Marketing Plan of the Product Submission Date: April 8, 2012 Institute of Business Administration Jahangirnagar Quit Smoke Smartly!
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Marketing Plan of the Product
Submission Date: April 8, 2012
Institute of Business AdministrationJahangirnagar
Quit Smoke Smartly!
Marketing Plan of the Product
Nicotino: Quit Smoke Smartly!
Course TitleIntroduction to Marketing (MKT 201)
Submitted to:Arafat Rahman
Course Instructor
Submitted by:Group-9: Chrysanthemum
20th Batch, BBA
Date of SubmissionApril 8, 2012
Group Members Are
Name Roll
Patrick Kanny Sarkar 801
Ashiqur Rahman Sarker
811
Md. Nafeesur Rahman Khan
821
Md. Ashiqul Islam 1332
Kaiser Mahmud 1983
Saddam Hossain 2137
iii
Letter of Transmittal
April 4, 2012
Arafat RahmanAssistant ProfessorInstitute of Business Administration,Jahangirnagar University,Savar, Dhaka-1342.
Subject: Submission of a report on marketing plan of theproduct “Nicotino: Quit Smoke smartly!”
Sir,
We are presenting a report on the marketing plan of ourproduct “Nicotino: Quit Smoke Smartly!”
In this report we have explained our business idea for thisproduct and showed the marketing plans and strategies we maytake. We have also included our estimated Balance sheetdetails for the next few years. In making this report, we hadto take help from the various sources of internet, differentinstitutes and class lectures of our course teacher. We aregrateful to them for extending generous help.
iv
We are pleased to be granted this vital opportunity andgrateful for your versatile assistance. We hope that our workwill please you. We will be available in the presentation forfurther explanations.
Sincerely,
__________________
Md. Nafeesur Rahman Khan
On behalf of the Group
Chrysanthemum
20th Batch, BBA
Acknowledgement
First of all, I would like to thank the almighty Allah.
I express my heartiest gratitude to our course instructor
Arafat Rahman, Assistant Professor, Batch Manager of 20th
batch, Institute of Business Administration, Jahangirnagar
University for his valuable guidance, scholarly direction and
unconditional support during the preparation of this report. I
have learnt a great deal from him.
v
I would also like to express my sense of gratitude and
appreciation to Dr. Md. Baktiar Rana, Director, Institute of
Business Administration, Jahangirnagar University.
Finally I would thank my group members for their kind help and
assistance in preparing this report.
List of illustrations viii
Executive summary ix
1.0 Introduction 1- 2
1.1Product offerings 1
1.2 Features and unique selling proposition 2
Table ofcontents
vi
1.3 Business model 2
2.0 Goals and objectives 3
2.1 Vision 3
2.2 Mission statement 3
2.3 Short term goals 3
2.4 Long term goals 3
2.5 Objectives 3
3.0 Competitor analysis 4- 5
3.1 Competitive force analysis 4
4.0 SWOT analysis 6- 7
5.0 Marketing strategies 8- 11
5.1 Target customer 8
5.2 Market positioning 8
5.3 Product strategy 8
5.4 Pricing strategy 8
5.5 Distribution strategy 9
5.6 Marketing communication strategy 10
6.0 Project implementation schedule and
organizational structure
13- 15
6.1 Project implementation schedule 13
6.2 Organizational structure 13
7.0 Sales promotion 16-19
7.1 Distribution channels and process 16
7.2Marketing organization structure 17
7.3 Advertising and promotional campaigns 17
8.0 Financial analysis and projections 20- 25
8.1 Financial statement assumptions 20
8.2 Accounting assumptions 20
8.3 Financial assumptions 20
8.4 Initial investments 21
8.5 Projected income statement 22
8.6 Projected balance sheet 23
8.7 projected cash flow statement 24
8.8Break even analysis 25
9.0 Contingency plan 25
10.0 Appendix 26- 27
vii
List of illustrations
Illustratio
n No.
Illustration name Page No.
