Journal of Marketing Perspectives Volume I 2016 The Mission The Journal of Marketing Perspectives is an interdisciplinary journal dealing with issues in business and education. Any Best Paper award at an Academy of Business Research conference will automatically be placed into the review process for possible acceptance into the Journal of Marketing Perspectives. Direct submissions to the Journal of Marketing Perspectives are reviewed on a continuing basis. Submissions may be made by submitting a copy of your article either in Microsoft Word or PDF format to
[email protected]. The Journal of Marketing Perspectives is intended for parties that are interested in the practical applications of business and industrial research. The intended readership consists of both researchers and practitioners. The emphasis of the journal is on applications, not the statistical methodology used to derive the applications. Thus, any empirical work should be clearly outlined so that a wide spectrum audience can follow the practical applications of the manuscript. The mission of the Journal of Marketing Perspectives is to support researchers and practitioners in the application of business and industrial development.
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Examples of Topics Included in the Journal
Consumer Behavior Customer Advocacy Ethics in Marketing Global Marketing Marketing Communication Online Marketing Product Branding Sports Marketing Trends in Marketing
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Editor: Hennie van Bulck, University of South Carolina-Sumter Assistant Editor: Meredith R. Wilson
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Table of Contents THERANOS – A CASE STUDY ON CUSTOMER VALUE AND TECHNOLOGY
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ART WEINSTEIN, Nova Southeastern University ALEXANDER SIPALA, Nova Southeastern University LAUREN TURKINGTON, Nova Southeastern University MARLA STROMBERG, Nova Southeastern University
BRAND PERSONALITY, CONGRUENCY, AND NET PROMOTOR SCORE: A UNIVERSITY CASE STUDY
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COLE DECKER, Ohio University KATHERINE B. HARTMAN, Ohio University
APPLYING SERVQUAL TO A MEDICAL OFFICE
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JEROME CHRISTIA, Coastal Carolina University AARON ARD, University of South Carolina Salkehatchie
SELLING TOE JUICE TO INVESTORS AND GROWING THE BRAND
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SCOTT D. ROBERTS, University of the Incarnate Word FROM OFFLINE TO ONLINE: A REVIEW OF CONSUMERS’ USE OF BRANDS TO REFLECT SELF-CONCEPT
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BRITTANY WOODSMALL, San Jose State University JENNIFER BECHKOFF, San Jose State University
WHAT ARE CONSUMERS SAYING ABOUT YOUR BUSINESS? A PRIMER ON MONITORING TOOLS PAUL CHANEY, Practical E-Commerce KATHLEEN FEALY, Practical E-Commerce JAMES PETTIJOHN, Missouri State University CHARLES PETTIJOHN, Drury University
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Selling Toe Juice to Investors and Growing the Brand1 Scott D. Roberts University of the Incarnate Word “Rhett continued to do what he did best, seek retail placement and service the accounts Toe Juice already had secured. There was a constant struggle to keep revenues flowing, order enough product without over-doing it, and use his time in the strongest possible way.”
Introduction Thirty-eight year old Rhett Garner leaned back in the office chair in the corner of his bedroom and wondered if he had finally gotten the breakthrough he needed to make Toe Juice a household name. The company had just been chosen for a slot on a reality investment television show. Rhett was good at selling Toe Juice to retailers and gave away lots of free samples to friends and family, but expansion had plateaued, Rhett’s personal fortune nearly gone in the effort. Could he translate his personal expertise and his passion for the product he deeply believed in to a successful pitch to millionaire investors? And if the company needed to grow, were there enough expansion ideas to lure the investors on-board? Toe Juice was a liquid skin treatment invented by Rhett’s father, Royce Garner in 1970. Royce was a high school chemistry teacher in Idaho whose oldest son was born with severe and painful eczema on both legs. After exhausting existing but unsuccessful treatments, the senior Garner invented a mix that eventually cured the child completely. Over the years, the tonic had been successfully used to treat athlete’s foot, jock itch, severe acne, warts, nail fungus, eczema, and psoriasis. The elixir remained essentially a home remedy until Royce gave the formula to son Rhett with the admonition to go and make something out of it. That was eight years ago, and the company had since experienced its ups and downs, including many high-level retail adoptions, investor infighting over the company’s strategic direction, several opportunities to sell out, and battles over intellectual property and company ownership.
