Case study: Rayovac Corporation The Rechargeable Battery OpportunityMARKETING E GESTIONE DELLE VENDITE 19/11/2010

SummaryIntroduction The Household Battery Market Rayovac The Competitive Landscape Rechargeable Batteries The Opportunity Solutions?

IntroductionExponential 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!

IntroductionOur situationRayovac 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

IntroductionMajor 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 MarketThe 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 MarketIn 2005, the overall battery market in Canada is estimated to be approximately $300 million, withthe alkaline segment representing 70% the rechargeable segment making up 10% and other battery chemistries (e.g., zinc) representing 20%

The Alkaline SegmentAlkaline 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 ConsumersFamilies ($200 million of the market): couples with one or more children, typically living in urban centres with a household income of over $60,000Price and value are important Battieries are purchased for devices such as smoke alarms, electronic games, and childrens toys

Canadian ConsumersTechies ($75 million): powerhungry individuals, typically between 15 and 30 years of age and early adopters of new technology. Their average income is about $30,000More 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 usersCHARACTERISTICS FAMILIES TECHIES

TOTAL MARKET

$200 MILLION

$75 MILLION

INCOME

OVER $60,000

BETWEEN $20,000 AND $40,000

TYPE OF DEVICES

NOT HIGH-DRAIN

HIGH-DRAIN

DECISION FACTOR

PRICE AND VALUE

IMPULSIVE

ChannelsShare by Channel-Total Canada Units Mass Merchandisers Traditional Grocery Membership Clubs Hardware/Automotive Drug All others % of Market 34 23 15 10 10 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

Overview3rd largest battery manufacturer and marketer in the world Products available in North America, Europe, Asia Pacific, the Middle East, Africa, Latin America, and Brazil ProductsBatteries (Alkaline & Rechargeable) Hearing Aid Batteries Shaving and Grooming Products Lighting Personal Care

Segments2004 General batteries Rechargeable batteries, chargers and other Hearing aid batteries Lighting products Electric shaving and roaming Personal care 49% 11% 2003 65% 16% 2002 68% 9%

7% 6% 19% 8%

9% 10%

12% 11%

Company BackgroundThe 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 competitorsRayovac has targeted the value-conscious price-shoppers looking for high-quality products at a lower priceThe 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 leadersThe 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 competitorsCompetitorsGlobal Market8% 10% 14% 39% Duracel Energizer Rayovac Other 20% 35% Duracel Energizer Rayovac Other 39% 35%

Canadian Market

Duracell and Energizer have been responsible for overall direction of the battery industry for the past 50 years.

Rayovac in the Canadian Market20% market share in Canada 2 main competitors

Duracell 35% market share Energizer 35% market share

The Competitive Landscape

The Competitive LandscapeHighly 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 LandscapeDuracell & Energizer dominate the market:Brand name recognition Relationship with retailers Established presence in the alkaline battery category Merged with consumer goods companiesGaining valuable recognition Efficiency that comes from balancing out the sales cycle => more efficient use of sales force and a steady revenue stream

Duracell vs EnergizerDuracell Established in 1920 Introduced Duracell brand in 1964 Was acquired by Gillette in 1996 Gillette was acquired by P&G in 2005 Energizer Established in 1896 Was acquired by Ralston Purina Co. in 1986; later merged with Nestle Separate company Energizer Holding Inc. in 2000 Acquired Shick Wilkinson in 2003

Other CompetitorsMany 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 MarketSmall 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 MarketThe lack of growth in this market is also attributable to the reluctance of the market leaders to promote this product lineDuracell & 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 segmentThe new NiMH (Nickel metal hydrate) rechargeable technology works very well in high-drain devicesLasting 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 MarketBattery chargersDesigned 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 BatteriesRayovac 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 MarketEuropeanFaster adopters of new technologies Environmentally friendly perspective

USEnvironmental problems less important Convenience and cost more important

CanadaSimilar 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 SituationNew 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 OpportunityThe 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 StrategyShould 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 AnalysisRayovac Canada Rechargeable Battery Market Share Projections 2006 Volume Strategy Niche Strategy 25 % 20 % 2007 30 % 20 % 2008 35 % 20 % 2009 40 % 20 % 2010 45 % 20 %

Rayovac Canadian Rechargeable Battery Market Sales Projections 2005 Annual Sales(millions) $40 2006 $ 45 2007 $ 55 2008 $70 2009 $85 2010 $100

Which Channel?Niche StoresNiche 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 MerchandisersMass 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 & PromotionNiche StrategyAdvertising 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 StrategyInitial 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 Sales Cost of goods sold Contribution margin Operating expenses (Advertising) (Distribution expenses) decrease decrease 60% Lower advertising cost, more knowledgeable staff More chance for shelf space so less distribution cost Lower financial risk

Volume strategy increase increase 40% Higher advertising Higher distribution cost

Financial risk

Higher financial risk

RisksFalconi 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 GoalsThe 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 TimeShould 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 QuestionsAlkaline 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

RecommendationPRODUCT: Main categories of rechargeable battery

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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)

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Case study: Rayovac Corporation The Rechargeable Battery OpportunityMARKETING E GESTIONE DELLE VENDITE 19/11/2010