ROCKY MOUNTAIN SOAP COMPANY - Appendix 1 CCoommpprreehheennssiivvee CCaassee - Pearson Canada
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19_kotler_app.qxd 1/18/07 4:51 PM Page A2 A2 Appendix 1 Comprehensive Case Appendix 1 Comprehensive Case ROCKY MOUNTAIN SOAP COMPANY Cam Baty’s heart was racing as he pedalled his mountain bike toward the summit of the ridge. His thoughts were racing too. He was hoping that this long, hard ride would help him find clarity around the Rocky Mountain Soap brand. He knew the decisions he made now would be critical to the ongoing success of the company. Rocky Mountain Soap is a small company on the verge of a major growth spurt. It produces handmade soap and other personal care products in its 370-square- metre Canmore, Alberta, factory. The company currently owns and operates three retail outlets in Alberta—one in Canmore, one in Banff, and one in the West Edmonton Mall. Cam and his wife, Karina, planned to open two more retail stores in the next few months if suitable locations can be found. These would be followed by four more outlets in 2007. In the 2008–2009 period, Cam and Karina hoped to establish seven new outlets each year. Karina Birch and Cam Baty, founders of Rocky Mountain Soap, with their daughter, Ruby. Company History Cam has always loved the outdoors. He first worked as a fishing guide in the Arctic after he graduated with a Bachelor of Commerce degree from Ryerson University. This is where he met Karina. He then moved to the Canmore area but continued to manage fishing lodges in the Arctic. Karina had recently graduated from the University of Alberta with a Bachelor of Commerce degree and had started a small human resources consulting business in the Canmore area. Cam and Karina were regular customers of the small soap company located in the town. Karina had always been interested in skin care, and she liked the com- pany’s products. When they were in the store buying Christmas presents, they found out the company was for sale. In early 1995, they scraped together the $45 000 pur- chase price, using $15 000 of their own money, a $15 000 loan, and a $15 000 line
19_kotler_app.qxd 1/18/07 4:51 PM Page A3 Appendix 1 Comprehensive Case A3 of credit. Karina ran the business on her own for the first year while Cam contin- ued to manage the Arctic fishing lodges. Rocky Mountain Soap’s brand logo—a stylized drawing of the Three Sisters Peaks, mountains that can be seen rising behind Canmore, the company name, and the tagline, which appears above the drawing, “be kind, be real, be natural”—cap- ture Cam and Karina’s beliefs. First, they are kind to suppliers, customers, bankers, staff, and all other people the company has relationships with. “Be real” captures their desire not just to sell genuine products but also to achieve real growth and real profitability. “Be natural” reflects their commitment to stick to 100 percent natural ingredients in all the products the company produces and sells. The brand logo appears at left. From its inception, the idea behind Rocky Mountain Soap was a desire to make luxurious soap by hand. The soaps would have natural scents and the healing prop- erties associated with nature. Cam and Karina’s goal has been to only use 100 per- cent natural ingredients. These include the finest essential oils,1 real grains, and berries. Each soap is targeted toward a specific skin type, a specific user problem, or use situation. Take just one example from the 27 specialized soaps Rocky Mountain Soap produces: Pumpkin Patch soap. It is an unscented soap aimed at people with rough, inflamed skin, sensitive skin, dry skin, or eczema. The soap con- tains wheat germ, which mildly exfoliates. Pumpkin pulp protects and soothes sore rough skin and helps prevent flaking. Sweet almond oil helps to heal skin exposed to harsh climates and is extremely moisturizing. In combination, the ingredients in the soap oxygenate and repair damaged skin. Throughout the history of the company, Cam and Karina have stayed true to their ideal of employing natural ingredients. When they discovered that some of the food, drug, and cosmetic colours they used in some of their products were not nat- ural, they stopped using them and decided to rely on the herbs and spices used in the products to give them their distinctive hues. The packaging used for many of the products is distinctive. When Cam and Karina bought the company, the body butters were sold in clear packages more commonly used to package men’s deodorant. Though they kept the container, they knew that some consumers might be confused by the packaging. Thus, they worked on their brand logo and the labels to make it clear what the product actually is. In all their packaging, they also use recycled or recyclable containers where possible. The labelling and packaging of some of the key products is displayed in Exhibit 1. In addition to their focus on natural ingredients, the couple work to be envi- ronmentally sensitive in all of their operations. They avoid excess packaging, and as there is the potential to generate considerable waste when the soap is cut, they even developed a product that incorporates the waste from other soaps—Avalanche soap. It is brightly marbled soap made from the trimmings from the other soaps. All of their soaps are produced, cut, and packaged by hand in the Canmore factory. Rocky Mountain Soap is very much a family business rooted in its communi- ties, and all of Rocky Mountain Soap’s employees feel as if they are part of the fam- ily. Cam and Karina care about their employees, and their employees return this respect in a heartfelt fashion. For example, even though Rocky Mountain Soap is a small company, it is in the process of launching a daycare program to support its 1 Essential oil is oil derived from a natural substance, such as lavender or almonds, and is usually used either for its healing properties or as a perfume. Essential oils have a long history of providing a variety of therapeutic benefits, and many of these benefits have been confirmed through scientific research. The use of essential oils in a cosmetic, for example, will have an antiseptic and antimicrobial action, as well as a healing and soothing effect on the skin. Essential oils help the skin and hair detoxify, drain, heal, and regenerate. Essential oils are readily absorbed through the skin and hair follicles, and carried to all parts of the body. Their effects can last from a few hours to a few days. Essential oils are also used in some pharmaceuticals and many over-the-counter remedies. For example, cough medi- cines often contain one or two essential oils: camphor or eucalyptus. Essential oils are also used in the practice of aro- matherapy.
