issue

start-Ups

examples

Emerging technology business needed to develop an optimized pricing strategy for entering and succeeding in a new market
Business had developed a protocol and hardware system to offer email and internet services on airplanes
- Their approach and components were demonstrably superior to alternatives
From their standpoint, the only remaining question was setting specific pricing level to maximize return

In order to determine a revenue forecast, we pursued detailed research and developed elasticity curves as a basis for pricing decisions
To understand the technology costs/economics, we constructed a granular business model based on cost-driver relationships, projected subscription rates, pricing alternatives, technology development, equipment requirements, and airline partner participation
We quickly discovered that the economics required extremely high usage per customer because of extensive fixed costs
In addition, as a result of detailed surveys of customer segments, we noted that customer price points were much lower than expected (and potentially below breakeven)

As a result of our initial work, we realized that our client's technology faced the same discouraging economics of other form of in-flight communications: high capital intensity requiring unrealistic pricing or usage
We therefore asked the client to consider a shift in strategic positioning by forming a joint venture with an airline consortium
As we constructed the detailed economics, the advantages of a JV included leveraging the business traveler relationships, scale of customer care operations, and capital resources of airline incumbents
The revised JV-based business plan was a good strategic path for airlines to share risk, deliver a viable technology immediately, and turn EBIT positive by year 3
To support negotiations, we significantly increased the granularity of our model by defining operational requirements (headcount by department, etc) and key managerial metrics (calls per customer care agent, etc)

For our client, the primary value added was gaining an end-to-end business perspective on the applications, segments, and strategy that were critical to the launch of a viable business
- Their expertise was in the technology itself - not in defining customer elasticities, developing an alternative capital structure, or defining critical elements of a potential JV
Our ability to focus on these critical elements of the future business enabled the creation of a strong business platform and allowed the company to focus more directly on its core competencies of technology development