Brita Gmbh Case

In 1987, the Clorox Company obtained the US rights to sell a home water-pitcher and filter system made by the German company Brita GmbH. The pitcher is made of two compartments, upper and lower, and a replaceable filter. Water is placed into the upper compartment and is filtered as it flows through to the bottom compartment. Though sales were sluggish in the first few years of the product's inception, by 1998 the Brita pitcher-filter system had the highest return on sales (34%) of all of Clorox's products with revenues of 200 million dollars. However, with slowing demand for its household pitchers, Clorox now faces a threat from the entry of new type of filtration system, the faucet mounted system, made by its newly acquired competitor PUR. The faucet mounted system is a filter that screws onto kitchen faucets with the ability to filter water directly and, similar to the water pitcher system, requires replacement filters for continued use. In anticipation of the entry, Clorox developed its own faucet-mount system and is examining three strategic options: continuing to build on its install base of pitchers, shifting its budget to promote the sale of filters, or putting significant resources behind building a new installed base for faucet-mount systems. An examination of the Clorox Company, potential market and market trends, competitors, and customers shows that the company should continue to focus on and defend its install base by re-positioning itself and focusing on R&D for filter technology.

The market for Brita systems includes nearly every household in the US and is enormous at 103 million. In total, only 1/7 of the market had been captured by all pitcher systems, with Brita enjoying over 75% market share. Throughout the 1990's, consumer awareness to potential hazards in drinking water was increased with several high-profile incidents. In one area, an abnormally high rate of leukemia was linked to drinking water contaminated with industrial solvents and in another 111 people died when a parasite entered the water supply. In fact in 1998 the US EPA declared that 10% of sediments under US surface waters was contaminated enough to pose a threat to humans. This concern of consumers is further illustrated by figures that show by 1999, 72% of people expressed concern over water quality. A general trend towards healthy living has also emerged as the demand for bottled water and fruit juice outstrips the demand for soft drinks, coffee and beer. In the water filtration market specifically, technology has advanced dramatically to the point where filters have the capability to remove previously un-filterable micro-organisms.

The Clorox Company is a manufacturer and marketer of consumer goods, operating predominantly in household goods. With over 3.9 billion in sales the company acquired the rights from Brita GmbH to sell products, under Brita USA, including purchasing filters from Brita GmbH and manufacturing their own pitchers. The company's strategy is to deficit-spend on the pitchers to build an install base and then make a continuous stream of revenue on filters. Exhibit 1 shows a view of the contribution to fixed costs of the pitcher and filter. Throughout the 1990's, as the install base grew, the contribution from filters grew at an alarming rate. Although the growth rate is showing signs of stabilizing, the 80% retention rate combined with the revenue stream from filters puts modest projections to combined contribution at just under 150 million in 2001. Brita's core strengths are its first mover advantage, its ability to know its market, its leverage and control of sales channels, and its size. As the first mover in the industry, Brita has become an established product with a huge install base. This is important in the filtration industry because there is inertia to switch products due to the initial pitcher purchase required. The company conducts extensive surveys to find out why their customers were buying, how often they were replacing filters, and how many people were retained. Management tracks information and is able to correlate survey data accurately allowing Clorox to make accurate and timely decisions. Brita is able to use its size and scale of Clorox to obtain shelf space in a variety of sales channels. The company is able to use its size and position to deficit spend to fight competitors on price. Brita's main weakness is the lack of control it has over the Brita filters. Since the filters are manufactured by Brita GmbH, Clorox plays no role in its design even though filters the main source of revenue. The company is constantly under attack from competitors because of its position as market leader.

Brita's customers include all adults ranging in ages from 18 to 65+. Customers are predominantly interested in taste, removal of contaminants, price, and ease of use. In recent years, customer interests have skewed towards the health