Prelko Marketing Systems, Inc. I. Case Facts Prelko Marketing Systems Inc.

(Prelko), located in Markham, Ontario began its operations in 1994 as a personalized printing provider for large companies. The firm offers customer the ability to produce large volumes of highly customized and personalized documents using a less sophisticated software packages, Microsoft Word. However, the firms highly skilled staff allowed them to offer each customers desired levels of customization. The business was quite profitable in its early years. However, smaller players merged in 2004 and the printing business of the company had steadily decline. As a result, the company began providing software development to its clients. The software development business of the company represented almost 100% profits of the company. This prompted Nick Galceran, president and CEO of Prelko Marketing Systems Inc. to look for ways to improve the printing business because he was uncomfortable with Prelkos future resting solely on one big client, TKY Insurance. Upon looking for alternatives, Galceran discovered Sciptura, the best they have seen and yet least expensive among the options. In addition, it enables the clients to perform item customization on their own. However, the provider and inventor of Sciptura, ThamSat could not provide the required levels of customer service to clients in North America. This on the other hand created a niche opportunity for Prelko. In discussing a joint venture between Prelko and Thamsat, Galceran was presented with two options: one as a Canadian service provider and the other as a non-exclusive license distributor. II. Problem Which option should Galceran choose that would best serve the interest of their company and its shareholders? III. Analysis Industry Analysis To analyze the business of Prelko, we must take into consideration the industry it belongs to. Since Prelko offers printing services and customizable software development, it belongs under two industries: the printing industry for the former and the technological industry for the latter. The two industries might seem unrelated, but they overlap for the companys business: Prelko develops customized software for printing. As such, the two industries mentioned above will be discussed side-by-side. Using Porters Five Forces framework, we have identified five key points to use to analyze the industry and its business strategy development: (1) threat of new entrants, (2) threat of substitutes, (3) bargaining power of buyers, (4) bargaining power of suppliers, and (5) intensity of competitive rivalry. Threat of New Entrants On one hand, he printing business requires capital outlay for fixed assets and some manpower for related printing services. However, the development of technology has paved the way for more easy-to-use and relatively cheaper printers and similar equipment. Similarly, it is quite easy to develop skills on digital manipulation and graphic editing, making it easy to train people on how to customize printing needs. Thus, many small firms can easily enter the industry. Consequently, the threat of new entrants is high. On the other hand, growth of the software industry is high in all areas of the globe. While specialized knowledge is favorable to compete in the industry, start-up costs are relatively low, especially if working in joint ventures with other firms, or serving as a distributor for a manufacturer. Moreover, government

incentives for software developers prove very attractive to firms . Thus, threat of new entrants for the software industry is also assessed at a high level. Threat of Substitutes Generally, there is no alternative to printing. However, the option of sending documents digitally decreases the demand for hardcopy documents. The prevalent use of e-mail and online storage systems allow businesses to waive the need to print. In contrast, there are no alternatives for computer software. Thus, the threat of substitutes for printing is assessed at a medium level, while that for software is low. Bargaining Power of Buyers Due to the number of available printers in the area, buyers have a choice on which business to partner with. There is technically little differentiation between printers, and buyers will flock to the firm with excellent customer service and aggressive marketing strategies. Furthermore, certain businesses specialize in certain types of printers (digital, toner-based, water-based, etc.) and customers have a choice on which printer to use based on their preferences and view on quality. In addition, customers have the option to invest in their own printing equipment and move their printing business in-house. Faced with a lot of choices, buyers tend to have high bargaining power. Patents and copyrights limit the availability of certain types of software in the market. As such, buyers rarely have a choice on which software they can use, as only one type or brand may be available for their needs. Thus, bargaining power of buyers tend to be at a low level. Bargaining Power of Suppliers Suppliers for the printing industry generally have low bargaining powers. Capital assets for printing are generally long-term, so suppliers are not constantly bothered with client requests, aside from the maintenance and repairs from time to time. For companies that develop software in-house, no supplier is needed. However, for distributors, bargaining power of suppliers is quite high since the owner or original developer tends to control the terms of the contract. Intensity of Competitive Rivalry Taking into account all the factors mentioned above, competitive rivalry within the printing industry is high. This is intensified by the fact that buyers now can opt to shift away from external printers and invest in their own equipment. This is a very attractive option to buyers, as they have more control over output. Moreover, they can save on costs and time. As such, printers will need to invest in deepening their server-client relationship, and intensive marketing efforts. Conversely, competitive rivalry within the software industry seems low, especially if the firm can specialize in a certain type of software. Doing such means it will have little to no competitors, allowing it to control the market, or at least obtain a sizable chunk of it. Qualitative Analysis of Prelko Marketing Systems Combining all the aforementioned, there seems to be a number of opportunities for Prelko to enter the customizable or personalized printing software business. This is a sustainable alternative solution addressing the intense competitive rivalry within the printing industry and the issue of its customers moving industry in-house. Moreover, Prelko has already established itself in both the printing industry and software industry. Combining the firm s knowledge in both industries, in addition to the first mover advantage by having customizable printing software, may prove to be lucrative for the business.

