South-Western - Management  
Two Entrepreneurs Persuaded Wal-Mart to Give Their Pen a Tryout—Now the Hard Part,…
Topic Entrepreneurism
Key Words Entrepreneurism, viral marketing, business niche, growth strategy
News Story

Colin Roche conceived of the PenAgain concept in 1987 when he was tired of his hand cramping up during a writing assignment in high school detention. A prototype he built became the catalyst for his business, which achieved nearly $2 million in sales last year.

When Colin Roche and his business partner, Bobby Ronsse, persuaded Wal-Mart to give the pens a test run in their stores, the two thought the hard part of getting their business off the ground was over. In truth, their toughest challenge may be just beginning. The pair has 30 days to prove that their pen can sell in Wal-Mart stores. Their product has been rolled out to 500 stores and featured on end cap displays. 85% of the 48,000 pens will need to sell if the product is to be considered for wider distribution throughout the chain

Roche is lucky he got a chance to try his luck at Wal-Mart. There are about 10,000 suppliers selling their goods in Wal-Marts world-wide and an equal number of newcomers trying to get in every year. Of the applicants, only about 2% or 200, will make it to the trial-run stage. While about 75% of those that make it to the stage will stay on past the trial period, they won't move to new locations unless sales are excellent.

Surviving the trial period means that many entrepreneurs must shift into marketing mode to drive customers to buy their product. Price is another concern. The price for the PenAgain model at Wal-Mart is $3.76, compared with $6.49 at Amazon.com and almost $12 at specialty retailers. The company owners worry that they will feel the backlash from their original customers when the low price at Wal-Mart is discovered.

The PenAgain entrepreneurs cannot afford traditional print or TV advertising, so they are planning to market virally, using their fraternity contacts and e-mail addresses of people who regularly buy their pens, among them doctors and patients for whom the ergonomic design of the pen has a lot of appeal.

The ergonomics niche is hot right now in the writing-instrument industry, as aging baby boomers face carpal tunnel syndrome and arthritis. The PenAgain's wishbone design allows users to rest the weight of their hand between the two prongs, and doesn't require the tight grip of a traditional stick-shaped pen. The pen has been tested and approved by occupational therapists and physicians, many of whom sell it in their offices.

Scott Koerner, Vice President of Merchandising for Office Depot saw the pen at his eye doctor's office and noted on return visits that it was sold out. Starting next month, Office Depot will feature the pen in their stores as well, selling it for $3.99.

Wal-Mart packing and shipping requirements are very stringent and regimented, requiring the entrepreneurs to scramble to meet the requirements. Timing is a tricky issue too. The PenAgain pens are manufactured in China, and Wal-Mart does not give a lot of advance notice for orders, so production had to be ramped up to meet demand ahead of time. Shipping labels also must have specific data, including purchase-order numbers and distribution center details. PenAgain didn't have time to have these labels printed in China, so they ended up adding the data themselves when the shipment got to California, three sleepless weeks before the shipment was due in stores.

The company owners are excited about what lies ahead for their business in the next 30 days. They are hoping for success with Wal-Mart, which they estimate will double their business profits this year. They also hope to maintain their relationships with small businesses. Only time will tell if their venture will be a continued success.

Questions
1.

Now that entrepreneurs Colin Roche and Bobby Ronsse have sold their product idea, the PenAgain, to Wal-Mart for a test run, what challenges do they need to overcome before they have the potential for successful distribution with the company in the future?

2.

Explain how Wal-Mart uses its bargaining power of buyers to negotiate such a low price on the PenAgain.

3.

Complete a brief SWOT analysis of the PenAgain product and its chances of success in the marketplace. Be prepared to discuss your analysis in class.

Source “Two Entrepreneurs Persuaded Wal-Mart to Give Their Pen a Tryout—Now the Hard Part,” Wall Street Journal, May 30, 2006, page B1.
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