MARKETING E GESTIONE DELLE VENDITE

Case study: RayovacCorporation – The Rechargeable

Battery Opportunity

19 / 1 1 /2010

Summary

� Introduction

� The Household Battery Market

� Rayovac

� The Competitive Landscape� The Competitive Landscape

� Rechargeable Batteries

� The Opportunity

� Solutions?

Introduction

� Exponential grow of household batteries use, due to the increased popularity of high-drain devices

� Energy consumption becomes an important issue: consumers demand an important issue: consumers demand an improvement on battery technology

� Companies are looking ways to meet the increasing demand of energy

� Market opportunity: Rechargeable battery!

Introduction

� Our situation

� Rayovac Battery – Division of Spectrum Brands Canada Inc.

� Bob Falconi – Vice president of sales and marketing for Spectrum, a global consumer products company owing a variety of brand name productsvariety of brand name products

� Falconi knows that, with effective marketing, the rechargeable battery market could likely grow within North America as it had in Europe

Introduction

� Major competitors are not focusing on this product category, fearful that it would cannibalize sales of their existing products

� Rayovac could use this opportunity to increase its presence and brand name recognition by entering presence and brand name recognition by entering “the back door” instead of competing head-to-head against the well-established, non-rechargeable products of the market leaders

� However, the consumers perception of rechargeable batteries in Canada has not been positive => Is this a business worth pursuing? How?

The Household Battery Market

The Market

� The household battery market comprises consumer batteries available in standard sizes: AAA, AA, C, D, and 9-volt

� Sales of these batteries around the world are growing as electronic devices (e.g., PDAs, digital cameras, and portable music systems) have become more pervasive

The Market

� In 2005, the overall battery market in Canada is estimated to be approximately $300 million, with

� the alkaline segment representing 70%

� the rechargeable segment making up 10%

and other battery chemistries (e.g., zinc) representing 20%� and other battery chemistries (e.g., zinc) representing 20%

The Alkaline Segment

� Alkaline is the dominant household battery chemistry in North America and is offered by all major competitors in all sizes

� Growth within this product category has become relatively flat (1 or 2% annually), yet, due to the size of the market, it is expeceted to remain the focus of competitors over the next 5 to 10 years

� Manufacturers need to be involved in the alkaline segment in order to be an important player in this industry

Consumers

Light Users($25 average spent anually)

• Families

• Techies

Heavy Users($250average spent anually)

Canadian Consumers

� Families ($200 million of the market): couples with one or more children, typically living in urban centres with a household income of over $60,000$60,000

� Price and value are important

� Battieries are purchased for devices such as smoke alarms, electronic games, and children’s toys

Canadian Consumers

� Techies ($75 million): power-hungry individuals, typically between 15 and 30 years of age and early adopters of new technology. Their average income is about $30,000$30,000

� More impulsive in their purchasing and gravitate toward stores with unique product assortments

� Batteries are purchased for devices such as MP3 players, digital cameras, and other electronic gadgets

� In comparison to families, techies have fewer batteries on-the-go at any given time but replace them more frequently

CHARACTERISTICS FAMILIES TECHIES

TOTAL MARKET $200 MILLION $75 MILLION

Heavy users

INCOMEOVER $60,000 BETWEEN $20,000

AND $40,000

TYPE OF DEVICES NOT HIGH-DRAIN HIGH-DRAIN

DECISION FACTOR PRICE AND VALUE IMPULSIVE

Channels

Share by Channel-Total CanadaUnits

% of Market

Mass Merchandisers 34

Traditional Grocery 23

Membership Clubs 15

Hardware/Automotive 10

Drug 10

All others 6

• Grocery retailers and mass merchandiser tend to target families• Drugstores target seniors (65 years and over) and teens (15-25)• Hardware and home-and-garden retailers focus on males aged 30-35• Niche retailers target the techies• Internet and direct-to-consumer sales have not proven to be valuable options

Rayovac

Overview

� 3rd largest battery manufacturer and marketer in the world

� Products available in North America, Europe, Asia Pacific, the Middle East, Africa, Latin America, and Brazil