1 Problems to prospect 12 Business model 23 Porter’s five force analysis of
Nicotino
5
4 Nicotino’s SWOT analysis 75 Product positioning map 86 Nicotino’s product offering 97 Wholesale and Retail price of Nicotino
products
10
8 List of product distribution zones 109 Pull strategy of Nicotino 1110 Project implementation schedule 1211 Organizational structure of Nicotino 1312 Staffing needs 1413 Distribution Channels 1514 Marketing organization structure 1615 Advertising and promotional campaign
schedule
17
16 Three year marketing budget 18
viii
Executive summary
The following market plan has the potential to be the basis
for a new product which can help the country to ensure a
smoking free environment. This product, Nicotino, is a nicotine
chewing gum, which helps smokers give up smoking by
suppressing their craving for cigarettes with almost harmless
nicotine.
Smokers take more than 3000 type of harmful chemicals in their
body with each smoke puff they inhale. Nicotine is one of them
that creates craving in smokers body. When it is swallowed as
nicotine chewing gum, it goes to liver and is dissolved as
harmless chemical. Thus it enables smokers to gradually give
up smoking by chewing these gums for few months.
Nicotino will be launched in the market at the end of December
2012. It will be launched in the market in three flavors-
original, cinnamon and fresh mint. Each packet will contain 30
pieces of gum. It will operate in the Dhaka city for the first
three years. The city is divided into 8 zones covering 16
areas. The target customers are middle class and high end
based on income. Target segment is divided into two groups on
age basis, 20-35 and 35-55 years.
Nicotino will use pull strategy to make people aware of its
products. It will be positioned as a product of moderate price
and high quality. There will be various types of promotional
campaign to make people aware of the product brand and the
ix
health benefit it offers. The marketing tools will include
TVC, FM radio ads, newspaper ads, 24/7 help desk etc.
Nicotino’s marketing budget is estimated in affordable method
which will enable it to continue the huge sales promotion
schedule.
Nicotino products are produces in its own production plant in
Sirajganj because of convenient transport and availability of
raw materials. Finished product will be distributed with help
of local distributors.
The estimated project cost is BDT 8,493,500 in FY 2012-13
which is financed by 69% equity from partners and 31% debt
from lenders. This report contains projected income statement,
balance sheet, cash flow statement and break even analysis for
FY 2012-13, 2013-14 and 2014-15. The projected financial
statements portray liquidity and solvency of the firm.
1.0 I N T R O D U C T I O N
Nicotino is the country’s first ever nicotine gum brand which
will enter the market as a Nicotine Replacement Therapy (NRT).
This gum will be an alternative nicotine source for the
smokers and will also compel them to give up smoking and thus
nicotine and other 3000 plus harmful chemicals. According to
Global Adult Tobacco Survey 2009, around 41.3 million people
of our country use tobacco in form of cigarette. For this
around 57000 people die every year due to smoke related
diseases. Also, according to World Health Organizations survey
of 2004-2005, low income households of our country spend
around 15% of their income in tobacco products, which thus
reduces private savings. Nicotino identifies these problems as
opportunity and combines two solutions into a single direction
which is producing a chewing gum that reduces the nicotine
craving of the smokers by supplying very small amount of
nicotine and ultimately directing them to give up this habit.
Solution to
smoking problem
Solution to
health hazard
Nicotin gum
Increasing rate ofsmokers
Increasing deathrate due to
Unique productfor
Bangladeshimarket
Illustration-1:
Page- 1
1.1 Product offerings
Nicotino original- Original sweetened nicotine gum.
Nicotino flavored- Nicotino fresh mint (fresh mint flavored gum)
and Nicotino cinnamon (cinnamon flavored gum).
Nicotino will launch its products in 2 small packet sizes: 30
pieces and 60 pieces. These packs will be released into market
containing 2mg strength nicotine gum.
1.2 Features and unique selling proposition
Nicotine gum is a totally new concept in Bangladesh.
Nicotine gum is a commercially and technically viable
smoke quitting solution for the smokers of our country.
Nicotine gum helps smokers quit cigarettes within maximum
6 months, generally in 2-3 months.
No artificial sweetener, color, flavor will used when
producing Nicotino.
1.3 Business Model:
Nicotino’s business model is entirely production and
manufacturing-based. Nicotino’s production process transforms
and adds value to the ingredients and produces non-flavored or
flavored nicotine gums. Nicotino will:
Produce gums in its own production plant using eco-
friendly production process.
