Kse guys (for blog)
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Plan
• Big picture • Consumers' needs identification • Designing supply chain • Developing sales strategy • Designing marketing support • Involving HR Team • Financial sustainability
Team line-up
Volodymyr Lozovyi Mykhailo Iavorskyi Kateryna Maltseva
Borys Trofimov Dmytro Sushko
The Challenge: successfully launch Herbal Essences shampoos in a dynamic and vibrant Eastern European consumer market.
Human Resources Sales Marketing
KSE guys
Market analysis Supply chain
Big Picture
2
Financials
Determine consumers` needs
Develop expansion strategy
Demand forecast
Consumers segmentation
Product development
Supply chain
Sales channels
Marketing support
Step 1:
Step 2:
Step 3: Consider and issues.
To reach the goal we need to complete 3 key steps :
Financials Human Resource
KSE guys
Competition Analysis
3
Special premium “For Her”
Tomatoes 8.1% Eccol 5.7%
2012 2017 moving toward the goal
• Market does not have developed Premium Natural products our product will be conceptually new + we have strategic advantage in brand development. • To obtain 10% of market share we need to overlap the part of Affordable brands develop universal products.
Human Resources Sales Marketing Market analysis Supply chain Financials
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Integrated Marketing Strategy
4
Products Selling and advertising
Profits through sales volumes
Customers Integrated
marketing mix
Profits thr. customer
satisfaction
Marketing strategy
Sales orientation
Marketing orientation
Focus Deployment Outcome
Human Resources Sales Marketing Market analysis Supply chain Financials
Problems that women experience with their hair
Dry hair after dying
Lack of body
Lack of shine
Lack of form
Pigment spots
Split ends Dandruff Falling out
Strength Nutrition Shine Skin
antibacterial cleaning
Model haircut
Skin nutrition
Bright Moments Miss Universe
Dyed hair Natural hair
Shine Blond/Red/Dark
Strength & Body Blond/Red/Dark
Model haircut Blond/Red/Dark
Needs
To cover the demands of the target group, 3 product lines were developed.
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Product development
Solutions
Nature Care
Skin Care
Skin nutrition
Dandruff
Human Resources Sales Marketing Market analysis Supply chain Financials
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Product Development
6
Product lines
Products for special needs
“Miss Universe”
Universal needs “Natural Care”
Products for specific needs
dyed hair “Bright Moments”
• shine (blond, red, dark) • strength (blond, red, dark) • for model haircut (blond, red, dark)
• dandruff • hair falling out • pigment spots
• shine (blond, red, dark) • strength (blond, red, dark) • for model haircut (blond, red, dark)
To fulfill the demand of key market segments, we develop 3 product lines oriented on specific needs of each category.
Human Resources Sales Marketing Market analysis Supply chain Financials
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Market Size Estimation. 1st approach
7
Hence, multiplying average consumption of a group by its size we can find the number of interest: Market size (Ukraine) = 55 667 000 liters Market size (Russia) = 172 685 000 liters Market size (Total) = 228 352 000 liters However, there is still some uncertainty: the error of our estimate might be quite big. So on the next slide we propose the way how to obtain this number with lower error.
Consumers
Source: statistical information at governmental sites, own estimates
0 – 14
m
0.7 0.5
f
1.1 0.95
15 – 24
m
1.4 1.2
f
2.3 1.8
25 – 44
m
1,2 1.1
f
1.9 1.6
45 – 64
m
1,15 1
f
1.3 1.15
65+
m
0.8 0.6
f
1.1 0.9
- urban
1 - rural
1
*** *** *** *** ** *** *** ** ** * * * * * * * * * * *
* low accuracy of estimation
** medium accuracy of estimation
*** high accuracy of estimation
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Market Size Estimation. 2nd approach
8
In this approach, we refer to the information on “Kalina” – one of the biggest players at Russian shampoo market.
Market size
“Kalina” Sales in items “Kalina” market share :
“Kalina” Revenue from shampoo “Kalina” average wholesale price :
“Kalina” Revenue % of “Kalina” Revenue tied to shampoo *
10.9%
42.6 RUB per 250 ml bottle
Source: “Kalina” annual report 2010
21.9% 12.8 mil RUB
Using estimated market CAGR (9% in previous 10 years ) and data above we come to number 235 000 000 liters. This approach allows us to obtain estimate with lower error (the only source of error is market growth rate in 2011 , we assumed it to be equal to market CAGR in previous years) It is deserves to be mentioned that both approaches give quite similar results (difference is about 3%).
