STAR Industries
New product business plan: Awnings
Executive Summary
The following information has been extracted from the full New product business
plan and is intended as a preliminary briefing for STAR Industries senior and
middle management. Detailed analysis and justifications can be found in the full
business plan.
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Project Overview
STAR Industries is aiming to extend its reputation as Australia's premiere
manufacturer of quality doors and windows by expanding its range of products.
It is proposed that STAR Industries commence manufacture, distribution and
retail of fixed and retractable aluminium awnings. These can be efficiently
manufactured by a significant utilisation of existing infrastructure and with
modest additional capital investment.
This expansion would be in three phases:

Year One: production of a new range of awnings at our existing
manufacturing facilities in Sydney and Perth — distribution and sales
limited to NSW and WA

Year Two: production increased and sales expanded to whole of Australia
and NZ

Year Three: expand sales into South-East Asia; possible production
facility established in SE Asia.
The initial research indicates that there may be an opportunity to extend STAR
Industries’ operation to South-East Asia, where residential and commercial
construction is growing. The opportunity is greatest in the awnings area, where
local companies target the budget end of the market. STAR's quality range of
products can aim at the higher end of the market and will compete successfully
against other imported ranges from the USA and Europe.
Business description
The existing business of STAR Industries is the manufacture, wholesale and
retail of quality windows and doors for residential and commercial premises. The
company has been successfully competing in the higher-quality, higher-price
market. Competition generally comes from either well-established national
companies who produce quality product only as an add-on to a broader economy
product range or from higher-priced overseas manufacturers of quality products.
Business concept
The proposed additional industry area is the manufacture, wholesale and retail of
a range of awnings in both the commercial and residential markets. These would
again be positioned as higher-quality, higher-priced products.
No national competitors in the awnings industry currently specialise in high
quality product. The move into awnings is an opportunity to build on the
reputation STAR Industries already has for a quality product. It will also provide
the opportunity to sell additional product to the company’s window and door
customers, as well as a new base of awning customers.
An emphasis on modern architectural design, the use of powder-coated
aluminium and a select range of Sunscreen fabrics will establish the product as a
desirable designer addition for the style-conscious.
Proposed products
Production will initially involve five awning styles, each able to be customised for
length, depth, colour and fabric.
The awnings will be constructed with forged aluminium components. Forging the
aluminium components is stronger than traditional die-casting or permanent
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mould castings used by competitors and will allow STAR to utilise existing
technologies and processes. The frames will also be powder-coated in any of five
standard colours, using existing processes. This, along with a range of fabric
options, will result in a high-quality design product for fashion-conscious
renovators and architects.
Financial overview
STAR is in a strong financial position coming off the back of three years of the
highest levels of building activity seen in Australia and after having undergone a
minor restructure of it’s production processes. The final figures for the last
financial year are reproduced below (from STAR Annual Report).
STAR Consolidated Yearly Statement of Income (Unaudited — in $AU
millions)
Category
Sales Revenue
$
(millions)
% of
Sales
60.96
Cost of Goods Sold
Materials
Salaries - Factory
Salaries - Sales
Factory overhead
Total Cost of Goods Sold
(18.52)
(7.53)
(1.91)
(10.59)
(38.55)
30%
12%
3%
17%
63%
22.41
37%
Salaries - Admin
Marketing
Occupancy
General
(2.10)
(1.52)
(4.57)
(3.46)
3%
3%
8%
6%
Total Operating Expenses
(11.66)
19%
(2.16)
(0.49)
4%
1%
Operating Profit
8.10
13%
Interest Expense
Other Income
(1.06)
0.64
2%
1%
Profit/Loss
7.68
13%
Income tax
(2.11)
Gross Profit
Operating Expenses
R&D Expenses
Restructuring expenses
Profit after tax
5.57
9%
Start-up summary
The proposed new product range will require significant set-up effort. While many
of the manufacturing processes involved capitalise on existing in-house facilities
