B. Very energy efficient vs standard fossil fuel powered furnaces or electric heat pumps.
C. Heats up the entire surface area at one time vs just heating up a thin wire and waiting for the heat to transfer across the surface
D. Fast heat up rates
E. Damage tolerant (if you break a resistive wire system the electrical circuit is broken and the system stops functioning)
F. ComfortFilm is sold in 900mm wide rolls that are 10 meters long.
G. Average unit selling price in Europe is 40€/m2.
Headquartered in Ireland and with production facilities in Germany, LaminaHeat's primary market focus has been on Europe. With annual sales of 50€ million the company is looking to expand its sales outside the European marketplace so they have decided to focus expansion into the United States given the current strength of the US economy and the renewed focus on "green technologies". LaminaHeat has chosen your company, HVAC Distributors, to help them expand into the States with a goal of achieving sales of $5 million in 3 years. With this sales volume LaminaHeat believes it could establish a production facility in the States after this 3 year market introduction phase. Your management has agreed to work with LaminaHeat as a sole distributor for the US market. HVAC will purchase material from LaminaHeat at the current European price level less a 30% discount and all freight, duty and import costs (estimated to be 12% of the purchase price) will be the responsibility of your organization. As the Product Manager for heating systems at HVAC Distribution you have been assigned as the lead person to successfully introduce and sell ComfortFilm in the States at a price level to ensure HVAC makes a minimum gross margin of 10%.
Given the above, and keeping in mind that the European market works in metric weights and measures and the prime currency (other than Switzerland and the UK) is the EURO €, consider the following:
A. In what unit of measure, at what price and in what currency will you purchase the ComfortFilm from LaminaHeat?; at what price will you sell the ComfortFilm in the US?;
B. In what unit of measur e will you sell ComfortFilm in the US?
C. Since both LaminaHeat and your management will require you to provide quarterly forecasts, how much volume of ComfortFilm will you need to sell in Year 1 if the management of HVAC Distribution is expecting to realize $150,000 in gross margin in this first year.
D. As the exclusive distributor of this product in the United States, and as the Product Manager responsible, what problems could you encounter that could impact your ability to succeed?