Originally Posted by
bb10adopter111 Business 101:
The problem with advertising for a niche product is that you have to find a place where the profit from the prospects who view the ad and will actually buy the item, who WOULD NOT have bought the item without the ad, offsets the cost of the ad.
A LOOK AT THE MATH
The problem with spending money on advertising for the KEYone is that it's a niche product, and it's very difficult to locate those few prospects who would buy the phone WITH advertising, but who would not buy the phone WITHOUT advertising. Let's say that the total US market (people who would potentially buy this phone) at $549 US is 3% of the estimated mobile phone population of 222 million, or 6.6 million people, and let's estimate that they keep their phones for an average of 24 months, so that, between June 1 and the end of the year, 7/12 of them, or 3.9 million might be convinced to buy the KEYone. Feel free to argue with my estimates, but only if you think it changes the outcome of the analysis.
So, below are the things that would have to to go PERFECTLY to produce that result:
-- unlimited effective marketing
-- great press
-- celebrity endorsements
-- product placement in media
-- 100% carrier support
-- Inventory available in every channel with no stock outs.
If they could magically do all that, 3.9M is the maximum sales in 2017 in the US.
Assuming retail markup is 30%, so that the average selling price (ASP) of the KEYone for TCL is $422, and assuming a 40% gross margin (GP) for TCL, which is unlikely given the difficulty of manufacturing a PKB phone. TCL makes a GP of $122 on each phone. Selling 3.9M phones, TCL could make $476M in gross profit in 2017. That's an absolute maximum, if they get 100% penetration in their market.
As a baseline, let's see what happens if TCL does no marketing or advertising. Based on sales of the Priv and Passport, we can estimate that they will sell about 500,000 phones.That seems like a a reasonable estimate for the low end. That means that they will earn a total GP of $61 million on $211M revenue if they do NOTHING more besides release the phone in sufficient quantities to prevent stock outs.
If they could somehow reach the other 3.4 million potential buyers, they could make an additional $415 million in GP.
Typical return on investment (ROI) expectations for advertising are 5:1, so TCL could spend up to $80M on all of the above items if they believed they could capture 100% of those 3.4 M potential buyers on the sidelines.
An $80 million budget is absolutely NOTHING in the US today. That wouldn't be enough to run 700 prime time TV ads, let alone get the phone into all the right channels, or do any of the other above things.
This is the business reality of a niche product like the KEYone. It's simply better business to focus on earned media (which has been generally great) and word of mouth.
Once the phone is available, we will likely see lots of low cost marketing, such as email and web promotions, but even then, don't expect too much, because it's not that kind of product.