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SquareShooter Business Plan

Executive Summary

Consumer electronic accessory sales, which include, among many other products, passive and amplified antennas, are key to both retail profits and customer satisfaction. These low-cost, high-margin items help consumers receive maximum enjoyment from their major consumer electronics product purchases.

The Market

Consumer demand for off-air television antennas is growing in light of satellite system and high-definition television sales and consumers are looking for new designs. As more digital technologies penetrate the American home, this trend may be snowballing into a new accessories arena. In one study, 64% of the respondents said that their antenna purchases were made separately from the TV purchase. The size of the antenna market was estimated by CEA in 1998 as more than $100 million. From two research studies found, it appears that the HDTV market potential size will continue to expand dramatically reaching a penetration of over 50% of US households within the next 5 years.

Video Accessories

In their “U.S. Consumer Electronics Sales & Forecasts 1998 – 2003 by the CEA, an analysis of? Video Factory Sales projections indicates that the CEA projects 26,928,000 TV units (Analog Projection, Digital and Direct-View) will be sold to dealers in 2003. Other CEA research indicates that for every new TV unit sold, 2 in 10 purchasers will buy an indoor antenna, an additional 2 in 10 will buy an outdoor antenna, and 1 in 10 will buy a video sending unit (distribution amplifier). If 40% of TV buyers buy an antenna, there will be 10,771,200 consumers looking for a TV antenna this year. Assuming an average purchase price of just $30.00 (unsupported), this would yield a projected TV antenna market size for 2003 of $323,136,000.

Audio Accessories

For every new stereo sold, 4 in 10 consumers will purchase a wire or cable indoor antenna, and
2 in 10 will buy an amplified indoor antenna.

Manufacturer: Factory Sales To Dealers

These factory sales to dealers statistics and consumer purchase levels can be considered the same (sell-in numbers equal sell-through numbers). Mega-Retailers expect quick sell-through and don’t fill warehouses with inventory. If the sell-through numbers are slow, they will either reduce the number ordered or use the shelf space for another brand that does move quickly.

Comparing 1999 figures with 2003 projections

1. Video Sales

1. Analog Projection

• Unit Sales     Down     58.3%
• Dollar Sales Down     69.8%
• Average Price       Down    27.6%

2. Digital

• Unit Sales    Up   3078.5%
• Dollar Sales Up   1779.0%
• Average Price              Down          40.8%

3. Direct View

• Unit Sales     Down           2.8%
• Dollar Sales Down           5.7%
• Average Price        Down           3.0%

4. Video Total Comparison

• Unit Sales    Up  8.8%
• Dollar Sales Up   31.6%
• Average Price       Down      51.4%

2. Audio Sales

1. Rack Systems

• Unit Sales    Down       86.3%
• Dollar Sales Down      86.5%
• Average Price       Down       1.1%

2. Compact Audio System

• Unit Sales        Down       28.1%
• Dollar Sales Down       42.7%
• Average Price       Down       20.6%

3. Home Theatre

• Unit Sales       Down      28.1%
• Dollar Sales Down      42.7%
• Average Price      Down      20.6%

4. Audio Total

• Unit Sales    Down     5.8%
• Dollar Sales Up  0.7%
• Average Price       Up  0.1%

3. Total Change Audio/Video Combined

1. Unit Sales  Up  4.5%

2. Dollar Sales Up  27.0%

3. Average Price Down 37.4%

Target Markets

For the introduction of our new line of Winegard Indoor/Outdoor antennas, beginning with the development of the Square Shooter antenna system, we have targeted two distinctly different distribution segments. Discount retailers such as Target, Kmart, Sears, Wal Mart, etc. account for the majority of antenna sales in the $25 - $50 price range.

The real players, the major manufacturers for the antenna market aimed at the discount retailers are Thomson Electronics under the RCA brand (8), Terk Technologies (10TV and 8 Audio), Philips Magnavox (18), Recoton under the Jensen brand (9 TV and 3 Audio), Radio Shack (10) and to a lesser extent, Jasco under the GE brand (8) and Gemini under the Zenith brand (1).

