Business Foundations

Capstone
Framework for Analysis

Gilberto Rubio Hernandez

Aug 30th, 2015
Situational Analysis
Product or Service–
Describe the product or service you are developing a strategy for

• “Since 2012, accessories have become the largest category within luxury goods (at 29% total sales in 2014)” (1). Taking into account that this portion of the
luxury market represents roughly a 64.7 billion Euro within the world, and the current need to expand the luxury goods availability to people that are willing to
afford some of these goods (like the emerging countries), we would like to incur in this market through he design and distribution of affordable luxury handbags.

• Of all the women’s handbag designs the clutch-bag is one of the most used on different occasions. They are suitable to use either on etiquette events (where a luxury
good is valued the most) and on daily basis due to the flexibility of the materials that can be used to make one (either leather, vinyl, fabric) and can be adorned
with different types of decorations.

• On top of the aforementioned facts, the clutch- bag is one of the easiest bags to manufacture, regarding the simplicity of the preform used to cut materials (only one
preform is needed to cut a single bag, contrary to other, more sophisticated bags, which require 2 or 3 molds and subassemblies to manufacture the complete bag); the
preform is fairly simple (nearly square-shaped, which accounts for the loss of about 10% of the raw material); and the stitching is minimum compared to other
handbags (3 stitching operations with varying lengths, depending on the size of the bags).

• Taking into account all the previous statements, we’ve decided to start a personal
business by manufacturing affordable and elegant clutch-bags designed and made at
Monterrey, Mexico; so we can further bring quality luxury goods that people can use at
special occasions.

1. D'Arpizio, Claudia, et al. Luxury Gods Worldwide Market Study Fall-Winter 2014. Milan : Bain & Company,
Inc., 2014.
External Environment –
Relevant economic, social, political, legal, technological trends

• Monterrey is one of the 3 largest and most economically advanced cities in México (the other two being Guadalajara and Mexico City, the latter being the capital
city of our country.

• Among these 3 cities, Monterrey has some important traits, being the following:
• It’s natural closeness to the border city of Laredo TX makes the importing and exporting activities easier and cheaper than Guadalajara and Mexico
City.
• San Pedro Garza García, one of the top most expensive cities of México, is within the Metropolitan Area of Monterrey.
• Nuevo León is responsible of about 7.2% of the nation's Internal Gross Product, which represents about 63.5 billion dollars, only in 2013 (2).
• The total population of Monterrey is 1.13 million. Out of this number, roughly 198 thousand are women in the range of 20 and 40 years (4). And
among these, the 60% of them are considered medium to medium-high class (3), with a raw income in the range of 800-2400 USD per month (5).

• Luxury brands are a common sight in Monterrey and it’s Metropolitan area, and luxury accessories usage is common among the upper middle class of the city.

• With the current government, the economic environment has shifted strongly. The high
rates of the US Dollar (USD) within the months of May, June and July have affected
the Mexican Peso (MXP) on it’s exchange rate, going from 15.50 MXP per USD to
17.42 MXP per USD as per August 30th, 2015; a rise of 12.38%.

• On 2002, a special tax on luxury goods was approved on the Congress Hall, which
taxes with an extra 5% several luxury goods such as yachts and luxury cars, luxury
food, firearms, several electronic gadgets, and leather and silk made goods.

2. Anguiano, Daniel. Nuevo León, tercer lugar nacional en la aportación del PIB, con 7.2%. Milenio Diario. 2013.
3. García, Daniela. Mayoría de los habitantes en NL son de clase media. Milenio Diario. 2014.
4. Panorama Sociodemográfico de Nuevo León. [Website] México City : INEGI, 2010.
5. Aguiar, Rodrigo. El 32% de los hogares mexicanos es de clase media, según un estudio. [Website] Mexico City :
CNN Mexico, 2011.
External Environment –
Nature and extent of demand (demand elasticity & size of the market)

• Recently, luxury items have been affected by different factors that have a direct impact on the perception of what a luxury item and a luxury brand is.

• As stated by Bernard Arnault, CEO of LVMH (Louis Vuitton Moët Hennessy“ the mystique of the great brand names represented an invaluable – and
historically unexploited – asset” (6).

