Brita Products

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The case questions are at the end of this document -we suggest that you read them first.

Purchased in 1987, a decade later Brita had become one of Clorox's biggest brands, spearheading the growth of a home water filtration industry in the U.S. Brita's system relied on pitchers that would filter and then dispense tap water. More than 17 million Brita pitchers had been sold, and each pitcher sale started a stream of filter sales. The Brita brand was generating close to $200 million in revenues a year.

Now a small competitor, PUR, was launching a major new campaign to support its filter system that screwed directly onto water faucets, rather than relying upon pitchers. Brita had developed its own faucet-mounted filter, but decision makers were debating whether or not to launch it and risk cannibalizing sales of Brita pitchers. Some argued the PUR filter was going to disrupt the current business and Brita had no choice but to respond; others argued that the faucet-mounted filters appealed to a different segment of consumers and the two technologies could exist side-by-side. A third group argued that Brita needed to spend to protect its installed base and associated filter revenue stream; any money spent on promoting a faucet-mounted filter would just weaken the pitcher business.

The Brita pour-through filtration system comprised a two-compartment pitcher and a replaceable filter. Tap water, poured into the upper compartment, flowed via gravity through the filter into the lower compartment, filling it in about five minutes. Filtered water could then be poured out of the pitcher as consumers needed it. The filter reduced chlorine, sediment and odors, heavy metals such as lead and mercury, as well as temporary water hardness (calcium and magnesium).Filtered water tasted better, did not deposit scale when boiled, and was free of any harmful heavy metals. The pitcher system was sold with a single filter in place. Filters required replacement every four months or after filtering 40 gallons of water. Brita provided stickers to help users track when a replacement filter was needed, and consumer research found that users bought 3 filters per year, on average. Long-term results suggested that 80% of pitcher buyers were still using the product a year later and Brita expected that rate would persist over time; many users were telling others about it and giving it as gifts.

By 1999, an estimated 13-15% of the 103 million households in the U.S. were using a Brita pitcher. Brita used the term "systems" to refer to pitchers and faucet-mounted units and "filters" for the replacement filters. Brita's share of the combined system and filter markets had been steady in the range of 65%-75% from 1995-1999. Annual pitcher sales had grown substantially since introduction in 1989, but now appeared to be flattening. In 1998, Brita sold just over 5.2 million pitcher systems and 27.4 million pitcher filters, and spent just under $50 million on advertising and promotions. In 1998, PUR held just 8% the pitcher system units sold, but had grown from a 4% share the previous year.

During the 1990s, consumers had become increasingly concerned about the safety of tap water in the U.S, and grocery store sales of bottled water had grown rapidly. By 1997, bottled water made up 8% of all liquids people drank and was the beverage industry's fastest-growing category. That year, 45% of households bought still (non-carbonated) water in supermarkets; the average price paid was about $1/gallon container.

A 1999 survey found that 72% of all respondents and 89% of young adults voiced some concern about the quality of their household's water supply. A majority of households used either bottled water or some water purification system; the number of households taking no precautions declined from 47% in 1995 to 35% in 1999.

The average retail price of a pitcher with one filter (a pitcher system) was $25.00. Brita paid $8.00 per unit for the pitcher systems; a filter by itself cost Brita $2.00 per unit. At the $15.00 price Brita charged retailers in 1999, pitcher systems earned a contribution of $7.00 per unit. Replacement filters retailed to consumers at $8.00 and Brita sold these to retailers at $4.00, earning a contribution of $2.00 per unit.

The bottled water industry had been built with reference to health, but Brita's advertising in the U.S. emphasized the taste benefits of the system and filter. Research had shown that when Brita focused on taste, consumers also made inferences regarding health benefits. But when they focused on health, consumers did not make taste inferences. In addition, Clorox didn't want competitors to claim they had overtaken Brita with respect to health. They worried if Brita focused, for example, on removing 93% of a contaminant, someone else could claim to take out 95% and pre-empt their position. Brita's advertising was pure and simple, showing mountain streams, waterfalls and the outdoors, and promising clear, crisp, refreshing water.

Brita's success attracted competitors in droves, but none had succeeded in challenging Brita's leadership. In 1999, the only competitor with substantial market share was PUR, which in addition to water filters, made a line of portable drinking water systems for outdoor enthusiasts and desalinators for marine and military use. Recently several competitors had launched new products that took health and safety positions in reaction to Brita's taste appeal. Most significantly, PUR announced a plan to spend $40 million in advertising and promotion to support its line of faucet-mounted and pitcher filters, including $15 million for PUR Plus, a new pitcher system touted as the most technologically advanced removal of contaminants to date. The promotional program would begin with an infomercial running on national cable television for 6 months, followed by a schedule of 30-second TV spots on cable and network TV. PUR's pitcher was considerably more expensive than Brita's standard product.

The Faucet-Mounted Filter Entry

Faucet-mounted filtration systems were not new to the market, but Brita had historically expressed little interest in such systems. However, there seemed to be a growing segment of consumers interested in faucet-mounted systems and PUR was clearly indicating interest in growing this business. Faucet-mounted system sales had grown from just over 600,000 units in 1994 to 1.3 million in 1998; PUR held a 75% market share of the faucet-mounted system market.