Consumers looking for a quality antenna product will frequent the consumer electronics specialty stores such as Best Buy, Circuit City, Ultimate Electronics, Tweeter Home Entertainment, etc. for their purchase.

Our sales strategy for the launch of our new line of antennas in is split into two Phases, the first concentrating on the Consumer Electronic Specialty Stores and the second on penetrating the national and regional Discount Retail Chains.

Phase I: Consumer Electronic Specialty Stores

As you know, we have just recently acquired Tweeter Home Entertainment as a customer. Our next target is Ultimate Electronics, where we have our first meeting scheduled for mid-April. Additional targets are:

Fry's Electronics – has 13 stores in California, 3 in Dallas, 2 in Phoenix, 1 in Houston, 1 in Las Vegas and 1 in Wilsonville, Oregon. On their web site, they list only 4 indoor antennas, 2 by Trendware at $39.99 and $49.99, 1 Speedstream at $39.99 and a dipole at $1.99.

Phase II:? Discount Retailers

Penetration into the Mega-Chains is targeted as follows:

Target - in-store SKUs include 5 RCA models priced from $7.49 to $29.99. RCA’s web site lists 10 models from 4.95 to 69.95. On their web site, Target only lists 2 RCA models. Target also displays in-store 4 GE models, priced from $9.99 to 26.99. GE’s web site lists 6 models from $19.99 to $39.99.

Kmart - in-store SKUs include 5 Philips models from $9.99 to $34.99 and 1 RCA model from $14.92. It was not possible to find any antennas on Philips web site. Kmart’s web site listed 2 RCA models, 3 Terk, 2 Philips and 1 Recoton. The price spread was from an RCA at $9.99 to a Recoton model at $69.99. Terk’s web site lists 7 indoor TV antennas from $9.95 to $129.99 and 8 audio antennas priced from $9.99 to $119.99.??

Wal Mart – in-store SKUs include 3 RCA antennas priced from $7.47 to $34.68 and 5 Philips antennas from $9.96 to $29.64. Wal Mart does not list antennas on their web site.

Sears - in-store SKUs include 3 Terk TV antennas priced from $49.99 to $99.99, 5 Philips antennas priced from $11.99 to $34.99, 7 Jensen antennas from $9.99 to $79.99 and 1 Zenith antenna priced at $39.99. Jensen’s web site lists 8 TV antennas and 3 audio antennas.

Home Depot - in-store and on their web site carries 3 RCA antennas priced from $4.96 to $44.00

Lowes - in-store and on their web site carries 3 Philips antennas priced from $7.97 to $35.91.

Terk Technologies

Terk Technologies, which has been focusing on providing the fewest number of antenna for the broadest marketplace, is a 16-year-old company, which has, according to the trade media, turned stodgy antennas into nothing short of art, and has developed a retail distribution network that promises to be a venue stream for a range of related products that is expected to drive their sales from $50 million to $100 million over the next decade or so. Terk has specialized in taking commodity products, adding technology and packaging and making them stand out. Its employees are estimated to number about 50.

Terk made the decision soon after its inception to concentrate on inventing creative, high-tech solutions to consumer electronics problems and has been perceived to be an innovator and industry leader in reception solution products since 1985. The company entered the consumer electronics industry as the American distributor of the FM Tower, an Italian-made indoor FM antenna, than began designing and manufacturing its own unique antenna products and accessories.

In addition to its corporate offices in Commack, New York, Terk retains East and West coast warehouses and outside salespersons, as well as an office in Hong Kong. TERK products are sold through company representatives throughout the U.S. as well as a network of trained distributors and wholesalers. The company's products are carried by many of the nation’s top retailers and consumer electronics specialists and are featured regularly in the most respected catalogs. Their antennas are used in almost three million households all over the world. Nearly all Terk products have won numerous awards, including the Design and Engineering Award, consistently since 1988. The Terk AM/FM+ has recently received a Silver Medal from the Industrial Design Society of America (IDSA).

This perception of the Terk product line’s superiority is largely held by the trade media and not shared by consumers, who consistently rate Terk antennas slightly higher than 2 on a scale of 1 to 5, 5 being the best. Testing bears this out. In the case of Terk antennas, perception is reality and is the end product of aggressive Marketing and Public Relations programs. Neil Terk appears everywhere, is quoted everywhere, and resides on several industry committees and the companies pronouncements of its products superiority seem to have been taken by the trade media at face value.

