Skin-Tique Corporation

Skin-Tique Corporation

        Phoebe Masters, the newly appointed product manager for hand and body lotions at Skin-Tique Corporation was required to decide whether or not to introduce a new package design for their Soft and Silky Shaving cream. Furthermore should the company offer a new aerosol package alongside their current tube container of the Soft and Silky Shaving Gel product or not, and if so should they produce the 5 ½ ounce or 10 ounce aerosol container. If Skin-Tique Corporation decides in favor of the new packaging, then is the test market necessary to improve their decision making skills? If Masters makes the decision to continue to only sell their existing tube container, they will lose current and future business due to consumer’s growing preference of aerosol products.

        First, I compared the contribution per ounce for each option: the 5 ½ ounce tube, 5 ½ ounce aerosol, and the 10 ounce aerosol. Retailers received a 40% margin on the suggested retail price of #3.95 per 5 ½ ounce tube. While Rack jobbers receive a margin of 20% off the sales price to retailers. Soft and Silky Shaving Gel sales were $3,724,000 in 2002 with a 1,960,000 unit volume. The 5 ½ ounce tube’s unit selling price is $3.95 with a unit variable cost of $0.40. The Jobber’s price is calculated by subtracting the 40% retail margin, $1.58, from the unit selling price ($3.95), to get $2.37. The STC’s unit price is calculated by subtracting the 20% Jobber’s margin, $.474, from the Jobber’s price to get $1.90. This creates a contribution/ ounce of $0.273 for the 5 ½ ounce tube. The 5 ½ ounce aerosol’s unit selling price is $3.50 with a unit variable cost of $0.24. The jobber’s price is calculated by subtracting the 40% retail margin, $1.40, from the unit selling price ($3.50), to get $2.10. The STC’s unit price is calculated by subtracting the 20% Jobber’s margin, $0.42, from the Jobber’s price to get $1.68.  This creates a contribution/ ounce of $0.262 for the 5 ½ ounce aerosol container. Lastly, the 10 ounce aerosol’s unit selling price is $4.25 with a unit variable cost of $0.29. The Jobber’s price is calculated by subtracting the 40% retail margin, $1.70, from the unit selling price ($4.25), to get $2.55. The STC’s unit price is calculated by subtracting the 20% Jobber’s margin, $0.51, from the Jobber’s price to get $2.04. This creates a contribution/ ounce of $0.175 for the 10 ounce aerosol container.

        Skin-Tique Corporation had their market research firm present 10 case histories in which marketers of men’s shaving cream had introduced a new package. When examining these ten product-design changes the estimates were broken down into “high” and “low” forecast for each package size. They saw that the 10 ounce package produced the largest increase in ounces sold, but the only way to know what will actually occur is a market test. Now I will use the information previously calculated to show the contribution effect for each forecast.

 For forecast A the net new sales volume is found by multiplying the net new volume of $300,000 times the contribution/ounce of $0.262 (5 ½ ounce aerosol) to get $ 78,600. The cannibalized volume for forecast A is 2,145,174, which is then multiplied by the difference in contribution/ounce between the 5 ½ ounce in a tube and the 5 ½ ounce in an aerosol to get $23,596.914. The net new sale volume for forecast A is the difference between $78,600 and 23, 596.914, which comes to $55,003.

For forecast B the net new sales volume is found by multiplying the net new volume of 500,000 times the contribution/ounce of $0.262 (5 ½ ounce aerosol) to get $131,600. The cannibalized volume for forecast B is 2,345,174, which is then multiplied by the difference in contribution/ ounce between the 5 ½ ounce in a tube and the 5 ½ ounce in an aerosol to get $25,796.914. The net new sale volume for forecast B is the difference between $131,600 and $25,796.914, which comes to $105,203.