1. Plan
• Big picture
• Consumers' needs identification
• Designing supply chain
• Developing sales strategy
• Designing marketing support
• Involving HR Team
• Financial sustainability
Team line-up
The Challenge: successfully launch Herbal
Essences shampoos in a dynamic and vibrant Volodymyr Lozovyi
Eastern European consumer market. Mykhailo Iavorskyi
Kateryna Maltseva
Borys Trofimov
Dmytro Sushko
2. Market analysis Supply chain Sales Marketing Human Resources Financials
Big Picture
To reach the goal we need to complete 3 key steps :
Step 1: Determine consumers` needs
Consumers segmentation
Product development
Demand forecast
Step 2: Develop expansion strategy
Supply chain
Sales channels
Marketing support
Step 3: Consider Financials and Human Resource issues.
KSE guys 2
3. Market analysis Supply chain Sales Marketing Human Resources Financials
Competition Analysis
moving toward the goal
2012 2017
Special premium
“For Her”
Tomatoes 8.1% Eccol 5.7%
• Market does not have developed Premium Natural products our product will be conceptually new + we have
strategic advantage in brand development.
• To obtain 10% of market share we need to overlap the part of Affordable brands develop universal products.
KSE guys 3
5. Market analysis Supply chain Sales Marketing Human Resources Financials
Product development
To cover the demands of the target group, 3 product lines were developed.
Problems that women experience with their hair
Lack of Dry hair Lack of Lack of Pigment
Split ends Dandruff Falling out
body after dying shine form spots
Needs
Skin
Strength Nutrition Shine Model antibacterial Skin
haircut cleaning nutrition
Solutions
Bright Moments Miss Universe Nature Care
Dyed hair Natural hair Skin Care
Shine Blond/Red/Dark Skin nutrition
Strength & Body Blond/Red/Dark Dandruff
Model haircut Blond/Red/Dark
KSE guys 5
6. Market analysis Supply chain Sales Marketing Human Resources Financials
Product Development
To fulfill the demand of key market • shine (blond, red, dark)
segments, we develop 3 product lines • strength (blond, red, dark)
oriented on specific needs of each category. • for model haircut (blond, red, dark)
Products for
special needs
“Miss Universe”
Product
lines
Products for
specific needs Universal needs
dyed hair “Bright “Natural Care”
Moments”
• dandruff
• shine (blond, red, dark) • hair falling out
• strength (blond, red, dark) • pigment spots
• for model haircut (blond, red, dark)
KSE guys 6
7. Market analysis Supply chain Sales Marketing Human Resources Financials
Market Size Estimation. 1st approach
* low accuracy of estimation
1 - urban
** medium accuracy of estimation
1 - rural
*** high accuracy of estimation Consumers
0 – 14 15 – 24 25 – 44 45 – 64 65+
m f m f m f m f m f
0.7 0.5 1.1 0.95 1.4 1.2 2.3 1.8 1,2 1.1 1.9 1.6 1,15 1 1.3 1.15 0.8 0.6 1.1 0.9
* * * * *** ** *** *** ** * *** * *** * *** * * * ** *
Hence, multiplying average consumption of a group by its size we can find the number of interest:
Market size (Ukraine) = 55 667 000 liters
Market size (Russia) = 172 685 000 liters
Market size (Total) = 228 352 000 liters
However, there is still some uncertainty: the error of our estimate might be quite big. So on the next slide we
propose the way how to obtain this number with lower error.
Source: statistical information at governmental sites, own estimates
KSE guys 7
8. Market analysis Supply chain Sales Marketing Human Resources Financials
Market Size Estimation. 2nd approach
In this approach, we refer to the information on “Kalina” – one of the
biggest players at Russian shampoo market.
Market size
“Kalina” Sales in items : “Kalina” market share
10.9%
“Kalina” Revenue from shampoo : “Kalina” average wholesale price
42.6 RUB per 250 ml bottle
“Kalina” Revenue * % of “Kalina” Revenue tied to shampoo
12.8 mil RUB 21.9%
Using estimated market CAGR (9% in previous 10 years ) and data above we come to number 235 000 000 liters. This
approach allows us to obtain estimate with lower error (the only source of error is market growth rate in 2011 , we
assumed it to be equal to market CAGR in previous years)
It is deserves to be mentioned that both approaches give quite similar results (difference is about 3%).
