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Wilmington Corporation Market Entry Analysis

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Wilmington Corporation Market Entry Analysis

  1. 1. Amy Jaick, Adam Koch, Stefanie Macchia, Josephine Pietanza, Katherine Sleeth, Katherine Towl Glass-Ceramic Market Entry Analysis June 1975 Wilmington Corporation
  2. 2. Strategic Situation Recommendation Preview Analysis of Relevant Facts Strategic Alternatives Recommendation Wilmington
  3. 3. Strategic Situation Recommendation Preview Analysis of Relevant Facts Strategic Alternatives Recommendation Wilmington
  4. 4. Expiration of CORNING WARE®’s Patent is a Rare Opportunity, But Loaded with Risk • After 17 years, Corning Glass Works’ CORNING WARE® glass-ceramic cookware patent is expiring • We have seen a 40% decrease in our EPS over the last six years Situation Preview Analysis Alternatives Recommendation • Industry trends indicate that there is an opportunity for a CORNING WARE® competitor - There is a high probability that we will not be the only one to enter the market • Corning Glass Works has signaled that they are ready to defend its position
  5. 5. Financials Point to the Importance of the Opportunity Situation Preview Analysis Alternatives Recommendation CORNING WARE® Estimated Sales in Millions ROE & EPS 0.0 10.0 20.0 30.0 40.0 50.0 60.0 1969 1970 1971 1972 1973 1974 CORNING WARE® Estimated Sales (in millions) 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 1969 1970 1971 1972 1973 1974 Return on Equity EPS
  6. 6. Corning Glass Works Can Defend Against Attacks on Multiple Fronts Situation Preview Analysis Alternatives Recommendation
  7. 7. • Total sales: $1,051M • Strong brand equity and loyalty • Popular with retailers; CORNING WARE® has reputation of “selling itself” • Sales promotion and advertising: $26.25M • Experience curve: 10-20% lower costs Corning Glass Works Corning Glass Works Dominates on Most Key Success Factors Situation Preview Analysis Alternatives Recommendation • Total sales: $510M • Unknown brand • Direct distribution: Less retailer flexibility • Sales promotion and advertising: $7.65M Wilmington Corporation
  8. 8. Not Everyone Can Succeed in a Crowded Marketplace CORNING WARE® Situation Preview Analysis Alternatives Recommendation 4th Entrant 3rd Entrant 2nd Entrant 1st Entrant
  9. 9. We Missed this Chance 17 Years Ago and are Still Suffering the Consequences • Speed is key in order to gain market share and avoid overcapacity • Market share has been flat since 1961 Situation Preview Analysis Alternatives Recommendation 1974 Market Share: Heat-Resistant Glass Bakeware 58% 18% 13% 8% 3% PYREX® American Glass Ajay Corporation Wilmington Others
  10. 10. Strategic Situation Recommendation Preview Analysis of Relevant Facts Strategic Alternatives Recommendation Wilmington
  11. 11. A Successful Strategy Has a High Likelihood of Success, Limited Downside Risk and Strong ROI • Likelihood NPV is positive in five years70% • Minimum Average NPV$10M • Certainty NPV > Capital Expenditure90% Situation Preview Analysis Alternatives Recommendation
  12. 12. Our Strategy is Built on Four Key Strategic Factors Situation Preview Analysis Alternatives Recommendation Conflict Avoidance Speed Decisively Allocate Resources Opposition Principle Fast-acting strategies dominate Attack only those you can beatMust identify the right focus to win Use strengths against them Stealth Entry Pursue Market Share that Corning does not own Recommendation
  13. 13. Tactics Must Focus on Appealing to Targeted Segment Situation Preview Analysis Alternatives Recommendation Round solid colorsProduct Place Promotion Price Supermarkets and discount stores using direct distribution Signal market entry. Message: “All-purpose cookware for less” 20% discount off CORNING WARE® retail price$$$ $
  14. 14. Strategic Situation Recommendation Preview Analysis of Relevant Facts Strategic Alternatives Recommendation Wilmington
  15. 15. Strategic Thought Process Environment Competitive capabilities and resources Internal capabilities and resources Opportunities and threats Strengths and weaknesses Strategy options Objectives Strategic principles Intelligence Analysis Alternative Generation Evaluation Situation Preview Analysis Alternatives Recommendation
