Smithkline consumer products Contac the relaunch

EXECUTIVE SUMMARY
This report analyses the Relaunch issue of Contac capsule after the sensational case of tampering in the year 1986. Contac capsule was the product of Smithkline Consumer products and was among the main cold remedy products in the market. The company was losing market share and was contemplating selling the brand. However the company decided against it and the task of regaining market share fell in the hands of new management team. Marketing program was enhanced in order to regain the market share and this gave some results also. In this condition, the incident of tampering took place. The issue is seen from different perspectives - What it means to the Company Smithkline consumer products, what it means to the consumer and how the market is going to react to this realunch. Based on the present scenario and markets response to earlier such tampering incidents, Critical decision areas for Smithkline Consumer Products have been identified and possible recommendations given.

INTRODUCTION THE COMPANY SMITHKLINE CONSUMER PRODUCTS Smithkline Consumer Products was a health care company, strategically diversified in various segments of health care with 34000 employees worldwide. The company had three business segments, viz., Therapeutics Ethical Pharmaceuticals, Consumer health care and Animal health care. Diagonistic / analyticals - Clinical laboratory services and instruments. Eye care and skin care. The Company had revenues of around $3bn in the year 1985, details of which are given below. SmithKline Beckman revenue~ 3.2billion $ Therapeutics Segment revenue~ 2 billion $ (62% of company revenue) Consumer Health care revenue - 120 million $ (6% of Therapeutics segment revenue) CONTAC capsules revenue 59 million $ (~50% of consumer health care revenue) As can be seen from the above, Therapeutics segment contributed for more than 62% of the companys revenue. However, the consumer health care division was contributing only to 6% of revenue out of which 50% was coming from CONTAC capsules. THE PRODUCT CONTAC CAPSULES CONTAC was introduced as a cold remedy product in the Over The Counter medication segment in the year 1961. Within 18 months of introduction, CONTAC became the largest selling cold remedy product. Because of the Sustained release effect, as identified by the Pill spill advertisement, CONTAC was perceived by the consumer as giving long lasting relief for cold. The product was having a high market share of 33% in the year 1968. With the introduction of other low priced imitators & other 12 hr relief medications in the market, CONTAC gradually started losing market share. In 1984, market share of CONTAC was a mere 10.2%.

The company was contemplating closing down the consumer health care division due to the poor performance. However, as a final measure, a new team was put in place to bring back the consumer products division on track. The new team analysed the situation and enhanced the marketing program in order to regain the market share. Results started showing in division sales of first two months increased. Then there was the blow. THE INCIDENCE TAMPERING OF CONTAC CAPSULES The company was informed about tampering of CONTAC capsules and contaminating them with cyanide, throughout the country by the tamperer Gary himself. Cyanide was found in the capsules. However, it was not fatal. The company took some swift damage control measures. SKCP ordered stores to stop selling the brand Warned consumers not to use any CONTAC bought after March 15. Later SKCP ordered a nationwide recall TAMPERING MEDIA & MARKET RESPONSE CONTAC tampering made media headlines Smithkline did not get time for survey of consumer opinion TV / News Interviews revealed Some consumers were not even aware of tampering. Some others were aware, but still preferred capsules Some others viewed capsule form itself to blame Anticapsule sentiment fanned by media coverage Focus was not on tamperer but on capsule forms susceptibility to tampering. THE ISSUE CONTAC RELAUNCH Now the Big question is Whether to relaunch or not If planning for relaunch, then How to relaunch - capsule or caplet or both When to relaunch this cold season or next At what price to relaunch Existing or increase

THE SOLUTION
RELAUNCHING DECISION The following factors contributed to the Relaunch decision.

50% of SKCP division sales from CONTAC 59 mn out of 120 mn. In order to sustain the division, relaunch of product was essential. OTC market was growing and there was available potential which can be tapped. Relaunch of Mcneils Tylenol successful good market experience. A similar tampering incident happened earlier with McNeils Tylenol (Johnson & Johnson product), which resulted in casualties. However, relaunch of the product after 1 year was successful and the product regained its market share. Good brand identity of CONTAC capsules Consumers perceived CONTAC as a good cold remedy, identified the brand and purchased. Many customers were not aware of tampering. Even though much publicity was given to the tampering incident, TV / News interviews revealed that many customers were not aware of tampering.

RELAUNCH OBJECTIVES Relaunch CONTAC Regain market share Reinstill consumer confidence safety and efficacy. HOW TO RELAUNCH While the product is relaunched, it is essential that an improved tamper proof version is available in order to re instill confidence in the customer, which will in turn translate into sales and help the company regain the market share. So the format of product for relaunch is to be decided Options available are : Relaunch tamper proof capsule form. Relaunch both tamper proof capsule & caplet/ cafeteria approach. Relaunch only caplet. All the three options are analysed below. RELAUNCH ONLY TAMPER PROOF CAPSULE Customer identifies the product. Perceives more effectiveness in cold remedy. Anti capsule statement by media. Capsule more vulnerable for tampering. Dealers resistance to take capsules RELAUNCH ONLY CAPLET Tamperproof. Dealers ready to take caplets. Tablet mimicking capsule in shape.

