You have been tasked with introducing the

Herbal Essences brand in Pakistan!

Herbal Essences is a leading shampoo brand marketed and
distributed across the P&G globe. The complete Herbal Essences
line-up includes shampoos, conditioners, hair color and varied
styling products. Your task, however , is to successfully launch
shampoos in a dynamic and vibrant Pakistani consumer market.

Your plan needs to be holistic, and should cover marketing,

finance, supply chain, and sales strategy elements. For each of
these areas we will provide a set of assumptions and a list of
expectations in the following pages. Good luck!

Contents
Financial – Page 1 • Supply Chain – Page 3 • Marketing – Page 7 • Sales – Page 10
Financia
The Finance function provides stewardship towards all business decisions, ensuring the
organization reaches profitability goals and adds to shareholder’s return. It is critical to
understand the driving factors of all business decisions and propose solutions that maximize
return and minimize the risks involved.

Your task is to prepare a detailed financial analysis on the Herbal Essences launch for the next 5
years. You should understand and question all assumptions behind the launch and prospective
solutions offered by your counterparts. Your key objective would be to prioritize and focus
investment on the right business fundamentals, while delivering a healthy profit growth.

Key Measures

You are expected to fill the table below in absolute numbers and also show each component
as a %age of your Sales Revenue for each year. Additionally you need to include NPV of your 5
year plan. You may also include additional financial measures while explaining your financial
plan.

Brand Financials Year 1 Year 2 Year 3 Year 4 Year 5

Volume
Price (PKR)
Sales Revenue (PKR)
Cost of Goods Sold
Gross Margin (PKR)
Marketing Expenses
Organization Costs
Profit (PKR)

Key Budgets

• Cost of Goods Sold (COGS): This is the cost of sourcing and transporting your product and will
be determined through the Supply Chain Toolkit
• Marketing Spend Budget: For Year 1, this is capped at $3,500,000. For Years 2-5 your Marketing
Budget is capped at $2,000,000 (you can exceed by using your profit, if any).
• Organization Costs: Costs of running the organization are $300,000 per annum

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Key Assumptions

Your financials must accommodate for the following:

Assumptions Year 1 Year 2 Year 3 Year 4 Year 5

$/PKR Exchange Rate 80 85 90 95 100
Inflation (YOY)* 5% 10% 5% 5% 5%
Sales Tax** 17% 17% 17% 17% 17%
Distributor Margin*** 12% 12% 12% 12% 12%
Corporate Tax Rate 35% 35% 35% 35% 35%
* Inflation has already been applied to all Year 1 Costs
**Sales Tax: is applied on your consumer price
*** Distributor Margin: is the incentive/payment made to your distributor. This amount applies on your total revenue

Key Expectations

You are required to act as the CFO of your brand, keeping into consideration both short term &
long term impact of your decisions on business growth and profitability. Evaluation will be made
on the basis of how you deliver profits by incorporating a sustainable business model. You may
take help of graphs and visual aids to enhance your presentation.

You may be asked to share calculations and rationale regarding the following elements:

1) NPV and Breakeven Profitability

2) Building blocks of profit drivers (Pricing, COGs, Marketing Spend, etc)

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Supply C
The task at hand is to build the downstream supply structure for Herbal Essences in Pakistan. The
key questions that need to be answered are:

Volume Forecast for Year 1 (Annexure 1)

• What will be the monthly base forecast based on the marketing trends you have established
in the Marketing toolkit?
• What will be the impact of the initiatives you are proposing as per your Sales & Marketing
Strategy?
• What will be the volume forecast for Year 1?

Distribution Structure (Annexure 2)

• What will be your downstream logistics structure based on your proposed sales strategy?
How many replenishment points (and in what cities) do you propose and,
depending on the transit times, what will be the replenishment frequency?
• Assuming that you are operating with a single distributor who sells your product across
Pakistan, what replenishment strategy will you adopt over the initial 5 years of your launch?
Option 1: Vendor Managed Inventory (You manage the inventory of your customer)
Option 2: Customer Managed Inventory (The customer manages its own inventory and orders
as per requirement)
• Based on your decisions above, what will be the inventory cover in terms of days that needs to
be maintained at the distributor?

Supply Chain Operating Strategy (Annexure 3)

• What will be your strategy to maintain the target service level?

Define the inventory levels in terms of days required at your Central Distribution Centre (DC) to
meet the desired service level
• What will be the warehousing cost (per annum) based on the projected inventory levels?
• What transportation model will you use for replenishments (refer to options in Annexure 3)?
• What will be the Total Logistics Cost/Finished Product Logistics Cost (FPLC) per annum?
FPLC = Import Cost + Warehousing Cost + Transportation Cost

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Annexure 1 – Volume Forecasting

Forecast in Cases Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Base Forecast
Marketing Initiatives*
Initiative 1
Initiative 2
Sales Initiatives*
Initiative 1
Initiative 2
Total Forecast
* For Year 1 the launch itself will be your primary marketing & sales initiative. Use this for Years 2-5

Annexure 2 – Distribution Structure

Assume that the P&G Central DC is in Karachi and you replenish to your distributor locations
from the DC. Get a map of Pakistan and mark the locations which you propose as your
replenishment points.