  16. 16. One dominant player Low switching costs Industry Rivalry: Moderate Factors Driving the Glass-Ceramic Industry Point to Challenges Situation Preview Analysis Alternatives Recommendation Patent expiration opens barriers to entry High start-up costs Potential Entrants: Moderate PYREX® Stoneware Metal Cookware Substitutes: Moderate Buyer Power: High Distributors are loyal and only carry two to three brands Supplier Power: Low Inputs (raw materials & freight) are 33% of total costs
  17. 17. Understanding Market Size is a Component of Determining the Right Strategy 1974 Total Revenues: $1,051M Consumer Products: $235M Housewares: $117.5M CORNING WARE®: $51.7M US Sales: $35.1 On Average: CORNING WARE® customers are spending $42 (the equivalent of $200 Today) Personal Use Buyers: 415k Marriage and Gift Buyers based on income distribution 1.1M Potential Marriage & Gift Buyers: 3.65M US Population in 1974: 214M Top Down Bottom Up Total Current Customers: 1.54M Situation Preview Analysis Alternatives Recommendation
  18. 18. CORNING WARE® Sales Driven Predominantly by Higher Income Segments $0-$25K 28% $25-$50k 27% $50-75k 18% $75-100k 11% 100k+ 16% $0-$25K 3% $25-$50k 10% $50-75k 16% $75-100k 32% 100k+ 39% Situation Preview Analysis Alternatives Recommendation 1974 US Population Income Distribution CORNING WARE® Customer Income Distribution Situation Preview Analysis Alternatives Recommendation
  19. 19. Customer Needs are Changing • Rise in Convenience Cooking – Technology: Microwave Sales up 25% • “Julia Child Influence” – 45M Custom Meals Prepared Daily • New Product Development – Focus on Fashion: Color and Design Situation Preview Analysis Alternatives Recommendation
  20. 20. The Race is on to Meet Changing Consumer Preferences and New Customer Needs CORNING WARE® Metal Ware Stoneware Heat Resistant Glass • High-quality • Use: Multi- purpose-oven, stove microwave • Expensive • Mixed quality • Use: Moving into “cook-to-serve” market • Not microwaveable • Moderate to very expensive • Low-quality • Use: Multi- purpose: “freezer-to- oven-to-table” • Inexpensive • Low-quality • Use: Not safe for range top cooking • Inexpensive
  21. 21. Not All Products Equally Positioned to Meet Changing Preferences 0 0.005 0.01 0.015 0.02 0.025 0.03 0.035 0.04 0 1 2 3 4 5 6 7 8 9 10 RelativeSalesinUnits Time Cook & Bakeware Industry Metal Heat Resistant Glass Ceramic Microwave Sales Market Growth Current % of Sales in Cook and Bakeware Industry Situation Preview Analysis Alternatives Recommendation 42% 7% 21% 30% Metal Stoneware Heat-resistant Others
  22. 22. Others Will to Try to Capitalize on the Patent Expiration LowHigh 3x Low High .3x .22x .14x .05x American Glass Pyrex® Ajay Wilmington Others GrowthRate Relative Market Share Sector Growth LowHigh Low High GrowthRate Relative Market Share Sector Growth 1x Situation Preview Analysis Alternatives Recommendation CORNING WARE® Heat-Resistant Glass Bakeware Heat-Resistant Glass-Ceramic Cook and Bakeware
  23. 23. Current Market One Entrant: 22.5% Required Growth Two Entrants: 45% Required Growth Three Entrants: 67.5% Required Growth There is Not Enough Room for Everyone in the Market Assumes 75% Production Capacity of Corning from New Entrants Situation Preview Analysis Alternatives Recommendation Market Capacity: 1Market Capacity: 1.75Market Capacity: 2.50Market Capacity: 3.25
  24. 24. The Primary Battle Will be Over Who Wins Shelf Space • Corning has high degree of wholesaler loyalty • Stores only carry two to three lines • Retailers do not want to carry inventory; they want products that fly off their shelves • A price discount may provide incentive to retailers to stock another brand Situation Preview Analysis Alternatives Recommendation
  25. 25. PYREX® Example Points to a First Mover Advantage 98% 90% 83% 71% 60% 61% 58% 2% 8% 12% 18% 19% 18% 18% 2% 4% 7% 11% 12% 13% 1% 4% 9% 8% 8% 1% 1% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1957 1958 1959 1960 1961 1965 1974 PYREX® American Glass Ajay Corporation Country Squire Others Situation Preview Analysis Alternatives Recommendation MarketShare
  26. 26. The Eight Sources of Competitive Advantage Superior technology Superior inputs Superior operations Superior offerings Superior access Superior customers Superior segments Management Processes & Info Situation Preview Analysis Alternatives Recommendation
  27. 27. CORNING WARE®’s Strengths Are Diverse and Deep Economies of scale Pressed glass- ceramic cookware patent Quality Product Two-tier distribution, loyal wholesalers Department stores and national chains White collar = disposable income Direct labor, packaging and cover Management Processes & Info Situation Preview Analysis Alternatives Recommendation