Summary of the Market Potential For HDTV

According to CEA MARKET RESEARCH “U.S. Consumer Electronics Sales & Forecasts
1998 – 2003 issued in January of 2003, total Consumer Electronics Sales will total $99.5 billion in 2003, up 3.5% from $96.2 billion in 2002.

Analog TV - Despite the transition to DTV, Analog Direct View Color TVs showed a rebound in 2002 to 22.9 million sets valued at $6.1 billion as a result of increased shipments of low-cost product from China. This should reverse in 2003 as analog TV sales give way to their digital counterparts. Today's analog televisions will continue to receive analog broadcasts at least through 2006 and probably much longer. After that, you will be able to hook up a set-top box to your TV to receive digital TV broadcast signals, but not in high definition.

DTV - Sales of Digital TV Sets and Displays once again exceeded CEA forecasts in 2002, as shipments totaled 2.683 million units. By the end of 2003 consumers will have invested over $15 billion in digital TV products. 45% of DTV viewers get their signal with an antenna, 81% of these were outdoor and 19% indoor. The analog to digital television (DTV) transition is going strong. TV manufacturers are still leading the DTV charge, offering more than 450 models of DTV products including integrated sets, digital monitors and set-top receivers at affordable prices.

HDTV - Five years ago high definition television (HDTV) debuted at the International Consumer Electronics Show (CES) with great industry fanfare. Today, the boom continues, but it is the American consumer who is best trumpeting the case. As HDTV makes its way into more households- through product, programming and content delivery, it is predicted that 2003 will be the year when HDTV shifts from controversy to contentment.

In 1999 - the first full year of DTV product sales - the industry sold 121,226 units. Over the ensuing four years, more than four million units of DTV products have been sold factory-to-dealer. That amounts to nearly $8 billion invested in the DTV marketplace and in 2003 we will surpass the $10 billion mark.

From the two research studies found to date on HDTV market potential size it appears that the market will continue to expand dramatically reaching a penetration of over 50% of US households within the next 5 years. In a CEA Initiative Paper, they projected unit sales for the period 2003-2006 as follows:

2003? 4 million Units
2004 5.4 million Units
2005 8 million Units
2006? 10.5 million Units

Factors Influencing Purchase

Psychographics

With regard to consider buying a high-definition TV when looking at television sets to buy during their most recent TV purchase, 16% of respondents to one survey considered buying a HDTV set. The great majority of resistance to purchase is the current prices, three quarters feeling this way. However, only 51% were resistant because of concerns over the purchase of additional equipment, such as a set-top decoder and antenna to watch high-definition programming. And the lack of HDTV programming seems not to be a negative factor either with only 34% considering this a negative to purchase, but 80% said that more HDTV programming would make it much more likely that their next TV purchase would be a HDTV set.. And when asked about the negative effect of not being able to get high-definition programming through your cable provider, only 22% were influenced by this.

Buyers of consumer electronic accessories are motivated by two distinct factors: 1) The need to use the CE product 2) The desire to enhance the performance of the CE product. More than 90 % of customers indicated that the most important factor in choosing an accessory is the product quality/performance, well above price and warranty. The ratio was unmistakable: Product quality/performance 93% - Price 1%. Add looks to the list - Indoor TV antennas have always been a commodity-driven product, but it is found that consumers want looks that are distinctive and that they are willing to pay a premium for it.

The Importance Of Branding

Common to all antennas is a clear consumer preference for name-brand models. Branding is the name of the game in accessories these days. Either your brand is synonymous with the function and performance of the accessory in question, or it carries a marketing heft that helps the manufacturer cut through the retail shelf noise to gain the consumers interest and trust. Recognizable brand names deliver confidence, reliability and dependability. They are a key, highly visible image for customers and become a symbol that can help make a sale.

Branding makes the accessory less of a commodity; it adds a performance image and a value image. The brand name, conveyed by logo and packaging design, becomes a positioning statement to the consumer. Brand has become an umbrella. Many accessory suppliers now believe that they need to have a strong brand name compared to several years ago when suppliers could have a store brand or a brand that wasn't recognized by a majority of consumers and still be successful.

