144 APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant

Marketing Strategy
Our marketing strategy is designed to support our successful entrance into the competitive PDA market. We plan to build brand awareness and
image while emphasizing our competitive superiority based on innovation quality, and value. Using all elements of the marketing mix, as well
as service and internal marketing, we will educate our targeted segments about the features and benefits of our new PDA and motivate pur-
chases by first-time users as well as PDA owners seeking to trade up. Although television advertising is not affordable under start-up budget
constraints, we \vill use radio, online, and other media to reach our targeted segments in creative and effective ways.

The following sections examine our mission, marketing and financial objectives, target markets, positioning, strategy, marketing-mix elements,
service and internal marketing, and marketing research plans.

MISSION

Sonic's mission is to produce and market high-quality, value-priced PDA products that enable U.S. consumers and business users to use voice
recognition to organize data and stay in touch whenever and wherever they choose. As this mission indicates, we have chosen to operate in
the U.S. market for handheld computing devices. Our core competence is producing quality electronics with innovative features, notably the
incorporation of unique voice recognition technology for hands-free operation.

We define our vertical scope as manufacturing Sonic-branded products for distribution through a network of select online and computer
retailers and office supply superstores in the top 50 U.S. markets. Geographically, our scope initially covers the 50 states; in later years, we will
consider expanding to the Canadian market and, if demand is strong, beyond.

MARKETING OBJECTIVES

Our primary marketing objectives are to:

 Achieve first-year unit sales volume of 240,000, which represents a projected market share of 6 percent with one model in product line.
 Increase second-year share to 10 percent, based on sales of two models in product line.
 Generate 40 percent brand awareness within the consumer target market and 50 percent brand awareness within the business target market
by the end of next year.
 Arrange for distribution through Amazon.com and through the leading computer and office-supply retailers in the top 50 U.S. markets
within 3 months, followed by distribution coverage in the remaining major metropolitan areas within 6 months.

FINANCIAL OBJECTIVES

Sonic's primary financial objectives are to:

 Restrict first-year losses to less than $10 million and seek a 10 percent profit on second-year sales of the original product.
 Achieve first-year total sales revenue of $60 million, based on an average wholesale price of $250 per unit.
 Earn an annual rate of return on investment of 15 percent after taxes within the first 4 years.
APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant 145

TARGET MARKETS

On the consumer side, the primary target market is middle- to upper-income professionals who need one portable device to coordinate their
busy schedules and communicate with family and colleagues. These consumers prefer lower-priced PDAs with expandable memory and
functionality. The secondary consumer target is college students and graduate students who want to organize their school, work, and personal
schedules, input and access information at any time from any location, and stay in touch with family and friends.

On the business side, the target market is mid- to large-sized corporations that want to help their workforce stay in touch and input or access
critical data on the go. These buyers want durable, powerful, easy-to-use PDAs that can operate customized business applications. The
secondary business target consists of entrepreneurs and small business owners who need to stay in touch and organize their busy schedules at
all times. A possible tertiary business target is medical users, doctors and nurses who want to reduce paperwork and quickly update or access
patients' medical records.

POSITIONING

Using product differentiation, we are positioning the Sonic PDA as the most versatile, convenient, value-added model for personal and
professional Use. We are focusing on the voice recognition system as the main feature differentiating the Sonic PDA from all other competing
models, because it provides versatility and convenience.

STRATEGY

Because of the intensely competitive nature of the market, our most important strategy relates to the need for clear differentiation to position
Sonic as the most versatile, convenient, value-added model for personal and professional use. Supporting that positioning, key points to be
emphasized include:

 versatility (the ability to use any Palm-compatible peripheral or software application; the incorporation of /vIP3 music functionality; case
wardrobe as a standard feature)
 convenience (voice recognition software for hands-off operation; wireless e-mail and Web functionality; size and portability)
 value-added (retail price of about $350; standard features that are only available on competing high-end models or as user-installed
options)

Marketing Mix
We will move toward our marketing and financial objectives using a variety of product, pricing, promotion, and distribution programs. The
following sections are a sample of our marketing-mix programs to support the PDA introduction.

PRODUCT

Our basic PDA model, to be introduced at $250 wholesalel$350 estimated retail price per unit, incorporates voice recognition system for hands-
free operation; wireless Web access; /vIP3 capabilities; use with Palm-compatible peripherals for expanded functionality; use with Palm-
compatible software applications; slots for additional memory; black/white sharp text display screen; full range of organization and
communication
__ •• _~_._10.. ~ __

146 APPENDIX 2 Sample Marketing Plan: Sonic Personal DigitalAssistant

functions, including calendar, address book, memo pad, world clock, Web browser, email program, and expense organizer; cradle for
synchronizing data with PC; and interchangeable case wardrobe of different colors and patterns. The product will be sold with a full I-year
warranty; repairs will be provided on a contract basis by a nationwide service organization.

