Case Prompt: How to improve J&J Brazil

1. Prepared for:
Phoenix
Consulting
Big Ten Case
Competition4/17/2010

2. Vision For Transformation
• What: J&J Brasil’s Aspiration
– To once again become welcomed and
trusted in both the hearts and minds of
Brasilian families
Vision for
Transformation
• Why: J&J Credo 3C Plan
– Emphasizes corporate responsibility in
regards to Current to
Future State
customers, suppliers, distributors, empl
oyees, communities, and shareholders.
Champs Clients Consumers Phoenix
Intro Map Consulting

3. 3C Plan for J&J
How:
Champions Clients
By becoming a consumer driven
•Identification •Local
organization that facilitates Retailers
•Empowering Vision for
Employees •Information Transformation
innovation, empowers employees to
•Restructuring Sharing/CRM
Sales 3C Plan
take risks, and collaborates with local
Current to
retailers Future State
•Product Development
Consumers •Focused Marketing Plan
Champs Clients Consumers Phoenix
Intro Map Consulting

4. Current to Future State
REACTIVE PROACTIVE
“White dinosaur, even rarer and more
old-fashioned than a white elephant” Vision for
Transformation
• From products in search of a problem 3C Plan
to solutions developed with a purpose Current to
Future State
• From telling customers what we have
to having a conversation with them
Champs Clients Consumers Phoenix
Intro Map Consulting

5. Champions
Champions Clients
•Identification •Local
•Empowering Retailers Champions
Employees •Information Identification
•Restructuring Sharing/CRM
Sales Employee
Empowerment
Sales Structure
HR Practices
•Product Development
Consumers •Focused Marketing Plan
Champs Clients Consumers Phoenix
Intro Map Consulting

6. Champions
• Leadership team must select
individuals who will guide J&J into
future
• Will act as a guiding coalition, with
each member working within the team Champion
Identification
• 1st task will be to communicate vision Employee
to all levels of mgmt within J&J Brasil Empowerment
• Leverage initial wins to capitalize on Sales Structure
momentum to instill permanent and
HR Practices
lasting change
Champs Clients Consumers Phoenix
Intro Map Consulting

7. Champions
• Incentive structure must change to
encourage involvement in all levels
of organization
Champion
Identification
Risk Aversion Innovation
Employee
Empowerment
Sales Structure
Centralized Decentralized HR Practices
Champs Clients Consumers Phoenix
Intro Map Consulting

8. Champions
• Create open channel for
communications between all levels of
organization
Champion
• Offering bonus incentives rewarding Identification
quality idea generation Employee
Empowerment
(financial rewards & recognition)
Sales Structure
• Place posters around J&J work space HR Practices
to stress employee value
Champs Clients Consumers Phoenix
Intro Map Consulting

9. “Water Cooler”
“Water Cooler”
Champs Clients Consumers Phoenix
Intro Map Consulting

10. Champions
• Initiate Group Incentive
– Improved buying process for retailers
– Increased accountability
Champion
Currently, “large retailers could see as many as 15 different people” Identification
Employee
• Must be conscious of Brasilian laws Empowerment
Sales Structure
Design commission structure so that
high incentives pay does not HR Practices
automatically become part of the salary
Champs Clients Consumers Phoenix
Intro Map Consulting

11. Champions
• HR practices must be altered to
emphasize commitment at all levels
to customer driven mentality
Champions
Identification
• Looking for young, promising Employee
Empowerment
entrepreneur-types Sales Structure
– International talent HR Practices
Champs Clients Consumers Phoenix
Intro Map Consulting

12. Clients
Champions Clients
•Identification •ERP & CRM
•Empowering •Local ERP & CRM
Employees Retailers
•Restructuring Local Retailers
Sales
Meet Papa
Pedro
•Product Development
Consumers •Focused Marketing Plan
Champs Clients Consumers Phoenix
Intro Map Consulting

13. Clients
• Create a network with all retailers
to capitalize on efficiencies
• Relationship Mgmt.
Sales Processes Practices ERP & CRM
Local Retailers
• Better Scheduling
Manufacturing Meet Papa
• Longer Production Runs
Pedro
Distribution • LTL to FTL
Champs Clients Consumers Phoenix
Intro Map Consulting