Replenishment Points Transit Times Replenishment Frequency Inventory Cover

City 1
City 2
City 3, 4, 5, etc

Based on the above, the national inventory cover at the distributor would be ____ Days.

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Annexure 3 – Supply Chain Operating Strategy

Service Level and Inventory

To support 100% availability there has to be infinite inventory in the supply chain. One can simply
not cater for the demand of every single unit hence there has to be a tolerance in terms of
availability. The challenge is to maintain a service level of 99.5%. How many days of cover
should you keep at your Central DC (assuming a forecast error of 20%)?

Watch out! Forecasting error can change based on the number of variants you choose to
launch.
Number of Variants Launched Forecast Error
Less than or equal to 2 20%
3 25%
More than or equal to 4 30%

Warehousing

Products are stored on individual pallets within the warehouse. Each pallet holds a finite number
of cases (containing a set number of units of product). The rent of each pallet is PKR 150 per
week. This is the only cost element attached to warehousing. Based on your forecasts,
determine the per annum Warehousing Cost.

Pallet Occupation
Product Line/Size Cases per Pallet
Herbal Essences Sachets 90
Herbal Essences Bottles (all sizes) 70

Transportation

As mentioned earlier, you will have two transport options available to you. These are:

1) Dedicated Fleet: You fix the number of trucks, with specific transporters, on a monthly basis
and use the same fleet for all replenishments (monthly fixed rates + variable charges for
each trip)
2) Non Dedicated Fleet: You contract with multiple transporters and fix the rate of trucks for
future hires. There are no vehicles dedicated to you, hence the contract is applicable
based on the availability of trucks when you require them.

Fixed Cost p/Month Variable Rent p/trip Capacity

(per container) (per container) (Cases per container)
Dedicated Fleet PKR 100,000 PKR 80,000 4,000
Non Dedicated Fleet 0 PKR 105,000 4,000

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Product Import Cost

The assumption here is that each variant (sizes and flavors) of your brand is being supplied from
a P&G plant based in a foreign country. There are three types of cost attached in bringing this
product to Pakistan; the manufacturing cost (i.e. the cost of production incurred by the P&G
plant), taxes and import duties levied by the Pakistani government, and the freight cost of
shipping the product from the P&G plant to your warehouse.

Determine the overall import cost of your product using the forecasts calculated earlier, and
keeping in consideration the cost elements below.

Watch out! Import costs are given in terms of one case of product. Refer to the second table to
find out how many units of product one case contains.

Taxes & Duties

Manufacturing Cost Freight Cost
Product Sizes (as a function of
(per Case) (per Container)
import cost)
Sachets PKR 1,200 25% USD 3,000
Bottle (100ml) PKR 2,500 25% USD 3,000

1 Bottle (200ml) PKR 3,000 25% USD 3,000

* One container contains 4000 cases of product

Case Count
Product Size Units per Case
Sachets 480
Bottle (100ml) 30
Bottle (200ml) 20

Finished Product Logistics Cost (FPLC)

Once you have determined each cost element of supplying the product (i.e. import cost,
warehousing cost and transportation cost), you should be able to determine the total logistics
cost (FPLC). This cost should be reflected in your financials as the sourcing cost/Cost of Goods
Sold.

FPLC = Import Cost + Warehousing Cost + Transportation Cost

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Marketin
The task at hand is to come up with a marketing plan for Herbal Essences in Pakistan. The key
questions that need to be answered in your plan are:

Product Positioning (Where to Play), and

Marketing Strategy (How to Win with Consumers)

Background

I. Shampoos is an evolving category in Pakistan with high penetration but moderate

consumption levels. The market size for the category is 2 x 1010 liters per annum. The
category is mainly segmented into Premium and Low Tier shampoos with Mid Tier being
near non-existent. The volume split between the Premium and Low Tier is 55:45. Conditioners
are still in their infancy, with most usage being occasional and not as part of routine hair
care regimen.

II. Within the Premium Tier, there is a war of heavy media spending to sustain market shares
and not lose it out to the low Tier brands as they are priced index 55 vs. the Premium Tier
shampoos.

II. In recent times, the market is The shampoo market has 2 distinct
experiencing down tiering, potentially consumer segments; the sachet users and
because consumers are facing the bottle users (sachet 5-8ml, bottles =>
inflationary pressures, while Low Tier 100ml)
brands have stepped up their
advertising. The overall market volume is skewed
towards higher SEC consumers behind
their strong purchasing power
Mid Tier Premium Tier
45% 55% Volume Split Sachet:Bottle
Price/ml = Price/ml =
50 Paisa 80-85 Paisa SEC AB 60% 20:80
SEC CDE 40% 70:30

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Competition

The hair care market is dynamic and versatile, with a variety of brands from multiple tiers
competing for share:

Hairshine Best Nature Twirl Discover Beauty Care

10% 10% 25% 10% 10% 20% 15%

You are supposed to launch Herbal Essences as a Premium Tier proposition – with the aim of
becoming a 20 % share brand in the next 5 years. You are required to launch 3 sizes; 5ml,100ml
and 200ml. Additionally, you need to launch at least 3 variants (and you can exceed this
number if you want to). Your rationale for the number of variants needs to tie in with the
developed brand strategy, should also keep in mind the constraints of your market & trade, and
consumer insights/requirements.

