XYZ Oil Developers Inc., has developed a new type of alternative fuel. Our product, Alterfuel, joins the ranks of other alternative fuels, such as propane or LPG, natural gas, hydrogen, methanol, ethanol and biodiesel. XYZ recognizes the need for fuel economy as the light truck industry continues to grow. Energy consumption should be on the minds of all consumers, but we chose to target those who drive vans and sports utility vehicles, the biggest users of gasoline fuel.
Since February this year, XYZ has been testing the reception of Alterfuel in the states of California and Oregon. Future research facilities are proposed for Texas and Connecticut in the late 2001 and 2002, respectively. Reception of Alterfuel has been very encouraging, especially within our marketing segment of car owners who drive sports utility vehicles. Therefore, we are launching a full scale marketing plan of distribution, promotion and pricing.
We have chosen selective distribution as our method of distributing Alterfuel, since currently our alternative fuel is only marketed in California and Oregon. Consumers can purchase Alterfuel at specific fuel stations under a cooperative agreement with XYZ. There are 100 stations offering Alterfuel in California and 55 stations selling our product in Oregon. The product characteristics such as the complexity and training may be a factor in distribution. Under our agreement with the fuel stations, sales people undergo three weeks of training at our main facility in Zenia, California. There they learn some of the technical aspects of Alterfuel so that they may answer the questions of the consumer. There are also brochures and a 1-800 customer information number that sales people can give the consumer if they have any further questions.
1. by emphasizing Alterfuel's low nitrous oxide emission
2. by invoking the passion of long economical family road vacations and outings
3. by targeting the consumer's duty to help in environmental cleanliness.
We have chosen not to do wide-scale personal selling. Consumers can contact us through the 1-800 customer information number.
XYZ hopes to accomplish public relations through press releases and our annual reports. At the onset of major developments, press releases are published in major business newspapers in California and Oregon, as well as on our corporate web site, http://www.xyzdevelopers.com. XYZ annual report for the year 2000 will be released on January 31, 2001. Our constituents are constantly in contact with senators and representatives in Washington, lobbying for federal funds toward more alternative fuel development and marketing. Some positive publicity was welcomed when XYZ was commended for helping the state of California begin to meet the Federal vehicle emissions standards by as early as 2001. Additionally, Oregon Office of Energy commended XYZ for helping the state reach it's goal of reducing the state's reliance on oil and reducing the pollution, congestion, and other costs associated with vehicle travel.
We hope that sales promotion will stimulate the purchase of Alterfuel. At this time our sales promotion tactic includes a delayed value where by consumers receive a federal and state tax credits for using alternative fuel and the state of California and Oregon . The high pressure tank that must be installed on cars before using Alterfuel is refundable through a federal tax credit. Future sales promotions under consideration include a sweepstakes offered to Alterfuel consumers .
XYZ knows that determining the right price for Alterfuel is important. We have estimated the breakeven amount and determined that the pricing strategy of skimming and penetration best suits our needs at this time. Since we have little active wide-scale competition in this market, we have set the price point of Alterfuel relatively high. Presently, the breakeven amount covers fixed costs as well as variable costs. Alterfuel is currently being sold at an average price of $2.67 to $2.99 per gallon.
We believe Alterfuel adds customer value because its benefits outweigh the cost of obtaining it. The cost of the high pressure tank at $1500 and the price at the pump of $2.99 per gallon are significantly more at the onset than using gasoline. However, in the future Alterfuel could help cut oil imports by two billion barrels per year, saving $1.2 trillion at $30 per barrel of oil. We only want to do our part in helping our target market as well as all consumers realize these fuel efficiency savings as well as the benefits of a cleaner environment.