Aqualisa Showers 17Sep PDF

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Aqualisa shower case solution...

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Aqualisa Quartz Team A: Hortiales Isaac Jain Bhagyashree Shetty Aashna Venkatanarayanan Hamsini

BACKGROUND: About Aqualisa: Aqualisa was founded in 1977 in UK is a manufacturer of technology-driven showers. Aqualisa was the third largest company in UK shower market by sales and market share. It had a revenue of around 68 million with a base profit of 25%. It had a reputation for providing good quality and service. UK Shower market: UK shower market is a mature market and can be estimated around 400 million. Only 60% of the U.K homes had showers and they were mostly archaic plumbing leading to low water pressure. There were only three major types of showers Electric showers, Mixer shower Valves and integral power showers. Each of the shower type had its own limitations as shown in Figure 1. Aqualisa’s core product was in mixer-shower-valve category and it sold 60,000 units per year. It was their top-selling product.

Customer Analysis: Aqualisa’s customer segmentation and characterises was as follows:

Standard

Product Knowledge Low to Moderate Low

Value

Low

DIY customers

High

Developers

Low to Moderate

Segment Premium

Decision Maker

Shopping Channels

Customer Plumber

Showrooms Trade Shows

Plumber

Trade Shows

Customer

DIY Sheds

Developer & Plumber

Wholesalers

Characteristics Style determined the selection Emphasized on performance & Service Looked for convenience of installation Lower price criteria and avoided excavation Interested in easy to install & inexpensive models Preferred electric showers Preferred reliable and nice-looking products with capabilities to work in multiple settings Price sensitive, not interested in premium values

Aqualisa’s main target markets were those from standard & value segments and formed approximately 64.42% of the sales.

*All information and data are sourced from the case study ‘Aqua Lisa’, HBS course pack; unless mentioned otherwise

Importance of Plumbers:

Figure 1

Plumbers preferred to install a single shower brand. Plumber’s familiarity with brand products and services played an important role in shower selection. Plumbers distrusted innovation and the switching costs between the brands were high. As shown in Figure 1, plumber influenced 73% of the decisions directly or indirectly.

DEVELOPMENT OF QUARTZ: To deal with all the shower issues, Harry Rawlinson, the managing director of Aqualisa decided to work on a new product with his R&D team. After three years of development during which company spent 5.8 million, the team came up with a different kind of shower called Quartz. This cost the company about 175 to 230 to make. It was designed to meet consumer needs which earlier were not met by other showers. It was very easy to install as it was of the size of a shoe box and plumber had to drill a single hole into the ceiling above the shower. ISSUES WITH QUARTZ: Why the product was not a runaway hit in the market: There are various reasons for the failures of Quartz, even though it was a revolutionary innovation Fewer new customers: Twenty sales personnel would spend 10% of time gaining new customers while 90% on maintaining old customers. Obviously more than 10% of time was required to attain new customers. Price of the product: Customers felt that the product was expensive and hence the product wasn’t selling as expected. The product was popular among showroom customers since showroom customers didn’t mind spending but were more concerned with the quality of the product. However, showrooms were a niche market and therefore quartz couldn’t fully capture the market. Plumber’s resistance to change: Plumbers were resistant to change because the introduction of a new product to the market meant that they had to take training regarding the installation of the product. Plumbers were reluctant towards installation of the product especially because the quartz used an element of electricity in it which the plumbers were not too aware about the concept. Channel distributors had bought thousands of quartz showers, however they sold only about 8% of it. Part of the problem was the plumber’s resistance to change. Brand Loyalty: Plumbers maintained brand loyalty. Once they got comfortable with installing a single brand, they continued the same because installation of new brands resulted in unknown performance problems. These performance problems meant that the plumbers had to make more visits to the customer’s place for which the plumber

