ETMM

PLAN OUTLINE
1.0 Executive Summary

1.1 Objectives

1.2 Positioning Statement

1.3 Keys to Success

1.4 Mission

2.0 Company Summary

2.1 Start-up Summary

2.2 Future Financial Predictions

3.0 Services

3.1 Service Guarantee

4.0 Order Process

4.1 Order Number

4.2 Return Policies

4.3 Return Label

4.4 Sequence of Process

5.0 Benefits Summary

5.1 Benefits to Merchants

5.2 Benefits to Consumers

5.3 Benefits to Online Community

6.0 Market Analysis Summary

6.1 Service Description

6.2 Promotion, Sales, and Marketing

6.3 Distribution and Information Structure

o

6.3.1 Strategic Alliances

6.4 Market Segmentation

6.4.1 Description of Items Sold

6.5 Market Needs

6.6 Service Business Analysis

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6.6.1 New Markets

6.6.2 New Services

6.6.3 New Customers

7.0 Competition

7.1 Direct Competitors

7.2 Internal Competitors

7.3 Channel Competitors

8.0 Strategy and Implementation Summary

8.1 Pricing

8.2 Sales Forecast

9.0 Business Model and Structure

9.1 Organizational Structure

10.0 Financial Plan

10.1 Projected Cash Flow

10.2 Break-even Analysis

10.3 Important Assumptions

10.4 Projected Profit and Loss

10.5 Projected Balance Sheet

10.6 Business Ratios

Appendix

Executive Summary
ETMM is an e-commerce start-up company positioning itself to become the
market leader in offering online merchants and consumers a uniform and
trouble-free way to return merchandise purchased online. The company offers a
business-to-business solution to online merchants of physical, non-perishable
products. The company utilizes a consolidation approach in handling all product
returns that allows online merchants to instantly save bad sales, restore customer
satisfaction and stimulate repeat sales, while offering consumers a convenient,
centralized online location to claim returns. By creating a new service category
and utilizing the first-mover advantage, ETMM positions itself for rapid growth
and gains a strong opportunity to raise entry barriers for possible competition.
The Market

E-commerce continues to accelerate and the amount of money spent on

purchases made through the Internet shows no sign of decline. During the past
holiday season (November 20 to December 19), retailers saw online revenues
quadruple, jumping 300% to about $11 billion and far exceeding expectations,
according to a study by Shop.org and Boston Consulting Group. The study of 30
retailers in such categories as apparel, books and music, home and garden,
specialty foods and electronics showed a 270% growth in the number of orders.
The study indicated that online sales were growing at 145% annually and it
projected online retailer revenues of more than $36 billion for last year. An
earlier study conducted by Ernst & Young, before the holiday frenzy, already
estimated that total revenues for online retail and consumer products for the
calendar year just completed were around $25-30 billion. Currently, the average
rate of returns for Internet-based companies is 9%. In the coming year the value
of returned merchandise was $1.5 billion. This indicates an amazing
opportunity.
Service Offerings
ETMM's services streamline the entire return process for retailers. They allow
retailers to outsource a large part of their business, allowing the retailer to
concentrate on their core competencies and not get distracted with activities that
add little value. ETMM will reduce capital expenditures of a company that uses
their services, increase customer service of the retailer, increase sales
opportunities, increase revenues, and improve inventory management.
Customers will benefit by having a convenient, easy way to return their
purchases as well as the ability to track their returns.
Keys To Success

ETMM has three ambitious and obtainable keys to success. The first is the
development of a customer service / customer satisfaction software application.
This robust software will be ETMM's engine that ensures a seamless
management of all of their business activities. Their second key is the formation
of strategic relationships with online merchants, shippers, and credit card
companies. The relationships with merchants will allow ETMM to quickly grow
their customer base of retailers served. Alliances with shipping companies will
be formed since the actual cost of shipping is their largest cost driver.
Partnerships with credit card companies will allow ETMM to offer the
respective cards as the preferred credit card thereby generating an additional
source of revenue.
Management Team
There are two principals that are responsible for the idea and the progress of the
firm up. They recognize as the companies quickly grows, certain positions such
as CEO and CFO will need to be filled. The company was founded by Steve
Logic and Dan Codder. Steve has spent the last ten years at Federal Express.
While at FedEx, Steve was responsible for their logistics system. Steve has the
incredible skill of perceiving business needs and creating a solution to address
the need. At FedEx, Steve was the architect behind their benchmarked logistic
system that has the ability to track customer packages and share the information
with the client. What this meant for FedEx is that they could tell the customer
exactly where their package is at any one point. This logistics system is the main
driver behind FedEx's exponential growth. Dan Codder is a twenty-year veteran
in the computer industry. Self taught, Dan has worked at IBM, Cadence,
Tektronix, and several other companies. Dan has the ability to design and write
computer code very quickly and accurately. ETMM will leverage Dan's skills
for the completion of their customer service software engine.

Financials
ETMM's financials are conservative yet quite promising. Once they are up and
running and sign up some merchants as customers, ETMM will quickly gain
momentum and generate impressive sales. Revenue for year two will be $19
million, climbing to $59 million by year three. Net profit for these years
respectively will be $4.7 million and $27.3 million. Even more impressive is
ETMM's net profit margin. Year two will only see a net margin of 25%, but the
following year will see a sustainable 45%. ETMM will be creating a new
service category leveraging their first mover status and seizing the incredible
market potential of Internet-based retailers.

1.1 Objectives
The ultimate benefit of the program is that it enhances the overall image of the
online merchant. Consumers demand not only convenience but a peace of mind.
The proposed program offers both, and it will increase the number of online
shoppers, thus causing a market expansion for online merchants. The first
retailers who implement the proposed program will also be able to differentiate
themselves and capture larger market shares in their respective segments. Once
embraced by the majority of retailers, the program will become an industry
standard. Due to lack of current competition, ETMM has the first-mover
advantage and is well positioned to establish itself as the leader in the newly
created service category. ETMM therefore has an enormous upside potential and
is poised for rapid growth. By securing agreements with companies such as
AOL.com and Yahoo! that host large numbers of merchants, ETMM will raise
high entry barriers for possible competition and will significantly minimize the
replication factor.

1.2 Positioning Statement

ETMM strives to position itself as a strategic partnership between online
merchants, Web hosting companies and portals, shipping companies, and online
payment agents such as credit card issuers. Due to demand aggregation, the
strategy will produce reduced or totally free shipping of returned merchandise to

consumers. This differentiating element will multiply the consumer acceptance

factor and will draw more revenues to all participating companies. The proposed
program is therefore a win-win solution to all parties involved. Moreover, the
software architecture and website format will be wireless-friendly thus
designing the service in such a way that consumers will later be able to easily
use it via cellular phones and other personal wireless devices.

1.3 Keys to Success

In order for the company to operate, a number of specific ingredients are
needed. Following are things to put in place before the service can be offered.
1.

Develop a customer service & customer satisfaction

software application that uses order number (of a
merchandise item) and merchant's Web address to:
o

Retrieve all pertinent information on a participating

merchant.

Match appropriate return procedures against the

returning item.

Present procedures to the consumer in the most

concise format.

Provide reference to the merchant's entire return

policies if requested.

Inform the merchant of the entire transaction as it

occurs.

Gain authorization from the merchant to return

merchandise if needed.

Present the merchant's website to consumer for

selling opportunities.

Provide confirmation emails to the customer of the

actions taking place if requested.

Interact with the merchant's database for further

customer details if needed.

Maintain a record of the transactions for the

company's own database.

2.

Develop successful relationships with online merchants to

facilitate exchange of information.

3.

Develop strategic alliances with online merchants,

shipping companies, and credit card issuers to negotiate
reduction or elimination of the shipping costs to consumers
on returned merchandise.

4.

Design, maintain, and promote a user-friendly website, the

corporate trademark, that offers an easy and trouble-free
merchandise return procedure for consumers.

1.4 Mission
Our mission is to enhance customer service of online merchants, boost their
customer retention and increase their sales. We strive to improve the overall

image of the online merchant and therefore stimulate growth of online shopping.
We put our efforts to increase customer satisfaction when consumers deal with
retailers, to enhance the interaction process when retailers communicate with
consumers, and to streamline the problem resolution order in all possible ways.

Company Summary
The vision behind the company is to provide a return service that is safe,
convenient, and easy to use.

2.1 Start-up Summary

ETMM is currently looking for early-stage funding and strategic partnerships to
execute the program. The company plans to raise up to $2.6 million in two
rounds of financing during Year 1, along with securing access to additional $1.4
million for the cash flow purposes, before making its program fully available to
online merchants and consumers. The preliminary rollout timing is set for
Thanksgiving this year. Based on conservative financial projections, the
company will become profitable from early Year 2. The dual-pricing strategy
generates solid net income and nearly eliminates the downside risks. By Year 5end , the $4 million investment will produce $150 million in cash flows, all
internally generated. The company can go public as early as Year 2. Should an
IPO be undertaken at Year 3-end, the financial standing of the company should
support a market capitalization of more than $1.4 billion.
The table below outlines the start-up expenses.

