Allstar toothpaste

Latin America Case —13—

1: Latin America Case

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The CountryManager Case: Latin America

AY PASAH, HEAD OF THE CONSUMER HEALTHCARE DIVISION of Allstar Brands, looked across the table at her category and brand managers. She had a determined look. "Our sales in our traditional markets of Western Europe, North America, and Australia are performing well. But

these markets are mature with lots of competition and aging, slow growing populations. On the other hand, we've been too slow in developing our business in the newly emergent economies around the world, such as the BRIC nations (Brazil, Russia, India and China). Our board believes, and I agree, that to generate the kind of growth needed to drive our stock price, we need to develop a stronger market presence in these types of countries. Our plans will be rolled out on a regional basis, with Latin America and Asia being the first two regions to consider. What I need from you is an analysis of these regional markets and a plan of entry. You need to tell me where we should be, when we should be there, and how we will need to manage the business. I want us to be in at least one country in the region next year. Each of you has been assigned one of these regions and I’ve provided you with some background information to get you started." Allstar Brands Allstar Brands is a multi-national consumer products company that produces and sells ethical (prescription) pharmaceuticals, OTC (over-the-counter or nonprescription) drugs, and consumer products. It is an $8.9 billion firm that was formed in 1924 and competes with a variety of larger and smaller firms, depending on the product market. It has a number of leading brands in various product categories, including (in the OTC division) Allround, the leading liquid cold remedy in North America, and Zemlef, a heartburn remedy soon to be converted from prescription to OTC status. The consumer products division includes various types of packaged goods: hand and beauty soaps, laundry detergent, shampoo, toothpaste, shaving cream, etc. Over the years, it has expanded its product category width through internal new product development and acquisition of brands and companies around the globe. The company had been historically organized into three divisions (Ethical Pharmaceuticals, Consumer Products, and International), but recently reorganized into a global product management structure with three major divisions (Ethical Drugs, Consumer Healthcare, and Consumer Products). A group of category managers exists within each division. For example, the Consumer Healthcare division has an oral care category manager, a vision care category manager, etc. Most major brands also have their own brand manager who reports to the category manager. Under the new structure, each division is responsible for its own international operations and, to some extent at least, can pick the products and categories to pursue internationally. The country managers are responsible for the selection and marketing of products in a particular country. Figure 1 illustrates this organizational structure.

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Latin America Case —15—

Figure 1: Organizational Structure of Allstar Brands

ALLSTAR BRANDS

Ethical Drugs Consumer Healthcare Consumer Products

Product Categories

International Operations

Home Operations

Oral

Category Europe

Latin America

Finance

Production

Toothpaste Asia

Accounting

MIS

Country Management

World Toothpaste Market Current world toothpaste sales total approximately $20 billion. The largest country market for toothpaste is the United States, with $3.4 billion spent during the past year. A number of firms produce and/or market toothpaste in the world market. Table 1 lists the five major producers of toothpaste for the world market, including Allstar Brands. Not all global brands or global competitors will be represented in every market, and some markets might include brands produced by local firms. These local brands may have a minor or major share of the market, depending on the country. Table 1: World Toothpaste Producers with Major Brands

COMPANY NAME WORLD SALES (% of world market)

BRANDS

Allstar Brands 13 Allsmile

B & B Healthcare 15 Britesmile Bancav

Caremore Company 21 Clean & White Caregate Driscol Corporation 10 Dentacare Evers Consumer 7 Eversmile

Toothpaste is available in a number of sizes, delivery systems, textures (paste or gel), and formulations. The basic toothpaste product is a paste or gel with flavoring and one or more active ingredients that provide specific benefits to consumers. Research has identified four key consumer segments in markets around the world based on benefits sought:

1) Economy: basic cavity protection at a low price 2) White: seeks whiter teeth 3) Healthy: tartar control and disease prevention for healthy teeth 4) Kids: seeks a good tasting product that appeals to children

