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ENTREPRENEURSHIP – ASSIGNMENT R & R - C ase Study Anal y si s 1. What factors created the opportunity? Bob Reiss was well aware of the trend in the gaming industry and the potential which he could cater to. He realized that there was a demand for trivia games and that there was insufficient capacity to meet the demand to meet the upcoming season. With the video and computer games loosing popularity, he looked for a short-term potential that would be covered
in
a
one
year
window
of
opportunity.
He
conceptualised the idea from one product market “Trivial Pursuit” and followed the trend to develop Trivia Inc. The success of Trivial Pursuit in the Canadian market was a major factor that created the opportunity as from his years of experience in selling games in US, sales here approximate 10 times of sales in Canada. This wide spread crowd he estimated would eventually create interest in Trivia games and build up the entire venture. Television being the source of idea he was sure to capture a significantly large market for his product as an average American family would watch over 7 hours of television per day.
2. What were the barriers and risks that Reiss had to overcome? The major barriers and risks that Reiss had to overcome were: Minimal focus on mass-scale advertising and creating a brand image Competitors already selling Trivia games
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Finance to start the business A high risk that the interest in Trivia games would die down soon if new variants weren’t launched Formulating 6000 questions by himself TV Guide opted to be only the licensor Starting up a venture with low cost initially was a challenge Educating Venture Capitalists about the deal was a barrier in itself There was a high risk to create a trivia category that Trivia Pursuit didn’t cover
3. How did he overcome them? Reiss adopted various strategies to deal with the major challenges he faced during the planning and execution of the venture. The methods he adopted were: Two-tiered
approach
for
advertising
–
Reiss
distinguished between the mass merchandisers and the department/gift stores. The strategy was to quickly sell to upscale retailers who would establish a full retail-mark-up which were usually department stores. Reiss employed two different sets of reps for these channels. Cooperative ads was a powerful attraction for different buyers and the stores would be asked for minimum purchase orders instead of being charged for ads with their names in it. Teaming up with Kaplan – Reiss used his strong network to seek help from Kaplan who was his long-time friend and teaming up with him to secure a line of credit from him to purchase supplies for initial run. Kaplan would work on
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production and shipping with Reiss focus on marketing and selling the game. TV Guides association – Reiss was able to convince TV Guide to be a licensor and gave a contract to manufacture the game. Since TV Guide was the magazine which specialised in television coverage and was popular amongst the households in US, a strategic alliance with them in this form was positive for Reiss. He was also at ease preparing 6000 questions for the game as TV guides management insisted their employees develop each question for which they would be paid. In this way Reiss could focus on other developments of the venture. Cost Reduction – He employed various methodologies to reduce cost, firstly, the questions and answers were printed in books rather than cards. Through Kaplan’s connections, they were able to find good suppliers. Also their Just in Time concept and customized computer program helped them decrease their estimated costs by 30 %.
4. How much money was made by Reiss from the R&R VENTURE? The Trivia Inc. venture would share profits among R&R and Kaplan, in which R&R would have the exclusive rights to market the game and would receive a commission of 20% of the whole sale price from which it would pay 7 % to sales rep. In net, Reiss would get 13 % of the whole sale price and 50% of the profits earned by Trivia Inc. Company. Reiss share of money is calculated as follows: In $
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Revenue @ 12.5 per unit Variable Costs COGS @ 3.1 per unit Ad Allowance @ 5% Factor @ 1% Royalty for Design @ 5% TV Royalty @10 % Sales commission @ 20% Total Variable Costs Contribution Fixed Costs Customized computer program Design launch Bad debts Inventory disposal Total Fixed Costs PBT
7,250,000
Reiss share of Profits Sales Commission @ 20 % Sales Rep Commission Total money made by Reiss
1,156,000 1,450,000 (507,500) 2,098,500
1,798,000 3,62,500 72,500 3,62,500 7,25,000 1,450,000 4,770,500 2,479,500 2,500 50,000 15,000 100,000 1,67,500 2,312,000
5. Why was Reiss so successful? Reiss was successful in his venture as he had an excellent understanding of the market and extensive experience in this space. The major reasons being: He had relevant knowledge, strong contacts and reach in the industry by which he was able to print and manufacture the game at the same cost as a big company where economies of scale would come into picture.
Reiss was an opportunity finder where he would always find the best way to do business in a different way and earned profits in return.
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Reiss was passionate towards his idea of Trivia Game and did everything he could to explore new methods to make it successful.
His way of doing business was very motivating as he took care of his suppliers by charging them full mark up and encouraged sales representatives. He proved his trust on Kaplan and TV Guide which made them ready to help him. He was also able to build a loyal workforce as he would always pay on time.
His creative ways of thinking helped him reduce cost using the successful marketing plan devised by him.
He always kept a close watch on the changing market dynamics and planned to introduce a new game ‘WHOOZE IT” as he knew that Trivia would lose its popularity soon.
6. What was the breakeven for R&R, and what was it for a big player like Parker Bros? The fixed costs for developing Trivia game for R&R was $ 50,000. Also some $ 30,000 was needed to finance the first production run. R&R would break even at approximately $ 80,000. On the other hand, Parker Bros. incurred fixed costs of roughly $ 250,000 for design and development along with advertising and promotion budget of at least $ 1,000,000. So compared to R&R, Parker Bros would break even at a much higher cost of $ 1,250,000.
7. What was the minimum Size of the market for TV guidetrivia game – from TV Guide & R&R point of view? According to TV guide and R&R point of view the minimum size of the market for TV guide – Trivia game is 34,000 units. This
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was based on the calculation of 0.2 % conversion of approximately 17,000,000 copies of TV Guide magazines in households.
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