FIGURE 5. TWENTY-SEVEN MOST TORNADO-PRONE STATES
Approximately 92% of all tornadoes occur in twenty-seven states, as indicated in Figure 5, with a total population of over 163 million. While the residents of these states are potentially SDT customers, only the residents of tornado-prone cities with relatively large metropolitan populations are identified as the initial market, based on the network concept which is to be initially implemented. These cities are located within the states already identified, as shown in Figure 6, and contain approximately 47 million residents, with an average population per city of in excess of 1.1 million. Based on an average household size of 2.64 persons, the number of households or residences in this average city would be approximately 420,000. Each such household or residence would represent a potential customer for the SDT network. Each city represents the potential site for a SDT network. The size of the network would depend upon the size of the metropolitan area. The average such area covers 2856 square miles. Based on a coverage area of 100 square miles for each Mole, for the average tornado-prone city approximately twenty-nine Moles would be required.
Because of recent natural catastrophes the public’s awareness of the threat posed by tornadoes is generally increasing. In addition, the current false alarm rate of 80% for NWS tornado warnings over large regions is creating doubts in the public’s mind about how seriously to accept such warnings, and how rapidly to take appropriate action. At the present time there is no automatic means for determining where and when a tornado has touched down. These are perhaps the most important matters of concern for the occupants of an individual household or residence. The SDT system uniquely fills the void by providing such information with a low false alarm rate (less than 5%) for a specific region which is actually threatened by a tornado. The cost of the homeowner unit or Owl would be $55, plus a annual charge of $45 to subscribe to the warning
FIGURE 5. TWENTY-SEVEN MOST TORNADO-PRONE STATES
FIGURE 6. FORTY-TWO MOST TORNADO PRONE REGIONS
service. These costs are much smaller than the cost of a home security system which can initially cost several hundred to several thousand dollars. Furthermore, the annual subscription fee of $45 for the SDT system is roughly equal to the monthly fee charged by home security systems companies. From this standpoint, the SDT costs to the general public can be seen to be quite reasonable.
A useful analogy exists between home security systems and the SDT alarm system. In residential areas with high crime rates the demand of home security system has steadily increased. Likewise, in tornado-prone regions an ever-increasing demand for the SDT alarm system should occur.
The 163 million residents in the 27 tornado-prone states identified in Figure 5 correspond to approximately 62 million households or residences. Ultimately, each of these households or residences represent a potential customer but initially the 18 million households in the 42 most tornado-prone cities are the primary market. In each such city, market penetration of 5% would be sufficient to sustain a profitable operation. The basic strategy is to start with one such city and expand to others. Two plans for growth have been formulated.
In the first plan, which is more aggressive, each year the number of cites doubles. If VorTek starts with one city the first year, followed by two more the second year, and four more the third, etc., in six years the Company would be operating in all 42 regions. If a 10% market penetration is achieved in each city the Company would be serving a total of 1.8 million customers. Because of an ongoing need to fabricate and install an ever-increasing number of SDT networks, this plan should achieve maximum profits in the shortest period of time but will tend to require more capital and will also necessitate highly skilled management to deal with the rapid buildup of personnel and facilities.
The second plan, which is more conservative, would call for a more gradual buildup with no more than five new networks per year. Such a plan would require ten years to reach all 42 regions and would achieve a slower buildup of profits, but it would require less capital and would allow a more orderly expansion of company personnel and facilities.
As the Company gains confidence in controlling the cost and performance of the SDT network, however, additional tornado-prone regions with smaller populations will be targeted. With the introduction of future products such as the Mole-Owl combination, the Company’s customer base will grow to encompass the more rural areas of the 27 tornado-prone states, which would ultimately result in a total of more than 3 million customers, based on a 10% market penetration.
No product is currently available, which represents direct competition to VorTek. In the tornado home safety market the Tornado Alert System produced by TAS, Inc. of Muscle Shoals, Alabama, represents indirect competition. This system, which retails for $119, is designed to detect tornadoes based on the acoustic signal and has a range of up to 2 miles. The installation and testing of the system are the responsibility of the customers, and this arrangement appears to represent a significant problem in maintaining customer confidence and satisfaction. The installation process involves attaching a microphone near the highest point on the exterior wall facing the direction from which tornadoes are most likely to approach. A hole must be drilled through this exterior wall and the microphone must be connected to the alarm device installed within the house by means of a wire passing through the hole. The testing process involve two people with a "quality cassette tape player", which is used to generate the sound of a tornado, as contained on a cassette tape, provided by TAS. Because of the possibility of false alarms the customer is advised not to activate the system except when under a Tornado Watch. Currently no wide-scale marketing effort exists for the Tornado Alert System and it can only be purchased through its web catalog site at Consumer Direct. Because of its limited range, coupled with its false alarm problem, the TAS product does not appear to represent major competition to the SDT product.
Aside from the TAS, other, indirect competition would come from the Weather radio, consisting of three models: 1) the "cube" for $20 which turns on the radio during an alert but has no alarm; 2) the standard Weather Alert radio with alarm for $40; and 3) the programmable Weather Alert radio for $80 that allows users to dial in the counties for which they want to be alerted, using the NWS Specific Area Message Encoder (SAME). These weather radios are not restricted to tornadoes and, as a result, sound an alarm for every thunderstorm watch or warning, as well as for tornado watches or warnings. As a result, based on current false alarm rates, the weather radio will sound at least five tornado alarms for every tornado that touches down and likewise will sound an even larger number of thunderstorm alarms. Both the tornadoes and thunderstorms may be located more than fifty miles from the user. For these reasons, sooner or later the user, in most cases, will turn off the radio to get a good night’s sleep.
Additional indirect competition would come from other products, such as HomeAlert, which is based on NWS and FEMA warnings. The sale price of HomeAlert is $69.90. Because of the large number of different emergencies (hurricane, forest fires, floods, tornadoes, and chemical spills) which can activate this system, it suffers from the same problem already noted for WeatherAlert radios.