Page- 2
Sell products in 2 small packet sizes (30 and 60 pieces)
containing 2mg strength nicotine gums.
Following is the business model of how Nicotino will make
money:
2.0 G O A L S A N D O B J E C T I V E S
2.1 Vision
Nicotino’s vision is to create a smoking free Bangladesh to
create a healthy nation.
2.2 Mission statement
Gum ingredients
Nicotino firm
Nicotin gum
Valued custome
r
Money
Illustration-2:
Page- 3
Nicotino wants to offer its nicotine chewing gum to help the
smokers give up smoking habit while using most efficient and
state- of- the- art technology in production operation.
Nicotino aims at establishing eco-friendly work environment and
providing better employee incentives as it continues to expand
its business.
2.3 Short-term goals:
To offer quality products at a fair price to capture
potential market share.
To create a demand for nicotine chewing gums as a
solution for tobacco use quitting process.
To persuade the target customers regarding the benefits
of using nicotine gums as a NRT for cigarettes which will
bring familiarity among customers.
2.4 Long-term goals:
To expand its operation beyond Dhaka within the year 2015
and further goes for export.
To set up new industrial unit in the west region of
Bangladesh by the year 2018.
To enlarge its product mix by adding nicotine lozenge and
nicotine patch product lines.
2.5 Objectives:
To attain 20% growth rate by the year 2014.
To attain net profit margin of 25% in year 2017.
To repay loans by the year 2020 and lever up the firm
with 25% debt by the year 2025.
3.0 C O M P E T I T O R A N A L Y S I S
Nicotino is the first production company in this country which
is going to introduce tobacco users to Nicotine replacement
therapy. That means no other company in this country offers
nicotine gums for smoking substitution. It implies that
Nicotino is going to enter the market as the only one of its
kind. Thus Nicotino will have no competitors in this country
until the time when-
The existing domestic pharmaceutical companies decide to
include this product line in their product mix.
Other multinational companies such as GlaxoSmithKline,
Aventis or Pfizer decide to launch their NRT products in
this country.
3.1 Competitive forces analysis:
Porter’s five forces analysis has been conducted to evaluate
competitive edge of Nicotino from its potential or existing
competitors. The analysis shows:
Bargaining power of suppliers is high because there are
not a lot of suppliers who can supply necessary raw
materials.
Page- 4
Bargaining power of buyers is low because the consumers
don’t have other options, but it is essential for Nicotino
to keep a moderate price to attract new customers.
Threat of new entrants domestically is low as the raw
materials are not easily available and there hasn’t been
any other company in the past whose market operation
could be monitored.
Threat of substitute is very low also.
The intra-industry rivalry is domestically very low as
Nicotino is the first company to produce this product.
The following illustration shows the summary result of
Porter’s five forces analysis of Nicotino:
Page- 5
4.0 S W O T A N A L Y S I S
Burgaining power of suppliers
Burgaining power of buyers
Threat of new entrants
Threat of substitute products
Intra industry rivalry
High
Low
Low
Low
Low
Illustration-3: Porter’sfive force
Page- 6
Strength:
Positive internal factors that Nicotino uses to accomplish its
goals and objectives are
Nicotino is the first nicotine chewing gum brand of the
country. That’s why it enjoys the first mover’s advantage
in the market.
The nicotine chewing gum option is commercially and
technically the most viable Nicotine Replacement Therapy
for Bangladesh.
The employees are given favorable work environment and it
helps to create employee loyalty.
The management team is comprised of efficient and dynamic
persons.
It will face less government regulations due to its
business intention to reduce the smoking habit in
society.
Weakness:
Negative internal factors that inhibit the accomplishment of
Nicotino’s goals and objectives are
Nicotino’s product distribution is highly dependent on
dealers.
Nicotine gum making process is highly dependent on other
ingredients. The disruption of those may hamper
production. Also a small error can create hazardous
consequence.
Nicotino has no established brand or image. So it may need
aggressive promotion to create brand awareness among
customers.
Opportunity:
Nicotino can take advantage of two major market opportunities
There are increasing rate of voice in the nation against
smoking habit and its health hazard. Recent data shows
that alone in Dhaka city, 72% of the smokers are willing
to quit cigarettes but are failing to do so. They can be
potential customers.
