2014 national diversity case competition digital media and the hispanic guest iu kelley – national...
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Digital Media and the Hispanic Guest
IU Kelley – National Diversity Case Competition
Team CarmenThe Ohio State University, Fisher College of Business
January 2014
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The Hispanic Population in the U.S. is a growing market and increasingly influential consumer segment
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Background Population Growth1
Buying Power1 Diversity Benefits to Business
60% US population growth (2011 – 2016) attributed to
Hispanics
$1.5 TrillionProjected Hispanic buying power by 2015
• Hispanics are the largest minority group in the United States - 50.7 million
• Defined as descendants of Spanish speaking nations
• Large populations are found in TX, AZ, NV, NM, CA, FL, NY
• Younger than the U.S. population (median age of 28 vs 37) and larger households (median 3.87 members vs 3.19)
1The Nielsen Company, “State of the Hispanic Consumer: The Hispanic Market Imperative” Quarter 2, 2012
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1 Unilever reports, “Winning the Hispanic Shopping Trip,” 20062 University of Georgia, Selig Center for Economic Growth, “Hispanic Buying Power,” 20113 Oklahoma State University, Wes Watkins Agricultural Research and Extension Center, “The Growing Hispanic Population,” 20074 US Census Bureau, 2009
Location and accessibility uniquely define Hispanic shopping habits
Walk or take bus to store1 22% of Hispanics vs.
3% of U.S. population
Take more trips per week3 4.6 tripsfor Hispanics vs.
2.2 for U.S. population
Buy less each trip4 $37.19 / tripfor Hispanics vs.
$79.79 for U.S. population
Own fewer vehicles per household2
1.6 carsfor Hispanics vs.
2.4 for U.S. population
#1 reason for store selection is location
5x more important than #2 reason - price
Hispanic guests…
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Hispanic guests are tech-savvy and especially active on social media platforms
Have access to internet1 88% access internet
at home or at work
Create online content3 2.2xas likely as
U.S. population
Spend more time watching online video4
68%more time thanU.S. population
Own smartphones2 45%of Hispanics vs.
34% of U.S. population
To reach the Hispanic guest, retailers must use:
Engagement – interactive social media
Content – culturally relevant, value-add
1 Neilson Report, “Three Things You Thought You Knew About U.S. Hispanic’s Engagement With Media,” 20112 Google Report, “Four Truths About Hispanic Consumers,” 20103 Forrester Research, “North American Technographic,” 20114 Neilson Report, “State of the Hispanic Consumer,” 2011
Hispanic guests…
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Target Corp’s current strategy is not effective in reaching the Hispanic Guest
Walmart’s “Supermercado” stores
In Store Diversity Location Disadvantage
Bi-lingual Advertising
36% of Hispanics named Walmart as favorite store
4% named Target1
1 NOP World, Hispanic OmniTel Retail Study
Walmart has 4,170 stores in the U.S. compared with only 1,790 for Target
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Target should invest in a broad portfolio of solutions for reaching the Hispanic guest
Merchandising and store operations TargetGo car-pooling platform
Content is kingTraditional and social media engagement
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Recommendation: Target should launch a car-pooling platform, TargetGo, to engage
customers through digital media
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Purpose
• Increase store accessibility
• Increase basket size
• Appeal to a wide variety of guests, especially Hispanics who primarily choose store by location
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TargetGo enables users to search for a ride on a given date, and then select a time
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Users select a driver and may examine the driver’s profile, reviews, and trip history
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Upon arrival to the store, GPS will confirm and users will receive a discount barcode
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Discount StructureRiders 2%
Drivers1 passenger 4%2 passengers 5%3+ passengers 6%
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Security and transparency measures alleviates guest trust concerns without excessive
barriers to use
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Verification Reviews & Policies
• Thorough background check required for drivers
• Includes verification of driving history, vehicle safety, and insurance
