The Brita Products Company

1
The Brita Products Company

• Dan Opalka
• Marie Smith
• Elena Acosta
• Yusuff Kulapurakkal

2
Introduction

• Clorox Company Major manufacturer of Laundry
  additives, Household cleaners etc
• Charlie Couric Marketing Executive at Clorox
• Couric proposed Clorox to acquire the right to
  market Brita Water Purifier Pitchers in US
• September 1988 - Clorox forms Brita USA, the sole
  distributor for Brita in the US
• Couric becomes President and General Manager of
  Brita USA

3
Initial Strategy

• Couric Suggested a Deficit-Spending Proposal
• Take the pitchers to every kitchen countertop
• Even with incurred loses
• Concentrate on the repeat sales for pitcher
  filters
• No profits for 4 years
• Initial sunk cost dwarfed revenue from sales

4
The Product

• Brita filtration system parts
• Two Compartment Pitcher
• Replaceable Filter
• Threefold benefits
• Filtered water tasted better
• No scale deposits like with boiling
• Harmful heavy metal contents extracted
• Pitcher sold with single filter in place
• Filter replacement required after 2 months /
  filtering 40 gallons of water
• Filters sold separately in packs of 1, 3 and 5

5
Growth

• Customer base increased over a few years
• Each pitcher sale started a flow of filter sales
• Main source of revenue becomes the filters
• Developed a high cost for the pitchers, but
  provided lower costing filters? Saves the
  consumer more money in the long run
• By 1999, Brita had
• Sold 17 million pitchers
• Close to 200 million in revenues per annum
• Enjoyed 70 market share of home water
  purification industry

6
Market Growth

• Water growing in popularity
• Water is growing in popularity
• Pitcher Filter sales are still growing

7
In class we studied A Framework for Marketing
Management
BRITA
Customers
People who drink water at home / school
Pur bottled water
Pitchers, filters, faucet-mounted
TV ads, web
8
Defining Our Market

• Customer Questions
• Who are my customers and what are there
  needs/wants?
• Those in need of purified water
• What does their decision process look like?
• Based upon amount of purification and taste
• Can they be segmented?
• Geographically, Age
• How valuable are they to me?
• Pitchers? one time purchasers
• Filters? Recurring customers
• How many are there will there be in the future?
• Market share right now
• Has the opportunity to grow in the future

9
Defining A Market Focus

• Selling a need
• Filtered water
• Determining a price
• A lower price may need to be charged in order to
  acquire a market share
• Product Quality
• Brita water filters do not eliminate as many
  pollutants as does its competition
• Product Taste
• People are worried about taste as much as health
• Aesthetics
• Product appearance must be comparably nice to the
  competition

10
Future looks bright

• People not using devices to filter water is
  decreasing ? more people filtering water

• However, people purchasing bottled water is
  increasing

• systems increasing ? more people filtering
  water

11
Where are we going?

• We have the product
• We have the market?
• Where do we go from here?
• How do we address the target?
• Elena will explain this

12
Value Delivery Sequence
Choose the Value
Provide the Value
Communicate the Value

• Product/service RD
• Invest on technology for better filtering
  better taste
• Distribution
• Sell to retailers and stores
• Pricing
• Is our price competitive?
• Service
• Provide information resources online (and online
  mail), human assistance (Phone and Postal Service)

• Customer needs assessment
• What does my customer want?
• Lower price, better filtering, better taste,
  better looks
• Customer selection
• Who is my customer? What other customers am I
  interested in?
• Households (locust business)
• Companies (chicken business)
• Value Proposition Definition
• Better value, lower long-term price

• Advertising
• TV, web
• Selling
• Online, stores
• Promotion
• Taste tests

Adapted from Cathy Anterasian and Lynn W.
Phillips, Discontinuities, Value Delivery, and
the Share-Returns Association ARe-exaimination
of the Share-Causes-Profits Controversy,
Marketing Science Institute, 1989.
13
Ads on TV 2006 Whats the message?

• Brita (floating)
• http//www.youtube.com/watch?vGHf3k4cDi70
• Brita (WC)
• http//www.youtube.com/watch?vRRQls4ot3l4
• Brita (mermaid)
• http//www.youtube.com/watch?v_dNkfwz21Fg
• Demonstrations on the web
• http//www.youtube.com/watch?vdRxYDEVg844
• http//www.youtube.com/watch?vD5Sk0_rapmEmodere
  latedsearch

14
Customers concerns
Britas increase in quality is translated into
descending concerns in the following categories
health contaminants, smell/taste and sediments
Until 1999 it is worth noting that there was no
concern about bacteria in the water. This might
be due to lack of marketing research analysis in
this field or lack of public awareness
15
Customer as sum of cash flows

