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Factory Price - Online Retail platform for manufacturers

marketplace as mobile app for offline sellers

Kazakhstan, Almaty
Market: Internet and IT, Logistics and warehouses, Services
Stage of the project: Prototype or product is ready

Date of last change: 17.04.2020
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Idea

We make it possible for offline sellers to sell goods easily and quickly on online market using a mobile application!
We exclude intermediaries and let only manufacturers and their representatives trade on the platform.

Current Status

Cust. dev. and confirmation of hypotheses from the offline market;
Financial Model for coming 3 years;
Unit economy - LTV $ 59 per buyer / year;
Base of manufacturers from NPP Atameken;
Started integration with Kazpost and Paybox;
Preliminary applications from manufacturers and buyers;
An App in the Google Play Market (sellers bulleting board functionality) for Kazakhstan market.
Team of 7 members + external developers / JV in Indore

Market

Kazakhstan - 50 billion USD,
Customs Union (Kazakhstan, Belarus and Russia together) - 471 billion USD,
The former CIS countries (9 countries) - 870 billion USD,
India - 3 trillion USD.
According to the financial model for 3-5 years, Factory Price product can reach 6.8% of these markets.

Problem or Opportunity

The main challenges of Retail Trade are: lack of trust and risks of the parties in online purchases.
Sellers have problems reaching their customers. Buyers don’t trust the sellers and don’t want to take risks of losing money.
As a result, only 10% of calls from advertisement boards comes as purchases.

SELLERS
No ratings and reviews.
Distrust by customers.
Marketing is expensive and complex.
Prepayment or post-pay? Both are bad.

BUYERS
Too few trustworthy sellers
Can I return the goods?
Will the payment be refunded?
Who will deliver and in what time, price for, risks on the way?

Solution (product or service)

Factory Price is a marketplace for manufacturers with the following features:
1. Mobile application as a tool for automation of sales over Kazakhstan, Customs Union, and CIS.
2. Demand generator for purchase of goods on the markets of Kazakhstan, Belarus, Russia.
3. Facilitator of reliable delivery - our service of TRUSTED couriers.

In the 21st century, sellers on offline market work like this: advertising through Instagram, correspondence through WhatsApp, money transfers to Kaspi Gold (or another bank), and sending it to the regions through a courier or postmail. All 4 tools are free and therefore they are in demand.

FP combines all 4 instruments for closing deals and provides additional benefits: escrow payment, data analytics, free delivery, smart contracts and QR codes for transmittances, free advertising and marketing, a store window, tracking, delivery guarantee, and the most important for the seller: demand and clients from the markets of Kazakhstan, the CU and CIS.

Competitors

There are not so many players in Kazakhstan in the form of marketplace such as kaspi.kz, satu.kz, chocolife.me, but taking into account the area of their activities satu.kz can be considered as a direct competitor. There is quite a number of indirect competitors on internet e-commerce trade market, totally 30 good online stores. The situation in the competitive market of Kazakhstan is weak and 98% of trade is in the offline shopping malls and markets. Craftsmen market and small and medium business manufacturers is not much organized, and the only thing that is provided by the state is the support in the form of crafts fair two days in a month.
The competitive environment in Russia and Belarus is more developed and major international Internet e-commerce players are present for more than 15 years in these markets. Manufacturers and craftsmen of these countries have better conditions for trading online, but this figure is rapidly deteriorating for the regions of Russia and Belarus.
Competitive environment of Armenia, Kyrgyzstan, Uzbekistan are in a very poor condition. There are practically no major players in the markets of these countries, and online trading via Internet is less than 1%.

Advantages or differentiators

Our main advantage and difference from competitors is the novelty of approach to online e-commerce through a mobile application. We have created a mobile app that allows you to use your smartphone for sales automation. Lead magnet for the producer and the craftsman to apply Factory Price mobile application is our three main value propositions.
We provide all services for craftsmen and manufacturers and their representatives for free, and they are three main values among them:
1. Free marketplace in the form of a mobile application.
2. Free customers from regions of Kazakhstan and the EAEU countries.
3. Free shipment, which will be organized by Factory Price.
Besides there are additional convenience for sales:
a) Free marketing and advertising
b) QR of product for identification and tracking
c) SMART contract for each transaction, which can be downloaded in pdf format.
d) Secure payment - 100% prepayment to the escrow account in favor of the seller
e) The ease and convenience of loading the goods into the window: photo + description
f) Tracking of courier
g) Guaranteed delivery - we are responsible for the courier and reimburse the value of the goods in case of loss or damage
h) Data Analytics - we provide service on the level of competition, supply and demand on the market.