� Products

� Batteries (Alkaline & Rechargeable)� Batteries (Alkaline & Rechargeable)

� Hearing Aid Batteries

� Shaving and Grooming Products

� Lighting

� Personal Care

Segments

2004 2003 2002

General batteries 49% 65% 68%

Rechargeable batteries, chargersand other

11% 16% 9%

Hearing aid batteries

7% 9% 12%

Lighting products 6% 10% 11%

Electric shaving and roaming

19%

Personal care 8%

Company Background

� The company began operations in 1906 and introduced the Rayovac name in the 1930s

� It eventually entered the competitive household battery market, but long after Duracell and Energizer were well established within this market

� Acquisitions were made to access international markets including Europe, China, and Brazil

� Similar to its competitors, Rayovac acquired other consumer brand companies, which have provided negotiating strength for the bundle of Spectrum brands, resulting in greater ability to compete within its given markets

� In 2005, Rayovac holds a 14% market share

Rayovac versus competitors

� Rayovac has targeted the value-conscious price-shoppers looking for high-quality products at a lower price � The “value brand” compared to Duracell and Energizer which are

“premium brand”

� The company has manufactured a large portion of its battery lines, but also outsourced production of its more complex lines, but also outsourced production of its more complex product lines to international manufacturers with stronger capabilities in places such as Japan and China

� Rayovac has established itself as a player within the household market and continues to look for ways to steal market share from the leaders� The company continues to be involved in the large alkaline segment, but

competing head-to-head has been only modestly successful => It is looking for a new way to compete and grow

Rayovac versus competitors

� Competitors

14%

8%

Global Market

10%

Canadian Market

39%

39%

14%

Duracel

Energizer

Rayovac

Other

35%

35%

20% Duracel

Energizer

Rayovac

Other

Duracell and Energizer have been responsible for overall direction of the battery

industry for the past 50 years.

� 20% market share in Canada

� 2 main competitors

− Duracell – 35% market share

− Energizer – 35% market share

Rayovac in the Canadian Market

The Competitive Landscape

The Competitive Landscape

� Highly competitive (limited retail shelf space and consumer acceptance)

� Main factors influencing retailers to choose:- Brand name recognition- Perceived quality- Price- Performance- Performance- Packaging- Design- Promotion- Relationship with retailers: with the growth of large retail chains across North America, the balance of power shifted away from manufacturers => Strong realtionships with these retailers have become an essential element in competing for valuable shelf space

The Competitive Landscape

� Duracell & Energizer dominate the market:� Brand name recognition

� Relationship with retailers

� Established presence in the alkaline battery category

� Merged with consumer goods companies� Merged with consumer goods companies

� Gaining valuable recognition

� Efficiency that comes from balancing out the sales cycle => more efficient use of sales force and a steady revenue stream

Duracell vs Energizer

Duracell Energizer

•Established in 1920 •Established in 1896

•Introduced Duracell brand in 1964 •Was acquired by Ralston Purina Co.in 1986; later merged with Nestle

•Was acquired by Gillette in 1996 •Separate company Energizer Holding Inc. in 2000Inc. in 2000

•Gillette was acquired by P&G in 2005 •Acquired Shick Wilkinson in 2003

Other Competitors

� Many other firms have attempted to enter the battery business but have achieved little success

� Well-known companies, such as Panasonic, Sony, Sanyo, and Kodak, have failed to gain a significant share of the battery market despite their size, strength, and brand battery market despite their size, strength, and brand recognition in other markets

� These firms, together with the private retail brands, hold only 8% of the global market and 10% of the Canadian market

Rechargeable Batteries

The Rechargeable Batteries Market

� Small and highly fragmented

� In 2004, it represents only 5% of the North American battery market and 10% of the Canadian one

� There is no dominant market leader

� North American consumers have been reluctant to purchase � North American consumers have been reluctant to purchase rechargeable batteries for several reasons:

