1.To what do you contribute Brita’s success?The success of Brita in the USA market is due on the one hand to attributes of the core product and on the other hand to factors related to the market environment and successful marketing.
•Attributes of the core productThe pitcher itself had the following benefits: it reduced chlorine and odors, it made water to taste better, it was extracting heavy metals from the water and the water was not depositing salts/sediment when boiled.
•Market environmentInitially, there was no major concern to the consumers about filtering the tap water. However, the sensitivity that people showed about some health problems and/or accidents that rose during the decade of 1990, aided by significant publicity of these health problems, assisted Brita to easily increase brand awareness to the consumers and create a significant market.
Moreover a lot of people perceived Brita filter as a present for their friends.
•Successful marketingBrita pitcher was a technologically advanced product made from a well known German producer of industrial and consumer water filtration products, characteristics which made it attractive to Clorox who had significant marketing experience and distribution channels in the US. Clorox, which obtained the license from Brita GmbH to set up a subsidiary in USA, knows very well the specific market as it was a major manufacturer and marketer of home products with $3.9 billion dollars of sales in 1998.
Clorox provided the support for Brita: capital for 4 years, the desired know how and leadership, as expressed by the insistence and personal involvement of Mr. Couric.
Furthermore, Brita was the first very successful system of water filter, which created the home water purification industry.
In the distribution area, Brita USA has achieved dominant position in most of the outlets and department stores in the market covering all five possible channels of distribution (Department stores, Mass merchandisers, Grocery stores, Club stores, Drug stores).
Another important element that contributed to Brita’s success is the different pricing policy set according to the POS outlet. This means that the company could satisfy its consumers according to different needs and habits.
Last, but probably the most successful decision was the great taste positioning concept that helped Brita to market the pitchers with a clear promotion and advertising strategy boosting its sales, as there was no other competitor with such a strong image.
2.What are Clorox’s marketing assets going forward? Can you comment on their positioning choices?Marketing assetsThe Clorox company for the first four years faced real problems to launch the pitcher in the market. After the four years the company managed to create a strong image and build strong brand equity. These assets of the Brita’s pitcher are revealed through the following facts:First of all Brita company is a strong brand name in the market of water purification system. This functions as an asset to support and boost the sales of Brita’s pitcher (or any other water purification system), as there is high degree of brand awareness.
Also, by the year 1999 Clorox had created with the Brita pitcher a significant home water purification industry worth of $350 million at retail and was holding about 70% of revenue share or about $250 million, being a market leader.
Furthermore there is a strong customer base who will buy new filters for the next years (80% of the buyers who have tried the pitcher were still using it a year later and they were re-buying extra filters of about 2.5 pieces per year). Furthermore, from the Lifetime Value of a Customer (LVC) analysis shown in the next question (No 3), it is obvious that filters contribute significantly to the profitability of this product.
All these details above are showing to us that the Brita company has significant assets (brand equity, loyalty, awareness, being a market leader, having a strong customer base of people who buy filters) for going forward with any clear strategy.
Positioning choicesAt the beginning Brita company positioned the pitcher as a purification system providing water of unique taste. They positioned most on this benefit for 3 reasons:a) Surveys showed that taste means health, b) whole bottled water industry had been built without reference to health and c) Brita wanted to develop an unbeatable position (“be at the top of the mountain”) which would not be possible by positioning on how much of some impurity is removed.
We believe that Clorox made an important decision for the promotion and advertising campaign under the idea of taste (“great tasting water”, “clear, fresh, wonderful”) because it was also consistent with the attributes of the core product (water indeed tasted better after filtration with a Brita pitcher).
Brita stuck on one USP and promoting as taste as one central benefit avoiding a confused or doubtful positioning strategy which would lose the attention of the consumers.
The choice that Brita did not make was focusing on health. Filters decrease health hazards by low quality tap water (even if not all dangers are eliminated). The publicity given to health problems due to water could easily serve to strengthen Brita’s position. Health is PUR’s choice for positioning their faucet mounted system, which is not quite a head-on attack, since they would attempt to occupy a different position in the mind of the consumers.