Government has banned smoking in public places. This
regulation helps to attract customers to our product to
help them in quitting cigarettes.
Threats:
Nicotino will face three main threats as it is introduced to
the market
The level of acceptance by people is not reasonably
certain.
Economic recession may lessen the purchase power of
potential customers.
Page- 7
As in this country, Nicotino is in the introduction stage
of its product life cycle, the production company may
have to face losses in early stages.
5.0 M A R K E T I N G S T R A T E G I E S
Making people aware about nicotine chewing gums and its
benefits.
Strengths First movers advantage
being unique product Commercially and
technically viable NRT Subject to fewer
government regulations
Weaknesses Distribution highly
depend on dealers Any small error in
production process canhamper production hugely
Need aggressiveadvertisement to create
Opportunities Increasing rate of
smokers willing to quitcigarettes
Government regulation against smoking compelling smokers to NRTs
Threats Uncertain acceptance
level Decreasing purchase power
of potential customers due to recession
Production may face
Illustration-4: Nicotino’s SWOTanalysis
Page- 8
Focusing price unique selling propositions while
developing marketing campaign
Building brand proposition to different consumers
according to their perception (e.g.; Nicotino as cigarette
expense saver for middle class consumers, health
preserver for high end consumers).
Creating customer loyalty and making customer delight by
proper quality assurance campaign.
5.1 Target customer:
Geographic location: Dhaka city for first 3 years
Demographic:
1. Social class—middle class and high end consumers.
2. Age— 20-35 and 35-55 are two prospective buyer
segments for flavored gum and original gum
respectively.
Prospective buyers: Around 540,000 ( 30% of Dhaka city’s
total cigarette smoking population fall under Nicotino’s
target customer segments)
5.2 Market positioning
Nicotino positions itself in
the market on the Basis of
its moderate price and the
health benefits the target
customers can receive by
consuming this product to
help them give up smoking.
The product position map
here shows the unique
position Nicotino will have
Harmlessto health
Lowprice
High price
relative to some cigarette
brands.
5.3 Product Strategy
Nicotino offers two basic types of products: original and
flavored. The pack sizes of
Nicotino Original is 30 and 60 piece gums per packet. Nicotino
Flavored offers 2 flavors (fresh mint and cinnamon) with pack
size of 30 and 60 piece gums per packet. All these gum are
offered in 2mg strength nicotine gum. Nicotino uses state-of-
the-art technology for packing its offers. The following table
illustrates Nicotino’s total product offering-
Nicotino
Original
Nicotino Fresh
mint
Nicotino
CinnamonGum
strength
2mg 2mg 2mg
Piece per
pack
30 60 30 60 30 60
Hazardous to
NicotinMarlbo
B&HDunhill
Gold
Illustration-5: Product
Illustration-6: Nicotino’s product offering
Page- 9
The shelf life of Nicotino is 30 months for both original and
flavored gum. If the nicotine gum becomes popular among the
target customers, then Nicotino may decide to launch two more
product lines that include nicotine patch and nicotine
lozenges.
5.4 Pricing strategy
As Nicotino is a unique as well as a new product in the
country’s market, we have decided to use the market-skimming
pricing strategy for the product. The reasons behind using
this strategy are:
68.6% of current smokers, aged 35-55, are looking for
means to give up smoking. Thus there are enough buyers
who will pay high price for the product.
As the product is totally new for Bangladesh market,
competitors are unlikely to emerge in the market easily
and undercut the high price.
Nicotino will be introduced to market at Tk.195 wholesale / Tk.
240 retail price for 30 pieces gum packet. For 60 pieces gum
packet, the price is estimated Tk.390 wholesale/ Tk. 480
retail price.
The following price list shows the wholesale and retail prices
of Nicotino products:
Page- 10
Nicotino
Original
Nicotino Fresh
mint
Nicotino
Cinnamon
Piece per pack 30 60 30 60 30 60Wholesale price
(BDT)
195 390 195 390 195 390
Retail price
(BDT)
240 480 240 480 240 480
5.5 Distribution strategy
The production of Nicotino will be done in the own operational
plant in Sirajganj because the availability of raw-materials
as well as the convenient transport and communication.
