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Integrated Project Pitch Book

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Detailed pitch book of research on Barbasol shaving cream company, along with a full industry and financial analysis

Detailed pitch book of research on Barbasol shaving cream company, along with a full industry and financial analysis

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  • Data sources: AC Nielsen data June 2009-2010, Mintel/US Census Bureau, First Research industry analysis 8/9/10
  • Survey Source: Mintel 2010 survey of 10,431 men 18+ who use shaving cream/gel
  • We have been asked several times by our distributors to sell gel
  • Transcript

    • 1. Barbasol Acquisition Pitch Book
      For: Diversified Products Inc.
      Prepared by: Rook Consulting
      Cohort C – Team 2
      December 13, 2010
      Rook Consulting Project Team:
      Hythem Abdelwahab
      Tejas Atawane
      Eszter Hamori
      Kevin Harder
      Molly Plimpton
      Carl Uttaro
    • 2.
      • Executive Summary
      • 3. Company Profile
      • 4. Shaving industry overview
      • 5. Current Valuation
      • 6. Adjust Pricing
      • 7. Launch Economy Gel Product
      • 8. Valuation of Acquisition
      • 9. References
      Table Of Contents
    • 10. Executive Summary
    • 11. i
      Executive Summary
      Please Note: Because Barbasol provides 89% of the manufacturer revenue for its parent company Perio Inc., it is proposed that Diversified Products Inc. purchases Perio in its entirety. As a result, The financial valuations in this pitch book are based off of the entire Perio, Inc. organization. However, all other analyses relate specifically to the Barbasol brand and its competitors among the men’s shaving cream market only.
      Introduction
      The recent US economic recession has shifted consumer purchasing towards economy products, a trend which is forecasted to persist for the foreseeable future. In a recent study, 94% of consumers surveyed stated they were “likely” or “very likely” to continue buying lower-priced products. As Barbasol is the dominant low price men’s shaving product, it is uniquely positioned to capitalize on the post-recession consumer.
      Company Profile
      Barbasol was founded in 1919 by MIT professor Frank Shields and was an instant innovator being the first pre-lathered shaving cream. The brand is well-known for its “barber-pole” striped packaging and has been famous throughout the years being endorsed by male figures such as baseball star Babe Ruth and football coach Knute Rockne. The company was run independently for its first 43 years until it was acquired by pharmaceutical giant Pfizer from 1962. Barbasol was then purchased by Perio Inc. in 2001. The company has seen increasing revenues from $18 million in 2001 to approximately $26.7 million in the most recent 12 months. This success is in spite of the recent US economic recession and the failed launch of a Barbasol Ultra line which was misaligned with corporate strategy and culture.
      Industry Overview & Competition
      The $338M men’s shaving cream market, a segment of the personal care and grooming products industry, is comprised primarily of two major product segments – shaving gel accounting for 66% and shaving foam accounting for 29% of retail sales. Barbasol is positioned as a low-price, high volume product within the men’s shaving foam market – Barbasol products account for 49% of foam units sold but only 37% of foam retail sales dollars. Barbasol’s largest competitor in the men’s shaving foam market is Gillette, a subsidiary of Proctor & Gamble Co. (PG), which offers two foam product lines, Gillette Foamy and Gillette Series Foam, which account for 45% of foam units but 51% of foam retail sales respectively. Although Barbasol is very successful in the foam segment, the market share of foam units sold compared to the entire industry has been decreasing steadily.
      n = 69
      Gel/Foam Usage by Age
      Note: Data for responses other than gel or foam preferences (such as cream, oil or water) are not shown on chart.
      Source: Rook Consulting Shaving Cream Survey 2010
    • 12. ii
      Executive Summary
      Gillette and Edge – a subsidiary of Energizer Co. (ENR) – have captured much of the younger age segments by offering several types of shaving gel, a product used on average more than twice as often by 18-34 year old males as foam. As a market segment, gel accounts for 66% of retail sales for all shaving cream product types, showing the high margins that the product offers. Because Barbasol does not currently offer a gel product, it is not taking advantage of a large and profitable area of the industry.
      Adjust the pricing of existing foam products
      Rook Consulting’s first recommendation upon acquiring Barbasol is to raise the price of its current products in order to capture untapped value in the market. Although Barbasol is the primary low-price shaving foam, there is room for a price increase because of the 7-cent gap in per unit price between Barbasol and Gillette Series Foam. After analyzing price elasticity, Barbasol foam products can be increased 0.5-cents per ounce in order to maximize profits. This price adjustment will result in a 1% loss of unit sales in the first year but generate $0.86M additional contribution margin in the first year and increase the firm’s value in perpetuity by $2.3M.
