Exam Answer Rondell Data Corporation

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Key Issues ? SWOT Analysis. Overall Brita is in a strong position. However, with emerging competition, new offerings, and evolving consumer tastes,

    HUID 305 4924 40 24 Marketing Final Exam Sunday, May 16, 2010 FINAL EXAM, MARKETING PLAN FOR THE


    Sunday, May 16, 2010


    Product Analysis

    ? Product History Brita is the market leader with around 83% of pitcher sales ($79m p.a.)

    and 75% ($116m p.a.) in filters in the clean water pitcher market; for provision of pitchers

    and associated filters in the US

? Company Strategy

    ? The company has built its position in the market over the proceeding decade by pursuing the st―Established in Class, 1 in mass, and alone in grocery strategy.‖ ? To retain its market leading position, it is essential it continue to attract first, lock-in and then

    retain customers in each segment.

    ? The value in this business derives mainly from the provision of the filters which go along

    with the pitchers with 80% of customers remaining after 5 years, and customers buying on

    average 4 filters each, the value of the a customer, once captured, and if they can be retained

    is substantial. Estimates of customer value, put the 10-year NPV of an average pitcher

    customer at around $32 (exhibit 1)

    Key Issues SWOT Analysis

    Overall Brita is in a strong position. However, with emerging competition, new offerings, and

    evolving consumer tastes, Brita needs to ensure that it’s brand and offerings are evolved to maintain the lead in this changing market

    Strengths: Weaknesses: ? Dominant player in pitcher market with ? Room for growth in core pitcher segment

    strong brand limited by dominant market position (83%

    share) and overall slowing growth (10%) ? Owns a large customer base; most value

    from business is from serving long term ? Existing channel relationships may not be

    customers with replacement filters suitable for faucet game ? Has taken ownership of the ―clean water‖ ? As result of brand, may be positioned as

    image and owns ―the waterfall‖ too expensive for newer consumers

    ? Established retail presence in high, ? Consumer tastes & preferences are

    medium, and low end channels changing. The established offering around

    ―clean water‖, may be difficult to migrate

    consumer perception to heath & bacteria

    filter issue; other players are moving to

    own this image Opportunities: Threats: ? Opportunity to leverage brand into ? Many new players entering the pitcher

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    HUID 305 4924 40 24 Marketing Final Exam Sunday, May 16, 2010

    market, prices dropping emerging segments, particularly faucet ? New player PUR about to be well funded segment which has started to take on (P&G acquisition) is moving to take significant mass leading position in growing faucet ? Potential opportunity to migrate existing

    segment; in turn threatens to cannibalize customer base to this higher value creating

    Brita’s pitcher sales product segment

    ? Opportunity to deepen existing customer

    relationships to reduce churn (e.g. take

    credit card numbers and automatically send

    replacement filters)



    ? The PRIME OBJECTIVE of Brita’s strategy must be to

    ? Retain the dominant, #1, and valuable position in the pitcher market

    1? Ensure that competitors don’t ―pick off‖ emerging niches (be it new tastes or the faucet

    market) and thus be pro-active about developing new products and evolving its

    brand image

    2? To grow, Brita must grow the entire market

    ? Brita’s must also — as the dominant player act in a way which ensures ―good

    industry conduct‖ – i.e. not pursue an over aggressive or price cutting approach so as to

    encourage value destruction

? Brita must manage its brand & produce mix as segment & consumer needs change, to

    ensure it can capture value in emerging segments; particularly faucets and heath.



    ? Brita should offer a faucet. This will bring the clean water benefits of the pitcher to the

    emerging segment of consumers who would like a faucet

    3? Brita should continue to sell its pitchers aggressively, gravitating towards mass market

    4channels and competiting on price, for the pitchers

1 And in doing so potentially dislodge Brita from its market leading position

    2 Given their dominant position, only this growth will lead to rapid growth in their core business

3 i.e. price discount

    Page 2 of 5

    HUID 305 4924 40 24 Marketing Final Exam Sunday, May 16, 2010 ? Furthermore, Brita should deepen its relationship with its existing pitcher customers, to

    reduce churn

Positioning & Target Market

    ? Given the increasing importance of the heath segment, Brita need to migrate its brand

    to cut across these two segments

    ? Its traditional mainly clean water focused purchasers. This is comprised

    5mainly of young people

    ? The increasingly important ―Health contaminants‖ worriers mainly 35 44

    year olds, whom Brita should try to target with their faucet offering

    Statement of this strategy in customer terms:

    ? ―I prefer Brita’s products because they are the market leaders, I can buy the

    replacement filters anywhere, and it delivers clean and healthy water


    ? Brita should price the faucet at $39.99, using MAP and sales promotions to effectively

    lower the in-store price during the promotion period.