19_kotler_app.qxd 1/18/07 4:51 PM Page A4 A4 Appendix 1 Comprehensive Case EXHIBIT 1 Packaging and Labelling—Selected Products employees. Everyone who works for the company is very devoted to it, and every- one is enthusiastic about the company’s future prospects. Everyone is determined to do whatever it takes to make the company a success. Many of the employees are pic- tured on the company website, and the contribution each employee makes to the company is recognized. Rocky Mountain Soap is very much embedded in the local community, and Cam and Karina give a lot back to the communities in which they operate. Whenever anyone comes and asks in person, they give products and sup- port to community organizations and causes. Inspired by the book The Great Game of Business, by Jack Stack, which focuses on the concept of open-book management and the breaking down of barriers between the “we” of management and the “they” of workers, Cam and Karina wanted to ensure that their employees shared in the success of the company. Thus, they introduced profit-sharing about two years ago. They used the plan offered by WestJet as a model and adapted it to their own operations. All of the workshop staff and retailer managers benefit from the program. It is one reason the company’s employees are so committed to the on-going success of the company and why every- one works to make decisions and provide the energy and service that is essential to making the company a success. Customer Care Rocky Mountain Soap takes pride in the fact that it stands firmly behind all its handmade products. Karina, Cam, and the other Rocky Mountain Soap employees test and use the products themselves, as do their circle of family and friends. As they note on their website, “We are committed to delivering the utmost in care and serv- ice to our valued customers. Because our products are made by hand, we know and understand every single ingredient in every single product we offer for sale. We offer an ‘unconditional money-back guarantee’ on everything we sell. That means that if there is part of our product that does not meet your expectations, we will cheerfully
19_kotler_app.qxd 1/18/07 4:51 PM Page A5 Appendix 1 Comprehensive Case A5 refund your money.” Customers are usually highly satisfied with the company’s products, however, so refunds are rarely requested. More often, customers try one product and are so impressed with its effectiveness that they then start purchasing other products from the different lines. Rocky Mountain Soap offers products for everyone in the family—from dry to oily skin—baby skin to mature skin. Cam and Karina believe their primary pur- chasers are women aged 25 to 55. They purchase products for their personal use and for other family members who may have special needs. There is some doubt, however, about the true nature of their target market. Some believe the primary pur- chasers are women over 30; others see the stores filled with younger people, both women and men. Because of their locations, tourists of all nationalities also seem to be attracted to the stores and the products. The company is starting to build a data- base to better understand its purchasers. Rocky Mountain Soap has generated two databases of its customers: one is gen- erated for retail customers who enter contests to win gift baskets; the other is gen- erated through the company’s online operations, surveys, and shipping lists. These databases help the company better understand where its customers come from and who is buying its products. The databases are also used for customer contact and for special mailings. In the markets where there are retail stores, for example, a card is sent in the customer’s birthday month and he or she is offered a free bar of soap. Customers often become the best salespersons for Rocky Mountain Soap’s products, generating word-of-mouth endorsements for the company. Many cus- tomers have also provided testimonials about the products, and some of these can be found on the company’s website (www.rockymountainsoap.com/message/1036832/ 1000144). Rocky Mountain Soap also works to create a customer community. It uses its Soap Dish News, a monthly newsletter sent electronically to all registered customers that provides the latest updates on the company’s products, promotions, recipes, contests, and trends in natural products and aromatherapy. It posts an online sur- vey on its website to solicit feedback from customers about their product needs, and it seeks information about any problems the customer may have encountered. It offers its local retail customers loyalty points, which they can redeem for products. Because many of Rocky Mountain Soap’s products serve highly specialized needs, providing customers with information to help them solve problems is also essential to Rocky Mountain Soap’s success. It takes a knowledgeable, service- oriented sales staff to sell these products and explain their benefits. If you are lucky enough to be able to visit one of the company-owned retail outlets, you will find friendly, highly knowledgeable staff who can explain in detail the features of each and every product. Store managers work their way up through the company so that they become thoroughly knowledgeable about all the products the company sells. As noted earlier, store managers benefit from the company’s profit-sharing plan. To further motivate staff in its retail stores to operate as a team, Cam and Karina use a sales bonus plan for the retail stores. If the store increases its sales over its target level, everyone working in the store gets an increase in their hourly wage. The increase varies in accordance with the level of sales achieved. Cam and Karina believe this is a more effective motivator than individual bonuses, which may turn some staff into overly aggressive salespeople. New-Product Development Everyone at Rocky Mountain Soap listens carefully to the customers and works to respond to customer needs. Karina is in charge of new-product development. She relies heavily on feedback about what is selling well from the retail store managers