Nicotino uses a simple distribution channel with zone-wise
distributors. The Dhaka city has divided into 8 different
zones covering 16 areas. Their list is given below:
Illustration-7: Wholesale and retail priceof Nicotino products
Zone Covering areas
Zone-1 Mirpur, PallabiZone-2 Cantonment, Kafrul,Zone-3 Mohammadpur, DhanmondiZone-4 Ramna, TejgaonZone-5 Gulshan, UttaraZone-6 Lalbag, KotwaliZone-7 Demra, SutrapurZone-8 Sabujbag, Motijheel
Finished Nicotino products come directly to a Dhaka city
warehouse from the plant. Sales team will use firm’s covered
vans to distribute the product to the dealers. It will use
different specific day for specific zone. Then the secondary
distribution channel led by the dealers distributes the
product by using their own resources. Nicotino will also make
strategic alliance with super stores and educational
institutes’ canteens to sell its products.
5.6 Marketing communications strategy
Nicotino uses pull strategy as its promotion mix strategy which
is spending a lot on advertising and consumer promotion to
build up consumer demand. It makes the promotion mix efficient
enough to activate customers to ask the retailers for the
product. Here is a graphical view of the pull strategy:
Illustration-8: List of product distribution zones
Nicotino Distributors and
retailers
Customers
Illustration-9: Pullstrategy of Nicotino
Orde Deman
Marketing activities
Page- 11
Nicotino’s marketing communication mix or promotion mix
includes all the typical elements like advertising, sales
promotion, public relation, personal selling and direct
marketing. Here’s the detail:
Advertising:
Electronic media advertisements, such as television
commercials, FM radio commercials.
Print media advertisements, such as newspaper ads,
posters and leaflets.
Point of purchase advertisements, Shelf space
advertisements.
Sales promotion:
SMS contest
Price discount at special occasion
Public relation:
“Buzz marketing”—by using opinion leaders (doctors).
Written articles about awareness of nicotine gum and its
benefits.
Written features in lifestyle pages of newspapers.
Sending press release about products.
Arranging seminars under “Anti- tobacco awareness
campaign.”
Personal selling:
Page- 12
Temporary selling booth at super stores, hospitals and
campus.
“Nicotino quality assurance campaign”— a tour to
production plant to know about the eco-friendly
production process.
Direct marketing:
E-mail marketing, web marketing
6.0 P R O J E C T I M P L E M E N T A T I O
N S C H E D U L E A N D O R G A N I Z A T I
O N A L S T R U C T U R E
6.1 Project implementation schedule
The project starts at April 2012 and the commercial launch is
on January 2013. The 6-month project implementation schedule
is as follows
July’12
Aug’12 Sept’12
Oct’12 Nov’12 Dec’12
Jan’13
License andapproval
Productdevelopment
Land, building
Machinepurchase
Installation
Premisebeautification
PilotProduction
Quality testing
Commercialoperation
Page- 13
6.2 Organizational structure
At the initial phase, the operation of Nicotino is monitored by
six department heads categorized as finance, human resource,
manufacturing, marketing, research and development,
procurement and storage. The head of the departments are taken
from the partners and requirement for labors, supervisors and
managers are fulfilled from outsource. Following is the
organizational chart of Nicotino:
Illustration-10: Project
NICOTINO
Head ofhuman
resource
Head ofFinance
Head of marketing
Head ofProcureme
nt
Manufacturing
manager
Head ofmanufactu
ring
Staff
Marketingmanager
HRmanager
Financemanager
Head ofR&D
Storagemanager
R&Dmanager
StaffStaff Supervisor
Supervisor
Supervisor
Staff
Staff
Staff
Page- 14
At the initial phase, the operation of Nicotino is monitored by
six department heads. The needs of staffs can be illustrated
below based on the organizational structure:
2012-13 2013-14 2014-15
Finance unitHead 1 1 1
Manager 1 1 1Staff 3 3 3
Human resource
unitHead 1 1 1
Manager 1 1 1Staff 3 3 3
Marketing unitHead 1 1 1
Manager 3 3 3Supervisor 4 4 4
Staff 16 17 17Manufacturing
unitHead 1 1 1
Manager 1 1 1Supervisor 3 3 3
Staff 12 13 13
Illustration-11: Organizational structure of Nicotino
Page- 15
R&D unitHead 1 1 1
Manager 1 1 1Staff 6 7 7
Storage unitHead 1 1 1
Manager 1 1 1Supervisor 1 1 1
Staff 5 6 6
All the staffs are permanent and recruit by giving
monthly wages
The production unit needs extra staffs each years due to
process more raw-materials
The staffs are giving all privileges stated in
“Bangladesh Labor Code 2006.”