      Launch Shaving Gel product
      US men’s shaving consumers, particularly 18-34 year old males, clearly prefer gel products as shown by the disproportionate breakdown in sales figures between the two categories. We believe that Barbasol must re-enter the gel market after their failed attempt at a premium line and do so using a similar positioning and strategy that has been successful in foam – low price and high value. There are very few brands in the gel economy segment and there is an opportunity to provide a lower price alternative to Gillette Series gel and Edge Gel. Barbasol will be able to maintain a cost advantage over Gillette and Edge because they have 50% spare capacity.A gel product launch will generate $2.5 million in the first year and increase the firm’s value by $21.5 million.
      Conclusion
      Barbasol is a stable and fairly strong brand as it currently stands, but under its current management and strategy, it is not taking full advantage of the opportunities in the market, specifically in regards to price and product availability. Rook Consulting estimates the total current value of Perio to be $52.7 million. With our projected future growth opportunities, the range of prices that DPI should offer are between $45 million and $68.8 million. Based on this investment, Barbasol is an attractive acquisition target that we estimate to produce an ROI of between 73% and 13.6% over the next five years.
      US Male Shaver Facts:
      79%
      Purchase shaving cream themselves.
      Think all grooming products work the same
      Occasionally or regularly try new shaving products
      Buy shaving cream and razor from the same brand
      55%
      51%
      23%
      Source: Mintel Data
    • 13. Company Profile
    • 14. Barbasol was introduced to the market by the Napco Corporation. Barbasol quickly took off in popularity among US shavers and Frank Shields, the inventor (see sidebar), established The Barbasol Company in 1920.
      The Barbasol Company owned the brand for the next 42 years. Barbasol’s innovative product immediately helped it become a market leader. Throughout the years, Barbasol was even endorsed by various sports superstars, such as Babe Ruth in 1923 (pictured right).
      The company changed the product format from a thick cream in a tube to a “softer, fluffier” composition we now recognize as shaving foam and began packaging in the aerosol cans that are ubiquitous today.
      Throughout Barbasol’s history, the brand has been identified by the characteristic red stripes of traditional barber shop poles.
      “No brush, no lather, no rub in.”
      - Original 1920 Barbasol slogan
      1
      An Old and Well Known Shaving Brand
      Barbasol Original Shaving Cream in a Tube (1920)
      Success through Innovation
      Source: Perio Inc. Company home page
      Early Barbasol Advertising Messages
      Barbasol Inventor
      In 1919, MIT Professor Frank Shields succeeded with the invention
      of a shaving cream that did not have to be worked into a lather.
      Source:
      Babe Ruth Barbasol endorsement (1923); Perio Inc. Company homepage
      For Best Results: shave with Barbasol (1949); Westervin.com.
      Source: Perio Inc. Company homepage
      Company Profile
    • 15. 2
      2008 Recession Boosted Value Oriented Products
      Barbasol Unit Sales Market Share
      Recession has Changed Consumers
      When Asked: “How likely are you to continue buying lower-priced products?”
      94%
      “Likely” or “Very Likely”
      Highlights:
      • Consumers are more likely than ever to be buying lower-price shaving cream products.
      Source: Bernstein US Consumer Survey
      Source: Nielsen Data
      Barbasol Brand History
      2001: Barbasol bought by
      1949:
      Created Aerosol Shaving Cans
      1919:
      Barbasol Invented
      Background on Perio
      2007: Launch Barbasol Ultra
      Perio, Inc. began as Columbus Dental in 1903. In 2001 they transformed from a dental company to a shaving products company by purchasing Barbasol in 2001. Perio now owns aftershaves and body wash.
      1962: Barbasol bought by
      1923:
      Babe Ruth endorses Barbosal
      2010: Barbasol Ultra Pulled
      1910
      1920
      1930
      1940
      1950
      1960
      1970
      1980
      1990
      2000
      2010
      2020
      Company Profile
    • 16. 3
      Company Has Expanded Accordingly
      Perio Inc. Senior Management Team
      A Company That Stands on American Values
      Building the Community
      • Both management and workforce are hired predominantly from Ohio
      • 17. Local town applicants first in line for new jobs
      Conservative values
      • Keeping Jobs in Ohio and America
      • 18. Family-oriented operations
      “The Perio company reflects the values and attitudes that we so cherish here in Ohio.”
      - U.S. Rep. John Boccieri
      Consumer Perception of the Company
      “I was impressed with the fact that the president began the groundbreaking ceremony with prayer. That's an indication of the type of company they are and will be.”
      “[The speech given by the CEO o Perio at the grounding of the new Ohio factory was] impressive and I hope is a true indication of how the company is run.”
      New Barbasol Factory
      "This is a family-oriented operation and a great place to work."
      Source: Ashville Times Gazette.