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Consumers purchase different formulations based on the benefits they seek and their purchasing ability. The benefit segments also link to demographics. For example, families with children often focus on decay prevention; young singles are typically more interested in whiteness; those in middle age are concerned with tartar and gingivitis; and children find taste of the toothpaste to be a primary feature. Similarly, the appeal of certain attributes may differ among consumer groups. For example, pump dispensers add convenience and may be a novelty for children but are more expensive to produce than tubes. Also, single people might prefer the convenience of smaller package sizes, whereas families may prefer a larger package which is typically more economical on a cost per gram basis. A general description of these variations in the United States market is listed below. Not all companies produce all possible combinations. Table 2: Toothpaste Packaging and Formulation Variations

Sizes Delivery Systems Texture Descriptions (Benefit /Ingredient)*

Small (25g) Tube Paste Economy is a basic formulation for prevention of dental cavities.

Medium (75g) Pump Gel White formulation contains hydrogen peroxide for whitening and prevention of gingivitis.

Large (150g) Healthy contains baking soda for tartar control.

Kids contains special flavorings to appeal to children.

*All formulations contain fluoride. Country Analysis Latin America is a region of great potential. Its population of over 500 million is 50 percent larger than that of the United States and Canada combined. The region has a history of having been politically unstable and has had many weak economies characterized by low growth, high inflation, and a reluctance to take tough economic actions to correct these problems. The dominant national language across Mexico and Central and South America is Spanish, except for Brazil, where the primary language is Portuguese. Some portions of the population in many South American countries speak one or more native Indian languages. Kay’s team scoured the Internet for additional sources of data and came across a site maintained by the CIA. "Our tax dollars at work!" Kay exclaimed. Tables 3 and 4 (shown next) compare economic and social characteristics of the home market and the scenario markets under consideration.

Latin America Case —17—

Table 3: Market Comparison on Economic Considerations*

COUNTRY Pop (Mill) GDP

(Bill $)** GDP/Capita

($)** GDP

Growth CPI

Increase % Below

Poverty Line Argentina 43.0 771 17,900 3.5% 20.8% 30.0% Brazil 202.7 2,422 11,900 2.5% 6.2% 21.4% Chile 17.4 335 19,300 4.4% 1.7% 15.1% Colombia 46.2 526 11,400 4.2% 2.2% 32.7% Mexico 120.3 1,845 15,300 1.2% 4.0% 52.3% Peru 30.1 344 11,400 5.1% 2.9% 25.8% Venezuela 28.9 407 14,100 1.6% 56.2% 31.6% Home 318.8 16,720 52,400 1.6% 1.5% 15.1%

**Purchasing Power Parity *Source: CIA World Factbook 2014 Table 4: Market Comparison on Social Characteristics*

COUNTRY Pop Aged 65+ Urban Pop.

Pop. in 3 Largest Cities

Pop. Avg. Growth

% Pop. w/access to Safe Water

Infant Mortality

/1000 births Argentina 11.3% 92% 37.7% 1.0% 99% 10.2 Brazil 7.3% 87% 18.5% 0.8% 97% 19.2 Chile 9.7% 89% 44.7% 0.8% 99% 7.0 Colombia 6.5% 75% 32.2% 1.1% 91% 15.0 Mexico 6.9% 78% 22.9% 1.2% 94% 12.6 Peru 6.7% 77% 38.4% 1.0% 85% 20.2 Venezuela 5.8% 93% 24.0% 1.4% 93% 19.3 Home 13.9% 82% 12.9% 0.8% 99% 6.2

*Source: CIA World Factbook 2014 A variety of trade enhancement actions have been struck in recent years. For example, Mexico was signatory of the NAFTA agreement, along with the United States and Canada. This agreement reduces trade barriers among the three countries and has encouraged a variety of companies to establish production in Mexico to take advantage of low labor costs and fairly seamless access to the United States and Canadian markets. The MERCOSUR agreement provides similar linkages among the South American countries of Argentina, Brazil, Paraguay, and Uruguay, including association agreements (but not membership) with Bolivia and Chile. The Andean Community links Bolivia, Colombia, Ecuador, and Peru. Most recently, Mexico, Colombia, Peru and Chile formed the Pacific Alliance. Numerous bilateral agreements also exist.