Case 4 "SkinTique Corporation (STC)":
- gauging the marketing research results for the proposed package-sizes
- comparing the financial parameters of the present and proposed package-sizes
- reviewing STC's marketing system for opportunities & constraints of the new package-sizes
- perusing the forecasts for all offerings' combinations
- recommending viable strategies for choice of offerings' combinations
ANSWER EACH BULLETED POINT
On Friday, Januacy 5, 2003, Phoebe Masters, the newly appointed Product Manatger for hand and body lotions at Skin-Tique Corporation, was faced with her first decision one day after her promotion. She lad to decide whether to introduce a new package design for the company's Soft and Silky Shaving Gel. The major questions were whether a 51/2-ounce or a 10 -ounce acrosol container should be introduced and whether she shouid approve additional funds for a market test. Timing was critical because the incidence of women's shaving woud increase during the spring months and reach its peak during the summer months. NY AND THE PRODYCF Soft and Silky Shaving Gel is marketed by Skin-Tique Corporation, a manufacturer of women's personal-care products with saies of $225 million in 2002. The company's line of products includes facial creams, hand and body lotions, and a full liae of women's tolletries. Products are sold by drug and food-and-drug stores through rack jobbers. Rack jobbers are actually wholesalers thar set up and merchandise retail displays. They receive a margin of 20 percent off the sales price to retuilers. Soft and Silky Shaving Gel was introduced in the spring of 1988 . The product was viewed as a logical extension of the company's line of hand and body lotions and required few changes in packaging and maaufacturing. The unique dimension of the introduction was that Soft and Silky Shatving Gel was positioned as a high-quatiry women's shaving gel. The positioning strategy was successful in differentiating Soft and Sliky Shaving Gel from existing men's and women's shaving crecums and gels at the time. Moreover, rack jobbers were able to obtain product placement in the women's personatcare section of drug and foodanddrug stores, thus emplasiaing the producis positioning statement. Furthermorc, placement apart from men's slaving products minimized direct price comparisons with men's shaving creams, since Soft and Silky and Silky Shaving Gel from existing men's and women's shaving crezums and gels at the time. Moreover, rack jobbers were able to obtain product placement in the women's personal-care section of drug and food-and-drug stores, thus emplatsizing the produci's positioning statement. Furthermore, placement apart from men's shaving products minimized direct price comparisons with men's shaving creams, since Soft and Silky Shaving Gel was premium-priced-with a suggested retail price of $3.95 per 51/2-ounce tube. Retailers received a 40 percent margin on the suggested retail selling price. Soft and Silky Shaving Gel has been sold in a tube since its introduction. This packaging was adopted because the company did not have the technology to produce aerosol containers in 1988. Furthermore, the company's manufacturing policy was and continues to be to utilize existing production capacity whenever possible. As of early 2003, all products sold by the company were packaged in tubes, bottles, or jars. Soft and Silky Shaving Gel had been profitable from the time of its introduction. Although the market for women's shaving cream and gels was small, compared to men's shaving cream and geis, Soft and Silky's unique positioning lad created a customer frinchise," in the words of Heather Courtwright, the Soft and Silky brand assistant. "We have a unique product for the feminine woman who considers herself special." Soft and Silky Shaving Gel siles were $3,724,000 in 2002 with a 1,960,000 unit volume (see Exhibit 1 ). EX I B I T 1 Enfrand catlor Sharion ral Ynmome Statement for the Year Findino Market Size and Competitive Producis Industry sources estimate the U.S. dollar vulue of women's "wet shaving" products (female-positioned blades, nzors, and shaving creams and gels) to be about $400 million in 2002, at manufacturer's prices. Sales growth has been in the range of 3 to 5 percent per year since 1997. Razors and blades account for 72 percent of women's "wet shaving" products. Shaving creams and gels account for 28 percent of annual sales. Women spend, on avemge, $11.00 for mzors, blades, and shaving prepantions per year. Historically, women who used shaving cream or gels had few "women's-only" products to choose from. However, since 1997, a vibrant women's shaving cream and gel category has emerged due to new-product activity, increased advertising and promotion, and improved shaving technology. Some industry analysts pointed toward the introduction of Gillette's Sensor Razor for Women and the Gillette Venus Razor for Women as important growth stimulants. Other analysts cited improvements in the quality of shaving creams and gels for women and increased advertising. Until late 1993, onty two competitive products were normally available in the drug and foodand-drug stores served by Skin-Tique Corporation rack jobbers. These products were S. C. Johnson's Skintimate (formerty calied Soft Sense) and Soft Shave, at lotion sold by White Laboratories. By late 2002, several competing brands existed in the women's shaving cream or gel category, even though all were not stocked by stores that carried Soft and Silky Shaving Gel. Exhibit 3 shows representative brands, sizes, forms (cream, gel, lotion), and typical retail prices. Skin-Tique Corporation advertising and promotion for Soft and Silky Shaving Gel had responded to the increase in competition. Expenditures had increased each year since 1995, reaching 31 percent of sales in 2002 . EXHIBI' 3 Representative Women's Shaving Products EXH I B I 3 aseveral manufacturers also sold smaller 2. 