Acqualisa

1. Is this a good product?

Simply a Better Shower

Segments

a) Market over viewb) Quartzc) Analysisc) Approachd) Learning

Shower Market overview

Product Variants

a) Electric: No need for hot water supply. Bulky box. Low flat rate. • Gainsborough-- ( 95 pounds to 230 pounds)

b) Mixer Shower: Require hot and cold water supply. Additional pump for pressure. Excavation required for installation.• Acqua valve-- ( 390 pounds to 715 pounds)

c) Power shower: Require hot and cold water supply. Additional pump for pressure. Less reliable than mixer shower• Acqua stream --( 480 to 670 pounds)

Channels

a) Trade Shops: Carried all brands Sold to plumbers who worked for developer, showroom, contractors and end customers. Acqualisa was stocked in 40% of outlets. Focus on selling brand/product asked for by the customer

b) Showrooms: Distributors supplied to showroom. Stocked and sold high-end thru a consultative process to end customers– selling solutions. Installation offered to customers thru plumbers. 2000 showrooms in UK– 25% stocked Acqualisa

c) DIY sheds: Discount, mass market , DIY products Electric showers preferred choice– cheaper and easier to retrofit. Acqua lisa not available thru this channel but Gainsborough was available in 70% of outlets

d) Plumbers: 10000 master plumbers after several years of master training and apprenticeship. Shortage of plumbers in UK.• Standard shower requiring excavation took 2 days to install.• Plumbers charged 40 pounds to 80 pounds per hour and did 40 to 50 installs in

a year• Plumber sold material plus service at a small mark up. Break up not known to

customers• Wary of unfamiliar products – problems in installation and could triggger

complaints• Distrusted innovation

Acqualisa

• Differentiated products for different customer segmentso Acqua- Premiumo Showermax– Customised product for developero Gainsborough– Price proposition for DIY buyers

• Makes it easy for customer to identify relevant brand and select.• Competitive pitching• Price to product value proposition clearly understood

Customer Segments for showers

a) Premium– Shopped in showrooms. High performance and service is a hygiene requirement. Key consideration -- Style

b) Standard– Performance and service key. Independent plumber to recommend or select product

c) Value Segment– Convenience and Price. Minimum developmental work. Independent plumber to select product

d) Do it Yourself (DIY)segment: Shopped from large retail outlets. Easy to install , inexpensive models ( products were bulky and unattractive. Electric showers -preferred choice for the segment

e) Property developer market: Price – sensitive except for the premium/luxury builders. Independent plumbers installed selected product. Shower-max -- which was a stripped down version ( did not need high pressure elements) sold thru specialised contract outlets was the preferred product

Birth of Quartz

Birth of Quartz

a) Historically premium brand – number 2 in mixing valves and number 3 overallb) Acqualisa Slipping; Competitors catching up; perception it is overpriced and service

was dropping.10% of product defectsc) Priority to build R&D.d) Market research indicated that

Customers were looking for Good looks/good pressure/ease to use and reliable Plumber- Easy to install, No break-down product; no servicing

e) Product developed with electronics innovation Need for mechanism that will mix water remotely--- eliminate excavation and

facilitated good looks. Flexi-pressure Flexi- temperature Radically different

f) The research effort thru a state of art facility had 9 patents, Several products in pipeline and more ideas in early development stage

Birth of Quartz

g) Quartz came in 2 variants– standard ( where pump was already available and Quartz Pumped shower.

h) Processor located away from unit. Minimum excavation.I) Installation in half of day as against 2 days. Plumbers Raved about the ease of

installation and time saved– ‘Push-fit-connect- done’II) Consumer: Efficient and reliable water pressure and temperature. One touch

control. Easy to use. Set to desired temperature and light to guide . No need to keep fiddling with controls. Customer experience – Wow

Product that solved all the problems for a BETTER shower experience

Initial result

• Acqualisa had 20 sales executives who sold to distributors, trade shops, showrooms, developers and plumbers

• Had direct relationship with a group of plumbers– loyal to Acqua• First 4 months – only 81 units sold and channel was sitting on huge

inventory• Need to be selling 100 to 200 per day to break thru mainstream• Main problem– Plumber was wary of innovation – ( past issues with

innovation).• Didn’t want to take a chance and risk failures• Is quartz a niche or mainstream product?• Deficiencies in existing products is the rationale for Quartz??

Acqualisa

1. How important a product is Quartz to Acqualisa? Importance to Harry?2. Is this product worth the investment of 5.8 million pounds

Acqualisa

1. How important a product is Quartz to Acqualisa? Importance to Harry?2. Is this product worth the investment of 5.8 million pounds

Product innovation that promised to change the market FOREVER Technologically miles ahead

Water pressure ( without gravity) Easy to install Easy to use Outstanding design Great value

The R&D effort has created a good pipeline of great products. The break thru product justifies the investment on its own steam but it has also paved the way for more exciting products to come

Acqualisa

• Is quartz a niche product or a mainstream product?

Acqualisa

• On the face of it appears niche– Milk quartz for margin• Sometimes the urge to protect existing brands/range can blind us

to the opportunity• Quartz has the potential to cut across segments by offering VALUE

with its break-thru product.• Making it niche will limit what the product can do the brand and

company• It can create a HUGE lead over competition if positioned as

mainstream. • Pitch at a higher price?• Create Value perception even if priced higher?

