Case study: Rayovac
Corporation – The Rechargeable
Battery Opportunity
MARKETING E GESTIONE DELLE VENDITE
19/11/2010
Summary
Introduction
The Household Battery Market
Rayovac
The Competitive Landscape
Rechargeable Batteries
The Opportunity
Solutions?
Introduction
Exponential grow of household batteries
use, due to the increased popularity of
high-drain devices
Energy consumption becomes an
important issue: consumers demand an
improvement on battery technology
Companies are looking ways to meet the increasing
demand of energy
Market opportunity: Rechargeable battery!
Introduction
Our situation
Rayovac Battery – Division of Spectrum Brands Canada Inc.
Bob Falconi – Vice president of sales and marketing for
Spectrum, a global consumer products company owing a
variety of brand name products
Falconi knows that, with effective marketing, the rechargeable
battery market could likely grow within North America as it
had in Europe
Introduction
Major competitors are not focusing on this product
category, fearful that it would cannibalize sales of
their existing products
Rayovac could use this opportunity to increase its
presence and brand name recognition by entering
“the back door” instead of competing head-to-head
against the well-established, non-rechargeable
products of the market leaders
However, the consumers perception of rechargeable
batteries in Canada has not been positive => Is this a
business worth pursuing? How?
The Household Battery
Market
The Market
The household battery market comprises consumer
batteries available in standard sizes: AAA, AA, C,
D, and 9-volt
Sales of these batteries around the world are
growing as electronic devices (e.g., PDAs, digital
cameras, and portable music systems) have
become more pervasive
The Market
In 2005, the overall battery market in Canada is
estimated to be approximately $300 million, with
the alkaline segment representing 70%
the rechargeable segment making up 10%
and other battery chemistries (e.g., zinc) representing 20%
The Alkaline Segment
Alkaline is the dominant household battery
chemistry in North America and is offered by all
major competitors in all sizes
Growth within this product category has become
relatively flat (1 or 2% annually), yet, due to the
size of the market, it is expeceted to remain the
focus of competitors over the next 5 to 10 years
Manufacturers need to be involved in the alkaline
segment in order to be an important player in this
industry
Consumers
Light Users
($25 average spent anually)
Heavy Users
($250average spent anually)
• Families
• Techies
Canadian Consumers
Families ($200 million of the
market): couples with one or
more children, typically living
in urban centres with a
household income of over
$60,000
Price and value are important
Battieries are purchased for
devices such as smoke alarms,
electronic games, and children’s
toys
Canadian Consumers
Techies ($75 million): power-
hungry individuals, typically
between 15 and 30 years of age and
early adopters of new technology.
Their average income is about
$30,000
More impulsive in their purchasing and
gravitate toward stores with unique
product assortments
Batteries are purchased for devices such
as MP3 players, digital cameras, and
other electronic gadgets
In comparison to families, techies have
fewer batteries on-the-go at any given
time but replace them more frequently
Heavy users
CHARACTERISTICS
FAMILIES
TECHIES
$200 MILLION
$75 MILLION
OVER $60,000
BETWEEN $20,000
AND $40,000
TYPE OF DEVICES
NOT HIGH-DRAIN
HIGH-DRAIN
DECISION FACTOR
PRICE AND VALUE
IMPULSIVE
TOTAL MARKET
INCOME
Channels
Share by Channel-Total Canada
Units
% of Market
Mass Merchandisers
34
Traditional Grocery
23
Membership Clubs
15
Hardware/Automotive
10
Drug
10
All others
6
• Grocery retailers and mass merchandiser tend to target families
• Drugstores target seniors (65 years and over) and teens (15-25)
• Hardware and home-and-garden retailers focus on males aged 30-35
• Niche retailers target the techies
• Internet and direct-to-consumer sales have not proven to be valuable options
Rayovac
Overview
3rd largest battery manufacturer and marketer in the world
Products available in North America, Europe, Asia Pacific,
the Middle East, Africa, Latin America, and Brazil
Products
Batteries (Alkaline & Rechargeable)
Hearing Aid Batteries
Shaving and Grooming Products
Lighting
Personal Care
Segments
2004
2003
2002
General batteries
49%
65%
68%
Rechargeable
batteries, chargers
and other
11%
16%
9%
Hearing aid
batteries
7%
9%
12%
Lighting products
6%
10%
11%
Electric shaving
and roaming
19%
Personal care
8%
Company Background
The company began operations in 1906 and introduced the
Rayovac name in the 1930s
It eventually entered the competitive household battery
market, but long after Duracell and Energizer were well
established within this market
Acquisitions were made to access international markets
including Europe, China, and Brazil
Similar to its competitors, Rayovac acquired other consumer
brand companies, which have provided negotiating strength
for the bundle of Spectrum brands, resulting in greater ability
to compete within its given markets
In 2005, Rayovac holds a 14% market share
Rayovac versus competitors
Rayovac has targeted the value-conscious price-shoppers
looking for high-quality products at a lower price
The “value brand” compared to Duracell and Energizer which are
“premium brand”
The company has manufactured a large portion of its battery
lines, but also outsourced production of its more complex
product lines to international manufacturers with stronger
capabilities in places such as Japan and China
Rayovac has established itself as a player within the
household market and continues to look for ways to steal
market share from the leaders
The company continues to be involved in the large alkaline segment, but
competing head-to-head has been only modestly successful => It is looking
for a new way to compete and grow
Rayovac versus competitors
Competitors
Global Market
Canadian Market
8%
10%
14%
39%
Duracel
Energizer
35%
Duracel
20%
Energizer
Rayovac
Rayovac
Other
Other
39%
35%
Duracell and Energizer have been responsible for overall direction of the battery
industry for the past 50 years.
