SurfMerchants

1. SurfMerchants Jeremy Bolton Manka Johnson Santeri Leijola David Spivey

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

3. 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

4. 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

5. The Mystery Shopping Industry

6. Source: surfmerchants.com

7. 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

8. SurfMerchant’s Opportunity • Target and acquire clients • Mid-sized clients who do 500-1500 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)

9. Strategic Issues

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

11. 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

12. 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

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

14. 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)

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

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

17. 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

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

19. Conclusions

20. Source: surfmerchants.com