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Plan

• Big picture • Consumers' needs identification • Designing supply chain • Developing sales strategy • Designing marketing support • Involving HR Team • Financial sustainability

Team line-up

Volodymyr Lozovyi Mykhailo Iavorskyi Kateryna Maltseva

Borys Trofimov Dmytro Sushko

The Challenge: successfully launch Herbal Essences shampoos in a dynamic and vibrant Eastern European consumer market.

Human Resources Sales Marketing

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Market analysis Supply chain

Big Picture

2

Financials

Determine consumers` needs

Develop expansion strategy

Demand forecast

Consumers segmentation

Product development

Supply chain

Sales channels

Marketing support

Step 1:

Step 2:

Step 3: Consider and issues.

To reach the goal we need to complete 3 key steps :

Financials Human Resource

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Competition Analysis

3

Special premium “For Her”

Tomatoes 8.1% Eccol 5.7%

2012 2017 moving toward the goal

• Market does not have developed Premium Natural products our product will be conceptually new + we have strategic advantage in brand development. • To obtain 10% of market share we need to overlap the part of Affordable brands develop universal products.

Human Resources Sales Marketing Market analysis Supply chain Financials

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Integrated Marketing Strategy

4

Products Selling and advertising

Profits through sales volumes

Customers Integrated

marketing mix

Profits thr. customer

satisfaction

Marketing strategy

Sales orientation

Marketing orientation

Focus Deployment Outcome


Problems that women experience with their hair

Dry hair after dying

Lack of body

Lack of shine

Lack of form

Pigment spots

Split ends Dandruff Falling out

Strength Nutrition Shine Skin

antibacterial cleaning

Model haircut

Skin nutrition

Bright Moments Miss Universe

Dyed hair Natural hair

Shine Blond/Red/Dark

Strength & Body Blond/Red/Dark

Model haircut Blond/Red/Dark

Needs

To cover the demands of the target group, 3 product lines were developed.

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Product development

Solutions

Nature Care

Skin Care

Skin nutrition

Dandruff


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Product Development

6

Product lines

Products for special needs

“Miss Universe”

Universal needs “Natural Care”

Products for specific needs

dyed hair “Bright Moments”

• shine (blond, red, dark) • strength (blond, red, dark) • for model haircut (blond, red, dark)

• dandruff • hair falling out • pigment spots

• shine (blond, red, dark) • strength (blond, red, dark) • for model haircut (blond, red, dark)

To fulfill the demand of key market segments, we develop 3 product lines oriented on specific needs of each category.


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Market Size Estimation. 1st approach

7

Hence, multiplying average consumption of a group by its size we can find the number of interest: Market size (Ukraine) = 55 667 000 liters Market size (Russia) = 172 685 000 liters Market size (Total) = 228 352 000 liters However, there is still some uncertainty: the error of our estimate might be quite big. So on the next slide we propose the way how to obtain this number with lower error.

Consumers

Source: statistical information at governmental sites, own estimates

0 – 14

m

0.7 0.5

f

1.1 0.95

15 – 24

m

1.4 1.2

f

2.3 1.8

25 – 44

m

1,2 1.1

f

1.9 1.6

45 – 64

m

1,15 1

f

1.3 1.15

65+

m

0.8 0.6

f

1.1 0.9

- urban

1 - rural

1

*** *** *** *** ** *** *** ** ** * * * * * * * * * * *

* low accuracy of estimation

** medium accuracy of estimation

*** high accuracy of estimation


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Market Size Estimation. 2nd approach

8

In this approach, we refer to the information on “Kalina” – one of the biggest players at Russian shampoo market.

Market size

“Kalina” Sales in items “Kalina” market share :

“Kalina” Revenue from shampoo “Kalina” average wholesale price :

“Kalina” Revenue % of “Kalina” Revenue tied to shampoo *

10.9%

42.6 RUB per 250 ml bottle

Source: “Kalina” annual report 2010

21.9% 12.8 mil RUB

Using estimated market CAGR (9% in previous 10 years ) and data above we come to number 235 000 000 liters. This approach allows us to obtain estimate with lower error (the only source of error is market growth rate in 2011 , we assumed it to be equal to market CAGR in previous years) It is deserves to be mentioned that both approaches give quite similar results (difference is about 3%).


