Case | HBS Case Collection | January 2002 (Revised July 2006)
Aqualisa Quartz: Simply a Better Shower
by Youngme E. Moon and Kerry Herman
Harry Rawlinson is managing director of Aqualisa, a major U.K. manufacturer of showers. He has just launched the most significant shower innovation in recent history: the Quartz shower. The shower provides significant improvements in terms of quality, cost, and ease of installation. In product testing, the Quartz shower received rave reviews from both consumers and plumbers alike. However, early sales of the Quartz have been disappointing. Rawlinson is now faced with some key decisions about whether to change his channel strategy, promotional strategy, and the overall positioning of the product in the context of his existing product line.
Keywords: Problems and Challenges; Product Launch; Consumer Behavior; Product Positioning; Technological Innovation; Decision Choices and Conditions; Sales; Strategy; Manufacturing Industry; Consumer Products Industry; United Kingdom;
Purpose of the Report
Aqualisa is UK’s leading shower selling company with 18% share in the market. However, due to certain market strategies the company is losing its quality and sales. Invented in 2001, Aqualisa’s Quartz product is a breakthrough in the shower market. It is an investment of 5.8 million Euros but the sales of this product are very disappointing. The most important issue is: how to increase the sales of the new product Quartz using new marketing strategies.
Marketing Strategy Analysis & Solutions
We discuss various channels through which the product is distributed. The most important channels are trade-shops, developers and plumbers. Moreover, showrooms and do-it-yourself markets the offer wide scope to increase the sales. The report deals with the current market strategy analysis because of which the Quartz sales have not received a good response in the market. Out of 1000 units produced, the company has sold only 81 units. This problem has to be solved or the company will have to shelve this product.
The question is how to reach the target of selling 100 to 200 units per day of the Aqualisa’s Quartz. The marketing strategies are thoroughly analyzed and the loop-holes have been spotted. The product lacks proper promotion as it has not reached to the customers and plumbers directly. People are unaware of benefits of the Quartz. It is a complete product without the short-comings of other showers.
It is recommended that the marketing and sales department should target plumbers, trade shops and showrooms as by doing this the product can be popular. Also, advertisement is an alternative to make the product known to the customers directly. But targeting developers is not the good idea as they ask for high discount rates i.e more than 50%. This is not feasible for the company as it will incur losses. Furthermore, lowering price by maintaining their profits and quality of the product can be a good strategy as it will attract the customers.
The report is followed by appendices at the end which gives an elaborate view about the company, markets, consumers and the product analysis. We will like to conclude that Quartz is undoubtedly better product than the electric, mixer and power showers. Once it is popular with the customers it will be a hit product and it can take Aqualisa to new soaring heights making it one of the highest selling companies. The need of hour is to revise the marketing strategy only.
Aqualisa sold mixer valves under the name of Aquavalve 609 and selling 94,000 units per year making it the top-selling shower (See table 1). Apart from this Aqualisa produced “power intergral showers” named Aquastream Thermostatic which offered a thermostat to control temperatures combined with booster pump. 22,000 units of this product were sold in 2000 making it top-selling product in this genre (Refer table 1).
UK showers were facing two major problems that are: low pressure and fluctuations in the temperature. These problems occurred in electric showers (sold by Aqualisa under the name Gainsborough) and mixer shower valves. Even though boiler is installed in the electric shower to give desired temperature but it has a poor water flow. Mixer shower valves are better than these electric showers because in addition to temperature controlling valves a booster could be added to increase water flow. But mixer valve and power integral showers faced installation problems as former requires excavation of the bathroom wall and later is a very bulky product. Moreover, plumbers consider mixer valves more reliable than the power showers.
Introduction of Quartz
Quartz innovation in May 2001 is a breakthrough in the shower market. After three years of development—during which the company spent 5.8 million—the result was a radically different kind of shower (called Quartz) that cost the company about €175 to €230 to make. It is designed to meet the consumer needs which earlier were not met by electric shower and mixer valve that is good pressure at stable temperatures. It is very easy to install as its size is of a shoe box and plumber has to drill a single hole into the ceiling above the shower.