Source: “Kalina” annual report 2010
KSE guys 8
9. Market analysis Supply chain Sales Marketing Human Resources Financials
Volume Forecast for Year 1
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Base Forecast 145 157 275 614 440 983 460 670 537 448 477 732 418 915 507 590 610 289 689 036 584 040 642 444
Marketing Initiatives 38 586 52 498 83 997 129 993 53 154 36 749 41 342 50 201 45 936 0 0 79 403
Promo 38 586 22 968 36 749 64 966
Deco Pack 29 530 47 248
New SKU Launch 53 154
LEP 64 966 41 342 50 201 79 403
IGWP 36 749 45 936
Sales Initiatives 0 0 0 0 0 47 248 0 0 0 0 72 185 0
Sales Push 47 248 72 185
Total 183 743 328 112 524 980 590 602 590 655 524 980 459 357 557 791 656 225 689 036 656 225 721 847
Some necessary
assumptions
Year Average Market
% of 0.4 share
in tot. (in
sales (in liters)
bottles)
2012 2.4% 2.75%
2013 5% 5%
2014 7.5% 8%
2015 8% 9%
2016 9% 10%
Total volume for Year 1 – 6 484 000 liters.
KSE guys 9
10. Market analysis Supply chain Sales Marketing Human Resources Financials
Distribution Structure
We choose Vendor Management inventory due to
P&G
• convenience for distributors: our partner (distributor)
reduces warehousing expenses; improvement in
current assets management
National chains RDs
• less inventory cover is required
VM allows to optimize one stage in our sales structure Warehouse
We begin with 4 replenishment points in Ukraine and
7 in Russia. These numbers will grow in line with the
sales volume. Retail
Transit Times Replenishment Inventory
Country Replenishment Points
(days) Frequency Cover
Ukraine Boryspil 0 0.00 21
Ternopol 1 24.49 14
Dnepropetrovsk 1 11.96 14
Ordzhonikidze 1 21.75 14 Therefore, the national inventory
Russia Sankt Petersburg 1.5 13.80 14 cover of Ukrainian distributor will be
Moscow 0 0.00 28 ~15 days and one of Russian
Volgograd 1.5 8.42 14
distributor ~22 days.
Kazan 1.5 6.19 14
Yekaterinburg 2 15.59 21
Novosibirsk 3 9.62 21
Irkutsk 5 28.86 28
KSE guys 10
11. Market analysis Supply chain Sales Marketing Human Resources Financials
Distribution Structure. Russia
• Start in Moscow
• Divide the country into several large regions (according to the population)
• Divide generated regions into smaller ones as the sales go up
St. Petersburg, 10%*
Moscow, 26%*
Kazan, 21%*
Yekaterinburg, 9%*
Irkutsk, 5%*
Novosibirsk, 14%*
Volgograd, 16%*
* % of total sales in units
Central warehouse Regional warehouse
KSE guys 11
12. Market analysis Supply chain Sales Marketing Human Resources Financials
Distribution Structure. Ukraine
• At a first step divide the country into 4 regions: East, West, North and South
• Supposing it is possible, set warehouses at the existent replenishment points
North (Boryspil), 29%*
West (Ternopol), 17%*
East (Dnepropetrovsk), 35%*
South (Ordzhonikidze), 19%*
* % of total sales in units
Central warehouse Regional warehouse
KSE guys 12
13. Market analysis Supply chain Sales Marketing Human Resources Financials
Cost Structure
Avg. cost per item
Manufacturing
$0.09
Transportation
$0.05
Import tax
$0.04
Warehousing
$0.03
FPLC = Import tax + Warehousing Cost + Transportation Cost = 784 000 + 650 000 + 1 130 000 = 2 564 000 USD
* numbers are given as for Year 1
KSE guys 13
14. Market analysis Supply chain Sales Marketing Human Resources Financials
Sales Channels/Constraint due to number of calls
We do not consider OM as a possible channels because Herbal Essences is a premium segment product.