• In the above example, pointed out by Dana Thomas on “Deluxe, How Luxury Lost Its Luster” she claims that, as luxury has gone corporate, quality has
disappeared (7), due to the needs to cut cost on materials and quality of luxury goods wherever and whenever is possible, and that luxury brands have shifted from
selling luxury goods to selling the brand itself.

• This fact, takes advantage of a powerful trait that a luxury item carries with, which is the inelastic demand of the luxury goods:
• In first place, there existed the high end luxury items, which carry a valued price taking into account traits such as materials quality, manufacturing
procedures, the heritage of the manufacturer (typically fashion houses established by families), country of origin (Italy or France for example), timelessness
(the style of the goods can be used forever on without going out of fashion), and durability (lasts for many years). These kind of luxury goods are the
original luxury goods established since the beginning, which are praised for their craftsmanship and have an inelastic demand , due to the fact that the
persons who can afford these kind of goods have the money to buy them at whatever the cost they’re priced.

• As an example of this fact is the change in sales of LVMH: sales slowed to 5% (2013) from 7% (2012) with a price increase that went from 3% to
4.5% average, giving us an inelastic demand of 0.53 using the average of the price increase (8).

• The above is further strengthened by the pricing strategy: “Luxury and prestige brands have traditionally adopted the premium pricing strategy to
emphasize the brand strength, high quality and exclusivity associated with luxury goods, and also to differentiate them from the massive market fashion
brands. The luxury target audience is less price-sensitive and actually expects luxury goods to be premium-priced rather than economically priced.” (9)

6. Weber, Caroline. The Devil Sells Prada. [Website] New York : The New York Times Company, 2007.
7. Thomas, Dana. Deluxe How Luxury Lost Its Luster. New York : The Penguin Press, 2007. 978-1-1012-1807-5.
8. Kapner, Suzanne and Passariello, Christina. Soaring Luxury-Goods Prices Test Wealthy's Will to Pay. [Website]
New York : The Wall Street Journal, 2014.
9. Okonkwo, Uche. Luxury Fashion Branding - Trends, Tactics, Techniques. New York : Palgrave MacMillan, 2007.
978-0-230-52167-4.
External Environment –
Nature and extent of demand (demand elasticity & size of the market)

• Market size is relevant to the region that we want to introduce the product. As stated before, the original luxury items were praised by their quality and heritage,
and we would like to introduce our product on mid-class level women, so we can get the most of the population in our region (the city of Monterrey and it’s
metropolitan area), which is about 119 thousand for Monterrey and 252 thousand for the remaining cities, giving us a total of 371 thousand people. Out of
that, if we aim to get 1% of the addressable market, we get about 3.7 thousand people, which will be our available market. This market was segmented using the
characteristics of the customers.

• The aforementioned number is based on a conservative number that was further referenced to the two youngest competitors on the region (“Maria y Maria” and
“Purpura Bags”), which will be discussed further on this report when analyzing the main competition.

• We can further target this segment due to the easiness of entry (people may be impressed by the novelty of the product and our goals to achieve: to supply middle-
class women a quality and affordable luxury item that is carefully handcrafted and can be used on a variety of occasions).

• Based on the price established for the bags (different prices due to the different materials they’re made of), and referring the possible revenues based on the available
market, we’re looking at a raw income in the range of 76 to 87 thousand dollars, depending on the mix of products bought.

• The pricing strategy will be discussed further down on this document, but for now,
the pricing that we’re handling are the following:

•Deluxe Clutch Bag: 400 MXP (23.5 USD)

•Matte Clutch Bag: 375 MXP (22 USD)
•Vivid Clutch Bag: 350 MXP (20.5 MXP)

• Which give us the range for the raw income described above.

The Clutch Collection

External Environment –
Industry structure (entry/exit barriers)

• The industry of the luxury items has great presence in Monterrey and it’s Metropolitan area. Brands such as Louis Vuitton, Prada, Gucci, Chanel, Tiffany &
Co., Fendi, etc. This is because is one of the 3 richest zones in México, mostly because the families that live here are of great heritage and were dedicated to several
business through many generations, such as steelmaking, trading, importing/exporting, foods, automotive parts, and telecommunications.