  28. 28. Up-and-Coming/Niche Leader New/Undeveloped Eroded/Commoditized CORNING WARE® Brand Equity Offers Significant Competitive Advantage BrandStrength (DifferentiationandRelevance) Brand Stature (Esteem and Knowledge) CORNING WARE® PYREX® Situation Preview Analysis Alternatives Recommendation American Glass Wilmington Ajay
  29. 29. CORNING WARE® is a Star; PYREX® Gives Corning Cash to Defend ? Cow $$PYREX® CORNING WARE® CORNING WARE®: • 25% of sales in Consumer Product Division • 27% sales increase from 1973- 1974; Doubled sales in last seven years PYREX®: • Responsible for 10-15% of Consumer Products Division • Retained 58% market share since expiration of patent in 1957 Situation Preview Analysis Alternatives Recommendation
  30. 30. CORNING WARE® Will Respond and Protect Wilmingtonattractiveness Corning Glass Works Reactiveness Glass-ceramic cook and bakeware Heat-resistant glass bakeware Potential Response: • Price Reaction • Increased promotion – “Corning Gifts that make life easier” • Exclusive distributor agreements • New design launch Situation Preview Analysis Alternatives Recommendation
  31. 31. Corning Glass Works’ Signals: “We Will Defend Our Position” Signal: Specific Action Taken: Price change Price increase three times in the last six years Policy changes Discontinuation of the fair trading rules Messaging “Gifts that make life easier” Intent New product design may launch in 1975 Situation Preview Analysis Alternatives Recommendation
  32. 32. Deeper Analysis Reveals CORNING WARE® Possible Weaknesses Price Product Perception Patent Expiration • Loss of strategic defense mechanism • 28% of potential customers would only buy if cheaper • Not seen as stovetop product • Lack of color selection and styles Situation Preview Analysis Alternatives Recommendation
  33. 33. Comparison of Wilmington and Corning Highlights Different Strategies for Success Wilmington CORNING WARE® Message “Good value for the money” “Gifts that make life easier” Distribution 74% through hardware stores, discount stores, supermarkets and chain stores Strong relationships with department stores Styles Two decorations, four colors (Country Squire) Two decorations, one color Promotion Focus on in store displays and sales promotion Equal split between advertising and promotion Situation Preview Analysis Alternatives Recommendation
  34. 34. Products Compete on Five Dimensions Style Flexibilit y PriceBrand Quality Situation Preview Analysis Alternatives Recommendation
  35. 35. Limited Functionality is an Issue for PYREX® Style Flexibilit y PriceBrand Quality Situation Preview Analysis Alternatives Recommendation
  36. 36. Metals Are Viewed as High Quality but not Versatile Style Flexibilit y PriceBrand Quality Situation Preview Analysis Alternatives Recommendation
  37. 37. CORNING WARE® Brand Equity Drives Sales, can be Beat on Price Style Flexibilit y PriceBrand Quality Situation Preview Analysis Alternatives Recommendation
  38. 38. Stoneware is Highly Flexible but Viewed as Low Quality Style Flexibilit y PriceBrand Quality Situation Preview Analysis Alternatives Recommendation
  39. 39. Wilmington Can Compete on Style, Flexibility, and Price Style Flexibilit y PriceBrand Quality Situation Preview Analysis Alternatives Recommendation
  40. 40. Strategic Situation Recommendation Preview Analysis of Relevant Facts Strategic Alternatives Recommendation Wilmington
  41. 41. Do We Enter? Customer Segment Price Entry Decisions Must Focus On Who to Target and How Yes No Corning Non-Corning Both High Discount Medium Discount Tactical Decisions • Distribution method • Product specifications • Promotional activityCorning Non-Corning Both Situation Preview Analysis Alternatives Recommendation
  42. 42. Limited Resources Point to Three Alternatives CORNING WARE® CORNING WARE® CORNING WARE® UntappedUntappedUntapped Onslaught Stealth Combined • CORNING WARE® imitation • Two-tier distribution • 7-20% discount off CORNING WARE® • Equal split between advertising and sales promotion spend • Round shape, solid colors • Direct distribution • 7-20% discount off CORNING WARE® • Heavy sales promotion campaign, small amount on media advertising • CORNING WARE® shape, solid colors • Direct distribution • 7-20% discount off CORNING WARE® • Equal split between advertising and sales promotion spend Situation Preview Analysis Alternatives Recommendation