      Barbasol press release: May 25, 2010
      Organizational Structure
      • Senior management team is vertically-oriented
      • 19. Total employees have grown from 4 to 35 since 2006, due to increasing growth and in-house manufacturing
      • 20. Majority of staff managed under Operations Group
      August 13, 2009: Perio senior management with local Political leaders at the ground breaking of a new plant in Ashville, OH.
      Source: Ashville Times Gazette.
      Source: Perio Inc. LinkedIn Company Profile
      Company Profile
    • 21. Expansion of Shaving Product Portfolio - Mixed Results
      Current Perio Manufacturer Revenue by Product
      Barbasol Aftershave
      Highlights:
      • 89% of Perio Inc. revenues from the Barbasol brand.
      • 22. Perio’s other products include a women’s shaving gel and body wash.
      • 23. Because of the single Management Team, we recommend buying Perio as a whole.
      • 24. Barbasol Soothing Aloe is #1 retail SKU of all men’s shaving cream products.
      • 25. Uniform packaging shows characteristic stripes modeled after traditional barber’s pole.
      Barbasol Ultra
      (Discontinued in 2010)
      9
      Source: Nielsen Data adjusted for Wal-Mart
      Barbasol Original
      Source: Barbasol.com
      Company Profile
      4
    • 26. 5
      Failure of Previous Product Launch - Barbasol Ultra
      Misalignment with Company Strategy and Core Values
      Brand “Echo”
      Highlights:
      • New product line was not aligned with corporate strategy & culture.
      • 27. Barbasol is a “historic brand”
      • 28. Barbasol is “inexpensive and works well with my skin.”
      • 29. I chose this shaving cream brand because it’s “cheap, old fashioned and works”.
      • 30. “It [Original Barbasol] is effective and priced the way a daily use product should be priced: reasonably.”
      • 31. I chose Barbasol because of its “price”, it’s “cheap”.
      • 32. “I think it’s good quality”.
      90% of respondents who took this survey age between 24-34 years.
      • Company specifically positions itself as a “value brand” according to VP of Product Management, Jill Crumbacher.
      • 33. Barbasol’s strategy and competitive advantage has always been cost leadership, not differentiation.
      • 34. Barbasol “Ultra” product line originally launched in 2007 as a premium brand of foam with higher-end ingredients.
      Failure in Targeting Consumers
      • Barbasol Ultra attempted to be a premium product targeting less price sensitive consumers. However Perio failed to support the launch by advertising to a new target group.
      • 35. Since Barbasol Ultra’s target segment was not clearly identified the new product’s inherent weakness was the cannibalization potential of Barbasol’s original product.
      Source: Rook Consulting Shaving Cream Survey 2010
      As a Result…
      • Manufacturer sales of Barbasol Ultra in 2009 had only reached approximately $2 million or 4% of company revenues.
      • 36. In 2010, the Company began pulling the gel product from shelves, citing poor performance and its intention to focus on core Barbasol products.
      Company Profile
    • 37. 6
      Channel Distribution of Original Barbasol Products
      Retail Direct:
      Supermarket & Chain Drug
      Wal-Mart
      Distributors
      Highlights:
      • Manufacturer Sales Dollars by Channel:
      • 38. Retail Direct: 36%
      • 39. Wal-Mart: 48%
      • 40. Distributors: 16%
      • 41. Overall, according to Barbasol’s VP of Product Management, approximately 75% of total manufacturer sales are direct purchases by retailers.
      • 42. Consequently, distributors are only used by smaller, independent retailers that cannot afford the minimum order shipment quantity.
      • 43. Thus, distributors are offered the same MSP as other customers in order to maintain direct purchases from the largest buyers.
      Company Profile
    • 44. 7
      Perio Inc.’s Key Strengths and Opportunities
      Performance of a Target Acquisition Company
      Highlights:
      • Perio, Inc. is a strong company, but not perfect.
      • 45. Rook Consulting believes the company is near its maximum potential in the current state.
      • 46. Barbasol needs additional capital resources to support long-term growth in sales and product development.
      • 47. Perio Inc. has a history of core asset divestitures as exemplified by selling Franklin Dental
      High Performance,
      Bad Team
      High Performance,
      Strong Team
      • The Barbasol brand and its parent company, Perio, are in perfect position to be acquired.
      • 48. Company has seen increasing revenues since Perio acquisition and the US economic recession, but failed with the launch of Barbasol Ultra because of misalignment with corporate strategy and culture.
      • 49. Perio has divested before – in 2001 when it acquired Barbasol, it sold its core asset at the time, Franklin Dental Company.
      Weak Performance,
      Strong Team
      Weak
      Performance,
      Bad Team
      Barbasol’s key strengths and opportunities to improve using the 7-S model:
      • Systems: “Select International” administrative software to streamline application process and shorten time-to hire process and high-end technology such as Six-Sigma and Lean manufacturing practices.