HM/SM Superettes Perfumeries Pharma
Weight, % 32 (+2) 10 (+1) 44 (-1) 3.5 (0)
# Stores 7 300 10 600 46 200 16 600
Market share per store, % 0.0044 0.0009 0.0010 0.0006
We should start with HM/SM and then pull up other channels.
unsatisfied
demand
83% 88%
76% 94%
100%
60%
37% Coverage
50%
KSE guys 14
15. Market analysis Supply chain Sales Marketing Human Resources Financials
Pricing and Placement Strategy
Pitch: Conceptually new health product with natural ingredients.
See
appendix
After using a regression analysis on shampoo prices in Russia and Ukraine we found that market
would price natural premium product at:
$2 - 250 ml - Ukraine $3 - 400 ml - Ukraine $3 - 250 ml - Russia $4.5 - 400 ml - Russia
*rounding down
Ukraine 2012 2013 2014 2015 2016 Russia 2012 2013 2014 2015 2016
Retail price 2.00 1.99 2.05 2.09 2.26 Retail price 3.00 2.90 2.95 3.01 3.25
VAT 20% 20% 17% 17% 17% VAT 18% 18% 18% 18% 18%
Inflation 8% 8% 8% 8% 8% Inflation 8% 8% 8% 8% 8%
Exchange rate 8.1 8.8 9.0 9.5 9.5 Exchange rate 29.5 33 35 37 37
VAT adjusted 1.67 1.66 1.75 1.79 1.93 VAT adjusted 2.54 2.45 2.50 2.55 2.76
Retail margin 10% 10% 10% 10% 10% Retail margin 10% 10% 10% 10% 10%
Retail adjusted 1.52 1.51 1.59 1.63 1.76 Retail adjusted 2.31 2.23 2.27 2.32 2.51
Distributor margin 17% 17% 17% 17% 17% Distributor margin 17% 17% 17% 17% 17%
Distributor adjusted 1.30 1.29 1.36 1.39 1.50 Distributor adjusted 1.98 1.91 1.94 1.98 2.14
• the price is nominal and goes in line with increase in consumers’ purchasing power;
• the price is adjusted on changes in exchange rates;
• the price in the last row is the price at Central WH
Shelving/Placement: shelves/stands with special design; upper shelves – small size, lower – big size;
conditioners stand near shampoos.
Merchandising/Positioning: POSM with professional advice how to do a hair care and merits of our shampoos.
KSE guys 15
16. Market analysis Supply chain Sales Marketing Human Resources Financials
Promotion Strategy
We choose prospector marketing strategy – aggressive market entrance with strong promotion and emphasis on
delivering the idea of a conceptually new product (for CIS market).
Shopping
Places Supermarkets
Promotion - Sales representatives malls
- Beauty consultants
- Hair care POSM
Beauty shops Drugstores
Package
- Deco pack
- Separate stand with
specific decorations
Message channels:
o Social media
Tools
- Free samples o Magazines
- Bundles o TV
- Season actions o In/Our-door
Promotion campaign was developed according to the following emotional and functional needs of women :
Functional: Emotional:
• Seasonal needs of hair • Holidays and specific occasions
• Beauty consulting • Nature associations
• Hair care awareness
KSE guys 16
17. Market analysis Supply chain Sales Marketing Human Resources Financials
Marketing initiatives
Samples of shampoo in
magazines for women
“Sparkling Holidays “Fall in love with
with Herbal Essences” Herbal Essences”
“Bright
moments
with Herbal
Essences”
“Indian Summer “You can beautify the
Embraces” world with Herbal
Essences”
“Summer preparation
with Herbal Essences “
“Exciting Adventure
with Herbal Essences” Free samples of
conditioner
KSE guys 17
18. Market analysis Supply chain Sales Marketing Human Resources Financials
HR Involvement: Sales
Suggested problem
organization costs are the same during five year period, but workload will
differ due to gradual increase in forecasted market share.