Consumer may not perceive caplet as effective as capsule. RELAUNCH TAMPER PROOF CAPSULE & CAPLET Known brand for the customer. Addition in brand line easy to introduce in the market. Takes care of dealer sentiments. From the above, it is seen that for effective relaunching of product, both capsules and caplets are to be introduced in the market. While capsule may satisfy the consumer, it may not satisfy the customer, i.e, the dealer. So in order to cater to the demands of both customer and consumer, both capsules and caplets are to be introduced in the relaunch. Considering the shelf space constraints, the product mix is to be decided. PRODUCT MIX SKU CONTAC capsules come in four different SKUs 10, 20, 30 & 40. Due to shelf space constraints, it may not be possible to have all the four SKUs, since caplets are also being introduced. From last year sales, it is seen that 10 &20 SKUs contribute for 91% sales value, whereas 30 & 40 SKUs contribute only for 9% sales value. So 30 & 40 SKUs can be discontinued for the present & only 10& 20 SKUs can be considered for launching. Decision regarding 30 & 40 SKUs can be taken after analyzing market response for relaunch.

DECISION RELAUNCH BOTH TAMPER PROOF CAPSULE & CAPLET 50:50 10 & 20 SKU
WHEN TO RELAUNCH Timing of relaunch was of prime importance, since the product was seasonal. Hence launching of product before cold season was important. 146 mn capsules and / or caplets to be produced, packaged and ready for shipment by June 13. This is based on the shelf space normally occupied. Even though this is a challenge, to recapture the market, product is to be relaunched by August.

DECISION RELAUNCH BY AUGUST FOR THIS COLD SEASON.

RELAUNCHING PROCESS - CONSTRAINTS TECHNOLOGY Dependent on competitors technology for tamper proof sealing.

Dependent on competitors technology for caplet manufacturing. On analyzing the market conditions, it is seen that the company has to approach M/s Eli Lilly Corporation for tamper proof sealing (bonding the two halves of the capsules with a bright red gelatin band, visible to the consumer) as this is a viable solution compared to other alternatives available in the market. The company has to approach M/s Dorsey laboratories for caplet manufacturing, as they had the capacity for the same.
I.

BUDGET

The company has to incur the following expenditure for relaunch of CONTAC. Machinery for Tamper proof packaging - $0.5 mn. Advertising expenses for relaunch 21 mn. Promotion expenses - 3.5 mn. PR services 1mn. Promotional program for wholesalers 1mn. Total expenses 27mn ( 45%). Before the tampering incident, during the last year, the company has spent 38% in Advertising & Promotion expenses. Now the relaunch expenses are calculated as 27 mn, which is around 45%, i.e, an increase of 7% over previous expenses. Even with this increased expenses, pretax profit of 10% is possible considering the same level of sales as previous year. So it is essential that these expenses are to be incurred.

DECISION CAPLET MANUFACTURING THROUGH DORSEY CAPSULE SEALING WITH RED GELATIN BAND THROUGH ELI LILLY BUDGET EXPENDITURE OF AROUND 27 MN FOR RELAUNCH MARKETING STRATEGY : DECISONS COMMUNICATION WE ARE SAFE AND BETTER The consumer has to be made aware of the fact that the capsule format is now resistant to tampering. As red gelatin band is proposed for bonding the two halves of the capsules, sealing is visible and the consumer becomes aware of the same. This fact is to be brought out in the communication, i.e., in print media, advertising etc., PROMOTION

Around 25mn is to be set aside for Promotion & advertising expenses. For a relaunch, the advertising campaign costs around 21 mn. Other than this, following can be considered.

Free standing insert (FSI) is a cheaper, but effective promotion activity available. Cost of this activity works out to around $ 1.2 mn for a reach of 40 mn households. TARGET : CONSUMER

Request offer coupons can be considered, but the cost works out more, i.e, around 2.27 mn for a reach of 40 mn households. COMPARISON BETWEEN FSI & ROC Free Standing Insert 40 mn 7$ 0.28 mn $ 3 to 5% 2 mn 0.25 to 0.35 0.7 mn $ 0.11 $ 0.22 mn $ 1.2 mn $ Request Offer Coupon 40 mn 7$ 0.28 mn $ 1.4 to 1.6 % 0.64 mn 3 1.92 mn $ 0.11 $ 0.07 mn $ 2.27 mn $

Details Household covered (nos) Cost per 1000 household Cost of Reach Redemption rate Likely redemptions (nos) Discount offered on product Total Discount cost Handling Charges per redemption Total handling charges Total Promotion cost = Cost of reach + Discount cost + Handling charges

Media has fanned anti capsule sentiment in the market. To make good,

PR

campaigns can be organized for 1 mn. TARGET : TRADE Specific promotion campaign for the whole sale dealers can be organized at 1mn expenses TARGET : CUSTOMER Product can be promoted through medical community. Campaign for 0.8 mn can be planned for this. TARGET : CONSUMER

PRICE
Low priced imitators available in the market has contributed to reduction in market share of CONTAC. So while relaunching, any price increase will have an adverse effect. Further, with the present level of sales and price, the company is able to achieve pre tax profit of 17%. Now the main aim is to recapture the market. So NO PRICE INCREASE.

RECOMMENDATIONS
Relaunch contac for this cold season Tamper proofing with red gelatin band readily visible to the consumer 50% capsule & 50% caplets of 10 & 20 SKU Aggressive advt and promotion campaign including promotion through medical community expenses of around 25mn No price increase