Rayovac in the Canadian Market
20% market share in Canada
2 main competitors
−
−
Duracell – 35% market share
Energizer – 35% market share
The Competitive Landscape
The Competitive Landscape
Highly competitive (limited retail shelf space and consumer
acceptance)
Main factors influencing retailers to choose:
- Brand name recognition
- Perceived quality
- Price
- Performance
- Packaging
- Design
- Promotion
- Relationship with retailers: with the growth of large retail chains
across North America, the balance of power shifted away from
manufacturers => Strong realtionships with these retailers have
become an essential element in competing for valuable shelf space
The Competitive Landscape
Duracell & Energizer dominate the market:
Brand name recognition
Relationship with retailers
Established presence in the alkaline battery category
Merged with consumer goods companies
Gaining valuable recognition
Efficiency that comes from balancing out the sales cycle => more efficient
use of sales force and a steady revenue stream
Duracell vs Energizer
Duracell
Energizer
•Established in 1920
•Established in 1896
•Introduced Duracell brand in 1964
•Was acquired by Ralston Purina Co.
in 1986; later merged with Nestle
•Was acquired by Gillette in 1996
•Separate company Energizer Holding
Inc. in 2000
•Gillette was acquired by P&G in 2005
•Acquired Shick Wilkinson in 2003
Other Competitors
Many other firms have attempted to enter the battery
business but have achieved little success
Well-known companies, such as Panasonic, Sony, Sanyo,
and Kodak, have failed to gain a significant share of the
battery market despite their size, strength, and brand
recognition in other markets
These firms, together with the private retail brands, hold
only 8% of the global market and 10% of the Canadian
market
Rechargeable Batteries
The Rechargeable Batteries Market
Small and highly fragmented
In 2004, it represents only 5% of the North American battery
market and 10% of the Canadian one
There is no dominant market leader
North American consumers have been reluctant to purchase
rechargeable batteries for several reasons:
The upfront investment to purchase the charger
The higher cost per battery relative to alkaline units
The lack of convenience in having to charge batteries prior to initial use
The negative experiences consumers had with older rechargeable
technologies
The overall lack of consumer knowledge of the new technology and its
benefits
The Rechargeable Batteries Market
The lack of growth in this market is also attributable to the
reluctance of the market leaders to promote this product
line
Duracell & Energizer drive market trends and see the potential of the
rechargeable batteries to ultimately cannibalize one-time batteries
The market leaders do not have core competencies in rechargeable
battery manufacturing
Hence, there is potential for growth in this segment
The new NiMH (Nickel metal hydrate) rechargeable technology works
very well in high-drain devices
Lasting 3 times longer than standard alkaline
Being more environmentally friendly
Being recharged up to 500 times
Providing cost savings for consumers in the long run
The Rechargeable Batteries Market
Battery chargers
Designed to charge any type of rechargeable battery
Various formats, offering great flexibility to
consumers
Various sizes, ranging from the ability to charge 2
AAA through to charging multiple batteries and
battery sizes at the same time
Cost: from $10 to $150, depending on their
capabilities and capacity
Retailers: the majority are sold trough niche
retailers where high-drain devices are typically sold
(until the larger mass merchandisers begin to pick
up the product lines)
Rayovac Rechargeable Batteries
Rayovac introduced its “Renewal” alkaline rechargeable
brand in 1993 with Michael Jordan as its spokesperson
Only moderate success was achieved but it provided
Rayovac with an edge in terms of brand recognition in the
rechargeable category
In 2005 Rayovac holds a 20% market share of the small but
growing North American rechargeable battery market
Outside of North America, Rayovac is a leader in the
rechargeable sector
European Market vs US Market
European
Faster adopters of new
technologies
Environmentally friendly
perspective
US
Environmental problems
less important
Convenience and cost
more important
Canada
Similar to Europeans in their attitudes toward
environmental factors and cost concerns
However, since the Canadian market often mirrors
that of the US, Canadians have been slow to adopt
the technology (lack of awareness?)
The Opportunity
The Present Situation
New strategy is needed to gain ground on the
market leaders
Needed a competitive advantage to continue to
build its brand in the overall battery market
Could Rayovac use the recent introduction of NiMH
rechargeable technology as a way to establish itself
as a larger player? Could it then leverage this
strength and brand awareness to gain share within
the alkaline segment?
