SITUATION ANALYSIS

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1.          Problem Overview

             One major problem that needs to be addressed is the scare resources that are available for

Charmed Technology. Charmed investors are keen to ensure that the company keeps costs within

the strict budget, which places the company in a jeopardized decision-making situation. Although

it is apparent to Charmed that an in-house marketing team can help the company acquire the

mainstream customers, it faces with the trade-off of cutting back R&D developers. The key to

prevailing adoption of CharmIT depends heavily on the performance of the device itself.

Moreover, Charmed’s current success has always depended on its continuous effort improving its

product through R&D; thus, the consequence of Charmed’s decision on this particular issue would

have a long-term impact on the company’s strategy and competitiveness due to reallocation of

funds from R&D to marketing.

            Everyone wears clothing, but sadly not everyone wears a computer1.            Whether the

mainstream consumers are ready to accept and wear CharmIT is a very controversial question. The

mainstream users must be ready to embrace Charmed’s vision as well. In order for Charmed to sell

to the mainstream segment, the first step is to build understanding and awareness through

advertising. The company has thrived in generating as much mainstream media attention as

possible by positioning and promoting itself to the public through fashion shows. However, the

drawback is the misleading message that can cause confusion and misunderstanding among

consumers. Now that the world sees Charmed Technology as a “fashion” company rather than a

devoted “hardware” company, people might start losing confidence in CharmIT’s technical

capabilities. Charmed, therefore, must overcome this obstacle to convince the world that it is very

serious and competent in what it does in bringing consumers the wireless wearable computers.

            Charmed also needs to sort out other marketing issues: which market segments should

Charmed be targeting? How should the CharmIT be positioned? And how should it be promoted

and priced? Another crucial question is whether it is the right time for the company to launch a

marketing push.

1
    IBM Systems Journal, Vol 39, 2000
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          Now, we will explore the issues related to each of these problems.

2.        Situational Analysis

          Charmed’s objective by introducing the CharmIT, is to offer consumers a product of

minimum size, minimum weight, minimum power consumption and minimum cost with maximum

value, thereby changing the way in which people think about computing and changing the way

they integrate computers into their lives.

2.1       Internal Analysis: Strengths and Weaknesses

Product

          CharmIT is the first consumer wearable, full-working computer enclosed in a lightweight

aluminium case that could be worn on a belt. It can be plugged into any standard computer

monitor, but recommended is a “heads-up” monitor from one of several third-party companies.

The product could also be used with any number of input devices from other firms. When a heads-

up device and a one-handed keyboard are used in combination with the CharmIT, the user could

literally operate her computer while riding the subway, attending a party, eating a lunch, or taking

a walk.

          Moreover, CharmIT is “open” hardware, run on Nanix OS or Microsoft, meaning that

Charmed made available all the plans and specifications necessary for individual users to build

their own CharmIT from scratch, using components that could be purchased at certain computer

hardware shops. The company has chosen this strategy to induce co-production on the consumer’s

side. By opening the hardware to users, Charmed is hoping that the end-user can help to improve

the technology and software applications, as a result of which the company can come up with a

superior version of the CharmIT every few months. Charmed hopes that the Nanix operating

system, which was specifically optimized for small wireless Internet devices, would eventually

become the world standard for wireless connectivity.

          For future generations of the CharmIT several additional features are in preparation, like

cellular phone technology, television reception and digital photo and video.
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But the killer application Charmed is hoping for is currently produced in-house. Augmented

Reality software (AR), which creates the ability to superimpose computer-generated text, graphics

and video in a person’s view of the real world, is the company’s focus for use with CharmIT.

“Imagine being able to walk down the street and have all kinds of information pop up in front of

your eyes in a transparent display. It could be a weather report, a stock ticker, entertainment, you

name it”, said Jarrel Pair, director of AR R&D. This AR software paired with Location-Based

Services, enables marketers to supply the customer with customized ads. While the user is, for

example, browsing the web and at the same time walking down the street, specific coupons can

pop up offering on the spot deals or taxi cabs can be ordered.

Promotion and Place

        Despite no marketing budget during the introduction of the CharmIT, word-of-mouth was

able to trigger the first orders from early adaptors and technology enthusiasts. The company’s first

sales successes are thanks to lots of mainstream media attention the company generated. This

media attention has been particularly intense because of the fact that no other technology company

had ever been as explicit in the use of fashion as a means of positioning and promoting itself in the

public eye.

