SurfMerchants Jeremy Bolton Manka Johnson Santeri Leijola David Spivey

Overview  Mystery Shopping Industry  Sassie – Survey Database Application  SurfMerchant’s Opportunity & Strategy  Lock-in Options and Comparisons  Conclusions

Mystery Shopping  Mystery Shopping is a booming, $200 million/yr industry  Mystery shoppers are dispersed to multiple locations of a retail or service chain  Posing as customers, these shoppers fill out detailed surveys to assess the location's level of service  The Mystery Shopping company must then collect and process mountains of data and generate statistical reports for the retail chain Source: surfmerchants.com

Mystery Shopping  Once done by faxes, manual entries and spreadsheets, Internet-based technologies are greatly improving efficiencies  Several aspects of Mystery Shopping have made larger software companies avoid the industry: –every survey must be laboriously customized –no pre-made solutions exist –the user interfaces are dauntingly complex –reports statistics are intricate and often must be customized for each client Source: surfmerchants.com

The Mystery Shopping Industry

Source: surfmerchants.com

SASSIE - Features  Survey engine 100% customized and optimized for mystery shopping applications  High speed SQL relational database platform (not Lotus Notes or Manta-based)  Generates complex, up-to-the-second reports on the fly  All surveys and reports and scoring can be customized to the client's specifications  Handles shopper accounts and client accounts with password security  Can import surveys from other systems easily  Schedules shoppers based on location, past shopper performance, and shopper demographics  Completely web based - no servers or high speed internet connection needed Source: surfmerchants.com

SurfMerchant’s Opportunity  Target and acquire clients –Mid-sized clients who do shops per month –Can charge a healthy $5 per-shop fee (clients make average $42 per-shop) –These clients need software but don’t do enough business to justify self-development costs ($50,000+) and maintenance –Dominate this segment (75%+ market share)

Strategic Issues

Strategic Conclusion  Create lock-in to keep lucrative clients if/when competitive landscape changes

Lock-in Key Formulas  Total Switching Costs = Costs borne by customers + costs born by new supplier  Profit from current customer = total switching costs + quality/ cost advantage  If no quality/ cost advantage, profit from current customer = Costs borne by customers + costs born by new supplier  Strategy: Increase switching costs or quality/cost advantage

Lock-in Options  Use of Contracts  Increase perceived switching costs  Create technological barriers  Be a Low Cost Provider  Product Superiority  Value-Added Solutions by Expanding Features and Uses

Use of Contracts  Value is limited with current pricing structure  Clients wary  There are limited resources for enforcement

Increase perceived switching costs  Convince customers (mom-and-pop agencies) about the difficulty of switching (after Sassie is implemented)  Convince customers that competitors are not as good as they claim to be (the cable strategy)

Create technological barriers  Use proprietary database or data transfer formats  Advantage short-lived, since competitors can circumvent with new technology

Be a Low Cost Provider  Could start price war  Causes SurfMerchants to forgo profit opportunities from high margins

Product Superiority  Although SurfMerchant’s product is currently the market leader, a relatively low capital investment could yield a superior product  Product Specific Dependency through customizations = better lock-in

Value-Added Solutions by Expanding Features and Uses  Emphasizes expertise  Build relationships with lucrative clients  Entrenches SurfMerchants in customers’ businesses  Costly to implement

Conclusions

Source: surfmerchants.com