19_kotler_app.qxd 1/18/07 4:51 PM Page A6 A6 Appendix 1 Comprehensive Case and the sales staff who serve the wholesale customers. When she wants to experi- ment to see how well a new product might sell, she will search for a competitive product and stock it in the stores. For example, Rocky Mountain Soap is thinking of adding natural candles and face creams to its product line. Thus, it first stocked products made by other firms in its retail stores to see how customers respond. If sales take off, the company will develop its own product formulation. All new prod- ucts must meet the company’s strict standards of using only natural ingredients and must be able to be produced at a cost that will allow them to sell profitably at prices customers can afford. Customers are the source of many product ideas. Rather than doing formal research to support new-product development, Karina relies on customers and employees to build a strong case for the need for a new product. She then does the concept development. She works with a chemist who develops the product formu- lations, blends the essential oils and other ingredients, and ensures the safety of the product. Karina, Cam, and the other employees then test the product themselves and put it on trial with their store managers. The formulation may be altered many times before it is sold to consumers. For example, a new salt scrub went through seventeen versions before it was launched. Pumpkin Patch Soap and Unscented Body Butter, two products that help people treat eczema, were developed using this process in response to customer needs. Summer Lemonade Soap was created by a Canmore grade 8 student, Rie Nakamura. Learning from Experience—Glacier Product Line Failure Not all product launches have been successful. In early 2003, while promoting the company’s products at The Soap Maker’s Guild Conference, Cam and Karina saw an opportunity for RMSC to enter the mass market. There appeared to be growing preference on the part of consumers for all-natural bath and body products. Not wanting to risk damage to its core brand and its own specialty retail operations, Rocky Mountain Soap Company launched a new brand, Glacier, aimed at the mass marketplace. The line included soaps, body butters, bath salts, and massage oils. Like the company’s other products, Glacier products were 100 percent natural, handmade, and used many of the same ingredients as the Rocky product line. Glacier products had unique recipes, however, and different branding, labelling, and packaging. Cam believed timing was critical. He wanted to launch the new product before another natural-products company saw the opportunity. Cam hoped the new prod- ucts would earn $800 000 in revenues in the first year. At first the product line seemed destined for success. Pharmasave, Save-On- Foods, and Value Drug Mart signed on to stock the products. Various health food stores also seemed interested in the products. The health food chains appeared to be an especially appealing target since they already marketed to clientele who were willing to pay for natural products, and they would not require as much education regarding the benefits of natural products. However, Cam quickly found he had to rethink his distribution model. Rather than dealing with individual sales represen- tatives from Rocky Mountain Soap, health food stores preferred to deal with one distributor. However, such distributors, with their demands for a 4 percent adver- tising allowance, a 15- to 22-percent distribution fee, and a 3 percent redistribution fee, were not affordable if Rocky Mountain Soap wanted to keep its price points and profit margins. It found a compromise and subcontracted a team of sales rep-
19_kotler_app.qxd 1/18/07 4:51 PM Page A7 Appendix 1 Comprehensive Case A7 resentatives from Speyeglass Lifestyle Corporation, a company specializing in the health food industry. The new sales representatives were paid straight commission, but they generated only a total of $10 000 in sales revenue. Further complications arose when health food stores began requesting satisfaction guarantees on the Glacier product line. They also wanted the ability to return unsold product for a full refund. It soon became clear that the launch of the new product line was not going according to plan. First-year sales were disappointing, at just under $100 000. Trying to manage the new product line was distracting Cam and Karina from their core business. They decided to exit the mass market, and the Glacier line was sold off to a liquidation centre in Ontario in February 2005. When thinking about the reasons behind the failure, Cam noted that the com- pany hadn’t provided enough training for the inside and outside sales representa- tives. In addition, the company hadn’t done enough research before the launch to find the optimal products to include in the line or to test the effectiveness of the packaging. The small opening on the Glacier package did not adequately showcase the natural appearance of the product or allow potential customers to appreciate the scent of the products—a key purchase motivator. Because customers could not per- ceive the benefits of the Glacier products, they were unwilling to purchase them over the many other lower-priced alternatives. Finally, the company didn’t have the pro- motional budget to compete with large packaged-goods companies that operate in soap and bath products categories. Cam learned a lot from this failure, and he believes the experience the company gained during this failed launch may position it to be successful in this marketplace in the future. Advertising and Promotion Rocky Mountain Soap is a small company that can allocate only a limited budget to advertising and promotion. It allocates approximately 3 percent of sales to adver- tising and promotion. Because of its limited budget, Cam and Karina have to be cre- ative in the tactics they use. For example, to induce trial, Rocky Mountain Soap provides hotels in their retail markets with small bars of soap. Trial is important since the benefits of the products are often perceived only when the person actually uses the product. To increase awareness of the company and trial of its products, Rocky Mountain Soap also sponsors local events. The company relies heavily on the Internet to help promote the company, its brand, and its products as well as its retail outlets and their sales staff. As noted in the Customer Care section, Rocky Mountain Soap sends out a monthly enewsletter to its customers. It carefully