1. Dr. John’s Products -Case Study-
Scotty Lee, Howard Li,
Alex Gottwald
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all participated in the analysis of the case and the creation of this document.

2. Qualitative Analysis Customer Value Proposition New, lower price point
Bringing electric toothbrushes mainstream with a “better-than-manual” solution
Increases accessibility to reach new customers
Superior alternative
For just a few dollars more than a regular toothbrush, you can have one that offers a superior clean
Easy to understand
Carefully designed packaging allows for the brush’s benefits to be demonstrated in the store
Offers a familiar experience to a manual toothbrush with a better end-result
Intuitive product name that allows the benefits to be easily implied and understood
Go-to-Market Plan
No initial advertising expenses
Reliance on organic word-of-mouth advertising
Product speaks for itself with easy to understand design and illustrative packaging
Strong initial traction
Selling at 7x the weekly average rate of manual toothbrushes
Well-received by retailers
Even with small initial market share, easily captured attention of potentially strategic existing firms
Industry standard distribution channels
Sold in the same places a manual or electric toothbrush would be: food/grocery store, drugstore, Target, Walmart, etc.
Technology & Operations Management
Patented, cheaper electric toothbrush
Not a direct competitor to current electric solutions
Uses common AA batteries for power
More efficient at cleaning teeth than manual solution
Efficient, unique packaging that allowed individuals to see the spinning brushes
Talented and nimble team
Incredibly talented consumer products CEO in John Osher
Intentionally lean management team
Over-qualified individuals for their positions
Key people like retail sales expert, John O’Conner, and experienced CFO from larger corporation
Profit Formula
Sold through traditional FDM channels at $6 retail price
Assuming roughy 50% gross margins
Currently selling almost 6,000 units per day
Assuming no brush head replacement, unit replaced approximately every 3 months
Inexpensive manufacturing costs with flexibility
Same Chinese manufacturer who had produced SpinPops
Operating with 30-day terms to help maintain high growth rates
Future prospects
Electric toothbrushes expected to capture more of manual’s market share
Very attractive profit margins, even early on

3. Quantitative Analysis
Scenario
Company Value
Retail Revenues in year 5
No Marketing
$29 Million
$16 Million
Always market
$39.6 Million
$20 Million
Market for 2 years only
$74 Million
$34 Million
We performed a FCF Analysis to compare the value of the company under 3 different situations:
They used no marketing (Growth rate = 5%)
They had the same level of marketing every year (Growth rate = 10%)
They only used marketing for the first 2 years. (Growth rate =10% for first 2 years, drops down to 6% after year 2)
We assumed marketing would double the growth rate of the company (from 5% to 10%)
The drop to 6% growth rate in situation 3 is due to residual customer awareness from marketing.
These are based on projections and hypotheses. Real world testing needed to prove assumptions
FCF Analysis Assumptions:
Sold 6000 units/day for 365 days/year
Retails at $6, Sells to retailers for $3
COGS = 50%, Tax = 30%, Discount Rate = 15%
SG&A = $1 million (salaries, operating costs, etc)
No Depreciation, no CAPEX
Marketing Expenses = $1.5 Mil (trade promotions, salaries, advertising, etc)
The company’s value and revenues are greatest when they market heavily early on. If they market early, they can show high value to sell to established companies for a greater price later
Pricing Strategy Analysis
Due to lack of quantitative numbers, we modified our economic value analysis to be quantitative and qualitative
Job of a toothbrush is to clean, so the “True Economic Value” is the same for electric, manual, and SpinBrush toothbrushes. (They all clean teeth)
Perceived Value is how well consumers believe that a toothbrush cleans
Difference between perceived value and product price is the benefit to consumer. Difference between price and COGS is the benefit to company
Electric toothbrush +replacement head = $56. Manual toothbrush ~= $2. Spinbrush = $6
Consumers buying the Spinbrush save $50 compared to Electric brush. Consumers buying the Spinbrush spend extra $4 compared to Manual brush, but they perceive that SpinBrush cleans teeth better. Thus they perceive greater value gap between perceived value and price (greater consumer benefit)

4. Recommendations
Stay away from licensing and grow the company independently
Give time to increase market share
The SpinBrush gained 0.6% market share in its first quarter alone (Q4 ‘99)
Wait and see just how much more of the market SpinBrush can attain without big corporation licensing to help (projections put this at ~5%)
Pump up marketing, grow share of heart and share of mind
Achieved 6,000 unit sales/day without any marketing
Allow marketing to grow brand awareness early and capitalize on momentum
Perfect the product
Initial product saw water damage and toothbrush heads wear out quickly
Better quality in conjunction with low cost would help grow brand’s reputation and increase word-of-mouth
Fits O’Conner’s persona
Has shown that he likes to be involved in business, gets restless when not working, demonstrated ability to nurture a startup to higher valuation
Understands customer’s pains well and has a proven track record of strong management skills
Allow acquisition but don’t seek it
Good time for business growth
Economy booming, high VC commitments and disbursements, plenty of indicators that startup valuations will be inflated
Exit strategy
Get on the radar of major industry titans with rapid growth
Become a threat, allow companies to approach and field competing offers to be bought out; Osher moves on
Potential Risks
Osher founded a lean company where the staff is quality over quantity; Can they scale effectively or will their talent be stretched too thin?
A major company invades the cheap electric toothbrush niche and either outcompetes or beats SpinBrush to scale
Top out at a lower market share than expected, not seen as valuable and isn’t acquired
Year
1999
2000
2001
2002
2003
2004
SpinBrush Retail Sales (in millions)
N/A
$13.14
$14.46
$30.36
$32.18
$34.10
Market Size (in millions)
$230.8
$246.9
$264.24
$282.7
$302.5
323.70
Market Share
5.32
5.47
10.74
10.64
10.53
Post-1999 market share growth projection with market size growing at 7% annually. SpinBrush expected to reach 10%+ market share and stabilize. Enough to outcompete all but 2 models’ 1999 market shares (Braun Oral-B and Sonicare)