By: Andrew Poteres
Naturally, by starting a company on the verge on technology and being the first of its kind there are not any competitors just like ours. Sure there were some products that did close to the same thing, but no other company came up with this plan utilizing the technology we had. Therefore, we would hold a natural monopoly for people looking for an eco-friendly roof, that connects to a thermostat, and adjusts to temperature to save costs. Since there is nobody else that offers the same thing we do, we would be the sole manufacturer of this product. Anybody looking for a product like ours would have to go through us, establishing the monopoly. This happens a lot with new tech because new technologies are the natural monopolies of the modern world, making it difficult for start-ups to take control of the market. Once we established a solid ground in the market, it would be harder for other companies to try and come and break our monopoly. Our goal was to create a monopoly like this with our product that way we could have complete control on the market, and have little to no competition with it.
One big thing we looked at when determining price was its value to our consumers. To some, saving the earth is a huge priority, so this roof may be worth a lot to them. On the other hand some might not care about the environment reducing the value of our roof in their eyes. Some may even buy it because they want the reduction in heating and cooling costs because budgeting is more valuable to them. Since there is a large push for the US to adopt eco-friendly options, we figured that most people would prefer an environmentally friendly option. We felt that having something that saves the earth was valuable in the typical US consumer. The other point we wanted to make sure we hit was that it saves money. During an economically rigorous time we live in, everybody is looking to save some cash here or there. Therefore making our product save people save money in the long run would increase it's value in the consumer's eyes. The higher the value of the product the more people will pay for it.
Another example of value can be seen in this chart. Media has a different value to different countries. Germany has a different value of media than the US has. Just like our product. One citizen might be willing to pay the upwards of $1000 to be eco friendly while another may only find it worth $5.
supply and demand
As we looked at value, we were able to relate that to demand. We understood that increasing the demand for the product would increase the amount of sales we could get. More sales means more profit, which was the goal. There was another aspect we had to look at though. The more we increased demand, not only would the price rise, but the amount we have to supply would also increase as well. Therefore, although we were selling more, we were also paying more to manufacture and install our products out to the public. An example in this increase in demand can be seen on the graph below.
When looking at the amount of roofs replaced in the US per year, we were a bit weary about the potential market. Roofs last pretty long in my opinion (30-50 years) and we don't think we could make a large enough profit off of that. Then we began to look at the housing market. Nobody can build a roof if there is no house to build it on. Because a house is needed for us to sell a roof, we determined that houses were a complementary good to our product. This means that if the housing market gets better, or an increase in demand occurs, then our product will also feel an increase in demand. Having our product be a complementary good with not only the housing market but also the roof repair market has its pros and cons. If the housing and roof market both see good times then our product will flourish greatly. On the other hand, if either of those take a hit, then our product will also suffer a hit. Overall, we decided the more diversified in complementary goods are product is, the less risk it would have.
current event in Kansas
A big problem with roofing is that fact that lots of damage can be caused by simple inclement weather. Currently in Kansas, they are facing lots of tornadoes and snow at the same time.
We began to realize that our product would be at a lot of risk in places of inclement weather. This caused us to make a change in our product. We upped the price just a bit and added a warranty plan to our product. People won't want to buy our product if they have to replace the whole thing if there is ever a small accident. These types of disasters may also be a plus for our company though. If houses using traditional roofing hard damaged, they may look to replace their roof through our company.This would stimulate more demand for our product as the roofing market got stimulated.
Another big aspect of production was how much it costs to produce this item. Our product was being manufactured by us, so we had a bunch of fixed costs called overhead. We originally thought that our overhead costs would be huge because the technology was so advanced. Upon research of our product we found that our small fixed costs for the materials to assemble our product are much cheaper to manufacture. This decrease in costs overall lowered our overhead. Because our overhead was a lot cheaper than expected we could lower the price to better compete with other roofing agencies. This is when we compared our prices to that of OPAL roofing in Naperville. Because our overhead is less, we can charge less than them.
4 factors of production
Before we decided that we were going to manufacture our product ourselves. We had to take into account the 4 factors of production. Land, capital, and entrepreneurship are important, but the biggest one for us was labor because we were installing our roof on each home so we need a lot of skilled workers to do so. Because we had so many workers, and they had to be skilled enough to install our high tech roof, we had to pay them a lot of money. This caused us to up the price a bit because a lot of payment was getting made to the workers. Land and capital didn't matter that much to us because our company was just theoretical. The entrepreneurship aspect was also important as we had to find a way to keep this product enticing to customers. This is when we made the product connect to the thermostat. This was our look into the future through entrepreneurship. In the end, we decided that producing this product ourselves made more sense because we have more control over it.
current event MIT discovery
MIT discovered this technology for our product. Without this discovery we would not be able to make our product. It is not the exact product they made, but simply our utilization of their techniques being adapted and used in our roofing. This idea was the whole ideological base for our product, and its existence would not have come had these scientists not come up with this method.
This is also big for our product because it opens the door for others to come and utilize MIT's discovery as we did. Possibly opening us up to competition. If somebody else finds a better equation for eco-friendly roofing then we may be in trouble, but until then, this is the current standard for roof bound solar cells. The idea and physics they used was not patented but the single cells they have are patented. We don't use the cell, just the design and we extrapolate it to our needs.
The business cycle for roofing is much different than cycles for everyone else. Though we all run on the same timeline, we find different quarters for strengths and weaknesses during the year. Instead of looking at the business cycle for the entire economy, we decided to look at it by product type. For example, our highest peak for roofing may be the lowest trough for some businesses in website design and vice-verse. Upon looking at some data and going through the reasoning, we determined that our best time would be during the end of summer towards fall. We figured the rainy season is over, so the fear of a wet roof wont be too bad. Since we will be seeing the most demand during this time due to the business cycle of our company's nature, we would want to adjust prices during that time to raise profits. Therefore, we decided to up the pricing during the summer and fall and drop it for the winter and spring. We get more people spending more money during high demand times, and less people spending less during low demand times. Now you man think it is a bad idea to mix low demand and low pricing, but we felt that these lower prices would entice consumers to come buy our product during those times.
Due to our business cycle, we can expect a peak and a trough of production based off of our sales numbers. If we are selling a lot during the summer and fall then we need to produce a lot. At the same time our production will be down when we don't sell a lot during the winter and spring. This means we may have to lay off workers season to season based off of our demand. If we have to hire a bunch of workers for the summertime and into fall, then we may have to lay them off during lower production times in the spring and winter. The fact that our employment numbers depend a lot on the season, our business is an example of seasonal employment. This may be a disincentive for people looking to work in our company. They may not like the lack of job security our company has, but we don't think this is a big enough disincentive. People will take a job no matter what if they are desperate enough for money.