• $10 cost paid by driver initially
• Reimbursed by Target after first completed trip
• Drivers and riders are reviewed after each trip
• Zero tolerance towards DUI, reckless driving, and disrespectful behavior
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An efficient portfolio of digital, social, and transit media will engage 30,000 users at
minimal cost
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$327,000Marketing Budget
$33/user4,000 users
$15/user7,000 users
$10/user9,000 users
$0/user10,000 users
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TargetGo will launch within 3 months and have an initial cost of less than $600,000
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Target should expect to make over $5 million incremental profit in the first year
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Average Users30,000
Riders21,000
Drivers9,000
Drove to Target2,100
Walked / Bussed to Target14,700
Didn’t Shop at Target4,200
Incremental Revenue
Incremental Costs:- COGS
- Discount
Gross Profit per user
Gross Profit per Category
Total Weekly Gross Profit
$0.00 $13.02 $39.05
$1.12 $1.12 $1.12
($1.12) $4.46 $15.62
($2,342) $65,595 $65,595
$102,077
70%
$0.00
$0.00
$2.97
($2.97)
($26,774)
$18.59 $55.78$0.00
30%
10%70% 20%
Spend / trip - no car $37.19Spend / trip - car $55.78
Increase in Basket Size w/ car 50.0%COGS Margin 30.0%Discount - Rider 2.0%Discount - Driver 5.3%
Assumptions
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Target breaks even in 2 months and generates a return on investment (ROI) of 691%
over the first 5 years
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Y0 Y1 Y2 Y3 Y4 Y5$61.40
$61.60
$61.80
$62.00
TGT Stock Price
$0.34
Y0 Stock Price is January 16, 2014 closing price
TargetGo increases shareholder value by over
$213 million
Y0 Y1 Y2 Y3 Y4 Y5Incremental Annual Profit $5,307,995 $6,900,393 $8,970,511 $11,661,664 $15,160,163Weekly Users 30,000 39,000 50,700 65,910 85,683Total On-Going Cost $1,399,750 $1,540,150 $1,722,670 $1,959,946 $2,268,405Total Project Profit $3,908,245 $5,360,243 $7,247,841 $9,701,718 $12,891,758
Total Initial Investment: $597,000Breakeven point (months) 1.8ROI 691%
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What questions do you have?
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No Silver Bullet All Stakeholders Win
Unique NeedsInfluential Hispanic Guests
45% own a smartphone
22% walk or bus to the store
Shareholders
Employees
Guests
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Appendix – Table of Contents
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Hispanic shopping behavior
slide 17
Hispanic smartphone and social media usage
slide 18
Driving safety
slide 19
Transportation Network Company
slide 20
Application Development & Maintenance
slide 21
Marketing Effectiveness
slide 22
Bus Service
slide 23
Detailed Financials – Profits
slide 24
Detailed Financials – Stock
slide 25
Conservative Assumptions
slide 26
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Hispanic shopping behavior
Food
69%
Alcohol3%
Clothes23%
Personal Care6%
Shopping DollarsFood $6,094Alcohol $267Clothes $2,002Personal Care $532
Total Shopping $8,895
Housing $15,983Transportation $7,156Healthcare $1,568Entertainment $1,664Education $743Insurance/Pension $4,230Taxes $745Other $997
Total Non-Shopping $33,086Grand Total $41,981
Shopping
Non-Shopping
US Census Bureau, 200918
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Hispanic smartphone and social media usage
Android41%
iOS31%
BlackBerry10%
Other18%
Smartphone Operating Systems1
1 Zpryme Research & Consulting, “Hispanics Will Spend $17.6B on Mobile Devices in 2012,” 20122 American Pulse Survey, 2012
Faceb
ook
Google+
Linke
dIn
FourSquar
e
Pintre
st
61%
35%
27%
16%13% 13%
Social Media Usage2
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Driving safety will not have a substantial impact on TargetGo
1 SFGate, a San Francisco newspaper, 2013
Car accidents in the U.S. 6% of drivers
Car-related fatalities in the U.S. 0.02% of drivers
Number of unique TargetGo drivers / year 55,680
3,000 accidents per year
10 fatalities per year
But – not 100% of each driver’s trips are Target-relatedTrips using TargetGo 1% of trips
30 accidents per year
1 fatality every 10 years
TargetGo would not be blamed for accidents
Fatal car accident while using TargetGo may happen only 1 in 10 years
Uber1, a popular paid rideshare platform, recently had two incidents in which its responsibility for drivers’ actions was called into question. However, Uber has maintained that it is solely a matchmaking service and has faced little public backlash.
