Michigan State University

Michigan State University Presents Executive Summary 2004 National Agri-Marketing Association Student Marketing Competition

INTRODUCTION Lameness, a leg injury to the bones, tendons or muscle tissue, is the leading reason racehorses miss training and competitive races. Nearly 80 percent of all racehorses fall lame before five years of age. In addition, shin soreness occurs in 70 to 80 percent of all 2-year-olds, and nearly 50 percent develop lameness from the acute stress of intense exercise. Racehorse lameness injuries are costly for racehorse owners. One lameness injury can result in inactivity for 110 days and an average opportunity loss of $5,000 in purse money per week. In 2002, lameness injuries cost racehorse owners more than $678 million in veterinary services, drugs, additional care and lost use. Elite Horse Products is a leading manufacturer of performance-enhancing supplements in the equine industry. Established in 1990 and located in Quincy, IL, Elite Horse Products offers a broad range of nutritional products for horses. Working with researchers at Michigan State University, Elite Horse Products developed Equi-Strong, a naturally occurring, bio-available silicon feed supplement for horses proven to increase bone strength and decrease the likelihood of lameness and injury. To produce Equi-Strong, Elite Horse Products imports pure white sand, the natural form of silicon, from Oklahoma. The sand molecules, bonded with aluminum and sodium, are hydrated to form a slurry. The slurry is heated to 85 degrees Celsius and cooled to 50 degrees the temperature at which the molecules form crystals. The silicon crystals are then dried and packaged as Equi-Strong. Studies conducted at Michigan State University found that feeding eight ounces of Equi-Strong with normal feed rations to horses every day reduces the occurrence of lameness injuries by nearly 50 percent. On average, horses are able to train twice as long with Equi-Strong before suffering injuries. Scientific studies have shown improvements in bone formation and strength by Day 45 and continual improvements thereafter. Elite Horse Products plans to continue research with Michigan State University to further identify specific progress in bone development and strength as a result of feeding Equi-Strong. Elite Horse Products patented Equi-Strong for the use of sodium zeolite A (SZA) and monosilicic acid the bio-available form of silicon. This 15-year patent prohibits other companies from using a bio-available form of silicon for horses. Elite Horse Products paid $500,000 for the patent which is to be paid in $100,000 installments over the first five years. In September 2003, Elite Horse Products hired Spartan Agri-Marketing to develop a marketing plan to introduce Equi-Strong into the equine nutrition industry. Elite Horse Products posed these marketing goals: Research the horseracing industry to identify other nutritional supplements for lameness and to determine product decision-makers Position Equi-Strong among identified product decision-makers as the supplement of choice to reduce the risk of lameness and injury Maximize total revenue from Equi-Strong MARKET ANALYSIS Market Size/Location The U.S. horseracing industry generates more than $14 billion in annual revenue. Approximately 450,000 horses, primarily standardbred, thoroughbred and quarter horses, compete in the horseracing industry at 182 pari-mutuel racetracks across the country. Elite Horse Products distributes performance-enhancing supplements to feed dealers who provide health products for horses in these targeted regions. These regions account for nearly 80 percent of the 450,000 horses in the U.S. horseracing industry. Targeted promotions will occur by region along with a national promotions campaign through magazines and the Elite Horse Products Web site. The regions are broken down as follows: Region 1 (87,000 horses) Illinois, Indiana, Kentucky, Michigan and Ohio Region 2 (134,500 horses) Florida, Maryland, New Jersey, New York, Pennsylvania and Virginia Region 3 (138,000 horses) Arizona, California, Oklahoma and Texas Equi-Strong will enhance racehorse owners bottom line by reducing the occurrence of lameness by 50 percent. On average, Equi-Strong can save horse owners up to $754 in expenses and nearly $40,000 in opportunity purses per horse in the first five years. The following facts detail the selected target market: The targeted geographical areas account for nearly 80 percent of the U.S. horseracing industry Eight ounces of Equi-Strong will be the recommended dose per horse per day Total market potential will be 65,788,500 pounds of Equi-Strong per year within the targeted regions 1