        These fashion shows allowed the company to make a statement to future consumers,

namely that computers can make the wearer beautiful and sexy, framing the product towards

consumers as a sexy, wearable high-tech device, to change her mindset. Integration (with the

consumers’ lives) is an important aspect for CharmIT.            The frame can be used to create

expectations which the company can actually deliver. Charmed needs to ensure, most importantly,

that they do not over-promise or under-deliver.

        The functionality of the CharmIT is only limited to the user’s imagination. The device

contains such multi-functionality and portability that users everywhere can instantly and at

anytime fulfil their need for information in the broadest sense of the word.

Price
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        At present the production cost of one CharmIT device is about $1200, but the company

believes that when economies of scale can be reached at a production above 100 units, paired with

a new custom board and the introduction of Bluetooth, the cost would drop down to abut

$700/unit.

        Currently, the CharmIT device had a consumer price of $2000/unit (possibility of raising

the price in the future), with the requirement that buyers purchase the unit in sets of five or more.

The idea behind this concept is that the company wants to force critical mass.

When the company can get groups of people using their new product instead of individual

consumers, it gets a great product visibility in the market. People won’t see a lone user wearing the

CharmIT, rather they will see a bunch of people using the cutting edge device. This strategy is also

important because of the always nerdy-image attached with high-tech computer products, which

can now be offset by groups of users using their devices simultaneously for exciting

communication services in public.

2.2     External Analysis: Opportunities and Threats

Competitors in the Industrial Environment

        The competition is going to enter the market, even mainstream technology companies are

getting into the wearable computing industry. IBM and Philips Electronics are developing

wearable computing technologies, although targeting specific market niches.             More direct

competitors in the industry are ViA and Xybernaut. However, both companies are primarily

targeting military and industrial markets, while Charmed’s intention is to bring wearable

computing to the mainstream consumer market using commodity parts enclosed in a less pricey

case. Therefore Charmed’s position is to differentiate from its main rivals and aim at unsatisfied

needs of the mainstream consumer. It targets a completely different segment by offering a product

for daily use for a (relatively) more acceptable price.

Target Market

        Every high-tech company holds that it is very tempting to go after the industrial customer,

because they tend to be less price sensitive than mainstream consumers. But Charmed wants to set
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the standard and go for the mainstream consumer, by changing the way people think about

wireless wearable computing.

        Due to word-of-mouth, the first buyers of the CharmIT have been the technological savvy

persons and early adopters, also known as pioneers or technology enthusiasts. These consumers

represent a certain niche in the market, which could be attractive for the company since it has often

the characteristic of being more tolerant to bugs in the hardware and software. Moreover this

segment of consumers tends to be less cost-concerned, less dependent on customer support, and

they are more likely to be familiar with the open-source operating system Charmed is offering.

        After this initial wave of early adopters during the introduction of the device, Charmed

wants to aim at the mainstream consumer market. One of the most important obstacles for the

average consumer would be, of course, the price. Next to the CharmIT for $2000, the user would

also need extra input and output devices, which could result in a total cost of $3000 or more.

        Another problem with a high-tech product such as the CharmIT, is that there is a high risk

and uncertainty involved in the purchase. Customers’ risks will be derived from a lack of

experience in applying, maintaining and using the technology, which will increase the chances of

problems such as further costs, interruptions to supply continuity, unexpected side-effects or

quality deficiencies. Uncertainty is therefore a pervasive aspect of high-tech products.2 Therefore

many mainstream consumers might be sceptical about CharmIT’s performance and reliability, also

because consumers might be cynical about the complete PC replacement capability of CharmIT;

however, we feel that in this segment’s adaptability and trendiness as opposed to high expectations

for tecnology will benefit Charmed while it tests and perfects its technology in its initial stages.

        CharmIT’s success is rooted in the networked system it is placed in. The ultimate

acceptance or rejection of the product is very dependent upon the quality and trustworthiness of

the peripheral third-party products, the input and output devices which formed the complementary

network. CharmIT’s usefulness depends totally on its user network as well. The value of the


2
 Meldrum, M.J. “Marketing high-tech products: the emerging themes”, European Journal of Marketing, Vol. 29,
No. 10, 1995, pp.47
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device can only be experienced when there are enough people around you that are also using it.