Information required
how workload of stuff is affected by changes in sales
and Herbal Essences market share?
what is the optimal level of workload per person in similar projects?
HR response Actions to analyze: make a survey in order to investigate whether such organization
costs and expected general organizational productivity are comparable with goals of
achieving 10% market share.
Actions to improve:
Additional gradual recruitment for better staffing of the Sales Team;
Additional tailored trainings for our Sales Team members with emphasis on
improving interpersonal skills ( managing conflicts, managing difficult people, and
negotiation).
New prospective by offering scope.
KSE guys 18
19. Market analysis Supply chain Sales Marketing Human Resources Financials
HR Involvement: Sales, Supply Chain, and Top/Middle Management
In Finance:
If more personal is needed to properly to conduct the project, HR department will effectively plan
the workforce for project and make all actions needed for effective project organization;
In Supply Chain:
Gradual recruitment for better staffing of the Sales Team as more P&G personal is needed for
vendor managed inventory;
Top and Middle Management:
Case Experienced foreign project leader Retention of middle management
Solution Trainings on the topics “how to manage office Make a middle management survey to
policy in CIS cultural environment”, “organization define key motivation drivers;
of regional P&G team”, and “valuing diversity”; On the basis of survey, develop a tailored
Offering suitable management development management and personal development
program; program with emphasis on offering suitable
Providing with feedback of the team; prospectives ( new scope, financial
Offering suitable working and living conditions for motivation, promotion, success planning).
manager and his or her family.
KSE guys 19
20. Market analysis Supply chain Sales Marketing Human Resources Financials
HR Engagement
Finding out what other department are all about, how they function, what are the kind of resources needed.
Key methods to be used: Key questions to be asked:
Employees surveys and feedback; How many people should be recruited for
Intercompany communication; department?
Employee s Interviewing; What are the best ways of performance
appraisal?
How to design compensation system
effectively?
How many and of what kind motivational
events are needed?
HR department response on information obtained.
Ongoing checking of policy results to find out whether two key HR department goals are simultaneously
achieved:
i. Herbal Essences achieves planned market share in CIS market;
ii. P&G team members that are put into project achieve their aspirations and ambitions.
KSE guys 20
21. Market analysis Supply chain Sales Marketing Human Resources Financials
P&L
Year 1 Year 2 Year 3 Year 4 Year 5
Total Sales (in $) 46 689 175 86 963 805 148 792 517 178 508 135 223 751 491
Sales in Ukraine 8 372 831 15 972 944 28 149 936 33 812 974 42 382 962
Sales in Russia 38 316 345 70 990 861 120 642 581 144 695 161 181 368 529
COGS 5 528 756 10 601 559 17 680 376 20 745 722 24 073 424
Gross Profit 41 160 420 76 362 246 131 112 141 157 762 413 199 678 067
In Ukraine 6 990 642 13 322 554 23 759 842 28 626 544 36 364 606
In Russia 34 169 778 63 039 692 107 382 299 129 135 869 163 313 461
Other costs 2 200 000 (5%) 1 990 000 (5%) 2 080 000 (5%) 2 180 000 (5%) 2 280 000 (5%)
Marketing expenses 2 000 000 3 800 000 7 000 000 8 000 000 10 000 000
Organizational costs 200 000 190 000 180 000 180 000 180 000
EBIT 38 960 420 75 572 246 130 332 141 156 982 413 198 898 067
Interest payment 396 485 396 485 396 485 396 485 396 485
Taxes 13 497 377 25 191 516 43 237 480 52 215 075 66 185 554
Net profit 25 066 557 46 784 245 80 298 176 96 970 853 122 916 028
Interest rate is 5,13%* (further used in defining the discount factor for NPV calculations)
Projected marginal profit is 0,54 for the first 4 years and 0,55 for the last year
See
Breakeven volume: approximately 5,7% of forecasted volumes appendix
• For Ukraine: 350 680 (250 ml) and 10 100 (400 ml)
• For Russia: 1 052 030 (250 ml) and 30 300 (400 ml)
KSE guys 21
22. Market analysis Supply chain Sales Marketing Human Resources Financials
NPV and Free Cash Flow to Firm Calculation
NPV = Discounted FCFF – Investments* = 307 566 129 – 7 728 756 = 299 837 373 USD
FCFF
EBIT*(1-t) + Depreciation – ∆ NWC – CAPEX
∆ (Current Assets – Current Liabilities)
Current Assets Current Liabilities
Minimum Cash Inventory Coverage***
(Average projected sales / 360)*21
Operational Expenses / Cash Turnover
360/k**
* – the projected sum of total costs for the first year, the other costs will be financed from net profit.
