Case 1_ Vicks Throat Drops

Vicks Throat Drops A case study BA 230. Marketing Management

Prepared by:

Carlo Abas Mara Angelica Raina Aranas Alyssa Loren Arellano Carlos Rev Cao Chernobyl Diones

Prepared for: Prof. Des Cruz Cesar E.A. Virata School of Business University of the Philippines Diliman

Date Submitted: 13 March 2014. 2000H

I. Case Background In 1985, Procter & Gamble, Inc. (P&G) bought Richardson-Vicks, Inc. Through this acquisition, P&G launched a diversified portfolio of health care products one of which is Vicks Throat Drops. Vicks Throat Drops was perceived to be a medicinal throat drop by consumers. Thus, adults infected with colds and laryngitis were its primary customers. However, in 1990, P&G decided to drop the product due to difficulties in production and distribution. In May 1993, P&G relaunched its Vicks Throat Drop brand. Its image was changed from being a medicinal throat drop to a menthol candy. The packaging was changed from aluminum foil to individual plastic wrapper; distribution broadened to include not only drugstores but also small retail stores, grocery stores and supermarkets. II. Problem Statement Despite all the efforts and resources used by P&G, Vicks Throat Drops was unsuccessful in penetrating the market for menthol candy; it failed to meet its sales volume expectations. This case study tries to analyze what went wrong in Vicks’ marketing strategy and tries to suggest how Vicks could have done it differently. III. Case Analysis In order to have a structured analysis in determining the reasons behind the failure of Vicks Throat Drops, it is best to understand first the Philippine confectionary market, particularly the menthol candy market. By doing so, it is easier to understand the pattern and rationale of the consumers and the existing market competition. Furthermore, it will give clues as to what marketing strategies should be implemented. Porter’s Five Forces Analysis was used to evaluate the competitive strength and position of Vicks Throat Drops. Lastly, an analysis of the marketing strategies that P&G implemented in 1993 will be scrutinized. This should give a better understanding on what went wrong. Overview of the Menthol Candy Market People buy menthol candies for various reasons. Based from the different interviews that were conducted by the group, some buy menthol candies due to the soothing and cooling effect it provides, which can relieve sleepiness. Others bought it to relieve hunger while others use it to avoid dizziness during travel. Then, some says that consuming menthol candies can have refreshing effect on the breath. Out of the reasons provided, it can be inferred that majority who have bought menthol candies buy it due to their need of having a fresh breath. The people who would likely to buy them are smokers and commuters. These types of consumers, however, are not very particular with the brand of the menthol candy as long as the desired strength of the mint flavor is met. Thus, it is hard to keep the

consumers loyal to a particular brand of menthol candy. Given that fresh breath is socially desirable for all age groups and income brackets, the menthol candy market captures a large number of potential customers. To take advantage of this diverse market, a rapid inflow of new brands - Maxx, Halls, Stork, Green Ice, Polo and Nano-nano - was experienced in the menthol candy segment by 1993. Brands compete head on thru heavy TV and radio advertising. Brands also continued innovating the product by providing different flavors of menthol candy such as Halls Honey Lemon and Maxx’s Cherry flavor.

Exhibit 1: Prominent Menthol Candy in the Philippine Market (1993)

Menthol candies were marketed in high traffic locations to bring them closer to the consuming public and to capture a larger chunk of the market. This is particularly true with the market leader, Stork, whose candies were being distributed by street vendors and sari-sari stores. The distribution strategy was followed by other brands. Porter’s Five Forces Analysis for Vicks Throat Drops The group used the Porter’s Five Forces Diagram to analyze the competitive intensity and attractiveness of the menthol candy market, of which Vicks is a new entrant. See the diagram below: Power of Suppliers Based on the case, Vicks is at a disadvantage vis-a-vis its competitors. Stork, Halls, and Maxx all obtain their stocks locally while Vicks obtains its candies from Indonesia. The longer the supply chain the more it poses delays in providing Vicks candies to the retailers. This is crucial

for a mass marketed product. Goods such as candies should be available on the point-ofpurchase.

