3 page case analysis Due 7/17 11:30 am

CASE

Benali Corporation

On Friday, January 7, 2010, Christina Fairchild, the newly appointed Product Man-

ager for hand and body lotions at Benali Corporation, was faced with her first de-

cision one day after her promotion. She had to decide whether to introduce a new

package design for the company’s Silky Smoothe Shaving Gel. The major questions

were whether a 5.5-ounce or a 10-ounce aerosol container should be introduced

and whether she should approve additional funds for a market test. Timing was crit-

ical because the incidence of women’s shaving would increase during the spring

months and reach its peak during the summer months.

Silky Smoothe Shaving Gel is marketing by Benali corporation, a manufacturer of

women’s personal-care products with sales of $225 million in 2009. The company’s

line of products includes facial creams, hand and body lotions, and a full line of

women’s toiletries. Products are sold by food-and-drug stores through rack jobbers.

Rack jobbers are actually wholesalers that set up retail displays and keep them

stocked with merchandise. They receive a margin of 20 percent off the sales price

to retailers.

Silky Smoothe Shaving Gel was introduced in the spring of 1996. The

product was viewed as a logical extension of the company’s line of hand and body

lotions and required few changes in packaging and manufacturing. The unique di-

mension of the introduction was that Silky Smoothe was positioned as a high-qual-

ity women’s shaving gel. The positioning strategy was successful in differentiating

Silky Smoothe Shaving Gel from existing men’s and women’s shaving creams and

gels at the time. Moreover, rack jobbers were able to obtain product placement in

the women’s personal-care section of drug and food stores, thus emphasizing the

product’s positioning statement. Furthermore, placement apart from men’s shaving

products minimized direct price comparisons with men’s shaving creams, since

Silky Smoothe Shaving Gel was premium-priced—with a suggested retail price of

$3.95 per 5.5-ounce tube. Retailers received a 40 percent margin on the suggested

retail selling price.

Silky Smoothe Shaving Gel has been sold in a tube since its introduction.

This packaging was adopted because the company did not have the technology to

produce aerosol containers in 1996. Furthermore, the company’s manufacturing

policy was and continues to be to utilize existing product capacity whenever pos-

sible. As of early 2010, all products sold by Benali Corporation were packaged in

tubes, bottles, or jars.

Silky Smoothe had been profitable from the time of its introduction. Al-

though the market for women’s shaving cream and gels was small, compared to

men’s shaving creams and gels, Silky Smoothe’s unique positioning had created a

“customer franchise,” in the words of Annie Walker, the Silky Smoothe brand as-

sistant. “We have a unique product for the feminine woman who considers herself

special. Silky Smoothe Shaving Gel sales were $3,724,000 in 2009 with a 1,960,000

unit volume (see Exhibit 1).

THE COMPANY AND THE PRODUCTS

Sales $3,724,000

Cost of goods sold (including freight) 784,000

Gross profit $2,940,000

Assignable costs:

Advertising and promotion costs $1,154,540

Overhead and administrative costs 421,560

Brand contribution $1,363,900

Research on women’s shaving commissioned by Fairchild’s predecessors over the

past decade produced a number of findings useful in preparing annual marketing

plans for Silky Smoothe Shaving Gel. The major findings and selected marketing

actions promoted by the findings are described below.

Methods of Hair Removal and Shaving Frequency

Women use a variety of methods for hair removal. The most popular is simply shav-

ing with razors and soap and water. Shaving with razors and shaving cream and

gels is the next most used method, followed by shaving with electric razors. Women

typically have their own razors and purchase their own supplies of blades. Approx-

imately 45 million women shave with a razor; 15 million women use electric

shavers.

Over 80 percent of women shave at least once per week, and women who

work outside the home shave more frequently than those who do not. On average,

women shave eleven times per month and shave nine times more skin than men

per shaving occasion (men shave 24 times per month on average). Shaving fre-

quency varies by season; with the summer months producing the greatest shaving

activity (see Exhibit 2). Accordingly, in-store promotions and multipack deals were

scheduled during the summer.

Attitudes Toward Shaving

Women view shaving as a necessary evil. When queried about their ideal shaving

cream or gel, women typically respond that they want a product that contains a

moisturizer, reduces irritation, and makes shaving easier. It appears that four out of

five women use a moisturizer after shaving.

These specific findings resulted in a change in the Silky Smoothe Shaving

Gel ingredient formulation in 2000. Prior to 2000, the product contained only Aloe.

In 2000, three additional moisturizers were added to the product, including vitamin

E. These ingredients were emphasized on the package and in-store promotions and

media advertising.

