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| Posted: 02 Sep 2009 22:52 Last Edited By: jc | ||
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Registered User |
Posts: 52 Join Date: Oct 2007 |
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Dear Clients,
I am writing you to announce planned changes to our services and terms of operation. Like other companies, Neoflix responded to the challenging business and economic environment earlier this year by cutting costs. We reduced Neoflix staff levels to narrow the budget gap. However, these reductions caused our customer service and accounting response time to elongate. Despite trying to “make it work” for the last few months, we have found that having a small staff requires us to change the service. More fundamentally, we have also found that the initial business model we created for Neoflix—transaction and fulfillment—does not provide enough revenues to support basic operations despite the growth in client base. Currently, the Neoflix service is in the “red” at approximately $10,000 per month, despite the staff reduction implemented in Q1. We are funding this loss with other services that Magic Rock offer, and plan to do so with the expectation that this situation will correct itself by Q2 2010. The explanation why Neoflix has not achieved break-even is straight-forward. Soon after launching the service in 2007, we noticed a recurring pattern afflicting clients: initial sales jump followed by sharp drops, and generally clients do not sustain sales levels after a few months. This rising and falling sales pattern meant Neoflix needs to continuously replace its client base every 4-6 month as each new client runs through their sales cycle. However, the customer support demands on Neoflix increase as we have an ever-growing base of clients with smaller & smaller sales. These clients still need customer service support as well as account reconciliation each month. In May we conducted an internal audit of all client sales history and discovered that the top twenty-five (25) clients (ranked in terms of online sales dollar) generated about 86% of all sales volume on Neoflix. The top forty (40) clients accounted for 90% of all says. That means the remaining 150 clients account for only 14% of all sales. The universality of this issue—sales sustainability over time—has spurred us to investigate the marketing and sales strategies for self-distribution. The answer was quickly discovered and simple: To sell more DVDs, clients needed ways to reach more people, institutions, and/or retail outlets. So we decided to invest more resources into Neoflix to help with marketing outreach, and at the same time change the way we provide the service so we can sustain future growth. Lets discuss the operational changes first. Operational Changes: A “Two-Tier” Service Level We are creating a “Two-Tier” service level for Neoflix starting September 1, 2009. Here is how we came to this conclusion. After reviewing the May audit data extensively and consulting with several clients, I decided to change Neoflix to classify the needs of clients by sales volume. First of all, let me be clear that we are not abandoning clients with low sales; we are not pursuing the 80/20 rule. We welcome all clients to use the service. However, for the clients that have more active DVD sales, we want to make sure appropriate resources are directed towards them. This change is intended to improve the response time for two operation areas: (1) Client service response time (2) Timely reporting for accounting The 2-Tier system classifies clients by sales volume as follows: Tier A – aggregated sales below $600 per month Tier B – aggregated sales above $600 per month (On January 1st and July 1st of each year we will look at each client’s sales history for the prior 6 months to obtain the average monthly sales volume. ) Customer Support and Accounting. “Tier A” clients will be able to reach us by email and support.magicrock.com and they will receive their accounting reports and payments on a QUARTERLY basis. “Tier B” clients may reach us by email, support.magicrock.com and the phone and they will receive their payments on a MONTHLY basis See Below: Level Tier A Accounting Reporting* Quarterly Monthly Fees $25 Contact Method Email: tiera@magicrock.com or www.support.magicrock.com Response Turnaround 1 to 3 Business Days Manufacturing Discount 10% Client Requested Shipping No Marketing Programs All Amazon One Time Setup Fee $25 Level Tier B Accounting Reporting* Monthly Monthly Fees $35 Contact Method Phone or Email: tierb@magicrock.com or www.support.magicrock.com Response Turnaround 24 Business Hours Manufacturing Discount 10% Client Requested Shipping Yes, up to 5 requests per month Marketing Programs All Amazon One TimeSetup Fee Free *For those clients that wish to receive Transaction Summary Reports and reconciliation checks on a monthly basis but do not meet the minimum sales requirements they can request a report each month, 7 calendar days before the end of the month. A fee of $25 is applicable per request. Accounting Schedule. Starting September 1, 2009, the following accounting schedule will apply. Tier A clients will receive Transaction Summary Reports and checks quarterly, approximately four weeks after the close of a quarter (March, June, September, December). Tier B clients below can expect to receive their reports about four weeks after the close of each month. Tier A August Report October 30, 2009 September Report October 30, 2009 October Report January 31, 2010 November Report January 31, 2010 December Report January 31, 2010 January Report April 30, 2010 Tier B August Report September 20, 2009 September Report October 20, 2009 October Report November 20, 2009 November Report December 20, 2009 December Report January 20, 2010 January Report February 20, 2010 *For Tier A clients, July/Aug/Sept reconciliation will be on October 30th. Start Date. Each client will be notified in a separate email as to their level of service by August 31, 2009. Acceptance. After receiving your notification on Tier A or B status, you need to do nothing further. If you are a Tier A client and have reservations, I would urge you to first try it for a quarter or two, and then decide. We reduced the monthly fees for the service, and there is the opportunity to participate in the new marketing programs to increase your sales. New Clients will be on Tier B for the first six months of service with their sales volume being evaluated at the end of that time. If you are a new client who signed-up with Neoflix within the last four months, and do not wish to accept the new arrangement, we will refund your $238 sign-up fees completely and provide you a 30-day window to arrange a transfer of inventory. New Marketing Programs Aimed at Libraries, Institutions, Consumers We are excited to announce the creation of some new sales channel programs for clients. Since our goal is to achieve financial stability by helping clients sell more products over a longer time period, we have and are creating new software applications, marketing services and experimenting with sales channels. In the short term, these efforts will widen the budgetary gap, but for the long term we believe this is the only way forward. Here are our near term initiatives. Public and High School Libraries. As many of you know, we had created a website called Library Orders in Q4 2008 as part of a marketing program to reach the twelve to fifteen thousand public and high school libraries across the country. The project was placed on hold earlier this year as part of the budget cut. We are now re-launching the program this month, using a direct mail campaign. Clients who are interested should contact Ginny for more information Academic and Educational Institutions. In conjunction with several clients who have expressed a desire to self-market their educational sales, we will be launching an institutional mailing campaign service starting in October. This service intends to aggregate films from clients with similar topics/themes and run e-mail or direct-mail campaigns to appropriate departments in academic institutions. The sharing of resources—in this case the mailing list buy—between clients, and Neoflix contributing by running the program, means that clients can reduce marketing expenses AND reach many more targets than before. Direct to Consumer Internet Affiliate Marketing. Earlier this year, we ran an experiment to market some of our clients directly to consumers by using an Internet affiliate marketing program. The affiliate marketing approach was intended to increase exposure and awareness without paying upfront advertising, and instead, pay the affiliates a commission. We created a website called Cinema Indie (www.cinemaindie.com) and asked some of our clients to volunteer. We learned that affiliates are not interested in making a $4 commission in a $20 sale; they are interested in making a $16 commission on an $80 sale. We are re-tooling the program currently to test a higher price box-set concept. All Neoflix channel marketing programs will be open to both Tier A and Tier B clients, and are on an “opt-in” basis. We will not enroll a film into any program unless a client agrees/opt-in. Summary In summary, by making these structural changes to Neoflix, we are hopeful that they will allow us to continue to provide the service effectively to a growing client base. It has been a long road to grow this service to this point, and I am hopeful that with your help, the dedication of the small but energetic staff we have, we can get through this tough period with a much better service with a brighter future ahead. Sincerely, --JC John H. Chang CEO |
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