• Luxury brands found a market niche here because most people that can afford these items can also afford the traveling expenses of buying the same items at New
York City, Paris, Milan or any other fashion city on the world. The logic move for big luxury brands was to position themselves near these customers, saving them
travelling expenses and bringing the latest fashion right to their doorstep.

• There is also the fashion industry of the small business, which is the one focused on selling people high quality luxury items that offer them unique features, like
handmade manufacturing, quality raw materials, or traits such as native working labor.

• Recently, the people that buy the brand luxury items have been interested on buying the latter described luxury items (small business ones) due to the desire of
having something that is rather unique: a luxury item made as in the old days, by people who they know have the same passion for designing and building fashion.
• However, to enter this kind of market, there are several barriers that we had to face
before selling our first product. These are the following:
• Cost – We had to invest money to start the business, mainly using our own
savings to get raw materials (leather and fabric), basic machinery (for sewing
and punching), education (mostly on leatherworking), and advertising.
• Know-How – As stated before, we had to take leatherworking and design
courses to start building our products.
• Marketing & advertising – It’s difficult to inspire confidence on people if you
start as an independent brand, because you’ve no previous background history
and you depend on word of mouth recommendation.

The Louis Vuitton Boutique at Calzada del Valle

External Environment –
Industry structure – Competition (nature of competition, profile of competitors (background, resources, etc.),
market shares, & stage of product life cycle)
• María y María
• 9,481 Followers on Facebook
• Website: www.mariaymaria.com
• Price range: 144 USD
• Items: Clutch bags
• Materials used: Leather and assorted fabrics
• Traits: Made Mexican natives. Wide variety of
textile patterns. The bag design depends on the
Mexican natives.
• Founding: 2011
• María Patrona
• 32,545 Followers on Facebook
• Website: www.lamariapatrona.com
• Price range: 400-700 USD
• Items: Messenger, Sandrine, Clutch and Tote bags
• Materials used: Leather and assorted fabrics
• Traits: Low production volumes to increase
exclusivity. Heavy reliability on Mexican folklore.
• Founding: 2013
• Maria Galán
• 12,313 Followers on Facebook
• Website: www.mariagalan.com.mx
• Price range: 48-97 USD
• Items: Briefcases, backpacks, pouches
• Materials used: Leather and assorted fabrics
• Traits: Minimalist design, heavy use of golden
buttons and neutral colors
• Founding: 2011
• Purpura bags
• 4,863 Followers on Facebook
• Website: www.ilovepurpura.com
• Price range: 47-175 USD
• Items: Totes and clutch bags, pouches
• Materials used: Leather and assorted fabrics
• Traits: Great design diversity
• Founding: 2012
External Environment –
Marketing Channels

• We started our product’s promotion mainly through word of mouth, product fairs and social networks. After that, we registered a domain on Kichink
(www.kichink.com) which is an online store. Our findings of using the previous mentioned marketing channels are the following:

• Word of mouth: this resource was the first one we used, even though it was unintentional: the first people that found out about our project were our friends. Through
our luxury items, they’ve been always eager to find what’s new with our brand. So great are the word of mouth sales that they currently account for about 48% of
our cumulative sales on our short period of existence (4 months).

• Product Fairs: These events are relatively new in Monterrey, the first being the Feria de Arte y Diseño (Art and Design Fair) on May the 8th. We’ve been actively
participating on these fairs since the beginning, This first fair was held at Monterrey’s Metropolitan Museum. The main goal of the organizers of these fairs is to
let people know the local entrepreneurs and their products, such as art, jewelry, leather goods, knitted goods, and beauty products (handcrafted soaps, shampoos,
lotions, etc.). The cost of having a place to sell our products on this fair was about 30 USD on each occasion (the newest being the third), and have accounted for
about 45% of the cumulative sales.

• Online Stores (Kichink): To get known nationwide, we’ve hired a place on the online store Kichink, which is also used by our competitors (Purpura Bags and
Maria Galan). Maria Galan also uses a particular own store, as María y María does. The online stores are an affordable and easy way to expand the market to
other cities (Guadalajara and Mexico D. F. for example), and offer several advantages such as pick up and delivery, advertising and picture catalogs for a small fee
(Kichink charges 4% out of each sale), which can be covered maintaining our same prices. Currently, we’re getting prepared on the last steps of uploading all the
information of our bags, and because of this, Kichink has not registered any sales.