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Volume Forecast for Year 1
9
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Base Forecast 145 157 275 614 440 983 460 670 537 448 477 732 418 915 507 590 610 289 689 036 584 040 642 444
Marketing Initiatives 38 586 52 498 83 997 129 993 53 154 36 749 41 342 50 201 45 936 0 0 79 403
Promo 38 586 22 968 36 749 64 966
Deco Pack 29 530 47 248
New SKU Launch 53 154
LEP 64 966 41 342 50 201 79 403
IGWP 36 749 45 936
Sales Initiatives 0 0 0 0 0 47 248 0 0 0 0 72 185 0
Sales Push 47 248 72 185
Total 183 743 328 112 524 980 590 602 590 655 524 980 459 357 557 791 656 225 689 036 656 225 721 847
Total volume for Year 1 – 6 484 000 liters.
Year Average % of 0.4 in tot.
sales (in bottles)
Market share
(in liters)
2012 2.4% 2.75%
2013 5% 5%
2014 7.5% 8%
2015 8% 9%
2016 9% 10%
Some necessary assumptions
Human Resources Sales Marketing Market analysis Supply chain Financials
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Distribution Structure
10
P&G
National chains RDs
Warehouse
Retail
We choose Vendor Management inventory due to • convenience for distributors: our partner (distributor) reduces warehousing expenses; improvement in current assets management • less inventory cover is required
We begin with 4 replenishment points in Ukraine and 7 in Russia. These numbers will grow in line with the sales volume.
VM allows to optimize one stage in our sales structure
Country Replenishment Points Transit Times
(days) Replenishment
Frequency Inventory
Cover
Ukraine Boryspil 0 0.00 21
Ternopol 1 24.49 14
Dnepropetrovsk 1 11.96 14
Ordzhonikidze 1 21.75 14
Russia Sankt Petersburg 1.5 13.80 14
Moscow 0 0.00 28
Volgograd 1.5 8.42 14
Kazan 1.5 6.19 14
Yekaterinburg 2 15.59 21
Novosibirsk 3 9.62 21
Irkutsk 5 28.86 28
Therefore, the national inventory cover of Ukrainian distributor will be ~15 days and one of Russian distributor ~22 days.
Human Resources Sales Marketing Market analysis Supply chain Financials
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Distribution Structure. Russia
11
* % of total sales in units Central warehouse Regional warehouse
Irkutsk, 5%* Novosibirsk, 14%*
Yekaterinburg, 9%* Kazan, 21%*
St. Petersburg, 10%*
Volgograd, 16%*
Moscow, 26%*
• Start in Moscow • Divide the country into several large regions (according to the population) • Divide generated regions into smaller ones as the sales go up
Human Resources Sales Marketing Market analysis Supply chain Financials
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Distribution Structure. Ukraine
12
* % of total sales in units Central warehouse Regional warehouse
East (Dnepropetrovsk), 35%*
South (Ordzhonikidze), 19%*
North (Boryspil), 29%*
West (Ternopol), 17%*
• At a first step divide the country into 4 regions: East, West, North and South • Supposing it is possible, set warehouses at the existent replenishment points
Human Resources Sales Marketing Market analysis Supply chain Financials
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Cost Structure
13
FPLC = Import tax + Warehousing Cost + Transportation Cost = 784 000 + 650 000 + 1 130 000 = 2 564 000 USD
* numbers are given as for Year 1
Avg. cost per item Manufacturing
Transportation
Import tax
Warehousing
$0.09
$0.05
$0.03
$0.04
Human Resources Sales Marketing Market analysis Supply chain Financials
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Sales Channels/Constraint due to number of calls
14
HM/SM Superettes Perfumeries Pharma
Weight, % 32 (+2) 10 (+1) 44 (-1) 3.5 (0)
# Stores 7 300 10 600 46 200 16 600
Market share per store, % 0.0044 0.0009 0.0010 0.0006
We do not consider OM as a possible channels because Herbal Essences is a premium segment product.
We should start with HM/SM and then pull up other channels.
50%
60%
76%
83% 88%
94% 100%
37%
Human Resources Sales Marketing Market analysis Supply chain Financials
unsatisfied demand
Coverage
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Pricing and Placement Strategy
15
Pitch: Conceptually new health product with natural ingredients. After using a regression analysis on shampoo prices in Russia and Ukraine we found that market would price natural premium product at:
*rounding down
• the price is nominal and goes in line with increase in consumers’ purchasing power; • the price is adjusted on changes in exchange rates; • the price in the last row is the price at Central WH
Shelving/Placement: shelves/stands with special design; upper shelves – small size, lower – big size; conditioners stand near shampoos. Merchandising/Positioning: POSM with professional advice how to do a hair care and merits of our shampoos.