Exhibit 2: Porter’s Five Forces Analysis for Vicks Throat Drops Power of Customers Given the number of candy brands in the retail market, it is obvious that customers can dictate the trends for this industry. Any customer may shift his/her purchase if Vicks was not available or deemed to be expensive. Threat of New Entrants The high capitalization required to establish a candy factory and a mass marketed candy brand pose high barriers for the entry of new players. Unfortunately for P&G, other companies, which has economies of scale and experience in FMCGs (e.g. Warner-Lambert for Halls, URC for Maxx), also launched their own candy brands during the same period. Threat of Substitutes

Other types of candies and cheap sweets may be considered substitutes for menthol candies. However, menthol candies are already well-differentiated from other candies such as gums (ex. juicy fruit, double mint), and soft candies (ex. gummy bears). Rivalry Among Existing Competitors As seen in the diagram above, Stork was the leading and most recognized menthol candy brand prior to the launch of Vicks Throat Drops. Competition, however, became tougher as Halls and Maxx arrived in the market shortly after Vicks was relaunched. P&G’s Marketing Strategies for Vicks Throat Drops

Exhibit 3: Vicks’ Marketing Mix Strategy Product In order to relaunch the product as a menthol candy, the company introduced 4 flavors Orange, Cherry, Menthol and Lemon, which is a good strategy as it made a good point of difference from its main competitor, Stork, which sells only one type of menthol candy. Though Vicks is the smallest, in terms of size, among the competing menthol candies, it has maintained

its point of parity of being a hard and refreshing candy. However, the main problem on the product’s introduction was in the brand identity itself. Indeed Vicks is a very strong and powerful brand, but people associate Vicks with medicinal products. Couple that with the fact that the product was named Vicks Throat Drops, it solidifies the perception of the buyers that the product is medicinal and not a menthol candy. Hence, it begs the question “is it a candy or a medicine?” Another miss, which is very obvious, is how the company packed its products. Indeed Vicks Throat Drop can be bought in jars or in smaller packs to cater the needs of both retailers and home buyers. However, the wrapper is not as lively as what a candy should be. The image of the candy is similar and is still highly associated with other Vicks medicinal products. In general, perception of the product has not changed even though the company has already altered its positioning. Price The product was priced slightly higher than their competitors even though it is smaller in size. In the point of view of P&G, this small difference in prices doesn’t play an important role in the marketing strategies of Vicks Throat Drops. However, it is worth noting that P&G’s target market are the masses or regular consumers, who are very price sensitive. These people are typically affected with pricing. As a result, they easily shift from one product to another depending on which one will give more value for their money. Promotion In terms of sales promotions, it is evident that the company has done a very intensive campaign. The people behind the campaign has made sure that Vicks Throat Drops is almost everywhere in stores: from the island displays to cash registers, posters and streamers, products of Vicks Throat Drops can be seen. Furthermore, different merchandise have been given to salespeople and customers such as caps, key chains, t-shirts and more to raise awareness of the products. Indeed, the company has spent a lot of resources to make this campaign grand and intensive. Unfortunately, the television advertisement for Vicks Throat Drops was a big miss. The reason is that the company is trying to sell the product as a menthol candy but its advertisement doesn’t say so. From the title of the commercial, Pesteng Ahem, it is evident that the message is “eating Vicks Throat Drop will help you get rid of cough or clear your throat”. The message relayed by the tagline limits the potential market of the product and is a big contrast to the mass marketing goals the company is trying to achieve. Place

The company is correct when it has decided to distribute the product in a nationwide scale. Furthermore, it is also a great move to penetrate the sari-sari stores as they are still the number one place to sell a heavily commoditized item such as menthol candies. However, the company missed geographical importance of prioritizing Metro Manila. In terms of demographics, the population of Metro Manila is very dense as compared to the other regions of the country. More often than not, Metro Manila usually dictates which products will be successful. It would have been wiser to distribute the product first in Metro Manila before distributing it on a national level. IV. Alternative Courses of Action New Market New Product Approach (Different brand name, different target market other than medicinal candy) A good strategy that P&G should have done in penetrating the confectionary market, particularly the menthol candy, is to introduce a new brand and totally go away with the Vicks branding. People always associate Vicks with medicines. Therefore, any indication that the product is made by Vicks, or is associated with Vicks, people would have the notion that it is a medicine and not a menthol candy. In developing this strategy, marketers should design the packaging in such a way that it is more appealing to the masses. The current packaging is too dull, too “professional” and with close association to medicinal items; wrappers should be designed with fun and lively colors. Additionally, wrapper and packaging should move away from technical or scientific words in describing the products in order to change the people’s perception of the Vicks brand. In terms of promotions, the TV advertisement should also be revised. In designing the new commercial of the product, it is important to move away from messages that say “it clears the throat” or “pesteng ehem”. Even though this is a fact, it is not a claim that is big enough for a mass marketing campaign. Avoiding these taglines will help the product to move away from its previous positioning as a medicinal candy. As for distribution, it is best that the concentration of distribution will be in Mega Manila first before going to the provinces and on a national level. A hype in Mega Manila will translate to better product recognition and sales. Likewise, word about the product in Mega Manila will resound across the nation if found to be successful. Lastly, for pricing, it is best if the candies will be priced lower than its competitors. P&G has this capability since it is a big company that can influence its suppliers to support its strategies. By having a lower price than usual, the company can create a hype, which eventually would translate into sales. After the target market has been captured, then P&G may opt to reposition its pricing if deemed necessary. Old Market Old Product Approach