� The upfront investment to purchase the charger

� The higher cost per battery relative to alkaline units

� The lack of convenience in having to charge batteries prior to initial use

� The negative experiences consumers had with older rechargeable technologies

� The overall lack of consumer knowledge of the new technology and its benefits

The Rechargeable Batteries Market

� The lack of growth in this market is also attributable to the reluctance of the market leaders to promote this product line� Duracell & Energizer drive market trends and see the potential of the

rechargeable batteries to ultimately cannibalize one-time batteries

The market leaders do not have core competencies in rechargeable � The market leaders do not have core competencies in rechargeable battery manufacturing

� Hence, there is potential for growth in this segment� The new NiMH (Nickel metal hydrate) rechargeable technology works

very well in high-drain devices

� Lasting 3 times longer than standard alkaline

� Being more environmentally friendly

� Being recharged up to 500 times

� Providing cost savings for consumers in the long run

The Rechargeable Batteries Market

� Battery chargers� Designed to charge any type of rechargeable battery

� Various formats, offering great flexibility to consumers

� Various sizes, ranging from the ability to charge 2 AAA through to charging multiple batteries and AAA through to charging multiple batteries and battery sizes at the same time

� Cost: from $10 to $150, depending on their capabilities and capacity

� Retailers: the majority are sold trough niche retailers where high-drain devices are typically sold (until the larger mass merchandisers begin to pick up the product lines)

Rayovac Rechargeable Batteries

� Rayovac introduced its “Renewal” alkaline rechargeable brand in 1993 with Michael Jordan as its spokesperson

� Only moderate success was achieved but it provided Rayovac with an edge in terms of brand recognition in the rechargeable categoryrechargeable category

� In 2005 Rayovac holds a 20% market share of the small but growing North American rechargeable battery market

� Outside of North America, Rayovac is a leader in the rechargeable sector

European Market vs US Market

� European

� Faster adopters of new technologies

� Environmentally friendly perspective

� US

� Environmental problems less important

� Convenience and cost more important

Canada

� Similar to Europeans in their attitudes toward environmental factors and cost concerns

� However, since the Canadian market often mirrors that of the US, Canadians have been slow to adopt the technology (lack of awareness?)the technology (lack of awareness?)

The Opportunity

The Present Situation

� New strategy is needed to gain ground on the market leaders

� Needed a competitive advantage to continue to build its brand in the overall battery market

Could Rayovac use the recent introduction of NiMH� Could Rayovac use the recent introduction of NiMHrechargeable technology as a way to establish itself as a larger player? Could it then leverage this strength and brand awareness to gain share within the alkaline segment?

� The rechargeable category will represent approximately $40 million in annual sales at retail by year-end 2005

� The Canadian rechargeable market is expected to grow to $100 million in annual sales at retail by

The Opportunity

grow to $100 million in annual sales at retail by 2010

� Should Rayovac become a “niche” player or a “volume” player?

� How to target and position the rechargeable brand?

Many attributes to promote, given the various benefits of

The Strategy

� Many attributes to promote, given the various benefits of rechargeable over traditional alkaline products, and certain segments may value certain attributes over others

� How should the new rechargeable brand be promoted and marketed?

The Strategy

What should be the

launch strategy of

new rechargeable

line?line?

VOLUME vs NICHE

Financial Analysis

2006 2007 2008 2009 2010

“Volume” Strategy

25 % 30 % 35 % 40 % 45 %

“Niche” 20 % 20 % 20 % 20 % 20 %

Rayovac Canada Rechargeable Battery Market Share Projections

“Niche” Strategy

20 % 20 % 20 % 20 % 20 %

2005 2006 2007 2008 2009 2010

Annual Sales(millions) $40 $ 45 $ 55 $70 $85 $100

Rayovac Canadian Rechargeable Battery Market Sales Projections

Which Channel?

� Niche Stores� Niche stores account for the majority of sales of rechargeable

batteries and would likely be more receptive to Rayovac pushing this category

� These retailers typically support higher-priced niche brands and, as a result, Rayovac could obtain contribution margin of 45%result, Rayovac could obtain contribution margin of 45%

� However, since they represent only a small portion of the battery market, the brand would experience lower nationwide distribution and ultimately lower volumes relative to targeting mass merchandisers

� Falconi estimates that market share in the growing rechargeable market would remain at approximately 20% if a niche strategy was chosen

Which Channel?