7.0 S A L E S P R O M O T I O N
7.1 Distribution channels and process
Illustration-12:Staffing needs
Page- 16
The distribution channel of the Nicotino can be easily shown inthe following figure:
As it is shown in the graph, the retail distributors and
dealers can place order by using order form or through
internet. The customers can place orders only through the
website. The distribution process goes as the following:
Finished Nicotino products are transported from the
Sirajganj plant to a warehouse that is situated in Dhaka.
Nicotino uses intensive distribution strategy, which means
that this product will be available in all the outlets on
basis of demand by dealers and consumers.
Our product representatives will deliver the finished
products to super stores, drug stores and departmental
stores. They may use the firm’s covered vans to do this.
Specific day for specific zone are to be assigned, so the
distribution operation may continue systematically.
Nicotino
RetailerNicotino
Consumer
Consumer
Illustration-13: Distributionchannels
Websit
Websit
Order
Retailers will then sell the products to the valued
customers.
We will provide a 24/7 call center. Also retailer survey
will be conducted quarterly by the marketing team to know
the first hand information of the customers.
7.2 Marketing organization structure
Nicotino’s head of the marketing department, chief marketing
officer holds overall responsibility for all of the company’s
marketing activity. The following figure shows the structure
of eight personnel marketing organization-
Advertising
Manager
ChiefMarketin
g
SalesManager
Promotion
Manager
Advertising
Analyst
Promotion
Analyst
Regional Sales
Regional Sales
Illustration-14: Marketing organization structure
Page- 17
7.3 Advertising and promotional campaigns
Nicotino’s nicotine gum will be first launched in the market in
January 2013. Following is the summary of the advertising and
promotional campaign during the first year of Nicotino’s
product:
In January, we will start advertising for our product
with the help of newspaper ads and creating Buzz by
providing samples to selected product reviewers, opinion
leaders, and in its case, the renowned doctors of our
country. Newspaper ads will continue whole year. Also our
marketing staff will use direct marketing by working with
retailers to explain nicotine gum’s health benefit and
advantage.
There will be television commercials which we will launch
at the month of March. These commercials will create
brand awareness among people faster. This will continue
throughout the whole year.
In May we will arrange SMS contest. We will also
distribute new point of purchase and shelf space ads.
There will be also FM radio advertising.
In July we will hold internal contest among sales persons
and the retailers offering prizes and discount to those
who will be able to sell most products in their zone
during the four week period.
Page- 18
We will launch create our own website and start online
ads this in August.
In October, there will be a discount offer for the four
week period.
In December we plan to roll out a massive advertising
campaign. We will use celebrity voices telling how
Nicotino helped them stop their smoking habit.
The following schedule shows one year plan of our advertising
and promotional campaign:
Jan‘13
Feb’13
Mar’13
Apr’13
May’13
Jun’13
July’13
Aug’13
Sep’13
Oct’13
Nov’13
Dec’13
News paper ads
Direct marketing
Television ads
SMS contest
FM radio ads
Point of purchaseads
Contest amongretailers
Website and onlineads
Discount offer
Advertising usingcelebrities
Illustration-15: Advertising and promotional campaign schedule
Following is the three year allocation of our marketing budget
at affordable method:
2012-13 2013-14 2014-15
Advertising 2,983200 5,146,400 5,146,400Sales promotion 150,000 200,000 200,000PR and personal
selling
1,146,600 933,600 1,233,600
Direct marketing 20,000 20,000 20,000Total 4,300,000 6,300,000 6,600,000
Illustration-16: Three year marketing budget
Page- 19
8.0 F I N A N C I A L A N A L Y S I S A N D
P R O J E C T I O N S
8.1 Financial statement assumptions
Total original and flavored nicotine gum production
proportion is 50:50.