• Facebook (132 Followers): After a product fair, we’ve seen that people normally look for you and like you on Facebook, which is one of our main channels to
communicate people where are we going to be presenting our products next (being a product fair, or a retail store), and what are our current and new products. No
direct sales have been accomplished through Facebook, but it has fulfilled the role of a free marketing platform. We’re planning on investing on advertising on
Facebook, so we can get known to more people, but right now is on stand by, due to the Kichink preparation being the top priority.

• Retail Stores: We’ve also closed an agreement with a local retail store (Duquesa, https://www.facebook.com/duquesavestidos) located on San Pedro City, to sell
our bags at retail price with a fee of about 6 USD per bag. This agreement was first made on August 6th, and we’ve already sold 1 Clutch Bag (7%) of our
cumulative sales.
Internal Environment –
Resources (Top management, Marketing, Production, Finance, research & development)

• Because we’re a new company, we need to design, produce and manage the company ourselves. We’re 2 persons dedicated half time to this partnership. The
description of each of the members is the following:

• María Fernanda Rubio Hernández (https://mx.linkedin.com/in/mariferrubio)

• Founder and Lead Designer of the Straatbags Brand
• Bachelor of Industrial Design (B. I. D: ) by ITESM Campus Monterrey. Cum
Laude with international experience in Monash University in Melbourne, Australia.
• Master in Tecnological and Business Innovation by ITESM Campus Monterrey.
• Winner of the 3rd place of the Mexican Ceramic Association Design Contest
• Maria Fernanda is an avid and enterprising person. Before joining ITESM for
College studies, she already showed interest on the design and making of luxury
items from the most prestigious brands. When we asked why would she pursue a
career in Industrial Design instead of Architecture, Arts, or any other career, she
stated that the Industrial Design has more practical applications on different
disciplines. Following her beliefs on functionality and minimalism, as well as the use
of high quality materials and careful handcrafting product manufacturing, she’s
convinced that with the Straatbags Brand, she can deliver their customers a high
quality luxury item at an affordable price.
Internal Environment –
Resources (Top management, Marketing, Production, Finance, research & development)

• Gilberto Rubio Hernández (https://mx.linkedin.com/pub/gilberto-

rubio/28/a1b/1a6)
• Operations and Administration Management of the Straatbags Brand
• Bachelor of Chemical Engineering with Minor in Business Administration
by ITESM Campus Monterrey
• Master of Science in Environmental Science with Minor in Production
Processes by ITESM Campus Monterrey
• Winner of the Second Place of the Chemical Engineering’s Product Fair at
ITESM Campus Monterrey
• Gilberto is a practical person, focused on results and always looking for
continuous improvement of the processes he’s involved with. His main
interests are quality and manufacturing processes, as well as business
management. These topics have lead him to take interests in topics such as
ISO quality systems and business management certifications, so he can better
contribute on the projects he’s involved in. Noticing Maria Fernanda’s interest
on entrepreneurship of luxury items, he offered to take part on the business
to further improve the manufacturing and administration branch of the
brand.
Internal Environment –
Brand diagnosis (current brand positioning, current pricing strategy, current distribution strategy, & current
promotions strategy)
• We’ve discussed several of these factors though the presentation but it’s important that we summarize them on a single place for referring purposes:
• Our main product are affordable luxury handbags, being the first ones the Clutch Collection. These handbags are

Product handcrafted using high quality raw materials and have an innovative design. The main reason why we choose the clutch
bag to begin with is that it’s one of the easiest bags to make, the cutting pattern is simple and the raw materials waste is
minimum (about 10%).
• The pricing strategies are the following:
• Deluxe Clutch Bag: 400 MXP (23.5 USD)
• Matte Clutch Bag: 375 MXP (22 USD)

Price • Vivid Clutch Bag: 350 MXP (20.5 MXP)

• We choose these prices to make the product affordable to the middle-class woman, which is our target market. The
middle-class woman typically spends between 5% and 12% of their annual income on luxury items, mainly on
accessories and brand items. This represents an annual spending of about 550 USD to 1225 USD (1). This keeps
true to the middle-class income in México, which is about 9,900 USD to 42,500 USD per year (10).
• Our current distribution strategy is mainly through product fairs and word of mouth, but we’re currently adding Online
Stores (Kichink) and Retail Stores (Duquesa, https://www.facebook.com/duquesavestidos). The cumulative income of
our sales per distribution channel is the following:
• Word of Mouth: 48%

Promotion • Product Fairs: 45%

• Retail Stores: 7%
• Facebook: on development
• Kichink: on development
• We expect to have the Facebook sites and Kichink sites fully functional by the end of the year, and to have a 20% to
25% of sales through these channels.