In spite of these benefits and being awarded best product in Bathroom Expo in London this product could not carve a niche in the market and sold 30 to 40 units per day instead of 100 or 200 units per day.
Reason for Low Sales
We feel the primary reason being short-fall in the marketing strategy of the company. This is discussed in the following section. Other reason can be a negative and indifferent approach of the plumbers to try the new product. Either they are unaware about the benefits of the Quartz or they are inflexible towards change in the product.
STRATEGIC ANALYSIS OF MARKETING
Tim Pestell, Aqualisa’s national sales manager, described the sales team’s priorities: “Our sales force spends about 90% of their time on maintaining existing accounts— servicing existing customers: distributors, trade shops, contractors, showrooms, and developers. Ten percent of their time is spent on developing new customers.” Showers in the U.K. were sold through trade shops, distributors, showrooms, and DIY outlets.
However, trade shops carry products of all types and brands and their direct customer are plumbers. In table 8 we can clearly make out that these shops contribute to highest sales of the showers. Aqualisa brand is available in 40% of trade shops. These shops focus on right products that are in demand as they cannot learn features and benefits of the 45,000 items available in market. However, a low sale in Quartz is attributed to insufficient knowledge about the new products. The trade shops are interested in selling the existing products as they are unaware about the Quartz benefits and cannot afford to learn its features.
There is Do-It-Yourself market in UK who shop at large retail outlets that catered to them. These customers buy inexpensive product that are easy to install. Electric showers are hit selling product under this channel as 70% of DIY outlets offer gainsborough product of Aqualisa making it second best channel of distribution. We analyse that the Quartz product is not introduced under this channel.
Thirdly there is a developer market in UK. The developers prefer a reliable, sophisticated yet not too expensive product. So Aqualisa re-designed Aquavalve into Showermax to meet developer’s needs. Since new buildings already had high pressure systems built within, so Showermax delivered high pressure with Aquavalve technology at lower costs. 20% of mixer showers are sold by developers. We see that Developers have shown a reluctance to spend money on conventional Aqualisa products because they feel our products to be premium brands and Quartz with its price being €850 does not fit their needs. Moreover, company is not ready to offer discounts for this product.
Other means of distribution is showrooms. Various products of different designs and brands are displayed and customer can select through demonstrations. 20% of market shower sales were made through showrooms in 2000. However, we see that this channel is not approached effectively for promoting Quartz. If we concentrate on showrooms then we can reach good sales target.
Apart from these channels the very important source of distribution are plumbers. It is known that most of the customers are influenced by plumbers to install shower. Aqualisa itself has the group of plumbers who are faithful toward the company. Pestell, however, noted that given the conservative nature of most plumbers, “Adoption is a long, slow process. It takes time.” They don’t rely on new product as they trust old products about which they are experienced. We have analyzed that less time and efforts are made towards educating plumbers about the Quartz.
Despite being the top innovations in the shower industry, Quartz didn’t show significant sales. So the need of hour is to change the marketing strategy. The strategy has to be redefined as to increase Quartz sales without incurring high advertisement costs. The first step is to change the company’s notion that increases in the sales of Quartz will not affect the sales of other mainstream products of Aqualisa.
- Targeting the customers: We recommend that customers can be targeted directly through advertisements. Hoardings and brochures can be used to make people aware about the product. They are comparatively cheap means of promotion which are feasible than the TV advertisements. Rawlinson’s idea of large scale campaigns is not feasible.
- Targeting Do-It-Yourselfers: A second alternative was to target the do-it-yourself market. Aqualisa was currently selling its Gainsborough line to this market. The risk, as Rawlinson pointed out, was that “once you show up in the DIY sheds, you can’t climb back out. You have to be careful about associating your premium brand with your discount channel.” Electric showers were their leading product and if premiums can be offered for the Quartz then this product can work in this market. In addition, if Aqualisa could get its partners like B&Q to help push the product the need for expensive consumer advertising can be totally avoided. So we feel that this strategy can work to increase sales of the Quartz product.
