BOOTS: HAIR-CARE SALES PROMOTIONRichard Ivey School of Business Case

What are the Objectives of the Case??

What is Boots?About the Company…

•Founded by John Boot in 1849 as “The British and American Botanic Establishment” in Nottingham

• In 1883, established as a private company “Boot and Company Limited” by Jesse Boot

•Company Adopted its first logo

• In 1884, Boots opened its first store outside Nottingham in Sheffield.

•The company adopted a new black and white logo

•Boot Opticians, formed in 1987, became one of the United Kingdom’s leading chain of opticians.

Post war regeneration & development• In 1949, a factory for the manufacture of

cosmetics was opened at Airdrie in Scotland

•A new power house•Printing Works •A new pharmaceutical research building

in 1959 at Nottingham

Situation Analysis

(1)Competitor

Brand

(2)Retailer of Same

Category

(3)Consumer Behaviour

Situation Analysis (1/3)

Major Competitor brands:• Procter & Gamble• Alberto-Culver• L’Oreal

• For hair-care market in UK, the sales for popular consumer brands like P&G, L’Oreal, Alberto-Culver were directly proportional to the advertising expenditure.

• The market share for hair-care products was highly fragmented among the products of these brands and Boots saw an opportunity to be the retail hair care expert and to offer the latest ranges. Hence they built up on celebrity endorsements and hairdresser relationships.

• Research indicated that the consumers were not very brand loyal for variety of reasons. They mainly chose between packaging, advertising, price, ingredients, consistency, fragrance and so forth.

• Most Boots consumers bought both basic and premium brands.

Some facts about associated celebrities and the brands…

Name Description Specifics Market Awarenes

s1. Charles

Worthington

One of the most influential andcreative hairdressers. His name issynonymous with style, innovationand success.

• Five prestigious London salons tending to more than 2,000 clients a week.

• Celebrity following on both sides of the Atlantic

Medium

2. John Frieda

Entrepreneurial in spirit, global inimpact, John Frieda’s team ofcelebrity stylists (the “House ofExperts”) fuels the company’s newproduct initiatives with the insidetrack on hot, new celebrity hairtrends.

• Three salons in London, two in New York and one in Los Angeles.

• The product range is targeted for specific hair types.

Strong

3. Nicky Clarke

A popular hairstylist to the stars fromthe film, television, fashion, andmusic industries.

• Salons in London and Manchester

Medium

Name Description Specifics Market Awarenes

s4.

Umberto Giannini

One of the most esteemed and influential names in British air dressing. His company’s philosophy is simple — creating sexy, contemporary catwalk looks within its salons alongside a salon performance range of hair-care products to recreate catwalk glamor at home.

• Eight salons in the United Kingdom

Low

5. Toni & Guy

“At Toni & Guy we create wearable, catwalk-led hairstyles for people who want easy-care, trend-setting hairstyles. Be an individual; be ahead in the style stakes with Toni and Guy.”

• 250 salons in the United Kingdom

Strong

6. Trevor Sorbie

Trevor Sorbie, is considered as the showman of all hairdressers. His pioneering techniques and cuts — the Wedge, the Chop, and the Scrunch are now part of everyday salon parlance.

• Two salons in the United Kingdom

Medium

7. Lee Stafford

He is known for hairstyle and hair care.

• Three salons in the United Kingdom

Low

Distribution and Introduction dates

Brand Introduced Distribution

Charles Worthington

1996 Only Boots

John Frieda 1996 Widely Available

Nicky Clarke 1998 Widely Available

Umberto Giannini 1999 Widely Available

Toni & Guy January 2001 Only Boots

Trevor Sorbie September 2001 Only Boots

Lee Stafford September 2001 Only Boots

Situation Analysis (2/3)

•The major competitors in the supermarket segment were Tesco, Sainsbury’s and

Morrisons.

• Tesco was the largest supermarket chain in the UK with more than 1,800 stores and 45,000 employees.

• Sainsbury’s was the second largest with 700 stores.

• Both Tesco and Sainsbury’s offered a wide product assortment that included traditional supermarket items and online shopping, as well as CD’s, books, DVDs, wine, flower and gifts, kitchen appliances, banking services, and mobile phones.

• Morrisons had 400 stores and prided itself on providing quality products at the same low price across all of its U.K. stores. Morrisons had taken over Safeway in the United Kingdom in 2004.

• A second major hair-care competitor was Superdrug.• Started in 1966, Superdrug had grown to become

one of the largest health and beauty retailers, with almost 700 stores in UK.

• Superdrug stores layout, lighting and colour, allowed customers to move at their own pace in an attractive setting, thus providing a welcoming and relaxing environment.

Situation Analysis (3/3)Research indicated that consumers were not very brand loyal for a variety of reasons:

• First, there was a general belief by U.K. consumers that changing shampoo brands produced better results than continually using a single brand.

• Second, trends in buying behaviour led to changing preferences. Whereas in the ‘70s consumers wanted shampoos that were gentle, the ‘80s saw a greater emphasis on detangling, and in the ‘90s, shiny hair became more important.

• Third, it was difficult for consumers to identify meaningful differences between the various brands available in any given store. Consumers had a large number of choices that varied not only on brand name, but also packaging, advertising, price, ingredients, consistency, fragrance and so forth.