START-UP REQUIREMENTS

Start-up Expenses

Legal

Stationery etc.

Brochures

Consultants

$200

$50

$450

$0

Insurance

$100

Rent

$500

START-UP FUNDING

Start-up Expenses to Fund

Start-up Assets to Fund

Research and development
TOTAL FUNDING REQUIRED
Expensed equipment

$3,000

$47,000
$400
$50,000
$1,100

Assets
Other
Non-cash Assets from Start-up
TOTAL START-UP EXPENSES
Cash Requirements from Start-up

$200
$0
$3,000
$47,000

Start-up Assets
Additional Cash Raised
Cash Required
Cash Balance on Starting Date
Other Current Assets
TOTAL ASSETS
Long-term Assets

$0
$47,000
$47,000
$0
$47,000
$0

Liabilities and Capital

TOTAL ASSETS

$47,000

Liabilities
Total Requirements

$50,000

Current Borrowing

$0

Long-term Liabilities

$0

Accounts Payable (Outstanding Bills)

$0

2.2 Future Financial Predictions

The company anticipates to start approaching potential investors in February of
this year. The first round of finance needs is estimated at approximately
$600,000. The funds will be used to develop the core of the proprietary software
program, begin designing the website, test-market the service, and set up
corporate headquarters. Also, recruitment of the key sales representatives will
begin and major strategic alliances initiated.
The second round of financing is estimated at $2 million and should take place
in the Summer Year 1. The funds will be used to fully cover the software,
systems and website development; test-run and fine-tune the operational
process; provide necessary staffing; and start the industrial marketing campaign.
The company plans to offer its services right before Thanksgiving of this year.
As part of the promotion, and to simplify accounting for revenues, services for
the remainder of Year 1 will be offered free of charge and no revenues will be
recorded during that year.
According to the financial statements, the company will need to raise $2.6
million during the two rounds of financing. At the same time, the company may
need to have access to additional $1.4 million to support adequate cash flows
during the early stages.
An exit strategy for the primary investors will be the initial public offering. The
company may go public as early as Year 2. According to the financial
statements, however, the company is capable of supporting growth internally, as

well as generating sizable cash flows. It may be prudent to go public at Year 3end when the company will have substantial revenues that should support a
market valuation of more than $1.4 billion. The funds raised during the IPO will
be used to further strengthen the market leader position, raise entry barriers
through continuing brand-building programs, establish a more bureaucratic
corporate structure, fund expansion initiatives, and to retire any financial
obligations created during the first two rounds of financing.
The company has no immediate plans for acquisitions. Neither has it a preferred
list of potential acquirers. Although all reasonable offers will be considered, the
company plans to utilize the first-mover advantage to establish itself as the
market leader and to remain a stand-along corporation for the foreseeable future.

Services
The service offered by the company simplifies and streamlines the entire
product return procedure. By accessing the ETMM website consumers can
claim product returns in a quick and trouble-free fashion. The only necessary
inputs are merchant's domain name, item's order number, consumer's last name
(for verification only), reason for return, and preferred way to resolve the issue
(refund, replacement, or exchange). ETMM serves as a centralized online
location that matches the return policy of a given merchant against the returning
item, obtains authorization if required by merchant, and assists consumers in
following the return time frames. The company's website also generates and
prints a return label to ease the shipping process for consumers.

3.1 Service Guarantee

It is important to note that during the interaction process with consumers,
ETMM does not ask for or tries to obtain consumer's credit card numbers. The
company therefore avoids consumer security concerns and substantially limits
its possible liabilities.

Order Process
Only two input variables are needed to easily find the merchant and identify a
particular merchandise item. The customer's last name is asked for verification
purposes only.
ETMM website serves as a centralized online location for consumers to claim
and process returns for participating merchants. As online shopping continues to
grow, the added convenience of one single online destination to do returns for
multiple merchants will increase. At the same time, participating merchants will
place ETMM banner on their pages under return policies so that consumers
could access the service directly from there. That way the domain name of the
merchant will be pre-entered and the initial step even further simplified.
In case the merchandise was sent as a gift to another person who does not have
access to the Internet, a toll-free telephone number will be provided to call in.
An operator, with access to the Internet, will use the same exact sequence of
onscreen entries and will relay options and procedures to the customer over the
phone.

4.1 Order Number

The order number should ensure that the right item is identified. However, it is
possible that the customer has ordered a few similar items but only wishes to
return one of them, or the order number included multiple items. Hence a
modification option is added to address that. In case the order number was
assigned to a shipment that included multiple items, all items will be displayed
and the customer will be asked to select those they wish to return.
In case a wrong item is identified, the customer will be taken one step back and
asked to re-enter the initial information.

4.2 Return Policies

Once the item has been identified, the return policies that apply to that particular
item will be retrieved. ETMM will summarize the return policy to the point of
available options. This means that based on the item (regular merchandise, onsale merchandise, etc.) different return options and procedures may apply. The
customer will be given the shortest description of what needs to be done and
when.
While some merchants have "no-questions-asked" return policies, others require
justification to return merchandise. For the purposes of uniformity and the
reasons described below, the customer should courteously be asked to provide
reasons for return. The answer format is quite simple (check marks and short
narrative) and it eliminates much of the ambiguity. The narrative part is also a
chance for consumers to "vent out" their concerns or frustrations.
The customer will be given three options to resolve the issue: exchange, refund,
or replacement. During this stage the merchant is informed that a particular item

is claimed for return and why. In case of exchange or replacement, the merchant
receives an invaluable opportunity to instantly sell another item to the customer
(the merchant's website will appear onscreen for selection and shopping).
Should the reason be incorrect or defective item, the merchant can send the
correct/new item right away, thus instantly restoring customer satisfaction and
saving the sale. The terms of the new sale are up to the merchant to decide
(charge customer's credit card right away, give grace period for the returning
item to arrive, etc.)
An option to look up the merchant's entire return procedures will also be given
to consumers. A link will be established that brings up the page containing
return procedures in a separate window. Once reviewed, the window can simply
be closed.

4.3 Return Label

Once the merchant has authorized the return, if required, the customer will be
asked to print the return label for shipping. If customer does not have access to a
printer, a larger view of the label will be presented onscreen for the customer to
copy down necessary information. The customer may also be given an option to
make adjustments to certain information on the label before printing it. The
label will have the merchant's address (destination where the returning item
should be forwarded), returning item's identification (Returned Merchandise
Authorization Number), the customer's return address, and possibly tracking and
payment information for the shipping company. The customer will also be
advised on refund, exchange, or replacement options, and when it will occur.
Since some companies already include pre-printed return labels in all shipments,
the printing step may be skipped. But because consumers sometimes lose or

throw away enclosed labels, the online print version will always be there as a
backup thus adding convenience and peace of mind. More importantly, ETMM
will strike strategic alliances with shipping companies to take and deliver all
returned items so the printing of the labels will add uniformity to the entire
return process. The label can then incorporate the shipper's information, and as a
consolidator and demand aggregator of all returns ETMM will be able to
negotiate a rate reduction.
As an add-on to its customer service, ETMM will offer an email reminder
service to ship the claimed item. It may also offer customers a confirmation
email to record the claim. Customer's email address will then be asked for. For
its own database purposes, ETMM will record all transactions and details
thereof.
Once the customer has finished the online entry process, the merchant's website
will appear where the merchant will be able to approach consumers with new
sales offers. This will be an additional selling opportunity for the merchant,
which is part of the overall ETMM service.

4.4 Sequence of Process

The list below describes the sequence of actions taking place during the return
process.
1.

Consumer claims an item through ETMM.

2.

ETMM gains merchant's authorization, if required, and

alerts the merchant about what is claimed for return and
why.

3.

Merchant tries to save the sale by offering a replacement

or other products.

4.

Consumer makes a new purchase, unless refund is

demanded.

5.

ETMM generates a return label for the returning item.

6.

Merchant's website appears again to offer new products to

the consumer.

7.

Consumer makes a new purchase.

8.

Consumer ships back the returning item.

9.

Shipping company delivers the item to the merchant.

10. Consumer buys more from the merchant knowing that the
return process is easy and trouble-free.

Benefits Summary
At ETMM, we feel we provide a value-added service to a variety of consumers.
By having a safe and easy-to-use return service, the company benefits more
people than simply the average customer.

