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Ahad Farooqui

Akif Mahmood
Arsalan Javaid
Siddiqi
Hafiz Hamza
Najaf Ali
Nomah Javed
Noor Us
SubahHasan

Applied
Corporat
e

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Case Analysis: The Procter & Gamble Company: Investment in


Crest Whitestrips Advanced Seal
This case presents a P&G financial analyst, Jackson Christopher, whose task is to analyze
data for the new Crest Whitestrips Advanced Seal and determine what should be the plan of
action in order to create value for the shareholders. When the Crest Whitestrips were initially
launched, sales growth completely stalled after the first year and multiple line extensions failed
to stimulate sales growth which only bred skepticism in major customers. The problem with the
Whitestrips was their tendency to slip off teeth that being the key factor preventing good word of
mouth and repeat purchases. In order to solve this issue, the product costs will increase by 75%
whereas they could only charge a premium of 25% without a significant drop in sales volume.
Furthermore, there was an additional problem of the Advanced Whitestrips cannibalizing the
existing Crest Whitestrips products. In order to deal with both these problems, P&G would have
to incur increased marketing expenditures, either on the new launch or focusing the advertising
on the untapped customer base, in order to broaden the targets segment and decrease its price.
They would also have to secure merchandising support in order to get the Advanced Whitestrips
off to a fast start if the product was to have a chance of being successful. The analysis will also
be based on the assumption of how effective the Advanced Whitestrips will be against its
competitors.
Our analysis of the case involves running of excel over the three options provided in the case.
The changes taken in account in the following three scenarios involve the price, sales volume,
marketing budget and sales cannibalization rate.
Our assumptions in the case are the following

$2M advertising increment per year


$4M capital expenditure in year 0
$1.5M one time development cost
5Year Depreciation Schedule
40% tax rate
8% discount rate

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Option 1: Base Case


In the base case the following data was used to calculate NPV and IRR

Selling Price $22 , Cost $12, Sales Volume 2Million


Incremental Advertising $2M
Cannibalization ( Premium = 55% , Basic = 15% )

Option 2: Revenue concentrated

Selling Price $21, Cost $12, Sales Volume 3.25Million


Incremental Advertising $3.5M
Cannibalization ( Premium = 55% , Basic = 15% )

Option 3: MinimizeCannibalization

Selling Price $21, Cost $12, Sales volume 1Million


Incremental Advertising $1M
Cannibalization ( Premium = 45% , Basic = 15% )

NPV & IRR:

NPV

OPTION 1

OPTION 2

OPTION
3

3,301,623
.58

5,441,947
.96

(128,874.
90)

IRR

24%

25%

15%

Conclusion:
Based on our analysis we conclude that Option2 (Revenue driven) strategy offers
the highest NPV and IRR thus being the project with the maximum value addition to
the firm. The price decrease increases the sales volume substantially which more
than makes up for the loss of price.
This strategy also effectively cancels out the cannibalization effect on other
products, however cannibalization is a matter that should be given high attention

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to, since the rate is substantial (70% of New Sales). If countered and lowered
effectively, it can increase the projects attractiveness.