  43. 43. Strategic Situation Recommendation Preview Analysis of Relevant Facts Strategic Alternatives Recommendation Wilmington
  44. 44. We Win by Creating the Best Total Offering for Our Customer Customer Intimacy Compete on customer intimacy: • “All-purpose” - cooking, baking and microwaving • Many colors, fashionable, round • Price discount of 20% off CORNING WARE® retail price • Direct distribution - focus on strongest existing channels Operational Excellence Product Leadership Situation Preview Analysis Alternatives Recommendation
  45. 45. Metrics Point to a Clear Winning Strategy Situation Preview Analysis Alternatives Recommendation Potential Options Year Five Market Share Payback NPV Probability of Positive NPV Terminal Value Onslaught Medium Discount 17.5% Never $(6,551,237) 0.0% $133,274,036 High Discount 21.2% Never $(6,797,236) 23.7% $133,274,036 Combined Medium Discount 22.0% Year Five $1,583,424 60.1% $133,274,036 High Discount 24.3% Year Five $921,722 56.6% $117,175,977 Stealth Medium Discount 20.8% Year Five $3,322,801 71.3% $140,643,623 High Discount 29.0% Year Four $11,350,628 75.1% $180,369,641
  46. 46. By Following Our Strategic Principles We Achieve All Objectives Situation Preview Analysis Alternatives Recommendation Why it will work? • Avoids a fight we cannot win • Moving fast prevents past mistakes • Focuses our resources, capabilities and messaging on terrain favorable to us • 20% discount over Corning’s price will get us on more shelves • Offers a tailored solution to an unmet customer need in a growing market Objectives Outcome NPV Positive in 5 Years > 70% Average NPV > $10M 90% Confidence > ($10M) 75.1% $11.3M 2.9%
  47. 47. Stealth High Discount Strategy Allows for a Reasonable Payback Period Situation Preview Analysis Alternatives Recommendation (15.00) (10.00) (5.00) - 5.00 10.00 15.00 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 NetCashFlowMillions
  48. 48. In Onslaught We are Outgunned • Direct attack will result in a more aggressive response • There will be a price war • Product offering not compatible with segment needs • Challenges to get our product shelved where this segment purchases Situation Preview Analysis Alternatives Recommendation
  49. 49. Combined Fails to Concentrate Resources • Combined strategy drains focus from efforts • Lack of concentration on specific customer segment results in ambiguous marketing message • CORNING WARE® will respond aggressively • Distribution challenges Situation Preview Analysis Alternatives Recommendation
  50. 50. A Medium Discount Does Not Get Us in Front of Enough of Our Target Customers • Past history shows cuts need to be significant to succeed • Medium price cut does not offer enough incentive to retailers to shelf product • Perceived brand difference does not offer customers enough reason to switch from CORNING WARE® or other alternatives Situation Preview Analysis Alternatives Recommendation
  51. 51. If We’re Not First, We Lose Situation Preview Analysis Alternatives Recommendation -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Corning Market Share Capture WFE Share (with competitor entry) Corning Discount Competitor Entry Average Growth Rate Bet 1979-1981 Average Growth Rate Wilmington First to Enter (WFE)
  52. 52. External Factors Point to Risks of Entry • Threat from competitors – Other entrants beat us to market – CORNING WARE® or other competitors discount more than 20% • Market growth declines – Changes in where/how people dine – New technological development forces heat-resistant glass cook and bakeware product obsolescence • Operations do not meet production capacity Situation Preview Analysis Alternatives Recommendation
  53. 53. Signaling Enables Us to Limit Our Risk Wilmington Signals Prior announcement Press release announcing new factory construction Discussion of own moves Sales and advertising campaign announcing upcoming product Industry discussion Private communication with retailers to get prominent placement on shelves Product Discontinue Country Squire product line Situation Preview Analysis Alternatives Recommendation
  54. 54. Wilmington Entry Into CORNING WARE® Market Request for Funding Initial Investment: 2013 Dollars Factory refurbishment $10 M $43,482,080 Situation Preview Analysis Alternatives Recommendation Ongoing Annual Investment: $11,403,587 M $49,585,169 Manufacturing $2 M /yr Advertising and promotion $700k /yr General and administrative costs 2% of sales
  55. 55. Questions?