• LVOC mr/(1i) mr2/(1i)2.
• m (r/(1ir))
• Profit increases as r increases
• r retention rate
• m margin
• i cost of capital

16
Retention Rate Faucet Mounts

• Britas retention rate will suffer if they dont
  implement the faucet mounts
• Britas retention rate will improve if they do
• If Brita does not go into faucet mounts, there
  will be a decrease in
• Brands Perception
• Retention Rate
• Profits

17
Customer Focus of Pitchers
Britas most concerned customer is the youngest
? Customer retention customers lifetime value
estimation This is interesting because their life
time is longer and this target market will be
profitable over time if marketed correctly. Brita
should make ads that appeal to young people
Concern about water quality decreases as age
increases
18
Getting Ads investments worth into revenues
from customers consumption
Source http//www.aceee.org/conf/mt06/con1a-taylo
r.pdf
19
Market Needs

• Media gave drinking water national attention
• East Woburn MA Industrial solvents in well
  water
• Milwaukee WI 400K sick and 110 died
• CNN and Gallup poll determined market need
• 47 of all people preferred not to drink water
  straight from the tap

20
Target Market

• Market Demographics Survey Results
• 72 of all respondents had concerns about water
• 89 of young adults (18 24) had concerns about
  water
• 67 of young adults (18 24) were concerned
  about health contaminants
• Western US
• Showed stronger interest in faucet mount systems
• Largest percentage using bottled water

21
Value Proposition Decision Process
Long term investment
Superior quality
Brita offers
Better taste Better looks
Low initial price and lower variable cost
households
In the long run Brita is cheaper than PUR, and
the quality of the filtered water is comparable
if not better
22
Competition

• Home Filtering
• PUR
• Makes pitchers, faucet mounts and family sized
  containers
• Culligan
• Water purification for the home? very expensive
• Everpure
• Originally made for commercial use, brought into
  home market
• Very high technology and cost
• Aquapure
• Close competition but little known
• Bottled Water
• Other

23
Comparison of filtering features price and
quality
Middle range
Not pitcher, household unit
Expensive
0.1
0.3
0.2
24
What are things to watch out for?

• Yusuff will explain how the SWOT analysis will
  provide Brita with crucial information for their
  implementation of faucet mounts

25
SWOT Analysis

• Strengths
• Owns 70 of the market share in industry
• Established Brand Name
• Infrastructure to invest in faucet mounts
  promotion
• Volume of pitchers sold in the market are 5 times
  the volume of faucet mounts sold
• Serves a niche market can gain advantage by
  promoting faucet mounts
• Only Britas faucet mount is perceived to improve
  the waters taste
• Wide array of filtration products to choose from
  Pitchers of different sizes, Family sized
  containers, Personal water bottles etc

26
Accessibility
In store
Pur can be bought at any of 171 major stores
worldwide
Brita can be bought at over 200 major stores
worldwide
Online
 BuyItNow.comCampmorCheaper By The
DozenComfortliving.comCooking.comCostco
OnlineDiscount Mart2drugstore.comGaiamPlanet.R
xNetgrocerRealGoods.comSelfCare.comTarget
Walmart Online
  Catalogcity.comDiscountMart2000Drugstore.com
Fortunoff.comJandR.comPlanetRx.comQVC.comServi
ceMerchandise.com Target.com Walmart.com Webvan
.com Wedding411.com
27
Brita Vs. Pur
Brita
Pur
Water Systems (Pitchers)
Water Filters
Therefore while Pur has cheaper units, over time
Brita has the cost advantage? They have cheaper
prices for the recurring costs. These savings
could most likely be carried over to faucet mount
systems also.
28
Brita vs. Pur

• Brita
• cheap variable cost (filters),
• expensive fixed cost (pitcher, faucet-mount)
• Pur
• expensive variable cost (filters),
• cheap fixed cost (pitcher, faucet-mount)
• In the long run Brita comes out to be the cheaper
  choice,
• however Brita must communicate this message to
  the buyer
• or they will probably buy Pur based on the first
  consumption,
• and they will not switch back due to the sunk
  costs

29
Current Advantage of Brita

• Well known
• First label to enter US water filtration market
  for households
• Affordable product with a good reputation
• Well focused
• All products associated with water filtration?
  not overly diversified
• Large selection
• Makes pitchers, family sized containers and
  personal water bottles
• There is still room for expansion!!