We will focus our research and development efforts on creating a more compact, powerful high-end model for introduction the following year.
This second model, to be priced at $350 wholesale per unit, will have even more standard features that are currently available only as options
on competing models, including color display, cell phone functionality, and GPS locator functionality. This product will be accompanied by a
special subscription offer of cell phone service (arranged through partnerships with regional service providers).

The Sonic brand is an integral part of our product strategy. The brand and logo (Sonic's distinctive yellow thunderbolt) will be displayed on the
product and its packaging, and reinforced by its prominence in the introductory marketing campaign. The packaging will protect the product
from damage in transit and incorporate security features so the boxes can be displayed store shelves as well as in store showcases. It will also
include a competitive comparison chart emphasizing the product's unique features and value-added benefits.

PRICING

Our introductory PDA model will carry a first-year average retail price of $350, which is in the mid-range of the market yet offers unusually
high value for so many standard features that are optional on competing models. We expect to lower the price of this first model when we
expand the product line by launching a higher-end model in the second year. According to our first-year financial objectives, we plan to limit
our losses to $10 million or less. Our pricing objective is to support the sale of 240,000 units in the fIrst year and achieve our market-share
objective of capturing 6 percent of the U.S. PDA market.

Exhibit A2.5 shows the features and approximate price levels (which can vary from retailer to retailer) of selected mid-level and high-end PDA
models being marketed by Palm and Handspring; none of these currently include voice recognition capa-

Approximate

Competitor Model and Features Price

Palm Palm m500 (monochrome screen, expansion slot for $399 I

memory cards, organizer features, cradle for data exchange) I
Palm Palm m505 (color screen, expansion slot for memory cards, $449 I
organizer features, cradle for data exchange) I
Palm Palm v X (monochrome screen. no expansion slot, organizer $299 I
features, leather cover) \
Handspring Treo 180 (keyboard, cell phone. monochrome screen, $399
Web-browsing and e-mail, organizer features)
Handspring Treo 270 (keyboard, cell phone, color screen, Web-browsing $599
and e-mail, organization features)
Handspring Visor Prism (color screen. cradle for data exchange, organizer $299
features, expansion slot, e-mail function, speaker and
microphone)
APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant 147

bilities. As a result, such competitive comparisons support our strategy of value-added pricing.

To encourage retailers to stock our PDAs in larger quantities, Sonic will extend payment terms for an additional 30 days for volume orders. We
will also support cooperative advertising 'by channel partners that agree to specially feature the Sonic product in their display ads, catalogs, and
Web sites.

PROMOTION

One set of marketing objectives to be supported by promotion activities is to generate 40 percent brand awareness within the consumer target
market and 50 percent brand awareness within the business target market by the end of next year. To achieve these objectives, we will create a
multimedia advertising campaign to build brand awareness and differentiate the product from competitors. We also will emphasize trade sales
promotion to support our distribution strategy and develop a high-profile product launch strategy to generate publicity and media coverage.

Highlights of our initial 6 month promotion activities:

 January. We will initiate a $500,000 trade sales promotion campaign to educate dealers and generate excitement for the product launch in
February. As part of this trade push, we will exhibit at the major consumer electronics trade show and invite head-to-head comparisons
with leading PDA competitors to showcase the speed and convenience of our product's voice recognition capabilities. We will also provide
Sonic PDAs to selected product reviewers, opinion leaders, and celebrities as part of our public relations strategy to generate prelaunch
buzz. In addition, our training staff will work with sales personnel at major retail chains to explain Sonic's features, benefits, and
competitive advantages. Finally, we will work with key channel partners to initiate sales activities targeting the corporate PDA market.
 February. We will start an integrated printJradiolInternet campaign targeting professionals and consumers. The centerpiece of this
campaign will be a competitive comparison ad for print and online media showing how much faster Sonic PDA users can accomplish tasks
using voice recognition, compared with traditional PDA models. This multimedia campaign will be supported by point-of-sale signage and
demonstrations as well as online-only specials.
 March. As the multimedia advertising campaign continues, we will add consumer sales promotion tactics such as discounting selected
accessories to encourage purchases during a period when sales are traditionally lower. We will also distribute new point-of-purchase
displays to generate retail excitement and continue supporting the corporate sales activities of our channel partners.
 April. Our main focus this month will be on a trade sales contest offering prizes for the salesperson and chain that sells the most Sonic
PDAs during the 4-week period. To support this contest, we will launch a new trade ad campaign emphasizing Sonic's unique features and
value-added pricing.
 May. We plan to roll out a new national campaign this month. The radio ads will feature celebrity voices using the voice recognition system
to operate their Sonic PDAs. The print ads will show these celebrities holding their Sonic PDAs. Coordinated point-of-purchase displays
will carry through the theme and graphics of the national campaign.
 June. Our radio campaign will add a voice-over tag line promoting Sonic PDAs as a graduation gift. We will also exhibit at the semiannual
electronics trade show
148 APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant

and provide channel partners with new competitive comparison handouts as a sales aid. In addition, we will tally and analyze the results
of our first customer satisfaction survey for possible use in future promotions and to provide feedback for product and marketing
activities. Finally, we will work with the top retail chains to plan holiday season promotions and new corporate sales drives.

CHANNELS

Our channel strategy is to use selective distribution to have Sonic PDAs sold through the best-known computer stores and online
retailers, starting with the top 50 U.S. markets. During the first year, we will add channel partners until we have coverage in all major
U.S. markets and the product is included in all major electronics catalogs.

This phase-in· approach will allow our training staff to familiarize retail sales personnel with our PDA's unique features and benefits. We
will put special emphasis on key points of competitive differentiation, including our unique voice recognition system. In support of our
channel partners, Sonic will provide demonstration products, detailed specification handouts, and full-color photos and displays
featuring the product. We will also arrange special trade terms for retailers that place volume orders.

Channel partners will be able to access Sonic's Web-based system to place orders, check on inventory and shipments, and receive
information about trade promotions and other details. Sonic will ship all orders via air or fastest available method to ensure minimal
stock-out situations. We also will work with channel partners to plan optimal order quantities and ensure adequate stock levels for peak
sales periods.

SERVICE AND INTERNAL MARKETING

Sonic plans a multifaceted service strategy. Buyers will receive a I-year warranty on parts and labor, witb repairs handled by a
nationwide service provider on a contract basis. The service provider will be trained by Sonic engineers and will provide Sonic with
weekly reports on service issues so we can quickly identify any problems and address tbem through manufacturing or design
adjustments. To ensure tbat customers are receiving the expected level of warranty service, we will conduct quarterly customer
satisfaction surveys.

Sonic will provide comprehensive training and point-of-sale service for retail partners. Customers and retailers will be able to contact
service support 24 hours a day, 7 days a week, on the Web or by calling a toll-free hotline. Sonic will also survey a sample of customers
monthly and annually to track service satisfaction and pinpoint areas for improvement. Our director of service quality, who reports to the
CEO, is responsible for establishing appropriately high service quality standards and ensuring that the company consistently meets those
standards, backing up our brand image.

To build internal support for the product launch and improve internal knowledge of our target markets and their needs, we will use
internal marketing as follows:

 Conduct monthly staff meetings to update the entire company on current plans and achievements.
 Issue a weekly bulletin via e-mail to communicate each week's activities and any

changes that are being made.

 Invite staff members to beta-test pre-production models and offer feedback.

 Coordinate joint planning of marketing and production schedules.
 Provide recognition and rewards for exceeding planned sales levels.

APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant 149

Marketing Research
Sonic is using marketing research to support marketing planning in a number of ways:
 Product development. Through concept testing, surveys, focus groups, and market tests, we have identified and incorporated the most
highly valued features and benefits of a PDA product. As we plan for our second PDA model, we are collecting additional data on
usability, quality and value perceptions, and new features needed by consumer and business users. We are continuing to measure and ana-
lyze customers' attitudes toward the Sonic brand compared with those of Palm, Handspring, and other competitive brands.
 Marketing communication. We plan to measure brand awareness before, during, and after our major national marketing campaign begins.
In particular, we want to determine the effectiveness of each medium in reaching the targeted audience and stimulating response. We also
want to analyze how customers receive and interpret each message so we can refine our communications for more impact.
 Customer satisfaction. Customer satisfaction is critical to creating a buzz through positive word-of-mouth communication. Therefore, we
are planning comprehensive studies to gauge customer satisfaction with the initial Sonic PDA model and with warranty services; this will
help us quickly identify any product or warranty service issues that require immediate attention.
 Pricing. To support the pricing process for our second Sonic model, we will conduct marketing research to test different offerings at
different price levels and to examine the role of pricing in helping Sonic compete with specific rival models.

Financials
Total first-year sales revenue for the Sonic PDA is projected at $60 million, with an average wholesale price of $250 per unit and variable cost
per unit of $150 on unit sales volume of 240,000. On a quarterly basis, we project sales of $8 million, $12 million, $11 million, and $29
million, based on cumulatively higher business sales and a spike in year-end consumer PDA sales .