5.1 Benefits to Merchants

Increase revenues! ETMM turns the systemic problem of

product returns into new selling opportunities.

Enhance customer satisfaction and retention with the

quick and easy return process and boost repeat sales! ETMM
provides the opportunity to instantly deal with returns, save
bad sales, and turn unhappy customers into loyal patrons.

Improve customer service with a simple, trouble-free way

to return merchandise! ETMM makes it easy for consumers
to return products and follow return procedures.

Simplify the shipping hassle for consumers!

ETMM provides the option to print a shipping label since preprinted labels sometimes get lost or misplaced, which
provides added convenience and peace of mind to
consumers.

Improve inventory management and logistics! ETMM

immediately alerts you when your customer initiates the
return process so that you can act on it right then, not when
the merchandise arrives at your door.

Fine-tune your internal efficiencies and product offerings!

ETMM provides you with invaluable new data on all your
product returns by customer group, product category, etc.,
so you can analyze your operations better.

Enhance your image! ETMM underscores your customer

orientation, which you can use to promote your business.

5.2 Benefits to Consumers

Return merchandise with ease! ETMM provides one

centralized online location with a simple and trouble-free
way to return merchandise in just a few easy steps.

Buy online, return online! No need to call in or email your

merchant if authorization is required--ETMM does the
communication for you.

No need to look up every single merchant for return

policies every time! ETMM summarizes it for your particular
item and makes sure the return time frames are followed.

Generate a shipping label! ETMM generates a shipping

label for you so that you do not have to worry about
misplacing the pre-printed label or spending extra time at a
shipping company's counter if the pre-printed label is not
included.

Reduce or eliminate shipping costs! Through strategic

alliances, ETMM reduces or completely eliminates the cost
of shipping.

Keep track of your returns! If you would like, ETMM will

remind you to ship the claimed item and will maintain a file
of your returns for your records.

5.3 Benefits to Online Community

Increase awareness in the community! ETMM serves as a

"returned merchandise credit bureau," providing discrete
information to consumers on merchants and to merchants
on consumers.

Cross reference marketing leads! ETMM maintains a

database of purchases that help custom-target online
buyers in a more efficient way.

Improve the overall image of the online merchant! ETMM

enhances customer service of online merchants and overall
customer satisfaction by simplifying and streamlining the
return process.

Market Analysis Summary

Based on publicly available survey data, the average rate of online returns is
9%, meaning that in 2000 alone the value of returned merchandise will be more
than $1.5 billion. The company generates revenues by utilizing a dual-pricing
approach. First, it charges online merchants a flat fee for the program, which
averages only 0.5% of a given merchant's total sales. Secondly, ETMM charges
merchants a low flat 8% rate on every item's listed price that has been claimed
through its website. The pricing structure reflects the benefits of the easy and

trouble-free return process for consumers, restored customer satisfaction, selling

opportunities created during the claim process, and all repeat sales thereafter.
The program is estimated to cost merchants less than 1.5% of their total
revenues, whereas it will increase sales to merchants by at least 15%.

6.1 Service Description

The service positioning in the eyes of online merchants is imperative to the
success of the enterprise. The service proposed by the company is a business-tobusiness solution offered to online merchants of physical, non-perishable
products. However, because online consumers will deal directly with the
company via its website, the proposed solution also incorporates some features
of a business-to-consumer service. It is therefore of utmost importance to clearly
define what this company offers is a customer service & customer satisfaction
program for online merchants. The most unique feature is that the proposed
company takes the systemic problem of product returns and turns it into new
selling opportunities for online merchants.
It is also important to note that ETMM does not try to position itself as a
competitor to any incumbents with a similar service, online merchants, or
shipping companies. The proposed company strives to position itself as a
strategic partner to all parties participating in handling product returns. If
nothing else, ETMM should be viewed as an outsourcing company to online
merchants with the core competency and focus in handling returned
merchandise.
The service offered by ETMM is designed to enhance customer retention and
loyalty by offering an easy and trouble-free merchandise return process to
online shoppers. According to Jupiter Communications, the goal of the 1999

holiday season was not about generating impressive sales, but rather securing
long-term relationships. Retailers now need to focus on retention and loyalty.
ETMM will help to achieve just that through establishing lasting, productive
relationships with online merchants. Providing an easy, uniform, and troublefree return process to all online shoppers will enhance the overall image of
online merchants. While the number of retailers continues to grow, consumers
will not have to look up every single one to find out about return policies and
later keep abreast for possible changes. A centralized Internet location--the
company's website--will retrieve, summarize, and present the appropriate
policies. Based on product information, it will make sure the correct procedures
are used. The company's banner with a notation "For an Easy, Trouble-Free
Product Return Click Here" will be placed visibly on retailers' websites and will
serve as a symbol of customer orientation and care.
Moreover, the shipping process will be streamlined. Customers will be able to
generate a shipping label on the company's website thus reducing the hassle at
the shipper's counter. Although some online retailers already supply pre-printed
shipping labels for sold items, customers sometimes lose, or throw away, those
labels when they first see and like the products they ordered. Shortly after they
may change their mind and would like to return a particular item, but the label is
gone. With the proposed program, the label is always available online so that
consumers can have peace of mind and also reduce the amount of documents
they need to keep just in case. The service therefore offers a dual benefit to
consumers. The retailers may then choose to stop including a pre-printed return
label with every outgoing shipment thus reducing costs of selling. From a
shipping company's perspective, the shipping process is streamlined because the
online-generated label will have all the necessary information, possibly
including a tracking number if it is going to be shipped by UPS. That way
consumers do not have to spend time at UPS counters filling out forms--both a

customer service and operations improvement for UPS. ETMM will be a

strategic merger between online merchants, carriers, and their partners targeted
at overall improvement of customer satisfaction and ultimately the bottom line
of merchants.
Another important feature of ETMM is that shipping of returned merchandise
should be free of charge to consumers. (Means of achieving it are discussed in
more detail in the Pricing and Revenue Generation section.) This differentiating
feature will tremendously increase the consumer acceptance factor of the
proposed service. The fact that products purchased online can be returned in an
easy and trouble-free way, and that shipping is also free, will help expand the
entire online shopping industry. The added convenience and peace of mind
consumers will gain with ETMM will translate into more shopping with those
online merchants that participate in the ETMM program.
When customers go through the sequence of online entries on the company's
website, the retailer whose product is being claimed for return will be offered at
least one selling opportunity. At the end of the sequence the retailer will be able
to target the consumer with any new sales offers as its website will appear
onscreen. Should an exchange or replacement be preferred by the customer
during the online return process, the retailer will receive an additional selling
opportunity as its website will appear with offers during that step. These
opportunities will translate into more sales for retailers. This will also stimulate
customer retention, which means repeat sales. All in all, the program will
increase customer satisfaction and generate more sales.
The program has a number of unique features. First, it alerts the retailer that a
particular customer is claiming a particular product for return as it happens. That
way the retailer knows about it as it occurs and not when the merchandise

arrives at its warehouse. This allows to plan ahead. Since 9% of all products are
returned, this feature offers useful information to better handle logistics and
inventory.
Secondly, and more importantly, by asking consumers during the online
sequence why they want to return a particular item merchants gain an invaluable
piece of information. If the reason for return is defective product (30% of all
reported returns), the retailer can save the sale and turn an unhappy customer
into a delighted one by sending a new item right away. If the reason for return is
wrong color, wrong size, or wrong product altogether (28% of all reported
returns), the retailer may choose to send the correct product right then, thus
instantly restoring customer satisfaction and saving a bad sale. It will be up to
the retailer to decide on payment and credit terms of the exchange. These
benefits ultimately translate into increased customer retention, reduced costs,
more sales, and improved bottom line.
It is estimated that the program will generate an average sales increase for
merchants of at least 15%. Online shopping is still at the early stage of
consumer adoption. As stated earlier, about half the people who have not
shopped online cited the cost and hassle of returns as a significant factor for not
shopping online. Another recent survey found that 89% of online buyers said
that return policies influenced their decision to shop with an online retailer.
Consumers demand not only convenience but peace of mind. The proposed
program offers both and it should increase the number of online shoppers, thus
causing a market expansion for online merchants. The first retailers who
implement the proposed program will also be able to differentiate themselves
and capture a larger market share in their respective segments. Once embraced
by the majority of online merchants, the program will become an industry
standard.

It is important to note that during the entire process the company will not ask
for, or try to gain access to, consumers' credit card numbers. This will
significantly limit possible liabilities and security/confidentiality concerns.