10. Beteta, Oscar. Ingresos 14 mil pesos para clase media en 2013: INEGI. Con Oscar M Beteta.
[http://www.radioformula.com.mx/notas.asp?Idn=331878] México D. F. : Grupo Formula, 2013.
Internal Environment –
Brand diagnosis (current brand positioning, current pricing strategy, current distribution strategy, & current
promotions strategy)

• We began to sell our products locally in Monterrey and it’s Metropolitan Area, and are further expanding to Mexico

Place with the use of online stores. The demographic studies are the following:
• The addressable market is 371 thousand middle-class women in the region of Monterrey and it’s Metropolitan Area.
• The available market (what we aim for) is 1% of this population, which is about 3.7 thousand middle-class women.

Positioning “To supply middle-class women a quality and affordable luxury item
that is carefully handcrafted and can be used on a variety of
Statement occasions”
Internal Environment –
Problem definition & Critical Factors

• What are the factors within the organization that will help your proposal?

• Design knowledge: Maria Fernanda is a graduate on design and has taken several leatherworking and bag making courses. This has been a invaluable asset in the
company.

• Operations planning: Gilberto fully understands operations planning and operational flow of, focusing on standardized manufacturing. This can be helpful to build
as much product as possible on standardized cutting patterns and product assembly.

• Administration: Gilberto and Maria Fernanda both have been working for the past 2 years in the small family business (machine workshop): Maria Fernanda as
part time designer and Gilberto as a full time engineer. Both work closely on the day to day business administration such as: raw material purchasing, designing,
manufacturing and production engineering, etc.

• What are the factors within the organization that may hinder your proposal?

• Lack of experience: Both Gilberto and Maria Fernanda lack the experience of founding and manage a business by themselves (the current family business is
about 20 years old). This can prove to be a tough challenge full of risks.

• Heavy investing: We only have our savings to start the business, and this can prove to be a hindrance at the beginning. We do not have the intention of getting a
bank loan at this moment, because it would represent a financial liability rather than a stepping stone.
Segmentation, Targeting &
Positioning
Market Analysis & Segmentation –
Who is/are the market?

• As stated before, the target sector for our luxury product is the middle class woman in the region of Monterrey and it’s Metropolitan area. The demographic
breakdown per (4) and (5) stated before is the following:
Women on the range
City Total Pop. Women Pop. Middle Class Women
of 20-40 yrs

Apodaca 523,370 262,208 91,773 55,064

San Pedro 122,659 61,452 21,508 12,905

Escobedo 357,937 179,326 62,764 37,659

Guadalupe 678,006 339,681 118,888 71,333

Monterrey 1,135,550 568,911 199,119 119,471

San Nicolas 443,273 222,080 77,728 46,637

Santa Catarina 268,955 134,746 47,161 28,297

Total 371,365

• This represents the addressable market, selected by the characteristics of the buyers (Sex, Age and Income). We’re limiting ourselves to this market right now
because we would like to have a gradual penetration of the market with a single item and see the customer’s feedback, so we can use this information to start
manufacturing a different product on the future.
Market Analysis & Segmentation –

• According to Euromonitor’s Report of October 2014 (12), in 2014 the percentage of market value breakdown for
each type of bag is the following:

What does • Shoulder and tote bags: 78 .1%

• Top handle bags: 17.5%
• Clutches and Wristlets: 4.4%
the market • Unit prices were mostly driven by the entrance of “affordable luxury brands” to the country, such as Marc Jacobs,

buy? Michael Kors and Coach

• The influence of luxury brands was important as many non-luxury brands tried to imitate certain styles and
characteristics in order to attract consumers in different price segments.