Ukraine 2012 2013 2014 2015 2016
Retail price 2.00 1.99 2.05 2.09 2.26
VAT 20% 20% 17% 17% 17%
Inflation 8% 8% 8% 8% 8%
Exchange rate 8.1 8.8 9.0 9.5 9.5
VAT adjusted 1.67 1.66 1.75 1.79 1.93
Retail margin 10% 10% 10% 10% 10%
Retail adjusted 1.52 1.51 1.59 1.63 1.76
Distributor margin 17% 17% 17% 17% 17%
Distributor adjusted 1.30 1.29 1.36 1.39 1.50
Russia 2012 2013 2014 2015 2016
Retail price 3.00 2.90 2.95 3.01 3.25
VAT 18% 18% 18% 18% 18%
Inflation 8% 8% 8% 8% 8%
Exchange rate 29.5 33 35 37 37
VAT adjusted 2.54 2.45 2.50 2.55 2.76
Retail margin 10% 10% 10% 10% 10%
Retail adjusted 2.31 2.23 2.27 2.32 2.51
Distributor margin 17% 17% 17% 17% 17%
Distributor adjusted 1.98 1.91 1.94 1.98 2.14
$2 - 250 ml - Ukraine $3 - 400 ml - Ukraine $3 - 250 ml - Russia $4.5 - 400 ml - Russia
See appendix
Human Resources Sales Marketing Market analysis Supply chain Financials
Promotion Places - Sales representatives
- Beauty consultants
- Hair care POSM
Package - Deco pack
- Separate stand with
specific decorations
Tools - Free samples
- Bundles
- Season actions
Promotion campaign was developed according to the following emotional and functional needs of women :
Functional:
• Seasonal needs of hair
• Beauty consulting
• Hair care awareness
Shopping malls
Supermarkets
Beauty shops Drugstores
Message channels:
o Social media
o Magazines
o TV
o In/Our-door
We choose prospector marketing strategy – aggressive market entrance with strong promotion and emphasis on delivering the idea of a conceptually new product (for CIS market).
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Promotion Strategy
Emotional:
• Holidays and specific occasions
• Nature associations
Human Resources Sales Marketing Market analysis Supply chain Financials
“You can beautify the world with Herbal
Essences”
“Summer preparation with Herbal Essences “
“Fall in love with Herbal Essences”
“Bright moments
with Herbal Essences”
“Exciting Adventure with Herbal Essences”
“Indian Summer Embraces”
“Sparkling Holidays with Herbal Essences”
Free samples of conditioner
Samples of shampoo in magazines for women
Marketing initiatives
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Human Resources Sales Marketing Market analysis Supply chain Financials
KSE guys
HR Involvement: Sales
18
Suggested problem
Information required
organization costs are the same during five year period, but workload will differ due to gradual increase in forecasted market share.
how workload of stuff is affected by changes in sales and Herbal Essences market share? what is the optimal level of workload per person in similar projects?
HR response Actions to analyze: make a survey in order to investigate whether such organization costs and expected general organizational productivity are comparable with goals of achieving 10% market share.
Actions to improve:
Additional gradual recruitment for better staffing of the Sales Team;
Additional tailored trainings for our Sales Team members with emphasis on improving interpersonal skills ( managing conflicts, managing difficult people, and negotiation).
New prospective by offering scope.
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HR Involvement: Sales, Supply Chain, and Top/Middle Management
19
In Finance:
If more personal is needed to properly to conduct the project, HR department will effectively plan the workforce for project and make all actions needed for effective project organization;
In Supply Chain:
Gradual recruitment for better staffing of the Sales Team as more P&G personal is needed for vendor managed inventory;
Top and Middle Management:
Case Experienced foreign project leader Retention of middle management
Solution Trainings on the topics “how to manage office policy in CIS cultural environment”, “organization of regional P&G team”, and “valuing diversity”;
Offering suitable management development program;
Providing with feedback of the team; Offering suitable working and living conditions for
manager and his or her family.
Make a middle management survey to define key motivation drivers;
On the basis of survey, develop a tailored management and personal development program with emphasis on offering suitable prospectives ( new scope, financial motivation, promotion, success planning).
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HR Engagement
20
Finding out what other department are all about, how they function, what are the kind of resources needed.