Heavy investments in product development, promotion, and channel support are expected to contribute to a first-year loss of up to $10 million
on the initial PDA model. However, longer term projections call for achieving a 10% profit on second-year sales of the original PDA model, a
realistic profit level given the lower margins in the PDA market. Break-even calculations indicate that Sonic will begin to profit from the sale
of the initial PDA product once sales volume exceeds 267,500, early in the product's second year. At that time, we plan to lower the wholesale
price of the first model- in line with standard industry practice-to lower the retail price and increase sales volume.

(Each individual action program will carry its own financial assumptions, managerial assignments, and scheduling, not shown in this sample
plan. The full marketing plan also would include a detailed profit and loss analysis for each product. All these financial projections lay the
foundation for planning in the manufacturing, human resources, research and development, and finance and accounting departments.)

BREAK-EVEN ANALYSIS

, Our break-even analysis of Sonic's first PDA product assumes;

• per-unit wholesale revenue of $250 per unit

150 APPENDIX 2 Sample Marketing Plan: Sonic Personal DigitalAssistant

 variable cost of $150 per unit

 estimated first-year fixed costs of $26,750,000 (including investments in product development and design, manufacturing setup and
overhead, marketing, and other fixed costs)

Based on these assumptions, the break-even calculation is:

26,750,000 250 - 150

267,5000 units

Projections call for selling 240,000 units in the introductory year; therefore, we will reach the break-even point early in the second year of
sales, just when we will be lowering the wholesale price as we launch the higher-end second product in our line.

SALES FORECAST

For our initial PDA model, we project sales to each targeted segment in the first year of product availability as shown in Exhibit A2.6.

In line with these sales projections, we are putting more marketing emphasis on the consumer market while working through channel partners
to reach the corporate and entrepreneur market. (Full month-by-month sales forecasts-per channel and per segment-would be provided in an
actual marketing plan.)
Consumer market Professionals College/graduate students Business market Corporations Entrepreneurs

Total

Unit sales 84,000 48,000

74,000 ..M.QOO 240,000

MARKETING EXPENSE BUDGET

We are budgeting for first-year marketing expenses relating to advertising, sales collateral, point-of-purchase displays, consumer sales
promotion, trade sales promotion, public relations, online marketing, channel allowances, travel, marketing research, new product
development, sales training and support, shipping, and customer service support. (In an actual marketing plan, this section would include
detailed monthly budgets for each of those activities.)

Controls
Because Sonic's PDA is a new product, we are planning special control activities to monitor quality and customer service satisfaction. This will
enable us to react very quickly in correcting any problems that may occur. We are also monitoring customer service communications to detect
any early signs of customer concern or confusion. Other early warning signals that will be monitored for signs of deviation from the plan
include monthly sales (by segment and channel) and monthly expenses. In addition, we are tightly controlling marketing schedules to assure
timely implementation of

APPENDIX 2 Sample Marketing Plan: Sonic Personal Digital Assistant 151

planned programs. A contingency plan also has been developed for immediate implementation in the case of severe downward pricing pressure
on PDA products.

(The full marketing plan would include a detailed schedule and managerial assignment for every action program and activity, not shown in this
sample. For control purposes, an actual plan would also allow for month-by-month comparison of actual versus projected sales and expenses.)

To guide implementation, our complete marketing plan will include detailed week-byweek schedules for each marketing activity and program,
including budget and managerial responsibility (not shown in this sample). This will enable us to coordinate and track our resource
commitments as planned.

MARKETING ORGANIZATION

Sonic was founded 18 months ago by CEO Minoru Yamagishi and President Sandra E. Blaine, two former executives of Compaq. The
executive team consists of Frederic Somers, chief financial officer; Jane Melody, chief marketing officer; Phillip Goodman, vice president of
production; Marc E. Holley, director of human resources; and Dianne Cheskey, vice president of technology.

As chief marketing officer, Jane Melody holds overall responsibility for marketing strategy and direction; she also directs channel sales and all
marketing communication and promotion activities, Reporting to Jane Melody in the marketing organization are:

 Tony Calella, sales manager, responsible for channel sales, sales training for retail partners, and sales collateral
 Caitlin Howard, advertising manager, responsible for supervising both message development and media selection by the advertising
agency
 Rob Barnet, marketing coordinator, responsible for trade and consumer sales promotion campaigns

Sonic has hired Worldwide Marketing to handle mass and online media advertising. The agency also will prepare trade and consumer sales
promotion materials to support our product