A CASE STUDY

Who Are Boots?

One Of The Most Respected Retail Names In The UK

Sells Health And Beauty Products

Also Owns Global Differentiated Brands In The Self-Medication

Market

Early Days(1849-1884)Started by John Boot in the year 1949as the British And American Botanic Establishment as a shop for herbal remedies.His son took over the shop after his death and in the year 1883 established it as a private company called Boot And Company Limited.

Post War Regeneration(1945-1968)

Opened a new power house, printing works and a new pharmaceutical

research building as part of new development plans.

Also started a new cosmetic manufacturing plant in 1949

and adopted a new logo.

The Modern Era(1968-)Launched a cosmetic brand called 17 in 1968,

aimed at teenagers.Introduced analgesic Ibuprofen in 1969 which

was launchedas an OTC brand Nurofen in 1983. Introduced

new servicesincluding opticians, insurance, dentistry,

chiropody and internet services. Stores were established in

Ireland, Thailand and Taiwan.

The SituationIt’s early November 2004 and Dave Robinson, an

employee of Boots, a beauty and healthcare company, is planning his sales promotion strategy for

a line of professional hair care products.Has to choose one of three available options: 1) get three for the price of two, 2)receive a gift with the purchase & 3)an on-pack coupon worth 50 pence Choices made will have immediate effect on both

sales and costs as well as long-term implications for the brands involved

Primary objective of the strategy is to drive sales volumes as well as to trade customers from lower-

value brands while retaining brand equity

MID ‘90sMid 90s dominated by national brands like Pantene, Alberto-Culver and L’Oreal.

All of them easily available at retailers like and supermarkets like Tesco, Sainsbury’s, Morrisons, Superdrug and Boots.

Sales directly proportional to the amount of advertising expenditure

2000More than 60 major brands in the market, none with more than 9% market share.

Annual market growth projected at 1-3% for next 5 years.

Severe price competition to result in higher volume grow as compared to value grow.

High competition from low-cost private label alternatives.

Boots Market StrategyBoots sough to create a new market by using

celebrity endorsements to create awareness and an emotional attachment between the customers and

the products.Celebrity products, most sold only at the salons of the respective celebrity hairdressers, would gain greater exposure through Boots which had about 1300 stores throughout UK.

Some products were developed and launched in partnership whereas the others were launched through a supplier and retailer partnership.

Boots manufactured the products and paid a per-unit licensing fee for use of the celebrity’s brand name.

Boots, in partnership with the celebrity hairdressers, managed to create functionally better formulations than the other existing brands.

The brand owners, given their contacts with the media, specifically managed the public relations activity whereas Boots managed all other activities.

Competition

Procter & GambleAcquired Richardson Vicks, the parent company of Pantene, in the year 1985.

Reformulated the product as Pantene Pro-V in the year 1991 and launched it as a global brand.

Became the best selling hair care brand in the world by 1995.

Had high consumer awareness and widespread distribution.

Held 8.4% market share in the UK hair care market in 2001.Other brands offered are Clairol, Head & Shoulders, Daily Defense, PERT Plus and Herbal Essence.

Alberto-CulverStarted in 1955, the company has grown into a multi-billion dollar giant over 60 years.

Acquisition of Sally Beauty Company in the year 1969 has grown from just a handful franchised stores to over 2,000 store locations today in US, UK, Canada, Germany and Japan.

The company rose to fame with its introduction of 30-second commercials as opposed to the then conventional 60-second commercials in the year 1971.

Offers a diverse range of products ranging from hair-care and skin-care to home-care. Some of its top brands include St.Ives, VO5, Consort hair care for men, FDS, etc.

L’OrealStarted in 1905 when a French chemist, Eugene Schueller, developed an innovative hair color formula.

The company started exporting its products in 1912 to Italy, Austria and Holland. Started distribution in the United States, South America and the Far East through agents and consignments. Today the firm has global presence.

The group marketed over 500 brands and over 2000 products in all sectors of the beauty business. Their products were found in all distribution channels.

Their product rabge consisted of shampoos, conditioners, and styling products. It held 5% market share in the UK hair-care market.