The larger the user network the higher the value for each individual user.

        A positive point about the current market trend is that the availability of wireless internet is

rapidly growing. The full functionality of the product relies upon its wireless connectivity, a

service offered by Internet providers. These internet providers are yet another example of players

in the complementary network CharmIT is part of. Many businesses, universities and other

institutions offer their users a wireless network.

        Several market segments that could immediately derive significant value from CharmIT

include: individuals working in new economy’ companies located in technological capitals, Wall

Street players, University students and, last but not least, gaming enthusiasts. Industry and

medicine are also obvious markets because these customers tend to be less price-sensitive

(CharmIT costs $2000). However, Charmed does not want to go into this market; it wants to be a

first-mover in the consumer marketplace, to establish a proprietary yet open architecture, to create

the original standard for mainstream wireless, wearable computers.

Threat of Substitutes

        Most of the narrowband functionality that CharmIT was promising was already available

to consumers in some combination of other devices, such as laptops, PDA’s, cell phones and MP3

players. On the other hand, there is also CharmIT’s strength. This single device could instantly

replace all the independently operating electronic equipment, by offering all those functions in one

integrated wearable computing device. In short CharmIT is the single device that does everything.

By setting the standard in this new and evolving market and thanks to first-mover advantages

(described later), CharmIT would also be less sensitive to the threat of substitutes.

Market Trends

        When one takes a closer look at the market trends, there are many positive developments

which in turn result in favourable opportunities. The wearable computer market has been growing

over the last few years with a 21.5% revenue growth per year (1995-1999) and the projected

revenue growth is 21.65% per year (2000-2005). When one takes the diffusion rates for various
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high-tech products into consideration, the projected growth in revenue can be explained. For high-

tech products the diffusion rates, therefore market and consumer adaptation, are increasing very

rapidly in a short time. Consequently, a fast and efficient market penetration can be expected.

        Furthermore, it was predicted that by 2010, 40% of adults and 75% of teenagers in the

developed world would own wearable computing technologies; as the equipment gets less

obtrusive and more powerful, wearable computing will turn mainstream.

First mover advantages

        Charmed had the opportunity to be the first-mover in the customer marketplace, to

establish a proprietary yet open architecture, to create the original standard for mainstream

wireless, wearable computers. First movers in a new product category are often able to capture a

significantly larger market share than late-entrants, getting an unbeatable head start and reaping

long-lasting benefits. The first firm to enter the market for a specific product or service achieves

permanent competitive advantages that include technological leadership, pre-emption of assets,

and buyer switching costs.

        In an efficient capital market, a change in the firm’s competitive position that is triggered

by a new product introduction, translates into abnormal stock returns to firms competing in the

same industry as the pioneering firm. According to studies in the field of industrial organization 3,

first-mover advantages are even more prevalent in fragmented but high-technology industries.

        As such, Charmed Technologies has the opportunity to set the industry standard for

wearable computing. Standards are a powerful tool for organizing a market4. Especially for high-

technology businesses like Charmed, the introduction of product standards can assist in the

establishment of credibility. Setting the industry standard can result in the creation of a barrier to

enter the market for new technology firms.




3
  Zanthout, Zaher and Radha Caganthi. “New product introductions, shareholders wealth and first-mover
advantages”, Journal of Financial and Strategic Decisions, Vol. 9, No. 3, Fall 1996.
4
  Guillet de Monthoux, P. “Marketing by obedience: some notes on the normative paradigm for industrial
marketing in Europe”, Research in Marketing, Supplement 2, JAI Press Inc., 1985, pp.158-69
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3.     Alternatives & Evaluation

        In today’s diverse marketplace there are several companies that have innovative and

potentially successful ideas or products; however now more than ever companies are realizing that

the heart and soul of a business is marketing and sales. What good is it to have a great product

with potential, if no one is aware of it? In the case of CharmIT, they have a state of the art product

and concept of managing the life of the 21st century individual. Moreover, their products have the

possibility of taking away all the clutter in people’s lives. However, the downfall of CharmIT can

be the lack of a marketing and sales department.

        CharmIT has currently launched the sales of their products and are producing decent sales

figures. However, it is imperative for a company to not only look at the present but the future, and

currently CharmIT does not have a long term growth plan in place. With that being said, it is

important to note that CharmIT forecasts to increase short-term revenues from $3.75 million in

2001 and 12.84 million in 2002. This is not a realistic goal for a word-of- mouth marketing

strategy to reach. We believe that with strong adoption rates and excellent sales and marketing,

CharmIT can obtain these numbers.