14. Clients
• Information sharing: From
manufacturing to the consumer
Manufacturing and ERP & CRM
Sales Trends
Distribution
Local Retailers
ERP Meet Papa
Pedro
Product Development Marketing Mix
Champs Clients Consumers Phoenix
Intro Map Consulting

15. Clients
• Customer Relationship
Management (CRM)
– Sales teams have more transparency
and information sharing capabilities ERP & CRM
– Responsiveness to retailers Local Retailers
– Best practices in relationship Meet Papa
Pedro
management
Champs Clients Consumers Phoenix
Intro Map Consulting

16. Clients
$10,086
• Brasil GDP Per Capita by Region
$9,157
$8,166
$4,939 ERP & CRM
$3,694 Local Retailers
•Population - 170 Meet Papa
Pedro
Million
•Largest national
economy in Latin
America
Champs Clients Consumers Phoenix
Intro Map Consulting

17. Clients
• A fundamental switch
– Price promotions shifted to local
retailers
• Price elastic demographic ERP & CRM
• Top line growth Local Retailers
• Long-term implications for similar Meet Papa
markets in other countries Pedro
Champs Clients Consumers Phoenix
Intro Map Consulting

18. Clients
• Owns a small family
convenience store in São
Paulo
• Yearly Sales: $100,000 or
176,000 BRL ERP & CRM
Local Retailers
• Promotional pricing to the
distributors which will lower Meet Papa
Pedro
cost for him so Pedro can offer
lower price to customers and
•For J&J, this promotion provides anmargin.
keep the same NPV of
$3.25 M (1yr); $210M for (7yrs)
Champs Clients Consumers Phoenix
Intro Map Consulting

19. Consumers
Champions Clients
•Identification •Local
•Empowering Retailers Identify
Employees •Information customer needs
•Restructuring Sharing/CRM
Sales Focused
product
development
Marketing
campaign to
•Product Development
Consumers •Focused Marketing Plan
regain trust
Champs Clients Consumers Phoenix
Intro Map Consulting

20. Consumer
• Functional research and insights
– Focus groups – Outcome-based interviews
– Live-ins
– Collages
• Packaging research and insights Identify
– Simulated shopping experience (grocery aisle) customer
– Usage tests needs
• Consumer psychology research and insights Focused
– Understand current brand perceptions product
development
• Zaltman Metaphor Elicitation Technique (ZMET)
– Focus groups for media and print ads Marketing plan
to regain trust
Champs Clients Consumers Phoenix
Intro Map Consulting

21. Consumers
• Product development and R&D
– Identifying customer pain points in regards
to baby care, health care, and personal care
Product Consumer Identify
customer needs
Focus Focus
Focused
product
• Create products that address development
consumer issues Marketing plan
to regain trust
NOT products in search of problems
Champs Clients Consumers Phoenix
Intro Map Consulting

22. “Trus
t”
Phoenix
Consulting

23. “Mamã
”
Phoenix
Consulting

24. 3C Plan for J&J
Champions Clients
•Identification •Local
•Empowering Retailers
Employees •Information
•Restructuring Sharing/CRM
Sales
•Product Development
Consumers •Focused Marketing Plan
Phoenix
Consulting

25. Thank You
What questions
do you have?
Phoenix
Consulting

26. Ju Ju Aug Se Oct Nov Dec „0 „02 „03 „04 „05 „06 „07
n l p 1
Small Retailer Promotions
Identify Champions of Change
Marketing Plan
Development Marketing Plan
Rollout
Product Development
ERP/CRM Implementation and Rollout
Product Development Rollout
Employee Empowerment Plan Development
Sales Restructuring
Plan Development
Sales Restructuring Rollout
Top Priority
Secondary Priority Phoenix
Consulting

27. Additional Slides
• 3C Plan Recap
• Brasil Demographics
• Additional Marketing Posters 1
• Additional Marketing Poster 2
• Marketing Channel Choice
• Innovation Canvas
• ERP Discounted Cash Flow
– Assumptions
• Promotional Discount DCF
– Assumptions
• Promotional Discount DCF thru year end
– Assumptions
• Ad Spend Discounted Cash Flow
– Assumptions
Phoenix
Consulting

28. Table of Contents
• Vision for Transformation
• 3C Plan for J&J
• Current to Future State
• Champions
• Clients
• Consumers
• Implementation/Priorities
Phoenix
Consulting

