Soft and Silky Shaving Gel

Problem

The Product Manager, Phoebe Masters, at Ms.-Tique Corporation must decide if and how the company will introduce an aerosol can package for its Soft and Silky Shaving Gel, including a determination of product size (5.5 or 10 oz.) and location (personal care or toiletries). Furthermore, the manager needs to decide if a test market is necessary to evaluate the new packaging.

Strategic Issues

Product Ð'- Soft and Silky Shaving Gel (SSSG), a women's shaving product that contains moisturizers, is currently packaged in a 5.5 oz. plastic tube and is located in the women's personal-care section of drug and food-and-drug stores. Most competitors (men and women shaving products) package their products in aerosol cans and offer them in the toiletry section. SSSG product life cycle has reached a mature phase.

Promotion Ð'- SSSG is positioned and promoted as a "higher-end" shaving product. This is evidenced by the location within stores and the price.

Price Ð'- SSSG is premium-priced at $3.95 for a 5.5 oz. tube, or $0.72 per ounce. The average price of representative competitors is approximately $0.51 per ounce.

Physical Distribution Ð'- Rack jobbers place SSSG in stores. Retailers receive a 40% margin on the retail price and rack jobbers receive 20% of the wholesale price.

Alternatives and Analysis

Alternatives are listed in the table below. A product contribution analysis is described in Appendix 1. It is assumed that the retailers and rack jobbers will receive the same margins, regardless of package type and location of product placement within the store. The sales forecast data used for the analysis is presented in Appendix 2. An alternative description, projected sales volumes and proforma income statement for each alternative are presented in Appendix 3.

Alternative Pros Cons

1. Do Nothing

Continue to offer only the 5.5 oz. tube in the personal care section Ð'* Possibly maintain loyalty among existing customers

Ð'* 5.5 oz. tube has highest contribution margin per ounce Ð'* Continue to lose sales as product matures, especially to aerosol products

Ð'* Retain production capacity that could be used by other products

2. New Customer Target Strategy

Offer the 10 oz. can in the toiletry section and the 5.5 oz. tube in the personal care section a Ð'* Minimize cannibalization by having new package in different part of store

Ð'* Maximize new customers since they prefer the larger size

Ð'* Larger size package may cause customers to dispense more product per use, increase overall volume Ð'* Product is priced competitively with non-premium aerosol competitors. Run risk of losing premium image

3. Existing Customer Conversion Strategy

Offer the 5.5 oz. can and the 5.5 oz. tube in the personal care section b Ð'* 5.5 oz. can has a moderate per oz. contribution ($0.31)

Ð'* Maintain "premium" image since it will remain in personal care section

Ð'* Existing customers will not be lured away by aerosol products Ð'* High cannibalization of existing, high contribution per oz. product

Ð'* Low adoption by new customers since it is not in expected section

4. Combo Strategy

Offer the 10 oz. can in the toiletry section and both the 5.5 oz. tube and 5.5 oz. can in the personal care section c Ð'* Overall shift to customer-preferred aerosol package

Ð'* Offer customers multiple size choices Ð'* Cause confusion on product location

Ð'* Cause confusion on product identity, whether it is a premium product or not

Ð'* Highest cannibalization of existing product (45%) c

Ð'* Lowest forecasted sales revenue (see App 3)

a. Alternative #2 uses Forecast D since it represents the lower cannibalization rate and higher new sales volume.

b. Alternative #3 uses Forecast B since it represents the higher cannibalization rate and lower new sales volume.

c. Alternative #4 uses the cannibalization rate determined directly from the focus group (25% for 5.5 oz., 20% for 10 oz.) and the new sales volume in Forecasts A and C, since these represent a conservative estimate for new sale volume for this situation (new customers will use either the 5.5 oz. or 10 oz.., but not both).

Recommendation

Alternative 2 is the suggested recommendation. An aerosol package should be introduced for Softy and Silky shaving Gel since a sizable portion of customers demand it, current product life is maturing, in-house production capacity of tube configuration is limited, and the unit cost and per ounce cost for the aerosol product is lower than the tube packaging. The 10 oz. aerosol can should be offered in the toiletry section of stores along side competitor brand. This product will be competitively prices at $0.43 per ounce and will be located in a section of the store where new customers expect it to be. Also, it is reasonable to believe that customers will use slightly more product per application if they are dispensing it from a large container (10 oz. versus 5.5 oz.), thus potentially increasing sales volume. The 5.5 oz. tube should continue to be offered in the personal care section of the store since existing customers are extremely loyal to this product and expect to find it there. By continuing to offer the tube configuration in a different section of the store from the aerosol can, the product may retain its premium image. Furthermore, the 5.5 oz. tube maintains the highest per ounce contribution and offering it side-by-side with the aerosol can would allow for easier price comparison. With this strategy, there will be low relative cannibalization of the 5.5 oz. tube and high adoption of the 10 oz. aerosol can by non-customers. Of the four alternatives, this one will provide the highest brand contribution (>$40,000 over the existing package strategy). The promotional efforts for the introduction of the 10 oz. can should avoid drawing existing customers