Realign goals & strategy of the product – position the product as medicinal candy In this strategy, the company should assess if there can truly be a positive association between the Vicks medicinal brand and menthol candies that will work on a mass marketing level. If none, then the efforts of the marketers should not be towards the confectionaire market. Instead, all efforts should be concentrated in strengthening Vicks Throat Drops as the number one choice for throat itchiness and other related problems. In pursuing this strategy, it is important that the company develop concrete but tempered goals. Strategy formulation should be aligned to the revised goals. The objective is to strengthen the original position of Vicks Throat Drops as a medicinal candy through market development (existing product for an existing market). Given that, its pricing, distribution, packaging, and promotions should be changed from the initial proposition of menthol candies. Contraction Defense - Strategic Withdrawal A large organization like P&G can withdraw from a market or particular market segment in which it is not strong enough to compete with existing players to concentrate its resources on other markets in which it has greater strength. In this case, sales of Vicks Throat Drops registered low sales volume despite the massive and heavy advertising. Aside from the supply problem, relatively low sales volume was primarily due to the continuous association of the product with Vicks as a medicinal brand. This resulted to buyers’ perception that the menthol candy that Vicks offering can only be consumed when you have sore throat or flu. Since the strength of Vicks as a brand lies on its products which offers medical solutions, P&G can get rid of the menthol candy segment and just focus on Vicks’ core business. V. Recommendation Thus, given the 3 alternative courses of action above, we prefer that Vicks opt for the “New Market, New Product” approach in view of the following: ●

Economies of Scale - Considering that P&G is the company behind the Vicks brand, it can be said that the group has the financial capability to venture into the confectionary market with a new brand and value proposition. Likewise, they already have a solid distribution capability which can reach sari-sari stores as seen in the massive presence of their products such as Tide, Pringles, Whisper, and Pampers.

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Experience - Likewise, P&G has been into the FMCG business for a long time already. Launching a new brand and a new marketing campaign is not an unfamiliar territory for them.

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Market Opportunity - At the time of the launching of the Vicks Throat Drops, only the Stork

candy is a mature brand. The group agrees that P&G was right in seizing the opportunity but has a flawed strategy. Regardless, P&G would have missed the opportunity to enter another mass market have they decided to stick with Vicks as merely a medicinal product. By launching a totally new brand, they would leave the Vicks brand but still take advantage of the existing process and know-how in producing the throat drops. However, including the Vicks brand and visual appearance will not sell in the targeted mass market since associating anything with the Vicks brand will either upsell the candy or limit its saleability to buyers with “medical” needs. This however will not grab the opportunity to target a bigger market base. However, it should be noted that currently, the supply of candies came from Indonesia. Given that, it is best that P&G look for partnerships with a local company that has the capability to support their plans of mass marketing a menthol candy brand. This would not only enable them to shorten their supply chain, but also enable them to compete with local manufacturers. Lastly, it is advisable for P&G not to directly challenge Stork (like what it tried to do with the Vicks brand) during its launch phase. They should offer to the mass market through “sideways” attack. This is similar to what Maxx did: offer to the mass market, have the same distribution channels, but put in a more colorful packaging.

