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 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 SSSG is positioned and promoted as a "higher-end" shaving product. This is evidenced by the location within stores and the price. Price 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 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
1. Do Nothing
Continue to offer only the 5.5 oz. tube in the personal care section
Possibly maintain loyalty among existing customers
5.5 oz. tube has highest contribution margin per ounce
Continue to lose sales as product matures, especially to aerosol products
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
Minimize cannibalization by having new package in different part of store
Maximize new customers since they prefer the larger size
Larger size package may cause customers to dispense more product per use, increase overall volume
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
5.5 oz. can has a moderate per oz. contribution ($0.31)
Maintain "premium" image since it will remain in personal care section
Existing customers will not be lured away by aerosol products
High cannibalization of existing, high contribution per oz. product
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
Overall shift to customer-preferred aerosol package
Offer customers multiple size choices
Cause confusion on product location
Cause confusion on product identity, whether it is a premium product or not
Highest cannibalization of existing product (45%) c
Lowest forecasted sales revenue (see App 3)
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...
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