When does
• The luxury-goods industry in most markets is now driven by touristic spending (1), but since the inclusion of
e-commerce, the concepts of seasonal and transnational buying is becoming obsolete.

the market • Most of the market's normal spending would take place while traveling, with the strongest months being:
• Summer period: Comprises from May up to August.
• Winter period:: Comprises from November up to January
buy?

12. Euromonitor International. Bags and Luggage in Mexico. s.l. : Eurmonitor

International, 2014.
Market Analysis & Segmentation –

• In 2014 sales where fragmented among various types of retailers. Bags and luggage specialists represented a 44% value

Where does share, followed by apparel specialist retailers with a 17% (12).

• Non-store retailing is expected to observe dynamic growth over the forecast period thanks to the accelerated growth of
the market online retailers. By 2019 sales of bags and luggage through internet retailing are expected to represent almost 8% of
total value sales (12).

buy? • Most luxury brands are hy to sell their goods online, as they claim that the internet is too impersonal for their products,
which need the human touch (13).

Why does
• Previously, luxury brands relied on the “luxury buying experience”: dressing up and going to high-end boutique to
consult with a salesperson on what to buy, enjoying a glass of champagne while it was being carefully wrapped up for you
(14). This means that experience and perception are far more important than utility.

the market • This has changed over the past years due to several factors, shifting from the “buying experience” to valuing ownership of
the luxury goods. This exploits the fact that people with large incomes have low amount of disposable time, and being
buy? able to shop directly from home or cellphone has a huge advantage over walking in a boutique.

13. The Economist. The chic learn to click. Berlin : The Economist, 2010.
14. Adams, Ariel. Luxury Consumers Value Products, Not Buying Experiences.
Forbes/Luxury. [Online] May 23, 2013. [Cited: September 12, 2015.]
http://www.forbes.com/sites/arieladams/2013/05/23/luxury-consumers-value-
products-not-buying-experiences/.
Market Targeting –
Who is/are the target audience(s)?

• As mentioned before, the middle class woman with an average age of 20-40 years is our target audience. We selected this market segment due to the following traits
that it has, which are described next.

• Buying power: The average raw monthly income for this segment is of 800-2400 USD per month (5).

• Spending percentage in luxury goods: The middle-class woman typically spends between 5% and 12% of their annual income on luxury items, mainly on
accessories and brand items (11). This represents a typical spending of about 40 USD to 290 USD per month on luxury goods.

• Novelty buying: Most of the women rely on this buying tendency, they like to have the latest fashion and like to experiment with different products and brands.

• Preferences: This segment tends to have an affinity to quality, durability and

craftsmanship of the luxury goods they buy.

• Influence: they can be reached easily by different media, such as retail stores, word of
mouth and e-commerce. This last media is the most important of all, since is
experimenting an increasing growth on luxury brands. Although most people still like to
attend luxury boutiques to have a personal interaction with an experienced salesman or
saleswoman, the comfort of buying from home, having information and reviews from
people that already bought the product, and the easiness of browsing through many
different products from many different brands.

11. Redacción;. El número de consumidores de artículos de lujo en el mundo se ha más que

triplicado en los últimos 20 años. [http://www.puromarketing.com/88/19057/numero-
consumidores-articulos-lujo-mundo.html] s.l. : PuroMarketing, 2014.
Market Positioning –
Proposed brand positioning

• Our product focuses on several key benefits that we’re offering to our customers, such as:

• Material variety: the clutch bag is simple to manufacture, and this proves to be an invaluable benefit on the materials that we can use to build our product, such as
fabric, synthetic leather or real leather. Also ,the availability of colors and textures is so wide, we would be rarely limited by the characteristics of the raw
materials, which is an added bonus.

• Quality: We offer a high quality product made with quality raw materials and careful handcrafting, which is the base of old time luxury brands.

• Design and flexibility: Our clutch bag has a minimalist design and is flexible to use: it can be either used on formal occasions such as weddings or other ceremonies,
or less formal occasions such as clubbing and partying.

• Sizing: The clutch bag size is small enough to be practical, and large
enough to fit most what a woman has to carry, such as cell phones,
makeup, sunglasses, keys, money pouch, etc.