    ? If price competition from PUR ensues, it should not lower prices immediately rather signal

    6its wish to keep prices high

    ? Brita should price the filters at around $6 more expensive than the pitcher filters. Filter

    price is a key driver of value, and there isn’t evidence that ―the odd dollar‖ on filters makes

    consumers change their purchase decision

    ? On the pitchers, the market is heating up, so pursuing a more aggressive pricing strategy, but

    still pricing at a premium to the competition is appropriate. However, once again Brita should

    not lower the price of filters significantly

    Justification for Strategy

    ? Customer preferences are changing, with heath becoming increasingly important

    Exhibit 4 illustrates this, as does the fax at the end of the case

? The Faucet Customers are more valuable

    ? An 10-year NPV based comparison of pitcher versus faucet customers (Exhibit 1),

    demonstrates that once captured making reasonable assumptions about customer retention

    and critically pricing of the filters faucet customers are more attractive in NPV terms, than

    pitcher customers ($32 versus $66 respectively)

? The Canabilization effect can be managed

4 Not the filters

    5 See exhibit 4

    6 It has time to do this, because the market is still relatively small, it can always cut prices later, and leverage its

    strength in distribution to ensure access to sales

    Page 3 of 5

HUID 305 4924 40 24 Marketing Final Exam Sunday, May 16, 2010

    ? Exhibit 2 an NPV based analysis of the implications of the ACNielsen-study

    demonstrates that although 7 of the 10 scenarios are expected to be NPV negative, scenario 5,

    6 & 9; entering the market with a low MAP, High promotion and High advertising are NPV

    positive moves

    ? This analysis also demonstrates the critical importance of ensuring good market conduct, and

    7signaling to competitors to keep prices high

    ? Offering a faucet makes strategic ―good sense‖ as a defensive move ? Entering the market now with an faucet offering will

    8? Make it harder for the PUR to fund its attack on the market

    ? Act as an ―insurance policy‖ against cannibalization of Brita’s core market

    ? Position Brita in a growth segment, and allow it to leverage the brand here to create value



    ? To migrate brand in pitcher market to address both heath conscious and traditional

    clean water consumer needs segments

    ? To leverage Brita’s brand to capture the #1 position in the faucet market ? To increase awareness of ease of purchasing filters to increase consumer key driver

    in overall customer lifetime value

    Details of Marketing Mix

    ? Focus on moving brand to cut across both heath and taste good segments

    ? Pursue a mixed media strategy to address both young pitcher purchases and older

    purchases of faucets.

    9? Faucet adverts should be mainly through in-store promotion

? Brita should pursue an integrated marketing mix, utilizing :

    ? High level of Customer Promotion and Trade Spending leveraging its current channel

    partners, and particularly the mass merchants

    10? High Consumer Advertising leveraging it’s core brand strength of healthy water, but

    also addressing the emerging issue of clean/bacterial filter e.g.

    ? ―Now with Brita, not only can you have clean spring water, as before, but coming

    straight from your tap like a mountain stream, our powerful new filters will

    remove even the worst that our cities can throw at you‖

7 Comparison of Scenario 9 versus Scenario 6; NPV of $5.4m versus $1.8m

    8 The increasing competitive intensity will certainly reduce the purchse price of their stock making it harder/more

    expensive for them to enter

    9 The test data from ACNeilson illustrated how effective this would be

    10 Using similar images from before to capitalize on their already established brand

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    HUID 305 4924 40 24 Marketing Final Exam Sunday, May 16, 2010 ? In-store adverts aimed at encouraging existing owners to change their filters

    ? Going direct would risk a channel conflict, so it is better to work with the stores to do


    ? Brita should also develop a channel partners in home DIY stores and kitchen stores,

    since Faucets will be more likely bought in these places, rather than its tradition outlets

    Pro-Forma P&L Statement & Budget

    ? Exhibit 3 contains a P&L pro-forma model. Two scenarios are included; that of a low

    growth facuet market, and a high growth.

    ? The model can also be used to carry out sensitivities around price competition.

    ? However, as the customer NPV model demonstrated (Exhibit 1), even in the face of price

    competition, providing Brita can keep filter prices at around $5 6 selling faucets will be

    NPV positive

    ? Brita should allocate $23m to consumer advertising, promotion and trade spending. It should

    12further allocate $2.8m to featured price reductions Contingency Plan

    ? When entering the Faucet market, Brita will need to careful not to encourage intense

    price competition

    ? It is also essential that Brita be successful in migrating its brand to cut across the heath

    space if evidence going forward is that the advertising approach has not succeeded in

    doing this, Brita should pursue an even more aggressive approach; this is the fastest growing

    segment, and it is essential that Brita’s stakes a position there

11 In any case, at 80% loyalty is pretty high already, so the economics of going direct would probably not make sense

    12 Consistent with scenario 9

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