boots: hair-care promotion strategy

HAIR-CARE PROMOTION STRATEGY

BY URMI ARORA

What is Boots??

One of the best-known and respected retail names in the United Kingdom

Provides health and beauty products and advice

Owns global differentiated brands in self-medication market

Develops and manufactures its own products too

Operates in around 130 countries with 75,000 employees

What is the current situation?

SITUATION ANALYSISBoots has to plan its sales promotion strategy for a line of promotional hair-care products

The professional hair-care line is developed in collaboration with United Kingdom’s top celebrity hairdressers.

Primary objective is to drive sales volumes and trade-up consumers from lower-value brands.

3 for 2

• Buy 3 products for the price of 2

Gift With Purchase

• Get a product sample free with a regular purchase

On pack

coupon

• Redeem the coupon and get 50p off

THREE PROMOTIONAL ALTERNATIVES

Why study this case?

Understanding the relationship between promotional strategies and its impact on consumer base & sales.

OBJECTIVES OF THE CASE

To use quantitative analysis to develop and choose an appropriate promotional strategy.

OBJECTIVES OF THE CASE

Boot’s positioning in the United Kingdom hair-care market

Boots saw an opportunity to be the retail hair-care expert and to offer the latestranges.

It built a new market by using celebrity endorsements to create awareness and an emotional attachment betweenconsumers and the brand.

Using its superior technological capabilities and significant production capacity, Boots worked to design formulations that were functionally better than the existing brands.

MAJOR COMPETITORS AND MASS MARKET BRANDS

PROCTOR & GAMBLE

L’OREAL

Understanding Consumer Behavior

Consumers are not brand loyal because….

There is a general belief by U.K. consumers that changingshampoo brands produced better results than continually using a single brand.

Trends in buying behavior lead to changing preferences.

It is difficult for consumers to identify meaningful differences between thevarious brands available in any given store.

BOOTS’ CONSUMERS

Fashion conscious women in the 20-35 age category

More affluent than the buyers of mass markets

Consumers bought both basic and premium brands

PROMOTIONAL DECISIONS

Promotion was to run for 1 month starting December 1st

No variation in product-sizes because of the added costand complexity involved

No media advertising budget was allocated for this promotion

There would also be signage within the store to promote theoffer

Let’s analyze the three alternatives

Buy two hair-care items at regular price and receive one free

Combine any three items but the three items have to be of the same brand

The free item would be the one that was the least expensive of the threeitems

3 FOR 2

GIFT WITH PURCHASE

A product sample given free with a regular purchase

Existing sample product would be used toavoid the need to design and produce additional packaging

ON-PACK COUPON

Consumers will get 50p on their purchase

Everyone would be able to redeem coupon during the visit

SALES AND CUSTOMER ESTIMATES

3 FOR 2 GWP ON-PACK COUPON

0

50

100

150

200

250

300

350

SALESCUSTOMERS

Increase in Sales and Consumers

% Increase

Various Schemes

QUANTITATIVE ANALYSIS OF PROFITS IN EACH CATEGORY…

Average bottle size = 250mlAverage pre promotional price = £3.99 ~ £4Industry average retail margins on premium brands= 40%Manufacturer’s typical margin on cost= 8% to 12% ~ 10%

Basic Calculations

•Selling price of each bottle = £4•Profit margin to retailer = 40%•Cost to retailer = 0.6x4 = £2.4•Profit margin of manufacturer = 10%•Cost to manufacturer = 2.4/1.1 = £2.18

According to estimates , sales will increase by 300%If 100 bottles were sold in a day before promotions, now 300 bottles will be sold out of which 100 will be freeTotal sales in the month of December = 31x300=9300Cost incurred to the manufacture = 9300x2.18 = £20,274Revenue incurred = 6200x4=£24800Profit gained = £4,526

According to estimates , sales will increase by 170%If 100 bottles were sold in a day before promotions, now 170 bottles will be sold Total sales in the month of December = 31x170=5,270Cost incurred to the manufacture = 5,270x(2.18+0.93) = £16,389.7Revenue incurred = 5,270x4=£21,080Profit gained = £4690.3

According to estimates , sales will increase by 150%If 100 bottles were sold in a day before promotions, now 150 bottles will be sold out of which 100 will be freeTotal sales in the month of December = 31x150=4650Cost incurred to the manufacture = 4650x2.18 = £10,137Revenue incurred = 4650x(4-0.5)=£16,275Profit gained = £6,138

FINAL DECISION‘3 for 2 is the

correct choice’

Though it is a little less profitable than other schemes but it is still profitable and leads to a profit of £0.486 per bottle

It increases the customer base by 60% , which is one of the primary objectives of launching this promotional strategy

Also, this scheme cannot be imitated by competitors as they so not have the required technology and this gives an edge to Boots which will help it in the long run

It targets existing Boots customers as well as new customers

Created by Urmi Arora, NSIT, during a marketing internship under Prof. Sameer Mathur, IIM Lucknow