Positioning for the Future Profitability for Today

1. Positioning for the FutureProfitability for Today XSInc.com Bill Golden Erika Lehman Jeri Stroade Kansas State University

2. The Presentation • Erika will present an overview of the company and industry and will state the problem. • Jeri will present our view of the future, strategic alternatives for future operations, and how XS Inc.should position itself to take advantage of an evolving market. • Bill will outline our marketing plan and implementation to insure profitability today and positioning for the future.

3. Industry & Competitive Analysis • SWOT Analysis • Five-Forces Model • Key Success Factors • Problem Statement

4. Strengths Brand name Proprietary software Manufacturer affiliation Agriculture on-line auction Weaknesses Financial situation Exclusively “virtual” Provides few services Portfolio management SWOT Analysis

5. Opportunities Globalization breaks down spatial barriers Willingness to use technology will increase in future Existence of excess inventory likely to continue Threats Losing major customers Logistical improvements E-bay (agriculture auctions) Technological change Government regulations SWOT Analysis

6. Five-Forces Model • Rivalry among sellers • Strong • Substitute products • Many • Potential entry of new competitors • High probability • Bargaining power of suppliers • High • Bargaining power of customers • High

7. Key Success Factors • Strategic fit • Profitability today • Brand name equity • Technology management • Strategic alliances throughout chain • “Brick and click” combination Poor Poor Good Good Average Poor

8. The Problem • Benefits of e-commerce undeniable but slower in occurring than expected • Most successful e-commerce businesses are “brick and click” but XS Inc. has no “brick and mortar” component • XS Inc. must find a successful strategy to maintain flexibility and survive until e-commerce proves profitable

9. Positioning for the Future • Assumptions • XS Inc. is not profitable today • Auction side has not performed satisfactorily • Nterline looked like a way to salvage XS Inc. • Investors are nervous

10. Positioning for the Future • Alternatives • Do nothing • Get out of the business • Continue with product line expansion and diversification • Restructure and refocus

11. Positioning for the Future • Drivers of Change • Globalization + Profitability = Concentration • Concentration + Internet = Evolving Supply Chain • Will change come fast? • NO • Why? • Friction with and investment in existing supply chain • Target market’s reluctance to purchase on the Internet • Fear of something new • Security concerns • Time lag

12. Positioning for the Future • Uncertainty about future • Most manufacturers of agriculture inputs have a strategic contingency plan for selling direct to producers • They would prefer not to, but are not sure how the supply chain will evolve

13. XS Inc. Manufacturer Producer Regional Distributor Positioning for the Future • The Chemical Supply Chain

14. XS Inc. Manufacturer Producer Distributor Positioning for the Future • The Seed Supply Chain

15. Positioning for the Future • Focus on your competitive advantage • Core competency in the chemical and seed industries • Strategic advantage in logistical management • Brand name in agricultural markets • Specific knowledge of on-line auctions

16. Positioning for the Future • Maintain strategic fit • Corporate culture must be consistent with ventures • Products must be consistent with mix

17. Positioning for the Future • Implications • Concentrate on the original plan for making XS Inc. profitable • Divest Nterline • Do not expand the agricultural parts category

18. Positioning for the Future • Develop strategic alliances • Supply control • “Brick and click” • Improve financial strength • With whom? • Manufacturers • E-bay • National Association of Crop Consultants

19. Profitability for Today • What went wrong? • Expertise in the chemical industry • Expertise in wholesaling • Expertise in business • Expertise in e-commerce • XS Inc. did not identify or understand the target market • Crops are not generic • Producers are not generic • Savings does not equal customer value • Producers need personal attention • Timing and delivery issues are critical • Let’s address these issues

20. Profitability for Today • The issue of timing/delivery • Producers have a hard time planning chemical use • Financially and emotionally producers do not like to carry inventory • XS Inc.’s delivery schedule of 7-10 days does not create value or meet customers’ needs • Solution • Use XS Inc.’s strategic advantage in logistics and liquidation to offer a guaranteed return policy with a 5% restocking fee • This will generate profitable additional sales

21. Profitability for Today • Target Market by Crop Source: USDA

22. Profitability for Today • Target Market by Area

23. Top 5% (20,000 Producers) Chemicals Seed Large Farmers (75,000 Producers) Medium Farmers (130,000 Producers) Small Farmers (220,000 Producers) Profitability for Today • Target by customer

24. Profitability for Today • How do we reach the target market? • Personal contact • 1 national manager and 4 territory managers • Hire from competitive pool • Preferably from area • Advertising • Crop specific magazines • CPM • NACC • DTN

25. Profitability for Today • How do we create customer value? • Personal contact • Territory managers • Timing • 5% restocking fee • Security and technology • XS Inc. has handled • Farmers are ready

26. Profitability for Today • How do we price our product? • $100 access fee is too cheap for information • Incrementally raise to $250 at $25 per quarter • 3% is too cheap for an auction commission • Incrementally raise to 5% at 0.25% per quarter

27. Profitability for Today • Breakeven analysis Cost of sales force 4 @ $65,000 $260,000 Sales manager 1 @ $100,000 $100,000 Travel and entertainment $250,000 Advertising $100,000 Total $610,000 Breakeven sales @ 5% commission $12,200,000 Breakeven per territory $3,050,000

28. Profitability for Today • Can they do it? • Per territory: • $3,050,000 @ $60/acre @ 600 acre/producer • 90 new customers per year • Less than 8 per month

29. Profitability for Today • How do you value a customer? • HBS asserts that customers should be valued at their lifetime value

30. Profitability for Today

31. Profitability for Today • Bottom line • 360 new customers per year @ $7200 lifetime value • Yearly increase in NPV of $2,600,000

32. Implementation • Divest Nterline by January 2002 • Create strategic alliance with Rhone-Poulenc by 2002 • Create alliance with Dupont and Monsanto by June 2002 • Have sales force in place prior to October 2001 • Start advertising immediately • Identify 4 new territories by June 2002

33. Questions and Comments • Thank you for your attention • We will now entertain questions and comments