Trends Market research conducted by Spartan Agri-Marketing has identified the following trends in the horseracing industry: Lameness is the leading reason racehorses miss training Lameness will continue to be one of the largest health concerns for racehorse owners and trainers Preventative equine health management practices are growing in popularity among racehorse owners, trainers and veterinarians The general public and horseracing spectators are concerned with the humane treatment of racehorses Awareness of the U.S. horseracing industry is increasing among the general public Other Key Factors Volatile economy and lack of government funding for horseracing programs may adversely affect the horseracing industry Increased participation in alternate gambling venues such as the lottery and casinos may impact the revenue of the horseracing industry Customer Profile Feed Dealers: Elite Horse Products plans to sell Equi-Strong to feed dealers within the targeted geographical regions. Approximately 200 dealers in each region are located in heavily populated equine areas and are already selling existing Elite Horse Products. Market research has identified dealer managers as being the primary decision makers. They are typically 30 to 55 years of age and are willing to accept or venture into new product lines. Horse Owners and Trainers: To assist feed dealers in pushing Equi-Strong, Elite Horse Products also plans to direct promotions toward the end consumer market composed of racehorse owners and trainers. Racehorse owners and trainers work together to make new-product decisions for their racehorses. Market research found these decision-makers are generally between 35 and 60 years of age, familiar with the structure of the horseracing industry and spend an average of $754 on health products per lameness injury. They attend horse races, read industry publications, frequently use the Internet and are continuously seeking new products to give their racehorse a competitive edge. Key Influentials: Spartan Agri-Marketing has identified that veterinarians, horse specialists, agricultural extension workers and agricultural university researchers also have strong influences on product purchasing decisions. Therefore, it will be valuable to educate these individuals about the benefits of Equi-Strong for racehorse owners and trainers. Competitive Analysis Currently, no other supplements in the equine industry have been proven by the United States Department of Agriculture to reduce the occurrence of lameness. In the racehorse supplement industry, products are not required to have independent certification. Therefore, Equi-Strong is differentiated from its competitors because it is certified, it is bio-available and is naturally occurring, and it is used to increase bone density and strength. No other products directly compete against Equi- Strong in this market. The most effective way to reduce lameness in racehorses is to use products that increase bone density and strength as well as products that protect joints. However, when racehorse owners and trainers are forced to choose one method or the other, the same products that protect joints and complement Equi-Strong in preventing lameness become competitors. Please refer to Table 1 for a complete competitive analysis of these products. Table 1 Competitive Analysis Equi-Strong Corta-Flex Flex-Free Next-Level Product Manufacturer Elite Horse Products Nature s Own Inc. Platinum Performance Farnam Companies Inc. Active Ingredient Sodium Zeolite A & Monosilicic Acid Amino Acids, Vitamins & Minerals Chronditin Sulfates Glucosamine & Shark Cartilage Intended Increase Bone Product Use Density and Strength Protect Joints Protect Joints Protect Joints USDA Support Yes No No No Market Share 12% 7% 10% Price $54.75/Month* $26/Month $35/Month $65/Month *Based on suggested retail price of $3.65 per pound 2