- Targeting Developers: Rawlinson’s another alternative was to target the developers more rigorously as they can sell lot of showers and familiarize the plumbers also about the product. But we recommend that this strategy may not work as the developers look for inexpensive products and demand high discount rates. The company does not feel like offering high discount rates for this break-through product.
- Lowering prices: Other alternative one can think is lowering the price. From table 2 we can see that the production costs of the Quartz vary from €175 to €230. The company further sell at €450 to €575 to the channels like trade shops, developers, showrooms,etc. So there is margin of €275 to€345. Thus, for initial period the company can announce offers or premiums to attract the buyers. This strategy can be considered by keeping lower prices.
- Targeting trade shops: This is the most important channel of selling the product as discussed above. We recommend that the company focus on them by promoting their product, its benefits and give them lucrative offers. This will encourage them to sell their product to the plumbers (who are their customers) and thereby increase sales of the Quartz.
- Targeting showrooms: Another alternative is to sell this product to the showrooms. We can get displays around the country and everyone can view its benefits through demonstration. This way the product will attract the customer and can become a leading product in the market. It can furthermore cut the advertisement costs.
- Targeting plumbers: We believe that almost everyone takes the plumber’s advice on which shower of which type or brand is fitted in the bathroom (see chart 2). So it is important to target the plumbers and make them aware about the product. Apart from the existing company’s plumber’s demonstration should be given to new or other plumbers on the fitting of Quartz. We know that Quartz’s fitting is only 2-3 hours job and doesn’t require as much labor as in other showers this will feature will attract the plumbers once they learn about it.
We feel that three year hard-work and 5.8-million-euro investment should not go waste. Moreover, it is a revolutionary innovation in the market. Only a strong market strategy is required to boost up the sales and this product can become a hit.
Appendix 1: Customer Analysis & Situational Analysis
Since 60% of homes uses showers, but the UK showers are plagued with problems. Be it electric showers (poor water flow and bulky box), mixer shower valves (Installation typically requires excavation of bathroom) and power showers (Regarded as less reliable than a mixer shower and pump combination and bulky box). Customers are waiting for the perfect shower which offers stable temperatures and water flow and is easy to install. In May 2001 Quartz shower has been invented meeting customer’s needs. But due to lack of advertisement and weak marketing strategy this product has not been able to reach the customers.
Aqualisa being one of the largest-selling companies in the shower products, it constitutes 18% of the market sales. Gainsborough and Aquavalve 609 are its leading products. Once Quartz is introduced it will attract customers with its benefits and elegant look.
The current scenario is that the Mainstream products are sold through channels of trade shops, showroom, developers, do-it-yourselfers. Plumbers buy from the trade shops directly who are the installers and contribute to the major sales as people take their advice. The situation after the innovation of Quartz calls for the new marketing strategies to increase the sales of the new product.
Appendix 2: Market Analysis and Market Segment Analysis
In UK people install showers due to many reasons, most important reason being replacement of the shower and new penetration. “New penetration” refers to new showers installed in existing bathrooms (where plumbing already exists—e.g., a Shower added to a bathtub). “Second shower” refers to installation of a new shower in a location where no plumbing exists.
See chart below.
From the below table, we can see that out of 18,00,000 showers sold in UK in 2000, Aqualisa sold 325,500 showers which constitutes 18% of the market share. Aqualisa is selling 180,000 units of electric shower under the name of Gainsborough and 94,000 units of mixer showers under the name of aquavalve. Moreover, Aqualisa is the second largest selling product of mixer showers in UK in 2000.Table 1
U.K. Market Share Data: Units Sold (2000)
|Brand||Electric Showers||Mixer Showers||Power Showers||Total Units Sold|
|Total Units Sold||1,100,000||550,000||150,000||1,800,000|
Aqualisa being a renowned company has now introduced new product Quartz to meet the customer’s needs. With poor marketing strategy the product could not pick-up sale targets. However, targeting customers, trade shops, developers, showrooms, DIY markets and plumbers this problem can be solved.
