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Summary
Introduction The Household Battery Market Rayovac 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 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 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 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 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%
Consumers
Light Users
($25 average spent anually)
Heavy Users
($250average spent anually)
Families Techies
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
Price and value are important Battieries are purchased for devices such as smoke alarms, electronic games, and childrens toys
Canadian Consumers
Techies ($75 million): powerhungry individuals, typically between 15 and 30 years of age and early adopters of new technology. Their average income is about $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
Heavy users
CHARACTERISTICS FAMILIES TECHIES
TOTAL MARKET
$200 MILLION
$75 MILLION
INCOME
OVER $60,000
TYPE OF DEVICES
NOT HIGH-DRAIN
HIGH-DRAIN
DECISION FACTOR
IMPULSIVE
Channels
Share by Channel-Total Canada Units Mass Merchandisers Traditional Grocery Membership Clubs Hardware/Automotive Drug All others % of Market 34 23 15 10 10 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) Hearing Aid Batteries Shaving and Grooming Products Lighting Personal Care
Segments
2004 General batteries Rechargeable batteries, chargers and other Hearing aid batteries Lighting products Electric shaving and roaming Personal care 49% 11% 2003 65% 16% 2002 68% 9%
7% 6% 19% 8%
9% 10%
12% 11%
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
The company has manufactured a large portion of its battery 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
Canadian Market
Duracell and Energizer have been responsible for overall direction of the battery industry for the past 50 years.
Duracell vs Energizer
Duracell Established in 1920 Introduced Duracell brand in 1964 Was acquired by Gillette in 1996 Gillette was acquired by P&G in 2005 Energizer Established in 1896 Was acquired by Ralston Purina Co. in 1986; later merged with Nestle Separate company Energizer Holding Inc. in 2000 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 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
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 Opportunity
The Opportunity
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 2010
The Strategy
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 rechargeable over traditional alkaline products, and certain segments may value certain attributes over others
The Strategy
What should be the launch strategy of new rechargeable line? VOLUME vs NICHE
Financial Analysis
Rayovac Canada Rechargeable Battery Market Share Projections 2006 Volume Strategy Niche Strategy 25 % 20 % 2007 30 % 20 % 2008 35 % 20 % 2009 40 % 20 % 2010 45 % 20 %
Rayovac Canadian Rechargeable Battery Market Sales Projections 2005 Annual Sales(millions) $40 2006 $ 45 2007 $ 55 2008 $70 2009 $85 2010 $100
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% 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 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
Volume Strategy
Initial advertising expense would be 10% of the estimated contribution, decreasing to 6% 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
Niche strategy Sales Cost of goods sold Contribution margin Operating expenses (Advertising) (Distribution expenses) decrease decrease 60% Lower advertising cost, more knowledgeable staff More chance for shelf space so less distribution cost Lower financial risk
Volume strategy increase increase 40% Higher advertising Higher distribution cost
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 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 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? 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 Niche strategy
Positioning? Channel?
Niche stores Mass merchandisers
Solutions?
Recommendation
Recommendation
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
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)