30
SWOT Analysis

• Weaknesses
• Major share of revenue from pitcher filters can
  decrease with elevated faucet mounts sales
  cannibalization effect
• Lost first movers advantage to PUR with faucet
  mounts
• Requires sunk costs in promotion and innovation
  with faucet mounts
• Basic model of PUR faucet mounts cheaper than
  basic model of Brita pitchers
• PUR owns 74 of total faucet mounts sales in
  Market Brita has to earn the market

31
Advantages of PUR

• Eliminates cysts
• Known to cause stomach illness
• Eliminates Lindane
• caused seizures, blood disorders, and brain
  cancer in children
• linked to both breast cancer and Parkinsons
  disease
• Eliminates Atrizine
• Pesticide chemical
• Ingestion of Atrizine can cause cancer and
  damage the cardiovascular system.

32
SWOT Analysis

• Opportunities
• Open market available to selected group of
  customers
• Younger generation more likely to use pitchers
• Households likely to use faucet mounts
• Introduction of Faucet mounts increase the
  likelihood of buying a product from the Brita
  line
• Can market the faucet mounts arguing on improving
  the waters taste
• Competition is not limited to PUR Huge market
  with health conscious Bottled water consumers
• Should target faucet mount sales in the 18 to 44
  aged consumer market where 82 are health
  conscious

33
SWOT Analysis

• Threats
• Sunk cost problem compared to PUR
• PUR generates major share of income from faucet
  mount sales
• Would invest 40 million in advertising and
  promotion of faucets and pitchers
• Brita unsure of huge investment towards faucet
  mounts unsure of returns on deficit spending
• Combined pitcher and faucet-mount market not
  expected to expand
• Target market water purification industry is
  the same
• Diversified marketing towards different classes
  is difficult
• Return on sales might decrease with introduction
  of faucet mounts

34
Problem Solutions

• Marie will explain the existing and potential
  problems and the solutions that can be achieved
• A quantitative analysis is very helpful for
  revealing sensitivity points

35
Dilemma Opportunity cost

• New product from PUR Water filter screwed to
  kitchen faucets
• Brita had similar product ready for launch
• Different Arguments with the new product
• Brita has to deficit-spend again The new
  product from PUR would disrupt the pitcher market
• Both faucet and pitcher products can co-exist in
  the market faucet serving a different market
• Brita should do nothing to foster the faucet
  product they should defend the established
  pitcher market

36
What is the market like?
37
Faucet Mounts

• Advantages to Brita
• Good brand name
• Pitchers used by large majority
• Helps open the market to new customers
• Younger people more likely to use pitchers while
  families are likely to use faucet mounts
• Disadvantage
• Lost first movers advantage to PUR
• Have to earn market from competition
• Requires innovation costs
• Detracts from pitcher sales

38
What information informs the problem?

• Our problem is the balance between
• Declining market share due to competitor
  innovation
• PUR and faucet mounts
• Loss of the first movers advantage
• PUR already in faucet mount market
• New target market with faucet mounts
• To keep up with the innovation would both incur
  costs and diminish already successful pitcher
  sales
• Solving the problem
• Innovate faucet mounts
• Redirect market towards younger people
• College students with a need for pitchers

39
Break Even Analysis

• Assume the new faucet mounts cost 24.95 each
  after a retail markup of 40
• Price Brita receives is 15.15
• This is the same as the pitchers
• Assume variable costs are the same as pitchers
  (7.80 per unit)
• Fixed costs would be advertising and promotions
• As told in the case, the fixed costs could range
  anywhere from 12.4Million? 30.8Million
• For our analysis, we will use the average
  (21.6Mill)

40
Break Even Analysis

• BEPFixed Costs/(price-Variable costs)
• BEP21,600/(15.16-7.80)
• BEP 2,900,000
• Brita would have to sell almost 3 Million
  pitchers to make the same amount of money as they
  would spend
• Since projected demand is not that high, Brita
  would have no choice but to raise prices

41
Dont Forget about Filters

• Also assume that the unit contribution of filters
  is the same as in pitchers
• 2.05
• On average 6 filters will be purchased by each
  household a year
• Need to be replaced every 2 months
• Therefore, each pitcher will actually make an
  extra 4.10 than already accounted for

42
Adjusted Price

• Assume the retail price goes from 24.95 to
  34.95 (this is comparable to PURs price)
• The new manufacturer price is 20.97
• On average, each household will use 6 filters,
  whose unit contribution is 2.05 each
• Therefore, it is as if each mount sold for 12.30
  more
• Then the new BEP is
• BEP 21,600/(32.27-7.80)
• BEP 882,000

43
Britas success is Clorox success
44
Britas success is Clorox success
45
Questions?

• Whats Britas source of success?
• How do you think Britas sales forecast will look
  like?
• How do you think Brita will defend its position
  against its competitors?

Brand recognition
1st movers advantage
Low cost
Growth
Cannibalization
Brand recognition
Low cost