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such as powder coating, there will be a substantial requirement for tooling and
machinery. In line with this, new staff are required in manufacturing and it is also
proposed that a dedicated Product Manager for this product range be appointed in
the Marketing division solely to this range of products.
Total Year One new product start-up expenses (in $AU thousands)
Legal
Marketing (incl. new Product manager)
24
300
Admin and utilities
70
Supplies
410
Tooling
460
Labour
200
Sundry expenses
Total Year One Project costs ($AU thousands)
11
1,475
Total projected Year One income (in $AU thousands)
Sales revenue
Cost of sales
Year One Project income ($AU thousands)
600
(1,475)
(875)
Total Year Two new product expenses (in $AU thousands)
Legal
Marketing (inc. consultant)
Admin and utilities
24
300
70
Supplies
610
Labour
200
Sundry expenses
Total Year Two Project costs ($AU thousands)
15
1,219
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Total projected Year Two income (in $AU thousands)
Sales revenue
Cost of sales
Year Two Project income ($AU thousands)
1,900
(1,219)
681
Financing
Since much of the future predicted growth of STAR Industries relies on the
success of this project, a portion of STAR’s consolidated earnings from the past
two years will be allocated directly to funding the first year of start-up and
production. The project will be expected to break even at eighteen months and
profits from that point will underwrite planning for the expansion into South-East
Asia.
Estimated sales
As stated above, the project is expected to reach break-even point at eighteen
months. This is reflected in the projected income statements above for Year Two.
Initial estimates for sales are:
Year One — $600,000 (NSW and WA only)
Year Two — $1,900,000 (all of Australia)
Achieving these figures will be crucial to plans for expansion into SE Asia in Year
Three.
Marketing
Competition
The new range of awnings will reinforce the STAR commitment to the creation of
quality design. While all five styles would be priced higher than most existing
competitive products, the price would be less than those of importer
Euroawnings, which currently dominates the high-quality end of the awning
market.
This market advantage is assisted by import tariffs on products from the USA and
Europe. Our research indicates that import tariff levels are set to remain static for
the next five years.
Positioning
Market positioning will be crucial to the success of the new range of awnings.
Pricing for the new products will be in keeping with the use of higher-quality
materials and workmanship.
The new range of awnings will be ‘flagship’ products for STAR. Awareness of
STAR as a quality brand will be significantly increased as a result of the
advertising exposure of the new awnings.
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Strategies
While designed to be promoted alongside our existing products and also designed
to take advantage of STAR's current marketing strategies and promotional
avenues, the new awnings call for more direct appeal to public tastes. This is in
addition to STAR’s current promotional strategies which target architects and
builders through wholesale outlets, trade press and special interest publications.
Increased public awareness for these new products and for STAR will flow from
two main additional marketing efforts:
1. 30-second TV ads to be inserted in prime-time lifestyle programs
2. back-cover placement in designer and DIY renovation magazines such as
‘Inside-out’, ‘Our House’ and ‘Vogue Living’.
Project life cycle
The following represents the broad strategy to be adopted in the introduction of
STAR’s new product range. Progress of Years Two and Three are conditional on
the success of previous stages.
Year One: Start-up and initial distribution
The major project milestones in Year One are anticipated to be as follows:

Appoint new Product Manager in Marketing division

Tooling, training and testing at NSW and WA production facilities

Grassroots marketing campaign notifying existing customers and vendors
(including existing STAR showrooms) of the coming new product range

Production begins

Public marketing campaign begins in NSW on TV and in print — targeting
urban areas

First wave of orders delivered and installed

Marketing efforts expand to regional centres

Production increases to planned capacity

Revision of production, delivery and installation performance levels

Research market acceptance

Negotiations begin for local partnerships with Asian distributors

Exploration for production partners in SE Asia begins
Year Two: Nationwide distribution and two-plant manufacturing