k** – time from forming inventories to collecting sales cash ; assume that it equals to 6 weeks (3 weeks from
manufacturing to central warehouse and 3 further to regional distributor).
*** – assumed time for inventory coverage is 3 weeks.
KSE guys 22
24. Plan
Market analysis
Market size estimation
Supply chain
Sales
Marketing
Human Resources
Financials
25. Appendix A. Retail price estimation
Data description
• brandname: key brands in Russian and
Ukrainian markets
• price: in $ per bottle
• volume: measured in ml
• segment:
0 – affordable
1 – professional
2 – premium
• green:
0 – not natural
1 – natural
• country:
0 – Ukraine
1 – Russia
• sqvolume: volume squared
Source: price lists of several online stores
KSE guys 25
26. Appendix A. Retail price estimation
Regression results
Our supposition is that price of a bottle depends on:
• size of a bottle nonlinearly: expected positive effect and significant
• country as a dummy: on average price is expected to be higher for Russia, uncertain about significance
• green as a dummy: on average price is expected to be higher for green products, uncertain about significance
• segment as a dummy: price is expected to be higher for premium segment, significant
estimated significance
effect
• country and green estimates are insignificant, hence they can either effect the price of HE or not
• if these effects exist, we have competitive price of $4.85 per item for HE 250 ml (Ukraine)
KSE guys 26
27. Appendix A. Retail price estimation
Regression results (continued)
Otherwise, we run new regression (without insignificant vars:
back
estimated significance
effect
• in this case, we have competitive price of $2.29 per item for HE 250 ml (Ukraine)
Ukraine Effects do not exist Effects exist Russia Effects do not exist Effects exist
250 ml 2.29 4.85 250 ml 2.66 5.17
400 ml 4.92 7.56 400 ml 5.29 7.93
KSE guys 27
28. Appendix B. Marketing initiatives
Year 1 in details
January •Advertisement and samples of shampoo in magazines for women. Promo 7%
- March
•“Fall in love with Herbal Essences” - Herbal Essences bundles (shampoo + condition + moisturizer) in Deco
February supermarkets on the separate stand in Deco Pack. 9%
Pack
1-14
•“Bright moments with Herbal Essences” - Herbal Essences bundles in beauty shops and supermarkets on the Deco
March separate stand in Deco Pack. 9%
Pack
1-8
•Event “You can beautify the world with Herbal Essences” (each weekend in shopping malls); Promo 11%
April •LEP for extra shine: representatives of HE will introduce the new line of products to women in beauty shops. LEP 11%
New
•“Summer preparation with Herbal Essences – “Be ready, be strong, be healthy to meet the summer” – SKU 9%
May introduction of Nature Care Line.
Launch
•Part of shampoos will be sold including tiny samples of conditioners in beauty shops, malls, supermarkets. IGWP 7%
June
July -
•“Exciting Adventure with Herbal Essences” – small bundles (shampoo + hair spray with UF filter). LEP 9%
August
•“Indian Summer Embraces” – bundles(conditioner + balm/moisturizer) for renovation of hair after summer
sun.
IGWP 7%
September
•“Sparkling Holidays with Herbal Essences” – LEP: bundles Deco Bottle of shampoo – triangle form of bottle,
LEP 11%
December drawn in image of Christmas Tree + Christmas Toy for decoration.
KSE guys 28
