CASE STUDY Bronze Adora

The Bronze Adora company had a new Marketing Director Helen Dawn. It was mid-year 2015 and the company was starting its annual planning and budgeting process. The Managing Director (MD), Nathan James, asked Helen to do her bit and prepare a forecast of expected UK sales for the companys sun protection products for the coming year, 2016. Based on 2015 sales to date, by the end of the year the company was forecast to enjoy 28% share of all UK sun protection sales. This would equate to approximately 43 million sales revenue and 13 million gross contribution, and reflected an increase on the companys previous three years sales and profit performance. This was in spite of considerably less focus in recent years on new product development and investment in brand support. The MD commented to Helen Dawn that the company was clearly in good shape and working in the right direction. He joked that with a winning strategy in place, Helen would have little to do in her new job! However, the MDs parting shot, was that in a bid to increase operating profit the company would be expecting higher levels of marketing contribution over the next few years. Bronze Adora was a manufacturer of high quality, branded sun protection products. The Bronze Adora company had been producing suncare products for 75 years. During that time it had developed the most highly recognised and trusted brand in the market and a portfolio of products that spanned sun protection, after-sun and self-tan categories. The company manufactured in a range of product formats although lotions and milk format pre-dominated in their portfolio. The brand represented the ultimate in protection from the suns harmful rays. THE SUN PROTECTION MARKET Market characteristics Sun protection was a seasonal market in the UK with sales concentrated between May and September. This was the time in the year when the suns rays are at their most dangerous and when the majority of people take their holidays. Retail intermediaries typically gave products in this category extra shelf space during these key months. However, retailers also made efforts to build sales outside this period, seeking to take advantage of the trend for more frequent foreign holidays, winter skiing and cheap city breaks. The market was strongly based on brands that the consumer could trust. In spite of this, price discounting was fierce at times, particularly from the multiple retail grocers. In recent years, the number of units sold had increased at a slightly faster rate than value, reflecting this promotional activity. This signalled the danger for sun protection products being seen as commodity products [- for a long time consumers had felt that sun care products were over-priced]. This presented a significant challenge to brand positioning. Market size The total UK market for sun protection had grown in the last five years and was forecast to keep on growing for the next five years (- see Table 1).

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Table 1: The UK market for sun protection products actual and forecast 2010-2020

m Index

2010 161 782011 176 852012 199 962013 180 872014 183 88

2015 est 207 1002016 212 1032017 222 1072018 233 1132019 243 1182020 254 123

The value of full year retail sales in 2015 (the outturn) was estimated at 207 million Use of sun protection products Avoiding sunburn and protection against skin cancer were the two key reasons why all people used sun protection. The growing desire for eternal youth was also acknowledged as a key reason for the increasing use of sun protection products. The full list of consumer motivations for purchase is shown in Figure 1. Helen Dawns first decisive action was to commission some market research to uncover any segmentation in the UK market for sun protection products. Based on this research it was found that nearly two-thirds of sun protection products were bought by people whose key reason for purchase was protection against the suns harmful rays. Labelled the PROTECT segment, these consumers were traditionalists who bought into the associated inconvenience that came with having to apply sun protection products. These consumers were also more likely to adopt a planned approach to any purchase of suncare products. This was in sharp contrast to the identified segment of customers the NO-HASSLE segment - who sought to minimise the inconvenience and aggravation in both sun product purchase and application. A significant proportion of this segment were active individuals who enjoyed the outdoors and who were more likely to engage in sporting and fitness activities. A third segment of customers was identified as adults purchasing products for use on children. This CHILDREN segment had seen an increase in sales as manufacturers had offered more and more dedicated childrens products. Research showed that all customers, particularly in the Protect and Childrens segments, valued highly the advice provided in-store and by manufacturer customer service departments. That said, no player in the market was considered any better than any other in this regard. Sales in both the No-Hassle and Children segments were forecast to increase over the coming years. In addition to the three segments identified as well-established segments, the research identified a potential fourth segment, MEN. This was based on the untapped potential for selling sun protection products to men. Importantly, it was also based on the finding from the research that identified a latent need for male-specific sun protection products. This reflected the growing metrosexual trend responsible for driving sales in all mens grooming products. Any current sales to men were captured in sales data for the other three segments. Helen was aware, however, that tapping into the latent needs of any customer group was a way to grow business incrementally. In terms of the MEN segment, specifically, Helen forecast a