EXHIBIT 1

Silky Smoothe Shaving Gel Income Statement for the Year Ending

December 31, 2009

WOMEN’S SHAVING

EXHIBIT 2

Seasonality of Women’s Shaving and Shaving Area

(Percentage of U.S. Women)

100%

80%

60%

40%

20%

10%

0%

Winter Summer

Market Size and Competitive Products

Industry sources estimate the U.S. dollar value of women’s “wet shaving” products

to be over $300 million in 2009, at manufacturer’s prices. Sales growth has been in

the range of 3 to 5 percent per year since 2004. Razors account for the bulk of sales

growth and annual sales.

Historically, women who used shaving cream or gels had few “women’s-

only” products to choose from. However, since 2004, a vibrant women’s shaving

cream and gel category has emerged due to new-product activity, increased adver-

tising and promotion, and improved shaving technology. Some industry analysts

pointed toward the introduction of Gillette’s Sensor Razor for Women as one im-

portant growth stimulant. Other analysts cited improvements in the quality of shav-

ing creams and gels for women and increased advertising. Until late 2003, only two

competitive products were normally available in the drug and food-and-drug stores

served by Benali Corporation rack jobbers. These products were S.C. Johnson’s

Skintimate (formerly called Soft Sense) and Soft Shave, a lotion sold by White

Laboratories. By late 2009, seven major competing brands existed in the women’s

shaving cream or gel category even though all were not stocked by stores that car-

ried Silky Smoothe Shaving Gel. Exhibit 3 below show representative brands, sizes,

forms (cream, gel, lotion), and typical retail prices. Benali Corporation advertising

and promotion for Silky Smoothe Shaving Gel had responded to the increase in

competition. Expenditures had increased each year since 2004, reaching 31 percent

of sales in 2009.

By 2009, the dominant packaging for women’s shaving cream or gels had

become the aerosol container. Only a few shaving gels and brands were sold in

tubes or plastic bottles, including Silky Smoothe Shaving Gel, Soft Shave lotion,

and Inverness Ultra-lubricating Shaving Gel.

Entire

Leg

From the

knee down Underarm

Bikini

line

The idea for a new package design was provided by Fairchild’s’ brand assistant, Annie

Walker. She originally proposed the new package to Fairchild’s’ predecessor in July

2009. Her recommendation was based on four developments. First, unit sales volume

for Silky Smoothe Shaving Gel had declined and then plateaued in recent years (see

Exhibit 4). Second, the growth of Silky Smoothe Shaving Gel had strained manufac-

turing capacity. In the past, production of Silky Smoothe Shaving Gel had been easily

integrated into the firm’s production schedules. However, growth in the entire line of

hand and body lotions, coupled with Silky Smoothe Shaving Gel sales, had overbur-

dened production capacity and scheduling. Moreover, inspection of shipping records

indicated that the product’s fill rate (that is, Benali Corporation’s ability to supply

quantities requested by retailers) had dropped, leading to out-of-stock situations and

lost sales. Third, the company had no manufacturing capacity expansion plans for the

next three years. And finally, the aerosol packaging had become the dominant design

for women’s shaving creams and gels by 2009.

Walker’s observations prompted a preliminary study of outsourcing opportu-

nities for a new package design. Her study included visits to several firms specializing

in “contract filling” and requests for production proposals. A contract filler purchases

cans, propellants, caps, and valves from a variety of sources and then assembles these

components, including the product fill (that is, shaving gel), into the final container.

The production method is called pressure filling. In this method, the cap and valve

are inserted in the can and then sealed. At the same time, a vacuum is created in the

container. The product fill and propellant are then injected under high pressure through

the valve into the can.

Her review of supplier proposals led her to choose one that was capable of

meeting production requirements and providing certain “value-added” features. For

example, the chosen supplier could deliver propellant with no chlorofluorocarbons

(CFCs), which are harmful to the earth’s ozone layer. Also, the container’s bottom

would be rust-proof and leave no rust ring when wet. This feature was desired because

most women shave in the bathtub or shower and tend to leave a wet can on the tub’s

porcelain, which can leave a rust stain. In addition, the supplier could produce and

NEW PACKAGE DESIGN

EXHIBIT 3

Representative Women’s Shaving Products

Brand (Manufacturer) Size a Form Price/Price per Oz.

