Dr. John’s Products Case Slides By: Anthony Haddad, Gerard Sansosti, and Kaili Simien By submitting this deck of case slides, the members of this team affirm that we all participated in the analysis of the case and the creation of this document.
Qualitative Analysis Customer Value Proposition Go-to-Market Strategy - Low cost electronic toothbrush alternative - Priced much lower than competitors - New design: part of the head remains still to mimic - Direct distribution through large retailers facilitated by the feel of a normal toothbrush while other part Osher’s successful previous ventures. spins to provide superior cleaning power → best of - Guerilla marketing - handing out free toothbrushes to both worlds have people experience the product and gain word of - The transparent packaging allows for the buyer to mouth publicity. view the product before purchasing - Building relationship with chain drug stores by - Runs on only two AA batteries for three months of showcasing product at NACDS trade show use - Patent protected design and packaging provides some protection from competitors Technology and Operations Management Profit Formula - Collaborated with reliable Chinese manufacturing - Electric toothbrush market expected to increase rapidly partner which Osher has worked with in the past in the US and abroad - Osher partnered with and employed a limited - Attractive and growth sustainable profit margins number of highly successful and usually - Potential partnership with Crest to gain brand overqualified people awareness and compete with other powerful consumer - Logistics outsourced as much as possible product companies - Hired former Clorox executive as Head of Sales, - Extremely competitive price - almost nine times less significantly improving relationships in retail expensive than similar products
Quantitative Analysis Retail Market Value: 4th Quarter 1999 Total market size for dental accessory and power toothbrush industry: $74,700,000.00 Dr. John’s retail market value: 0.6% * $74,700,000.00 = $448,200.00 2000: Average quarterly growth rate (7.28%) -> $1,923,226.20 75% of Average quarterly growth rate (5.46%) -> $1,890,619.65 Value In Use Calculation in Comparison to Braun’s Electric 50% of Average quarterly growth rate (3.64%) -> $1,858,013.10 Toothbrush Braun Dr. John’s Difference Dr. John’s is underpricing it’s Price of Brush $50.00 --- product according to the economic value in use # of Brushes/Year 1 4 calculated in the figure to the right. Dr. John’s is currently Price of $6.00 --- priced at $5.50, when it could be Replacement priced at $17.00. Note: The table to the right uses # of 3 --- the toothbrush value of $50; Replacements/Year however, it should be noted that some toothbrushes are priced Total Cost $68.00 --- $68.00 well over this amount. Value In Use $17.00
Recommendation 1. Dr. John’s Products should pursue a sale to one of the major consumer goods companies a. Comparable consumer goods companies are trading at P/Sales multiples of 4.18x on average as of Year End 1999 i. Using the same multiple for Dr. John’s (which is highly conservative given that the larger companies’ multiples include much lower margin products and Dr. John’s sustainable high growth rates) implies a valuation of $50.39mm for the company ii. Companies typically pay a premium for acquisitions, and adding Dr. John’s SpinBrush to the product offering of any of these companies should lead to significant cost savings in R&D, meaning that a purchase price well in excess of $50mm is very reasonable b. With Crest lacking any electric toothbrush in their product line, they are an ideal strategic partner i. Osher should also approach other companies that are in need of a strong electric toothbrush, in the hopes of starting an industry bidding war that will increase Dr. John’s valuation c. Dr. John’s has created an innovative product, but lacks a logical direction in which to grow the brand into a large and diverse product line i. It is therefore most prudent to capitalize on the value of the SpinBrush before the large industry players invent comparable products which will reduce Dr. John’s leverage d. Osher does not have a desire to build an employee-heavy company, which would be a necessity if he chooses to grow Dr. John’s into a consumer goods industry player e. Osher highlights having an exit plan as one of the most vital tenants of entrepreneurship i. He has been in contact with larger consumer companies throughout the life of Dr. John’s, which implies that he believed the company was destined for acquisition from the start
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