follows permission-based marketing principles with this mailing. Right at the top of the letter is a box that states, “Permission Request: We respectfully request your permission to send email messages from Rocky Mountain Soap similar to the one below. If you no longer wish to receive our emails, please click the unsubscribe button at the bottom of this message. Our Removal Guarantee ensures immediate removal from our lists.” The firm is currently experimenting with addressed direct mail. Using the data- base generated in its retail stores, it notifies customers that a new product is coming out and it presents them with promotional offers. For example, if customers buy two of the new Bed & Body Misters, they will be sent a travel-size hand butter—a $7.99 value. In Canmore and Banff, the company runs weekly newspaper ads. These ads show a picture of a person, and they focus on a testimonial about some aspect, such as help with eczema or foot care. In markets where it has retail operations, the com- pany also advertises in tourist guides and publications. It prints 4" 8" “rack
19_kotler_app.qxd 1/18/07 4:51 PM Page A8 A8 Appendix 1 Comprehensive Case cards” that are put in displays in hotel lobbies that inform travellers about the com- pany and its products. Cam and Karina are struggling with how to build awareness in Edmonton. They tried newspaper ads in the Edmonton Journal but found that they were too expensive. Billboard advertising and mall posters were also tried, but they didn’t prove to be successful. Retail Operations Rocky Mountain Soap’s three company-owned retail stores sell all of the above- noted products. The stores are built in an alpine style and have a rustic, natural out- doorsy look and feel. They incorporate a lot of natural materials, such as log-work, wood, and stonework. Large signs and shelf talkers describe who the product is for (e.g., people with sensitive skin) and note the major ingredients in the product. Rocky Mountain’s own products make up approximately 70 percent of the prod- ucts sold in its stores. It sells products sourced from other manufacturers, such as natural sponges, soy-based candles, shaving brushes, and face creams. One of Rocky Mountain Soap’s goals is to carry only its own products in its stores, just like Body Shop. In addition to selling its products in its three company-owned retail stores, Rocky Mountain Soap sells its products online to Canadians and people around the world. To avoid conflict with its other channels of distribution (its own retail stores and its wholesale operations described below), it charges slightly higher prices for products sold over the Internet. For example, you can buy the soaps in retail outlets for $4.49, but they are priced at $4.99 on the Internet. The higher price also helps offset the costs of shipping and handling. The Rocky Mountain Soap Company Store in the West Edmonton Mall will serve as a prototype for other stores opening in mall locations.
19_kotler_app.qxd 1/18/07 4:51 PM Page A9 Appendix 1 Comprehensive Case A9 Wholesale Operations Rocky Mountain Soap also has a wholesale operation. It partners with retailers from across Canada. Though it has been asked to sell through international retail- ers, the owners of Rocky Mountain Soap believe there is lots of growth potential in Canada for the time being and that a focus on the Canadian marketplace is the best use of their limited resources. Rocky Mountain Soap selects its retail partners carefully because the company doesn’t want to damage its image. In the early days, it was less selective about who it worked with. Today, it is working to be more selective about its retail partners that are served through the company’s wholesale division. First, they have to have a store front. Rocky Mountain Soap doesn’t want mass market stores. For example, because of an inability to provide customers with knowledgeable service and infor- mation about the products, and because of the inability to keep displays and prod- ucts clean and well organized, the company stopped selling through Save-On-Foods. Gift stores and health food stores fit much better with the brand and present much less risk of not aligning with the brand. Rocky Mountain Soap also does not sell to gift basket companies or direct marketers that organize selling parties in people’s homes. Value-Pricing Cam and Karina see their products as high value for their price point. They wanted people to be able to afford natural, high-quality products so that they could use them every day, rather than just on special occasions. Thus, the 110-gram bars of soap sell for $4.49 in its retail stores. Over the Internet, the new salt scrub sells for $18.99. The company’s thirteen body butters sell at $11.49 to $13.99 for the 55-gram size. They offer gift packages, such as the Relaxation Indulgence Gift Set for $31.99. It contains a lavender body butter, Field and Stream handmade soap, Goat’s Milk handmade soap, two Relaxation bath salts, and a Lavender bath gem. An illustrative product list along with current prices charged for Internet sales is provided in Exhibit 2. As noted earlier, prices charged for Internet sales are slightly higher than those in the retail stores. Exhibit 2 Selected Products and Pricing (This is only a partial list of products and product lines. Prices are those used for sales over the Internet in September 2006. For a complete listing of product information and product photos go to www.rockymountain soap.com/). Product Line Name Size Price Hand Made Soaps Total: 27 110 g Normal Skin Soaps Avalanche Soap $4.99 Mountain Spa—Avocado Facial Bar $4.99 Oily / Combination Skin Soaps Alpine Air Soap $4.99 Citrus Soother Soap $4.99 Dry Skin Soaps Goat’s Milk Soap $4.99 Mountain Meadows Soap $4.99 Specialty Soaps Earthbound Gardener’s Soap $4.99 Glacier Ice Shaving Soap $4.99 Baby Soaps Baby Bear Soap $4.99