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© 2016 This case was developed solely for classroom discussion. The case is not presented as a demonstration of successful or unsuccessful management or marketing practices – it simply presents a company, an owner, a product, and a problem for students to wrestle with. The case does not represent an endorsement of the company or products described.
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Toe Juice owner Rhett Garner on a call at his office, which is in the corner of his bedroom
History Forty-five years ago Royce Garner, a high school chemistry teacher in Boise, Idaho, created a home remedy to solve his oldest son’s serious leg eczema. With what he believed to be an inspired mix of ingredients (a first-time time formulation without any trial and error), Royce created the formula that he freely shared with friends and colleagues – particularly with coaches who used it to treat their athlete’s foot. Having no name for the product, friends began to call it “Royce’s Toe Juice,” due to its primary application for athlete’s foot. Eventually, the name was shortened to simply, “Toe Juice.” While serving a religious mission for his church, Rhett Garner developed serious health issues that mimicked hepatitis, and lost 40 pounds off his small frame. Before returning home, he spent six months sick and self-treated with cider vinegar and omega 3 supplements, and had some chiropractic therapy. He described his metabolism at the time as “crazy fast.” Doctors blamed his long-term usage of a popular prescription acne medicine as a teenager. His sister also took the prescription and blamed her ongoing health problems on the drug. After this episode, Rhett used Toe Juice on his face for three weeks and saw an astonishing change in his lifetime, hard-core acne.
A Company Begins Rhett’s father gave him the recipe and his blessing to go forth and prosper in 2007. Already gainfully employed at the time, he considered the opportunity. During that time, Rhett’s wife had a near-death experience while giving birth of their third child. She came out of a coma telling him he should quit his job and that they should pursue this company full time. Rhett eventually quit with his entire nest egg of $27,000 in the bank – sure he could make it through two years living off of that, if need be. The goal was never to be rich, but to be comfortable and to share the healing power of the product with more people.
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Sales History 2007-2008: During these years, Rhett was trying the product, looking up ingredients (and tasting and eating them), playing with coloring choices, conceptualizing packaging, working on more “marketingsounding” brand names (DermaVine and Skin Repair had been considered), and deciding on positioning (medicinal, skin softening, etc.). He maintained another full-time job and considered this more of a hobby at the time. “Year One”2: Toe Juice’s first year was strong – in twelve months Rhett had sold over $100,000 of product (wholesale). Toe Juice entered the shelves of Walgreens and super-regional grocery chain Albertson’s. The warehouse was Rhett’s garage. He had no debt, and was essentially a one-man show. Rhett accomplished these sales by stopping in and introducing himself to retail managers, leaving samples, and asking for their business. This sometimes led to invitations to present the product at higher corporate levels. Rhett’s passion and personal experience with the product made it an easy sell, especially in small numbers where risk was low. Year Two: Rhett’s team had grown to five, including some advisors and small investors and a salesperson. They had sold only $72,000 of product by October. Then they “stepped back” and considered that they might be “missing the vision.” The decision was to return to being a “mile deep” versus a “mile wide” – which to Rhett meant don’t get distracted by too many small accounts distribution-wise, and stick to the main products (there were now three, one for feet and skin, another for facial use, and a hand sanitizer product). It was also clear that even experienced salespeople couldn’t sell this product. The two exceptions, historically, were men who had no issue with the branding (a common complaint from salespeople and brokers was that they were laughed at when saying they represented a product called “Toe Juice”), and who had had a powerful, personal experience with using the product. But generally, Rhett was the heart and soul and face of the brand, and he needed to be doing the selling. Year Three: The new approach with Rhett back facing the public worked. They sold between $220,000 and $250,000. Eighty percent of these sales were largely associated with ongoing Walgreens sales and with Walmart, which had adopted one of Rhett’s offshoot brands called Hog Wash. Hog Wash was a hand sanitizer, which had an extremely strong run as the nation fought that year’s version of swine flu. It quickly peaked, selling about four bottles per week from each of 1,800 Walmarts. After 100 days, however, the predicted epidemic’s threat diminished and sales dropped off dramatically. The Hog Wash formula was expensive to produce and had much lower
Rhett considers this the first year, as it was when the company became “more than a hobby” after two years of tinkering with product ideas related to branding and ingredients. 2
