The “Soft & Silky Shaving Gel” is a case in marketing where real-life challenges such marketing concepts, supervisor-employee relations, and company interests all interact to exert pressure on the decision maker. What should Phoebe Masters do? Should she run the test? Should she leave things as they are? Should she launch the 5 ½-ounce or the 10-ounce aerosol or both?
To answer all these questions, it is necessary to start with a fact-finding process at first.
- If things are left as they are, the company will suffer a 0.32% decline from the 1996 sales volume peak.
- The cost of the market test is $15,000 in addition to $5,000 setup charges that have to be paid whether there was a test or a go-for-it production plan.
- It is already January 3rd, and the decision has to be made immediately. Notice that the launching of the test will take place in April, but then, if the results are successful, the company will not be able to meet the demand in the market, hence, leaving the opportunity to competitors who will beat the company to the idea.
- Market research showed that 20% of customers will shift to the 10-ounce aerosol.
- 25% of customers will shift to the 5 ½ aerosol.
- 25% of non-customers will shift to the aerosol package (irrespective of size) despite the fact that they did not like the price much, but still, while approving the value added features.
- Soft & Silky provided an additional value to customers through the moisturizer effect that it included, something that is not available in other products.
Should there be a market testing? The answer is no due to four reasons that justify this choice:
- The time is very critical and the company will suffer a loss if the test recommends full-scale production, because then, the production will be postponed to the following season.
- The fixed cost of $5,000 will have to be paid anyway, whether a test or a production scheme is chosen. This is not to mention the minimum requirement of 100,000 units to be produced, which were later negotiated to 20,000 regardless the volume of the package.
- It is not wise to launch a test and wait for next year to produce full scale because then the idea will be adopted (it could be already adopted) by a competitor.
- The results of the research show that the aerosol is unanimously demanded by customers and non-customers, and moreover, the brand name is already well-established. Hence, a market testing will be nothing but a waste of time, money and opportunity.
But which size should Masters decide on? We need to compare the 5 ½-ounce and the 10-ounce sizes, as well as the opportunities and threats that will result from each before we can decide. The following analysis will serve this purpose:
- According to the research conducted earlier, the 10-ounce was the favorite aerosol can for customers because it required less purchases. Customers may feel overcharged when buying the 5 ½-ounce aerosol can.
The profit analysis for the two aerosol packages, based on the forecasts in Exhibit 5 shows the following net additional
The 5 ½-aerosol package:
- The low incremental volume is 1,222,587 ounces which accounts for 222,288.54 packages sold, resulting in an incremental sales volume of $778,009.89.
- The high incremental volume is 1,422,587 ounces which accounts for 258,652.18 packages sold, and hence, an incremental sales volume of $905,282.63.
The 10-ounce package:
- The low incremental volume is 1,272,587 ounces accounting for 127,258.7 packages sold, and hence, an incremental sales volume of $540,839.47.
- The high incremental volume is 132,258.7 ounces accounting for 132,258.7 units sold, and hence, an incremental sales volume of $562,099.47.
From the results of the marketing research and the profit analysis, it is suggested that the following decisions be made:
First of all, there is no time for market testing. It is already too late for that, and the season could be lost. Since the results of the research that the introduction of a new package will anyway increase sales, the increase in sales becomes necessary.
The profit analysis shows that the company will achieve a larger number of ounces sold if it launches the 11-ounce aerosol package. However, the analysis also shows that the 5 ½-ounce aerosol is more profitable, particularly that the price per ounce is $0.636 for the 5 ½-ounce aerosol whereas it is only $0.425 per ounce in the 10-ounce aerosol package. Accordingly, for profitability sake, the 5 ½-ounce aerosol package is recommended since it will also involve lower costs per package and at the same time, higher profitability per ounce.
Nevertheless, for market share purposes, the 10-ounce aerosol will serve a better purpose. This is due to several reasons. First of all, the 10-ounce aerosol results in lower cannibalism rates than the 5 ½-ounce aerosol. Secondly, total sales at a low forecast for the 10-aerosol package together with the 5 ½-ounce tube will result a total of 5,777,587 ounces sold whereas at best, the launching of the 5 ½-ounce will result in a total volume of 5,522,587 once sold.
Since the company is now concerned about the market share more than about profitability of the unit ounce, it is suggested that the launching of the 10-ounce aerosol take place immediately. Masters has to be decisive here otherwise she will be giving the chance for conflict with Courtwright who believes that she ought to be granted Masters position.