CleanSpritz case study analysis (document anglais)

CleanSpritz

Case Analysis- Marketing Report- Asmae Chakkour

Case overview:

Sales of CleanSpritz all-purpose cleaning spray have been steadily declining for the past five years, and management believes the decline correlates to a growing environmental concern among U.S. consumers. CleanSpritz's management is considering several options to address the environmental concerns in hopes of reversing the decline in revenue: re-launching the current product; adding a new product that includes stronger concentrate in a recyclable pouch; adding a new stronger concentrate in a dissolvable packet; or keeping the business status-quo.

Facts and assumptions of relevance and of importance

The case highlightsthe challenges facing Claire Beaton and the CleanSpritz brand. The key element would be to know and valuate what motivate the firm customers to purchase the product. The main challenge is to answer the following question: Will the new refill package will encourage trail ad switching by non CleanSpritz users or will it cannibalize the existing brand customers base?

In this case study we will try to assess the advantages and disadvantages of each introduced option before to recommend the best option for the company.

Options assessment

Option 1: Re-launch the existing 3:1 CleanSpritz concentrate with heavy promotion concentrated on environment benefits.

Cost effectiveness analysis:

- Reducing packaging costs: The effort made in term of packaging saving costs 0.15 less compared to Diluted Spray is absorbed by the increase in Chemicals cost where the company is supposed to make more saving costs effort compared to its competitors. In this cost component CleanSpritz is 4th among the 5 main players.

- Increase in add spending by 6% will have an impact on the net operation income. So although the contribution margin gets improved the increase in add spending can decrease the net income.

The risk of cannibalization effect:

The projected rate of cannibalization by the finance team is 55%. As reference we will consider this rate as the worst scenario. By calculating the contribution margin for this option the results do not show a good shape.

Caire estimated for the first option an increase of 5M units of 3:1 concentrate sales. With the impact of cannibalization of 55% on diluted spray the combined contribution margin after applying the first option will decrease as will be demonstrated below.

Diluted Spray 3:1 concentrate

Selling price/unit 2.53 2.09

Total cost( assuming Variable costs) 0.70 0.68

Contribution Margin/unit 1.65 1.41

CM RATE 70% 67.5%

The contribution margin rate of the diluted product stays higher than the concentrate. The effort of covering the cannibalization effect should high in term of volume sales for the concentrate product.

In 2011 the total volume sales was 22628768 units. Knowing that the breakdown between diluted spray and concentrate is respectively 80% and 20% and by taking 2011 data as reference assumption let’s calculate the contribution margin for option 1 with a cannibalization rate of 55% and 5M unit increase in 3.1 concentrate sales:

TOTAL CONTRIBUTION CALCULATION

2011 INITIAL SCENARIO OPTION 1 PROJECTED SCENARIO

(22628768 units*80%*1.65)+

(22628768 units*20%*1.41) (22628768 units*80%*0.45 *1.65)+

(22628768 units*20%+5M*1.41)

36 251 286 26 872 799

Environmental effect and customer benefit and perception:

The essence of this option is to focus on the environmental benefits of the existing concentrate by emphasizing on the packaging reduction, the pollution avoided from the freight and reuse of the old spray bottles. However, as it was mentioned in the social media manager’s message to Claire. The promotion of the product as friendly ecological should be done based on the components of the product itself not focused on its packaging only.

The real consumer benefit would come from a biodegradable version of the present spray version in addition to an ecological packaging.

There is the risk also of seeing the labeling standards imposed by the US government in the short term and media message used today would change tomorrow which incurs costs and image disturbance in the customer’s perception of the brand.

Option 2: Add to the product line a stronger 4.1 concentrate with different packaging options pouch and dissolvable Packet.

Cost effectiveness:

- Reducing packaging and delivery costs:For both option the saving costs in term of packaging is obvious. 14% saving cost for the second option A and 6% of the second option B.

- Retail cost reduction (retailer benefits): less storage cost because of the new size, less transportation costs, less handling. The new products offer 9% margin

- Increase in add expenses: as the main value is to focus on the environmental benefits of the packaging for the both option the add expenses will increase basically by 6.5%. As explained in the first option, the increase wills necessary decrease the net income if the increase of the sales volume of the new concentrate product in not enough to cover to cover the other bottom costs beside the variable costs.

The risk of cannibalization effect:

For this second option the cannibalization rate seems to be much higher than the first option. The estimations of the Claire team lead to 60% of cannibalization while the pessimist scenario of the finance team reached 80%. Both rates are very high and will have a huge impact on dropping sales the main and core product Dilute Spray.

In this part, I will take as example to calculate the cannibalization effect on dilute spray contribution margin the rate suggested by the brand team and take also their volume sales forecast which represents the optimistic scenario.

Diluted Spray 4.1 concentrate A 4.1 concentrate B

Selling price/unit 2.53 2.07 2.07

Total cost( assuming Variable costs) 0.70 0.60 0.66

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