Revise and implement changes from performance review

Grassroots marketing campaign goes nationwide

Production expands in WA and NSW

National public marketing campaign begins

National sales and installations commence

Profit point expected to be reached at eighteen months

Review of management structures based on progress at eighteen months

Partnerships with Asian producers and distributors finalised
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Year Three: International distribution

Production facilities established in SE Asia

Production begins for Asian market start-up

Promotional campaign begins in Bangkok and Singapore

SE Asian sales commence

Shipping of initial SE Asian orders

Consolidation of Australian national sales

STAR Industries new range of awnings successfully introduced

Future efforts focused on growth in established markets.
Management
This project represents a major new initiative for STAR Industries and is in
many ways a new line of business.
The existing management structure at STAR will be appropriate for overseeing
the first part of this new project. This is due to the utilisation of existing resources
with minimal new production and distribution infrastructure being required.
There will be some investment in new personnel — two part-time production
workers, one new Production Supervisor and one dedicated Product Manager.
At eighteen months a review is scheduled which will address any changes or
additions that may be necessary. This review will focus particularly on additional
resources needed for the launch into Singapore and Bangkok.
SWOT analysis
The production of a new range of window awnings by STAR Industries
represents a significant addition to our line of business. In many ways the
fortunes of this project will dictate STAR’s own success over the next few years.
What follows is a brief assessment of the internal and external forces affecting the
success of this project.
Strengths (Internal to STAR):

New range of awnings a major new product stream for STAR

STAR in a strong financial position after three good years providing
substantial start-up capital for the project

Awnings integrate well with existing product range — windows and doors

Production will mostly utilise existing plant and equipment.

Existing sales networks to assist distribution

Production and sales infrastructure fully operational

Cross-promotion of window and door products packaged with awnings

Proposed marketing strategy will reinforce STAR’s reputation for quality
for all products as there will be additional public exposure through
extensive product advertising
Weaknesses (Internal to STAR):

Risk associated with new product investment
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
Machine installation may disrupt existing production efforts

Start-up financing introduces vulnerability to STAR’s overall margins

Significant infrastructure investment may threaten overall profitability if
product launch not successful

Risk of overcapitalisation

Expansion into SE Asian markets dependant on success of first stage of
planned introduction

STAR not known for its awnings in Australia

STAR unknown in SE Asia

Limited experience in international marketing (i.e. not only unknown in SE
Asia but limited experience base in operating internationally)
Opportunities (External to STAR):

Competing Australian-made products of lower quality

Imported quality products more expensive due to tariff restrictions

Tariff restrictions set to remain static for the next five years

Continuing strong growth in the home-building sector including increased
investor spending on ‘boutique’ developments

High consumer spending levels on home renovations

Increasing affluence within targeted SE Asian market, opening
opportunities for consumer spending on housing

‘New brand’ effect in SE Asia
Threats (External to STAR):

Competing Australian-made products of lower price

Bust in housing markets if interest rates rise substantially

Changes to tariff rates may favour international competitors (not likely)

Competition with European and USA products at the quality end of the
market

Australian products don’t have the ‘cache’ of overseas brands

Impact on STARS continuing viability i.e. its core business, if new ventures
go badly wrong and create a continuous drain on finances (common
scenario associated with international ventures/expansions – In our
strategic plans should we have some contingency plans on what we will
do, including timeframe statements for how long we will stay with the
ventures, if they go belly up? - Lee)

Impact of delays if STARS Remunerations and Benefits package fails to
attract suitable applicants for new positions or if key personnel leave the
organization (Linking into the issues in the Remuneration and benefits
module – possibly another threat is internal remuneration and benefits
relativity issues if the new international appointees receive a remuneration
package far better than existing managers – Lee)
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Finally
This Executive Summary for the STAR Industries new window awnings product
launch has shown that there is great opportunity for growth in the coming years.
Along the way there are many challenges to face and the whole process will need
to be closely supervised and realistically resourced.
The future of STAR Industries rests largely on the success of this project.
Successful achievement of the goals set out above will mean that STAR has the
opportunity to become a dominant force in the South-East Asian marketplace.
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