Boots Hair Care Sales Promotion
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A case study on Harvard Business Review Case where a company has to choose a suitable sales promotion strategy for upcoming promotion season
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Boots Hair Care Sales Promotion
- 1. Boots – Hair Care Sales Promotion
- 3. SituationAs the promotion season is coming the task is to select a sales promotion strategy that would be most profitable to the company without any media advertising budget or alterations in product sizes.
- 4. The Challenge To select one of three promotional alternatives 1. Get three for the price of two [3 for 2] 2. Receive a gift with purchase [GWP] 3. On-Pack coupon worth 50p [50p off]
- 5. How to Select Analyze Market Analyze Consumer behavior Analyze Market Competition Come to a solution
- 6. The Market In 2000, over 60 Major brands available in UK , none had more than 9% Market Share No celebrity endorsed products were available in retail stores Mass-Market Products Professional Products 2 types of products
- 7. Boots Saw an opportunity to be retail care hair expert
- 8. Consumer Behavior• Research indicated consumers not very loyal to brand • General belief that changing shampoo brands produced better results • Trends in buying behavior led to changing preferences • 70’s wanted gentle shampoos • 80’s wanted detangling shampoos • 90’s wanted shiny hair shampoos • Professional brand consumers highly fashion conscious • More affluent than consumers of mass market brands
- 12. Procter & Gamble Weakness No professional hair care products
- 14. Alberto-Culver Weakness No professional hair care products
- 16. L’ Oréal Weakness No professional hair care products
- 19. Largest Supermarket Chain More than 1800 stores and 45000 employees
- 21. Sainsbury Second Largest Supermarket Chain Around 700 stores
- 23. Around 400 stores Prided itself on providing quality products and low prices
- 25. Superdrug Around 700 stores Store layout , lighting & color allowed customers to move at their own pace
- 27. Questions•Which promotion strategy to choose to benefit Boots ? •How to protect competitors from imitating the same strategy ?
- 28. Decision Option “3 for 2” • Enable customer to buy two hair care product at regular price and get one free • Could combine any 3 products of the same brand • Free item would be the least expensive of the three • Competitors don’t have technology to imitate this type of promotion • Estimated 300% increase in sales • Estimated 60 % of these sales would be to customers who would not otherwise have purchased hair products from Boots
- 29. Decision Option Gift With Purchase (GWP) • Customer would be given product sample along with a regular purchase • Adding would cost 90p per unit + 3p to secure the sample to featured product • Estimated 170% increase in sales • Estimated 40 % of these sales would be to customers who would not otherwise have purchased hair products from Boots
- 30. Decision Option On-Pack Coupon •50p off coupon •Customers would be able to redeem the coupon during current store visit •Estimated 150% increase in sales •Estimated 50 % of these sales would be to customers who would not otherwise have purchased hair products from Boots
- 31. Decision Criteria •Shoot up Sales •Maintain Profit •Unique Promotion Offer
- 33. Hypothesis Best promotion strategy is “3 for 2” Product Type Average Pre Promotional Price Retail Margins Premium £3.99 40% Mass Market £2.00 25%
- 34. Financial Analysis Offer Type Type of Product Pre Promotional Price (Avg) Retail Margin Average Cost Incurred per product Average cost incurred (Boots) Price Consumer Paid Profit per product 3 for 2 Premium £3.99 40% £2.39 £7.18 (for 3) £7.98 (for 2) (£7.98 - £7.18)/3 = £0.27 Mass Market £2.00 25% £1.50 £4.5 (per 3) £4 for (2) (£4 - £4.5)/3 = -£0.17 GWP Premium £3.99 40% £2.39 £2.39 +£0.9 +£0.03=£3.32 £3.99 £0.67 Mass Market £2.00 25% £1.50 £1.5 +£0.9 +£0.03=£2.43 £2.00 -£0.43 50p off Premium £3.99 40% £2.39 £2.39 £3.99 - £0.5 = £3.49 £1.10 Mass Market £2.00 25% £1.50 £1.50 £2.00 - £0.5 = £1.50 £0.00
- 35. Sales Analysis Offer Type Estimated sales increase per day as compared to pre promotional period Approximated percentage of sales to customers who would not have otherwise purchased from Boots 3 for 2 300% 60% GWP 170% 40% 50p off 150% 50%
- 36. Profit Analysis • If people buy only Premium Products Offer Type Estimated Sales per day Profit Per Product Profit per Day 3 for 2 300 £0.27 £80.00 GWP 170 £0.67 £113.90 50p off 150 £1.10 £164.40 • If people buy only Mass Market Products Offer Type Estimated Sales per day Profit Per Product Profit per Day 3 for 2 300 -£0.17 -£50.00 GWP 170 -£0.43 -£73.10 50p off 150 £0.00 £0.00
- 38. Proof and Action Considering Decision Criteria •Max Sales – “3 for 2” •Max Profit – “50p off” •Unique Sales Promotion – “3 for 2” [As competitors don’t have technology for this promotion type]
- 39. “3 for 2” • Increases sales to 300 % ; 60% New Customers • Profit if Premium Products are sold • Loss if Mass- Market Products are sold •Sales wise Best Option • Financially Stable Model if more than 117 premium products (including free ones) are sold everyday Product Type No. Of Products sold Profit Per Product Profit Premium 117 £0.27 £31.20 Mass Market 183 -£0.17 -£30.50 Total Profit £0.70
- 40. GWP •Increases sales to 170 % •Profit if Premium Products are sold •Loss if Mass- Market Products are sold •40 % New customers
- 41. 50p off • Increases sales to 150 % • Profit if Premium Products are sold • No Profit/Loss if Mass- Market Products are sold • 50 % New customers •Financially the best option
- 42. Additional Points •As the ratio of premium products to mass market products sold is not given so one cannot estimate overall profit •According to the case manufacturer’s typical margin is between 8-12 percent on cost of both type of products, as Boots is also a manufacturer, if the figures of Boot’s manufactured products sold is given one can get a more clear idea of the Profit/Loss.
- 43. Action Plan After computing financial figures and estimating the market share potential, the preference order of implementation of strategies would be “3 for 2” 50p off GWP
- 44. Alternatives
- 45. Alternatives•Hypothesis is purely based on the fact that premium products would be preferred over mass-market products at promotional periods •If the company gives greater weightage to the Net Profits Earned and completely ignore the Market Share Increase Factor , 50p off would be a better option as it ensures no loss condition at all times.
- 47. Thank You