The Opportunity
The rechargeable category will represent
approximately $40 million in annual sales at retail
by year-end 2005
The Canadian rechargeable market is expected to
grow to $100 million in annual sales at retail by
2010
The Strategy
Should Rayovac become a “niche” player or a
“volume” player?
How to target and position the rechargeable
brand?
Many attributes to promote, given the various benefits of
rechargeable over traditional alkaline products, and certain
segments may value certain attributes over others
How should the new rechargeable brand be
promoted and marketed?
The Strategy
What should be the
launch strategy of
new rechargeable
line?
VOLUME vs NICHE
Financial Analysis
Rayovac Canada Rechargeable Battery Market Share Projections
2006
2007
2008
2009
2010
“Volume”
Strategy
25 %
30 %
35 %
40 %
45 %
“Niche”
Strategy
20 %
20 %
20 %
20 %
20 %
Rayovac Canadian Rechargeable Battery Market Sales Projections
2005
Annual Sales(millions) $40
2006
2007
2008
2009
2010
$ 45
$ 55
$70
$85
$100
Which Channel?
Niche Stores
Niche stores account for the majority of sales of rechargeable
batteries and would likely be more receptive to Rayovac pushing this
category
These retailers typically support higher-priced niche brands and, as a
result, Rayovac could obtain contribution margin of 45%
However, since they represent only a small portion of the battery
market, the brand would experience lower nationwide distribution
and ultimately lower volumes relative to targeting mass
merchandisers
Falconi estimates that market share in the growing rechargeable
market would remain at approximately 20% if a niche strategy was
chosen
Which Channel?
Mass Merchandisers
Mass merchandisers are the more popular stores in the overall
battery market
They have greater reach, therefore the volume achieved through
these retailers would be significantly higher
It is estimated that, with a volume strategy targeting mass
merchandisers, Rayovac could grow its market share in rechargeable
batteries to 45% by 2010
However, the contribution margin would be lower, at approximately
40%, due to the price discounts that these retailers seek in order to
maintain their “low cost advantage”
Advertising & Promotion
Niche Strategy
Advertising expense
would be lower due to a
more knowledgeable and
dedicated staff within the
retail stores
It would initially be 7% of
the estimated contribution
gained and decreasing to
5% by 2010
Volume Strategy
Initial advertising expense
would be 10% of the
estimated contribution,
decreasing to 6% by 2010
The increased expense is
due to the larger number
of retail players involved
and to the necessary
promotional materials, as
well as to the support
needed to promote this
newer line
How it affects financials? - Assumptions
Niche strategy
Volume strategy
Sales
decrease
increase
Cost of goods sold
decrease
increase
Contribution margin
60%
40%
Operating expenses
(Advertising)
Lower advertising cost,
more knowledgeable staff
Higher advertising
(Distribution expenses)
More chance for shelf
space so less distribution
cost
Higher distribution cost
Financial risk
Lower financial risk
Higher financial risk
Risks
Falconi is aware of the threat
that the market leaders would
react to this push into the
rechargeable market
Rayovac also needs to consider the current
sourcing arrangements with international partners
(e.g., Panasonic, Sony) and the risks inherent in
this arrangement. In fact, they might try to
capitalize on this opportunity, especially as it
began to grow
Rayovac Goals
The company needs to be sure that it could obtain a significant
portion of the segment within the first few years and generate
increased overall sales
Despite the fact that Canada has control over its product lines
and offerings, it tries to maintain a close link to the product
offerings of the US when it makes sense to do so => The object is
to capitalize on US production volumes, promotions, and
branding strategies behind the overall Rayovac name
If Rayovac Canada were to proceed with this rechargeable
opportunity, the ultimate goal would be to become the market
leader in the rechargeable battery segment in Canada by moving
quickly and taking a proactive stance toward building this
market in North America
Decision Time
Should Falconi proceed? What strategy should he
pursue?
Is there a lucrative market for this product line? Could
the rechargeable category build the brand name in the
industry to boost sales in all categories?
Should he keep the company resources focused on its
one-time-use alkaline product line and simply generate
cash while searching for ways to create a competitive
advantage in the alkaline segment?
Could he justify the rechargeable strategy as a way to
grow the overall business?
Main Questions
Alkaline or rechargeable?
Segmentation?
Light Users
Heavy Users (Families or Techies)
Targeting?
Volume strategy
Niche strategy
Positioning?
Channel?
Niche stores
Mass merchandisers
Advertising & Promotion?
Price?
Solutions?
Recommendation
Follow the “niche” market strategy
Recommendation
PRODUCT:
Main categories of rechargeable battery
SEGMENTATION & POSITIONING
-
Market to the “niche” segment
Focus on “Techies segment” aged 30-35,
Position Rayovac as the market leader for rechargeable batteries
CHANNEL
- Niche retailers: as majority of rechargeable batteries sold through them.
PROMOTION
-
Co-promotion with video games, computer, cameras suppliers
Advertise on technological websites
PRICE
-
Relocate the company rising the price. (High quality company)
Case study: Rayovac
Corporation – The Rechargeable
Battery Opportunity
MARKETING E GESTIONE DELLE VENDITE
19/11/2010