  56. 56. Environment/ Industry Corning Wilmington Historical Data NPV Analysis Wilmington Competitive Strategy Wilmington Crystal Ball Analysis Appendix
  57. 57. Environment/ Industry Corning Wilmington Historical Data NPV Analysis Wilmington Competitive Strategy Wilmington Crystal Ball Analysis Appendix
  58. 58. Estimated Manufacturer Shipments of Cook and Bakeware (1974) Stainless Steel 23% Glass/heat resistant glass 17% Aluminum 13% Cast Iron 8% Porcelain Clad Metal 15% Stoneware 9% Copper 5% Others 10% Percentage of Total Sales in Cookware Percentage of Total Sales in Bakeware Stainless Steel 6% Glass/heat resistant glass 25% Aluminum 14% Cast Iron 15% Porcelain Clad Metal 24% Stoneware 6% Copper 0% Others 10%
  59. 59. Breakdown of Cook and Bakeware Market by Product Type (1974) Percent ofTotal Sales Cookware Casserole (1 1/2 qt. or larger) 19% Frying pans 15% Saucepots (below 1 1/2 qts.) 8% Subtotal 42% Bakeware Pans 11% Baking Dishes 13% Baking Trays 4% Special Items 2% Subtotal 30% Measuring and Mixing Bowls 11% Cups 4% Subtotal 15% Miscellaneous 13% Total 100% Cookware 42% Bakeware 30% Measuring and Mixing 15% Miscellaneous 13% Percentage of Total Sales
  60. 60. Range of Products Sold: Cook and Bakeware Company/Brand # of individual pieces # of sets # of colors # of decorations CORNING WARE® 24 10 1 2 PYREX® 56 20 5 4 Wilmington Country Squire 31 13 7 2 American Glass 15 5 5 3 Ajay Corporation 20 2 6
  61. 61. Sizing and Slicing the Market Existing Market - 73% of current purchasers buy CORNING WARE® as gift - Non-price sensitive purchasers - 71% of purchasers with income 75k and above Untapped Market - 28% of non-owners are price sensitive consumers - Personal use buyers - Consumers purchasing microwave-safe cook & bakeware
  62. 62. Market Evolution PYREX® branded ware introduced by Corning. Heat- resistant glass 1915 American Glass and Ajay enter the heat- resistant market 1957-58 CORNING WARE® cookware introduced for range top cooking 1959 Wilmington enters heat-resistant market CORNING WARE® Patent expiration1977 1975 1977 Decision Point NOW 1975
  63. 63. Environment/ Industry Corning Wilmington Historical Data NPV Analysis Wilmington Competitive Strategy Wilmington Crystal Ball Analysis Appendix
  64. 64. Comparison of Pyrex® and CORNING WARE® Retail Prices: 1975 Unit PYREX® CORNING WARE® Cornflower CORNING WARE® Spice o’Life 1 qt. covered casserole ea. 2.29 7.95 8.95 1 1/2 qt. covered casserole ea. 2.59 8.95 9.95 2 qt. covered casserole ea. 2.99 9.95 10.95 3 qt. covered casserole ea. 3.99 11.95 12.95 Baking Dish ea. 1.89 9.95 10.95 3 Pc. Bake set set 8.95 22.88 25.88 4 Qt. Saucepot ea. 9.95 14.95 15.95
  65. 65. Corning Glass Works Financial Breakdown Corning Glass Works (1974) ($ in millions) Total Sales 1,051 US 714.68 International 336.32 Breakdown of Business Unit Sales Houseware Products 117.5 PYREX® Estimated Sales (10-15%) 23.5-35.25 CORNING WARE® 58.75 (Less Electromatics) 7.05 Total CORNING WARE® Market 51.7 Total CORNING WARE® US Market 35.15 *CORNING WARE® 50% of Houseware Products * Electromatics 12% of Housewares
  66. 66. Corning’s Trade Margins • Fair Trading Rules had maintained prices – Sold products to wholesale distributors at 52.5% – Wholesaler sells to retailer at 40% discount from retail prices • 1975: Fair Trade Policy discontinued – Wholesaler allowed to set price to retailer – Retailer allowed to set price to consumer – Corning products began selling at discounts of 20%- 40%
  67. 67. Year Price CPI Inflation Adjusted Price Level 1958 4.5 86.6 5.2 1959 4.5 87.3 5.15 1960 4.5 88.7 5.07 1961 4.5 89.6 5.02 1962 4.5 90.6 4.97 1963 4.5 91.7 4.91 1964 4.5 92.9 4.84 1965 4.5 94.5 4.76 1966 4.95 97.2 5.09 1967 4.95 100 4.95 1968 4.95 104 4.75 1969 5.95 109.8 5.42 1970 5.95 116.3 5.12 1971 5.95 121.3 4.91 1972 6.5 125.3 5.19 1973 6.5 133.1 4.88 1974 7.95 147.7 5.38 Inflation Adjusted Pricing for CORNING WARE®
  68. 68. Environment/ Industry Corning Wilmington Historical Data NPV Analysis Wilmington Competitive Strategy Wilmington Crystal Ball Analysis Appendix
  69. 69. CPG Forecasted to Increase in Importance Within Wilmington’s Product Portfolio 30% 35% 40% 45% 50% 55% 1970 1971 1972 1973 1974 PercentageofIncomeBeforeTaxes Consumer Products Packaging 51% 34% 7% 8% Consumer Products Packaging Commercial Technical 1974 % of income before taxes1970-1974 % of income before taxes