6.2 Promotion, Sales, and Marketing

Promotion of the service will be executed through both push and pull strategies.
The push strategy will call for the use of direct sales force and industrial
marketing to introduce the service to online merchants. Once success has been
achieved in the push strategy, the pull strategy will utilize a large-scale
advertising campaign to further build up consumer demand.
Push Strategy
Because the company's service is a business-to-business program, it will be
initially promoted to online merchants by direct sales force. Personal selling will
be necessary to reach decision makers within online organizations. At first,
contacts will be made with Internet service providers, such as America Online,
that host online stores and shops. America Online claims to have 20% of the
total Internet service provider market in the U.S. Therefore, arranging a strategic
partnership where ETMM becomes the preferred or exclusive choice for all
returned merchandise bought at AOL.com shops will be invaluable for
establishing a well-recognized brand and building up entry barriers for any
possible competition. Ideally, a company's banner with a notation "For an Easy,
Trouble-Free Product Return Click Here" will be visibly displayed throughout
the shopping section of AOL.com. Portals such as Yahoo! will be approached as
well. Reportedly, Yahoo! hosts nearly 6,000 merchants where it charges each
merchant at least $100 to $300 per month. Arranging a strategic partnership
with Yahoo! will provide a strong leverage in negotiating return contracts with

individual merchants. Similar to that of America Online, the company's banner

will be displayed throughout the entire shopping section of Yahoo!
Large online merchants such as Amazon.com and Buy.com will be targeted by
the direct sales force during the first stage as well. Those companies have
already achieved significant volumes of sales--and therefore product returns-and will find the uniform return process of much benefit to them. Strong
"category killers" such as eToys and CDnow are also first sales targets. Auction
houses such as eBay.com and uBid.com will be approached with a service offer
for products sold to consumers by merchants and direct manufacturers.
Wherever possible, smaller online retailers will be personally approached by the
sales force. To stimulate awareness and service penetration among smaller
players, industrial marketing techniques will be utilized. Those will include
advertising in specialized publications such as Internet World and Red Herring,
as well as referral fees for retailers who already use the service. Email
campaigns will be used to reach decision makers at smaller companies. The
email messages will have an invitation to the ETMM website where a specially
designed presentation will explain the benefits of the new service. An invitation
to be contacted by a service consultant to discuss details will be included.
The company plans to offer its services right before Thanksgiving 2000. In
order to stimulate a quicker adoption of the services, the remainder of the year
2000 will be offered free of charge.
Sales Structure and Customer Approach
It is estimated that the initial expenses to hire a sales force and a customer
service unit of up to five people during the first year will be close to $400,000.
Another $200,000 will be needed for sales program development, marketing

activities, and training (excludes advertising). The initial compensation package

for sales force will include a nominal base salary and a progressive commission
structure. This should ensure that during the early stage of the company's
growth not only that sales targets are met, but also that customer (customer here
means merchant) satisfaction and retention are fully addressed. The sales force
will initially be located at the corporate headquarters. A territorial approach will
later be implemented, with sales people located in regions. After one year, sales
force members will split into two distinct groups. The first group will include
pure sales people, the "go-getters" who will be placed in regions and will work
on pure commissions. The commission structure will become more progressive
and rewarding for such individuals, including a bonus structure. The estimate
for an average commission paid on sales is approximately 5-10%. The second
group will include client care professionals who will concentrate on customer
satisfaction and retention to ensure the continuity of the program. These
individuals will remain at the headquarters and will have a base salary with a
bonus structure. The base salary for client care professionals is in the mid-five
figures. Industrial advertising and promotional expenses in 2000 are estimated
at $250,000.
It is also a possibility to sell the services to merchants via the Internet hosting
service providers, portals, and software developers. Those companies will then
serve as distributors and agents, compensated on commissions. This approach
will eliminate the need for a large sales force. The final layout will depend on
how quickly agreements with companies such as America Online and
Amazon.com are negotiated, how aggressively they will be able to promote the
services, and on what conditions.
The following diagram describes the customer approach (customer here means
merchant).

Service consultants are the direct sales force that approaches prospective
customers with service offers. Once a customer has been signed, a service
consultant will only approach the client with new service offers and product
upgrades. A client care professional is then assigned to each customer to deal
with all customer service issues. Each customer will be advised to direct all
service inquiries to the professional. A professional will also proactively call on
customers to ensure high quality of service and customer satisfaction. The
consultants and professionals will have direct communication lines between
themselves to ensure open information exchange and a quick and efficient
problem-resolution culture. This structure will guarantee an aggressive sales
approach, client-oriented service, and efficient post-sales support.
Pull Strategy
It is important to gain critical mass in the number of signed retailers before a
nation-wide advertising campaign targeted at consumers can start. Once major
retailers have been signed and awareness achieved among the overall online
merchant community about ETMM, the company plans to roll out a nationwide
TV advertising campaign. The campaign may start as early as the first quarter of
2001; however, the timing will depend on how quickly ETMM gains market
share. The campaign should prompt consumers to make sure that online retailers
they buy from have the ETMM service. Participating merchants will have the
company's banner with a notation "For an Easy, Trouble-Free Return Click
Here" visibly displayed on their websites. The banner later will become the
symbol of customer orientation. Successfully executed, the TV ad campaign
will prompt consumers to ask their merchants for the Easy and Trouble-Free
Return process. This, in turn, will prompt online merchants to call on the
company. The demand from the merchants will then be "pulled." The estimated
budget for the TV campaign in 2001 is up to $5 million, all internally generated.

However, the amount can be reduced if the preceding industrial marketing

campaign achieves the key goals. Once the objectives of service awareness and
acceptance have been achieved, subsequent marketing budgets will be used to
build up and protect the brand. This will include print, radio, and TV.

6.3 Distribution and Information

Structure
The service will be made available to consumers via the Internet. The company
will maintain a website with its Easy and Trouble-Free Return procedure. The
domain name will underscore the ease and convenience of the merchandise
return process. (The name ETMM may not be the final choice.) Also, company's
banners will be placed on participating merchants' websites, most likely under
return policies sections, so that consumers could access the service directly from
online stores. ETMM will then be effectively incorporated into the customer
service of participating merchants as an outsourcing partner that specializes in
product returns.
Consumers who do not have access to the Internet but want to return e-gifts
received from friends or relatives will be provided with a toll-free telephone
number. Telephone operators, with access to the Internet, will follow the same
exact set of onscreen entries. They will relay options and procedures to the
consumers over the phone. The shipping sequence will remain the same. Ideally,
the toll-free numbers should be operated by the online retailers themselves. That
way they only have to make sure their operators have access to the Web. Should
a customer decide to exchange gifts or make a purchase during the return
process, the retailers' operators will be best suited to handle it. Another option is
a consolidated toll-free telephone service provided by ETMM for a fee to
retailers. Such service would be outsourced.

High-speed communication lines will be established between the company's

software that registers and processes all returns and individual merchants. Every
time a product is claimed for return by a consumer via the company's website,
the corresponding merchant is advised on the transaction as it happens. This is
an integral part of the entire program. The connection between the company and
the merchants will be established via the Internet. The company's website will
have a merchant login screen where a record of all returned items will be
maintained. The merchants will be able to sort data by various categories and
copy/paste it into other software packages such as MS Excel; the data format
will be spreadsheet-friendly. The Internet connection will be secure and
password protected. While the majority of communication will be via the
Internet, company's client care professionals will routinely call on their
counterparts to ensure that all information and service needs are fully met.
For its own database purposes, ETMM will record all transactions and details
thereof. While consumers are not asked to give their home addresses during the
online entry process, such information should be provided by the corresponding
merchant as part of the information exchange agreement. This information will
be needed for the return label to be generated online. Credit card numbers and
other sensitive information will not be asked for. At the end of the online
authorization process the consumer will be offered a notification email to make
a record of the return. Should customer decide to have a confirmation, his or her
email address will be obtained. The company may offer a membership program
with a consumer login, in which case all necessary information details will be
obtained. The company will also offer a "reminder service" to consumers once
they have processed a return online. If the product has to be shipped back before
a deadline, an email with a reminder will be sent prior to that.

6.3.1 Strategic Alliances

For shipping and handling purposes, the company will strike strategic alliances
with carriers and package service providers. Most likely, UPS will be the
preferred carrier of all shipments. UPS has an extensive network, excellent track
record of quality, and a number of agreements with package service providers
such as Mail Boxes Etc. and PostNet. Its ground shipment option appears to be
the most optimal option so far, both from the quality and price standpoints.
While retailers are able to negotiate discounts with carriers for outbound
shipments, most consumers are forced to pay published rates on returned
merchandise because each return is viewed as a single transaction. ETMM will
act as a demand aggregator bundling all returns claimed through its website and
will negotiate discounts with carriers. Moreover, the company will join
membership organizations such as National Retail Association that provides
member discounts of up to 42% on published rates with Airborne Express. All
that will be utilized to eliminate the shipping costs for online shoppers, which
will only speed up the company's acceptance by consumers.
Other possible strategic alliance companies include VISA, MasterCard,
American Express, and large banks such as Citibank and Chase Manhattan.
Credit cards are a preferred way of payment for online purchases. Since tens of
billions of dollars are now spent online, credit card issuers can notably increase
their revenues by partnering with ETMM. A credit card issuer can offer a partial
rebate of shipping charges for returned items as long as consumer paid for the
items with the credit card. This may later become a standard feature similar to
certain kinds of insurance built into some credit cards. Also, an issuer can cover
the interim risk when a merchant sends consumer a new item or a replacement
before receiving the returned item back. This offers mutual benefits to
consumers and merchants, while the credit card issuer makes its cards more

superior thus attracting more customers. Co-branded promotional campaigns

can be designed to promote ETMM along with more established companies.

