Horngren’s Cost Accounting A Managerial Emphasis, Canadian 9th edition soluti...
J&j presentation athena
1. J & J Case
Competition
February 23, 2012
RIDER UNIVERSITY:
Eric Elgin, Bryan Griffith,
Victoria Marquardt, Jonathan Moyer
2. MediHealth
Leader in branding and selling skin care products
Possible acquisition or license of Athena
Three distinct business decisions to make:
License or Buy
Pricing and Distribution Strategy
Selling and Marketing
Central Issue
3. Environmental Analysis: SWOT
- Uses natural and organic
ingredients
- 15 year strong brand equity
- Break through in skin cell aging
technology
- Fifth branded entrant
- Culture shift
- Economic climate
- Growing beauty market
- Large target market
- Growing innovative technology in
medical field
- Possible product cannibalization
- Acquisition cost of 40MM
STRENGTHS WEAKNESSES
OPPORTUNITIES THREATS
4. “We believe our first
responsibility is to the
doctors, nurses and patients, to
mothers and fathers and all
others who use our products and
services.”
“In meeting their needs
everything we do must be of
high quality.”
“Our suppliers and distributors
must have an opportunity to
make a fair profit.”
“Our final responsibility is to
our stockholders. Business must
make a sound profit.”
“We must maintain in good
order the property we are
privileged to uses protecting the
environment and natural
resources.”
“We must experiment with
new ideas. Research must be
carried on, innovative
programs developed and
mistakes paid for.”
MediHealth’s
Mission
Statement
6. Alternative
Solutions:
Product
Benefits Drawbacks
Buy
• More control and
flexibility to innovate
product
• High customer
awareness
• Full responsibility
including all risk
License
• Lower initial costs
• Competition based on
brand reputation
• Risk shared among
investors
• 12% royalty
payments per year
• Milestone payments
at year 5 of at least
15 MM
• Restrictions on R&D
and marketing
8. Alternative
Solutions:
Selling &
Marketing
Benefits Drawbacks
Standard
• Less costly investment
• Full DTC capabilities
• Not reaching
influencers
• No
dermatologist/celebrity
endorsements
360
• Reaches influencers
and consumers
• Greater diversity
• Significantly higher
costs
• No recommendations
guaranteed
9. Alternative
Solutions:
Distribution
Benefits Drawbacks
Mass
• More accessible to
mass consumers
• High customer
awareness
• They carry a large
variety of premium,
branded, and generic
products
• Prices are an
important factor
Prestige
• Justifies higher prices
• Competition based on
brand reputation
• Lower availability to
mass consumers
• Would have to create
new distribution
channel
11. Years 1-5 Years 6-10
Decision Buy No additional action
Pricing Premium Premium
Distribution Mass Mass
Market Growth 3% 3%
Annual Price Change
Assumption
1% 1%
Selling and Marketing 360 SM 360 SM
MediHealth’s Objectives:
• Expand customer base
• Gain a return on investment to buy Athena
• Become co-leader in beauty market without product
cannibalization
Strategic Overview
12. Buy:
More control over production quality and monitoring
No licensing fees after initial acquisition
Allows for continued development of the product
No Line Extension:
Minimize cannibalization of our existing product lines
Does not make financial sense to invest the resources
for a smaller return
Recommended Strategy:
Buy and No line Extension
“We must experiment with new ideas”
13. Premium Pricing
Create sense of quality with the product
Potential for higher return on sales
Mass Market:
Available to more consumers
Less competition for premium products
Easier to differentiate products
Economic Climate
Recommended Strategy:
Premium Pricing and Mass Market
“In meeting their needs everything we do must be of high quality.”
14. 3% Market Growth:
Assume beauty market will continue to grow with
baby boomers
Green movement’s momentum
1% Price Change:
Consistent with premium price and brand image
Increase profit margin from sales
Recommended Strategy:
Market Growth and Price Change
15. 360 Marketing:
Increase awareness and capture market share more
effectively
More flexibility to influence brand perceptions
Cost of strategy is covered by increased sales
Recommended Strategy:
360 Marketing
16. Recommended Strategy:
Decision Outcome
‘12 ’13 ’14 ’1
5
’1
6
’17 ’18 ’19 ’20 ‘21 Total
Net
Income
(34) (2) 7 22 38 56 80 98 121 147 533
Net Cash
Flow
(77) (6) 3 17 34 52 75 93 114 140 445
Profit: $4.39/unit Total Unit Sales: 121,504,000
In Millions
17. Peak Share 6.2%
Peak Year Sales $642 mil.
Cumulative Sales $3,279 mil.
NPV $173 mil.
IRR 21%
Recommended Strategy:
Financial Highlights
“Our final responsibility is to our stockholders.
Business must make a sound profit.”
19. Sensitivity Analysis – Manipulated Variables
Conservative Model Anticipated Model Aggressive Model
License or Buy Buy Buy Buy
Line Extension No Line Extension No Line Extension Line Extension
Market Prestige Market Mass Market Mass Market
Pricing Premium Pricing Premium Pricing Premium Pricing
Market Growth 5.0% 3.0% 3.0%
Annual Price Increase
(Over 10 Year Period)
1% Price Increase Each Year 1% Price Increase Each Year 1% Price Increase Each Year
Marketing Strategy 360 SM 360 SM 360 SM
Cumulative Net Income
(Millions of Dollars)
440 533 497
Cumulative Cash Flow
(Millions of Dollars)
365 445 399
Net Present Value (NPV)
(Millions of Dollars)
142 173 152
Internal Rate of Return (IRR) 19% 21% 19%
20. Cash Flow Comparison
In millions
0
20
40
60
80
100
120
140
160
1 2 3 4 5 6 7 8
Normal
Aggressive
Conservative
24. Mother Daughter Campaign
Will combine traditional
& Interactive media for
maximum effectiveness
Promote LOVE and
working together
Social media to generate
and celebrity
endorsement to promote
consumer communication
“We must maintain in good order the property we are privileged to uses
protecting the environment and natural resources.”
25. Release your
Inner Goddess
• Empower and Inspire
women to become like the
Greek Goddess Athena
• Make women feel confident
and confortable in their skin
• Ads will include
print, radio, TV, Internet, an
d other media sources
• Targeting mature women
but will be perceived by all
women
• Promote inner beauty as
well as outer beauty
BryanAlthough we r new to the OTC market, we are not new to the allergy market. Similarly when a private doctor moves to a clinic, the quality is just as high and its more convenient. We want to inundate traditional media sources with a selection of print, tv, radio, and internet ads that will increase confidence and word of mouth. These advertisement would be focused on existing customers and create awareness on our big and exciting move tot the otc market, which should be emphasized in each ad. No introduction necessary will provide a simple yet effective awareness campaign for prescription users to switch to OTC.
Sebastian
One example: Have “movie” type posters asadvertisements and place next to movies theatres