        CharmIT’s director is faced with a strategic decision to introduce a marketing and sales

department to the company in order to obtain short term goals or continue with their strong

research and development and carry on producing innovative high-tech products or implementing

a strong long-term strategy for growth and success.

3.1    Alternative #1

       CharmIT is always a leader in their industry and since they have the first mover advantage,

it needs to be leveraged in order to increase market share, create a strong brand image, position

themselves in the marketplace and lastly be able to charge a premium. Without a marketing plan is

place this can not be obtained therefore sales forecast will not be met. In this option CharmIT will

have to reduce their R&D staff, in order to stay within budget. Overall, CharmIT will be

positioned in the marketplace and an industry leader in cutting edge developments and therefore

can charge a pricing premium. Moreover, since the marketing and sales department will have a
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decent budget to deal with, they will be able to reach the mainstream market and also

communicate their product to niche markets. The disadvantages of this option is that due to the

reduction of the R&D department, CharmIT will lack a rapid increase in innovative new products

and the implementation of this introduction will be time consuming and difficult. However, it will

allow the company to reach its financial goals to essential maximize profits and organizational

goals of not catering to niche markets but rather to the mass markets.

3.2    Alternative #2

       CharmIT can depend of word of mouth and media clips to increase their sales and to create

a positive image for themselves in hopes to increase market share and revenues. In doing so, they

can continue to produce cutting-edge products in hopes that the products will be launched. This is

highly uncertain, as the funds needed to produce new products are dependent on the sales and the

demand of the previous product.

       In this scenario CharmIT will be within their budget as they will only continue to produce

high-tech products and hope for them to be successful in the marketplace. Moreover, they will not

be able to position themselves further as a cutting-edge company to their primary and secondary

markets. However, they will continue to produce modern futuristic products and may be able to

charge a greater premium since the performance of the product is greater. In addition, this option,

there will be no strategic promotion or place strategy implemented; word of mouth and fashion

show press will have to support the company during this time of potential growth.

       Although this option will not allow the company to maximize their profits to the fullest, it

will not require manpower to implement as it will be business as usual. This option does not align

with the companies goals to grow and succeed in all aspects of business.

3.3    Alternative #3

       Long term goals are essential for a company to survive, especially in the competitive high-

tech industry. Therefore it is extremely important for CharmIT to increase market share, create a

strong brand image, position themselves in the marketplace and lastly be able to charge a

premium, so they can have a competitive advantage from their competition.
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          In this option it is suggested that CharmIT invest in receiving further financing from their

private investors and/or a financial institution so they can introduce a marketing and sales

department and continue the support of their highly innovative R&D department. Not only will

this option help the company gain a marketing edge but will allow them to be two steps ahead of

their competitors which is extremely important in the high-tech industry. Therefore CharmIT will

be able to position itself effectively through strong promotion and placement strategies. Moreover

the company will have sufficient funds to continue to innovate and produce quality products that

will allow the company to charge a price premium and make them an industry leader. With this

option, CharmIT can relocate its research centre to Slovakia so that costs are reduced significantly

and more funding can be put towards marketing and sales.

          With this plan, CharmIT can potentially surpass their revenue objectives and thus payoff

debts sooner. This plan is also a perfect fit with the companies financial and organization goals and

can take CharmIT to new heights. However, a major downfall is that it may be difficult to

implement as financing is required to launch the growth of the company. Moreover, a talented staff

needs to be hired to produce strong end results so that the company can prove to be successful.

4.        Recommendations

          All in all, the most relevant solution for CharmIT is to source external financing to develop

a strong and effective marketing and sales department. As well, to relocate their research centre to

Slovakia to minimize cost in order to meet current sales, revenue and performance expectations. In

addition, with the implementation of alternative three, CharmIT will be able to grow and leverage

their first mover advantage and innovative product. If they continue without a marketing and sales

team, they will not be able to sustain, as bigger players like IBM will take their ideas to new

heights. Therefore we feel that alternative three will prove to be successful and with the marketing

strategies forecasted for the next year (Appendix A), Charm IT will continue to be an industry

leader.

				
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