6.4 Market Segmentation

As stated in the previous section, the estimated online retail revenues for 1999
were around $25-36 billion. Both sources providing the estimates indicated that
only merchants selling physical products (books, CDs, electronics, apparel, etc.)
were included in the breakdown by category. No mention was made of services
such as online hotel reservations, news subscriptions, or online brokerage being
included in the total figures. However, it would be advisable to use a more
conservative approach when estimating the total revenues of online merchandise
sales. Presented below are estimates for Internet retail sales made by National
Retail Federation shortly after the 1998 holiday season.
Year

Total Internet Retail Sales

1999

$10,800,000

2000

$17,000,000

2001

$26,000,000

2002

$40,600,000

6.4.1 Description of Items Sold

The next step is to identify the number of items sold. According to a Jupiter
Communications press release, during the 1999 holiday season 250 million
online consumers spent $7 billion. This means that an average online purchase
was $28 (7 billion over 250 million). However, a single purchase may have
included more than one item. A study of 1999 holiday shopping conducted by

WebAssured.com indicates that an average online shopper purchased 12 items,

whereas the average purchase price was $1,613. Using these two extremes, the
average price of an online item is therefore estimated at approximately $100
((28+161)/2=94.5). Knowing the average price, the number of total items sold is
easily calculated.
Year

Internet Retail Sales

Total Items Sold

1999

$10,800,000

108,000

2000

$17,000,000

170,000

2001

$26,000,000

260,000

2002

$40,600,000

406,000

Of all items sold, some will be returned to retailers. A study of 1998 online
holiday shopping conducted by PC Data Online indicated that 9% of
respondents reported returning gifts. A slightly earlier study by the same
company indicated that 12.3% of all respondents were returning items. A survey
of 1999 holiday shoppers conducted by Greenfield Online confirmed the first
figure by indicating that 9% of shoppers planned to return an e-gift. The 9%
figure is still a conservative estimate. A recent survey of the retail industry by
American Express found that 46% of all respondents typically return anywhere
between one and ten holiday gifts every year.
Year

Internet Retail Sales

Items Sold

Items Returned

1999

$10.8

108,000

9,720

2000

$17.0

170,000

15,300

2001

$26.0

260,000

23,400

2002

$40.6

406,000

36,540

The table above shows that more than 15 million items will be returned to
online merchants in the year 2000 alone. Total merchandise shipped back will
be worth over $1.5 billion. The figures more than double in 2002. There is
clearly an expanding market for a "returned merchandise" service provider.

MARKET ANALYSIS
YEAR 1
Potential

Growth

YEAR 2

YEAR 3

YEAR 4

YEAR 5
CAGR

Customers
Books/CD/Video
Toys/Games
Electronics
Computer
Total

25%
40%
30%
65%
45.83%

48,000
76,000
65,000
90,000
279,000

60,000
106,400
84,500
148,500
399,400

75,000
148,960
109,850
245,025
578,835

93,750
208,544
142,805
404,291
849,390

117,188
291,962
185,647
667,080
1,261,877

6.5 Market Needs

E-commerce continues to accelerate and the amount of money spent on
purchases made through the Internet shows no sign of decline. During the 1999
holiday season (November 20 to December 19), retailers saw online revenues
quadruple, jumping 300% to about $11 billion and far exceeding expectations,
according to a study by Shop.org and Boston Consulting Group. The study of 30
retailers in such categories as apparel, books and music, home and garden,
specialty foods and electronics showed a 270% growth in the number of orders.
The study indicated that online sales were growing at 145% annually and it
projected online retailer revenues of more than $36 billion for 1999. An earlier
study conducted by Ernst & Young, before the holiday frenzy, already estimated
that total revenues for online retail and consumer products for the calendar year
1999 were around $25-30 billion.
While a notable amount of positive publicity about the Internet shopping has
recently appeared in the media, the number of problems encountered by online
shoppers actually increased more dramatically than the sales figures. According
to a poll conducted by WebAssured.com, the number of complaints filed
between November 25, 1999 and January 13, 2000 was up 404% over the same
period last year. Over 62% of the respondents claimed they had experienced at
least one problem with an online transaction. Misrepresentation/misinformation
and delivering defective products each accounted for at least 22% of all
complaints. In the breakdown of types of problems occurred, delivery of a

25.00%
40.00%
30.00%
65.00%
45.83%

wrong item accounted for 17.2%. These kind of problems ultimately result in
product returns that cause additional costs to the consumers and both costs and
lost revenues to the retailers.
Presently, not all online retailers have established simple and trouble-free return
procedures. Pure e-tailers such as eCost.com have no physical presence and
therefore require consumers to ship back the merchandise without offering
much help in the process. Even some well-known retailers such as
BestBuy.com, an extension of Best Buy, do not allow consumers to return items
purchased online at their physical stores. To make things worse, the return
policies are not always well displayed on retailers' websites, and customers are
sometimes required an authorization prior to returning any merchandise such as
in cases of Buy.com and eCost.com. Consumers may have to read through the
entire return policies, including the notorious "fine print," in order to make sure
they use the right procedures and that required time frames are followed. This
creates additional aggravation--on top of having to return the merchandise-which all reflects in reduced customer satisfaction. The significance of an "easy
return" cannot be underestimated as about half the people who have not shopped
online cited the cost and hassle of returns as a significant factor for not shopping
online. Moreover, a recent survey by BizRate.com, an online shopping center,
found that 89% of online buyers said that return policies influenced their
decision to shop with an online retailer.
When a wrong, defective, or misrepresented item was delivered to a consumer,
the return process often proved uneasy. According to recent findings by PC Data
Online, 30% of all consumers who returned items found the return process
difficult. It is apparent that existing return procedures are inadequate and
sometimes irritating. The solution, however, does not lie in forcing all online
retailers to establish a "no-questions-asked" return policy and to post it clearly at

the top of their websites. The entire sequence a consumer has to follow, starting
from looking up the procedures on the Web and then having to make a trip to
UPS or the Post Office, has to be streamlined. There is clearly a need, as well as
an opportunity, for a new service company to improve the overall return process
for online shoppers. As a result, the consumer satisfaction will be enhanced and
it will translate into increased repeat sales for online retailers.

6.6 Service Business Analysis

The "returned merchandise" market is there and it is growing. Listed below are
a few major expansion opportunities for the new company.

6.6.1 New Markets

Geographic expansion will be needed in order to provide global return services
for the online community. This will include both within-borders services and
across-the-borders operations. A number of companies such as Amazon.com and
eToys have already opened operations in the United Kingdom, not counting a
growing local online merchant community. This in itself presents an opportunity
to replicate the service in other countries for domestic online retailers. ETMM
will partner with local carriers and shippers when operating there. A country-bycountry approach may be utilized; however, there may be an opportunity to
establish a centralized, consolidated operation within the European Union.
As across-the-borders e-commerce keeps increasing, so does the need for a
global service. Of all consumer product complaints recently registered with
WebAssured.com, over 4% were about companies located outside the United
States. While many domestic online retailers are limited to shipping within the
U.S. only, the consumers are already buying overseas. Having to ship back

overseas adds to the hassle and costs of returning a product. Once established
and running in the U.S., ETMM will be best positioned to take advantage of the
global trend and offer international services.

6.6.2 New Services

As more and more consumers shop online, the need to keep track of purchased
products will grow. Currently, many online retailers offer an option to track a
purchased item, but not always through the entire delivery process. An item
itself may have an availability "window" of up to a few weeks, plus the shipping
time of a few days--the customer is never quite sure when he or she will actually
receive it. As more purchases are made, there will be more items to track. To do
that, the customer has to look up websites of the merchants or use carriers'
websites to inquire on shipping status and read through the flock of notification
emails from the merchants. There is a growing need to consolidate all this
information in one location for easy reference. A software that records all online
purchases, tracks their status, and presents the findings to consumers in an easyto-read format will be of much value to consumers. Having developed
partnership and information exchange agreements with online merchants and
shipping companies, ETMM will be well positioned to offer such tracking
services to consumers.
While ETMM builds its core competency around product returns, it is also
gaining the most knowledge why returns actually occur, what kind of online
products are most frequently returned, by what kind of consumers, etc. The
company will therefore be best positioned to advise and consult the online
merchant community on how to improve operations and minimize product
returns. Since product returns is a systemic problem of the retail industry and
most likely it will not be totally eliminated, ETMM does not run the risk of

putting itself out of business. Quite the contrary, it will secure the leadership
position in that segment of consulting services and will naturally expand its core
competencies of merchandise returns into advisory.