29. Brasil Demographics
• Population - 170 Million
– Age Structure (Approximate)
Year 2000 % of Total Population
0-14 Years 28%
15-64 Years 66.5%
Over 65 Years 5.5%
• Largest national economy in Latin
America
• Labor Force – Approximately 85 million
• Current GDP per capita - $7,704
Phoenix
Consulting

30. “Addition
”
Phoenix
Consulting

31. “Trio”
Phoenix
Consulting

32. Entry Barriers Buyer Power Supplier Power Threat of Industry
Substitutes Rivalry
Low High Low High High
High margins Drop in J&J Raw materials Due to the breadth Combination
attracted KC brand equity needed are of products offered, of these
and P&G after and low plentiful and the threat of forces results
the market switching costs lack products offering in a
was opened yield high power distinguishing similar benefits is competitive
in 1989. to buyers. characteristics. always present. industry.
Internal External
Strengths – Opportunities –
•Access to capital and customer base •Untapped retail potential
•Organization committed to core values •Relatively short product implementation
•Positive cash flow period
•Enables Innovation
Weaknesses – Threats –
•Docile marketing and sales organization •Further infringement on market share
•“Safe” culture stymies innovation from KC and P&G
•Lack of effective internal communication •Increasingly price sensitive customer base
•Loss of customer trust Phoenix
Consulting

33. Marketing Channel Choice
• Television watching is concentrated in
urbanized areas…but those areas are
home to over 80% of Brazilians.
– Television remains most effective driver of
brand loyalty
• Television watching is a social activity in
Brazil…reaching out to families, which is
our target demographic.
• $1.32b ad spend in 2000
• $29.139b in revenue; $12.139b int’l sales
• 4.5% of revenue = ad spend
Phoenix
Consulting

34. Innovation Canvas
Product Use
Competitive Agility Product Quality
New J&J
Old J&J
Financial Solvency Solutions
Dencentralization Brand Perception
Phoenix
Consulting

35. ERP Discounted Cash Flow
$15
$10
$5
Millions
$0
($5)
($10)
01 02 03 04 05 06 07
($Ms) 2001 2002 2003 2004 2005 2006 2007
Net
($7.1) ($0.7) $2.9 $6.3 $9.3 $11.1 $12.7
Income Phoenix
Consulting

36. Promotional Discount DCF
$40
$30
Millions
$20
$10
$0
01 02 03 04 05 06 07
($Ms) 2001 2002 2003 2004 2005 2006 2007
Net Income $33.2 $32.8 $31.9 $30.6 $29.1 $27.2 $25.2 Phoenix
Consulting

37. Promotional Discount DCF
thru year end
$4.5
$4.0
$3.5
$3.0
$2.5
Millions
$2.0
$1.5
$1.0
$0.5
$0.0
May June July August Sept Oct Nov Dec
($Ms) May June July August Sept Oct Nov Dec
Discounted
Value $0 $0.22 $0.94 $1.66 $2.36 $3.06 $3.74 $4.41 Phoenix
Consulting

38. Ad Spend Discounted Cash Flow
$10
$8
$6
Millions
$4
$2
$0
00 01 02 03 04 05 06 07
($Ms) 00 01 02 03 04 05 06 07
Net
$0.00 $7.47 $7.68 $7.89 $8.10 $8.32 $8.55 $8.78
Income Phoenix
Consulting

39. ERP DCF
($Ms) 2001 2002 2003 2004 2005 2006 2007
Revenue Total $500.00 $545.00 $594.05 $647.51 $705.79 $769.31 $838.55
Current Pipeline/Buffer Inv. $48.75 $53.14 $57.92 $63.13 $68.81 $75.01 $81.76
Inventory Savings (5yr
Implementation) $1.95 $4.25 $6.95 $10.10 $13.76 $15.00 $16.35
Current Manufacturing Cost $100.00 $109.00 $118.81 $129.50 $141.16 $153.86 $167.71
Manufacturing Savings (7yr
Imp.) $3.57 $7.79 $12.73 $18.50 $25.21 $32.97 $41.93
Capital Cost 0 0 0 0 0 0 0
Yearly License/Training Cost $12.80 $13.31 $13.84 $14.40 $14.97 $15.57 $16.20
Employees (not Ms) 2400 2496 2596 2700 2808 2920 3037
Cost $12.80 $13.31 $13.84 $14.40 $14.97 $15.57 $16.20
Cost Savings -$7.28 -$1.28 $5.84 $14.20 $24.00 $32.40 $42.08
Discounted Value -$7.28 -$1.12 $4.49 $9.59 $14.21 $16.83 $19.17
Net Income -$4.80 -$0.74 $2.96 $6.33 $9.38 $11.11 $12.65
Assumptions
Current Pipeline/Buffer Inv. 10%
Inventory Improvement 20%
Manufacturing Improvement 25%
Initial Cost $ 3,500,000
Head Count/Year Cost $ 16,000
Employee % 33% Phoenix
Employees 2400 Consulting