Packaging

Packaging has become critical. Because almost all retail accessory departments are self-serve, the company that does the best job of packaging is going to have the best sell-through. And, for those consumers who have not already identified the product they want (many surf the manufacturers or retailers web sites for information before buying locally), 80% of their decision to purchase is influenced by the packaging. And a review of the packaging of our competition shows that none of them are consistent or are hitting a home run, especially Terk, whose packaging looks like something from the sixties.

Merchandising and packaging teams help create a strong brand presence by displaying the assortment of antennas on eye-catching, dedicated self space or end-caps. Merchandise presentation and packaging are key components in explaining products and creating a unique shopping experience.

Price

Retail pricing is all over the board. Take, for example the Terk 55 indoor/outdoor Amplified Antenna optimized for HDTV reception. The MSRP is $129.95. Of the 15 outlets surveyed for this report, the highest retail price was found at Best Buy at $99.99 and the lowest at Etronics.com at $58.00. And not all antenna brands are similarly discounted from MSRS within outlets. An individual outlet may price some brands close to or at MSRP and drastically discount others.

While the prices for TVs have been coming steadily down – the average price dropping 51.4% since 1999, sales of indoor antennas are up-shifting in price point, with strong preferences toward more contemporary styling and the inclusion of amplification circuitry. The pressure is not on the retail price point, but more on the profit margins dealers are asking from the manufacturers.

Retailing

The CE accessories market is a vibrant, growing source of business for retailers. Consumer electronics accessories provide an excellent opportunity for CE retailers to increase their profitability. Accessories typically have higher margins, relatively low price sensitivity and are of growing value to customers due to the increasing complexity of the products being sold. One of the ten largest retailers in the U.S. reports that accessories account for only 20 percent of its CE sales, but 50 percent of its CE profit.

On the other hand, once customers are in a store, they are unlikely to shop other retailers to obtain the best price on a remote control, RCA cables or speaker wire. In addition, these customers will not have a reference price for accessories. Therefore, price-matching accessories with other area retailers is less of a concern because the consumer is likely to purchase the accessory product whether it is a dollar more or less than a competitor. And national retailers are seeking to minimize the number of vendor accounts.

The Importance of Penetrating Mega-Chains and Regional Discount Chains

In one survey conducted by the CEA, 79 % of the respondents said they purchased accessories at general electronics stores, mass merchants or specialty electronics stores. These outlets use margin contribution as an important factor when allocating shelf space. Today mass merchandisers sell about 40% of all U.S. retail sales. The top discount chains with 50 stores or more sell about 12% of all retail sales, second only to Mega-chains which account for less than 3% of all retail establishments, but their sales have grown two to three times faster than the retail industry as a whole. Discount retailers define themselves by the rule, bigger is better.

Although it is a long drawn-out process, it is worth a major effort on our part to gain shelf space from any of these giants. Sales to one of the chains, easily worth hundreds of thousands of dollars to several million dollars, can take Winegard to the top national overnight. And their number of customers as defined by their number of stores is some of the best product advertising we can get at launch or anytime, for that matter.

Mega-Retail Chains are a powerful group of mega retailers comprising electronics mega-chains, discount department stores and catalog show rooms. Their strategy is to force the wholesale price down and inventory turnover outweighs most other measures of success by these companies. Wal-Mart, Kmart, and Target combined operate more than 5,000 stores and account for 80% of total sales (not consumer electronics) among 42 discount-department-store chains. Specialty retailers like Best Buy and Circuit City have seen their influence expand fast.

        Sales Strategies for penetrating these markets requires Winegard to:

• Identify absolutely the right contact at corporate headquarters.

• Put together an opportunistic sales presentation to buyers that nails our competition and clearly defines our customers. The presentation should include:

• Product feature comparison against competition

• Our product pricing designed to move fast

• Exciting packaging

• Point-of-sale displays (SKU)

• Product Availability

• Quick order fulfillment (3 to 5 days)

• Establish personal and business relationships with buyers as quickly as possible.