6.6.3 New Customers

ETMM will not limit its services to the online merchants only. Direct-mail
orders and catalogs also experience the same returned merchandise problem.
Recent publications indicate that there are more than 8,500 consumer catalogs in
the U.S. alone. According to the National Mail Order Association, U.S. mail
order sales were a staggering $357 billion in 1998. Despite the growth in online
shopping, the 1998 sales figure represented a 12% increase over 1997.
Consumer product sales accounted for $109 billion of the total--roughly ten
times that of the online merchandise sales for the same year. Based on a recent
comment provided by the association, the rate of returned merchandise in this
business is around 10-15%. Categories such as apparel may experience a return
rate close to 20%. Reportedly, some large catalog houses have to maintain
separate returned merchandise facilities just to handle the volume of returned
products. A number of catalog companies, including Lands' End, have been
aggressively embracing the Internet as a new distribution channel. While catalog
business has a long history and experience in dealing with returns, there is
definitely an expansion opportunity for the new company in offering its returned
merchandise services to the catalogers. The service will further streamline their
operations and enhance customer satisfaction.
Many department stores such as J.C. Penney and Macy's now also use the Web
to sell products. Most of them allow customers to return merchandise purchased
online at physical stores. This serves as a goodwill, and customer satisfaction,
builder. As an add-on to that, ETMM can still offer its services to the pro-

Internet shoppers who do not wish to make an extra trip to the store to only
return products. The company will provide at least one selling opportunity
during the online return process, which will compensate for possible purchases a
customer may make while at a store. This will underscore the convenience of
online shopping, improve the return procedures by preventing the returned
merchandise from spreading across physical stores, and enhance the image and
bottom line of "click-and-mortar" department stores.
When dealing with multi-distribution channel retailers such as Macy's
department stores, Macy's catalog and Macy's Internet store, ETMM will be
able to offer one returned merchandise procedure that will cover all channels. It
will streamline the entire process by relieving the retailers from having multiple
return facilities and extra work force to operate them.

Competition
The company foresees three types of competition for the services we offer:
1.

Direct

2.

Internal

3.

Channel

These types of competitors are discussed in the following three sections.

7.1 Direct Competitors

Based on the current intelligence, there is no independent company out there
specializing in a "returned merchandise" service to online consumers. No single
company is known to be employing a concept of establishing a single point of

presence on the Internet for consumers to claim returns. The current situation
allows the new company to gain the first-mover advantage and build entry
barriers for any possible new entrants.

7.2 Internal Competitors

The first competitors to the new service are the online retailers themselves.
Since ETMM will need to strike partnerships and strategic agreements with
retailers in order to offer its services, they are classified as internal competitors.
Retailers may perceive that their internal return procedures are adequate and
fully meet customer demands. However, the discussion under the Need
Assessment section of this plan clearly indicated that there are significant
drawbacks and shortcomings in the return process across the entire industry.
Even companies like Amazon.com that touts a quick and easy return policy now
sees its customers go to Barnes & Noble superstores to return books. Partnering
with brick-and-mortar retailers may be seen as a solution by some e-tailers.
However, from the consumer perspective, there still will not be a centralized
location to return merchandise, no quick and easy return procedure, and no
savings on shipping costs. Consumers may end up having to go from one
physical retailer to another to return various items.
Online retailers may try to partner with carriers and service providers such as
UPS, Mail Boxes Etc., or Rite Express. Reportedly, eBay.com is working out an
agreement with Mail Boxes Etc. to appoint them as a preferred/exclusive service
for product returns. eBay.com may receive rebates per shipment for directing its
clients to Mail Boxes Etc., but consumers again will have little or no benefit.
The standard shipping rates are applied, the choice of carriers is now limited,
and online merchants are not informed about product returns ahead of time so
that bad sales could be saved. With ETMM, at least one selling opportunity will

be given to retailers while consumer is on the Web--something a partnership

with a carrier cannot provide. Moreover, serving as a demand aggregator
ETMM should be able to arrange necessary agreements and provide consumers
with greatly reduced, or even free, shipping for all returned merchandise.

7.3 Channel Competitors

Thinking in reverse to the previous paragraph, service providers such as Mail
Boxes Etc. and PostNet may try to forge strategic partnerships with numerous
online retailers to simplify the return process. But as it was described, online
retailers will be shortchanged in overall customer satisfaction, information
exchange, total costs, and additional selling opportunities. Consumers, on the
other hand, will lose out on the limited number of "exclusive" carriers for
particular retailers, and uniform simplicity in the return process will not be
achieved. Moreover, both Mail Boxes Etc. and PostNet combined do not have
sufficient physical presence in the market.
Carriers such as UPS and FedEx may try to enter the arena. Those organizations
have extensive networks of facilities, experience in shipping, and a track record
of quality. The U.S. Postal Service has recently started a TV advertising
campaign of a service for online merchants that allows consumers to print return
labels online. This is a step towards addressing the shipping end of the return
problem, but it falls short of saving bad sales and creating new selling
opportunities for merchants. No single shipping company can fully provide the
range of benefits the proposed company can. ETMM will be able to arrange
strategic alliances with numerous carriers and even play one against the other in
negotiating rate reductions and preferential service terms for both merchants and
consumers. Being a smaller company with a focus on the e-commerce

community, it will also have a greater degree of flexibility in adjusting to

customer needs.

Strategy and Implementation Summary

The company will utilize a dual-pricing approach to ensure a recurring revenue
model. Online retailers will be charged a flat annual or quarterly program fee
based on their sales volume, product categories, and specific return conditions
("no-questions-asked" or prior authorizations required, etc.). The company will
also collect payments in a form of a fixed percentage charge on all items
claimed for return through its website.
Before getting into details about pricing, an important perception issue needs to
be discussed. Presently, only few online retailers offer free shipping with
purchases. For the returned merchandise, in most cases the retailers reimburse
shipping costs only if an incorrect or defective item was delivered. (Sephora, a
retailer of beauty products, offers free returns on all online purchases
regardless.) In many instances shipping and handling costs represent a large
percentage of the selling price. Most retailers therefore may not see free
shipping of returned merchandise economically possible. However, it is
financially feasible to offer free returned merchandise shipping to consumers at
a nominal cost to retailers. The following table displays four sample companies
in different product categories that differentiate in average price per unit sold
and average shipping cost.
Book/CD/Video

Toy/Game

Electronic

Computer

Total Sales

$10 million

$10 million $10 million $10 million

Avg Price/Item

$12

$35

$180

$1,000

Items Sold

833,333

285,714

55,556

10,000

Returned Item Rate

9%

9%

9%

9%

Items Returned

75,000

25,714

5,000

900

Avg Shipping Cost

$4.50

$6.00

$15.00

$60.00

Total Shipping Cost*

$337,500

$154,286

$75,000

$54,000

TSC as % of Sales

3.38%

1.54%

.75%

.54%

Markup Per Item

$.40

$.54

$1.35

$5.40

*Total Shipping Cost (TSC)

The amount of total sales is set at $10 million for each company and any change
in the amount would not influence the important percentage and absolute
figures. The average price per unit is based on general observations and is a
simple representation of various prices in an increasing order. The average
shipping cost is the actual UPS ground rate for the corresponding product
category on average.
According to the previous table, for online retailers that sell books, CDs and
videos to cover shipping costs of all returned merchandise will only cost 3.38%
of their total sales. For a toy company, the cost will only be 1.54%. Companies
such as Beyond.com and eToys were recently spending over 80% of total
revenues on sales and marketing programs alone. Even if most of the marketing
budget is dedicated to customer acquisition, a customer satisfaction and
retention program can still be easily allocated for. Even if an online toy
merchant decides not to allocate any of the marketing budget money to this
program, to fully cover the shipping costs it will only have to raise the average
price of an item by 54 cents. An online computer retailer with an average unit
price of $1,000 will only have to add $5.40 to the list price. Or it only has to
allocate an equivalent of 0.54% of total sales to cover the total shipping costs. In
the majority of cases the retailers will have to reimburse the shipping costs to

consumers anyway. According to a study conducted by PC Data Online, 30% of

all returns were due to the item being broken, 28% because of an incorrect item
was shipped, and only 22% because the customer did not want the item.

