SUMMARY Skin-Tique Corporation manufactures womens personal care products.

The products consist of; facial creams, hand and body lotions, and a full line of womens toiletries. Soft and Silky was positioned as a high-quality womens shaving gel since its introduction in 1988. Phoebe Masters, the newly appointed Product Manager for hand and body lotions at Skin-Tique, recognized that they face some problems. Also Heather Court right, the Soft and Silky Brand assistant suggested them it is time for new packaging. These factors made them think about producing a new kind of packaging. But she is not sure whether to introduce a new package design which is aerosol package (5-1/2 ounce or 10-ounce) alongside the existing tube container for the companys Soft and Silky Shaving Gel product or not. If they decide to introduce the new design, the manager needs to decide if a test market is necessary to evaluate the new packaging to enhance their decision making capabilities. SkinTique could choose to continue only offering their current non-aerosol product. This decision would remove some uncertainty from their decision making process, but would result in numerous negative consequences. Skin-Tiques market research has shown that many consumers prefer an aerosol product. If they fail to meet consumer expectations, they may face problem in acquiring new market share, also they may lose current market share.

There are 3 primary problems have been identified for this case study. First problem was whether to introduce a new aerosol package design instead of tube for companys Soft and Silky Shaving Gel. Second is the decision to introduce a 5 ounce shaving gel or a 10 ounce for new aerosol package. Third is to decide whether they should commission a test market further. Retailers received a 40% margin on the suggested retail selling price selling for $3.95 per 5 ounce tubes. Rack jobbers receive a margin of 20% off the sales price to the retailers. The sales were $3,724,000 in 2002 with a 1,960,000 unit volume. Description 5 oz. tube 5 oz. Aerosol 10 oz. Aerosol

Unit selling price

$3.95

$3.50 $2.10

$4.25 $2.55

Subtract Retail Margin $2.37 (40%) (jobbers price) Subtract Jobber $1.90

$1.68

$2.04

Margin (20%) (STCs unit price) Unit variable of Cost 784000/1.96 million = $0.24 units $0.40 $0.29

(COGS/#

slated for sales) Contribution/ounce $0.273 $0.262 $0.175

The new product manager was presented with the research team findings. A recommendation was made to conduct a market test to determine the best package size. The test-market recommendation was to introduce the new package design in a limited crosssection of drug and food-and-drug stores, including heavy-volume and low-volume stores that carried Soft and Silky shaving gel. The estimated cost for the test market was $30,000 which included cost of gathering marketing research data on the cannibalization rate and incremental sales growth. In addition, $10,000 supplier set-up charge would have to be paid. The following is the contribution effect for the forecasts:Forecast A Net New Sales Volume = (300,000*$0.262) = $78,600 Cannibalized Volume (2,145,174*(0.273-0.262) = $23,596.914 Net New Sales Volume for Forecast A = $78,600-$23,596.914 = $55,003.

Forecast B Net New Sales Volume = (500,000*$0.262) = $131,600 Cannibalized Volume (2,345,174*(0.273-0.262) = $25,796.914 Net New Sales Volume for Forecast A = $131,600-$25,796.914 = $105,203. Forecast C Net New Sales Volume = (800,000*$0.175) = $140,000 Cannibalized Volume (1,745,174*(0.273-0.175) = $171,027.05 Net New Sales Volume for Forecast A = $140,000-$171,027.05 = ($31,027). Forecast D Net New Sales Volume = (1,500,000*$0.175) = $262,500 Cannibalized Volume (1,145,174*(0.273-0.175) = $112,227.05 Net New Sales Volume for Forecast A = $262,500-$112,227.05 = $150,273. Payoffs Table Description Decision Alternative (5.5 oz. tube + 5.5 oz. Aerosol) X Decision Alternative (5.5 oz. tube + 10 oz. Aerosol) Y ($31,027) $150,273 Low probability (0.3) $55,003 High probability (0.7) $105,203

The expected monetary value for each decision alternative for X and Y is as follows:EMV(X) = $55,003*0.3+$105,203*.7 = $90,143. EMV(Y) = ($31,027)*.3+$150,273*.7 = $95,883. From the above, if they go with 5.5 oz. Aerosol can than 10 oz. Aerosol can, then there is a profit of approximately $5,000. EMV of certainty is within each probability, there sure is going to be a financial payoff is given below:-

EMV of Certainty (EMVC) = (0.3 * $55,003) + (0.7 * $150,273) = $121,692 EMV of Best (EMVB) = (0.3 * ($31,027)) + (.7 * $105,203) = $95,883. EMV of perfect information = EMVC EMVB = $121,692 - $95,883 = $25,809. For the third option to do a test market the cost is $30,000 + $10,000 for supplier set-up charge and this cost is higher than the EMV which we got above ($25,809).

To conclude, option 2 is better where the probability (EMV of perfect information to best estimate) is working out cheaper than the test market cost and they should go with that option.