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Volume Forecast for Year 1

9

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Base Forecast 145 157 275 614 440 983 460 670 537 448 477 732 418 915 507 590 610 289 689 036 584 040 642 444

Marketing Initiatives 38 586 52 498 83 997 129 993 53 154 36 749 41 342 50 201 45 936 0 0 79 403

Promo 38 586 22 968 36 749 64 966

Deco Pack 29 530 47 248

New SKU Launch 53 154

LEP 64 966 41 342 50 201 79 403

IGWP 36 749 45 936

Sales Initiatives 0 0 0 0 0 47 248 0 0 0 0 72 185 0

Sales Push 47 248 72 185

Total 183 743 328 112 524 980 590 602 590 655 524 980 459 357 557 791 656 225 689 036 656 225 721 847

Total volume for Year 1 – 6 484 000 liters.

Year Average % of 0.4 in tot.

sales (in bottles)

Market share

(in liters)

2012 2.4% 2.75%

2013 5% 5%

2014 7.5% 8%

2015 8% 9%

2016 9% 10%

Some necessary assumptions


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Distribution Structure

10

P&G

National chains RDs

Warehouse

Retail

We choose Vendor Management inventory due to • convenience for distributors: our partner (distributor) reduces warehousing expenses; improvement in current assets management • less inventory cover is required

We begin with 4 replenishment points in Ukraine and 7 in Russia. These numbers will grow in line with the sales volume.

VM allows to optimize one stage in our sales structure

Country Replenishment Points Transit Times

(days) Replenishment

Frequency Inventory

Cover

Ukraine Boryspil 0 0.00 21

Ternopol 1 24.49 14

Dnepropetrovsk 1 11.96 14

Ordzhonikidze 1 21.75 14

Russia Sankt Petersburg 1.5 13.80 14

Moscow 0 0.00 28

Volgograd 1.5 8.42 14

Kazan 1.5 6.19 14

Yekaterinburg 2 15.59 21

Novosibirsk 3 9.62 21

Irkutsk 5 28.86 28

Therefore, the national inventory cover of Ukrainian distributor will be ~15 days and one of Russian distributor ~22 days.


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Distribution Structure. Russia

11

* % of total sales in units Central warehouse Regional warehouse

Irkutsk, 5%* Novosibirsk, 14%*

Yekaterinburg, 9%* Kazan, 21%*

St. Petersburg, 10%*

Volgograd, 16%*

Moscow, 26%*

• Start in Moscow • Divide the country into several large regions (according to the population) • Divide generated regions into smaller ones as the sales go up


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Distribution Structure. Ukraine

12

* % of total sales in units Central warehouse Regional warehouse

East (Dnepropetrovsk), 35%*

South (Ordzhonikidze), 19%*

North (Boryspil), 29%*

West (Ternopol), 17%*

• At a first step divide the country into 4 regions: East, West, North and South • Supposing it is possible, set warehouses at the existent replenishment points


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Cost Structure

13

FPLC = Import tax + Warehousing Cost + Transportation Cost = 784 000 + 650 000 + 1 130 000 = 2 564 000 USD

* numbers are given as for Year 1

Avg. cost per item Manufacturing

Transportation

Import tax

Warehousing

$0.09

$0.05

$0.03

$0.04


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Sales Channels/Constraint due to number of calls

14

HM/SM Superettes Perfumeries Pharma

Weight, % 32 (+2) 10 (+1) 44 (-1) 3.5 (0)

# Stores 7 300 10 600 46 200 16 600

Market share per store, % 0.0044 0.0009 0.0010 0.0006

We do not consider OM as a possible channels because Herbal Essences is a premium segment product.

We should start with HM/SM and then pull up other channels.

50%

60%

76%

83% 88%

94% 100%

37%


unsatisfied demand

Coverage

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Pricing and Placement Strategy

15

Pitch: Conceptually new health product with natural ingredients. After using a regression analysis on shampoo prices in Russia and Ukraine we found that market would price natural premium product at:

*rounding down

• the price is nominal and goes in line with increase in consumers’ purchasing power; • the price is adjusted on changes in exchange rates; • the price in the last row is the price at Central WH

Shelving/Placement: shelves/stands with special design; upper shelves – small size, lower – big size; conditioners stand near shampoos. Merchandising/Positioning: POSM with professional advice how to do a hair care and merits of our shampoos.

