BOOTS: HAIR-CARE SALES PROMOTION

HARVARD BUSINESS SCHOOL CASE

Contents

Situation. Questions. Hypothesis. Proof and Action. Alternatives. Summary.

SITUATION(1/5)

What is the Situation?(2/5)

Boots is professional hair-care line retalier developed in collaboration with United Kingdom’s top celebrity hairdressers.

Robinson has to select one of three promotional alternatives scheduled to run for a month starting December 1st during the Christmas season .

His primary objective was to drive sales volumes and trade-up consumers from lower-value brands, while retaining orbuilding brand equity.

Industry analysis(3/5)

Personal care Industry – Retail Hair care market

Competitor analysis(4/5)

Most major retailers carried a variety of professional and mass market hair-care brands.

The major competitors in the supermarket segment are Tesco, Sainsbury’s and Morrisons.

The major players in the at Drug Retailers segment are Boots and Superdrug.

Consumer analysis (5/5)

Research indiacted that U.K. consumers were not very brand loyal for following reasons: General belief that changing shampoo brands produced better results

than continually using a single brand. Second, trends in buying behaviour led to changing preferences. Third, it was difficult for consumers to identify meaningful differences

between the various brands available in any given store.

QUESTIONS(1/4)

What are Decision Options?(2/4)

The three decision options available in this case are described below : 1) “3 for 2” : This offer would enable consumers to buy two hair-care items at

regular price and receive one free as long as they are of same brand. Free item would be the one that was the least expensive of the three items selected.

GWP (Gift With Purchase) : In GWP, Consumers will be given a product sample for free along with a regular purchase.

On-pack Coupon (50p off) : This Conservative approach gave customers to redeem a coupon for getting 50p off on any product purchased during their store visit.

What are possible criteria?(3/4)

The possible criteria would be a perfect trade-off between the following:• Driving Sales volumes in the current season.• Trade up Current consumers from low-value

brands.• Maintaining Profits from the current promotions.• Secure market leadership in Hair care Retail

segment ultimately.

What are the most important criteria among them?(4/4)

As the promotional season lasts only for a month, most important criteria would be:

Driving sales volume up andIncreasing profits from the promotions.

HYPOTHESIS (1/5)

What is my Hypothesis? (2/5)

After careful analysis of the case and the exhibits at the end, I think the “3 for 2” would be the best option for the promotional strategy selection.

It is given in the case that, Average bottle size (shampoo/conditioner) was 250 millilitres (ml) — with an average pre-promotional price of £3.99. Industry average retail margins on premium brands averaged 40 per cent.

Mass-market brands had an average retail price of £2, with retailer margins of 25 per cent approximately.

The manufacturer’s typical margin was between 8 per cent to 12 per cent on their cost for both types of products.

Type of product

(A)

Offer type

(B)

Average pre-promotional price

(C)

Retailer Margin in per cent

(D)

Average Cost incurred per product(E) = (C) *{1-(D/100)}

Average cost incurred to boots for the items in offer. (F)

Price cons-umer Paid after the promotion

(G)

Profit per product(H)= {(G)-(F)}

Premium 3 for 2 3.99 40 2.39 7.17 (per 3)

7.98 (per 2)

+0.81

Mass Market

3 for 2 2.00 25 1.50 4.50 (per 3)

4.00 (per 2)

- 0.5

Premium GWP 3.99 40 2.39 2.39+0.9+ 0.03 =3.32

3.99 +0.67

Mass market

GWP 2.00 25 1.50 1.5+0.9+ 0.03 =2.43

2.00 -0.43

Premium 50p off 3.99 40 2.39 2.39 3.99-0.50 = 3.49

+1.10

Mass Market

50p off 2.00 25 1.50 1.50 2.0-0.50= 1.50

+0.00

All monetary terms are in Pounds and 1pound= 100 pence(p) TABLE 1

Few important criterion to be considered are(4/5)

Offer type Estimated Percentage increase in sales per day (when compared to pre-promotional period).

Approximate Percentage of sales to customers [who would not otherwise have purchased a haircareproduct from Boots during the promotional period].

3 for 2 300 60

Gift With Purchase (GWP)

170 40

50p off per product.

150 50

TABLE 2

It can be inferred from above table that(5/5)

For the 3 for 2 promotional strategy, If 100 units of hair care product were sold per day before the promotion, 300 bottles would be sold per day during the promotion (including the free bottles).

Similiar interpretation can be applied to the other promotional strategies GWP and 50p off too.

It means the overall profit will also get increased in each case.

Proof and Action(1/6)

Evidence for supporting Hypothesis (2/6)

The profit per product is 0.81£ in 3 for 2 promotion strategy. Per day profit= 300*0.81£ =243£ For total December= 243*31days =7533£ (considering consumers will go

for only premium products due to offer season.) Even if we consider there would be atleast one mass market product out of

3, the 300% percent increase in sales and 60% new consumer attraction would offset this.

Moreover, the firm has an advantage of pioneering technology which keeps the competitors from copying the strategy and this proves to be a huge advantage for Boots.

Evidence for supporting Hypothesis(3/6)

The profit per product is 0.67£ in Gift with purchase promotion strategy. Per day profit= 170*0.67£ =113.9£ For total December= 113.9*31days =3531£ (considering consumers will

go for only premium products due to offer season.) In this case if more number the consumers go for mass market

products(43p loss per product), it can push the firm into losses as there is no rule regarding least expensive product as in case of 3 for 2 option.

Although it may bring in 40% new customers, This strategy can be easily copied by competitors.

Evidence for supporting Hypothesis(4/6)

The profit per product is 1.10 £ in 50p coupon off promotion strategy. Per day profit= 150*1.1£ =165£ For total December= 165*31days =5115£ (considering consumers will go

for only premium products due to offer season.) In this case even if more number the consumers go for mass market

products(0p loss per product), there is no chance of the retailer going into loss but it may result in decrease of profit.

Although it may bring in 50% new customers, This strategy can be easily copied by competitors

Additional Evidence required(5/6)

The additional evidence required is the estimation of the percentage of mass market products that can be sold along with the premium products – to have a clear and concrete estimate of the profit.

It is given that the manufacturer’s typical margin was between 8 per cent to 12 per cent on their cost for both types of products- premium and mass market. Since Boots manufacture some brands of its reatailing products as private label we can not get a correct estimate of profits due to lack of information regarding the same

Action plan (6/6)

The action plan is a program in which actions are taken at certain point of time due to reason. It is not a mere To-Do list.

After calculating estimated profits and analyzing market share potential, The preference order of the implementing the 3 stratagies would be:

1) 3 for 2 strategy. 2) 50p off coupon. 3) Gift with purchase. With its technological expertise, Boots should implement the 3 for 2 strategy as soon as possible and reap the early benefits and build its brand equity.This strategy also helps in consumers to try the new products and trade up the market.

Alternatives (1/2)

What are the Alternatives? (2/2)

The greatest weakness of my hypothesis is calculating estimated profits focusing only premium brands, ignoring the losses induced by mass-market products.

The strongest alternative is going with the 50p off coupon strategy because it makes us sure that there will be no losses whatever may be the percentage mix of premium and mass-market products sold.

Sources

en.wikipedia.org m.boots.com leadlifter.com forthemommas.com disjointedthinking.jeffhughes.ca blogs.uab.cat healingcuisinebyelise.blogspot.com thecryptocrew.com

Summary

Contents. Situation. Questions. Hypothesis. Proof and Action. Alternatives.

Created by Fayaz Ahamad, NIT Jamshedpur under the guidance of Marketing Professor Sameer Mathur, IIM LUCKNOW

DISCLAIMER