Consumer

On needs segmentation, there are 2 broad consumer groups in Pakistan – the performance
seekers and the value driven.

Performance seekers look into benefits like superior functional and emotional benefits and a
premium image for the brands that they use, while the value driven consumers want functional
benefits at affordable prices. Interestingly, both of these segments are present across SECs.

(% of Consumers) SEC AB SEC CDE

Performance Seekers 45% 10%
Value Driven 15% 30%

The following tables illustrate the sought after benefits from shampoos:

Key Functional Benefits sought from Shampoos (Higher SEC)

Strength (Anti Hairfall)
Shine
Long Hair

Key Emotional/Experiential Benefits sought from Shampoos (Higher SEC)

Pleasurable showering experience
My shampoo understands me
My shampoo is chosen by the best

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 Key Functional Benefits sought from Shampoos (Lower SEC)
Long Hair
Strength (Anti Hairfall)
Shine

Currently, the leading brands have the following positioning:

Low Tier Tier 1

Hairshine Best Nature Twirl Discover Beauty Care

Shampoo that
Long &
Shiny Hair Shine Strength understands
Strong Hair me

Expectations

Within your marketing plan, the following four expectations need to be met:

1. Go to Market Strategy (Product positioning and how to win with consumers)

2. Communication Idea/Unique Selling Proposition
3. Marketing Plan
4. A 30-45 second TV commercial and one Key Visual (Print Ad Poster)

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Sales
The task at hand is to create the sales strategy for introducing Herbal Essences in Pakistan. The
key questions that need to be answered are:

Where to Play

We expect you to define the trade channels you will prioritize in order to capture share. It is also
key to define which variants will work best in certain stores and trade channels.

How to Win

Once you define the trade channels in which you will play, we expect you to outline the
strategy of how to stand out in the store, leverage your relationship with the customer, and
catch the eye of the consumer. This has all to do with your pricing strategy, the packaging and
in-shelve placement of your product. A sales pitch can also make or break your strategy, so
come prepared!

Trade Channels

The following channels of trade are available to you:

Number of
Store Type Size of Trade Stores

Top End Retail

Eg: Metro, Makro,
Aghas, Al Fateh
30% 500

Walk In Stores
Eg: Utility Stores, General
Stores, etc
35% 15,000

Cosmetics Stores
Eg: Color Collection,
Gulf Cosmetics Stores
20% 10,000

Kiryana Stores +
Bakeries 15% 100,000

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Sales Representatives - Constraint

You have a dedicated sales force of 100 sales reps who are also selling other P&G brands. Each
sales representative covers 50 stores per day and has a total of 600 stores to cover over a period
of two weeks. A sales rep has roughly 5 minutes per sales call. He typically has around 30
seconds to sell a concept to a customer.

Expectations

The following elements need to be addressed in your sales strategy:

• Distribution: How will the sales reps approach their customers? What will be their sales pitch to
their customers?
• Right Pricing: What price points should we introduce this product at? How will we ensure the
correct pricing is reflected in the store? What should the customer margin be (the market
gives an average 10% retailing margin)?
• Shelving/Placement: How will the product be placed in the store (for each size)? What
location in the store will be suitable for an ideal placement? Support with reasoning.
• Merchandising/Positioning: How will the product stand out in the store? What can we do to
ensure it goes in-line with the overall positioning of the brand?

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Glossary
Sourcing: refers to the origin of the product. Sourcing cost is the cost attached with importing and
warehousing product from different manufacturing sites across the world

Distribution: is the process that takes product from the warehouse to the customers and consumers.
Distribution cost is the per unit cost that needs to be paid to the 3rd party distributor

Organization: refers to all Human and Capital resource cost involved with running the business

Variant: is defined as a member of the same brand family which might differ in flavor, aroma, etc (for
example Zest may have multiple flavor variants; Aqua, Tropical Mango, etc).

Tier/SEC : a consumer segment classified by house hold income

Freight Cost: is the cost of moving one container of product from the sourcing site to the local warehouse.

Case/s: are a measuring unit. A case contains a set amount of single units of product

Pallet: a wooden platform on which cases are stored within a warehouse. Each pallet can hold a finite and
predetermined number of cases

Mileage: refers to the general usage duration of the product

Shelving/Placement: is the physical location in a store where your product will be placed for consumers

Merchandising/Positioning: is the physical location in a store where your product or associated marketing
material will be displayed for consumers

Trade Channel/s: is/are the different outlets available to a consumer to shop for goods. Each trade channel
will have a set number of outlets across the country, and has an overall contribution (in terms of usage by
consumers) towards the business.

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Procter & Gamble Pakistan © 2010. This document is the
intellectual property of P&G Pakistan and should only be used
for the purpose/s defined by the Company.