*All information and data are sourced from the case study ‘Aqua Lisa’, HBS course pack; unless mentioned otherwise

had to spend from his pocket. To avoid such situations, plumbers remained loyal to one specific brand. Similarly, plumbers were hesitant towards the launch of quartz showers. SWOT ANALYSIS FOR QUARTZ: WEAKNESS STRENGTH Well known in UK

Low sales of Quartz

Top Quality showers

Plumbers did not trust electronic showers Sales teams did not focus on new customers

Premium Brand Superior Technology

Low brand awareness

OPPORTUNITIES Quartz - Unique product offering

Cannibalisation

No competition in market

Competitors cathcing up

Scope of market expansion as 40% households did not have showers

Customers perception of being overpriced

THREATS

ALTERNATIVES FOR TARGETING: Targeting consumers Directly: With this the company will be able to reach out to the consumer directly omitting the middleman. This can be done with ads which would cost 3 -4 million euros with a return of 17 million euros. But this could be a tough sell across the board of the company. Targeting Do-It-Yourself: Gainsborough was already successful in this category and Aqualisa could take advantage of its channels of distributions. Also, DIY may be willing to pay a premium price because of its ease of installation. But with this targeting there was a fear of cannibalisation and the cost of advertising was high. Targeting Developers: Targeting Developers could help in large volume sales and force plumbers to familiarize themselves with the product. But developers were price sensitive and it could be a tough sell at a premium price. Also, there will be a delay for the product to get to the consumers. Overall, developers only consisted of 15% of the market. Targeting Plumbers: Given that the shower market is one where the customers are heavily dependent on the plumbers for advice on making the right choice as well as further installation and maintenance, Aqualisa can target the plumbers directly.

*All information and data are sourced from the case study ‘Aqua Lisa’, HBS course pack; unless mentioned otherwise

RECOMMENDATIONS: Aqualisa should target plumbers and consumers: • • •

Plumbers act as collaborators and have a very high influence over consumers thus they affect the sales highly in the UK shower market. Familiarizing the plumbers with the product and showcasing them the value can boost the Quartz sales. A value proposition could be created for the plumbers: Quartz Premium

Hours per installation Plumber charge per hour Total cost of plumber Number of jobs in 48 hours Total plumber revenue (euros)

• •

Other products 4 60 240

16 40 640

6 1440

1 640

As seen in the table Table 1, Plumber earns more money by installing Quartz showers as the installation time is reduced drastically, allowing him to take up more jobs. It is easy to install and does not require any excavation so plumber can send his young apprentices. This allows the plumber to take up more work Also, as the product is very simple to install & use, second visits that are paid out of plumber’s pockets will be minimised thus saving cost and efforts for the plumbers.

A similar value proposition could be created for consumer showing the additional value to the consumers as compared to other showers:

Retail Price (euros) Number of hours Plumbing cost @ 60 euro per hour Total cost (euros) • • • •

Aquavalve Std, with Quartz Premium Booster pump 1080 1160 4 16 240 960 1320 2120

It is cost effective than installing the other showers. There is a cost benefit of 800 euros for a customer. Better water pressure and temperature control No excavation required Safe and easy to use for children, elderly and people with disability.

ACTION PLAN: Typically, when a new innovative product is launched, the market behaves in a manner that is best explained by E.M. Roger’s ‘Diffusion of Innovation Theory’ (1). There are five categories in which consumers can be segregated:

(1)http://sphweb.bumc.bu.edu/otlt/MPH-Modules/SB/BehavioralChangeTheories/BehavioralChangeTheories4.html.

*All information and data are sourced from the case study ‘Aqua Lisa’, HBS course pack; unless mentioned otherwise

• • • • •

Innovators: These people are typically the ones that are venturesome and end up creating or developing new innovations Early adopters are typically opinion leaders and have a great influence on the general people. They are first ones to try out a new product and are open to change. Early majority: These people are not opinion leaders but adopt to a new product earlier than the average person. They typically need evidence of the product’s success and then they make the shift. Late majority: These people are sceptical of change and shift only if mostly everyone else is also shifting. Laggards: These are reluctant to change and will change only if there is no other option.