  70. 70. Wilmington’s Financials 1970-1974 Operations 1970 1971 1972 1973 1974 Net Sales 363,824,800 387,705,500 422,242,800 455,493,300 509,975,200 Costs and expenses: Cost of products sold 281,590,700 303,253,900 331,191,000 366,793,000 423,282,900 Selling and administratvie 34,547,200 36,604,600 40,311,100 44,296,800 48,993,500 316,138,000 339,858,500 371,502,100 411,403,500 472,277,400 Income from operations 47,686,900 47,846,900 50,740,700 44,403,500 37,697,800 Other Income 1,625,500 959,200 1,338,900 1,713,600 1,984,200 Interest Expense -1,531,200 -1,428,200 -1,511,400 -1,755,800 -2,418,500 Income before tax 47,781,200 47,377,900 50,568,200 44,361,300 37,263,500 Net Income 24,246,700 23,613,900 24,832,400 21,124,700 17,032,300 Financial Position Date Working Capital 73,385,400 85,098,000 93,209,600 95,969,300 97,556,400 PP&E 2,238,244,200 232,867,700 249,155,500 270,854,700 288,970,200 Accumulated depreciation 92,596,600 97,696,600 103,783,100 116,048,000 127,883,400 Long-term Debt 26,255,700 24,837,400 23,919,100 24,468,800 22,009,400 Common Stockholders Equity 170,181,200 185,718,200 203,887,100 214,913,500 223,614,500 Statistics PP&E Expenditures 22,845,800 17,538,500 24,025,800 24,661,200 24,679,800 Depreciation Expense 12,119,600 12,964,700 13,273,600 14,863,200 15,673,500 Weighted Average No. of Common Shares8,652,421 8,666,405 8,701,510 8,705,625 8,489,195 No. of Common Stockholders 8,140 8,522 9,139 10,114 10,253 No. of Employees 18,240 17,868 18,116 19,109 18,489
  71. 71. Wilmington Breakdown of Sales and Income by Business Unit Percentage of Total Sales (1974) Consumer Products 30% Packaging 54% Commercial 10% Technical 6% Percentage of Income Before Taxes (1974) Consumer Products 51%Packaging 34% Commercial 7% Technical 8%
  72. 72. Wilmington Sales by Type of Outlet Percentage of Total Outlets (1974) Department Stores 12% Supermarket 30% Discount Stores 25% Hardware Stores 11% Chain Stores 8% Others 14% Total # Outlets 32,000 Percentage of Total Sales by Outlet(1974) Total Sales $153m Deparment Stores 21% Supermarkets 12% Discount Stores 24%Hardware Stores 11% Chain Stores 8% Other 24%
  73. 73. Wilmington Distribution • Direct to retailers through 15 field offices in 43 states – 13,000 retail outlets – 175 national accounts which accounted for 9,000 locations • Network of 87 wholesalers for areas uneconomical to call on directly – Provided 10,000 additional outlets (accounted for 11% of sales) • List Prices provided retailer with average margins of 42%
  74. 74. Percent of Total Variable Cost Variable Cost Estimate Raw material 8% Direct Labor 27% Packing and cover 25% Freight 23% Other 17% Raw Material 0.23 Direct Labor 0.73 Packing and cover .70 Freight .62 Other .48 Total Variable Cost $2.76 Two-Quart Saucepan with Decal Decoration
  75. 75. Variable Cost Wilmington vs. Corning Wilmington Corning Raw Material 0.23 .23 Direct Labor 0.73 .62 Packing and cover .70 .60 Freight .62 .62 Other .48 .40 Total Variable Cost $2.76 $2.47 * Assumed 85% Experience Curve Two-Quart Saucepan with Decal Decoration
  76. 76. Environment/ Industry Corning Wilmington Historical Data NPV Analysis Wilmington Competitive Strategy Wilmington Crystal Ball Analysis Appendix
  77. 77. Stealth Medium Discount Strategy Breakeven Point -15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 NetCashFlow Millions
  78. 78. Combined High Discount Strategy Breakeven Point (12) (10) (8) (6) (4) (2) - 2 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 NetCashFlow Millions
  79. 79. Combined Medium Discount Strategy Breakeven Point (12) (10) (8) (6) (4) (2) - 2 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 NetCashFlow Millions
  80. 80. Environment/ Industry Corning Wilmington Historical Data NPV Analysis Wilmington Competitive Strategy Wilmington Crystal Ball Analysis Appendix
  81. 81. Market Share Capture Potential US Income Distribution $0-$25K $25-$50k $50-75k $75-100k 100k+ 28.22% 26.65% 18.27% 10.93% 15.93% Corning Market Capture 5% 20% 30% 60% 75% Untapped Potential 95% 80% 70% 40% 25% Untapped Feasible Mid 28.13% 30.00% 33.75% 3.75% 0.94% Untapped Feasible High 75.00% 80.00% 90.00% 10.00% 2.50% Based on the percentage of the potential market that Corning owns, we believe it is possible to capture 27.86% of the untapped Glass-Ceramic Heat Resistant Cookware Market 72.14% 12.79% 27.86% 87.21% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Market Potential Revenues Existing Untapped