40. Yearly DCF for Promotion Discount
($Ms) 2001 2002 2003 2004 2005 2006 2007
Total Market Share 10.5% 11.3% 12.0% 12.6% 13.1% 13.4% 13.6%
Promotional Investment $5.37 $6.18 $6.91 $7.63 $8.34 $9.01 $9.59
Yearly Revenue/Store $110,500 $114,920 $119,517 $124,297 $129,269 $134,440 $139,818
Average J&J Takehome $686 $768 $848 $926 $1,002 $1,066 $1,125
Cumulative Total $205.89 $230.44 $254.50 $277.91 $300.50 $319.68 $337.42
Increased Revenue $196.46 $221.01 $245.07 $268.49 $291.07 $310.25 $328.00
Increased Revenue -
$191.09 $214.83 $238.16 $260.85 $282.73 $301.23 $318.41
Invest
Discounted Value $167.62 $165.31 $160.75 $154.44 $146.84 $137.24 $127.25
Net Income $33.22 $32.76 $31.86 $30.61 $29.10 $27.20 $25.22
Assumptions
Promotional
Local Retailers 300000
Investment
<- Instituto
Household
Brasiliero de
Existing Market Share 6% Share of Target 9.10%
Geografia e
Retailers
Estatistica
J&J Products in
WACC 9% 65%
category
Initial Market <-Lower than
6%
Share normal 13%
Phoenix
Montly
Yearly Increase .5% 0.50% Consulting
Increase

41. DCF for Ad Promotion thru Year End
(000s) May June July August Sept Oct Nov Dec
Market Share 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5%
Promotional Investment $0.00 $565.62 $612.76 $659.89 $707.03 $754.16 $801.30 $848.43
Monthly Revenue/Store
(not 000s) $8,854.17 $8,854.17 $8,854.17 $8,854.17 $8,854.17 $8,854.17 $8,854.17 $8,854.17
Average J&J Takehome $31.42 $34.04 $36.66 $39.28 $41.90 $44.52 $47.14 $49.75
Cumulative Total $9,427.03 $10,212.62 $10,998.20 $11,783.79 $12,569.38 $13,354.96 $14,140.55 $14,926.13
Increased Revenue $0.00 $785.59 $1,571.17 $2,356.76 $3,142.34 $3,927.93 $4,713.52 $5,499.10
Increased Revenue -
Invest $0.00 $219.96 $958.41 $1,696.87 $2,435.32 $3,173.77 $3,912.22 $4,650.67
Discounted Value $0.00 $218.33 $944.20 $1,659.25 $2,363.61 $3,057.38 $3,740.70 $4,413.67
Assumptions
Promotional
Local Retailers 300000
Investment
<- Instituto
Household
Brasiliero de
Existing Market Share 6% Share of Target 9.10%
Geografia e
Retailers
Estatistica
J&J Products in
WACC 9% 65%
category
Initial Market <-Lower than
6%
Share normal 13% Phoenix
Montly Consulting
0.50%
Increase

42. Ad Spend
($Ms) 2000 2001 2002 2003 2004 2005 2006 2007
Ad Spend Increase $0.00 $20.00 $23.42 $27.43 $32.12 $37.61 $44.04 $51.58
Increased Revenue $0.00 $63.00 $73.78 $86.39 $101.17 $118.48 $138.74 $162.47
Revenue Total $500.00 $585.52 $685.67 $802.94 $940.28 $1,101.10 $1,289.44 $1,509.98
Increased Revenue -
Invest $0.00 $43.00 $50.35 $58.97 $69.05 $80.86 $94.70 $110.89
Discounted Value $0.00 $37.72 $38.75 $39.80 $40.89 $42.00 $43.14 $44.32
Net Income
Assumptions
Ad Spend 8.0%
Old Ad Spend 4.0%
ROI Ad Spend 215.0%<-Revenue
Phoenix
Consulting