Ukraine 2012 2013 2014 2015 2016

Retail price 2.00 1.99 2.05 2.09 2.26

VAT 20% 20% 17% 17% 17%

Inflation 8% 8% 8% 8% 8%

Exchange rate 8.1 8.8 9.0 9.5 9.5

VAT adjusted 1.67 1.66 1.75 1.79 1.93

Retail margin 10% 10% 10% 10% 10%

Retail adjusted 1.52 1.51 1.59 1.63 1.76

Distributor margin 17% 17% 17% 17% 17%

Distributor adjusted 1.30 1.29 1.36 1.39 1.50

Russia 2012 2013 2014 2015 2016

Retail price 3.00 2.90 2.95 3.01 3.25

VAT 18% 18% 18% 18% 18%

Inflation 8% 8% 8% 8% 8%

Exchange rate 29.5 33 35 37 37

VAT adjusted 2.54 2.45 2.50 2.55 2.76

Retail margin 10% 10% 10% 10% 10%

Retail adjusted 2.31 2.23 2.27 2.32 2.51

Distributor margin 17% 17% 17% 17% 17%

Distributor adjusted 1.98 1.91 1.94 1.98 2.14

$2 - 250 ml - Ukraine $3 - 400 ml - Ukraine $3 - 250 ml - Russia $4.5 - 400 ml - Russia

See appendix


Promotion Places - Sales representatives

- Beauty consultants

- Hair care POSM

Package - Deco pack

- Separate stand with

specific decorations

Tools - Free samples

- Bundles

- Season actions

Promotion campaign was developed according to the following emotional and functional needs of women :

Functional:

• Seasonal needs of hair

• Beauty consulting

• Hair care awareness

Shopping malls

Supermarkets

Beauty shops Drugstores

Message channels:

o Social media

o Magazines

o TV

o In/Our-door

We choose prospector marketing strategy – aggressive market entrance with strong promotion and emphasis on delivering the idea of a conceptually new product (for CIS market).

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Promotion Strategy

Emotional:

• Holidays and specific occasions

• Nature associations


“You can beautify the world with Herbal

Essences”

“Summer preparation with Herbal Essences “

“Fall in love with Herbal Essences”

“Bright moments

with Herbal Essences”

“Exciting Adventure with Herbal Essences”

“Indian Summer Embraces”

“Sparkling Holidays with Herbal Essences”

Free samples of conditioner

Samples of shampoo in magazines for women

Marketing initiatives

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HR Involvement: Sales

18

Suggested problem

Information required

organization costs are the same during five year period, but workload will differ due to gradual increase in forecasted market share.

how workload of stuff is affected by changes in sales and Herbal Essences market share? what is the optimal level of workload per person in similar projects?

HR response Actions to analyze: make a survey in order to investigate whether such organization costs and expected general organizational productivity are comparable with goals of achieving 10% market share.

Actions to improve:

Additional gradual recruitment for better staffing of the Sales Team;

Additional tailored trainings for our Sales Team members with emphasis on improving interpersonal skills ( managing conflicts, managing difficult people, and negotiation).

New prospective by offering scope.


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HR Involvement: Sales, Supply Chain, and Top/Middle Management

19

In Finance:

If more personal is needed to properly to conduct the project, HR department will effectively plan the workforce for project and make all actions needed for effective project organization;

In Supply Chain:

Gradual recruitment for better staffing of the Sales Team as more P&G personal is needed for vendor managed inventory;

Top and Middle Management:

Case Experienced foreign project leader Retention of middle management

Solution Trainings on the topics “how to manage office policy in CIS cultural environment”, “organization of regional P&G team”, and “valuing diversity”;

Offering suitable management development program;

Providing with feedback of the team; Offering suitable working and living conditions for

manager and his or her family.