HR department response on information obtained.
Ongoing checking of policy results to find out whether two key HR department goals are simultaneously achieved:
i. Herbal Essences achieves planned market share in CIS market;
ii. P&G team members that are put into project achieve their aspirations and ambitions.
Key methods to be used: Key questions to be asked:
Employees surveys and feedback;
Intercompany communication;
Employee s Interviewing;
How many people should be recruited for department?
What are the best ways of performance appraisal?
How to design compensation system effectively?
How many and of what kind motivational events are needed?
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P&L
21
Year 1 Year 2 Year 3 Year 4 Year 5
Total Sales (in $) 46 689 175 86 963 805 148 792 517 178 508 135 223 751 491
Sales in Ukraine 8 372 831 15 972 944 28 149 936 33 812 974 42 382 962
Sales in Russia 38 316 345 70 990 861 120 642 581 144 695 161 181 368 529
COGS 5 528 756 10 601 559 17 680 376 20 745 722 24 073 424
Gross Profit 41 160 420 76 362 246 131 112 141 157 762 413 199 678 067
In Ukraine 6 990 642 13 322 554 23 759 842 28 626 544 36 364 606
In Russia 34 169 778 63 039 692 107 382 299 129 135 869 163 313 461
Other costs 2 200 000 (5%) 1 990 000 (5%) 2 080 000 (5%) 2 180 000 (5%) 2 280 000 (5%)
Marketing expenses 2 000 000 3 800 000 7 000 000 8 000 000 10 000 000
Organizational costs 200 000 190 000 180 000 180 000 180 000
EBIT 38 960 420 75 572 246 130 332 141 156 982 413 198 898 067
Interest payment 396 485 396 485 396 485 396 485 396 485
Taxes 13 497 377 25 191 516 43 237 480 52 215 075 66 185 554
Net profit 25 066 557 46 784 245 80 298 176 96 970 853 122 916 028
Interest rate is 5,13%* (further used in defining the discount factor for NPV calculations) Projected marginal profit is 0,54 for the first 4 years and 0,55 for the last year Breakeven volume: approximately 5,7% of forecasted volumes
• For Ukraine: 350 680 (250 ml) and 10 100 (400 ml) • For Russia: 1 052 030 (250 ml) and 30 300 (400 ml)
See appendix
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NPV and Free Cash Flow to Firm Calculation
22
* – the projected sum of total costs for the first year, the other costs will be financed from net profit. k** – time from forming inventories to collecting sales cash ; assume that it equals to 6 weeks (3 weeks from manufacturing to central warehouse and 3 further to regional distributor). *** – assumed time for inventory coverage is 3 weeks.
FCFF
EBIT*(1-t) Depreciation + ∆ NWC CAPEX – –
∆ (Current Assets – Current Liabilities)
Current Liabilities Current Assets
Minimum Cash Inventory Coverage***
Operational Expenses Cash Turnover
360/k**
/ (Average projected sales / 360)*21
NPV = Discounted FCFF – Investments* = 307 566 129 – 7 728 756 = 299 837 373 USD
Human Resources Sales Marketing Market analysis Supply chain Financials
Thank you for attention
Plan
Market analysis
Market size estimation
Supply chain
Sales
Marketing
Human Resources
Financials
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Appendix A. Retail price estimation
Data description
• brandname: key brands in Russian and Ukrainian markets • price: in $ per bottle • volume: measured in ml • segment:
0 – affordable 1 – professional 2 – premium
• green:
0 – not natural 1 – natural
• country: 0 – Ukraine 1 – Russia
• sqvolume: volume squared
Source: price lists of several online stores
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Appendix A. Retail price estimation
Regression results
Our supposition is that price of a bottle depends on: • size of a bottle nonlinearly: expected positive effect and significant • country as a dummy: on average price is expected to be higher for Russia, uncertain about significance • green as a dummy: on average price is expected to be higher for green products, uncertain about significance • segment as a dummy: price is expected to be higher for premium segment, significant
estimated effect
significance
• country and green estimates are insignificant, hence they can either effect the price of HE or not • if these effects exist, we have competitive price of $4.85 per item for HE 250 ml (Ukraine)
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Appendix A. Retail price estimation
Regression results (continued)
Otherwise, we run new regression (without insignificant vars:
• in this case, we have competitive price of $2.29 per item for HE 250 ml (Ukraine)
estimated effect
significance
Ukraine Effects do not exist Effects exist
250 ml 2.29 4.85
400 ml 4.92 7.56
Russia Effects do not exist Effects exist
250 ml 2.66 5.17
400 ml 5.29 7.93
back
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Appendix B. Marketing initiatives
Year 1 in details
January
- March
•Advertisement and samples of shampoo in magazines for women.
