BURT’S BEES: CASE STUDY
Burt’s Bees was all set for tremendous success in 1997 when it was making around $6-$8 million in revenues each. The product line had been efficiently pruned in 1994 to keep only the skincare products in order to be able to compete in one niche market. The company had already made an entry into foreign markets of Europe and Japan. The company had been making sales through direct sales. For examples in 1996, one show on QVC helped Burt’s Bees make $30,000 in short 30 minutes. With 70 earth friendly products, which were all natural, Burt’s Bees had found success in the niche market of natural personal care products.
PROBLEM IDENTIFICATION:
Despite its tremendous success with only 20 employees in 1997, Burt’s Bees had one big dilemma to resolve. Should it enter the retail market? And if not, how can it bridge the gap to reach $25 million so the business could be sold to a serious buyer some time in future?
SUPPORTING FACTS/ASSUMPTIONS/ANALYSIS
The retail experiment had not looked very promising to Roxanne Quimby, the president of Burt’s Bees. She had tried to open a store in North Carolina only to find that a whole day’s work had resulted in only $400 in sales. The company had made $30,000 in 30 minutes through QVC. Quimby believed that retail experiment could allow the company to stay in closer touch with the end users of the products. But if retail did not allow room for another entrant in natural personal care products. Burt’s Bees could face major problems.
Quimby knew that retail market was already well saturated in personal care sector. There was no serious dearth of natural personal care manufacturers including such big names as the Body shop, origins, Bath and Body works etc. All these companies had been working hard to win greater market share and they all claimed to be “all natural.” This left Burt’s Bees with very limited choices.
If it chose to stay in manufacturing alone without retail experience, Burt’s Bees still had very tough competition to face from very big names in personal care manufacturing namely Jergens. Johnson and Johnson, Amway etc. As they had been making products that were all natural in order to maintain their market dominance.
The reason Quimby wants to increase sales is because it needs to reach the target of $25 million in annual revenues because if it doesn’t reach that mark, no one would be interested in buying the business which is eventually what Quimby would want to do. The company had been making significant profits as its margin was 35% of the sale price. But in order to reach the $25 million mark, Burt’s Bees needed to do something new and find some new sales avenue since it had already exhausted the channel of direct sales.
When it came to departmental and super stores, there was no room for a new entrant or at least that’s how it appeared because stores appear to have no shelf space left for new products. The main competitors have either gone the departmental or super store route or the more exclusive ones have their own retail stores in malls.
Every other mall in the country has an Origins and Bath and Body works store which shows how these competitors have selected the retail route to increase their sales. They are now well established in the retail business as well. Burt’s Bees on the other hand still has to carve an alternative sales route for itself in order to improve sales. The main problem now is which route is the best one if it’s not retail and if retail is the answer, how Burt’s Bees will beat the competition?
Alternatives
Burt’s Bees wants to go beyond direct sales so it can improve its sales. It has the following alternatives available:
a. Website and Internet
It is true that website is indeed another avenue for direct sales but it has much wider appeal and approach than conventional methods like television shopping networks. Internet can be easily accessed by even those who are at work or busy with other daily activities. They can come online anytime they want instead of at a particular hour and place an order. Emails can be regularly sent to those who choose to subscribe. They can be informed of new products, new deals and sales offers etc. The company can place banner ads on various famous websites which are frequently visited by the target market. These banner ads would generate more clicks and thus more visits to the website. Secondly with a website present, the company can advertise it on all its sales literature. The website can be advertised on television during QVC shows so people can access the website in case they do not want to place an order right then and there.
b. Retail through departmental stores
The company doesn’t need to own its stores in the mall. It can always speak with departmental stores and get some shelve space for its products. This is better than grocery store and super store route because those places are chockfull of all kinds of personal care products, most of which are not even exclusive in nature. That is for mass market. Burt’s Bees has an exclusive range of all natural products and for this reason, the best shelve space it can get is in a departmental store like Bloomingdale’s or Macy’s. Even though it will initially be an expensive option since those stores charge heavy fees for simply placing the products but once they start selling well, Burt’s Bees is in for a nice surprise as these very stores will be requesting Burt’s Bees to sell its products through them.
Even if the company opens its own stores at various locations, it can try to compete at locations where competition is not that tough. Starting with smaller cities Burt’s Bees can then take its retail experience to major centers. But it must start with smaller cities where not many malls are present and these malls do not always have an Origins or Body shop outlet. This would allow Burt’s Bees to establish a name for itself and get adequate clientele. It can then expand into other cities and will be in a much better position to face and challenge the competition.
c. Foreign expansion
If Burt’s Bees sees that competition is very tough in the U.S., it can always explore foreign markets and then re-enter the retail sector in the U.S. Body Shop for example has a wide international presence. It can be found in most big countries around the world and people are familiar with Body shop products in the UK, Middle East, and Asia etc. The same approach can be adopted by Burt’s Bees. This would help in establishing a name which would help when the company decides to recapture the retail sector in the U.S.
Recommendations
The best alternative in my view is going the smaller cities route. In our experience, smaller cities still have a great deal of potential for growth and progress. The people in these areas have good per capita income including sizeable disposable income as many doctors and engineers are working in smaller cities. But because of their backwardness compared to bigger cities, the markets are not as saturated and not all products are widely available. Hence they are more open to new idea, new products and new chains. If Burt’s Bees comes with good product range for smaller cities like St. Louis, Missouri it will receive very positive reaction from people.
Criteria for measuring the success of Recommendation:
1. Identify Quarterly sales Targets in for three years
2. Identify goals and objectives for first three years
3. Identify number of stores or outlets planned in case of success
4. Identify possible limitations and hurdles
If the company sets a sales target for each quarter for the first three years and has been able to reach or exceed that target, it knows it has been successful.
If it is able to meets its goals and objectives for first three years of operation, it will know it has chosen the correct route or else will have to rethink the chosen path.
If Burt’s Bees can open a of stores in few selected smaller cities, after seeing the response to first few stores, it will know it has been correct in its decision.
Similarly Burt’s Bees must also identify all possible limitations, restrictions and hurdles it will face during the implementation and executive process. This will help it better cope with problems and if something unseen comes up, the company will be able to reassess its success or failure.