Acqualisa

1. How does it create value• For customer

o Looks and design o Pressure and temperatureo Low TOTAL costo Low Maintenance cost

• For Plumber?o Quick installationo Trouble free

Acqualisa

Why is it not selling?• Existing showers plagued with problems ( Pressure and temperature)• Quartz Vastly Superior and yet not selling

Resistance from plumbers– suspicious of innovation Trade inertia Upfront higher price– value not understood

Acqualisa

1. How do the channels differ? Which Channel is most likely to embrace Quartz Which consumer shops from which channel? Which customer segment is most likely to accept/prefer quartz

Acqualisa

1. Who are the critical players in the shower market?

Acqualisa1. Plumber influences about 75% of all sales and are involved in 54% of installs of

mixer shower.2. Loyal to product– may be not to company3. Does not want to experiment or take chances

Brand Channel Customer Segment

Gainsborough DIY sheds ( 70% presence) DIY/value buyerr

Distributor Showroom Premium buyer

Acquaisa 25% presence 20% mixer installs

Trade shops Master plumber Standard or value buyer

Shower max Developer

wo pump 20% of mixer installs

New home buyer

Acqualisa

1. Economic Value of Quartz

Acqualisa

1. Economic Value of Quartz

Without Quartz Figs in EurosAcqua valve 609 715Acquaforce pump 520Two days labour charge 960Total cost 2195

With Quartz Figs in EurosQuartz Pumped 1080.5 days work 240Total cost 1320

Acqualisa

1. Is it worth converting a plumber---- given his resistance to innovation2. What is the lifetime value of converting a plumber

Acqualisa

1. What is the life time value of converting a consumer

Life time value of plumber Number of installs per uear 50

Contribution from each shower ( pounds) 310Total value per year 15500

Value from a plumber over 5 years 77500

Acqualisa

• What should Rawlinson do to generate sales momentum for Quartz?

o Should he change his marketing strategy and target customers directly or target the developers or the DIY retail outlets?

o Should he lower the price?o Or something different altogether?

Where to start

Option 1• Target customer. Spend another 3 to 4 million pounds and generate customer pull

Option 2• Target DIY market pitching the easy to install proposition

Option 3• To target Developers—High volume channel

Option 4• Position in the niche premium segment

Where to start

Option 1- Target customer—Spend another 3 to 4 million pounds • Economically risky and inefficient .

Option 2- DIY market • pitching the easy to install proposition—• But should a premium product be positioned for discount channel• Or can one sustain a higher price even in this segment with the value offered?Option 3- Target Developers—• High volume channel and break-thru with a view developers can provide volume break thru• Downside: Time lag in customers experiencing the product and this will allow competition to catch up. Also sell premium product at steep discount didn’t seem rightOption 4• Sell niche as premium??• But niche implies LOW leveraging of product that transforms the user experience !!

Where to start

None of the 3 options actually seem to be attractive…..• So what to do?•

Where to start

• Plumbers move across the channel and are primary gatekeepers.• As they play a key installation role , they are best placed to advise customers and

accelerate adoption• Launch a service support program to reassure plumbers that Acqua will directly

service any issue that may come upo Thru Own service team or outsourced ( retained) plumbers Or even have a

program where the plumber is mapped to accounts installed by him and any service is directed to him for a FEE paid by Acqua

• Launch an recommend and install incentive for plumber.• Launch plumber education program

Where to start

a) The only channel with the ability to showcase the end product to customers and also exert pressure on plumbers is the SHOWROOM channel

• Showroom will help o Educate customerso WEAN/WIN early adopterso Convert plumberso Extract maximum value for the producto Support the brand stand as an innovator

Learning from the case

• It is easy to sell a great product

Learning from the case

• Myth 1 Its easy to sell a great product• Not Always

o Value is in Customer’s mindo Sometimes Customer does not realize the value immediatelyo Perception and Behaviour is entrenchedo Value is not always a rational cost-benefit analysiso Sunk cost. o Changeover timeo Eco-system not being developed can ALSO be a key factor–

complementary/adjunct/associated products not being available or being expensive

Learning from the case

Corollary• Its tough to sell a bad product. Not necessarily• Expectation– with competition--- Quality improves, price drops, customer

decides and opts for the best• However need to take into account the following at-least in the short-term

o Inertia/Complacency/ imperfect informationo Lack of killer instinct amongst competitors

Learning from the case

• Myth 2:Brand equity equals brand powero Is brand equity fungible ( trade can be traded)o Does it translate to or does it spell power

Learning from the case

• Acqua is unable to cash in on its equity• Tata has not been able to transfer its brand power to Telecom• Customers do not EVEN upgrade within the scale /continuum of their

preferred brand.• Brand Loyalty sometimes is on a very narrow plank.

o Maruti Alto to i-10

Learning from the case

• Myth 3: Innovations tend to spread-out linearly.o Early adopters followed by mainstream laggards

• Sometimes innovation can spread in a HUB and spoke fashion with each spoke then becoming a center and sending out its own ripple

• In Acqualisa case this role is played by the plumber who is touching /migrating across the various channel members. They are not opinion leaders or early adopters . If anything they are rigid

• They are the most invested in the system with the least incentive to change.

• Sometime people cling on to inferior technologies paralyzed by the fear of change or lacking in vision of what the new can offer

Learning from the case

• Myth 4: The easiest way to go is the best way to go

Long term connect

• DIY plan and Developer plan offer marketing efficiencies • But it does not connect with the larger strategic challenge faced by the

company--- which is to evolve as an innovation driven enterprise• What does it take to transform an organization• What is sustainable in the long term• Stronger foundation for a skyscraper--- sometimes need to invest in

building organizational competencies

Acqualisa

1. Is this a good product?

Thank You