Problem Statement: If P&G were to go ahead with the launch of a new brand, which segment should it target -mildness, performance or price segment? Why?
Executive Summary: In 1981, the Packages Soap and Detergent division of Procter and Gamble held 42% of light-duty liquid detergent industry sales positioning it as the market leader within the industry. The prime to P&G were Colgate Palmolive (with 24% share) and Lever Brothers (with 7%). The remaining 27% was fragmented and held by private small label brands. The LDL market can be segmented on the basis of performance, mildness and price sensitivity. The industry size based on the sales numbers in 1981 is estimated to be $850 Million with volumes clocking 59 million cases. The LDLs are packaged in 4 sizes with the 32 oz and 22 oz being the most popular sizes. As of 1981, the mildness segment leads the volume sales at 37% followed by performance (35%) and Price (28%). The LDL market is very stable with one new premium brand introduced every 2 ½ years and an average of two price brands introduced and discontinued each year. The numbers are not expected to change drastically over the next five years though it is expected that Performance segment would lead the pack with 36% of the total volumes. P&G has 3 products: Joy (Performance, 12.1%), Ivory (Mildness, 15.5%) and Dawn (Performance, 14.1%).
The below pointers summaries the LDL market a) High level of penetration already achieved signifying a saturated market b) The market is fairly consolidated with 75% of volumes clocked by 3 players c) Low growth potential in the LDL market and the primary opportunities exist primarily through volume consolidation
d) Effects of cannibalization exist as a benefit achieved from a new product is bound to have an effect in the numbers of an existing segment.
Introduction of a new brand P&G has an option to launch a brand in performance/mildness/price segments. The following factors would need to be evaluated while identifying the segment in which the brand is launched a)
Based on the experience from Dawn’s introduction, it is estimated that the new brand can capture at least 60% of its share from the competitive brands. The remainders of the 40% sales are expected to be a resultant of the cannibalization effect. These numbers however are pure estimates and can vary based on the choice of segment. b) The capital investment required to cover the additional production capacity and bottle molds would be $20 million c) The marketing expenditure for the launch of the new brand will be $60 million ( $18 million for media support , $37 million for consumer and trade promotion support & $5 million for marketing expenses ) d) A national wide launch of a new brand will need at least 3 years which would include one year of implementation in a test market.
Based on a company research into the attributes which most users find important in their preferred LDL, the six point scale survey threw the top attributes as a) Does a good job on pots and pans b) Cuts Grease c) Does not spot or streak glasses or dishes d) Is low priced e) Makes long lasting suds
Recommendation for the Target Segment Based on the inputs received on all the three segments and the positioning of P&G , my recommendation would be to launch the brand in the price segment. This recommendation has been discounting the fact that the segment clocks the lowest volumes in the LDL market and that the brand loyalty from the consumers is very miniscule.
The below justifications are the primary reasons to support the decision a)
User Demographics & Macro Economic Environment: The current economy is going through a rough spot and with lower disposable income the budgets in the houses are likely to be tight. This would mean that in times to come , the importance of price sensitive LDL’s will grow and the consumers would demand efficient quality at a cost effective price. This coupled with the fact that 46% heavy users of LDL’s fall under the $15,000 and the unemployment rate at 52% (for households with female head) make it a viable proposition to target the price segment of the market. The other factor to be kept in mind is the increasing penetration of the ADW’s in the US market. ADW households are projected to use half the volume of LDL’s as compared to the non ADW households and the ADW penetration is projected to be close to 44% by 1990. All this results in the shrinking of the growth volumes for the LDL market (projected to grow at a 1% rate for the next 5 years). As per Exhibit 8 , the % of consumers who have not used ADW’s in the past 7 days is the highest in the price segment(53%) making it the most viable segment to target.
b) P&G’s current positioning: P&G has 3 brands in the mildness and performance segment which help them capture 42% of the LDL market. Based on research and the impact of a previous brand launch (Dawn), it is estimated that the new brand
launched would be able to capture 60% of its share from the existing brands. This effect of cannibalization will negate the positive impact of a brand launch in the mildness and performance segments as it would most likely eat into P&G’s share of existing brands. However in the price segment which is dominated by private labels and hold 28% of the market, the effect of the launch would be a positive factor. P&G would be able to establish a new market (price sensitive customers) which is forecasted to grow at a stable rate in the forthcoming years.
c)
Quality of Competition: The price segment is dominated by generic and private label brands. The companies are offering low quality products offering very little value (besides low pricing) to the consumers. Most of the companies do not have a strong marketing capability due to which they have not been able to establish any brand loyalty amongst the consumers. Based on the inference drawn from exhibit 4 that the fact that marketing expenditures and promotion typically represent 20% of the sales of an established brand and the fact that P&G accounts for half of the $150 million advertising budget, it is very likely that if market well a new brand in the price segment from the P&G stable can polarize the consumer volume in this fragmented segment. The other segments (mildness and performance) are dominated by 7 established brands from the leading three companies which would make it tough for a new brand to attract consumer interest. Considering the dwindling LDL market , the road to success seems easier in the less cluttered price market ( where consumers exhibit no brand loyalty)
d) Brand Superiority: With P&G’s brand supremacy, it would be easy for the company to attract first time consumers in the price segment. At the moment the consumers in the segment are able to derive only a price benefit from their brand. However with P&G’s manufacturing department committing to the ability to produce a brand with benefits of a performance brand at the price matching the existing price labels , it makes a very strong case for the choice of a price segment brand to be introduced. This parity would also reduce the sales to marketing expenditure (and profit) % from the existing 32% to 14% , thereby leading to better benefits for the company. The launch will complete the bouquet of
segments of the LDL market and will give consumers from each segment a choice of their preferred P&G brand. A majority of the top preferences from consumers (listed above in page 3) will thereby be met with this new price segment entry offering the benefits of superior performance and far greater value for the money paid.
Financial Analysis Total Market Size - $850 million Price Segment Share(@ 28%) = $238 million Estimated market share for new brand(60%) = $142 million Projected Profit from the new brand @ 12% = $17million Cost of new product launch = $20 Million Capex + $60 Million marketing expenses One of the important factors to keep in mind is the reduced level of cannibalization in this category due to no presence of a P&G brand. Also the drop in % sales available for marketing and profit. These factor make us believe that the operational expenses of the new brand in the price segment will be lower than the present rate thereby leading to higher profitability.
Conclusion
To conclude, it is recommended that P&G launches a brand in the price segment. This will help P&G gain market share through increase in volumes from an untapped market whilst retaining the consumer confidence and brand image.