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10% growth in total market sales from responding to the untapped need in the MEN segment. This meant that unless any company targeted this segment specifically, there would be no sales in the MEN segment. Sales to men would continue to be subsumed within the other segments. This would mean that the percentages for MEN would similarly have to be subsumed within the other 3 segments (Table 2). Figure 1: Purchase motivation consumer reasons for using sun protection products, 2015

% agreement

84

78

33

16

16

7

6

1

0 10 20 30 40 50 60 70 80 90

To prevent painful sunburn

To protect from sun cancer

To protect others (ie children,partner, etc) from the sun

To prevent premature wrinkles

To prevent peeling

To get a better tan

To get a longer-lasting tan

To prevent tanning or tanlines

Actual and forecast percentage sales figures by segment uncovered by the commissioned independent market research are shown in Table 2. Table 2: Percentage sales by segment - actual and forecast

PROTECT NO-HASSLE CHILDREN MEN2015 Actual 61% 22% 17% -2016 Forecast 46.0% 26.0% 23.0% 5.0%2017 Forecast 35% 29% 28% 8%2018 Forecast 28% 32% 30% 10%

Source: Commissioned Independent Market Research The competitive landscape Table 3 highlights another reason for Nathan James great pride in Bronze Adora - its ranking in the market share league table. Bronze Adora was joint market leader, sharing the top slot with the Solcare brand.

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Bootles1 occupied a unique position in the suncare market. It was the leading retailer of suncare products, and its own-brand Solcare range sold only by Bootles - was a leader in the market. Until now Solcare had achieved their success by focusing only on their own retail distribution channel. Further, Bootles had steadily increased its investment in R&D and its advertising spend. Recent successes had been its Just Once product that gave the user protection for up to six hours with just one application. Table 3: Sun protection products UK market shares 2010-2015

2010 2011 2012 2013 2014 2015m % m % m % m % m % m %

Solcare 37.0 23 42 24 50 25 47 26 49 27 57.96 28Bronze Adora 46.7 29 49 28 48 24 45 25 48 26 57.96 28Sunray 29.0 18 32 18 34 17 29 16 33 18 37.26 18Ilios 8.1 5 11 6 14 7 14 8 15 8 16.56 8

Own-label 14.5 9 16 9 20 10 18 10 18 10 22.77 11Others 25.8 16 26 15 34 17 27 15 20 11 14.49 7

54TOTAL 161 176 199 180 183 207

* Others includes: A list of small branded products As detailed in Table 4, for each of the major players in the market the independent market research also revealed the percentage of their business that they had in each segment, expressed as a proportion of the companys total sales revenue. For example, 85% of Bronze Adoras 2015 sales revenue was in the PROTECT segment. Helen Dawns working assumption was that a competitors success in a market segment must reflect the fact that the competitors marketing mix was, (1) generally in line with the needs of the respective segment, and (2) with levels of investment in that marketing mix . To support this, the Bronze Adora sales team indicated that in the market overall, its brand awareness was highest and that in terms of product functionality, its name was synonymous with the ultimate in protection. Table 4:

Percentage of company's business in each segmentas a proportion of company's total sales

