marketing presentation 2, 5, 12, 27

Gillette IndonesiaGillette Indonesia

Harkesh Bansal (5)

Lehar Ajwani (2)

Mehul Jain (12)

Puneet Vyas (27)

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Break-Even Analyses for GilletteBreak-Even Analyses for GilletteTotal and Incremental Break-Even Unit Volumes Gillette Indonesia

Total Fixed Cost $6,266,000TBEV = -------------------------------- = ----------------- = 77,358,024 blades.

Average Unit Contribution $.081

where

Total Fixed Cost* is: Advertising $2,169,000 = 9% of $24,100,000Consumer promotions and merchandising 723,000 = 3% of $24,100,000General sales and administrative costs 3,374,000 = 14% of $24,100,000Total Fixed Cost $6,266,000

Average Unit Contribution is $.081. Other Average Unit Contributions of interest are given below along with their incremental BE volumes per $1 million in added fixed cost.

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Break-Even Analyses for GilletteBreak-Even Analyses for Gillette

Total and Incremental Break-Even Unit Volumes Gillette Indonesia...Average Unit Contribution is $.081 for Allan's original plan. Other Average Unit Contributions of interest are given below along with their incremental BE volumes per $1 million in added fixed cost.

Double-edgeDisposablesSystems

Double-edge

Blades Only

Dispos-able Blades

Only

System Blades Only

2005 Product

Mix

2006 Product

Mix

"Malaysia" Product

Mix

"Australia" Product

Mix

100% 0% 0% 87% 79% 70% 20%

0% 100% 0% 4% 7% 5% 50%

0% 0% 100% 9% 13% 25% 30%

Overall Average (Mfr.) Unit Selling Price

$ .103 $ .238 $ .560 $ .150 $ .171 $ .224 $ .308

Overall Average Unit Contribution (%)

50% 36% 48% 49% 48% 49% 42%

Overall Average Unit Contribution ($)

$ .051 $ .090 $ .268 $ .072 $ .081 $ .107 $ .136

IBEV for $1 Million (millions of blades)

19.6 11.1 3.7 13.9 12.3 9.3 7.4

IBEV for $1 Million (millions of new users @

9.5 blades/year)

2.1 1.2 0.4 1.5 1.3 1.0 0.8

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Chain Model Analysis for GilletteChain Model Analysis for GilletteThe Urban Adult Male Segment for Gillette Blades

Annual Segment Value = Number of Customers Value Per Customer

= 12,800,000 $.70 = $8,960,000where

Number of Customers = Population(adults) Segment Size(%) Segment Penetration(%),

= 40,000,000 . 8 .4 = 12,800,000 blade users

Value Per Customer = Usage Rate(per customer) ´ Unit Price($) ´ Unit Contribution(%),

= 9.5 ´ $.15 ´ .49 = $.70

Population is 40,000,000 urban males over 18 years old, Segment Size is the percentage of shavers, 80%,

Segment Penetration is the percentage of shavers who use blades 40% (i.e., 20% always use and 20% sometimes use blades),

Usage Rate is 9.5 blades per year (15/year for those that always use and 4/year for those who sometimes use, because the two types are equal in size we use the simple average, (15+4)/2), and

Unit Price is $.15 and Unit Contribution is 49%

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Chain Model Analysis for GilletteChain Model Analysis for GilletteThe Urban Adult Male Segment for Gillette Blades

Annual Segment Value = Number of Customers Value Per Customer

= 12,800,000 $.70 = $8,960,000where

Number of Customers = Population(adults) Segment Size(%) Segment Penetration(%),

= 40,000,000 . 8 .4 = 12,800,000 blade users

Value Per Customer = Usage Rate(per customer) ´ Unit Price($) ´ Unit Contribution(%),

= 9.5 ´ $.15 ´ .49 = $.70...