      • 50. Staff/Skills: Company has hired mostly manufacturing staff in the last year now that it runs production internally at new factory, but the sales and marketing staff could be expanded in order to foster continued growth in revenues.
      • 51. Strategy:Perio has been successful with its core products but has not yet had the vision to achieve success in truly growing the company from good to great – such as having more products and creating higher margins.
      • 52. Shared Values: Rook Consulting believes that one of Barbasol’s strongest traits is its long-standing tradition of being a company based on values such as hiring locally and having a conservative, family-oriented culture.
      Source: http://www.free-press-release.com/news-select-international-announces-benchmarks-successes-with-new-client-barbasol-1274109461.html
      Company Profile
    • 53. Shaving Industry Overview
    • 54. 8
      Men’s Shaving Cream Industry Overview
      Industry Analysis
      Comparison of LTM Retail Sales by Product Type
      The men’s “shaving cream” market is made up of sales from several product types: gel, foam, cream and others such as butters and oils.
      Shaving gel and foam make up approximately 94% of sales revenues in the whole industry, so as a result of the lack of demand for other shaving products, Rook Consulting does not believe those markets should be of interest to Barbasol.
      One of the most powerful forces in the industry as a whole is the power of retail buyers. In fact, Wal-Mart makes up 44.9% of all retail sales in the market.
      The industry is very reliant on macro-level growth factors such as the overall growth in the male population of the US. Overall, the men’s shaving cream market is projected to by grow 2.7% per year for the next 5 years.
      Highlights:
      • Last Twelve Months (LTM) Men’s shaving cream retail sales of $338M.
      • 55. Forecasted growth rate of 2.7% annually for the next 5 years.
      • 56. Wal-Mart comprises and estimated 44.9% of retail sales.
      Source: Nielsen Data adjusted for Wal-Mart
      Men’s Shaving Cream Retail Sales
      Last 12 Months Retail Sales by Product Category:
      Gel: $221M
      Foam: $99M
      Cream: $15M
      Other: $3M
      Total: $338M
      Source: Nielsen Data adjusted for Wal-Mart
      Source: Nielsen Data adjusted for Wal-Mart and Mintel Report
      Industry Overview
    • 57.
      • Each major product segment is highly fractured – two major players in each that dominate the market share.
      • 58. In foam, Barbasol and Gillette account for 88% of retail sales dollars with the remainder coming from fewer than 10 competitors.
      • 59. In the gel segment, Edge and Gillette make up 75% of retail dollars, and the other 25% is spread among approximately 100 other companies.
      • 60. Currently, Barbasol does not offer any products in the gel segment – the former “Ultra” product line did offer a gel line extension (from its initial launch as a premium foam), but the company began to discontinue the entire line in 2010.
      9
      Gel and Foam Segments
      Comparing the Gel and Foam Market Segments
      Highlights:
      • Barbasol is one of the two prominent market leaders in foam, but does not offer a gel product.
      • 61. Product variety and ability to segment the market have benefited the competition.
      Retail Sales Market Share - Foam segment
      Retail Sales Market Share – Gel segment
      Total Foam Retail Sales: $99 million
      Total Gel Retail Sales: $221 million
      Source: Nielsen Data
      Industry Overview
    • 62. 10
      Price Analysis of the Gel and Foam Segments
      US Shaving Foam Price Points
      US Shaving Gel Price Points
      Highlights:
      • Foam market is evenly divided between Economy and Mid-Price Segments.
      • 63. Mid-Price is the largest Gel segment with little competition from Economy.
      • 64. Gel market has substantial Premium and Super Premium consumers
      Price segments were identified using scatter plot analysis of price per can which is how the typical consumer perceives the price point. All products which deviate significantly from the standard 11oz foam and 7oz gel size have been removed. The exceptions are Schick Hydro Gel which is an 8.4oz can and Gillette Series Foam which is a 9oz can.
      Industry Overview
    • 65. Current Valuation of Perio, Inc.
    • 66. 11
      Assumptions for Initial Financial Analysis
      Highlights:
      To purchase Barbasol, DPI must purchase the parent company, Perio, because Barbasol provides 89% of the manufacturer revenue for Perio.
      Current Valuation
    • 67. 12
      Perio Company Projected Income Statement
      Current Valuation
    • 68. 13
      Perio Company Projected Balance Sheet
      Current Valuation
    • 69. 14
      Perio Inc. Valuation
      Highlights:
      • We believe a valuation of $52.7 million would be attractive to Perio.
      • 70. At 1.68x 2011E Revenue, this valuation is in line with personal care companies in the market.
      Current Valuation
    • 71. 15
      Notes to Financial Statements: Revenues
      Current Valuation
    • 72. Recommendations
      #1: Adjust Pricing for Existing Products
    • 73. 16
      Situational Analysis: Re-Pricing Foam
      Company
      Consumers
      Threats:
      • Barbasol‘s failure to drive satisfactory net income despite huge unit market share and sales revenues.