8.1 Pricing
The following table presents the proposed allocations to cover the shipping
costs so that consumers could enjoy free returned merchandise shipping.
Books/CD/VideoToys/Games ElectronicsComputers
Average Price Per Item (API) $12

$35

$180

$1,000

Average Shipping Cost (ASC) $4.50

$6

$15

$60

Merchant's Share of ASC,

65%

$3.90

$9.75

$39

Shipping Company's Share of

$.90
ASC, 20%

$1.20

$3

$12

Credit Card Company's Share

$.23
of ASC, 5%

$.30

$.75

$3

Total Shares of ASC, 90%

$4.05

$5.04

$13.50

$54

ETMM Rebate, 4% of API

$.48

$1.40

$7.20

$40

Total Allocations

$4.53

$6.80

$20.70

$94

ASC Coverage Ratio

101%

113%

138%

157%

$2.93

ETMM will strive to eliminate the shipping costs to consumers by means of

strategic agreements with online merchants, shipping companies, and credit card

companies. As stated in the last quote, 58% of all product returns were due to
merchants' faults, hence merchants will have to reimburse shipping costs to
consumers in those cases. ETMM therefore proposes that 65% of a given
shipping cost should be allocated to corresponding merchants. Due to demand
aggregation, the company will be able to negotiate a shipping rate discount with
companies such as UPS or FedEx. Hence 20% of shipping costs should be
allocated to shipping companies in a form of a discount. Credit card issuers such
as Chase and BancOne currently offer a 5% rebate to consumers on purchases
with selected online merchants. It is therefore feasible to arrange an agreement
with credit card companies and/or issuers to include a 5% shipping cost rebate
on all returned merchandise. Since product returns are only 9% of all purchases,
it will not represent a large cost to credit card companies to add this
differentiating feature to their products. These allocations in total will cover
90% of the shipping cost. The remaining 10% will be absorbed by ETMM via a
special "instant rebate."
ETMM will charge merchants a program fee that will average only 0.5% of a
given merchant's total sales. Also, the company will charge a low per-claim fee
of 12% of each item's listed price (each item that has been claimed through the
company's website). However, of the 12% charged per item, up to 4% will be
instantly given back to merchants to cover the remaining portion of the shipping
cost. The previous table indicates that the 4% rebate is sufficient to cover the
remainder of the shipping cost in the first product category. It is actually far
more than sufficient in other product categories (refer to ASC Coverage Ratio).
ETMM can then decide whether to offer merchants a reimbursement of the
remaining portion of shipping costs only or a flat 4% "instant rebate" regardless
of shipping costs. For the purpose of this business plan and financial
projections, a flat 4% "instant rebate" was used thus reducing the per-claim fee
from 12% to 8% across the board.

As it was stated in a prior chapter, retailers should see an average sales increase
of at least 15% due to the service offered by the company. On the other hand,
based on the proposed pricing structure the service should not cost merchants
more than 1.5% of their total revenues. The cost-benefit ratio of 10 will be a
strong promotional point for ETMM.
While it is a possibility to charge merchants commissions on all sales made
through the company's website (when consumers claim their returns), it would
not capture all sales stimulated by the company. The program will increase
consumer satisfaction and loyalty. However, when consumers start buying more
due to the program's effect but dealing directly with the merchant, the company
will not receive any commissions and will in effect be giving its services away
for free. Hence both fees charged should fully reflect the benefits of the easyreturn procedure, early information on all returning items, restored customer
satisfaction, selling opportunities created during the claim process, and all
repeat sales thereafter.
The company also plans to draw revenues from advertising on its website, but
for the purpose of this business plan advertising revenues will be considered
negligible. A fee/rebate agreement may be arranged with such companies as
UPS and Mail Boxes Etc. for bringing customers to them for shipping needs.
Other revenue generating activities such as affiliate programs with VISA,
American Express, or Citibank can be arranged to promote certain credit cards
as a preferred method of payment online. Those revenues will also be omitted in
the financial projections. Once the company has generated a sufficient customer
database, it may also market information to retailers and other organizations for
a fee. Any fees and payments ETMM could generate from consulting activities
in the field of product returns will not be included in the financial projections
either.

8.2 Sales Forecast

The table and chart below outline the company's projected sales volume in
FY2000-2002.

1st Program Revenues: represent the flat program fee

assessed on annual or quarterly basis. The average fee
charged by the company is 0.5% of a given merchant's total
sales. The program is estimated to increase merchandise
sales by at least 15% for a given merchant. The dollar figure
in this line is based on the conservative estimates of total
online sales provided by National Retail Federation (one
third of the most optimistic current estimates provided by
Shop.org) and the market share gained by the company.
From 2002 to 2004, the growth of total online merchandise
sales is estimated at 145% annually, which is in line with the
growth figure for 1999.

2nd Program Revenues: represent the per-claim

charges of 8% (net of 12% charged less the 4% "instant
rebate") of each item's listed price (each item claimed by
consumers through the company's website).

The company plans to make its services available just prior to Thanksgiving
2000. The programs will be offered to the online merchants for free for the
remainder of 2000, therefore, we will not generate any revenue from sales for
the year 2000.

SALES FORECAST

YEAR 1

YEAR 2

YEAR 3

1st Program
Revenues

$0

$7,800,000

$24,360,000

2nd
Program
Revenues

$0

$11,232,000

$35,078,400

TOTAL
SALES

$0

$19,032,000

$59,438,400

Year 1

Year 2

Year 3

1st Program
Revenues

$0

$0

$0

2nd
Program
Revenues

$0

$0

$0

Subtotal
Direct Cost
of Sales

$0

$0

$0

Sales

Direct Cost
of Sales

Business Model and Structure

The company plans to locate its headquarters in a metropolitan area that can
provide access to a large pool of high-tech labor force, current e-commerce
intelligence, and sources of financial capital. The location should ensure the best
logistics when reaching existing and potential clientele, as well as strategic
partners. Operations in which the company cannot develop core competencies
should be outsourced. A close proximity to outsourcing companies should be
maintained. The headquarters will initially host the entire executive team, sales
force, and staff. As company progresses through its growth stages, sales regions
will be assigned for various parts of the U.S. and either in-field sales
representatives be placed or distributors assigned. Presently, ETMM is
headquartered in Bala Cynwyd, Pennsylvania.
The company will initially be a privately-held corporation. The state of
incorporation will mainly depend on the location of corporate headquarters. The
company plans to raise two rounds of venture capital financing before going
public.

9.1 Organizational Structure

Those activities that are not crucial to the corporate success (i.e. payroll) will be
outsourced or subcontracted. Below are brief summaries of major
responsibilities for corporate officers.

Board of Directors: oversees the overall strategic

direction and progress of the company. Specific areas
include operational soundness, financial stability, and longterm well-being of the corporation.

President: responsibilities include strategic guidance of

the enterprise, exploration of expansion opportunities, and
strategic alliance facilitation and management.

Chief Executive Officer: the main responsibility is to

maintain a strategic fit between the corporate resources and
external factors. Responsibilities include running of the
overall day-to-day operations, technological and operational
soundness, and financial stability.

Director of Finance and Operations: responsibilities

include financial oversight, safeguarding of assets, and
human resources management.

Director of Information Technology: responsibilities

include overall technological efficiency, software
development, and information control.

Director of Sales and Marketing: responsibilities

include sales generation, marketing programs development,
and public relations.

PERSONNEL PLAN

All Departments

Other

YEAR 1

YEAR 2

YEAR 3

$200,000

$1,960,000

$4,105,000

$0

$0

$0

TOTAL PEOPLE

Total Payroll

40

80

$200,000

$1,960,000

$4,105,000

Financial Plan
The statements incorporate two rounds of venture capital investments of $2.6
million total, plus access to additional $1.4 million for cash flow purposes. The
statements do not include any funds raised during the proposed IPO. Any
revenues from advertising, affinity, consulting, and partnership programs were
omitted. Year-end is December 31.

10.1 Projected Cash Flow

The following chart shows monthly cash balance and cash flow. The table
shows the expected cash flow for the first twelve months of operation, with
yearly estimates thereafter. Capital expenditures include computer equipment
and technology & software investment:

Computer Equipment: represents 20% of the current fixed

corporate costs. In 2000, it represents $80,000 from the
fixed corporate costs.

Technology & Software Investment: represents 50% of the

current fixed technology costs. In 2000, it represents the
$1.3 million of the fixed technology costs.