Exhibit 4. Proposed New Brand and Candy Wrapper

BA 230 Case 1: Vicks Throat Drops 1. Problem – Why was Vicks Throat Drops unsuccessful in penetrating the market?

o o Ø Ø

· Company strategy of marketing the product vs perception of buyers Positioned as medicinal candy when it was first launched in the market Re-launch – reclassified from medicinal candy to menthol candy Marketing: similar with Stork, Halls and Maxx Perception: upscale, medicinal 2. Benefits · For smokers – to remove smell of nicotine · Freshen breath · Short-term relief of minor sore throat and throat irritation · Cooling effect

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Attributes Menthol strength

3. Marketing mix elements (4Ps) crucial in the menthol candy category: · Product o What the customer wants from the product o Needs that are satisfied by the product o Features of the product that will meet the needs of the market o Branding Ø Strength – popular medicinal product – management assumed that mass marketing the product fits Vicks brand equity Alternative courses of action 1. Different brand name but same target market 2. Realign goals & strategy of the product – position the product as medicinal candy like Strepsils Notes: Compare different brands · Packaging · Advertisements · Distribution

Supplier · Vicks – P&G Indonesia ***evaluate using Porter’s Five Forces Model Menthol Candy Market ● experiencing rapid inflow of new brands ● used TV and radio for advertisements ● introducing new candy flavors ● sari-sari stores were tapped for distribution ● dominated by Stork ○ strong distribution at retail level ● candies were differentiated through flavors they offer, shape, strength of menthol flavor, individual packaging ● key success factor: distribution Halls ● ● ● ● ● ● ● Maxx ● ● ●

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first introduced the honey lemon flavor already heavily supported with advertising and promotions before VTD relaunched provided heavy TV and radio advertising support when VTD relaunched launched its Cherry flavor in August 1993 distribution: wholesalers and selected supermarkets perceived as brand with quality and class appealed to middle and upscale sector

launched in July 1993 heavy TV and radio advertising and outdoor sampling distribution: nationwide sari-sari store ○ backed by merchandising support ■ posters ■ plastic streamers ■ jar distribution introduced Maxx Cherry no brand equity to capitalize on tasted and looked almost the same as Stork

Vicks Throat Drop ● market relaunch in May 1993 ○ from medicinal throat drop to a menthol candy ■ when positioned as medicinal, primary customers were adults infected with colds and laryngitis

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■ may increase in customs, duties and taxes by 50% ○ however, sales volume did not meet expectation ■ marketing managers attributed this to insufficient supply of stocks ■ however, above problem was already addressed early in the launch ○ packaging from aluminum foil to individual plastic wrapper ○ distribution broadened from drugstores to include small retail stores, grocery stores and supermarket phased out in 1990 due to difficulty in production and distribution imported from P&G Indonesia marketing services by Anderson Group, Incorporated competitors: Halls and Max perceived as brand with quality and class appealed to middle and upscale sector

Strategy 1. Product a. 4 Flavors i. Orange ii. Cherry iii. Menthol iv. Lemon b. 2 Pack sizes i. 100’s ii. 20’s c. size i. 2g (2.5g for Halls, 3,5g for Stork, 4.5g for Maxx) d. jars of 200s with the four flavors e. jars of 300s per flavor (in September 1993) 2. Price a. volume discount scheme i. 30-49 cases - 1% ii. 50-99 cases - 2% iii. 100 cases and above - 3% b. discount of 2% for paying within 7 days of delivery 3. Distribution a. distributed nationwide b. hired a marketing arm to distribute to sari-sari stores nationwide i. nationwide distribution - May 1993 ii. MM-based sari-sari stores - September 1993 iii. urban centers of Luzon - Nov - Dec 1993 4. Promotions a. advertising

i. TV to create awareness ii. limited supply from Indonesia delayed some of the heavy TV ad placements b. sales promotions i. merchandising materials 1. island display 2. cash register display 3. posters 4. streamers 5. shelf-takers 6. hanging clips 7. shelf trays 8. sales organizers 9. tire covers 10. jars 11. display allowances a. 2500/unit/month for large tree display b. 500/unit/month cash register display ii. trade deals 1. 100s + 20s a. 10 cases + 1 case free 2. 100s a. 100 cases + 10 cases free b. 50 cases + 4 cases free c. 25 cases + 2 cases free 3. 20s a. 12 cases + 1 case free iii. premiums 1. distributed to sales and customers during relaunch a. t-shirts b. key chains c. baseball caps d. waist pouches e. calculators Problem ● Why was VTD unsuccessful in penetrating the market ● What is the primary benefit provided by a menthol candy? What are the attributes consumers look for? ● Recommend marketing strategies to increase the sales of VTD Minor recommendations: (Rev) - should have focused its marketing promotions on drugstores rather than broad media (ex. TV, Radio)

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