• Work with the identified buyer – do not go higher on the food chain.

• Be persistent - attempt several contacts without wearing out the welcome.

• Communicate in every way that we really want their business.

• Ask questions.

Where We Sell Them

Trade Shows - provide the highest value for Winegard with limited marketing funds to invest at this time. Expensive marketing campaigns are usually bad investments at this level of Winegard’s new product development. Eventually, we will need to step up our marketing efforts, but for the introduction of the Square-Shooter? and Low Profile, the following basics provide the biggest bang for the buck, supported by limited target market advertising.

Winegard should realize the best and most productive way to create business-to-business relationships is by direct contact. The best way to achieve this one on one approach is through national, regional and local trade shows and exhibits. Winegard should upgrade its mobile promotion campaign and trade show booth with logo, graphics, colors and copy as part of the corporate image and brand enhancement objectives. This type of media offering will help develop our business-to-business relationships for the Square-Shooter and Low Profile projects. Trade shows, when done correctly, are a terrific place to be discovered by buyers and an endless source for contacts, exposure, sales, picking up information on our competition and also gaining a feeling for the attitude of the buyers we’re targeting.

Home Office Sales Presentations

How do we get in the door Two ways, we do it directly or we hire a Rep firm. But Sales Rep firms are not the end-all answer to getting into a mega-retailer. Some chains, like Wal-Mart, all but ban reps. Those chains want to talk directly with company officers.

Winegard Direct Sales Efforts

Make sales calls - Travel the country, making sales call meetings with buyers at their home offices to pound home our sales pitch, accompanied by our rep, if we hire one. Sales calls to be made by:

• Our President

• Department heads

• V.P. Sales – If we have one

• Sales Manager – If we have one

• V.P. Marketing

Prior to trade shows, Winegard sales people should make appointments with buyers to visit our booth. Some chain buyers will not make appointments, but choose instead to stop by the trade show booth at their leisure. Over the 90 days after the end of each trade show we attend, our senior staff needs to:

• Follow-up by telephone

• Fax

• E-mail

• FedEx

Back-up Strategies

Based on spot checks by our people, our sales reps and sales data, we should have a plan in place to deal with the problems or opportunities that result from the analysis of this initial sales data.

• Problems - Slow sales, examine:

• Shelf position, if our shelf or wall position is bad (low or hidden), we need to address the problem to the:
• Rack jobber
• Store manager
• Our sales rep
• The buyer
• Assistant

• Our Competition

• Inventory
• Is it displayed
• Is it ample

• Retail pricing

• Advertising support

• Obstacles to purchase

• Technical issues
• Installation problems
• Operation problems
• Repair

• Opportunities - Fast sales

• Inventory pressure
• Larger SKU
• Floor SKU promotion

Our Niche

Along with the two different distribution channels discussed above, the development of the Square Shooter antenna system addresses two separate and distinctly different consumer markets as well.

The indoor version has been designed for the downtown metropolitan “GEN-X” consumer and the outdoor version for the urban suburbia consumer.? The utilization of non-traditional electromagnetic design has provided for exceptional performance characteristics and includes a totally new “look and feel”.

We hired Steve Zahn, a respected television reception professional in the Chicago area to conduct our Beta Field Test on the Square Shooter. He was provide sample Proto-type antennas and pre-amplifiers in December 2002 and asked to conduct objective performance and installation testing on numerous locations (2-70 miles away from transmit towers) throughout the Chicago land area (Appendix B).? His conclusions were as follows:

Beta Field Test Conclusion Paragraph (Steve Zahn’s Report Feb 04, 2003)

The Square Shooter antenna will find a niche among television reception products, especially among new products for receiving digital television signals. The Square Shooter antenna represents an entirely new design format in consumer television antennas that is likely to receive considerable attention.The unique appearance of the Square Shooter will find acceptance within the new generation of architectural restrictions that have eliminated traditional television antenna installations from many residential settings.

The Square Shooter compares well with performance from physically larger UHF antennas in the Winegard product line as the Winegard HD-9065P. A year ago, tests were conducted proving the HD9065P, HD9085P and HD9095 outperformed all competitive consumer UHF antennas. Perhaps it is safe to claim the Square Shooter will outperform all but the largest competitive UHF antennas. This will give the Square Shooter a definite market edge over competitive products.

