Entrepreneurship

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Overview

Vouchers are commonly used by merchants to attract customers. However, the issuance, storage and redemption of physical vouchers has resulted in much inconvenience for both merchants and customers. Merchants usually incur significant costs from issuance and distribution of vouchers while consumers usually face problems of loss, damage or non-use of the vouchers. To counter such problems, we decided to help both the establishments and the customers to better manage and utilise their vouchers. Our product, the mobile application ‘V-Pouch’, serves as an online platform and marketplace that provides a solution to the problems arising from creating, distributing, storing and even trading digital vouchers faced by our target audiences. V-Pouch aims to be Singapore’s leading voucher management mobile application and to build a conducive ecosystem to solve the existing challenges faced in the market.

Key Value Propositions

The application provides an easy-to-use toolbox and numerous templates for establishments to design their digital vouchers with unique bar codes in a matter of minutes. Through V-Pouch, business owners will effectively save the costs of producing and distributing physical vouchers and gift cards. Our application rids end users off the common problems of keeping physical vouchers: loss, damage, and wallet space occupied by vouchers that doesn’t require immediate usage. Furthermore, end consumers are allowed to trade their unwanted vouchers with each other while sourcing for those they need. They could  purchase digital gift vouchers for their friends or family on this integrated platform. Our main hypothesis will include that, firstly, businesses are incurring significant costs due to production and distribution of vouchers, and secondly, consumers are willing to save by actively using vouchers through online platform.

Market Analysis and Customer Segments

Singapore boasts a smartphone penetration rate of 149% in 2016, which is the highest in the world. In addition, there are many shopping malls, restaurants and neighbourhood stores. Living in the world’s most expensive city as of 2016 - as mentioned by Economist Intelligence Unit (EIU) - Singaporeans tends to be highly sensitive to prices, constantly seeking for cheaper alternatives before making their decisions to purchase. The use of coupons, vouchers and gift cards of any forms became a common method to attract and retain customers. Despite massive number of vouchers issued every year, the redemption rate remains frustratingly low, with average redemption rates of coupons hovering around 0.5% to 2% according to CodeBroker. However, coupons and vouchers sent via smartphone applications are redeemed at a rate of 8% to 16%, showing the potential mobile voucher applications brings compared to traditional means. Establishments have been reducing issuance of physical coupons and focusing on digital alternatives, mostly via email. Creating their own mobile application might not make economic sense to cater for their limited market share. Consumers, on the other hand, are not willing to take on the hassle in installing multiple promotional applications and check on them consistently.

With the information, we decided to separate our target audience into two main categories: partner merchants and consumers with smartphone. Under partner merchants, we aimed to target both small establishment keen in having vouchers and gift cards but doesn’t have the financial capabilities to do so, as well as existing corporations such as shopping mall operators who are active users of vouchers. For end consumers, we separated them into smartphone users with and without income. Our key hypothesis includes: establishments are willing to use our platforms as their form of marketing efforts to increase sales; end users’ behaviour in purchasing, and their price sensitivity in related to their income level.  

Financial Analysis

Our application charges merchants for issuing vouchers and advertising promotions on our platform. Thus, our revenue is tied to number of merchant partners which is assumed to be 300 at base year and grow at 50% per year subsequently. The per partner revenue is estimated to be $762.5 yearly including their budget for both vouchers and advertisement. Our partner acquisition cost is estimated at $50 per partner. We will hire app developers and UI designers, which would cost about $108,000 in yearly salary and be compensated on vesting stock incentive programme. The application development cost is estimated as $60,000 per app. Our user acquisition could be done through the merchants as customers patronize their shops. We will also spend significant social media marketing cost of $30,000 at base year and grow at 80% per year subsequently due to expansion. The application server will be rented from Amazon Web Service as it is more cost efficient. Rental and utilities costs are relatively small at $600 per month as we use co-working space. Based on the above figures, we will aim to achieve a positive profit of $61,180 and positive cash flow in the second year of operation. The projections are done over a 5-year horizon and profit in the 5th year will rise significantly to $641,796. Initial capital raised would be $80,000 from founders and Spring angel scheme. The profitability is susceptible to significant increase in marketing spending due to competition and application development cost. Overall, we believe that our business model could profit and is sustainable in the long run. The details of assumptions and our projections are laid out clearly in the Appendix. Since our revenue stream mainly focus on charging our partner merchants, our key hypothesis will include businesses are willing to pay for advertising space and sponsored searches in our application.

Competitive Analysis

Porter’s 5 Forces Analysis

Internal Rivalry – The threat of internal rivalry is moderate. Even though there are existing mobile applications with similar functions, they are mostly headquartered overseas, and target huge chain outlets. They often lack in-depth understanding of Singapore’s local markets, which consist largely of individual boutique shops.

Bargaining Power of Supplier – The bargaining power of supplier is generally strong as our platform is highly dependent on the vouchers’ terms and conditions. If the terms and conditions are not set in our favour, for example, the merchants do not allow the trade of vouchers, our platform will not be able to function fully at its potential. However, the chance of forward integration by establishments is low, especially for small scaled shops and restaurants, decreasing our threat slightly.