19_kotler_app.qxd 1/18/07 4:51 PM Page A10 A10 Appendix 1 Comprehensive Case Body Butters Total: 17 55 g Alpine Body Butter $11.49 Baby Body Butter $13.49 Foot Butters Mountain Spa Foot Butter 55 g $12.49 Foot Butter—Travel Size 15 g $ 7.49 Hand Butters Hand Butter 55 g $14.99 Hand Butter—Travel size 15 g $ 7.99 Lip Butter Coconut Lip Butter $ 4.49 Green Apple Lip Butter $ 4.49 Massage Butters Relaxation Massage Butter 70 g $14.99 Sensual Massage Butter $14.99 Massage Oils Relaxation Massage Oil 120 mL $11.49 Sore Muscle Massage Oil $11.49 Bath Salts Total: 12 515 g Solitude Bath Salts $14.99 Sore Muscle Soak $14.99 Bath Gems Total: 6 60 g Alpine Air Bath Gem $ 4.49 Cold & Flu Bath Gem $ 4.49 Lotions Total: 8 Kogi Mango & Green Tea Hand & Body Lotion 240 mL $16.50 Kogi Hazelnut Hand & Body Lotion 240 mL $16.50 Scrubs Total: 1 Detoxifying Body Facial Salt Scrub 8 oz. $18.99 Essential Oils Total: 3 Mountain Springs Sore Muscle & Joint Ointment 2 oz. $15.99 Competition Although Cam and Karina are convinced that they have unique offerings, they con- cede that their customers may perceive their closest competitors to be other small, “craft-type” soap companies. However, they believe their closest competitors are the U.S.-based natural product maker Burt’s Bees, and U.K.-based LUSH. Though larger chains, such as the Body Shop, Fruits & Passion, and Crabtree & Evelyn, may enter the competitive mix, Cam doesn’t believe they are his close competitors. In particular, Cam suspects that the Body Shop isn’t as popular as it once was. He notes that he never sees Body Shop gifts under anyone’s Christmas tree these days. Crabtree & Evelyn U.S.-based Crabtree & Evelyn manufactures and sells natural skin care products in many of the same categories as Rocky Mountain Soap: facial skin care, hand care, body care, and foot care for dry, oily, and normal skin types; however, it targets the premium segment of the market. Crabtree & Evelyn is best known for its natural bath salts and soaks, soaps, shea butter hand creams, and body lotions. It uses nat- ural ingredients, such as lavender oil, rosewater, jojoba oil, and aloe vera.
19_kotler_app.qxd 1/18/07 4:51 PM Page A11 Appendix 1 Comprehensive Case A11 Fruits & Passion Fruits & Passion is another company that sells personal care products with some similarities to those of Rocky Mountain Soap. It is a large company, however, that mass manufactures its products. Headquartered in Candiac, Quebec, it is a well- established Canadian brand. Founded in 1992 as a company devoted to personal care and ambiance products, Fruits & Passion creates and manufactures a line of unique products, such as its Cucina brand of hand care products for cooks. It offers diversified lines of fragrances, bath, shower, sun care, and foot care personal prod- ucts. It also produces lines of gourmet food products, household care, and dog care items. It has a substantial network of boutiques in Canada and is branching out around the world. It sells through other retailers in the U.S., but uses the boutique concept in Europe, the Middle East, and Asia, and Africa. It has franchises in France, Switzerland, Korea, Hong Kong, China, Kuwait, the United Arab Emirates, and Taiwan. Craft Companies There are many small, independent companies located across Canada that offer handmade soap. They primarily sell handmade soap at craft markets or local craft fairs, or they may have one or more retail outlets plus an Internet sales arm. This group of competitors includes such companies as Countryrose Soap Company, located in Langley, B.C., or Essentials Handmade Soap and Cosmetics, located in Montreal. Because of their size, limited market areas, and small product lines, few of these companies pose a direct threat to Rocky Mountain Soap. There is always the possibility that they will grow into a larger player, as was the case of Escents. Jacqui MacNeill founded Escents at the age of 23 when she chanced upon a lit- tle boutique that sold essential oils. She began custom blending her own aromas and selling handmade, quality products at a Vancouver market. Her products caught on quickly among people following the trend toward aromatherapy. Jacqui imported the finest ingredients, found the finances to maintain enough stock, and rented her first store in Park Royal in West Vancouver. She hoped the quality of the products would speak for itself, and the business started to grow, one customer at a time. Two years later, Escents had expanded to two stores and soon began to show a profit. Today, Escents comprises twenty-seven retail outlets worldwide. B.C. is home to seven outlets, five of which are in the Lower Mainland and one of which includes a spa facility. Escents also boasts eighteen retail locations in Taiwan, a new location in Korea, a wholesale division, ecommerce and mail-order distribution, and a com- mercial production facility. LUSH Cam believes that LUSH is perceived by some of his target market as the closest competitor to Rocky Mountain Soap. First founded in 1988 as Cosmetics to Go, in Poole, Dorset, U.K., it invented such products as bath bombs, shampoo bars, and massage bars that were sold through catalogue-based mail order. Despite the popu- larity of some of these products, the company went under, only to be born again as LUSH when two retail outlets were opened in southern England. Today LUSH is a well-known global brand, and has more than 370 retail stores and mail-order operations around the world. LUSH produces a wide range of hand- made soaps, cosmetics, bath products, hair care, skin care, fragrance, and massage products in factories located in the U.K., Italy, Canada, South America, and Japan. Having production facilities close to its retail outlets allows LUSH to promote the
19_kotler_app.qxd 1/18/07 4:51 PM Page A12 A12 Appendix 1 Comprehensive Case freshness of its products and emphasize that fresh products work better and use fewer preservatives. LUSH is perceived as trendy, and it positions itself around its core beliefs and values. The first among these is “Fresh.” LUSH strives to make effective products out of fresh organic fruit and vegetables, using the finest essential oils and safe syn- thetics. Second, LUSH is passionate about stopping the testing of cosmetics using animals. Its philosophy is that the only way to check that cosmetics are safe for humans is to test them on humans. So this is what it does. Third, its products are hand made. Ambience is LUSH’s fourth value. LUSH believes in long candlelit baths, massage, filling the house with perfume, and in the right to make mistakes, lose everything, and start again. Finally, LUSH believes it offers customers good value, while still making a profit. For example, LUSH’s bath bombs, its most popular product, sell