Note that Segment Volume is simply 12,800,000 9.5 = 121,600,000 blades. We can compute the total size of the Indonesian market as Gillette Volume (2005) / Gillette Market Share (2005) = 115,000,000 / .48 = 239,600,000 blades per year. Thus, the unit volume for all other segments combined (i.e., rural males, males 18 and under, and Indonesian women) is 239,600,000 - 121,600,000 = 118,000,000. Finally, we know that urban males shave 5.5 times per month or 66 time per year. Because they use 9.5 blades per year, we can also compute usage rate as 9.5 / 66 = .144 blades per shave, or blades are replaced approximately every 7 shaves.

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2005 2006 Disposables andSystems Acquisitions:

10 M 18 M17 M blades -------------- = 1.13 M customers15 blades/yr.

Cost = 1/3 of 12% of $24.1 = $.96M

5 M 10 M Cost/Customer = $.96 M / 1.13 M = $.85

Double-Edge Acquisitions:

22M blades -------------- = 5.50M customers4 blades/yr.

Cost = 1/3 of 12% of $24.1 = $.96M100 M 108 M

Cost/Customer = $.96M / 5.50M = $.17

Retentions:

136 M blades -------------- = 14.32 M customers9.5 blades/yr.

Cost = 1/3 of 12% of $24.1 + 14% of $24.1 = $4.34 M

Cost/Customer = $4.34 M / 14.32 M = $.30

Non-shavers, knife-users, and

purchasers of competitors' blades

Gillette Double-Edge blade user (4 blades/year)

Gillette Double-Edge blade user (15 blades/year)

Gillette Disposable blade user

(15 blades/year)

Gillette System blade user

(15 blades/year)

22 M

?? M

9 M 4 M

4 M

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Break-Even Analyses for GilletteBreak-Even Analyses for GilletteSpending $1 million to “Trade Up” Double-edge Users to Disposables or Systems

Incremental Expenditures $1,000,000IBEV for Disposables = -------------------------------- = ----------------- = 25,641,027 blades.

Unit Contribution $.039

Incremental Expenditures $1,000,00IBEV for Systems = -------------------------------- = ----------------- = 4,608,295 blades.

Unit Contribution $.217

where

Incremental Expenditures are $1,000,000 and

Unit Contribution is $.090 - $.051 = $.217 for systems. It is important to note the Unit Contribution for “trade up” volume (in which units of one product are replaced by units of another, i.e., 100% cannibalization) is the difference between the old unit contribution and the new (higher) unit contribution.

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How About Sampling Disposables?How About Sampling Disposables?

MSP $.238

UC - .090

COGS $.148

So: $1M Expenditure.148

And: CM/yr = 15 uses .090 = $1.35

$1M1.35

740,740 converts6.75 samples

= 6.75 M samples

= 740,740 converts, or

= 11.7% conversion rate

9

Lifetime Value of the Customer:Gillette Double-Edge BladesLifetime Value of the Customer:Gillette Double-Edge Blades

Year 1 Year 2 Year 3 Year 4 Year 5 Formula1 Acquisition cost per customer 0.17$ -$ -$ -$ -$ input data2 Retention cost per customer 0.30$ 0.30$ 0.30$ 0.30$ 0.30$ input data3 Usage rate per customer 4.0 8.0 15.0 15.0 15.0 input data4 Unit contribution 0.05$ 0.05$ 0.05$ 0.05$ 0.05$ input data5 Unit contribution per customer 0.20$ 0.40$ 0.75$ 0.75$ 0.75$ [3] x [4]

6 Net contribution per customer (0.27)$ 0.10$ 0.45$ 0.45$ 0.45$ [5]t - [1]t - [2]t 7 Annual retention rate n.a. 65% 90% 90% 90% input data

8 Cumulative retention rate 100% 65.0% 58.5% 52.7% 47.4% [7]t x [8]t-1

9 Expected customer value* (0.27)$ 0.07$ 0.26$ 0.24$ 0.21$ [8]t x [6]t

10Five-year extended LTVC (undiscounted) 0.51$ [9]t

$(0.30)

$(0.20)

$(0.10)

$-

$0.10

$0.20

$0.30

Year 1 Year 2 Year 3 Year 4 Year 5

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Lifetime Value of the Customer:Gillette Disposable BladesLifetime Value of the Customer:Gillette Disposable Blades


