Transcript
Hair-Care Sales Promotion
• Started in 1815 by John Boot as a herbal remedy shop in Nottingham.
• His son took over the business and christened it ‘Boots and Company limited.
• Riding on the post war industrialization wave, Boots expanded rapidly into neighboring areas and started diversifying.
To Today
But Boots homegrown brands in collaboration with top designers faced stiff competition in the premium hair product market from the likes of:
Boots felt it did not maximize profits from these brands and thus emerged the core problem of our case, maximize profit while gaining market share and maintaining premium image.
• Major competitors in the premium segment – P&G, L'Oréal Paris and Alberto-Culver.
• Major retail competitors: Tesco – 1800 stores Sainsbury’s – 700 stores Morrison's – 400 stores Superdrug – 700 stores
COMPETITION
• Large number of brands with no brand enjoying market share in excess of 9%.
• Less brand loyalty due to consumer beliefs and changing preferences and meaningful product differentiation.
• Premium brands mainly purchased by fashion conscious women in the 20-35 age group.
• More than 85% women population walked through Boots stores every week.
Advertising v/s Sales Promotion • In the competitive hair care market; market share was directly proportional to amount of advertising.
• No budget was allocated for special advertising of Boots’ hair care products.
• Hence, sales promotion was the only strategy available for the marketers as a mass marketing strategy.
Three sales promotion strategies were proposed – ‘3 for 2’ ‘Gift with Purchase’ ‘On-Pack Coupon’
Some calculations first
Average Prices(/250ml):Shampoo - 4.75 £Conditioner - 5.00 £Gel - 7.50 £
Young, fashionable women were the target. But how many were there? And how many would visit Boots to buy their hair products?
Percentage of urban Population
Assume:• Mainly urban women
would buy such premium products
• The market share of such products is directly proportional to the number of stores it is sold in.
• 250 ml shampoo lasts for two weeks.
• Conditioner is used twice as often as shampoo.
• Gel is used at a quarter rate of shampoo use.
Number of urban females (20-35) - 5.135 million
Number of stores selling premium hair care - 4900
Number of Boots’ stores - 1300
Average time of replacement of Shampoo(250ml) - 14 days
Average time of replacement of Conditioner(250ml) - 7 days
Average time of replacement of Gel(250ml) - 56 days
Boots sales(per day) = (No. of target consumers) * (1300/4900) / (Average time of replacement in days)
Boots average pre-promotional sales per day
Shampoo - 100000 unitsConditioner - 200000 units
Gel - 25000 units
Item Average Pre-Promotional
Price
Average Profit per Unit
Shampoo 4.5 £ 1.8 £Conditioner 5 £ 2 £
Gel 7.5 £ 3 £
Average margins for premium products were 40% of the final price
Shampoo; 180000
Con-di-
tioner; 400000
Gel; 75000
Profit/day
Sales 0
50000
100000
150000
200000
250000
300000
350000
Sales/day
Shampoo Conditioner Gel
Total profits – 655,000 £
Total sales – 325,000
Which of the three sales promotion strategies to use?
Let’s briefly analyze them one by one
Strategy Summary:• Choosing any three products from the
same sub-brand and paying only for the two costlier ones.
• Sales increase to 300% of the pre-promotional sales with 60% of the total coming from consumer who wouldn’t have bought the products without promotion.
Without Promotion
With Promotion
0 100000 200000 300000 400000 500000 600000 700000
Sales Per Day
Gel Conditioner Shampoo
Strategy PayoffSince conditioner to shampoo usage ratio is 2:1; the predominant cluster sales under the 3 for 2 scheme would come from customers buying 2 conditioners and getting the shampoo for free.
Profit on one cluster(shampoo+2 conditioner) = (2+2) – (2.7) = 1.3 £.
Profits = (300000)*(1.3 £) +(75000)*(3 £) = 615,000 £Units sold = 975,000New consumers exposed to products = 225,000
Strategy Summary:• Attaching a small sample of
complimentary product with the actual product.
• Average cost at 93p per attachment.• Sales would increase to 170% of the pre-
promotion sales with 40% of the final sales coming from people who wouldn’t have purchased a hair care product from Boots.
Pre-Promotion Sales
Promotion Sales
0 50000 100000 150000 200000 250000 300000 350000 400000
Sales With and without GWP offer
Gel Conditioner Shampoo
Strategy PayoffProfits from shampoo - 1.8*(170,000) = 306,000 £
Profits from Conditioner - 2*(340,000) = 680,000 £
Profits from Gel - 3*(42,500) = 127,500 £
Promotion Cost - (0.93)*552,500 = 513,825 £
Net Profits - 599,675 £
Total Sales - 552,500 ; New Consumers attracted - 220,800
Strategy Summary:• 50 p coupon on all products redeemable
during current store visit.• Heavy promotions by other brands of the
same type.• Sales increase to 150% of non-
promotional sales and 50% of these would have come from customers who wouldn’t have purchased a Boots hair-product otherwise.
Pre-Promotional Sales
Promotion Sales
0 50000 100000 150000 200000 250000 300000 350000
Chart Title
Gel Conditioner Shampoo
Strategy PayoffProfits from Shampoo - (1.8)*(150,000) = 270,000 £
Profits from Conditioner - (2)*(300000) = 600,000 £
Profits from Gel - (3)*(37500) = 112,500 £
Promotion Costs - (487,500)*(0.5) = 243,750 £
Net Profits - 738,750 £
Total products sold - 487,500Products sold to new customers – 243,750
No Promotion 3 For 2 GWP On-Pack Coupon0
200000
400000
600000
800000
1000000
1200000
Final Sales
Shampoo Conditioner Gel Total
No Promotion 3 For 2 GWP On-Pack Coupon0
100000
200000
300000
400000
500000
600000
700000
800000
Final Profits after accounting for Promotional Costs
Shampoo Conditioner Gel Total
No Promotion 3 For 2 GWP On-Pack Coupon0
100000
200000
300000
400000
500000
600000
0
225000 220800243750
325000
375000
552500
487500
Customers Attracted
New Customers Attracted Total Customers
The GWP strategy attracts more customers and the On-Pack coupon strategy attracts more new, possibly one time users whereas the 3 for 2 strategy generates the highest absolute amount of sales.
Short term profit wise, On-Pack coupon is the most profitable followed by 3 for 2. Long term equity is built more by the 3 for 2 strategy as more number of quality items are being sampled.
Secure market leadership Ensure profitable promotions Maintain and enhance the professional
hair care brands.‘3 for 2’ satisfies all the above requirements whereas 50p coupon may dilute the brand equity and GWP cannot sell as many products as to secure market leadership. So I would employ the ‘3 for 2’ strategy as a promotion strategy
DISCLAIMERCreated by Aasish Gudi as a part of a marketing internship under Professor Sameer Mathur, Indian Institute of Management Lucknow.
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