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margins than Toe Juice. Looking back, Rhett said he learned from that year’s experience that it is very difficult to handle two powerful brands simultaneously. Rhett’s partners thought the company should have sold even more product. Another complication, Rhett’s strict avoidance of personal debt had led him to deliver pizzas to cover his wife’s childbirth expenses that year. The partners had already experienced an inability to push product without Rhett at the tip of the sales spear in year two. They did not agree with Rhett diverting his attention in this way. Yet ironically, company growth had been its strongest and most consistent during the period. The partners also advised that more growth could and should be debt-financed, and so the company took on some significant debt that year. Years Four - Five: In year four, Toe Juice sales were again in the $250,000 range. But that year, partner/investor infighting began over the strategy and direction of Toe Juice. In year five, the company sold approximately $100,000, experiencing a sales wobble that Rhett attributed to the loss of focus and the team break-up that was in progress. There were legal battles about controlling the brand’s future. During this time, a few offers to buy the brand had been considered and refused, but not everyone agreed and some investors were more eager to “cash out” than others. This added tension to the growing discontent among partners. Rhett likened the leadership group at the time to a “little league soccer team.”3 Bill Neumann4, a friend who believed in the long-term potential of the brand, bought out all other interests besides Rhett’s and paid all the legal costs associated with the change of hands and the company’s restructuring. Neumann became a trusted advisor. In exchange for the cash bailout and infusions, he now owned the product’s intellectual property, excluding the formula itself. Rhett characterized this man as having used his “financial muscle to battle the demons.” Going forward, Rhett was to pay this investor a percentage of sales licensing fee up to the first $1,000,000 in sales, after which the royalty dropped to a much smaller percentage. Rhett had the option to buy back everything down the road. Neumann had a vested interest in the brand’s success and so often acted as a banker and further investor for ongoing market development attempts. In an effort to remove himself from the negativity5, Rhett felt led to move the business and his family to Texas in late 2013. By the end of the year, Rhett was at an emotional and financial low point, but the buffer zone between Texas and his Idaho roots began to result in some important “healing,” according to Rhett. San Antonio became the new base of operations. Upon arrival in San Antonio, however, the business hit a wall, finding it difficult to get Walmart and another client to pay for some 3
Youth soccer is notorious for having all players following the ball closely rather than each player taking care of his or her part of the field. 4 Bill Neumann is a pseudonym. 5 Rhett admitted that he had only understood this in retrospect.
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continued inventory in a timely manner. This, and servicing earlier debt-financed ventures caused the already struggling company to have difficulty paying for new inventory and further squeezed Rhett’s personal financials. “By the grace of God,” said Rhett, he was able to keep Toe Juice on the shelf at Walgreens with almost no marketing support through this whole period. Year Six: One early result of the Texas move was to get on the shelf of every U.S. store of the strong regional grocery chain H-E-B in July 2015. By that fall, the company was again on track to sell $100,000 in product. The company had bought a sponsorship for “Thursday Night Lights,” a local high school football broadcast. For $6,000, the company got a certain number of announcements during the games and whenever a team was in scoring position, the brand’s logo was featured on the screen as part of the “Toe Juice Red Zone.” Rhett continued to do what he did best, seek retail placement and service the accounts Toe Juice already had secured. There was a constant struggle to keep revenues flowing, order enough product without over-doing it, and use his time in the strongest possible way.
Toe Juice Marketing Product Toe Juice had two formulas, one for feet and skin generally, and the other for facial use. There had been a hand sanitizer product called Hog Wash, which was briefly sold at Walmart 6 and online. Rhett and his advisors had decided to stick with just the skin treatment for the near term, as product extensions took time, money and attention away from the core business. The product had customer endorsements for various treatments, including for warts, acne, jock itch, nail fungus, ringworm, rashes, psoriasis, and its original use on eczematic skin conditions. One of the product’s selling points, according to Rhett, is that if it didn’t work, fine, at least it did no harm. But it very often did work. Over the years the brand name itself, Toe Juice, had received some criticism. Since the product worked on all skin, this was understandable, but on the other hand, the genesis of the brand, and its early use by high school coaches on athlete’s foot made the name stick. Toe Juice would not be changing its name. Rhett, in fact, now answered anyone who suggested this with, “Why?” – which soon ended the conversation. He compared the name to Gatorade or Amazon, which meant very little to consumers until successfully marketed as brands related to hydration or an online store. The product was made from a completely natural formula but artificial coloring distinguished between the skin/face/body product and the foot product. It had been discussed internally that 6
Hog Wash was still being sold in 52 Walmarts, but was not given any marketing support and was “virtually gone,” according to Rhett.