The wages of production staff increased by BDT 300 yearly
started from BDT 4200.
Wholesale price of both original gum and flavored gum is
BDT 6.5/ piece.
Salaries of employees increased by BDT 1000 yearly.
Marketing and promotion expense is the highest indirect
expense and the marketing budget is calculated using
affordable method.
Office rent includes the rent of Dhaka office and
warehouse.
Accounts receivable is 10% of sales revenue each year.
Accounts payable is 35% of the raw materials cost.
8.2 Accounting assumptions
Page- 20
Depreciation policy is straight line method.
Depreciation rate is 5% for long term assets.
Inventory valuation is done by FIFO method.
Tax rate is assumed to be 40% on net income before tax
which is payable annually.
8.3 Financial assumptions
The firm’s initial investment is BDT 8,493,500 which is
financed by 69% equity and 31% debt.
The cost of capital or discount rate is assumed to be
20%.
Interest for loans is 15% per annum repayable annually.
8.4 Initial
investments
Amounts in BDT
Startup Expenses:License and approval 52,000Patent and trademarks 25,000Product development cost 64,000Infrastructure development 327,500Others 45,000Total startup expenses 513500
Startup Assets:
Land and registration 722,500
Building 600,000Machinery and equipment 4,302,600Vehicle 606,300Cash requirement 1,698,600Other short-term assets 50,000Total startup assets 7,980,000
Total Requirement 8,493,500
Loan repayment schedule
Perio
d
Beginning
Balance
Loan
Repayment
Intere
st
Princip
al
Ending
Balance1 2,622,725 522,583 393,40
9
129,174 2,493,551
2 2,493,551 522,583 374,03 148,550 2,345,000
Means of
finance
Amount in BDT % of Total
Equity 5,870,775 69%Debt 2,662,725 31%
Loan taken ( in
BDT)
2,622,725
Date of loan taken July 1, 2012
Repayment years 10
No. of installation
per year
1
Interest rate 15%
Periodic loan
repayment
522,583
33 2,345,000 522,583 351,75
0
170,833 2,174,167
4 2,174,167 522,583 326,12
5
196,458 1,977,710
5 1,977,710 522,583 296,65
6
225,927 1,751,783
8.5 Projected Income Statement
2012-13 2013-14 2014-15
Operating revenueSales revenue 15,200,000 41,800,000 51,300,000Less: Cost of goods
sold
8,232,000 20,739,500 24,166,100
Gross Margin 6,968,000 21,060,500 27,133,900Less: Operating
expensesSalaries 825,000 1,782,000 1,914,000Marketing expenses 4,300,000 6,300,000 6,600,000Office rent and
utilities
210,000 420,000 480,000
Depreciation 275,445 275,445 275,445Insurance and others 210,000 220,000 225,000Total operating 5,820,445 8,997,445 9,494,445
Page- 22
expensesIncome from operations 1,147,555 12,063,055 17,639,455Less: interest
expense@ 15%
393,409 374,033 351,750
Net income before tax 754,146 11,689,022 17,287,705Less: income tax @
40%
301,659 4,675,609 6,915,082
Net income after tax 452,488 7,013,413 10,372,623
Estimation of cost of goods sold
2012-13 2013-14 2014-15
Purchase of
ingredients
4,390,000 10,820,000 12,070,000
Transportation
cost
550,000 1,100,000 1,400,000
Packaging cost 1,520,000 4,180,000 5,130,000wages 756,000 1,782,000 2,073,600utility 960,000 2,700,000 3,300,000Other direct
expenses
56,000 157,000 192,500
Cost of goods sold 8,232,000 20,739,500 24,166,100
8.6 Projected Balance Sheet
2012-13 2013-14 2014-15
Cash 2,082,550 4,668,825 9,664,310Accounts receivable 1,520,000 4,180,000 5,130,000
Page- 23
Inventory 3,800,000 9,500,000 10,450,000Other current
assets
64,229 3,266,461 8,767,107
Total current assets 7,470,779 21,615,287 34,011,418
Long term assets 6,231,400 6,231,400 6,231,400Accumulated
depreciation
275,445 550,890 826,335
Total long term assets 5,955,955 5,680,510 5,405,065