The Square Shooter is easy to install. Unlike traditional antenna designs that require the installer to fold out antenna elements, the Square Shooter is enclosed in a weather-protective enclosure and requires no assembly. This feature increases the success of the antenna installation among non-technical consumers. The Square Shooter mounting assembly uses familiar DBS satellite antenna hardware and consumers with simple hand tools will install the antenna in less than 30 minutes.

The professional television service technician will also find many applications for the Square Shooter antenna. For most service technicians working in architecturally sensitive neighborhoods, installing television antennas in attics is often unsuccessful with digital television reception and disappointing for HDTV customers. The Square Shooter offers a wall mount solution to digital television reception problems and in this configuration the Square Shooter will enjoy a level of acceptance found with DBS satellite antenna installations.

As mentioned above, by far the majority of the antenna market is serviced by discount retailers. Consumers, to date, who purchase consumer electronics from these chains have not been looking for high quality and performing from their antennas. Those that are informed and are interested in maximizing the performance of their TV component, to whom price is not their first consideration, will shop at consumer electronics specialty stores.

Addressing this upper end market segment, so far, the only manufacturer of television reception products, who has successfully positioned themselves as the best, is Terk Technologies. Their products are perceived (mostly by the consumer electronic trade) to be of high quality, innovative and having a new “look and feel”. Our industry is well aware of the fact that TERK builds an inferior product, but the combination of marketing, advertising and public relations programs undertaken by Terk over the last few years has produced the “Hype” that drives the success of Terk’s acceptance by the trade media and ultimately to the end consumer. As a result, Terk continues to out sell competitors and Neil Terk is laughing all the way to the bank.

Terk’s true approach, as opposed to the perceived one, in the design and production of antennas is 180 degrees from the Winegard philosophy of “Clearly the Worlds Best”. This vision of John Winegard is our legacy and our charge to this market.

The opportunity lies in our ability to design, produce and position new antenna products at the top end of the quality/performance/styling category, where there is a real need. To do this, Winegard Company will first capture our market share in the consumer electronic specialty stores segment by providing totally new technology, a technology based on delivering the highest quality performance product on the market today, with looks and style.

It is a well-known fact that has been proven again and again that, by far, the majority of consumers believe, if a product cost more, it has to be a better product. We have heard this first hand from our General Line Distributors. When they have tried to steer a consumer away from the purchase of a TERK antenna by explaining that they would not be happy with its performance, the consumer typically replied “no, I want the best antenna I can get, the TERK is more expensive so it must be the best”.

Our Square Shooter will be a more expensive antenna and it should be. As to our target wholesale cost, the pressure is not on the retail price point, but more on the profit margins we’ll have to offer our dealer body. The challenge is to produce this high quality antenna with outstanding, demonstrable performance and contemporary styling at a wholesale price point which will allow dealers to price the antenna at an attractive retail price point at the upper end of the scale allowing for a very attractive margin.This will not be a problem, since, contrary to TV component prices, retail prices for antennas are steadily going up and antenna customers are more than willing to pay for quality, performance and distinctive looks.

This package is quite simply a break through from traditional television antenna design.? It utilizes totally new technology designed for the television antenna market and provides that new “look and feel” desired by the consumer. Both Laboratory and field testing have proven it to be a superior performing design that will dwarf nearly all of the traditional antenna systems on the market today.

By far, the majority of the new antenna market today is in the Urban/Metropolitan local. The fastest growing sector is in the off-air reception of HDTV broadcast. Here again, the vast majority of these HDTV unit sales will be in the urban/metropolitan markets. The only way to currently receive true HDTV resolution (1080i) is with an off-air antenna.

This offers the perfect opportunity for Winegard Company to capitalize on this market potential. Our Square Shooter HDTV product is and will be the best-built, best performing urban/metropolitan HDTV antenna on the market today.

Through creative marketing, advertising and public relations Winegard will be recognized as the Cadillac in urban/metropolitan HDTV antenna systems today.

Contact Michael Sherman at msadvertising@aol.com or call 662-893-8360 anytime