  82. 82. Variable Cost Analysis COGS Likely Best Case Worst Case Raw material $0.23 $0.21 $0.25 Direct Labor $0.73 $0.66 $0.80 Packing and cover $0.70 $0.63 $0.77 Freight $0.62 $0.56 $0.68 Other $0.48 $0.43 $0.53 PENALTY $0.30 0 $0.30 TOTAL $3.06 $2.48 $3.34
  83. 83. $700,000 Budget Promotion Options Majority on media advertising campaign; small back-up budget for sales promotion • This allocation will not hold up to Corning’s media spend • For a media ad campaign we would have to allocate our campaign to first obtain brand recognition and then promote the product; the budget may not be large enough Spend equal amounts on advertising and sales promotion • A 50/50 split would not drive enough impact to compete with Corning on either front • We need to focus resources where Corning isn’t Heavy sales promomotion at launch, smaller amount on media advertising • Promotion at launch can be used to signal • Promotion can be used in stores to better compete against other potential entrants • Con: miss opportunity on media when television is becoming a more popular medium for advertising
  84. 84. Corning Leaves an Opening in Grocery Stock Conditions Display Promo Price Well Moderate Poor Good Poor Yes No List Above Department Jordan Marsh (Bos) X X X X Jordan Marsh (Burl) X X X X Sears (Camb) X X X X Sears (Burl) X X X X Coop (harv) X X X X X Discount Lechmere (Camb) X X X Zayre (128) X X X Bradlees (Wob) X X X Turnstyle (Walt) X X X X Variety Woolworth (Bos) X X X X Woolworth (Camb) X X X X Woolworth (Harv) X X X Kresge (Bos) X X X X Kresge (Camb) None WT Grant (Bos) X X X X Grocery Stop and shop (Walt) None Broadway Super None Hardware Almys (Camb) X X X X Tags (camb) X X X X Dickson bros (camb) X X X X Pharmacy Super (Camb) X X X X
  85. 85. Consumer Reactions to Product Options Similar to CORNING WARE® CORNING WARE® Imitation Solid Color, Corning shape See product as “Like CORNING WARE®” See product as “Like “PYREX® ware” Prefer CORNING’s brand, warranty, reputation Looked “cheap” and “gaudy” Might buy at 25% lower price if it has a guarantee and is made by a well-known company Inferior to CORNING WARE® and would buy only at a lower price Brand name more important than price differential Would buy only if colors “suited the color scheme” of their kitchen Would buy at a cheaper price for personal use, not as a gift Would buy for their own use, and prefer CORNING WARE® for gifts
  86. 86. Consumer Reactions to Product Options Unlike CORNING WARE® Solid Colors, Round Shape Decorated, Round Shape Similar views as respondents for “Solid Color, Corning Shape” Mixed reaction Saw product as one that could be used on top of the stove Would use it for every day use Looked similar to PYREX® mixing bowls Would buy only if price was cheaper Because of round shape and colors, most found this unsuitable for baking More appeared to like this set than dislike it Most popular among blue collar workers Some designs seen as looking “too much like metal utensils” Prefer CORNING WARE® for gifts
  87. 87. Onslaught Strategy’s 4 Ps Product Place Promotion Price CORNING WARE® Imitation: Square Shape, Blue Decoration Same stores as CORNING WARE® using two-tiered distribution Equal split between advertising & sales promotion 7%-20% discount off CORNING WARE® price
  88. 88. Stealth Strategy 4Ps Product Place Promotion Price Round shape, Solid colors Where CORNING WARE® is not sold using direct distribution Heavy sales promotion, small amount on media advertising 7-20% discount off CORNING WARE® price
  89. 89. Combined Strategy 4Ps Product Place Promotion Price CORNING WARE® Shape, Solid Colors Current distribution outlets using direct distribution Equal split between advertising and sales promotion 7-20% discount off CORNING WARE® price
  90. 90. Stealth High Market Share and Profit Margin Year 1 Year 2 Year 3 Year 4 Year 5 Market Share 19.02% 19.94% 21.96% 23.95% 25.05% Profit Margin -3.40% 10.86% 24.82% 35.49% 42.69%
  91. 91. Risk if growth rate remains parallel to the market Median NPV: ($1,585,878)