The strengths, weaknesses, opportunities and threats for Equi-Strong are outlined in Table 2: Table 2 SWOT Analysis Strengths: Weaknesses: Scientifically proven to decrease lameness injuries Results are not immediate and are difficult to among racehorses measure Easily administered as a top-dressing for feed Slight aluminum residue left in horses; however, it Extended storage life does not have any negative effects Shows bone-strength improvement in all ages of horses Opportunities: Increased desire for bio-available products Potential future use in show and other sport horses Large international horseracing industry Threats: Indirect competition is false labeling products bio-available Pending gambling reform BUSINESS PROPOSITIONS Key Planning Assumptions The marketing plan for Equi-Strong is based on several key planning assumptions about the horseracing industry: The number of horses in the U.S. horseracing industry will remain relatively stable over the next three years Product purchasing decisions will continue to be made by racehorse owners and trainers, with advice and counsel from veterinarians Lameness injuries will continue to be the primary reason racehorses miss training and the primary concern of racehorse owners, trainers and veterinarians Identified feed dealers within the targeted regions will continue to sell supplements from Elite Horse Products Positioning Statement Equi-Strong is the only bio-available supplement independently certified to increase racehorse bone strength and reduce lameness by 50 percent. Sales Objectives/Goals Spartan Agri-Marketing plans to help Equi-Strong obtain a market share of 7.67 percent of the total targeted market area and achieve total sales of $11,360,182 for year three. Racehorse owners and trainers can purchase Equi-Strong from feed dealers that sell performance-enhancing supplements from Elite Horse Products. Equi-Strong will be shipped to feed dealers within the targeted geographical region via semi-truck in 15 and 30 pound plastic pails and 50 pound bags. Table 3 Total Market Potential & Projected Market Potential Number of Horses Potential Gross Sales (Pounds) Potential Gross Sales ($2.25/Pound) Region 1 87,000 15,921,000 $35,822,250 Region 2 134,500 24,613,500 $55,380,375 Region 3 138,000 25,254,000 $56,821,500 Total 359,500 65,788,500 $148,024,125 Projected Market Share (Percent) 3 Projected Gross Sales (Pounds) Projected Gross Sales ($2.25/Pound) Year 1 Region 1 2% 318,420 $716,445 Region 2.25% 61,534 $138,451 Region 3.25% 62,906 $141,539 Total.67% 442,860 $996,435 Year 2 Region 1 6% 955,260 $2,149,335 Region 2 3% 738,405 $1,661,411 Region 3 1% 252,540 $568,215 Total 2.96% 1,946,205 $4,378,961 Year 3 Region 1 13% 2,069,730 $4,656,892 Region 2 8% 1,969,080 $4,430,430 Region 3 4% 1,010,160 $2,272,860 Total 7.67% 5,048,970 $11,360,182

ACTION PLAN Price Elite Horse Products will sell Equi-Strong to feed suppliers for $2.25 per pound. This price includes the production costs of $1.50 per pound. Elite Horse Products suggests a retail price of $3.65 per pound. Place During the three-year product rollout, Equi-Strong will be target marketed to Region 1 (Illinois, Indiana, Kentucky, Michigan and Ohio) in the first year along with national marketing via magazines and the Elite Horse Products Web site. In year two, marketing will be directed toward Region 1 and Region 2 (Florida, Maryland, New Jersey, New York, Pennsylvania and Virginia). In the third year, Elite Horse Products plans to market Equi-Strong in Region 1, Region 2 and Region 3 (Arizona, California, Oklahoma and Texas). These regions account for nearly 80 percent of racehorses in the United States. Promotions A well-developed promotional strategy is the key to the success of Equi-Strong. Based on Equi-Strong s target market, Spartan Agri-Marketing has created a promotional campaign to direct marketing efforts toward feed dealers, racehorse owners, trainers and key influentials in the targeted regions. The addition of a national product manager will facilitate promotional efforts. Although initial promotions will be done primarily on a push basis toward feed dealers, racehorse owners, trainers and veterinarians, Spartan Agri-Marketing anticipates a stronger pull component from racehorse owners and trainers as they build product awareness and request Equi-Strong from feed dealers. Owners & Trainers: Encourage first time purchases from feed dealers and alleviate product concerns. Direct Mailings Send personalized letters and informational packets to owners and trainers to build product awareness and educate them about how Equi-Strong will increase their bottom line. Also, send postcards featuring testimonials and the economical benefits of Equi-Strong. Magazine Advertisements and Articles Place eye-catching advertisements in The Horseman and Fair World, The American Quarter Horse Racing Journal, Bloodhorse, and Thoroughbred Times (the most popular magazines for our target market) as well as promotional editorials and articles to enhance product awareness in both targeted and non-targeted areas. Point of Purchase Displays Educate racehorse owners and trainers while addressing concerns and showing the economical