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this would rule out the possibility of selling through outlets like Whole Foods, which valued and required 100% natural ingredients. The product was produced in the U.S.A. There was some confusion, though, as certain bottles were sold in boxes with British cues, such as the word “odour” and with milliliter measurement of contents, as well as a U.K. address. The company had paid for some packaging to sell into Europe but the deal had fallen apart over regulations and timing and Toe Juice principles simply could not afford to discard 20,000 packages, and had decided to “sell them through” instead. The product was infused with “DermaVine” and packaging prominently displayed that ingredient. This was done in an effort to persuade medical doctors to not dismiss the product out of hand7. Although the formula was proprietary, early legal advice was given against patenting it, due to a perception of too-strict requirements by the FDA and, down the road, ObamaCare8. Possible product extensions were always under consideration. For example, the principles had discussed Toe-Juice-infused adhesive bandages as well as body washes and shampoos. But funding and other scarce resources generally kept those kinds of ideas on the drawing board. Promotion Toe Juice had considered and rejected an infomercial approach. The “As Seen On TV” path seemed too trendy and short-term, and Rhett knew the margins weren’t good enough. Besides these issues, the company that promoted this approach had demanded that Toe Juice be taken out of all other distributions systems as a requirement to participate, which was a no-go for Rhett after his success getting on retail shelves. The Toe Juice website (http://www.toejuice.com/) had a homegrown and endearing quality. There was an extensive and well-developed “Uses & Testimonials” section. A six-minute YouTube video of Rhett telling the product’s origin story was linked to on the site. In the video 9, Rhett also retells the success stories of various users who had regained their health due to Toe Juice use. There was talk of finding the oldest person to have used the product and creating a testimonial. Rhett believed that testimonials were his strongest asset. Toe Juice had corporate Facebook and Twitter accounts, but the social media were not kept current and were updated only sporadically. These online efforts were maintained by a family friend for free. Rhett said that he had frequent offers to “fix” this weakness, but that most sales visitors spoke of spending thousands of dollars a month, which was not feasible and the young entrepreneur could not see the value. He derided one offer, which he said was typical of what he frequently heard: “Give us $250,000 and we’ll make it a social media sensation!” Rhett bought access to high school coaches and trainers by sponsoring “Thursday Night Lights” – a popular televised local high school football game program in the San Antonio area. This 7
Derma- is a common medical pre-fix attached to skin-related terms. ObamaCare is a commonly used short-hand for the Patient Protection and Affordable Care Act (PPACA) or the Affordable Care Act (ACA). 9 https://www.youtube.com/watch?v=OfwgDlDA-f8 8
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access was very powerful. He paid $6000 for all season, two games per week, for advertising time during “Toe Juice Red-Zone” moments plus an amount of mentions and on-screen logo shots during each game. Once, an announcer gave an unsolicited testimonial of the product onair. Rhett also worked the football crowds with samples and a table set-up manned by family members on both sides of the stadiums. He estimated 3,000-4,000 attended each event and the television station told him ratings for the show were around 25,000 per week. After one season of sponsorship, Rhett’s takeaway was that if he did this again, he would focus more on driving the consumer to the website rather than to local retailers, as many store employees were still unfamiliar with the product and could not direct customers to it in-store. Each broadcast resulted in an approximate 20% boost at the website over the following 48-hour period. Rhett often did in-store demonstrations to educate both consumers and store staff. He also “mystery shopped” stores he knew carried the product and to his disappointment, he found that many store employees did not know the product or that it was in inventory. Rhett observed that stores with higher percentages of African-American and Hispanic consumers sold more Toe Juice, though he did not have any explanation for this phenomenon. His observation, however, was consistent with research findings that African-American women “spent 80 percent more on cosmetics and skin-care products than the general market”10. He also sensed that