  92. 92. Risk if we enter first with 50% likelihood Median NPV: $3,105,051.45
  93. 93. Risk if we enter first with 25% likelihood Median NPV: $(7,732,427.54)
  94. 94. There is Not Enough Room for Everyone in the Market Capacity Required Market Growth Current state 1 22.5% With one competitor 1.75 45.0% With two competitors 2.5 67.5% With three Competitors 3.25 90.0% Assumes 75% production capacity of Corning from new entrants
  95. 95. Ongoing Investment Year 1 Year 2 Year 3 Year 4 Year 5 SG&A 983,616 1,122,266 1,261,585 1,444,731 169,642 Manufacturing 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Advertising and Promotion 700,000 700,000 700,000 700,000 700,000 FCF 3,683,616 3,822,266 3,961,585 4,144,731 2,869,642 WACC 2,859,451 2,614,167 2,387,182 2,200,478 1,342,309 NPV 11,403,587
  96. 96. Environment/ Industry Corning Wilmington Historical Data NPV Analysis Wilmington Competitive Strategy Wilmington Crystal Ball Analysis Appendix
  97. 97. Financial Modeling Process Build NPV Determine Wilmington variable costs based on units sold Distribute total new entrant capture between new entrants Determine share of untapped market capture by new entrants Determine share of current market capture by new entrants Determine total untapped market size Determine current Corning Ware® market size
  98. 98. Key Assumptions in Model Likelihood that Wilmington is first to enter Average growth rate from 1975-1978 Average growth rate from 1979-1981 Chance that competitor 1 enters market year 1 Chance that competitor 2 enters market year 1 Chance that competitor 3 enters market year 1 Avg. Non Corning Share of Existing Market Year 1 Avg. Non-Corning Share of Existing Market Year 5 Avg. Non-Corning Share of New Market Year 1 Avg. Non-Corning Share of New Market Year 5 Inflation Rate Probable Variable Cost Year 1
  99. 99. Market Sizing the Current Market in 1974
  100. 100. Market Sizing the Current Market Post 1974
  101. 101. Sizing the Potential Untapped Market
  102. 102. Calculating Corning and Wilmington Pricing
  103. 103. Determining Market Potential
  104. 104. Filter Untapped Potential for Price and Distribution
  105. 105. Filter Market Share Between Corning and New Entrants for Tapped and Untapped
  106. 106. Filter Revenue Between Corning and New Entrants for Tapped and Untapped
  107. 107. Distribute Market Share To New Entrants
  108. 108. Calculate Expected Revenues
  109. 109. Calculate Variable Costs
  110. 110. Conduct NPV
  111. 111. List of Presentation Slides Josephine 1. Title Slide 2. Presentation Guide Overview 3. Title Slide (A): Strategic Situation 4. Strategic Situation: 5. ROE & EPS Contrasted with CORNING WARE® Estimated Growth 6. Castle: Corning Glass Works defense 7. Who Deserves to Win: Corning 8. Market Share Venn Diagram: Limited Space 9. Learn from the past: PYREX 10. Title Slide (B): Recommended Preview 11. Strategic Objectives 12: Strategy: (Stealth Entry Triangle Slide) 13. Tactics: Katherine 14. Title Slide (C): Analysis of Relevant Facts 15. Strategic Thought Process 16. Porters 5 Forces 17 Market Sizing, Top Down & Bottom Up, 18. US Income Distribution Graphs 19. Overview of Customer Trends 20. Potential Substitutes 21. Opportunity to grow the market Amy 22. Relative Market Share: Pyrex and Corning 23. Market Capacity for New Entrants 24. Shelf Space Battle 25. PYREX® Historical Market Entry Example 26. Eight Sources of Competitive Advantage 27. Corning Ware Sources of Competitive Advantage 28. Brand Strength and Stature Matrix, 29. BCG Matrix 30. Clout Slide 31. Corning’s Signals: Defend Stef 32. Targeting Potential CORNING WARE® Weaknesses 33. Contrast of CORNING WARE® and Wilmington Messaging 34. Spider: Blank 35. Spider: PYREX 36. Spider: Metal Ware 37. Spider: Corning Ware® 38. Spider: Stoneware 39. Spider: Summary Katie 40. Title Slide (D): Strategic Alternatives 41. Decision Tree 42. Strategy Option Review Adam 43. Title Slide (E): Recommendation 44. How we can win (customer intimacy diagram) 45. Comparison of Key CB Model Statistics 46. Why It will work 47. Breakeven Analysis 48. Rebuttal to Onslaught 49. Rebuttal to Combined 50. Why Stealth High Discount 51. Sensitivity Chart 52. Risks 53. Next Steps 54. End of Presentation 55. Questions?

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