� Mass Merchandisers� Mass merchandisers are the more popular stores in the overall

battery market

� They have greater reach, therefore the volume achieved through these retailers would be significantly higher

It is estimated that, with a volume strategy targeting mass � It is estimated that, with a volume strategy targeting mass merchandisers, Rayovac could grow its market share in rechargeable batteries to 45% by 2010

� However, the contribution margin would be lower, at approximately 40%, due to the price discounts that these retailers seek in order to maintain their “low cost advantage”

Advertising & Promotion

� Niche Strategy

� Advertising expense would be lower due to a more knowledgeable and dedicated staff within the retail stores

� Volume Strategy

� Initial advertising expense would be 10% of the estimated contribution, decreasing to 6% by 2010

� The increased expense is retail stores

� It would initially be 7% of the estimated contribution gained and decreasing to 5% by 2010

� The increased expense is due to the larger number of retail players involved and to the necessary promotional materials, as well as to the support needed to promote this newer line

How it affects financials? - Assumptions

Niche strategy Volume strategy

Sales decrease increase

Cost of goods sold decrease increase

Contribution margin 60% 40%Contribution margin 60% 40%

Operating expenses (Advertising)

Lower advertising cost, more knowledgeable staff

Higher advertising

(Distribution expenses) More chance for shelf space so less distribution cost

Higher distribution cost

Financial risk Lower financial risk Higher financial risk

Risks

� Falconi is aware of the threat that the market leaders would react to this push into the rechargeable market

Rayovac also needs to consider the current � Rayovac also needs to consider the current sourcing arrangements with international partners (e.g., Panasonic, Sony) and the risks inherent in this arrangement. In fact, they might try to capitalize on this opportunity, especially as it began to grow

Rayovac Goals

� The company needs to be sure that it could obtain a significant portion of the segment within the first few years and generate increased overall sales

� Despite the fact that Canada has control over its product lines and offerings, it tries to maintain a close link to the product offerings of the US when it makes sense to do so => The object is offerings of the US when it makes sense to do so => The object is to capitalize on US production volumes, promotions, and branding strategies behind the overall Rayovac name

� If Rayovac Canada were to proceed with this rechargeable opportunity, the ultimate goal would be to become the market leader in the rechargeable battery segment in Canada by moving quickly and taking a proactive stance toward building this market in North America

Decision Time

� Should Falconi proceed? What strategy should he pursue?

� Is there a lucrative market for this product line? Could the rechargeable category build the brand name in the industry to boost sales in all categories?industry to boost sales in all categories?

� Should he keep the company resources focused on its one-time-use alkaline product line and simply generate cash while searching for ways to create a competitive advantage in the alkaline segment?

� Could he justify the rechargeable strategy as a way to grow the overall business?

Main Questions

� Alkaline or rechargeable?

� Segmentation?

� Light Users

� Heavy Users (Families or Techies)

� Targeting?

Volume strategy� Volume strategy

� Niche strategy

� Positioning?

� Channel?

� Niche stores

� Mass merchandisers

� Advertising & Promotion?

� Price?

Solutions?

Recommendation

Follow the “niche” market strategy

� PRODUCT: Main categories of rechargeable battery

� SEGMENTATION & POSITIONING

- Market to the “niche” segment

- Focus on “Techies segment” aged 30-35,

- Position Rayovac as the market leader for rechargeable batteries

Recommendation

� CHANNEL

- Niche retailers: as majority of rechargeable batteries sold through them.

� PROMOTION

- Co-promotion with video games, computer, cameras suppliers

- Advertise on technological websites

� PRICE

- Relocate the company rising the price. (High quality company)

MARKETING E GESTIONE DELLE VENDITE

Case study: Rayovac Corporation – The Rechargeable

Battery Opportunity

19 / 1 1 /2010