2, and 2 ounce slzes designed for travel purposes. By 2002, the dominant packaging for women's shaving cream or gels had become the aerosol container. Only a few shaving geis and brands were sold in tubes or plastic botties, including Soft and Silky Shaving Gel, Soft Shave lotion, and Inverness UltraLubricating Shaving Gel. The idea for a new package design was provided by Masters' brand assistant, Heather Courtwright. She originally proposed the new package to Masters' predecessor in July' 2002. Her recommendation was based on four developments. First, unit sales volume for Soft and Silky Shaving Gel had slowed and then plateatied in recent years (see Exhibit 4). Second, the growth of Soft and Sitky Shaving Gel had stmined manufacturing capacity. In the past, production of Soft and Silky Shaving Gel bad been casily integrated into the firm's production scheduies. However, growth in the entire line of hand and body lotions, coupled with Soft and Silky Shaving Gel sales, had overburdened production capacity and scheduling. Moreover, inspection of shipping records indicated that the product's till rate (that is, Skin-Tique Corporation's ability to supply quantities requested by retailers) had dropped, leading to out-of-stock situations and lost sales. Third, the company had no manufacturing capacity expansion plans for the next three years. And linally, the aerosol packaging had become the dominant design for women's shaving creams and gels. Courtwright's observations prompted a preliminary study of outsourcing opportunities for a new package design. Her study included visits to several firms specializing in "contract filling" and requests for production proposals. A contract filler purchases cans, propellants, caps, and valves from a variety of sources and then assembies these components, including the product till (that is, shaving gei), into the tinal container. The production method is called pressure filling. In this method, the cap and valve are inserted in the can and then sealed. At the same time, a vacutm is cret ated in the container. The product fill and propellant are then injected under high pressure through the valve into the can. Her review of suppller proposals led her to choose one that was capabie of meeting production requirements and providing certain "value-added" features. For example, the chosen supplier could deliver a propellant with no chlorofluorocarbons (CFCs), which are harmful to the earth's ozone hiyer. Also, the container's bottom would be rustproof and leave no rust ring when wet. This feature was desired because most women shave in the bathtub or shower and tend to leave a wet can on the tub's porcelain, which can leave a rust stain. In addition, the supplier could produce and ship product directly from its manufacturing facility at a lower per unit cost than the tube container and was prepared to maintain an adequate safety stock of inventory. The only drawback in the supplier's proposal was that only 51/2 - and 10 -ounce containers could be produced without making significant and expensive changes in its equipment. The typical sizes for women's shaving creams and gels ranged from G-ounce to 10 -ounce containers. The estimated total cost of producing and delivering to jobbers a 10 -ounce aerosol can of shaving gel was $0.29. A minimum order of 100,00010 -ounce cans would be required. Courtwright believed the suggested retail price would be set at $4.25 per 10 -ounce can, reflecting Soft and Silky's premium-price strategy. The estimated total cost of producing and delivering to jobbers a 5121-ounce aerosol can of shaving gel was $0.24, and the suggested retail price would be $3.50. A 100,000 -unit minimum order would be required. Courtwright recognized that the price per ounce for the aerosol containers was lower than the equivalent price per ounce for the tube package. She said the lower price reflected competitive realities in the category: "The dominant players (S. C. Johnson and Gillette) are very price competitive. We can retain our relative premium image even at the lower prices. I fully expect some cannibalization of the tube will take place just as 1am confident the incremental volume will more than offset it." A one-time set-up charge for the Soft and Silky Shaving Gel production line and package graphics was $10,000, due and payable by Skin-Tique Corporation upon the signing of the supply agreement. This charge would be the same whether one or both sizes were produced. TESTS In November 2002, Courtwright received authorization from Masters' predecessor to spend $35,000 to assess consumer response to the proposed containcr. Her proposal was approved on the basis of the cost data provided and the recognition that use of a contract filler would require no incremental investment in company manufacturing cipacity. Courtwright commissioned a large marketing research firm to conduct four focus-group studies. Two focus groups would involve current users of Soft and Silliy Shaving Gel, and two focus groups would involve users of shaving creams and gels other than Soft and Silky Shaving Gel and soap and water users. The principal information sought from these focus group studies was as follows: 1. Are present customers and noncustomers receptive to the new package? 2. At what rate would present customers convert to the aerosol can, and would noncustomers switch over to Soft and Sillcy Shaving Gel? 3. Where, in drug and food-and-drug stores, would customers and noncustomers expect to find the aerosol can? -2. Is the suggested retail price acceptable? In addition, the marketing research firm was asked to examine analogous situations of package changes and report its findings. in late December 2002, the narketing research firm presented its findings to Courtwright, two days after Masters predecessor resigned to take a position with another company. There were six principal findings from the focus groups: 1. Customers and noncustomers were unanimously in favor of the aerosol can. The 10 -ounce cin was the fivorite, since it would require fewer purchases. Courtwright, two days after Masters' predecessor resigned to take a position with another company. There were six principal findings from the focus groups: 1. Customers and noncustomers were unanimously in favor of the acrosol can. The 10-ounce cin was the favorite, since it would require fewer purchases. 