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TargetGo is not a Transportation Network Company (TNC), as defined by California
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Application cost estimation
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Application Development Cost (iOS or Android)
Hours of Development Needed $120 Custom Brand New App $12,000 Complex App Development $50,000
Cost / Hour $100 Email & Social Login $3,000 App Design $10,000
Total $12,000 In-app Payment System $3,000 Tablet Compatability $5,000
Sync Data across devices $8,000 Backward Compatability $5,000
User Reviews $5,000 In-App Purchasing $5,000
User Profiles $3,000 Web Services $5,000
Website Integration $3,000 Total $80,000
Custom Icon $500
Total $37,500
Fueled (App Dev Blog)
Ooomf (App Dev Company)
BlueCloud Solutions(App Dev Company)
Application Maintenance Cost
App Development 60/40 Rule: 60% of an app’s cost will be maintenance, while 40% will be development
$80,000 Development cost x (60/40) = $120,000 a year in maintenance per platform
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Marketing Effectiveness
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1 http://www.ppbh.com/how-much-do-ads-on-facebook-cost/2 http://www.insidefacebook.com/2012/04/04/survey-suggests-facebook-advertising-benchmarks-0-80-cpc-0-014-percent-ctr/3 http://www.searchmarketingstandard.com/what-is-the-average-conversion-rate4 http://searchenginewatch.com/article/2190651/Twitter-Advertising-Guide5 http://www.valleymetro.org/publications_reports/ridership_reports6 http://www.bluelinemedia.com/bus-advertising/bus-stop-shelter
Youtube Ads Facebook Ads Twitter AdsCost per view1 $0.30 Cost per Click2 $1.00 Cost per Click4 $1.00 Click Rate 20% Conversion Rate3 3% Conversion Rate 3%Conversion Rate 10%
Cost per User $15.00 Cost Per User $33.33 Cost per User $33.33
Bus ShelterPeople per month5 10,000Read Rate 20%Search Rate 10%Conversion Rate 50%
People Targeted per month 100
Cost per month6 $1,000 Cost per Person $10
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Bus System Cost Analysis
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Target stores in United States 1,790
Stores in targeted area (AZ, CA, FL, NY, TX, NM) 636
Stores that have demand for bus system 300
Bus systems actually implemented 30
Cost per store
2 Buses at $300k each $600,000
Cost to operate per hour 100
Operating hrs/day (2 buses) 24
Days/week 6
Weeks/yr. 52
Hours/yr. 7488
Annual Operating Cost $748,800
Total Cost per Store $1,348,800
Total Cost for 30 Stores $40,464,000
1 Christopher MacKechnie for About.com. Christopher has 10 years of professional experience in the transit industry
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Detailed Financials – Profits
Y0 Y1 Y2 Y3 Y4 Y5Incremental Profit:
Weekly Users 30,000 39,000 50,700 65,910 85,683Growth Rate 30% 30% 30% 30%Incremental Weekly Profit $102,077 $132,700 $172,510 $224,263 $291,542
Incremental Annual Profit $5,307,995 $6,900,393 $8,970,511 $11,661,664 $15,160,163
Initial Investment:Technology Development $180,000Marketing Campaign $327,000Initial Verification $90,000
Total Initial Investment: $597,000
On-going costs:Technology Maintenance $250,000 $250,000 $250,000 $250,000 $250,000Marketing Expenditures $81,750 $81,750 $81,750 $81,750 $81,750On-going Verfication Cost $468,000 $608,400 $790,920 $1,028,196 $1,336,655Corporate Overhead $600,000 $600,000 $600,000 $600,000 $600,000
Total on-going $1,399,750 $1,540,150 $1,722,670 $1,959,946 $2,268,405
Total Project Profit $3,908,245 $5,360,243 $7,247,841 $9,701,718 $12,891,758
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Detailed Financials – Stock Price
Stock Information from Google Finance
Y0 Y1 Y2 Y3 Y4 Y5Current Stock Price $61.56Shares outstanding (millions) 632.09P/E Ratio 16.52
Total Project Profit $3,908,245 $5,360,243 $7,247,841 $9,701,718 $12,891,758Incremental EPS $0.01 $0.01 $0.01 $0.02 $0.02Incremental Share Price $0.10 $0.14 $0.19 $0.25 $0.34Projected Stock Price $61.66 $61.70 $61.75 $61.81 $61.90Change in Stock Price $0.34Shareholder Value $212,971,850
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TargetGo still very profitable under extremely conservative assumptions
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10% Discount Required to Attract Driver
10% Annual User Growth
Y0 Y1 Y2 Y3 Y4 Y5Incremental Annual Profit $4,089,766 $5,316,696 $6,911,705 $8,985,217 $11,680,782Weekly Users 30,000 39,000 50,700 65,910 85,683Total On-Going Cost $1,399,750 $1,540,150 $1,722,670 $1,959,946 $2,268,405Total Project Profit $2,690,016 $3,776,546 $5,189,035 $7,025,271 $9,412,377
Total Initial Investment: $597,000Breakeven point (months) 2.7ROI 490%Shareholder Value $155,492,464
Y0 Y1 Y2 Y3 Y4 Y5Incremental Annual Profit $5,307,995 $5,838,794 $6,422,673 $7,064,941 $7,771,435Weekly Users 30,000 33,000 36,300 39,930 43,923Total On-Going Cost $1,399,750 $1,446,550 $1,498,030 $1,554,658 $1,616,949Total Project Profit $3,908,245 $4,392,244 $4,924,643 $5,510,283 $6,154,486
Total Initial Investment: $597,000Breakeven point (months) 1.8ROI 667%Shareholder Value $101,672,109