Data Analytics Simulation: Strategic Decision Making

Simulation Case

Data-Driven Management of Blue Detergent

Kelsey-White (K-W), an American multinational consumer goods company, manufactured and sold a
variety of consumer packaged goods (CPG) around the world—generally through brick-and-mortar
retailers. In the United States, laundry detergent was a key product for K-W in the form of Blue, its
primary brand. Blue came in several formulations—liquid, powder, and single-use pods (see Exhibit 1)—
and had been a staple of the laundry marketplace for several decades. Pod sales had been slow compared
to other competitors, and long-term Blue customers sometimes even felt that liquid was too modern for
their tastes. As the average age of its customers rose, Blue’s market share drifted downwards over the
past several years. The product was still a profitable one for K-W, however (see Exhibit 2), as the market
as a whole had enjoyed steady growth.

K-W had historically been a relatively conservative company in which most marketing and
manufacturing decisions were made on the basis of experience and gut feel about the market. However,
four years ago the company appointed a relatively new CEO, Sheila James, who had a strong belief in
quantitative and data-based decision-making. One of her first acts as CEO was to initiate the
development of K-W Vision, a system for displaying key information about market, financial, and
operational performance. James’s goal was that K-W managers would use Vision to make strategic and
operational decisions in many areas of the business. She had come from another company in the
consumer products industry, and she argued that K-W was behind other firms in its use of data and
analytics for decisions. Vision had just become available to the Blue product team.

In order to build K-W Vision, the company needed to compile several years of historical data. Most of
it came directly from retailers, from syndicated providers of retail data about CPG firms, or from internal
K-W systems. Much of the data had been used within K-W in the past, but it was fragmented and stayed
within a variety of business silos. In addition, some parts of the organization were much more likely to
use such data than others.

With strong support from Sheila James, the IT organization at K-W had put substantial energy and
time into integrating the information, ensuring that it was consistent across the organization, and creating

This case was prepared by Professor Thomas H. Davenport for the sole purpose of supplementing the use of Data Analytics Simulation:
Strategic Decision Making (HBP No. 7050). This text and the simulation are developed solely as a basis for class discussion and are not intended
to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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the Vision user interface. The goal of these efforts was to allow K-W managers to make key decisions
about marketing and production based on analysis of “what works” as evidenced by data. The system
also included data on key competitive brands, which was generally sourced from annual reports and
syndicated industry data. The most recent version also employed some sophisticated Monte Carlo
simulation analyses to understand the likelihood of different forecasting scenarios.

James was also attempting to change the culture of K-W in a more analytical direction. Her idea was
that every manager within the company should become a data-driven executive, making key decisions on
the basis of data and analytics whenever possible. She also believed that analytics and K-W Vision would
be essential in pulling off the turnaround necessary for Blue and other key brands. She has made clear
that decisions need to be described simply and clearly, and justified with reference to the data and
analyses used to make them, and regularly posed questions involving data about brand and business unit
performance at management meetings. She had also suggested that managers who adopted this data-
driven approach would be the most likely to succeed and be promoted at K-W in the future. In fact, James
had accelerated this process by bringing in several new managers from outside the company who already
had the desired analytical orientation.

In keeping with this analytical focus, Blue and other K-W brand teams had already seen their key
resources tied to gains (or losses) in market share and profitability. James and other senior managers had
made clear that brands that did well would receive more money for marketing and for increased
production, and those that did not would be slowly starved of resources.

For the managers of the Blue brand, the new administration and the new tools provided an
opportunity to reshape the brand and consumer perceptions of it in the marketplace. Blue had been
known as a solid but unexciting brand in the marketplace; some have called it the “Ivory Soap of
detergents.” James and other managers had suggested to analysts that they thought Blue could be
revitalized, and were open to suggestions from the brand team about how best to do that.

Blue’s primary competitor in the category was Turbo, a souped-up and heavily advertised brand that
promised more cleaning power. Customers had responded well to that message, and Turbo had almost
half the US detergent market. Turbo had invested its marketing resources across a variety of channels,
but almost 35% of its spending was on digital ads—perhaps the highest digital spending percentage in
the industry. K-W managers speculated that Turbo’s brand managers were increasingly focused on the
millennials market segment. Turbo’s greatest sales were through large retailers like Walmart and Target,
although it was also the brand most likely to be found in small urban stores. Turbo’s price to retailers was
the highest of any competitor (see Exhibit 3). It had also been the first to introduce higher-priced
formulations (liquid and pods) into the marketplace, and it had achieved success in persuading
customers to purchase them.

Another competitive brand, Fresh, came from a Europe-based manufacturer. It had slightly larger
share in the market than Blue, and its brand attributes centered on a fresh, clean smell for the clothes
washed in it. Fresh’s brand managers had also said in industry journals that they wanted to increase its
appeal to younger consumers. Its marketing strategies, however, were not youth-oriented to external
appearances. It had a strong television focus, and still bought ads disproportionately on daytime
television. Fresh’s strongest distribution channel was mid-sized grocery chains. Its price to the channel
was lower than Turbo’s, but higher than Blue’s. Most of its sales were in the traditional powder
formulation.

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 The only other major brands in most stores were generic store brands, which competed largely on
price. K-W did manufacture detergent used in some store brands, but it did not advertise that fact and
did not work closely with stores to try to build those brands.

Sheila James recently told Wall Street investment analysts, “Our fortunes in the detergent category will
rise and fall on Blue. We have high hopes for that turnaround and believe that our data-driven approach
will ultimately grow the brand dramatically.”

Exhibit 1
Laundry Detergent—Formulation Choices
Laundry Detergent Formulations

Primary Customer
Formula Variable Costs Effect Customer Perceptions
Segments
Classic option
Lower income
Powder No change Dependable
Older
Affordable
Standard option
Low to average income
Liquid + 7% Easy use
Middle aged
Universally used
Most modern option
Wealthier
Pod + 15% Most convenient
Younger
Premium

Exhibit 2
Blue’s Income Statement (Year 1–Year 4)
Blue Laundry Detergent
Income Statement
For the Year Ended December 31,
(in millions) Year 1 Year 2 Year 3 Year 4
Revenue $178.2 $179.7 $196.7 $225.3
Costs
Variable Costs 53.5 53.9 59.0 67.6
Fixed Costs 87.0 87.0 87.0 87.0
Other Costs 30.0 29.7 30.0 32.9
Total Costs 170.5 170.6 176.0 187.5
Operating Profit 7.8 9.1 20.7 37.8

Cumulative Operating Profit $ 7.8 $ 16.9 $ 37.6 $ 75.4

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Exhibit 3
Laundry Detergent Industry Competition
Laundry Detergent Industry Competitors: Year 4 Snapshot
Blue Turbo Fresh Store
Market Share 11.0% 44.1% 26.3% 18.6%
Channel Price
$7 $10 $8 $6
(per 100 units)
Heavy
Average Heavy
Promotional Strategy All channels None
All channels Primarily TV
(emphasize digital)
Customer Perception Traditional Innovative Old-fashioned Affordable
Target Placement All stores Convenience, Mass Grocery All stores

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