• Pricing: Our pricing is affordable to the market segment chosen, as it

represents small portion (about 8% to 58%of the monthly income
destined to buy luxury items.

• Availability: it can be bough through many distribution channels (retail

stores, online stores and events).
Market Positioning –
Communication objectives

• We appeal at having an experiential brand, relying on emotions and

behaviors that can be communicated through our different marketing
channels, which are discussed next:

• Through events and retail stores we aim to show the customer the value
and quality of our products, mainly using the concept of a buying
experience that includes seeing the product, touching it, testing the quality
of the product, and assuring that is a high quality luxury item. This can
further benefit the customer to see that our product is compatible with
their lifestyles and if it can enrich them in some way, either with our
product functionality, or with our fashion design.

• The aforementioned marketing channels are physical ones that enable us

to reach our customers in a direct way. However, they deprive the
customer from getting feedback from previous owners of our items, other
than our own commendations. To surpass that lack of feedback, we’ve
also reached the on-line stores, where our customers can read and
analyze the feedback posted by people who have already bought our
products (some sort of online word to mouth recommendation); and
also, can purchase our products directly from their houses.
Operations Plan
Operations Plans –
Describe your plan for cost, quality, variety and responsiveness of the new line

• The distribution channels used to deliver our product to the customer vary, but they’re divided in 3 categories:

• Events: We normally carry an inventory of about 20-30 assorted clutch bags, further divided on 12-15 Deluxe Clutch bags, 7-8 Matte Clutch Bags and 7-8
Vivid Clutch Bags. This proportion was found enough in the last 2 product events we held, taking into account the sales made on those days.

• Retail stores: They normally have a consignation stock of 5 Cluth bags on the beginning (when we first seal a distribution deal with them), but can be altered
depending on the sales. They have normally 3 Deluxe, 1 Matte and 1 Vivid. They also have access to a catalog displaying the different Clutch bags available, and
if the customer is interested in another model, it can be readily shipped to the retail store, with a delay time of 1 day. The stock can be changed depending on the
sales of the bag.

• Online Stores: Kichink has an immediate availability of our products, since we normally keep a stock of about 8-10 Clutch bags of each of the models at our
small warehouse. If a different model is needed, it can be manufactured within 2 hours of the receipt of order.

• The production process is designed following a one piece flow, because our product is handmade, and we don’t have enough sales right now to justify a heavy
production line. The production process steps are the following:

• Cutting the materials: The first step is to cut the fabric/leather/synthetic that is going to be
used for the outer part of the Cluth bag. We cut the preforms for the body of the bag, the
inner lining and the wristband.
Operations Plans –
Describe your plan for cost, quality, variety and responsiveness of the new line

• Selecting the appropriate zipper and inner strip: Depending on the outer and inner material
color, we have to select the zipper and inner strip, so it matches with the bag color.

• After having all the materials cut and prepared, we start sewing the outer material and the
inner lining of the bag. First we sew the zipper with the outer material, and then the outer
material with the inner lining.

• We then proceed to punch the holes for the nameplate and put hard material (such as foam)
to avoid damaging the bag with the rivets.
Operations Plans –
Describe your plan for cost, quality, variety and responsiveness of the new line

• After placing the nameplate, we proceed to sew the inner strip and close the bag. After that,
we turn the bag outside in.

• We then start sewing the wristband that goes on the zipper clip.

• For the final part, we add the spring hook to the wristband, and both of them to the bag.
Financial Plan
Financial Plan –
Estimate of costs and revenue for the new line

• The Balance Sheet of up to August 31, 2015 is the following:

Financial Plan –
Estimate of costs and revenue for the new line

• The following revenue forecast is based on the current sales that took place in all of our marketing channels (events, fairs, word o mouth, retail stores and online
stores). The forecasted revenue is marked with red. This gives us an idea of the YTD sales ($429.71 USD) and the expected sales by the end of the year
($470.67 USD, for a total of $900.38). This barely represents 1.10% to 1.18% of the addressable market we established at the beginning of this document,
with a potential revenue of 76 to 87 thousand dollars.
Revenue Forecast
$200.00

$180.00
$172.43
$160.00

$145.71
$140.00
$132.74
$125.71 $125.03
$120.00

$112.19
$100.00

$80.00

$60.00
$52.29
$40.00
$34.29

$20.00

$-
May June July August September October November December
Financial Plan –
Estimate of costs and revenue for the new line