incentive for the consumer due to the enhanced physical condition of the horse. Horse Track Sponsor Sponsor horse races, winner blankets, and 50/50 drawings at key horseracing tracks within the target region to build product awareness. Equi-Strong Web Page As part of the Elite Horse Products Web site, Equi-Strong will have a product page complete with product information, testimonials and feed dealer locations. Promotional Items Consumers will be offered Equi-Strong apparel such as hats, jackets, pens, etc. Feed Dealers: Improve product awareness, demonstrate potential retail sales and encourage purchase. Sales Calls All regions will utilize existing sales representatives already serving dealers of Elite Horse Products. These representatives will schedule one-on-one appointments with approximately 200 feed dealers currently selling Elite Horse Products in each region and educate them about Equi-Strong to encourage purchase. Direct Mailings Send feed dealers production information kits to build product awareness and knowledge. Focus the information on the benefits of Equi-Strong by including statistics on dealer returns while emphasizing the need to be a leader in supplying innovative products. Promotional Items Feed dealers will be offered Equi-Strong apparel such as hats, jackets, pens, etc. Key Influentials: Build the reputation of Equi-Strong as a leading feed additive that reduces the incident of lameness. Direct Mailings Send informational packets featuring the scientifically-proven benefits of Equi-Strong. Sales Calls One-on-one appointments will provide key influentials scientific data and acquire product feedback. Luncheons Sponsor luncheons at key horseracing tracks and hold regional luncheons to educate veterinarians on the benefits of Equi-Strong, while addressing owner and trainer concerns. Equi-Strong Web Page As part of the Elite Horse Products Web site, Equi-Strong will have a product page as well as a section dedicated to veterinarians providing scientific data concerning the use and benefits of Equi-Strong. Refer to Table 4 for a detailed promotional budget. 4

Table 4 Promotional Budget Tactic Timing Year 1 Year 2 Year 3 Direct Mailings Bi-Monthly $96,000 $210,000 $325,000 Magazines Weekly/Monthly $117,000 $276,000 $466,000 Public Relations Continuous $30,000 $60,000 $90,000 Web Site Publishing Continuous $25,000 $10,000 $10,000 Promotional Items Continuous $10,000 $18,000 $35,000 Total $278,000 $574,000 $926,000 *Does not reflect the cost of product manager. Please refer to the operating statement for that information. FINANCIAL ANALYSIS Cost Benefits The budget reflects operating expenses, product manager and promotions as outlined in Table 5. Table 5 Operating Statement Year 1 Year 2 Year 3 Gross Sales ($2.25/pound) (Table 3) $996,435 $4,378,961 $11,360,182 Product Returns $4,680 $20,850 $53,295 Net Sales $991,755 $4,358,111 $11,306,887 Cost of Goods Sold ($1.50/Pound) $664,290 $2,919,307 $7,573,455 Gross Margin $327,465 $1,438,804 $3,733,432 Product Manager (Salary, Budget, Expenses) $105,000 $135,000 $170,000 R&D/Patent Payment $100,000 $100,000 $100,000 Promotion Expenses $278,000 $574,000 $926,000 Profit ($155,535) $629,804 $2,537,432 MONITORING & MEASUREMENT Monitoring, measurement and contingency strategies are outlined in Table 6. Table 6 Monitoring, Measurement & Contingency Plan Key Target Strategic Monitoring Contingency Plan Performance Are sales and production levels within Examine sales and production records. If high sales, increase production. 80% of each other? Are racehorse owners, trainers and feed dealers at least 95% satisfied with our product? Implementation Is action plan targeting product dealers, racehorse owners, trainers and veterinarians achieving desired market share? Are promotional tactics achieving desired awareness levels (80%)? Examine sales records and survey racehorse owners, trainers and feed dealers to determine satisfaction. Monitor market share on a quarterly basis among product suppliers and distributors. Survey horse owners, trainers and veterinarians who make purchasing decisions for our product. If low sales, re-structure sales force. Conduct research and product development to provide more scientific evidence and determine additional product strengths. If low market share, increase sales force and promotions. If high, consider targeting other sport/pleasure horses or international markets. If awareness is low, increase promotional tactics. If awareness goal is met, maintain or consider reallocating promotional tactics. Increasing Strength, Enhancing Performance 5