Estimated market size calculation
It is mentioned above that Aqualisa consists 18% of market sales in 2000 in UK. However since current data is not available with Quartz sales we cannot calculate market size. However, with this break-through in the shower market we expect a significant rise in the sales of Aqualisa.
Appendix 3: Pricing Analysis
Aqua valve 609 is the leading selling product of Aqualisa under mixer showers. It is priced at €715 at retail outlets which they have bought from the company at €380, therefore earning the profit of €335, which is quite a significant amoumt. This encourages the retailers to promote the Aqualisa product. Moreover, its production costs are low which gives the company a good margin and it is profitable. It had 25% net return on sales and was enjoying 5% to 10% growth in a mature market.
Also Aqualisa’s new product, Quartz also gives subsequent high margins to retailers and the company. See table below.TABLE 2
Aqualisa: Selected Products and Price Points
|Aquaforce 1.0/1.5 Bar||Standard||€445||€230||€125||€105|
|Aquaforce 2.0/3.0 Bar||Premium||€595||€310||€175||€135|
Note: “Retail price” refers to the price charged by the retailer (trade shop, showroom, or DIY outlet) to the customer. “MSP” refers to manufacturer selling price (Aqualisa’s price to the channel).
Since the products of the company are priced so as to earn profits (see above section). There are two ways of calculating the breakeven numbers. One is to multiply the number of units sold with its manufacturers selling price (MSP). Similarly, costs are also calculated by multiplying the sales with the production costs. But this method cannot be applied as the individual sale of the product is not available.
Second method is to use the Aqualisa’s financial statement. Here the gross margins are calculated by deducting costs from the total sales. Further overhead expenditure is deducted from the gross margins to attain the profit. This method is precise and more accurate than the first method which requires lot of calculations. View the table below.TABLE 3
Aqualisa Select Financials 2000 (€ in thousands)
|Shower Sales (Electric, Mixer, Power, and Pumps)a||€46,212|
|Research and Development||1,764|
|Finance, Administration & Depreciation||4,579|
|Total Overhead Spend||€14,469|
a Includes all Aqualisa shower lines, including Aquastyle, Aquavalve, and Aquastream. Also includes Aqualisa pumps, as well as a variety of other specialty shower models sold by Aqualisa; these were primarily differentiated by style (e.g., contemporary, antique, brass, etc.). Does not include other brands such as ShowerMax and Gainsborough.
bAqualisa sold a variety of other products, including shower accessories and commercial products.
Electric shower the costs are equal to the revenue earned. However, to promote new product Quartz the company can lower its prices and make low profits. Moreover, company can incur their advertisement costs to promote their product. Either way company can be successful in increasing the sales of the Quartz, one of the biggest innovations of the company.
Appendix 4: Quartz Product life cycle
|Introduction stage||Growth stage||Mature stage||Saturation and decline stage|
|Quartz was invented in may 2001 after 3 years of hard work of Aqualisa’s R&D department and investment of 5.8 million euros.||After may 2001, Quartz was introduced in the markets. It received overwhelming response in the Bathroom Expo in 2001 in UK. But it disappointed the company with negligible sales. Harry Rawlinson, managing director, has to revise his marketing strategies to boost the sales||Data not available||Data not available|
Appendix 5: Company analysis and SWOTTABLE 4
|Features||Aqualisa in UK|
|New product dynamism||10↑|
Features scaled from 1 to 10
↑ denotes getting better
→ denotes no change
↓ denotes getting worse
The company analysis says that product quality and services have deteriorated. The customers are not satisfied with the product as 10% of the Aqualisa products are replaced. Also, Aqualisa products are considered higher than other company’s products. However, there is no change in the distribution channels of the company as the market strategies are same. But company have devoted a substantial time towards new product innovation. Quartz is considered as a breakthrough invention by Aqualisa in the shower industry. But having bought a thousand of these Quartz products, distribution sources have sold 81. The poor product manager is looking pretty stupid at this stage. This is a huge problem as pretty soon they’re going to write this off as a failure. I can see a scenario in six months’ time where real sales in the market—currently about 15 units a day—are still down at 30 or 40 units a day. The need of the hour is to sell 100 or 200 a day to break through to the mainstream. There has to significant revision in the marketing strategies to achieve this target.