for $4.35 to $5.95 each. Its butter creams sell for $12.70 to $15.90, and its line of shampoos range in price from $19.95 to $37.95. Thus, some customers find LUSH products to be relatively high in price with relatively low efficacy compared with products from companies such as Rocky Mountain Soap. Since its inception, LUSH wanted to reduce the waste associated with its prod- ucts. Thus, LUSH makes many products in solid form, so they can be sold wrapped in paper or in small bags. For example, though bubble bath and shower products were traditionally sold as bottles of liquid by other manufacturers, LUSH invented solid bath bombs and solid shower bars. Products such as the popular Karma (Lush’s signature fragrance) have been made into bubble bars, soap, lotion, bath bombs, dusting powder, and solid shampoo. LUSH prides itself on its devoted customer base. There is a busy LUSH forum where customers swap tips and comments on products. Discontinued items can sell for high prices on places like eBay. Though LUSH claims to be a natural-product company, its critics note that it uses some synthetic ingredients, most notably fragrance oils and sodium laurel sul- phate. Fragrance oils are blended synthetic aroma compounds. Sodium lauryl sul- phate (SLS) is commonly used in many soaps, shampoos, detergents, toothpastes. It is a very effective foaming agent. Concerns have been raised about this chemical, however, ranging from the belief that it results in skin irritations and eczema to the issue that it cannot be metabolized by the liver and even that it may be associated with some cancers. Burt’s Bees Cam and Karina admire this company, noting that it abides by its claims and fol- lows a natural strategy similar to the one used by Rocky Mountain Soap. Burt’s Bees was founded in Maine in the 1980s by a honey producer, Burt Shavitz, and Roxanne Quimby, a divorced, unemployed mother of twins. In 1992, it moved its operations to North Carolina. Its first products were bottled honey. It soon switched from the selling of honey itself to the development of other products that used honey and beeswax as major ingredients. In 2004, the company was acquired by a private equity group. Today Burt’s Bees generates approximately US$250 million from more than 150 personal care products that are made from natural, organic, and effective ingredients, such as beeswax, therapeutic herbs, and botanical oils. Chief Executive John Replogle talks about the importance of close customer contact when thinking about where to take the company next. “We receive over a thousand phone calls and emails a week from consumers. It’s through that dialogue that we know where to take our brand. For example, consumers tell us they absolutely adore products in our hand- and foot-
19_kotler_app.qxd 1/18/07 4:51 PM Page A13 Appendix 1 Comprehensive Case A13 care line. And they say, ‘Can you help me by giving me a product like that that’s good for all over my body?’” Burt’s Bees has been growing rapidly and has been working to exploit key trends, according to Replogle. “Health and wellness [are part of] a megatrend, and so is the greening of America. All you have to do is listen to major retailers talk about sustainability, and you see the confluence of consumer trends and retailer trends. We’re right at the heart of that.” The company is striving to meet consumer needs from head to toe. Burt’s Bees is planning to launch a men’s line and fuller range of personal cleansing products, including shampoos and conditioners. It has just launched a new body wash and is on the verge of introducing a new head-to- toe baby wash. Burt’s Bees uses a distinctive brand logo for a company selling personal care products—the face of a bearded man. This logo, combined with the distinctive yel- low colour of many of its packages and displays, helps make the firm easily recog- nizable wherever its products are found. Each package has a “natural bar” that states the percentage of natural ingre- dients contained in that particular product. Burt’s Bees takes pride in the fact that it never uses potentially harmful ingredients in its products. Its website describes some of the harmful ingredients used by other companies in their personal care lines: “Things like petroleum which can be toxic. Sodium Lauryl Sulfate, which is a harsh, aggressive ingredient used in certain beauty products. And when was the last time you saw a farmer growing Propylene Glycol? Rather than loading our products up with harsh chemicals or unnecessary fillers, we offer you only the good stuff.” Its main lines are lip care (e.g., lip balm, lip shimmer), facial care (e.g., cleanser, moisturizer), and body care (e.g., soap, shampoo). As declared on its website, “To us, the word ‘natural’ means only one thing. It means, ‘harvested from nature.’ And we adhere to that definition like the strictest of school teachers.” It positions itself as an “earth friendly” company. Burt’s Bees does not own any retail outlets, but it does have an online store where consumers can find excess or discontinued items at considerable price sav- ings. Most of Burt’s Bees products are sold throughout Canada, the United States, and the United Kingdom on special display racks in a wide and diverse range of out- lets. In 2006, it was sold through 22 000 outlets, ranging from specialty food mar- kets (e.g., Whole Foods Market) and stores specializing in natural foods to drug stores and Borders Books. When questioned about the danger of losing its cult brand following as it increasingly becomes a mass marketed product, Replogle notes, “[Our consumer] wants access to her favourite products at all of her favourite retailers. The authenticity of the brand shines through regardless of whether we’re in 10 000 or 20 000 or even 30 000 stores.” To keep tabs on how products are selling, and which products are selling the best, Burt’s Bees uses Business Intelligence software developed by BusinessObjects to manage sales data from the chain level, store level, and from their retail website (www.burtsbees.com). This system allows Burt’s Bees to see the frequency in which stores and customers are ordering different products. It helps them with product planning and inventory control and allows the company to proactively manage its fast growth across many diverse distribution channels.