      Opportunities:
      • Capitalize on Barbasol‘s high penetration and consumer perception as value brand.
      • 74. Capitalize on Perio’scompetitive cost efficiency.
      • 75. Large bottom line (8%) net income increase associated with minor price change (1%)1
      Threats:
      • Consumers tendency to switch to higher quality products at more competitive price points or other cost / price competitors.
      Opportunities:
      • No price competitor in economy segment (at a retail price $1.69)
      • 76. 60% of consumers trading down during the prior 12 Months, considered themselves unlikely to trade back Up.2
      Context
      • Indicators of economic recovery from current recession.
      Collaborators
      Competitors
      Threats:
      • Competitors decreasing their prices to reach more competitive price points.
      • 77. Introduction of a lower priced shaving foam by current competitors or new entrants.
      Opportunities:
      • Capitalize on Barbasol‘s high penetration and mega-volume cost advantage in a highly saturated market.
      Threats:
      • Failure to secure adequate shelf space at new price point.
      Opportunities:
      • Capitalize on Barbasol‘s high penetration and huge shelf space available.
      • 78. Lack of current cost / price competitors.
      Sources:
      1Compustat: McKinsey Analysis
      2 Bernstein US Consumer Survey
      Adjust Pricing
    • 79. 17
      Raise Prices on Existing Foam Products
      Total Contribution
      Capture more Value
      • Barbasol Foam is currently positioned at the top of the Economy price segment. As Barbasol grew, it forced out many of the small shaving foam brands and is now 96.7% of the US Shaving Foam units sold in the economy segment.
      • 80. The price elasticity suggests a price increase of 15 cents on the retail price from $1.54 to $1.69. This translates to a corresponding MSP increase of 5 cents from $0.92 to $0.97.
      Highlights:
      • $0.76 per can gap between Barbasol and next major competitor.
      Factors that identify New Barbasol Price Point
      Price Elasticity for Barbasol and Gillette Foamy
      • Price elasticity for Barbasol and similar products (such as Gillette Foamy) was taken into account and was adjusted for the price difference between the two product unit prices.
      • 81. The prices that assured a higher contribution margin than earlier is considered even if it meant reducing sales volume.
      Source: Nielsen Data
      Adjust Pricing
    • 82. 18
      Monte Carlo Simulation of Foam Price Raise
      Adjust Pricing
    • 83. Recommendation #2: Launch Gel Product
    • 84. 19
      Situational Analysis: Introducing an Economy Gel
      Company
      Consumers
      Opportunities:
      • Consumer low brand loyalty levels and their willingness to try new brands
      • 85. Consumers price sensitivity, despite their willingness to pay more for gel based shaving products.
      • 86. Opportunity to target younger age groups, whom are more likely to buy new products based on ads or celebrity endorsement.
      Threats:
      • Barbasol relatively lower penetration in to younger age groups (18 – 34).
      Opportunities:
      • Capitalize on Perio’scompetitive cost efficiency, and high end manufacturing process.
      • 87. Opportunity to increase Perio’slow manufacturing capacity utilization (50%).
      • 88. Opportunity to increase Barbasol low contribution margin ratios, and revitalize its brand perception through introducing a gel based shaving product.
      Context
      • Aging pop. spells, industry challenges, since they shave less frequently and tend to use power shavers.
      • 89. General male apathy towards kind of shaving cream they use.
      Competitors
      Collaborators
      Threats:
      • Competitors decreasing their prices to reach more competitive price points.
      • 90. Potential of introducing a new economy gel products.
      • 91. Competitors diluting Barbasol’s gel launch promotions and advertisements.
      Opportunities:
      • Capitalize on Barbasol high penetration and mega-volume cost advantage.
      • 92. Gillette 8.4% drop in sales and revenues during the year of 09/10.
      Threats:
      • Failure to secure adequate shelf space for the Barbasol’s new Gel.
      Opportunities:
      • Utilize Barbasol’s existing shelf space and extended network of collaborators.
      • 93. Introducing economy gel product that appeal to budget-conscious men.
      Sources: Mintel Data
      Launch Economy Gel
    • 94. 20
      Launching an Economy Gel product
      Shaving Gel Market
      Shaving Gel Market
      • There are over 100 shaving gel products currently on the market serving a highly segmented consumer base.
      • 95. The products can be clustered into four distinct groups based on can price.
      • 96. Sales volume is outstanding for the two most well-known brands in the shaving cream market, Gillette and Edge.
      • 97. There are no major players in the Economy gel segment.
      Highlights:
      • Currently there are no major players in the Economy gel segment.
      • 98. A new Barbasol gel would target the Economy segment of the gel product market.