3.What is the lifetime value of a customer with a pitcher? How does it compare with that of a customer with a faucet mounted system? Does their “bogo” promotion make sense?According to Gupta and Lehmann, Lifetime Value Of a Customer (LVOC) is:LVOC = m r/(1+i-r), where m=margin, i=cost of capital and r=retention rate.
Since cost of capital is not mentioned in the case study, we assumed a value of:0% for simplification purposesand a scenario with:3% which can be considered closer to real valuesA hypothesis with cost of capital 0Under this scenario, with r=0.8 (80% yearly retention rate) and i=0, the ratio r/(1+i-r) is equal to 4. From the case study (p.18) the gross margin for the pitcher is 7,36, while gross margin for the filters is 2,05.
1a. The lifetime value of a customer with a pitcher system is the following:LVOCpitcher system= LVOC from pitcher + LVOC from filters== margin from pitcher + 4*margin of filters*2,5 filters/y==7.36+4*2.05*2.5=$27.86So, we can see that Brita is going to receive $27.86 from one customer for the lifetime period of a customer with a pitcher.
2a. At this point we examine the lifetime value of a customer with a mounted faucet in two different models:(i)Best scenario: pricing at $40 and retention at 80% (same as for pitchers)(ii)Worst scenario: pricing at $35 and retention rate of 80%Cost as mentioned in the case study is taken as $15.
We have also assumed that Brita will keep on filters for faucet-mounted the same margin as in filters for pitchers.
i.(40-15)=25+4*2.05*3=$49.8*LVOCfaucet=ii.(35-15)=20+1*2.05*3=$26.15*The worst scenario of the faucet production for Brita is that it is going to receive $26.15 from the lifetime value period of one consumer and the best scenario reveals that Brita is going to receive $49.8 for the same period.
If we compare the worst scenario of (2aii) with 1a we see that the two amounts are close but pitcher systems have higher LVOC ( LVOCfaucet is $26.15 while current LVOCpitcher is $27.9) and in case of (2ai) there will possibly be significantly higher profits by the faucet ($49.8) in comparison with the pitcher system ($27.9).
Using the lifetime values of the pitcher and faucet filter, we can conclude that if Brita is going to enter the market of faucet filters, it will receive higher margins of profits by 78% if all goes well, while even in a bad scenario it would lose 6,5% of its margin.
A hypothesis with cost of capital of 3%1b.Similarly, the case when cost of capital is considered to be 3% and all other things unchanged, then our calculations will be:LVOCpitcher= 7.36+3.45*2.05*2.5=$25.04a.(40-15)=25+3.5*2.05*3=$46.52**2b.LVOCfaucet=b.(35-15)=20+0.94*2.05*3=$25.78**.
As we can conclude from the above calculations the profit Brita is going to receive according to LVOC of pitcher and LVOC of faucet are close to those of the 1st hypothesis. In the best scenario there can be significant profit from the faucet. In the worst case, the faucet remains (even marginally) higher since the higher price of the faucet brings most of the benefit of the LVOC in the beginning (when the system is sold).
An important element in the calculations above was the hypothesis that filters will be priced to provide the same margin of $2.05.
BOGOThe amount of money Brita is going to receive it is based to the following hypothesis:•Retention rate would be the same as for the pitcher.
•The consumers will use the second filter as the first, replacing filters at the same rate.
•There was no cannibalization of the market.
•COGS per pitcher is shown to be $7,8 at p.18 of the case study•Cost of capital is also taken at 0% for simplicity reasons.
LVOCbogo= 4*2.05*2.5-7.80=$12.7Brita hopes to receive an extra amount of money of about $12.7 from the jag is going to give it as a present.
If the conditions / hypothesis presented above are true, then the BOGO promotion did indeed make sense.
KOTLER R. – KELLER K, MARKETING MANAGEMENT 11TH EDITION, PRENTICE HALL 2005