Functionally, water from a pitcher was different than faucet-mounted filtered water. The pitcher could be stored in refrigerators, making pitcher water cold while faucet water was not. Only pitcher filters could remove scale deposits from water. Pitcher filtered water tasted crisper, with lower Ph. But water passed through faucet-mounted filters at higher pressure, so finer filters could be used that could screen for micro-organisms.

Were these differences significant to consumers? Did Brita stand for good tasting water, for safer water, or for a way to obtain the water? The Brita team debated whether faucet mount systems would be perceived as another way to deliver Brita water. Pitcher water was primarily used for drinking and therefore was a direct substitute for bottled water. However, faucet filtered water could be used for drinking or for cooking, which made the direct cost savings compared to bottled water difficult for consumers to evaluate. Perhaps consumers would decide that the faucet-mounted filter delivered something quite different, perhaps so different that some might consider it a good idea to own both a pitcher and a faucet mount. Would consumers want both to be branded Brita? Conversations with the retail trade revealed a distinct preference for carrying the faucet mount under the Brita name.

Brita's faucet mount system included a faucet mount with a filter that was designed to be replaced with use. Pitcher filters could not be used in faucet mounts. Brita's direct cost for the faucet mount was estimated to be $15 and the direct cost of a replacement faucet filter would be $3.00. Brita was considering selling a faucet-mounted system to the retailer at $22.00. Brita expected to sell replacement faucet filters to the retailer at $6.00; the expected retail price to end consumers per filter would be $10.00.

Brita consumer research suggested that a typical faucet filter consumer would use 60 gallons for drinking, and the remaining 40 gallons for other uses in the home. Brita's consumer research had indicated that consumers would be likely to buy 1.5 replacement faucet-mount filters per year. Research also suggested that like pitcher users, 80% of faucet buyers would continue to use the product a year later and that rate would persist over time.

Would a faucet mount cannibalize pitcher and pitcher filter sales? Perhaps, some speculated, the pitcher was a starter product, and customers who had since gone back to drinking tap water would graduate to the more convenient and sophisticated faucet unit. Some wondered if the faucet system would appeal to consumers not currently using the pitcher system. Clorox commissioned a simulated test market from ACNielsen Vantis.

In this study, 567 respondents, characterized as "water involved" were intercepted in eight U.S. markets, and brought to one of three rooms containing simulated retail store shelves and then asked to choose from a display of water filtration systems. Each room displayed 10 products currently available in the market at their real average retail price. In addition, two rooms displayed a prototype Brita Faucet Filter System, one priced at $35.00 and one priced at $30.00. This room also displayed print ads for Brita and PUR faucet-mounted filters. The third room had no Brita Faucet Filter System on display.

Results found that the faucet filter increased the likelihood of buying a product from the Brita line, but did not increase interest in the category as a whole, so that the combined pitcher and faucet-mounted market was not expected to expand. About 50% of the Brita pitcher owners who bought the faucet filter system indicated they would continue to use the pitcher system in conjunction with the faucet product; the other 50% indicated they would use the faucet system rather than a Brita pitcher.

Both Brita and PUR's faucet filters were perceived by respondents to be superior to the Brita pitcher in removing contaminants and convenience, but only the Brita faucet filter was perceived to improve the water's taste.Unit sales and perceptions of value for the Brita filter were strong at both the $35.00 and $30.00 price points.The study projected that unit sales of the faucet mount in its first year would be between 350,000 and 1,350,000 units. Whether sales would be at the high or low end of the estimate depended on the price and on Brita's investments in consumer advertising and promotion.

Launch Scenario	Recommended Retail Price	Consumer Promotion & Advertising Spend	First Year Unit Sales Faucet Mount System Forecast
1	$35.00	$15 Million	350,000
2	$30.00	$25 Million	1,160,000

The Brita team was ready to discuss how to take the brand forward. A big decision is whether to continue to focus on the pitcher market or whether to enter the faucet mounts market. In the background, there were rumors swirling around that Procter and Gamble, the world's largest consumer products company, was about to close a deal for control of PUR.

Household water quality (% of respondents)

	1995	1997	1999
Expressed any concern	75	75	72
Expressed Concerns re: Health Contaminants in Water	54	50	48
Expressed Concerns re: Water Aesthetics (Smell, Taste, Appearance, etc.)	55	58	61

Use of water treatment device

(% of respondents; respondents could use more than one type of device)

	1995	1997	1999
No device used	47	41	35
Bottled water	36	37	38
System (type of system below)	27	32	38
Table top pitcher	5	12	16
System on faucet	9	11	11
Whole house system	10	7	8
Softener	10	9	8

Case Questions

Please clearly analyze the company's course of action:

Start with a strategic analysis (C⁵/5Cs), being sure to discuss implications (and the Cs relative importance), rather than just listing case facts. (25 points total)