Eco 561 - Will Bury Business Proposal

Business Proposal

Cherie Cain ECO/561 Economics

December 3, 2012

Alfred Igbodipe

Introduction

Will Bury, an enterprising inventor, is convinced that soon everyone will be reading or listening to everything digitally, including books that have been mostly available in hard copy. He has developed a digital reading application that is necessary in today's world of academics, business, and relaxation (University of Phoenix. 2012). Mr. Bury has developed proprietary technology that will allow him to convert printed text into a digital format for reading, or audio for listening. Since he holds the patent on his digital and audio converting technology, his business is considered a monopoly. A patent is the exclusive right of an inventor to use, or to allow another to use, his or her invention (McConnell, Brue, Flynn, 2009). Patent laws protect inventors from other competitors who may try to use the technology without any contribution to the development. Bury's patent is proprietary technology and is protected up to 20 years according to international agreement. This creates a barrier of entry to competitors and gives him an advantage (University of Phoenix. 2012).

Will Bury is in need of a working location to continue the work of his latest product as well as a staff to carry on the implementation. He is currently working alone on his invention out of his garage. A working location with more staff will guarantee the company a selection of more books digitized as well as more sales and higher revenue. Bury at this time is not incurring additional costs by developing his invention from the garage of his family's home.

The company's success is dependent on being able to get the product out for the customers as well as giving them as many different options of books possible (University of Phoenix 2009). In the Will Bury Price Elasticity Scenario (University of Phoenix, 2011), Bury found an article from a reputable source suggesting that customers of digital and audio books are relatively affluent with above average household incomes who read more for business than for pleasure. The digital listening audience is similar to the audience who download music to digital devices. Understanding the e-digitalization market structure as well as the consumer characteristics will help me generate ideas for Bury to make additional revenue with his digitizer proprietary technology.

The digitizer Bury uses is inexpensive so that helps to minimize the costs of the production of the product. The main concern for this company is the training of employees in how to transform the books digitally and scanning them into the digitizer. It is not difficult to train others but the process of the actual implementation is time consuming. He does need a team of employees who can understand the process and apply it to the books in a timely manner. Training high school graduates or college students will minimize the amount of production costs.

Bury's profits for his business will be maximized when marginal revenue equals marginal cost (MR=MC). Marginal costs for any business are the variable costs associated with the labor, material, and the per unit share of overhead. Marginal revenue "is the change in total revenue (or the extra revenue) that results from selling one or more unit of output" (McConnell, Brue & Flynn., 2009, p. 178). The current costs of all utilities, including the electricity used in product development are fixed costs of the family home. However, the high fixed costs that he would incur are associated with the office equipment if he decided to expand his operations. Bury's variable costs at this time are the royalty fees for any material used to test the new product, packaging items, and shipping fees for the product. Other variable costs for his business will include the labor paid for downloading the books as well as any materials needed such as the CDs with the books on them. Bury has made many sacrifices in his life when inventing his new product. He has missed many of his daughter's soccer games and other family activities. According to McConnell, Flynn, and Brue (2009), economists call such sacrifices opportunity costs. Will Bury must consider all costs when he is trying to plan how much time his new business venture will take up.

Bury has begun testing his application by setting up a website offering of a small catalog of books. He set the price at $10 for a title on which copyright has lapsed and $15 for a title that includes a five dollar royalty fee. Six months of sales resulted in 1,000 units of copyright lapsed titles and 2,000 units for new titles (University of Phoenix, 2012). Using the coefficient of price elasticity formula using the new sales information against the old sales information in this case is zero. In this case the formula discloses that even will the small catalog the coefficient still calculates to one. Bury has the option to either raise or lower his price. Because the product is elastic the recommendation is to lower the price in effort to increase revenue. Within a period of six months after the official launch of the product Bury can use the coefficient of price elasticity to determine how well his product is doing. The calculations will have a figure other than zero for old price and old quantity sold providing a more accurate measure of performance.

The concept of elasticity of demand measures the sensitivity of the quantity demanded to change prices (McConnell, Brue & Flynn, 2009). Studies show digital music is popular with customers. Bury should target this audience by selling his digital books. He should also keep his prices the same for now, review, and analyze the laws of supply and demand and determine how his sales will be affected. Another way to help increase revenue would be an increase in website technology, to enhance Bury's business. This option may be beneficial for him, and gain the attention of customers.

The immediate gain of market share is promising for Bury as the demand for a quality digital reading is constant. The services-producing sector grew three percent in 2011 after declining 3.9% in 2010. The turnaround in value-added led by 4.9% increase in professional, scientific, and technical services (Bureau of Economic Analysis, 2012). This data only reinforces that the timing is right, and the focus should be on cost structure of his product. Below displays an emphasis in catalog library at 24% and marketing 16%. Bury will have to offer a large library catalog to compete. He will also have to place an effort in marketing