PRO FORMA CASH FLOW

YEAR 1

YEAR 2

YEAR 3

Cash Sales

$0

$4,758,000

$14,859,600

Cash from Receivables

$0

$14,274,000

$44,578,800

Cash Received

Cash from Operations

SUBTOTAL CASH
FROM OPERATIONS

$0

$19,032,000

$59,438,400

Sales Tax, VAT, HST/GST

Received

$0

$0

$0

New Current Borrowing

$0

$0

$0

New Other Liabilities

(interest-free)

$0

$0

$0

New Long-term
Liabilities

$0

$0

$0

Sales of Other Current

Assets

$0

$0

$0

Sales of Long-term
Assets

$0

$0

$0

$4,110,000

$0

$0

$4,110,000

$19,032,000

$59,438,400

Additional Cash Received

New Investment
Received

SUBTOTAL CASH
RECEIVED

Expenditures

Year 1

Year 2

Year 3

$200,000

$1,960,000

$4,105,000

$2,149,150

$11,445,858

$26,737,688

$2,349,150

$13,405,858

$30,842,688

Sales Tax, VAT, HST/GST

Paid Out

$0

$0

$0

Principal Repayment of
Current Borrowing

$0

$0

$0

Other Liabilities Principal

Repayment

$0

$0

$0

Long-term Liabilities
Principal Repayment

$0

$0

$0

Purchase Other Current

$0

$0

$0

Expenditures from
Operations

Cash Spending

Bill Payments

SUBTOTAL SPENT ON
OPERATIONS

Additional Cash Spent

Assets

Purchase Long-term
Assets

$1,380,000

$323,544

$653,822

$0

$0

$0

$3,729,150

$13,729,402

$31,496,510

Net Cash Flow

$380,850

$5,302,598

$27,941,890

Cash Balance

$427,850

$5,730,448

$33,672,338

Dividends

SUBTOTAL CASH
SPENT

10.2 Break-even Analysis

The following table shows our estimated monthly break-even point to be
approximately $222,000

BREAK-EVEN ANALYSIS

Monthly Revenue Break-even

Assumptions:

Average Percent Variable Cost

Estimated Monthly Fixed Cost

10.3 Important Assumptions

The table below contains assumptions important to the financial success of the
company.

GENERAL ASSUMPTIONS

YEAR 1

YEAR 2

Current Interest Rate

10.00%

10.00%

Long-term Interest Rate

10.00%

10.00%

Tax Rate

25.42%

25.00%

Plan Month

Other

10.4 Projected Profit and Loss

The table below shows the profit and loss statement for ETMM. The itemized
costs for fixed technology, corporate and advertising are reflected in the sales
and marketing row in the table:

Fixed Technology Costs: represents a percentage of

revenues allocation for all fixed computer and Internetrelated developments and charges. In 2000, $800,000 is
allocated for the proprietary software development,
$300,000 for the website design, and $200,000 for systems
integration.

Fixed Corporate Costs: represent a percentage of

revenues allocation for all fixed corporate cost associated
with office related charges. In 2000, $200,000 is allocated
for initial sales force hire, $50,000 is allocated for hiring and
training expenses, and another $150,000 is allocated for the
office setup and purchase/lease of necessary computer
equipment and infrastructure.

Advertising: represents a percentage of revenues

allocation for advertising in all media. In 2000, $250,000 is
allocated for the industrial marketing campaign. In the
subsequent years, the much larger budgets include
allocations for TV advertising.

Sales & Marketing: represents a percentage of revenues

allocation for marketing and selling activities, including
commissions paid on sales. In 2000, $200,000 is allocated
for the initial sales and marketing related activities.

Research and Development: represents a percentage of

revenues allocation for R&D activities. In 2000, $200,000 is
allocated for testing and fine-tuning of the computer
systems and programs.

General & Administrative: represents a percentage of

revenues allocation for expenses associated with running a
corporation. In 2000, $20,000 is expensed against the initial
set-up, legal and accounting fees, etc.

Depreciation: represents a depreciation on all capital

investment; straight-line depreciation over 20 years.

PRO FORMA PROFIT AND LOSS

YEAR 1

YEAR 2

YEAR 3

Sales

$0

$19,032,000

$59,438,400

Direct Cost of
Sales

$0

$0

$0

Other

$0

$0

$0

TOTAL COST OF
SALES

$0

$0

$0

Gross Margin

$0

$19,032,000

$59,438,400

0.00%

100.00%

100.00%

Gross Margin %

Expenses

Payroll

$200,000

$1,960,000

$4,105,000

$2,170,000

$9,355,520

$16,379,882

$69,000

$85,177

$117,868

Research &
Development

$200,000

$951,600

$1,783,152

Payroll Taxes

$30,000

$294,000

$615,750

$0

$0

$0

$2,669,000

$12,646,297

$23,001,652

Profit Before
Interest and
Taxes

($2,669,000)

$6,385,703

$36,436,748

EBITDA

($2,600,000)

$6,470,880

$36,554,616

$0

$0

$0

Sales and
Marketing and
Other Expenses

Depreciation

Other

Total Operating
Expenses

Interest Expense

Taxes Incurred

Net Profit

Net Profit/Sales

$0

$1,596,426

$9,261,007

($2,669,000)

$4,789,277

$27,175,741

0.00%

25.16%

45.72%

10.5 Projected Balance Sheet

The Balance Sheet shows solid growth in both sales and net worth.

PRO FORMA BALANCE SHEET

YEAR 1

YEAR 2

YEAR 3

$427,850

$5,730,448

$33,672,338

Accounts
Receivable

$0

$0

$0

Other Current
Assets

$0

$0

$0

$427,850

$5,730,448

$33,672,338

$1,380,000

$1,703,544

$2,357,366

Accumulated
Depreciation

$69,000

$154,177

$272,045

TOTAL
LONG-TERM
ASSETS

$1,311,000

$1,549,367

$2,085,321

Assets

Current
Assets

Cash

TOTAL
CURRENT
ASSETS

Long-term
Assets

Long-term
Assets

10.6 Business Ratios

The following table presents important business ratios for the business services
industry, as determined by the Standard Industry Classification (SIC) Index
code 7389, Business Services, nec (not elsewhere classified).
RATIO ANALYSIS

YEAR 1

YEAR 2

YEAR 3

INDUSTRY
PROFILE

0.00%

0.00%

212.31%

8.79%

Accounts Receivable

0.00%

0.00%

0.00%

28.12%

Other Current Assets

0.00%

0.00%

0.00%

44.18%

Total Current Assets

24.61%

78.72%

94.17%

76.27%

Long-term Assets

75.39%

21.28%

5.83%

23.73%

100.00%

100.00%

100.00%

100.00%

14.43%

13.77%

6.45%

38.61%

Sales Growth

Percent of Total Assets

TOTAL ASSETS

Current Liabilities

Long-term Liabilities

0.00%

0.00%

0.00%

13.60%

Total Liabilities

14.43%

13.77%

6.45%

52.21%

NET WORTH

85.57%

86.23%

93.55%

47.79%

100.00%

100.00%

100.00%

100.00%

Gross Margin

0.00%

100.00%

100.00%

100.00%

Selling, General &

Administrative
Expenses

0.00%

74.84%

54.02%

82.68%

Advertising Expenses

0.00%

1.00%

0.50%

1.66%

Profit Before Interest

and Taxes

0.00%

33.55%

61.30%

1.37%

Percent of Sales

Sales

Main Ratios

Current

1.71

5.72

14.61

1.59

Quick

1.71

5.72

14.61

1.22

14.43%

13.77%

6.45%

60.22%

Pre-tax Return on Net

Worth

-179.37%

101.73%

108.92%

3.09%

Pre-tax Return on
Assets

-153.49%

87.72%

101.90%

7.76%

Additional Ratios

Year 1

Year 2

Year 3

Net Profit Margin

0.00%

25.16%

45.72%

n.a

Return on Equity

-179.37%

76.30%

81.24%

n.a

0.00

0.00

0.00

n.a

n.a

Total Debt to Total

Assets

Activity Ratios

Accounts Receivable
Turnover

Collection Days

Accounts Payable
Turnover

9.57

12.17

12.17

n.a

27

19

22

n.a

0.00

2.61

1.66

n.a

Debt to Net Worth

0.17

0.16

0.07

n.a

Current Liab. to Liab.

1.00

1.00

1.00

n.a

$177,000

$4,727,910

$31,367,697

n.a

0.00

0.00

0.00

n.a

n.a.

0.38

0.60

n.a

Payment Days

Total Asset Turnover

Debt Ratios

Liquidity Ratios

Net Working Capital

Interest Coverage

Additional Ratios

Assets to Sales

Current Debt/Total
Assets

14%

14%

6%

n.a

Acid Test

1.71

5.72

14.61

n.a

Sales/Net Worth

0.00

3.03

1.78

n.a

Dividend Payout

0.00

0.00

0.00

n.a

Appendix