19_kotler_app.qxd 1/18/07 4:51 PM Page A14 A14 Appendix 1 Comprehensive Case Moving Ahead Today Rocky Mountain Soap has grown to become one of the largest manufactur- ers of 100 percent natural handmade soaps and bath products in Canada. Cam and Karina have moved beyond soap in the development of their product line. They’ve added body butters, hand butters, and lip butters. These higher-priced products have improved the profitability of the company. In 2 000, the year Cam and Karina bought the company, they generated $86 000 in sales revenue. By the end of 2006, they expected to generate $3.5 million in sales. Rocky Mountain Soap’s retail stores have been highly successful. Same-stores sales grow by 20 to 50 percent per year, and Cam and Karina believe there is still lots of long-term growth potential here. The Canmore store has the longest history of operations and the strongest customer base. In 2006, it generated sales of $1700 per square foot. The Banff store generated $1150 per square foot while the newest store in Edmonton generated $900 per square foot. The three retail stores account for the majority of the company’s sales. In fact, the wholesale division must sell through at least 500 independent retail accounts to generate as much sales revenue as is generated by the three company-owned retail outlets. Internet sales currently make up about $200 000 in sales revenue. Though this channel is not highly profitable at the moment, it allows customers to access products, and it helps build brand awareness. Internet sales are expected to double sales revenues annually. However, it is not surprising that Cam and Karina believe their future success lies in the opening of more company-owned retail stores. Rocky Mountain Soap now offers complete lines of liquid soaps and bath salts. They’ve added massage oils, essential oils, and body misters. They’re planning to add other new products, such as candles and face creams. They are also introduc- ing more utility-type items, such as their new zit zapper. One of the company’s newest products is Detoxifying Body Facial Salt Scrub, a product designed to purify the skin and remove environmental buildup. Many Decisions The downhill ride is certainly easier than was the climb up the mountain, but Cam’s mind is still whirling. He and Karina know that they are facing some big decisions that will have a major impact on the future of their company. As they work toward expansion of their retail operations, they know that target marketing and position- ing, new-product development, pricing, branding, channel management, and com- munication strategies will be increasingly critical to the company’s success. Sources: Much of the information in this case is based on interviews conducted by Peggy Cunningham with Cam Baty and Andre Baribeau August 24, 2006, and September 12, 2006, as well as a tour of the company facilities. The author would also like to thank Lori Armstrong, Andre Baribeau, Stefanie Crepin, Todd Kennedy, Tamara Kushnir, and David Schwarz, graduates of Queen’s Accelerated MBA program 2005, for giving permission to use their Glacier Soap case. Other sources: Escents website www.escentsaromatherapy.com; “BusinessObjects XI Keeps the Information Buzzing at Burt’s Bees,” BusinessObjects Press Release, San Jose, California, August 23, 2005; www.businessobjects.com/news/press/press2005/ 20050823_burts_bees_cust.asp; “Sodium Lauryl Sulfate (SLS ) and Sodium Laureth Sulfate (SLES). The Killers in your bathroom?” Natural Health Information Centre, www.natural- health-information-centre.com/sodium-lauryl-sulfate.html; Lush corporate website, www.lush.com/; “Lush,” Wikipedia, http://en.wikipedia.org/ wiki/Lush; “Burt’s Bees,” Wikipedia, http://en.wikipedia.org/wiki/Burt’s_Bees; Heather Riccio and Hilary Rowland, Interview with Burt’s Bees founder, Roxanne Quimby, Hilary Magazine www.hilary.com/career/burtsbees.html; “Burt’s Bees: Up From Craft Fairs,” BusinessWeek, August 7, 2006, www.businessweek.com/magazine/content/06_32/b3996415.htm?chan=spr_magazine_brands; “Canada’s Organic Industry,” Agriculture and Agri-Food Canada, 2003, http://ats-sea.agr.gc.ca/supply/3313_e.htm. All websites accessed August 2006.