In the Aqualisa case the new product was ‘Quartz’. One of the biggest reasons for the unsuccessful sales of ‘Quartz’ was the attitude of the plumbers toward this innovation. Plumbers were key influencers in the UK market because the consumers, contractors and the retailers greatly depended on the plumber to suggest the product. Therefore, our strategy for the introduction of this new product should be aimed at 2 groups of audiences: namely the plumbers and the premium price paying consumers. PLUMBERS: • •

• • •

For the plumbers we can build a brand awareness program that helps make them the ambassadors of ‘Quartz’. Aqualisa could host training programs for plumbers in major regions and provide Aqualisa Certification to as many plumbers as possible making them credible promotors. This would increase their knowledge of the brand and make them more comfortable with the usage and add value to their profile as they would be Aqualisa Certified. It would result in tremendous word of mouth sales. The company could also give 2 years warranty on complete cost reimbursements including service cost of plumbers in case of any breakdown. Aqualisa could also create brochures describing the steps for installation of the shower. Giving promotional offers such as incremental discounts on buying 200-250 showers per quarter could also act as a good incentive.

CONSUMERS: •

• • •

The sales team is currently focusing on the 90% existing customers and 10% new customers, this needs to be changed. Additional sales team should be employed as 40% of the UK market does not have showers, Aqualisa can capitalise on this and generate more sales. The products should be placed in more showrooms as currently only 25% of the showrooms have Aqualisa products. Aqualisa can also conduct Exhibition where customers can get a feel of the product and this will increase customer awareness. Targeted advertising campaigns for premium and standard customers should be launched. For standard consumers ads should focus on cost benefits and for premium customers the ads should focus on innovative features and functionalities of Quartz. TV & Print could be used as a medium for these ads.

*All information and data are sourced from the case study ‘Aqua Lisa’, HBS course pack; unless mentioned otherwise

COULD THE PRODUCT BE SOLD IN THE UNITED STATES? The US market is a similar market to the UK in regards of buyer power and the development of the market. To sell the product in USA they need to change the strategy. Consumers must be targeted directly for brand awareness. Insist /influence the plumbers to use the product. Quartz is so easy to install that anybody could do it easily, so advertising to DIY market could be beneficial. If advertised as premium value product, partners like B&Q could help boost the advertising campaign too. Regarding selling points, they would need to target large retailers and large volume channels and stores where an average American buys his/hers plumbing and bathroom essentials. COULD THE PRODUCT BE SOLD IN CHINA AND INDIA? No, we do not think the product could be sold in Asian countries like India and China. The multiple reasons are: Cost and production of product: The cost of production is 175-230 euros which means that the price which the customers paid is higher in the UK itself. If the product was introduced in Asian countries, the price that the customers would have to pay would be higher than the price of the product in the UK due to factors like taxes. Most customers would not be interested to pay such a high price for a shower. This could be addressed if Aqualisa start their production in Asia and customize their product according to the geography. However, according to the given circumstances, the product would not sell in Asian countries. We studied brands like Kohler, Jaquar and Grohe across these geographies and below are the price range across these countries. Country United Kingdom United States of America China India

Average Shower Price Range (Euros) 250 220 120 75

Limitations of technology & Resistance to change: The general opinion that this product is good for homes with children, elderly and handicapped as pointed out by Pestell may be a disadvantage as well. Elderly people mostly are resistant to change and want to follow what they have been used to till now. As elderly people, they are likely to be technologically handicapped and hence most probably can’t make use of the “wow factor” in the product. Style of restrooms: As mentioned only 60% of the UK homes had showers but when compared to Asian countries, this number is even smaller. Asian countries prefer taps to showers and bathtubs. This will further limit the demand of Aqualisa Quartz in these countries.

*All information and data are sourced from the case study ‘Aqua Lisa’, HBS course pack; unless mentioned otherwise...