Make a middle management survey to define key motivation drivers;

On the basis of survey, develop a tailored management and personal development program with emphasis on offering suitable prospectives ( new scope, financial motivation, promotion, success planning).


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HR Engagement

20

Finding out what other department are all about, how they function, what are the kind of resources needed.

HR department response on information obtained.

Ongoing checking of policy results to find out whether two key HR department goals are simultaneously achieved:

i. Herbal Essences achieves planned market share in CIS market;

ii. P&G team members that are put into project achieve their aspirations and ambitions.

Key methods to be used: Key questions to be asked:

Employees surveys and feedback;

Intercompany communication;

Employee s Interviewing;

How many people should be recruited for department?

What are the best ways of performance appraisal?

How to design compensation system effectively?

How many and of what kind motivational events are needed?


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P&L

21

Year 1 Year 2 Year 3 Year 4 Year 5

Total Sales (in $) 46 689 175 86 963 805 148 792 517 178 508 135 223 751 491

Sales in Ukraine 8 372 831 15 972 944 28 149 936 33 812 974 42 382 962

Sales in Russia 38 316 345 70 990 861 120 642 581 144 695 161 181 368 529

COGS 5 528 756 10 601 559 17 680 376 20 745 722 24 073 424

Gross Profit 41 160 420 76 362 246 131 112 141 157 762 413 199 678 067

In Ukraine 6 990 642 13 322 554 23 759 842 28 626 544 36 364 606

In Russia 34 169 778 63 039 692 107 382 299 129 135 869 163 313 461

Other costs 2 200 000 (5%) 1 990 000 (5%) 2 080 000 (5%) 2 180 000 (5%) 2 280 000 (5%)

Marketing expenses 2 000 000 3 800 000 7 000 000 8 000 000 10 000 000

Organizational costs 200 000 190 000 180 000 180 000 180 000

EBIT 38 960 420 75 572 246 130 332 141 156 982 413 198 898 067

Interest payment 396 485 396 485 396 485 396 485 396 485

Taxes 13 497 377 25 191 516 43 237 480 52 215 075 66 185 554

Net profit 25 066 557 46 784 245 80 298 176 96 970 853 122 916 028

Interest rate is 5,13%* (further used in defining the discount factor for NPV calculations) Projected marginal profit is 0,54 for the first 4 years and 0,55 for the last year Breakeven volume: approximately 5,7% of forecasted volumes

• For Ukraine: 350 680 (250 ml) and 10 100 (400 ml) • For Russia: 1 052 030 (250 ml) and 30 300 (400 ml)

See appendix


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NPV and Free Cash Flow to Firm Calculation

22

* – the projected sum of total costs for the first year, the other costs will be financed from net profit. k** – time from forming inventories to collecting sales cash ; assume that it equals to 6 weeks (3 weeks from manufacturing to central warehouse and 3 further to regional distributor). *** – assumed time for inventory coverage is 3 weeks.

FCFF

EBIT*(1-t) Depreciation + ∆ NWC CAPEX – –

∆ (Current Assets – Current Liabilities)

Current Liabilities Current Assets

Minimum Cash Inventory Coverage***

Operational Expenses Cash Turnover

360/k**

/ (Average projected sales / 360)*21

NPV = Discounted FCFF – Investments* = 307 566 129 – 7 728 756 = 299 837 373 USD


Thank you for attention

Plan

Market analysis

Market size estimation

Supply chain

Sales

Marketing

Human Resources

Financials

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Appendix A. Retail price estimation

Data description

• brandname: key brands in Russian and Ukrainian markets • price: in $ per bottle • volume: measured in ml • segment:

0 – affordable 1 – professional 2 – premium

• green:

0 – not natural 1 – natural

• country: 0 – Ukraine 1 – Russia

• sqvolume: volume squared

Source: price lists of several online stores

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Regression results

Our supposition is that price of a bottle depends on: • size of a bottle nonlinearly: expected positive effect and significant • country as a dummy: on average price is expected to be higher for Russia, uncertain about significance • green as a dummy: on average price is expected to be higher for green products, uncertain about significance • segment as a dummy: price is expected to be higher for premium segment, significant

estimated effect

significance

• country and green estimates are insignificant, hence they can either effect the price of HE or not • if these effects exist, we have competitive price of $4.85 per item for HE 250 ml (Ukraine)