OVERALL MARKET PROTECT NO-HASSLE CHILDRENCOMPANY SHARESolcare 28% 60% 20% 20%Bronze Adora 28% 85% 10% 5%Sunray 18% 25% 25% 50%Ilios 8% 70% 30% 0%Own-label 11% 70% 20% 10%Others 7% 50% 50% 0% COSTS AND MARGINS Based on estimates of the types of products sold in each segment, it is estimated that for 2015, approximate variable costs in the PROTECT, NO-HASSLE and CHILDREN segments

1 Bootles is the national drugstore/personal care chain in the UK. DR BELINDA DEWSNAP 2015 4

were, respectively, 67m, 17m, and 16m. Correspondingly, retail values were estimated to be 128m, 43m and 35m. This equated to manufacturer average gross contribution percentages of 30% (PROTECTION), 40% (NO-HASSLE), and 35% (CHILDREN). Retail margins in the same segments were 25%, 35% and 30%. Average unit retail prices for 200ml products in each of the three segments were: 7.50 (PROTECT), 11.50 (NO-HASSLE) and 10 (CHILDREN). The MEN segment was not anticipated to be price-sensitive. Higher prices would be appropriate in a segment if such prices reflected a products added value. Bronze Adora matched its prices in each segment in line with competitor pricing in the same segment. PRODUCT VARIANTS Sun protection products were manufactured in a variety of formats see Table 5. Innovation in delivery formats (e.g., sprays) had ensured that products had been designed to fit with consumers changing lifestyles. As a consequence, and as can be seen in Table 5, more traditional delivery formats such as lotions and creams had experienced a decline in sales. The newer, more convenient product delivery formats which were characteristic of many of Solcares and Sunrays offerings warranted a price premium over more traditional formats. Table 5: UK retail value sales of sun protection products by format, 2010-2015

2010 2012 2014 2015m % m % m % m %

Lotions & milks 103 64 119 60 102 56 114 55Sprays 34 21 44 22 53 29 64 31Creams 13 8 16 8 11 6 10 5Oils 5 3 6 3 4 2 2 1Others* 6 4 14 7 13 7 17 8

Total 161 100 199 100 183 100 207 100* including sticks, mousses, gels, roll-ons, wipes Public health campaigns had been used to raise awareness of the dangers of the suns harmful rays. In addition, the industry had worked with cancer charities to communicate the safe sun message and to get people to use sun protection products correctly. In regard to the latter, this meant communication on how much product to apply and how often. Consumers above the age of 55 were more likely to follow the product application advice on labels on sunscreen packaging. Much more education was still needed, particularly among young adults and men. Research showed that one-fifth of those under 25 had been sunburnt in the last 12 months. However, it was acknowledged that consumers were in general heeding health warnings and had upgraded to higher UK protection formulations (- see Table 6). EU legislation was driving standardised and simpler on-pack messages in respect of sun protection. This involved the addition of a UVA logo where appropriate, and the addition of simple low to very high labels to supplement SPF (sun protection factor) numbers. Positives aside, Helens research had identified significant customer mis-understandings in sun protection labelling and, correspondingly, clear opportunities to improve.

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Table 6: UK retail value sales of sun protection products by SPF, 2010-2015

2010 2012 2014 2015m % m % m % m %

Less than SPF 10 40 25 48 24 26 14 25 12SPF 11-15 29 18 34 17 31 17 33 16SPF 16-20 32 20 32 16 35 19 35 17SPF 21-30 35 22 48 24 53 29 66 32More than SPF 30+ 24 15 38 19 38 21 48 23