2. Twenty percent of Soft and Silky Shaving Gel customers said they would convert to the 10 -ounce can;25 percent said they would convert to the 51/2-ounce can. 3. One-fourth of the noncustomers said they would switch over to the aerosol can irrespective of can size. These consumers' preference for the aerosol over the tube package was their principal reason (in addition to price) for not buying Soft and Silky Shaving Gel previously. 4. Customers expected to find the aerosol can next to the tube container. Noncustomers expected to find the aerosol container stocked with women's toiletries. 5. The pricing was acceptable and actualiy favored by current customers. Noncustomers thought the suggested retail price was somewhat high, but liked the value-added features and would try the product. 6. Current Solt and Silky Shaving Gel customers are extremely loyal to the bmand. None of the brand's current customers had used a competing brand in the past two years. There was no evidence of such loyalty among noncustomers. In addition to these findings, the marketing research firm presented ten case histories in which marketers of men's shaving cream had introduced a new package. (There was no distinction made with respect to size of package, whether the package change was from aerosol to nonaerosol, or vice versa, or previous sales performance.) Two statistics were highlighted: first-year sales with the combined packages and the cannibalization rate for the existing package. According to the report, It is difficult to driw oneto-one comparisons between the experienee of other sitivan creaus and geis and that of Soft and Silky Shaving Gel, given its unique uurket position. We lave tried 10 do so after examining ten product-design changes. Our estimates [Exlibit 5] are broken down into a "high" and a "low" forecast for each package size. Seven out of the ten produces studled experienced the "high" situhtion presenteditiree experienced the "low" siruation. We see the 10 -ounce package as producing the largest increase in ounces sold. Even with the caunlbalism effect operating, we believe that an additional package will produce higher sales, in ounces, than the Soft and Silky Sbaving Gel forecasted volume of 10,745,174 ounces (1,953,668 51/2-ounce tubes) for 2003. Orly a market test can indicate what will actually occur. ING AND TEST MARKE? DECISION Courtwright presented the research firm's findings to Phoebe Masters on January 5 , 2003, one day after Masters became Product Manager for hand and body lotions. Masters listened attentively as Courtwright summarized the research findiogs and recommended that a market test be conducted to determine the best package size. E XHIB 1 T 5 Soft and Silky Shaving Gel Sales Forecasts by size and Type of Container Forecast B: Higb estimate for 51/2-ounce aerosol package addition Net new volume Total300,00011,044,174ounces2,445,174 Forecast B: Higb estimate for 51/2-ounce atrosol package addition 521-ounce tube packige volume 8,400,000 ounces 512-ounce aerosol package volume: Cannibalized volume Net new volume Forecast C : Low estinate for 10-ounce aerosol package addition 51/2-ounce tube package volume 9,000,000 ounces 10-ounce aerosol pickage volume: Cannibalized volume Net new volume Forecast D: Higb estimate for 10-ounce aerosol package addition 51/2-ounce tube package volume 9.600,000 ounces 10-ounce acrosol package volume: Cannibalized volume Net new volume \begin{tabular}{l} 1,145,174 \\ 1,500,000 \\ \hline \end{tabular} Total Courtwright's test-nuarket recommendation included a proposil to introduce the new package design in a limited cross-section of drug and food-and-cirug stores, including heavy-volume and low-volume stores, that presently carried Soft and Silky Shaving Gel. Test stores would be isolated geographically from nontest stores. The new package would be placed among women's toiletries, and the test would run for three months, beginning April 1, 2003. The April 1 start date was necessary to assure that adequate supply of the new package was avialable. One-hatf of the stores would carry the 51/2-ounce container, and the other half would carry the 10 -ounce container. The test would include a full complement of promotional aids, including newspiper ads and point-of-purchase disptays, and would approximate a full-scale introduction. Courtwright's estimated cost for the test market was $30,000, which inclucled the cost of gathering marketing research data on the cannibalization rate and incremental sales growth. In addition, the $10,000 supplier set-up clarge would have to be paid. However, Courtwright negotiated a 20,000 unit minimum order for eacls package size for the test markel. No other incremental costs would be charged aguinst the products. Sales and marketing efforts for the existing tube package would remain unchanged during the course of the test. Late in the evening of Friday, January 5, 2003, Masters found herself considering whether the 51 -ounce or the 10-ounce container should be introduced. She believed it unwise to introduce both sizes, given the uncertainty of market acceptance and packaging practices of most competitors. She also wondered whether Courtwright's test-market proposal should be adopted. Masters was confident that, given the product's sales history, the existing Soft and Silky Shaving Gel tube package would produce sales of 1,953,668 units (a .32 percent decrease from 2002) in 2003 if no new package was introduced. She was also confidene that a new package would simultaneously cannibalize the existing package and genemte incremental unit volume. Therefore, she knew that her decision on the package sizes and test market would have to focus on what was best for the Soft and Silky Shaving Gel product line, assuming an acrosol container would be marketed alongside the original tube contitiner. Masters also sensed that the new package had become a pet project for Courtwright. Courtwright had championed the idea for six months in addition to working on a variety of other assignments. Furtbermore, she had heard that