Finance

Financial modeling of economics for three years for the Kazakhstani market shows the following parameters (the average assumption with monthly with doubling conversion):
Entering the market in 2020 without a period of tolerance
2020 / USD 2021 / USD 2022 / USD
Income 409,000 6,576,000 23,750,000
Expenditure 956.000 4,593,000 430,000
Profit -547.000 1,983,000 23,320,000

Product entry into the market is scheduled for May 2020 as per marketing plan for recruiting participants of trading platform. Marketing costs and fixed costs for 1 year can make income of (-) 547 000 USD.

• FP product growth in the market of Kazakhstan, Russia and Belarus: Fixed and marketing expenses during the 2nd year - USD 4.5 million. The revenue - 6.5 million USD.

In subsequent years the profitability is as follows:

Net Margin - 2.17 million USD at the end of the 2nd year.
Net Margin - 23.655 million USD at the end of the 3rd years.

Business model

Business model
The buyer pays the seller for the ordered goods. Factory Price charges 0.7% commission for purchase price.
The buyer also pays the courier for the deliver and charges 5% commission of the delivery price.
Manufacturers and craftsmen trade with no commission.

Market: 2.5 million online customers (data per November 2018) in Kazakhstan.
Purchase cycle: 4 times in a year per customer.
Turnover: $ 660 million per year on trading the goods through the Internet.
Overall: 10 million online purchases per year.
Average check: $ 50.
Commission 0.7%: 0,35 USD.

Money will be spent on

List of project expenses:
1. Wage fund - 103 000 USD per year.
2. Office Materials - 3600 USD per year.
3. Office rent - 16 000 USD per year.
4. Reserve on the deposit - 50 000 USD per year.
5. Operating expenses for marketing and servers.

Offer for investor

We consider the investments to enter the market in the amount of USD 50 000 for the completion of product coding, hosting on a server and launch the product in the market of Kazakhstan.
The second phase of investment in the amount of USD 547 000 is to cover marketing costs and fixed expenses.

We can offer Investor up to 33% of shares in Factory Price company.

Risks

Risks Risk reduction
0.7% commission will not be sufficient to reach the income / expenses not accounted for the project - Reserve of growth up to 5%. This is the lowest world commission rate for marketplaces.

Low conversion will not set a critical mass of buyers - Strategy borrowed fr om AIR BnB on warming up of buyer at the expense of manufacturer, due to which the number of buyers will be doubled.

Team members can leave the project. Relations and expertise can be lost with their exit. - Granting shares annually on the basis of KPI. There are 4 founders, one of them is the is the idea founder. Co-founders get shares from projects annually based on an option to achieve KPI.

Bus factor - the founder disappears, that will stop the development of the project. - 4 founders and the business will not remain without the founder, as the functions are divided and delegated;

Motivation of staff to remain in the project and grow, to avoid staff turnover and keep trained specialists in the company - KPI and option for share of 0.1-0.7%, that provides to receive a percentage of profit before distribution.
There bonuses to staff are allocated up to 50% from net profit;
Illegal takeover of business by former officials of Kazakhstan which is common for Kazakhstan - Sale of shares to foreign investors in order to protect from illegal takeover;

Development and technical mistakes in the work that can slow down the development and receive bad reviews from users - Product launching in the Indian market and creation of the joint venture 60/40 with a company QW (India), that allow to meet errors in the Indian market 10 times faster and upgrade the product.

Private couriers (theft and damage goods while delivery) can create a financial burden on the product deposit and receipt of loss. - linking the rating of private courier to the value of goods and agreement to block the amount in his bank account for goods value above 50000KZT to minimize the risk of theft and damage;

Intermediaries register by deceit, pretending to be a manufacturer, respectively, to be on platform an intermediator. - manual verification of the manufacturer and check by agents in the region which will allow to fix such attempts;

Free return of goods cause an outflow of manufacturers and unwillingness to trade in the platform. - healthy competition and quality of the product by those who really create a high-quality product and, correspondingly, there will be products of good quality and it will add the trust of the customers;

Requirements for placement of photos and descriptions of the goods according to the law of Kazakhstan - Simplification and well-prepared application wh ere the loading of the digitized product takes less than 1 minute;

Big data and server capacity, the demand for data storage in Kazakhstan - Kazakh telecom can provide capacity of server / Digital Ocean / Oblako.kz and other resources are available in the market of Kazakhstan.

Major competitor and copying of service - We are the first in the market and got the base of manufacturers from NPE Atameken for quick start of the project and covering the greater part of the manufacturers;

Incubation/Acceleration programs accomplishment

MOST Incubator, FREE FUND, Academy of Trekkers.

Won the competition and other awards

Unicorn battle Almaty 2020 - 8 from 10.
Top 10 best startups 2019 - MOST incubator.

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Idea
Current Status
Market
Problem or Opportunity
Solution (product or service)
Competitors
Advantages or differentiators
Finance
Invested in previous rounds, $
Business model
Money will be spent on
Offer for investor
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Risks
Incubation/Acceleration programs accomplishment
Won the competition and other awards
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