SWOT refers to strength, weakness, opportunities and threats to the company. A SWOT (strengths, weaknesses, opportunities, and threats) analysis was performed for aqualisa. The results are summarized in the table below:TABLE 5
Appendix 6: Competitive analysis
Aqualisa is facing tough competition in the market as many other companies are gaining sales. Aqualisa constitutes 18% of the market share which is below than Triton and Mira which have 30.3% and 21.7% respectively (see table 1 in Appendix 2).
Triton is the largest selling electric shower company with the share of 43.5% followed by 16.4% in Gainsborough, Aqualisa. Mira is the highest selling mixer company which share of 36.4% followed by aqualisa with 17.1%. see the table below. Apart from these huge companies there has been significant share of the other companies like Masco, Ideal Standard,etc. hence, we see that Aqualisa has a tough market to compete with. So the marketing strategies have to be redefined.TABLE 6
UK MARKET SHARE DATA IN 2000(IN %)
|BRAND||ELECTRIC SHOWER||MIXER SHOWER||POWER SHOWER|
Appendix 7: Customer Segmentation
Aqualisa’s objective is to provide customers with high-quality, better performing shower products. Shower products and technology offered by Aqualisa vary by market depending on consumer wealth and sophistication.
Shower buyers in the U.K. tended to fall into one of three pricing segments: premium, standard, and value. Consumers in the premium segment typically shopped in showrooms; they took for granted high performance and service, and for them style determined their selection. Consumers in the standard price range tended to emphasize performance and service; they usually relied on an independent plumber to recommend or select a product for them. Products offered by company in this category are Aquavalve 609, Aquastream thermostatic and Gainsborough. Consumers in the value segment were primarily concerned with convenience and price; they liked to avoid solutions that required any excavation and tended to rely on an independent plumber to select a product.( see table below)TABLE 7
Aqualisa’s Core Product Offerings in Various Shower Categories
|Type of Shower||Value||Standard||Premium|
|Electric shower||Gainsborough, Retail:€95||Gainsborough, Retail: €155||Aquastyle, Retail: €230|
|Mixer shower||Aquavalve, Retail: €390||Aquavalve 609, Retail:€715|
|Power shower||Aquastream Manual, Retail:€480||Aquastream Thermostatic, Retail: €670|
Appendix 8: Channel & Value Delivery Analysis
Showers in the U.K. were sold through trade shops, distributors, showrooms, and DIY outlets. From the table below we can see that 50% of the electric shower is distributed through the do-it-yourself market. Since DIY markets like to sell bulky products, they prefer electric showers. However, 73% of the mixer showers are sold through trade shops. This channel is very powerful and the company has to concentrate in increasing their sales through this means. Trade shops sell to plumbers and keep only product which is high in demand. 40% of the trade shops sell Aqualisa products in UK. Also 73% power showers are sold through trade shops.TABLE 8
|U.K. Shower Market, by Product Type and Channel (Total Units Sold, 2000)|
|Electric Showers||Mixer Showers||Power Showers|
|Other (Electrical wholesalers)||165,000|
|Total Units Sold||1,100,000||550,000||150,000|
Apart from these above mentioned channels, the shower is installed by the plumbers. The 28% of the customer takes advice of the plumber, whereas 27% of the plumbers install showers without the customer’s advice. So plumbers are very important source of the shower sales. Even though Aqualisa has their faithful plumbers to promote their existing product, they are not aware about the Quartz working and installation. So effort should be made to impart knowledge to existing and new plumbers about Quartz.(see chart below).CHART 2
Appendix 9: Value proposition
Aqualisa’ s value proposition is to provide customers with high quality and better performing elegant looking showers. The value of the showers in the market is high as the Aqualisa products are considered expensive. The company can beat its competitors by lowering the prices of the products. This can boost their sales. However, the prices should be lowered maintaining the quality of the products as Aqualisa is the leading company in the shower market.