19_kotler_app.qxd 1/18/07 4:51 PM Page A15 Appendix 1 Comprehensive Case A15 QUESTIONS Capstone Question The Rocky Mountain Soap Company case touches on many of the themes presented in this book. By the time you have finished studying the various chapters in the book, you should be able to develop a detailed marketing plan for the company for a one-year period that will guide its growth for the year. Be sure to clearly describe the company’s target market(s) and how it should position and brand itself. Describe how it should build relationships with its customers and how it should communicate with them. Be sure to think about what products it should introduce or drop and what pricing changes it should make (if any). Think about its different channels of distribution and where it should place most of its investment in man- agement time and support dollars. Below you will find questions relating to mate- rial in the various textbook chapters. Your answers to these questions may be helpful when you develop your marketing plan. Chapter 1 What steps does Rocky Mountain Soap take to build relationships with its cus- tomers? Chapter 2 Describe Rocky Mountain Soap’s mission. The text notes that a clear mission state- ment acts as an “invisible hand” that guides people in the organization. Give rea- sons why you believe Rocky Mountain Soap’s mission is effective or ineffective in accomplishing this task. Review the product/market expansion grid shown in Figure 2.3 (page 51). Using the information in Exhibit 2 (pages A9 and A10) as well as the information in the case, use the grid to find opportunities for Rocky Mountain Soap. In partic- ular, describe how sales for certain products might be increased by using market penetration. Where might it use market development? In what areas might it con- sider product development and diversification? Chapter 3 Describe three forces from Rocky Mountain Soap’s macroenvironment and three from its microenvironment that may limit or expand the company’s future oppor- tunities. Chapter 4 Show how Rocky Mountain Soap is working to follow the principles guiding socially responsible marketing. Clearly state what things it is doing well, and make recommendations on what it could improve. Chapter 5 Read the section of the case that describes the failure of the Glacier line. If Cam and Karina decide to re-enter the mass market, what information should they gather before re-entering this market so that they do not repeat the mistakes of the past?
19_kotler_app.qxd 1/18/07 4:51 PM Page A16 A16 Appendix 1 Comprehensive Case Chapter 6 What type of buying behaviour typifies a consumer purchase of a Rocky Mountain Soap product? If Rocky Mountain Soap decides to begin (or expand) its retail operations in your province, what factors affecting consumer buying behaviour should it consider? Chapter 7 Rocky Mountain Soap has a wholesale division. The responsibility of this division is to select and serve other independent retailers who will sell Rocky Mountain Soap products in their stores. What criteria would you recommend that Rocky Mountain Soap use when selecting potential retail partners in your area to sell its products. Using these criteria, suggest one outlet in your area that might be a good partner for Rocky Mountain Soap. If you were the manager of this retail outlet, why would you want to (or not what to) do business with the Rocky Mountain Soap company? Chapter 8 The managers of Rocky Mountain Soap Company know they need to refine their description of the company’s target market, currently described as women aged 25 to 55. What variables other than age could you use to meaningfully divide up this market? Use several of these variables to describe finer-grained market segments that Rocky Mountain Soap could focus on. Select a target market from among the subsegments you have described. Why do you think Rocky Mountain Soap should focus on this subsegment? How would you position the company to this segment (your proposed target market)? Chapters 9 and 10 Go to Rocky Mountain Soap’s website. Examine its product mix. What is the width of its product mix? Look at its line of bar soaps. What is the depth of the bar soap line? How consistent is its product mix? To make the mix more consistent, what products might the company consider developing or dropping? How should Rocky Mountain Soap position its corporate brand—should it refine its brand positioning based on the physical attributes of its products, on their benefits, or on the values and beliefs that underlie the company? Chapter 11 Select a product from Rocky Mountain Soap’s product mix. Compare the pricing of this product with a similar product from one or two of Rocky Mountain Soap’s competitors. Based on this comparison, what recommendation would you make to Rocky Mountain Soap with regard to the pricing of your selected product? Chapter 12 Describe the tactics the Rocky Mountain Soap company has used to manage chan- nel conflict. As the number of retail outlets grows, will channel conflict increase or decrease?
19_kotler_app.qxd 1/18/07 4:51 PM Page A17 Appendix 1 Comprehensive Case A17 Chapter 13 What major retailing decisions must the company make before beginning to expand the number of retail outlets? The company currently owns three retail outlets and plans to expand through wholly owned retail operations. An alternative expansion model is to franchise. What are the pros and cons of expanding through franchising? Chapters 14 to 17 Describe the promotion mix that Rocky Mountain Soap is currently using. You have a budget of $15 000 to use to promote the opening of a new Rocky Mountain Soap store in the town or city where your university or college is located. Develop a com- munications plan for the store opening. Chapter 18 One of Rocky Mountain Soap Company’s competitors, Escents, began to sell its products in an international market before expanding across Canada. Why do you think it used this strategy? Select a foreign marketplace that you think might be a viable one for Rocky Mountain Soap. Describe three changes it might have to make to its marketing mix to effectively compete in this marketplace. Please refer to Chapter 2, Table 2.2, “Contents of a Marketing Plan” on page 65, for assistance with preparing a marketing plan for this case. Log on to your Companion Website at www.pearsoned.ca/kotler to view a full mar- keting plan.
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