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Regression results (continued)

Otherwise, we run new regression (without insignificant vars:

• in this case, we have competitive price of $2.29 per item for HE 250 ml (Ukraine)

estimated effect

significance

Ukraine Effects do not exist Effects exist

250 ml 2.29 4.85

400 ml 4.92 7.56

Russia Effects do not exist Effects exist

250 ml 2.66 5.17

400 ml 5.29 7.93

back

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Appendix B. Marketing initiatives

Year 1 in details

January

- March

•Advertisement and samples of shampoo in magazines for women.

February

1-14

•“Fall in love with Herbal Essences” - Herbal Essences bundles (shampoo + condition + moisturizer) in supermarkets on the separate stand in Deco Pack.

March

1-8

•“Bright moments with Herbal Essences” - Herbal Essences bundles in beauty shops and supermarkets on the separate stand in Deco Pack.

April

•Event “You can beautify the world with Herbal Essences” (each weekend in shopping malls);

•LEP for extra shine: representatives of HE will introduce the new line of products to women in beauty shops.

May

•“Summer preparation with Herbal Essences – “Be ready, be strong, be healthy to meet the summer” – introduction of Nature Care Line.

June •Part of shampoos will be sold including tiny samples of conditioners in beauty shops, malls, supermarkets.

July - August

•“Exciting Adventure with Herbal Essences” – small bundles (shampoo + hair spray with UF filter).

September

•“Indian Summer Embraces” – bundles(conditioner + balm/moisturizer) for renovation of hair after summer sun.

December

•“Sparkling Holidays with Herbal Essences” – LEP: bundles Deco Bottle of shampoo – triangle form of bottle, drawn in image of Christmas Tree + Christmas Toy for decoration.

Promo 7%

Deco Pack

9%

Deco Pack

9%

Promo LEP

11% 11%

New SKU

Launch 9%

IGWP 7%

LEP 9%

IGWP 7%

LEP 11%

250 ml Year 1 Year 2 Year 3 Year 4 Year 5

Sales 6 197 750 11 499 750 18 606 250 21 336 750 24 569 000

Price 1,30 1,29 1,36 1,39 1,50

Average cost/unit 0,21 0,21 0,21 0,21 0,21

Import cost/unit 0,03 0,03 0,03 0,03 0,03

Transportation avg. 0,047 0,047 0,047 0,047 0,047

Manufacturing/unit 0,093 0,093 0,093 0,093 0,093

Warehousing avg. 0,041 0,041 0,041 0,041 0,041

Gross Profit 6 699 776 12 343 245 21 312 353 25 111 698 31 649 691


Sales 178 500 605 250 1 400 500 1 982 000 2 430 000

Price 1,94 1,93 2,04 2,09 2,25


Import cost/unit 0,055 0,055 0,055 0,055 0,055



Warehousing avg. 0,022 0,022 0,022 0,022 0,022

Gross Profit 290 866 979 309 2 417 488 3 514 846 4 714 915

Split by volume of bottles

Appendix C. Gross profit in Ukraine

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Sales 18 593 250 34 499 250 55 818 750 64 010 250 73 707 000

Price 1,98 1,91 1,94 1,98 2,14


Import cost/unit 0,03 0,03 0,03 0,03 0,03



Warehousing avg. 0,041 0,041 0,041 0,041 0,041

Gross Profit 32 750 628 58 413 569 96 458 034 113 301 240 142 164 017


Sales 535500 1815750 4201500 5946000 7290000

Price 2,96 2,86 2,91 2,98 3,21


Import cost/unit 0,055 0,055 0,055 0,055 0,055



Warehousing avg. 0,022 0,022 0,022 0,022 0,022

Gross Profit 1 419 149 4 626 124 10 924 265 15 834 630 21 149 445

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Split by volume of bottles

Appendix C. Gross profit in Russia

back

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Long-term debts of P&G

Appendix C. Discount rate estimation

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Documents

market sizekalina sales

kalina market share10

market size ukraine

russian shampoo market

estimated market cagr

market growth rate

sales strategy

marketing initiatives38