Boots Hair Care Sales Promotion: HBR Case Study

Objective

To drive up sales volume and trade up consumers from lower brands , while retaining or building brand equity for a line of professional hair-care products at BOOTS.

Case Background

• One of the largest retail names in United Kingdom.

• Employed 75000 people in 130 countries in 2004.

• Apart from health and beauty products, deals in optician, insurance services etc.

Competition• These brands were widely

available in supermarkets and at drug retailers including Boots and Superdrug.

• The sales of these brands were directly proportional to the amount of advertising expenditure.

Market share

• Over 60 major brands in hair-product market in 2000.

• No brand enjoyed more than 9% market share.

• Severe price competition.

Consumer Analysis

Understanding Consumer Behaviour

• Lack of Brand Loyalty• Dynamic consumer

behaviour• Consumers found it

difficult to identify product differentiation.

Demographics• Consumers who purchased

professional brands were largely fashion-conscious women in the 20-35 age category.

• Most Boots consumers bought both basic and premium brands.

• Other customers bought basic products for everyday use and premium products for special occasions such as weekends or social outings.

The Problem• Dave Robinson, the sales

manager at Boots needs to come up with a strategy to promote sales in UK in December 2004.

• He has 3 different promotional strategies at his disposal, and needs to choose the most effective one.

The Decision• Average bottle size is 250 ml

(shampoo/conditioner).• Average pre-promotional

price is 3.99 pounds.• Industry average retail

margins :- 40%.• Mass-market brands had an

average retail price of 2 pounds with retailer margins of 25%.

• Manufacturer’s margin :- 8-12%.

Promotional Strategies

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

Analysis

• Loss of Brand Loyalty.

• Not a long term solution

• Competitors cannot replicate the strategy.

• Sales would increase by 300%

• 60% new customers.

Analysis

• We do not know whether all consumers will buy 3 products every time, hence calculating the exact profitability is not possible.

• Assuming they do, and consumers buy only from mass-market brands ( more likely in such a scenario), pre-promotional profit per unit is 1.3. For 100 units, it is 130 pounds.

Analysis

• After promotional strategy, effective price becomes 1.33 pounds. Profit margin is 65% ( minus manufacturer and retailer). Hence profit per unit is 0.86. For 300 units, it is 258 pounds. Profit increases by almost 200%.

• Also, there is more consumer reach (60%) and competitive advantage.

Promotional Strategies

1. Customers to be given a product sample along with their purchase.

Analysis

• Average cost of 93p per unit.

• Competitors can easily replicate the strategy.

• Sales would increase by 170%

• 40% new customers.

Analysis

• This strategy will cost 93p per unit of bottle.• Pre-promotional profit was 0.65*2*100 = 130

pounds.• After promotional strategy, (1.3-0.93)*170 =

68 pounds. • Profit is decreasing by almost 48%.

Promotional Strategies

1. Customers would be able to redeem the 50p off coupon during their current store visit.

Analysis

• Affects brand equity and long term sales.

• Sales would increase by 150%

• 50% new customers.

Analysis• This strategy would cost 50p per unit.• Pre promotional profit was 0.65*2*100 =

130 for 100 units.• After promotion, profit is (1.3-0.5)*150 =

120 pounds.• Profit is decreasing by approximately 7.7%.

“3-for-2” seems to be the best possible strategy since it increases profit as well as consumer reach.

Prepared By Anchit Ahuja, during an internship under Prof Sameer Mathur, IIM Lucknow.