      Super premium
      $4.27-$5.61
      Premium
      $3.71-$3.79
      Mid-price
      $2.62-$3.18
      Choosing a Competitor – “Strong vs. Weak”1
      • Although Edge (owned by Schick) has a retail sales dollar share in the gel segment, there are other core products in Schick’s portfolio.
      • 99. Gillette Series is Gillette’s oldest brand but does not receive as much marketing support as Gillette’s premium brands such as Fusion, thus leveling the playing field.
      • 100. Moreover, Gillette Series accounts for approximately $16 million in sales, but is only 13% of Gillette’s total shaving cream retail sales
      • 101. However, gaining a portion of these sales would be a major increase to Barbasol’s revenues
      • 102. Therefore, our competitors would be both, the strong Gillette and the relatively weak Edge.
      EDGE
      BARBASOL GEL
      Future customer base
      Economy
      $1.79-2.24
      Source:
      1 “Marketing Management” - Kotler & Keller
      Source: Nielsen Data
      Launch Economy Gel
    • 103. 21
      Barbasol Gel Positioning
      Brand Positioning Map in the Shaving Cream Market
      Targeted Consumer Behavior
      Highlights:
      • Barbasol Net Promoter Value is high.
      • 104. Barbasol is perceived as value brand.
      • 105. Consumers prefer cheaper products.
      • 106. 37% of males between ages 18-34 perceives gel as a fashionable type of product and over 33% of them use it regularly1.
      • 107. Gel consumers care about skin-friendly and moisturizing products and over 20% of them would be willing to try them1.
      Where will New Barbasol Gel Users Coming from?
      • Currently Barbasol has the second highest Net Promoter Score amongst the major shaving cream brands and is perceived as a low price, good value product1.
      • 108. 46% of survey respondents believe that the Barbasol has a good value for price and 34% of them believe the brand stand for values1.
      • 109. Barbasol gel will be positioned as a low price, good quality gel product.
      • 110. Though overall brand loyalty is highest for Gillette, Gillette Series gel users would be less likely to recommend the product than other users would recommend other brands.
      • 111. Consumers, especially in the economy market segment are price sensitive.
      • 112. Rook Consulting survey shows that consumers would switch to a product if it was cheaper1.
      • 113. Report data shows that consumers who buy cheaper during recession are unlikely to switch back to more expensive products 2.
      • 114. Barbasol gel users will come from current low mid-price segment users who cannot find a known brand in the economy segment.
      Source:
      2 The “Great Recession“ and Shifts in Consumer Behavior, Bernstein Research; 2009
      Source:
      1 Rook Consulting Shaving Cream Survey 2010
      Launch Economy Gel
    • 115. 22
      Introducing Barbasol Gel
      Meeting Customer Needs
      New Product Design
      Barbasol Gel will be packaged using the traditional 7oz can that is instantly recognizable to consumers as a gel product.
      Barbasol Gel will use the existing Barbasol formula and ingredients but in a gel format.
      Highlights:
      • Initial product launch will include Regular and Soothing Aloe
      • 116. Sensitive Skin is planned to launch in three years
      Initial Barbasol Gel Offerings
      Barbasol Gel when launched will be available in two varieties: Regular and Soothing Aloe. We will maintain the option of introducing Sensitive Skin in the third year to continue growing Barbasol’s gel portfolio.
      The designer also created a variety of striking color combinations that can be used in the future to differentiate the gel varieties.
      Barbasol Gel will continue to display the characteristic barber shop strips, but in an updated and more youthful style.
      The new product packaging was designed by José Luis GarcíaEguiguren of Barcelona Spain as a design concept to launch Barbasol in Europe.
      .
      However, we think that this design can be re-purposed for the US launch of Barbasol Gel and will provide a starting point for the final packaging creative design.
      Alternative Packaging Colors:
      Source: Copyright José Luis GarcíaEguiguren, http://www.packagingoftheworld.com/2010/02/barbasol-re-styling.html
      Launch Economy Gel
    • 117. 23
      Operational Requirements for Barbasol Gel
      Manufacturing a Shaving Gel
      Production Costs
      Highlights:
      • There are very few ingredient or production differences between gel and foam shaving cream.
      • 118. Gel and Foam products are easily and commonly made in the same factories.
      • 119. Barbasol has the future option of expanding their new production facility to double it’s capacity.
      Unlike a can of shaving foam, a shaving gel can uses a “bladder” system to be installed inside of the can. The bladder contains the gel and keeps it separated from the isobutane propellant gas which would turn it into a foam. Currently, foam is mixed together without a separate bladder.
      During the production process, while in a pressurized tank, liquid butane is added to the formula (along with coloring) to create the familiar “gel” consistency that you see come out. It then turns to foam once exposed to air and/or agitated.