Skintimate (S.C. Johnson) 7 oz. Gel $2.48 - $.35

Skintimate (S.C. Johnson) 10 oz. Cream $2.48 - $.25

Satin Care (Gillette) 6 oz. Gel $1.97 - $.33

Hers (Medtech Labs) 10 oz. Cream $1.78 - $.18

Soft Shave (White Labs) 8 oz. Lotion $1.82 - $.23

Barbasol Pure Silk (Pfizer) 7 oz. Cream $1.99 - $.28

Aveeno (Ryoelle, Div. of S.C. Johnson) 7 oz. Gel $3.69 - $.53

Inverness Ultra-Lubricating (Inverness) 6 oz. Gel $2.15 - $.36

Silky Smoothe Shaving Gel (Benali) 5.5 oz. Gel $3.95 - $.72

a Several manufacturers also sold smaller 2, 2 1/2, and 2 3/4 ounce sizes designed for travel purposes.

ship product directly from its manufacturing facility at a lower per unit cost than the

tube container and was prepared to maintain an adequate safety stock of inventory.

The only drawback in the supplier’s proposal was that only 5.5- and 10- ounce con-

tainers could be produced without making significant and expensive changes in its

equipment. The typical sizes for women’s shaving creams and gels were 7-ounce and

10-ounce containers.

The estimated total cost of producing and delivering to retailers a 10-ounce

aerosol con of shaving gel was $0.29. A minimum order of 100,000 10-ounce cans

would be required. Walker believer the suggested retail price should be set at $4.25

per 10-ounce can, reflecting Silky Smoothe’s premium-price strategy. The estimated

total cost of producing and delivering to retailers a 5.5-ounce aerosol can of shaving

gel was $0.24, and the suggested retail price would be $3.50. A 100,000 unit minimum

order would be required. Walker recognized that the price per ounce of the aerosol

containers was lower than the price per ounce for the tube package. She said the lower

price reflected competitive realities in the category: “The dominant players (S.C.

Johnson and Gillette) are very price competitive. We can retain our relative price pre-

mium image even at the lower prices. I fully expect some cannibalization of the tube

will take place but I am confident the incremental volume will more than offset it.”

A one-time set-up charge for the Silky Smoothe Shaving Gel production line and

packaging graphics was $10,000, due and payable by Benali Corporation upon the

signing of the supply agreement. This charge would be the same whether one or both

sizes were produced.

EXHIBIT 4

Silky Smoothe Shaving Gel Unit Sales Volume, 1996-2009

In November 2009, Walker received authorization from Fairchild’s’ predecessor to

spent $35,000 to assess consumer response to the proposed container. Her proposal

was approved on the basis of the cost data provided and the recognition that use of

a contract filler would require no incremental investment in company manufactur-

ing capacity.

Walker commissioned a large marketing research firm to conduct four

focus-group studies. Two focus groups would involve current users of Silky

Smoothe Shaving Gel, and two focus groups would involve users of shaving creams

and gels other than Silky Smoothe Shaving Gel and soap and water users. The prin-

cipal information sought from these focus group studies was a follows:

1.Are present customers and noncustomers receptive to the new package?

2.At what rate would present customers convert to the aerosol can, and

would noncustomers switch over to Silky Smoothe Shaving Gel?

3.Where, in drug and food-and-drug stores, would customers and noncus-

tomers expect to find the aerosol can?

4.Is the suggested retail price acceptable?

In addition, the marketing research firm was asked to examine analogous situations

of package changes and report its findings.

In late December 2009, the marketing research firm presented its findings

to Walker, two days after Fairchild’s’ predecessor resigned to take a position with

another company. There were five principal findings from the focus groups:

1.Customers and noncustomers were unanimously in favor of the aerosol

can. The 10-ounce can was the favorite, since it would require fewer pur-

chases.

2.Twenty percent of Silky Smoothe Shaving Gel customers said they would

convert to the 10-ounce can: 25 percent said they would convert to the

5.5-ounce can.

3.One-fourth of the noncustomers said they would switch over to the

aerosol can irrespective of can size. These consumers’ preference for the

aerosol over tube package was their principal reason (in addition to price)

for not buying Silky Smoothe Shaving Gel previously.

4.Customers expected to find the aerosol can next to the tube container.

Noncustomers expected to find the aerosol container stocked with

women’s toiletries.

5.The pricing was acceptable and actually favored by current customers.

Noncustomers thought the suggested retail price was somewhat high, but

liked the value-added features and would try the product.

In addition to these findings, the marketing research firm presented ten case

histories in which marketers of men’s shaving cream had introduced a new package.