6 Net contribution per customer 0.20$ 1.05$ 1.05$ 1.05$ 1.05$ [5]t - [1]t - [2]t 7 Annual retention rate n.a. 25% 50% 90% 90% input data


9 Expected customer value* 0.20$ 0.26$ 0.13$ 0.12$ 0.11$ [8]t x [6]t


$-

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30


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Lifetime Value of the Customer:Gillette Systems BladesLifetime Value of the Customer:Gillette Systems Blades


6 Net contribution per customer 2.90$ 3.75$ 3.75$ 3.75$ 3.75$ [5]t - [1]t - [2]t 7 Annual retention rate n.a. 75% 85% 90% 90% input data


9 Expected customer value* 2.90$ 2.81$ 2.39$ 2.15$ 1.94$ [8]t x [6]t


$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50


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Gillette Summary:The Marketing Decision ProcessGillette Summary:The Marketing Decision Process

Corporate Capabilities and CultureCustomer and Market AnalysisCompetitive AnalysisCollaboratorsContextSWOT AnalysisObjectivesAlternative StrategiesEvaluations and RecommendationsMarketing Mix Elements:

ProductPricePlacePromotion

Forecasting and BudgetingMeasures of Effectiveness

SituationAnalysis

ActionPlans

Implementation& Evaluation

4 C’s

Strategy

4 P’s

ProfitabilityAnalysis

Global Marketing Planning MatrixGlobal Marketing Planning MatrixADAPTATION STANDARDIZATION

FULL PARTIAL PARTIAL FULLBUSINESS FUNCTIONS

Research & Development Nestlè Coca-ColaFinance & Accounting Nestlè Coca-ColaManufacturing Nestlè Coca-ColaProcurement Nestlè Coca-ColaMarketing Nestlè Coca-Cola

PRODUCTS Low cultural grounding: High economies or efficienciesLow cultural grounding: Low economies or efficienciesHigh cultural grounding: High economies or efficienciesHigh cultural grounding: Low economies or efficiencies

MARKETINGMIX

Product design Nestlè Coca-ColaBrand name Nestlè Coca-ColaProduct positioning Nestlè Coca-ColaPackaging Coca-Cola

& NestlèAdvertising theme Nestlè Coca-ColaPricing Nestlè Nestlè Coca-ColaAdvertising copy Nestlè Coca-ColaDistribution Nestlè Coca-ColaSales promotion Nestlè Coca-ColaCustomer service Nestlè Coca-Cola

COUNTRIES Country A Nestlè Coca-ColaCountry B Nestlè Coca-ColaCountry C Nestlè Coca-ColaCountry D Nestlè Coca-ColaCountry E Nestlè Coca-Cola

Nestlè

Coca-Cola

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Gillette Indonesia SummaryGillette Indonesia Summary

What happened:

1. Gillette invested "aggressively" in both media and trade activities. All international divisions participated in World Cup tie-ins.

2. By 1997, Gillette had a 90% of the Indonesian market; once consumers traded up, they seldom switched back...

3. ... however, the market "disappeared" almost instantly in the summer of 1998 due to the Asian financial crisis. At that point most consumers switched back to lower priced blades or stopped shaving. At one point Gillette stopped shipping to Indonesia.

4. Globally, Gillette is very strong; however, they have encountered strong competition in some major markets (e.g., initially Wilkinson in India).

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Gillette Indonesia SummaryGillette Indonesia Summary

Gillette provides a useful (and realistically complex) example of:

1. the marketing decision process (4Cs, alternative plans, 4Ps) and the evaluation of marketing plans

2. the importance of identifying key sources of unit volume and profitability using key conceptual and quantitative tools (e.g., models of customer decision making, LTVC, margin analysis, break-even analysis, chain models, etc.)

3. the relationship between segmentation and managing brand growth

4. and more recently, the interactions between controllable (e.g., marketing actions) and uncontrollable forces (e.g., Asian financial crisis of 1998)

THANK YOU!!!THANK YOU!!!

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marketing presentation 2, 5, 12, 27

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