February
1-14
•“Fall in love with Herbal Essences” - Herbal Essences bundles (shampoo + condition + moisturizer) in supermarkets on the separate stand in Deco Pack.
March
1-8
•“Bright moments with Herbal Essences” - Herbal Essences bundles in beauty shops and supermarkets on the separate stand in Deco Pack.
April
•Event “You can beautify the world with Herbal Essences” (each weekend in shopping malls);
•LEP for extra shine: representatives of HE will introduce the new line of products to women in beauty shops.
May
•“Summer preparation with Herbal Essences – “Be ready, be strong, be healthy to meet the summer” – introduction of Nature Care Line.
June •Part of shampoos will be sold including tiny samples of conditioners in beauty shops, malls, supermarkets.
July - August
•“Exciting Adventure with Herbal Essences” – small bundles (shampoo + hair spray with UF filter).
September
•“Indian Summer Embraces” – bundles(conditioner + balm/moisturizer) for renovation of hair after summer sun.
December
•“Sparkling Holidays with Herbal Essences” – LEP: bundles Deco Bottle of shampoo – triangle form of bottle, drawn in image of Christmas Tree + Christmas Toy for decoration.
Promo 7%
Deco Pack
9%
Deco Pack
9%
Promo LEP
11% 11%
New SKU
Launch 9%
IGWP 7%
LEP 9%
IGWP 7%
LEP 11%
250 ml Year 1 Year 2 Year 3 Year 4 Year 5
Sales 6 197 750 11 499 750 18 606 250 21 336 750 24 569 000
Price 1,30 1,29 1,36 1,39 1,50
Average cost/unit 0,21 0,21 0,21 0,21 0,21
Import cost/unit 0,03 0,03 0,03 0,03 0,03
Transportation avg. 0,047 0,047 0,047 0,047 0,047
Manufacturing/unit 0,093 0,093 0,093 0,093 0,093
Warehousing avg. 0,041 0,041 0,041 0,041 0,041
Gross Profit 6 699 776 12 343 245 21 312 353 25 111 698 31 649 691
400 ml Year 1 Year 2 Year 3 Year 4 Year 5
Sales 178 500 605 250 1 400 500 1 982 000 2 430 000
Price 1,94 1,93 2,04 2,09 2,25
Average cost/unit 0,31 0,31 0,31 0,31 0,31
Import cost/unit 0,055 0,055 0,055 0,055 0,055
Transportation avg. 0,081 0,081 0,081 0,081 0,081
Manufacturing/unit 0,155 0,155 0,155 0,155 0,155
Warehousing avg. 0,022 0,022 0,022 0,022 0,022
Gross Profit 290 866 979 309 2 417 488 3 514 846 4 714 915
Split by volume of bottles
Appendix C. Gross profit in Ukraine
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250 ml Year 1 Year 2 Year 3 Year 4 Year 5
Sales 18 593 250 34 499 250 55 818 750 64 010 250 73 707 000
Price 1,98 1,91 1,94 1,98 2,14
Average cost/unit 0,21 0,21 0,21 0,21 0,21
Import cost/unit 0,03 0,03 0,03 0,03 0,03
Transportation avg. 0,047 0,047 0,047 0,047 0,047
Manufacturing/unit 0,093 0,093 0,093 0,093 0,093
Warehousing avg. 0,041 0,041 0,041 0,041 0,041
Gross Profit 32 750 628 58 413 569 96 458 034 113 301 240 142 164 017
400 ml Year 1 Year 2 Year 3 Year 4 Year 5
Sales 535500 1815750 4201500 5946000 7290000
Price 2,96 2,86 2,91 2,98 3,21
Average cost/unit 0,31 0,31 0,31 0,31 0,31
Import cost/unit 0,055 0,055 0,055 0,055 0,055
Transportation avg. 0,081 0,081 0,081 0,081 0,081
Manufacturing/unit 0,155 0,155 0,155 0,155 0,155
Warehousing avg. 0,022 0,022 0,022 0,022 0,022
Gross Profit 1 419 149 4 626 124 10 924 265 15 834 630 21 149 445
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Split by volume of bottles
Appendix C. Gross profit in Russia
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Long-term debts of P&G
Appendix C. Discount rate estimation
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