RetailersTesco: Largest supermarket chain in UK with 1800 stores. Offered a wide range of products from traditional supermarket items to banking services and mobile phones.Sainsbury’s: The second largest supermarket chain in UK with over 700 stores. Offers a wide range of products.Morrisons: Has over 400 stores in UK. Provides quality products at low prices. Had taken over Safeway in 2004.Superdrug: Operated over 700 stores in UK. Offers a wide assortment of around 10000 products. Launches hundreds of private label products every year.

Consumer ProfileResearch indicated that consumers in this category were not very brand loyalIt was difficult for the consumers to identify meaningful differences between the different brands offered in any given store.Consumers who purchased professional brands were highly fashion conscious women in the 20-35 years category. They were also more affluent than the mass-market brand buyers.Customers used premium brands for special occasions.

The Brand Owners

Distribution And Introduction Dates Of The Brands

Premium Brands

Mass Market Brands

Average Pre Promotional Price

3.99 2

Industry Margins 40% 25%Margin 1.596 0.5Cost to Retailer 2.394 1.5Manufacturer’s Margin

10% approx. 10% approx.

Margin 0.2394 0.15Cost To Manufacturer

2.1546 1.35

Margins

Margins(contd.)

Pre-promotional margin for retailer=£1.596/bottle

Assumed no. of units sold per day=100Pre-promotional revenue=1.596*100=159.6

Decision Options

“3 for 2”This offer would enable consumers to buy two hair-care items at regular price and receive one free.Customers could combine any three items they liked (e.g.,shampoo, conditioner, and styling gel, etc.), but the three items had to be the samebrand. The free item would be the one that was the least expensive of the threeitems selected by the shopper.300% estimated increase in sales and 60% sales to promotional customers.

AdvantagesConsumer would get 3 products at the price of two.They could combine any three products(shampoo, conditioner, styling gel, etc.) of the same brand.Most competitors did not yet have the technology at point of sale to imitate this promotion.Estimated increase in sales:300%Promotional buyers:60%DisadvantagesWould be perceived as a stock clearing strategy.Premium products may lose their brand value.Brand owners may oppose as this would dilute their brand equity.

Promotional Revenue

No. of bottle to be sold per day during promotion period=300

Size of each unit=3 bottlesNo. of units to be sold=100

Net Revenue=(Retail price of 2-cost for 3)*100

=(3.99*2-2.394*3)*100 =79.8

Gift With Purchase(GWP)Customers were given a product sample along with a regular purchase.An existing sample product would be used to avoid the need to design and produce additional packaging.Adding the sample would cost approximately 90p per unit for the product plus 3p per unit to secure the sample to the featured product.170% estimated increase in sales and 40% sales to promotional customers.

AdvantagesFree product sample to be provided with regular purchase which would help in creating product awareness.No need to redesign new productsEstimated growth in sales:170%Promotional buyers:40%DisadvantagesAdding the sample would increase expenditure by 93p per unit.Could be replicated by other retailers

Promotional Revenue

No. of units to be sold=170Cost per unit=£(2.394+.93)=3.324

Net Revenue=(3.99-3.324)*170 =113.22

On-Pack Coupon(50p off)

All customers would be able to redeem the coupon during their current store visit.It is a more conservative approach to promoting the brands.150% estimated increase in sales and 50% sales to promotional customers.

AdvantagesThe coupons would be redeemable in the current visit itself.Coupons would ensure multiple visits by the customer.Estimated increase in sales:150%Promotional customers:50%DisadvantagesCommon strategy used by every other retailer. Can easily be copied.Discounting may dilute brand value of a premium brand.Less sales growth as compared to the other alternatives.

Promotional Revenue

No. of units to be sold=150Cost per unit=£(2.394+0.5)=£2.894

Net Revenue=(3.99-2.894)*150 =164.4

Verdict

is the best option to go with.

Reasons Behind The Decision

Although the least profitable, the 3 for 2 promotional

strategy will give Boots an edgeover the other retailers as they do not have

the technology to replicate this strategy.

It also gives the consumer the option to try out new

products of a brand without risking their money.

DisclaimerCreated by Anchit Basu, Fr. Conceicao

Rodrigues College of Engineering, Bandra, during a marketing internship by Prof.

Sameer Mathur, IIM Lucknow