• The expense forecast is based on the variable expenses (money spent on making the cultch bags) and fixed expenses (rent, which includes services). As we can see,
the total expenses by the end of the year add about $1,167.14 USD. Our fixed costs are the rather high due to the place we’re established (a small house near
downtown of Monterrey) which represents about 75% to 80% of our total expenses. This is our main concern right now and a top priority to change, since is
starting to drain our reserves. By the end of the year we’re planning on moving from that place to a cheaper one, to avoid having such a high expense.
Expense Forecast
$180.00

$160.00

$140.00

$120.00

$100.00

$80.00

$60.00

$40.00 $41.96
$36.69 $34.92
$32.47 $31.34
$28.89 $29.35
$20.00
$17.23

$-
May June July August September October November December

Var. Expenses Fixed Expenses Total Expenses

Integration & Evaluation
Timetable of Activities
Timetable of Activities
Timetable of Activities
Evaluation
• Our principal key performance indicators would be the new customers acquisition, since we’re a brand that is new on the segment of luxury goods, the status of the
current customers, which we would like to continue to buy our products, and the revenue generated by our products by the end of the year.

• These 3 KPI’s are the main ones that can be directly applied to our business, and that can be measured fairly easy as we stay longer in the business. The data
collected for evaluating purposes will be the following:

• New Customers Acquisition: We keep a register of our customers normally per sale, and through marketing and advertising on different product fairs, as well as
online sales, we can find if we’re reaching new customers. The only marketing channel in which it will be difficult would be the retail stores, since we would need
that the owners of the store keep track of their sales.

• Current Customers: We can use the current register of our customers to reach them and offer new products or limited editions of existing ones, prior to selling them
on retail, online stores or product fairs, so they can have early access to them. With that information we can also see if they are one time customers or a repeating
customer.

• Revenue: This is the single most important KPI for our brand, mainly because we’re a new business. As stated on the revenue forecast i the Financial Analysis
segment of this presentation, we expect to be winning about $900 USD in revenue by the end of the year. If we continue with our current expenses, we would be
facing a deficit of about $266.75 USD by December 2015. The current usage of this data has many current disadvantages, such as:
• We’ve only collected data for about 4 months, which is a short timeframe.
• We’re using this current data to produce a forecast, which tendency is to level at revenues of $130 USD-$170 USD per month.
• We have not yet faced the Winter Holiday period, which is renowned for it’s buying potential for gifts.
• Our main aim is to have reached the break-even point by the end of the year (December 2015) with our current rent, and at the same time, moving from
our current place to a cheaper one to lower the fixed costs.
Evaluation
• Several scenarios can be analyzed for failure, but the main ones are directly related to our KPI’s:

• No new customers acquisition - This can be a reflection of several factors such as:
• Poor design appeal: Different customers have different tastes, and our main bag, (clutch) can be unappealing to some of our customers. This can be
addressed by having a wider variety of colors and materials construction in our bags, as well as having different bag designs. We’re focusing now on
designing 2 new bags for our market, with prototypes being constructed by the end of this month, to prepare for the holiday season.
• Poor marketing: We’re aiming to be on as many social networks and product fairs as possible, so we can further promote the brand and it’s products, as
well as a new online store (Sacional.com). We believe that a poor marketing effort can detract us from having the sales we expect by the end of the year.

• Current customers don’t buy again - This is closely related to the previous problem, and can be addressed in the same ways, including:
• Promotions: our current customers will have special promotions on our current designs, and early access to new ones including limited editions. We like to
think that our customers are important to us, and that our key customers should have benefits above the casual one. Customer focus instead of Product
focus is our main marketing strategy in the luxury business

• Low Revenue – Another hindrance would be that we do not reach the break-even point by the end of December 2015:
• Fixed costs: Moving out of where we’re established is our main concern by the end of the year, so we can lower our fixed costs and increase our profit.
• We’ve had some problems mainly at product fairs, since we don’t have access to a credit card terminal so customers can pay with credit card. This is getting
addressed by buying the iZettle® device, which will allow us to make credit card charges on the product fairs.
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