http://www.newswire.ca/fr/story/619913/canada-s-software-ceos-predict-strong-year-of-growth-pwcsurvey
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Below is a summary of other qualitative aspects of Prelko presented in a SWOT Framework. STRENGTHS

WEAKNESSES

The firm has a highly skilled staff which allows it to offer customization according to each customers specifications. The company has strong technological capabilities. OPPORTUNITIES

Only revenues from software development represent profits for the company. All the companys profits come from its contract with only one large client. THREATS

Scriptura, new software for printing, has yet to be adopted by Canadian firms due to the inability of the manufacturers to provide adequate levels of customer service.

The industry to which the company belongs is dominated by few large players. Customer demands are changing and clients are starting to consider doing their own personalized-document creation.

Evaluation of Options

In both scenarios, the net benefit that it would give the company would have to be evaluated in making choices. As seen in the computations in the previous page, only additional revenues and costs were considered in arriving at the net benefit. For example, the annual salaries of the five staff members of $55,000 were not included because the companys already incurring it currently. It would still have to pay $55,000 even if it chooses option 1 or option 2, or neither. However, those costs which the company would have to incur if it chooses either option, like the training costs, start-up costs, etc., would have to be deducted from the total expected revenue to get the net benefit. In option 1, revenue was computed by multiplying the amount of full service coverage by the potential number of customers, which was 3 clients. In option 2, it was basically the same except that the total number of customers stated in the case was 69 clients. Using the conservative approach so as to see the least revenue that it could provide the company, 6 clients were used. Comparing the net benefit of both options, it is clear that the net benefit of the second option is more than twice as much as that of the first option. Note that even if the printing business is divested, its costs and revenues were not included in the computations above since it is operating at its breakeven point. This is under the assumption that no fixes costs of Prelko are allocated to printing. Breakeven Points and Indifference Points Number of Customers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 OPTION 1 -65,500 -11,000 43,500 98,000 152,500 207,000 261,500 316,000 370,500 425,000 479,500 534,000 588,500 643,000 697,500 752,000 806,500 861,000 OPTION 2 -349,782 -258,112 -166,442 -74,772 16,898 108,568 200,238 291,908 383,578 475,248 566,918 658,588 750,258 841,928 933,598 1,025,268 1,116,938 1,208,608
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19 20

915,500 970,000

1,300,278 1,391,948

BREAKEVEN POINT (no. of customers) INDIFFERENCE POINT (no. of customers)

2.2018 8.6482

4.8157 8.6482

IV. Recommendation Quantitative: The company should not discontinue their printing services but instead use for ways to reinvigorate this line of business. With this, offering Scriptura may be a better option. As between the two options shown in the analysis, though Option 2 entails a higher number of customer to recover amount invested, it also presents a higher growth opportunity for Prelko. Qualitative: To further maximize the growth opportunity given by selling Scriptura, the company should take advantage of the opportunity and maximize its strengths. It should undertake marketing efforts to increase product demand. Also, it should create or maintain positive relationship with customer. Further, it must follow the dynamics of the industry. Considering that threat of new entrants is high, the company must have continuous growth. Moreover, since the companys business is technology base where obsolescence is high, they should capitalize on its strong technological capabilities. Diversification or improvement on other business aspect of the company may also provide lesser risk for compa nys operations.