(There was no distinction made with respect to size of package, whether the package

PRELIMINARY TESTS

change was from aerosol to non-aerosol, or vice versa, or previous sales perform-

ance.) Two statistics were highlighted: first-year sales with the combined packages

and the cannibalization rate for the existing package. According to the report,

It is difficult to draw one-to-one comparisons between the experience of other

shaving creams and gels and that of Silky Smoothe Shaving Gel, given its

unique market position. We have tried to after examining ten product-design

changes. Our estimates (Exhibit 5) are broken down into a “high” and a “low”

forecast for each package size. Seven out of the ten products studied experi-

enced the “high” situation presented; three experienced the “low” situation.

We see the 10-ounce package as producing the largest increase in ounces sold.

Even with the cannibalism effect operating, we believe that an additional

package will produce higher sales, in ounces, than the Silky Smoothe Shaving

Gel forecasted volume of 10,754,174 ounces (1,953,668 5.5-ounce tubes) for

2010. Only a market test can indicate what will actually occur.

EXHIBIT 5

Silky Smoothe Shaving Gel Sales Forecasts by Size and Type of Container

Forecast A: Low estimate for 5.5-ounce aerosol package addition

5.5-ounce tube package volume 8,600,000 ounces

5.5-ounce aerosol package volume:

Cannibalized volume 2,145,174

Net new volume 300,000 2,445,174 11,045,174 ounces

Forecast B: High estimate for 5.5-ounce aerosol package addition

5.5-ounce tube package volume 8,400,000 ounces

5.5-ounce aerosol package volume:

Cannibalized volume 2,345,174

Net new volume 500,000 2,845,174

11,245,174 ounces

Forecast C: Low estimate for 10-ounce aerosol package addition

5.5-ounce tube package volume 9,000,000 ounces

10-ounce aerosol package volume:

Cannibalized volume 1,745,174

Net new volume 800,000 2,545,174

11,545,174 ounces

Forecast D: High estimate for 10-ounce aerosol package addition

5.5-ounce tube package volume 9,600,000 ounces

10-ounce aerosol package volume:

Cannibalized volume 1,145,174

Net new volume 1,500,000 2,645,174

12,245,174 ounces

Walker presented the research firm’s findings to Christina Fairchild’s on January

7, 2010, one day after Fairchild became Product Manager for hand and body lotions.

Fairchild listened attentively as Walker summarized the research findings and rec-

ommended that a market test be conducted to determine the best package size.

Walker’s test-market recommendation included a proposal to introduce the

new package design in a limited cross-section of drug and food-and-drug stores,

including heavy-volume and low-volume stores, that presently carried Silky

Smoothe Shaving Gel. Test stores would be isolated geographically from non-test

stores. The new package would be placed among women’s toiletries, and the test

would run for three months, beginning April 1, 2010. The April 1 start date was

necessary to assure that adequate supply of the new package was available. One-

half of the stores would carry the 5.5-ounce container, and the other half would

carry the 10-ounce container. The test would include a full complement of promo-

tional aids, including newspaper ads and point-of-purchase displays, and would ap-

proximate a full-scale introduction.

Walker’s estimated cost for the test market was $30,000, which included

the cost of gathering marketing research data on the cannibalization rate and incre-

mental sales growth. In addition, the $10,000 supplier set-up charge would have to

be paid. However, Walker negotiated a 20,000 unit minimum order for each package

size for the test market. No other incremental costs would be charged against the

products. Sales and marketing efforts for the existing tube package would remain

unchanged during the course of the test.

Late in the evening on Friday, January 7, 2010 Fairchild found herself con-

sidering whether the 5.5-ounce or the 10-ounce container should be introduced.

She believed it unwise to introduce both sizes, given the uncertainty of market ac-

ceptance, and packaging practices of most competitors. She also wondered whether

Walker’s test-market proposal should be adopted. Fairchild was confident that given

the product’s sales history, the existing Silky Smoothe Shaving Gel package would

produce sales of 1,953,668 units (a .32 percent decrease from 1999) in 2010 if no

new package was introduced. She was also confident that a new package would si-

multaneously cannibalize the existing package and generate incremental unit vol-

ume. Therefore, she knew that her decision on the package sizes and test market

would have to focus on what was best for the Silky Smoothe Shaving Gel product

line, assuming an aerosol container would be marketed alongside the original tube

container.

Fairchild also sensed that the new package had become a pet project for

Walker. Walker had championed the idea for six months in addition to working on

a variety of other assignments. Furthermore, she had heard that Walker felt that she,

not Fairchild, should have been promoted to Product Manager for hand and body

lotions given her association with the line for five years. Given the situation,

Fairchild believed that her handling of this decision would affect her working rela-

tionship with Walker.

THE PACKAGING AND TEST MARKET DESIGN