J&j presentation athena

J & J Case

CompetitionFebruary 23, 2012

RIDER UNIVERSITY:

Eric Elgin, Bryan Griffith,

Victoria Marquardt, Jonathan Moyer

MediHealth

Leader in branding and selling skin care products

Possible acquisition or license of Athena

Three distinct business decisions to make:

License or Buy

Pricing and Distribution Strategy

Selling and Marketing

Central Issue

Environmental Analysis: SWOT

- Uses natural and organic ingredients

- 15 year strong brand equity

- Break through in skin cell aging technology

- Fifth branded entrant

- Culture shift

- Economic climate

- Growing beauty market

- Large target market

- Growing innovative technology in medical field

- Possible product cannibalization

- Acquisition cost of 40MM

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

“We believe our first responsibility is to the

doctors, nurses and patients, to mothers and fathers and all

others who use our products and services.”

“In meeting their needs everything we do must be of

high quality.”

“Our suppliers and distributors must have an opportunity to

make a fair profit.”

“Our final responsibility is to our stockholders. Business must

make a sound profit.”

“We must maintain in good order the property we are

privileged to uses protecting the environment and natural

resources.”

“We must experiment with new ideas. Research must be

carried on, innovative programs developed and

mistakes paid for.” MediHealth’s

Mission

Statement

Alternative

Solutions/StrategiesBusiness Decisions

Alternative

Solutions:

Product

Benefits Drawbacks

Buy

• More control and

flexibility to innovate

product

• High customer

awareness

• Full responsibility

including all risk

License

• Lower initial costs

• Competition based on

brand reputation

• Risk shared among

investors

• 12% royalty

payments per year

• Milestone payments

at year 5 of at least

15 MM

• Restrictions on R&D

and marketing

Alternative

Solutions:

Pricing

Strategy

Benefits Drawbacks

Parity

• Consumer purchase

satisfaction

• Increase unit sales

• “Lower-quality”

brand image

Premium

• Increased brand

equity

• High price reflects

high quality

• Less expensive

products on the market

Alternative

Solutions:

Selling &

Marketing

Benefits Drawbacks

Standard

• Less costly investment

• Full DTC capabilities

• Not reaching

influencers

• No

dermatologist/celebrity

endorsements

360

• Reaches influencers

and consumers

• Greater diversity

• Significantly higher

costs

• No recommendations

guaranteed

Alternative

Solutions:

Distribution

Benefits Drawbacks

Mass

• More accessible to

mass consumers

• High customer

awareness

• They carry a large

variety of premium,

branded, and generic

products

• Prices are an

important factor

Prestige

• Justifies higher prices

• Competition based on

brand reputation

• Lower availability to

mass consumers

• Would have to create

new distribution

channel

Recommended StrategyOur group’s recommendations

Financial Analysis

Years 1-5 Years 6-10

Decision Buy No additional action

Pricing Premium Premium

Distribution Mass Mass

Market Growth 3% 3%

Annual Price Change

Assumption

1% 1%

Selling and Marketing 360 SM 360 SM

MediHealth’s Objectives:

• Expand customer base

• Gain a return on investment to buy Athena

• Become co-leader in beauty market without product

cannibalization

Strategic Overview

Buy:

More control over production quality and monitoring

No licensing fees after initial acquisition

Allows for continued development of the product

No Line Extension:

Minimize cannibalization of our existing product lines

Does not make financial sense to invest the resources for a smaller return

Recommended Strategy:

Buy and No line Extension

“We must experiment with new ideas”

Premium Pricing

Create sense of quality with the product

Potential for higher return on sales

Mass Market:

Available to more consumers

Less competition for premium products

Easier to differentiate products

Economic Climate


Premium Pricing and Mass Market

“In meeting their needs everything we do must be of high quality.”

3% Market Growth:

Assume beauty market will continue to grow with

baby boomers

Green movement’s momentum

1% Price Change:

Consistent with premium price and brand image

Increase profit margin from sales


Market Growth and Price Change

360 Marketing:

Increase awareness and capture market share more

effectively

More flexibility to influence brand perceptions

Cost of strategy is covered by increased sales


360 Marketing


Decision Outcome

‘12 ’13 ’14 ’1

5

’1

6

’17 ’18 ’19 ’20 ‘21 Total

Net

Income

(34) (2) 7 22 38 56 80 98 121 147 533

Net Cash

Flow

(77) (6) 3 17 34 52 75 93 114 140 445

Profit: $4.39/unit Total Unit Sales: 121,504,000

In Millions

Peak Share 6.2%

Peak Year Sales $642 mil.

Cumulative Sales $3,279 mil.

NPV $173 mil.

IRR 21%


Financial Highlights

“Our final responsibility is to our stockholders.

Business must make a sound profit.”

Sensitivity Analysis Conservative, Anticipated and Aggressive

Sensitivity Analysis – Manipulated VariablesConservative Model Anticipated Model Aggressive Model

License or Buy Buy Buy Buy

Line Extension No Line Extension No Line Extension Line Extension

Market Prestige Market Mass Market Mass Market

Pricing Premium Pricing Premium Pricing Premium Pricing

Market Growth 5.0% 3.0% 3.0%

Annual Price Increase

(Over 10 Year Period)1% Price Increase Each Year 1% Price Increase Each Year 1% Price Increase Each Year

Marketing Strategy 360 SM 360 SM 360 SM

Cumulative Net Income

(Millions of Dollars)440 533 497

Cumulative Cash Flow


Net Present Value (NPV)


Internal Rate of Return (IRR) 19% 21% 19%

Cash Flow ComparisonIn millions

0

20

40

60

80

100

120

140

160

1 2 3 4 5 6 7 8

Normal

Aggressive

Conservative

Marketing:

Branding, Promotions, Product

Development

Evaluating Target MarketWomen age 20-30

Age 50+ women

All Women

Marketing Strategy

INSPIREWomen to feel Naturally Beautiful

Mother Daughter CampaignWill combine traditional

& Interactive media for

maximum effectiveness

Promote LOVE and

working together

Social media to generate

and celebrity

endorsement to promote

consumer communication

“We must maintain in good order the property we are privileged to uses

protecting the environment and natural resources.”

Release your

Inner Goddess• Empower and Inspire

women to become like the Greek Goddess Athena

• Make women feel confident and confortable in their skin

• Ads will include print, radio, TV, Internet, and other media sources

• Targeting mature women but will be perceived by all women

• Promote inner beauty as well as outer beauty

Guerilla Marketing

Untraditional media source

“Eye capturing”

An effective way to reach a large audience

Effective against 20-30 yrs

Executive Summary

Buy Athena

Premium Pricing

Mass Market

360 Marketing

EBIT Based on Strategy

0

100

200

300

400

500

600

700

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