Total assets 13,426,734 27,295,797 39,416,483
Accounts payable 2,881,200 7,258,825 8,458,135Other current
liabilities
1,728,720 4,355,295 5,074,881
Total current
liabilities
4,609,920 11,614,120 13,533,016
Long term
liabilities
2,493,551 2,345,000 2,174,167
Total liabilities 7,103,471 13,959,120 15,707,183
Paid up capital 5,870,775 5,870,775 5,870,775Retained earnings 452,488 7,465,901 17,838,524Total equity 6,323,263 13,336,676 23,709,299
Total liability and
equity
13,426,734 27,295,797 39,416,483
8.7 Projected Cash flow Statement
2012-13 2013-14 2014-15Cash flow from operating
activitiesCash received from buyers 13,680,00 37,620,00 46,170,00
Page- 24
0 0 0Cash paid for cost of sales (8,232,00
0)
(20,739,5
00)
(24,166,1
00)Cash paid to employees (825,000) (1,782,00
0)
(1,914,00
0)Cash paid for promotion (4,300,00
0)
(6,300,00
0)
(6,600,00
0)Cash paid for rent and
utilities
(210,000) (420,000) (480,000)
Cash paid for other purposes (210,000) (220,000) (225,000)Cash paid for interest (393,409) (374,033) (351,750)Cash paid for income tax (301,659) (4,675,60
9)
(6,915,08
2)Net cash provided by operating
activities
(792,067) 3,108,858 5,518,068
Cash flow from investing
activitiesCash paid for startup assets (6,281,40
0)
0 0
Cash paid for startup assets
expenses
(513,500) 0 0
Net cash provided by investing
activities
(6,794,90
0)
0 0
Cash flow from financing
activitiesCash received from loan term
loan
2,622,725 0 0
Cash received from paid up
capital
5,870,775 0 0
Cash paid for loan payment (522,583) (522,583) (522,583)Net cash provided by financing
activities
7,970,917 (522,583) (522,583)
Net increase in cash 383,950 2,586,275 4,995,485Cash balance at the beginning
of the year
1,698,600 2,082,550 4,668,825
Cash balance at the end of the year 2,082,550 4,668,825 9,664,310
8.8 Break even analysis
2012-13 2013-14 2014-15
Total costs 14,445,854 30,110,978 34,012,295Per unit selling
price (BDT)
6.50 6.50 6.50
Break even selling unit 2,222,439 4,632,458 5,232,660
30 piece /packet 74,081 154,416 174,422
Page- 25
9.0 C O N T I N G E N C Y P L A N
Nicotino will use tight control measures to closely monitor
Quality and consumer satisfaction. It will enable us to react
quickly in correcting problems that may occur. If there comes
any crisis that pushes Nicotino to exit the market, then we
have the following strategies to lessen the risk-
Firm’s primary exit strategy is converted into private
limited company from partnership firm to reduce capital
problem (if occurs) and skill managing.
Firm’s secondary exit strategy will be to convert the
product from nicotine chewing gum to a usual chewing gum.
This will lessen the risk of being dissolute.
10.0 A P P E N D I X
Nicotino’s product offerings
Page- 26
Quit Smoke Smartly!
Nicotino Drug facts
Ingredients Purpose sourceNicotine Polacrilex Stop smoking aid Nicotine compound,
solid, n.o.s.
UN1655Chewing gum base,
containing
butylated hydroxy
toluene (E321)
Carrier of
ingredients and
mouth freshener
Produced from
chicle or rubber
Sorbitol Sweetener Obtained by
Page- 27
reduction of
glucoseSodium carbonate,
anhydrous
Reduces acidic
taste
Produced from soda
ashSodium bicarbonate Works as mouthwash Produced from soda
ash, dissolved in
water treated with
carbon dioxideFlavor for smoker Flavor Vegetable based
(cinnamon, mint)Haverstroo flavor Flavor Produced from
Haverstroo compound
ZD 4932Glycerol Sweetener and mouth
bacteria cleaner
By product of
biodieselTalcum Creates gum
substance
Produced from talc
carbonateCalcium carbonate Works as gastric
antacid
Retrieved from
calcium carbonate
compound
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