To begin the valuation of the SK-II brand, we first have to segment the consumers and also to derive a reasonable Net Operating Profit After Taxes (NOPAT).
The NOPAT was estimated using the figures from Euromonitor under the Singapore ‘Beauty and Skin Care Sales Revenue’. With SK-II being the biggest market player with 3.7% market share, the team has estimated their annual revenue to be approximately $51m (3.7% * 1386.5m). Since we are constrained by the NOPAT margin of the beauty or skin care industry, the closest we could get is to use the 5-year average NOPAT margin of P&G, which is 14.75%, which will give us approximately $7.57m.
From our past assignments, we have discovered the 3 main distinct behavioral customer segments that directly affect the sales of SK-II and therefore are the profits drivers for the brand SK-II. These segmentations are mainly based on demographics, taking into the consideration the consumers’ backgrounds, lifestyles and values. To segment SK-II’s main users, we divided them into Lao Chio, Young Chio and Lao Men with 70%: 20%: 10% contribution to revenue respectively.
From the graph shown above, we can conclude that SK-II has been the number one beauty and personal care brand in Singapore as its has been constantly the No.1 brand with the highest brand share for the past few years. However, in Singapore market context, there are many competitors that SK-II is facing and the market is by far fragmented and saturated, which is why SK-II needs to constantly innovate to meet its consumers needs and advertise to help consumers recall its brand.
Beauty & Personal Care Brand Shares – Singapore (% Retail Value RSP) @ 2013 Euromonitor
STAGE 1: CUSTOMER SEGMENTATION
MADAM
% of total customers = approximately 60%
% contribution to total sales = approximately 70%
The Madam segment consists of the majority of SK-II’s main users. They are the 60% who will help SK-II generate 70% of their revenue. They are the targeted affluent women who have economic independence, thus disposable income to pamper themselves with premium skin care products. These women are the typical loving mothers and faithful wives who want to slow down, or better still, eradicate the signs of aging. They own premium skin care products and are willing to splurge to ensure that they stay young and beautiful. In short, they do care a good deal about how they appear, from their skin appearance to the dresses they wear and the shoes and bags they will be matching with. These women also appear confident as they know exactly who they are and just how to achieve it. They are also certain about what they want and thus the products that best suit their skin.
The Missus segment consists of younger women who have considerable disposable income that allow them to have little ‘secret’ luxury treatments or share these luxury products with their parents who might also own SK-II products. Their main influence will usually be from their peers, providing social affirmation of their usage, as well as parents that might have influenced them or cultivated a habit in them since young. Missus are also attracted to use SK-II’s products due to their effectiveness as demonstrated in our survey results. This segment is the upstream of SK-II’s main target audience as SK-II aims to convert them to loyal users as they grow. Being young and adventurous, they have higher tendencies of switching between brands and looking out for new brands. They tend to be more price-sensitive as they may not have started drawing their regular income or have just started working.
% of total customers = approximately 25%
% contribution to total sales = approximately 20%
MISSUS
Lastly, the Gentlemen segment is the smallest as they have only launched the male product-line recently. These men are the new age contemporary men who believe that masculinity can still stem from looking good and nourishing their skin. Gone are the days where people define masculinity from the bike you ride or the prey you hunt. Having said so, these men are attracted to the functional benefits of SK-II and will stay with one brand as long as they prove their worth. Previously, some of these men are already using SK-II products but the launch of the men series will give them more choice and more reasons to continue their consumption. Furthermore, they might also feel more “man-up” when there is a specific man guy series catering to them as compared to sharing a common series as the female users.
% of total customers = approximately 15%
% contribution to total sales = approximately 10%
GENTLEMEN