      Because Barbasol has the spare manufacturing capacity and there is no specialized equipment needed, there will be no incremental fixed costs associated with the project.
      There will be incremental costs associated with the purchasing of cans with bladders designed for gel use. There is in total an estimated 15% increase in variable production costs to produce gel as compared with producing foam.
      Manufacturing Logistics
      These additional steps in the production process cause an estimated 15% increase in variable costs per unit to create a gel product. However, capital expenditures are not needed to increase overall manufacturing infrastructure because the same PP&E used to produce foam can also produce gel.
      In 2009, Barbasol opened a brand-new factory to take production in-house for the first time and at this point in time the factory is still only running at approximately 50% capacity.
      Perio Inc. already has the expertise to produce gel shaving products because of their women’s shaving gel brand, Pure Silk.
      The Barbasol production and operating division will be responsible for producing the Barbasol Gel product line.
      Source: Interview with Tom Gallerani - former VP of Shaving Technology Lab, Gillette Company
      Launch Economy Gel
    • 120. 24
      Channel Distribution for Barbasol Gel
      Retail Direct:
      Supermarket & Chain Drug
      Wal-Mart
      Distributor
      Highlights:
      • Expected manufacturer Sales Dollars by Channel:
      • 121. Retail Direct: 32%
      • 122. Wal-Mart: 47%
      • 123. Distributors: 21%
      • 124. Barbasol will offer the same margins on the gel product to direct retail buyers as with core products
      • 125. However, an extra 10% on top of SG&A will be allotted each year to allow for various promotional allowances and expenses to support the growth of the product (see projected financials)
      • 126. Barbasol’s retail partners primarily determine shelf placement independently – the key is to sell high volumes in order to attain multiple “facing” slots on the shelf, even for one SKU
      Launch Economy Gel
    • 127. 25
      Marketing Mix and Competitors’ Reactions
      Year 4
      Year 1
      Year 2
      Year 3
      Year 5
      Highlights:
      • Economy Barbasol gel will be supported by heavy ESPN.com and online advertising.
      • 128. Distribution strategy will follow what is already in place for Barbasol foam.
      • 129. Intense counter-advertising is expected from major competitors.
      • 130. No relevant reaction is expected from niche market product manufacturers.
      • 131. 62% Contribution Margin expected from gel.
      Launch Economy Gel
    • 132. 26
      Advertising Plan - ESPN.com
      Highlights:
      • Rook Consulting believes the most effective method of advertising for Barbasol is to partner with ESPN.com because of its strong 18-34 year old male demographics.
      • 133. Overall, online advertising is more cost-effective and fits Barbasol’s overall operating strategy of maintaining fairly low costs.
      Launch Economy Gel
    • 134. 27
      Project Sales of Price-Sensitive Gel Users
      Highlights:
      • As mentioned earlier, the US economic recession has had a significant impact on shaving cream consumers, leading to more price-sensitive purchases.
      • 135. Positioning the new Barbasol gel at a low price-point in the gel market will allow Barbasol to capture these sales from the main competitors – Edge and Gillette “Series” gel.
      Launch Economy Gel
    • 136. 28
      Effect of Acquisition and Product Launch on the Organization
      Launch Economy Gel
    • 137. 29
      Monte Carlo Simulation of Gel Launch
      Launch Economy Gel
    • 138. Valuation of Perio Inc. after Acquisition
    • 139. 30
      Projected Financials: Income Statement
      Valuation After Acquisition
    • 140. 31
      Projected Financials: Balance Sheet
      Valuation After Acquisition
    • 141. 32
      Projected Financials: Valuation
      Valuation After Acquisition
    • 142. 33
      Investment Summary
      Projected Increasing Cumulative Free Cash Flow
      A win-win situation for Perio
      • Foam as an industry is almost saturated. At growth rates of only around 2.7% compared to the gel industry’s 7.15%, a declining sales in the next few years is imminent.
      • 143. Perio doesn’t have the financial arm to bail itself out or diversify into other shaving products.
      • 144. DPI not only offers to buy Perio in an all cash deal, but also intends to keep Perio’s core value system intact. This would be done by providing various employee incentives and entrusting Perio’s executive board with higher responsibilities such as managing the gel launch.
      • 145. DPI’s recommendation of launching into the gel segment also revives Barbasol’s brand loyalty amongst the 18-34 segment
      A win-win situation for DPI
      Negotiating Goals and Concessions
      Keep President and SVP of Operations
      Replace VP of marketing to manage product launch, keep the rest of the marketing staff
      • Perio Six-Sigma and Lean manufacturing practices are in good alignment with Perio’s operational practices and systems - DPI will not change staff or practices.
      • 146. DPI to maintain Barbasol’s autonomy and foster its long-standing tradition of being a company based on values such as hiring locally and being a conservative, family-oriented culture.