PROBLEM

Problem StatementThe main problem company was facing in this case is to select one of the three promotional alternatives:•3 for 2•GWP (Gift With Purchase)•On-pack Coupon (50p off)while keeping in mind his primary objective to drive sales volumes and trade up consumers from lower value brands while retaining or building brand equity.

ALTERNATIVES

Alternatives

1. Get three for the price of two (“3 for 2”)

2. Receive a gift with purchase (GWP)

3. On-pack coupon worth 50p

1. Get 3 for the price of 2

Advantages:• Consumer would get 3 items for a regular price buy of

two.• Consumers could combine any three items as they like

e.g. shampoo, conditioner and styling gel of same brand and product with least price would be offered free.

• Most competitors did not have the technology at the point of sale to imitate this promotion.

• Estimation was that sales would increase to 300% of pre-promotion sales.

• 60% of the customers would be just promotional buyers.

Disadvantages:• This will have clear cut indication of the stock

clearing strategy which could impact potential customers from buying the products.

• Premium products would lose their brand equity and may sound as some cheap promotion.

• Product partners(Hair dressers) may oppose this strategy for the dilution of their brand equity.

2. Receive a gift with purchase

Advantages:• Product sample would be given free along with a

regular purchase.• Additional packing would be used to pack the

free sample along with the existing one.• Estimated sales would increase by 170% of the

pre-promotional sales.• 40% of the customers would be just promotional

buyers.

Disadvantages:• Adding the sample would cost approximately

90p per unit for the product plus 3p per unit extra to secure the sample to the featured product.

• This is a very common strategy used by most of the retailers and can be easily imitated.

3. On-pack coupon worth 50p

Advantages:• Customers would be able to redeem their

coupons during their current store visit.• Sales are estimated to increase by 150% of

the pre-promotional sales.• 50% of the customers would be just

promotional buyers.• Coupons would enable multiple visits for a

single customer.

Disadvantages:• This is a very common strategy used by most

of the retailers and can be easily imitated.• Again this is one of the form of discounting

which can dilute the brand equity.• This is more o f a conservative approach.• This option has less estimated sales growth

as per market research.

Profits in each Strategy

Price Comparison Chart

Average Price per 250ml

Category Average Price per 100 ml

Average Price per 250 ml

Shampoo 1.62 4.05Conditioner 1.73 4.325

Gel 2.73 6.825Mousse 2.03 5.075

Hair-spray 3.73 9.325Wax 9.2 23

Serum 13.3 33.25Hair Brush 5.82 14.55

•Average bottle size (shampoo/conditioner) = 250ml

•Average pre-promotional price = £3.99. Lets assume it to be £4.

• Industry average retail margins on premium brands = 40%

•Manufacturer’s typical margin = 8-12%. Lets assume it to be 10%.

Manufacturing cost per bottle

•Cost to retailer = 60% of selling price = 0.6*4 = £2.4

•Let Cost to manufacturer = x 10% of x + x = 2.4 x = £2.1818

“3 for 2” Offer• Increase in sales = 300%

• If 100 units of hair care product were sold per day before the promotion, 300 bottles would be sold per day during the promotion (including the free bottles = 100)

• Cost = 2.1818*300 = £654.54

• Selling Price = 200*4 = £800

“3 for 2” Offer

•Profit = £800 - £654.54 = £145.46

•Profit/Bottle = £145.46/300 = £0.485

GWP (Gift with Purchase)

• Increase in sales = 170%• If 100 units of  hair care product were sold per

day before the promotion, 170 bottles would be sold per day during the promotion (plus the free bottles = 170 (75ml each)).

• Cost per 250 ml bottle = £2.1818 • Additional cost due to free sample = 93p (90p

per unit for the product plus 3p per unit to secure the sample to the featured product)

•  Thus, Cost per product = 2.1818 + 0.93 = £3.1118

GWP (Gift with Purchase)

• Cost = 3.118 * 170 = £529.006

• Selling Price = 170*4 = £680

• Profit = £680 - £529.006 = £150.994

• Profit/Bottle = £150.994/170 = £0.882

On Pack Coupon (50p off)

• Increase in sales = 150%• If 100 units of hair care product were sold per

day before the promotion, 150 bottles would be sold per day during the promotion.

• Cost = 2.1818 * 150 = £327.27

• Selling Price/ bottle = £4 – 0.5 = £3.5

• Selling Price = 150* 3.5 = £525

On Pack Coupon (50p off)

• Profit = £525 - £327.27 = £197.73

• Profit / Bottle = £197.73 / 150 = £1.318

A solution…Selecting Promotional Strategy

Although Maximum Profit lies with the 3rd strategy, from Robinson’s estimates but the first promotional strategy should be chosen because by considering the advantages and disadvantages. It would be better for the Boots company to adopt the first strategy i.e. “3 for 2”.

Choosing Promotional Strategy“3 for 2”

• It can not be easily imitated by the competitors.• It has more estimation of the increase in sales as

per the market research.• More customers would buy the product.• This will also help the Boots to push its non-

selling brands in this strategy, as general tendency of the customers is to buy different brands for different products but this offer would attract many customers to buy the 2nd or the 3rd product in the offer of their brand which they otherwise would not have purchased.

SUMMARY

What is Boots?

Situation Analysis Problem

Alternatives

Profits in each Strategy Selecting Promotional

Strategy

DISCLAIMERCreated by Saurabh Parihar, IIT

Kanpur. During a marketing internship by Prof.

Sameer Mathur, IIM Lucknow.