Total 161 100 199 100 183 100 207 100 Modern formulations supported the manufacture of very high SPF products. The science behind cosmetics and toiletries had been strongly at the forefront in advertising messages to consumers and could only serve to heighten consumer expectation with regard to the efficacy of all products in the industry, including sun protection. There had been significant investment by some manufacturers in innovation of premium products in suncare e.g., products with added benefits. This might be seen to offer the potential to protect unit values in the face of falling value sales. Bronze Adoras direct competitors could be seen to be at the vanguard of this with their production of convenient-to-apply products. ADVERTISING AND PROMOTION 2015 spend on all elements of promotion for sun protection was estimated at 8 million. This reflected a dramatic decline as the recession prompted manufacturers to trim their advertising budgets. In terms of advertising, campaigns tended to focus on sun protection and health awareness. Helen was of the opinion that no player in the market could be described as cutting-edge and particularly creative in their use of the promotional mix and yet, she was pretty confident that promotions tailored to the needs of segments would be desirable to customers. DISTRIBUTION CHANNELS Channel preferences by segment were expected to differ based on the profile, preferences and purchase behaviour of consumers in those segments. Insights last gathered by Bronze Adora showed that suncare protection products were distributed through a wide range of channels. That said, these insights highlighted the importance of major retailers as channel intermediaries, and the increasing importance of major grocery multiples [ - see Figure 2]. However, despite heavy discounting activity from multiple grocers, Bootles which stocked all the key brands held on to 46% of share of distribution in the overall suncare market. These figures on distribution did not include any latent needs for distribution channel that consumers in each segment might have. Overall, retailers had a preference for big brands. This tended to present a barrier for smaller brands. As seasonal products, retailers gave extra space to sun protection products from May to September, thus increasing visibility for products during these months. In the multiple grocery channel, concentration of sales in the hands of a few key players had served to increase their power in the distribution channel. In addition, retailer own-labels share of new product launches in the industry had seen a significant rise. Amidst the economic recession, this reflected grocery retailers response to consumers demand for cheaper own-label products in order to save money. Research showed that these consumers considered the quality of these products to be equivalent to branded products. Finally, successful selling to the professional and increasingly powerful buyers in this channel required the kind of expert

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relationship management that only professional, key account managers could deliver. Rumours in the industry suggested that Solcare were recruiting key account managers. Figure 2: Distribution Channels for Suncare Products

Department stores, 7%

Direct selling, 8%

Other chemists, 10%

Drugstores, 12%

Multiple grocers, 17%

Bootles, 46%

Department storesDirect sellingOther chemistsDrugstoresMultiple grocersBootles

[NOTE: A Drugstore is primarily a health and beauty retailer, but it may also have a pharmacy counter. Other chemists dispense prescriptions but may also sell a limited selection of healthy and beauty products.] HELENS RESPONSE Helen Dawn knew that the preparation of a one year sales forecast would be a totally inadequate response to the forecast market developments. To ensure Bronze Adoras successful future she had therefore made a decision to prepare and propose a strategic marketing plan for the companys main board of directors. Helen also knew that she might be facing some quite challenging conversations with her new boss. She hazarded that getting Nathan James to understand the need for a strategic marketing plan and the investment in time that this would involve would represent a key first hurdle. And this was before she had even got around to convincing him (and then the main board) of the significant marketing investments required short term in order to secure the companys longer term marketing success. As part of all of this, Helen also knew that if her plan was to succeed she would need a clear understanding of how her strategic marketing plan would impact on other parts of the company.

NOTE: This case study is for teaching purposes only. The companies identified herein are fictitious. Any resemblance to real companies operating in the same sector is purely coincidental.

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THE SUN PROTECTION MARKETMarket characteristicsUse of sun protection productsCOSTS AND MARGINSBased on estimates of the types of products sold in each segment, it is estimated that for 2015, approximate variable costs in the PROTECT, NO-HASSLE and CHILDREN segments were, respectively, 67m, 17m, and 16m. Correspondingly, retail values were e...Average unit retail prices for 200ml products in each of the three segments were: 7.50 (PROTECT), 11.50 (NO-HASSLE) and 10 (CHILDREN). The MEN segment was not anticipated to be price-sensitive. Higher prices would be appropriate in a segment if suc...Bronze Adora matched its prices in each segment in line with competitor pricing in the same segment.PRODUCT VARIANTSADVERTISING AND PROMOTIONDISTRIBUTION CHANNELSHELENS RESPONSE