      Continue hiring practice of prioritizing local applicants for all non-executive positions.
      DPI Should maintain Barbasol’s historical preposition as a true American value brand.
      • Potential ROI on buying Perio ranges from 13.6% to 73% for offersof $45 M to $68.8 M respectively.
      • 147. Perio’s strong infrastructure in terms of a newly setup plant running at only 50% capacity, gives us operational flexibility to manufacture both gel and foam using the same infrastructure.
      • 148. Strong HR systems management systems would help us cut turnaround time in employee hiring to keep pace with company growth rate.
      • 149. An opportunity for DPI to diversify into the shaving cream industry with a brand name that’s over 90 years old and is the classic American brand.
      Valuation After Acquisition
    • 150. References
      Documents:
      Perio Inc. Linked Company Profile. Accessed 12th December 2010: http://www.linkedin.com/companies/perio-inc.-barbasol-brands
      Indianapolis Motor Speedway, Indianapolis 500 official website historical box scores. Accessed 12th December 2010. 1938: http://www.indy500.com/stats/view/boxscore/year/1938, - 1939: http://www.indy500.com/stats/view/boxscore/year/1939
      Perio Inc. Company homepage; Accessed 12th December 2010, http://www.perio-inc.com/ourstory/history
      Barbasolbreaks ground; Christ, Ginger, Ashland Times-Gazette, August 13th, 2009. http://www.times-gazette.com/news/article/4646958
      Barbasolhas grand opening for Ashland facility; Christ, Ginger, Ashland Times-Gazette, May 20th 2010. http://www.timesgazette.com/news/article/4830421
      Barbasol gives Syracuse the brush-off, picks Ohio for new plant, By Marie Morelli Syracuse.com - The Post-Standard, Published: Friday, August 07, 2009. http://www.syracuse.com/news/index.ssf/2009/08/barbasol_gives_syracuse_the_br.html
      Barbasol coming to Ohio, News Home Executive Team, Vindy.com, A service of The Vindicator Published: Tue, May 26, 2009. http://www.vindy.com/news/2009/may/26/barbasol-coming-to-ohio
      Mintel Reports USA “Shaving and Hair Removal products – US – May 2008”, Accessed 12th December 2010. http://academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/my_reports/display/id=482893&anchor=atom/display/id=548163
      Mintel Reports USA “Men’s Grooming – US – September 2010”. Accessed 12th December 2010. http://academic.mintel.com.ezproxy.bu.edu/sinatra/oxygen_academic/my_reports/display/id=296601&anchor=atom/display/id=343845
      AC Nielsen database, The Nielsen Company - United States, Accessed 12th December 2010.
      Barbasol press release: May 25, 2010. http://perfectshave.blogspot.com/2010/05/new-barbasol-plant-opens-in-ashland
      THE "GREAT RECESSION" AND SHIFTS IN CONSUMER BEHAVIOR, BERNSTEIN RESEARCH; 2009.
      Mckinsey & Co., Compustat: MckinseyTeam Analysis.
      Today's Facility Manage, August 2009 issue, By Anne Vazquez http://www.todaysfacilitymanager.com/articles/manufacturing-case-study-room-to-grow.php
      Industry profile; Personal Care Products Manufacturing, quarterly update; 8.9.2010 SIC CODES: 2844 - NAICS CODES: 325620, First Research, a D&B company.
      Professor Aimin Yan, OB 713 Lecture notes, MBA Class 2012 - Boston University School of Management – Cohort (C).
      Tom Gallerani, Former VP of Shaving Technology Lab, Gillette Company, Personal Interview.
      Select International Announces Benchmarks, Successes with New Client Barbasol, May 17, 2010 . http://www.free-press-release.com/news-select-international-announces-benchmarks-successes-with-new-client-barbasol-1274109461.html
      A Framework for Marketing Management 4th ed. (2009), by Philip Kotler and Kevin Keller
      Westervin.com, A Fine Design: Old Stuff, Posted: February 19th, 2010 Author: Brian | Filed under: A Fine Design | Tags: 50's, 60's, advertisement, past, shaving, time travel, vintage | http://www.westervin.com/blog/tag/past
      Town and Country Hobbies, Billboards; Barbasol Shaving Cream (2602-36). www.towncountryhobbies.com/Billboard_pictures/2602-36
      Barbasol home page; Accessed 12th December 2010. www.barbasol.coms
      Ashland Times-Gazette “Barbasol breaks ground”; Christ, Ginger, August 13th, 2009. http://www.times-gazette.com/news/article/4646958
      Barbasol gel can designed by José Luis GarcíaEguiguren | Jan 20, 2010 | Country: Spain©2010 | Published by Lovely Package® http://lovelypackage.com/student-work-jose-luis-garcia-eguiguren/#more-10446
      Images:

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