in these communities, word of mouth was very important. Related to the Hispanic consumer group, Publix, a large grocery chain in Florida had asked about Spanish-language labeling, which Rhett had produced – both Rhett and his wife were bilingual. The Publix retail placement had yet to occur. Thinking outside the box – Rhett recently put together a gift-pack of Toe Juice products for radio personality Glen Beck and his staff. The intent was to get mentioned during a live broadcast of the popular conservative talk show. According to Rhett, the package was sent in a “cheeseball” container with the Toe Juice Kid logo. Beck’s people told Rhett they would make the product a success for $650,000, then it got lower and lower. But the Beck offer was never in a range which Toe Juice could realistically consider. A later offer was to get Toe Juice on Pat & Stu’s11 podcast for $20K but even that was out of Rhett’s range. Rhett’s family were invited to meet Beck and crew in their Dallas studio, which they did, but they were never able to strike a business deal that made sense to Rhett. Toe Juice later asked about a profit-sharing deal, which the Beck team turned down in July 2015. The final proposal, which took 5 months to get rejected, was to give 20% of sales to Beck. Distribution Toe Juice was sold in 1,200 of Walgreens’ “A” stores, which was their largest floor plan. Rhett’s first placement in a Walgreens was inspired by a store visit on his way home one Friday at 5:00 Tracy (December 29, 2015), “5 Industries Black People Should Dominate Based on Our Consumption,” www.atlantablackstar.com, web accessed December 29, 2015, http://atlantablackstar.com/2013/10/15/5industries-black-people-should-dominate-based-on-our-consumption/ 11 Pat and Stu were Glenn Beck’s on-air sidekicks and had their own show on Beck’s online, subscriptionbased Blaze TV Network. 10
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pm. The manager took a sample, which she employed on a family member over the weekend. The manager called Rhett on Monday, told of a miraculous cure and placed an order. In Walgreens, Toe Juice was positioned in “Foot Care” on a lower shelf, beside Lamasil (an antifungal product). Toe Juice was in over 350 H-E-B grocery stores. There were two facings at eye level, near Lamasil and wart/skin-tag removal products. Each store sold about a bottle per week, which according to Rhett, was “enough for them.” Sales through the website were averaging $1,500 - $2,500 per month. On a per-sale basis, this yielded the highest margins. But it was not a sustainable business in and of itself, yielding just a few hundred dollars after all expenses were paid. To be self-supporting, the website needed much higher volumes. An interesting pattern Rhett noticed at the website was that many sales were going to Mexico and to Brazil, from which, occasionally, full cases had been ordered. Rhett did not know if the product was being resold or used by the actual buyer, but did know that swimmer’s ear and certain skin fungal rashes were driving some of the sales in Brazil. A recent idea Rhett had developed was to go the subscription route with a one-month supply of disposable, pre-moistened Toe Juice pads. Rhett liked the idea of creating an irreverent YouTube commercial, similar to what was being employed by Dollar Shave Club12 and Squatty Potty13, to promote this subscription approach to distribution. He figured the break-even point for a subscription business – at $15 per month – was just 1,500 customers. He was working on a revised name and website to support that business apart from www.toejuice.com. Order fulfillment was centered in a Boise, Idaho warehouse, from which all products were shipped. Toe Juice used EDI Data Services to manage their fulfillment, which they had done since working with Walmart. Toe Juice maintained that end of their supply chain with one employee, allowing Rhett to focus on selling and building the brand. One idea that had made its way to the office white-board was “Sales Kit.” Was the company considering an alternative distribution model, using multi-level marketing or direct selling?
Pricing A 135 ml/4.6 ounce bottle of Toe Juice sold at retail and online for around $9, though bundles sold online were offered at a slight discount. The online store also offered a 15% discount to those who tried to leave the site without buying anything. Cost of goods was around $3 when produced in small batches. Wholesale pricing was around $6.
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https://www.youtube.com/watch?v=ZUG9qYTJMsI https://www.youtube.com/watch?v=YbYWhdLO43Q
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Time To Go To The Next Level Rhett Garner had a successful and proven product and a company that was possibly on the verge of larger and more sustainable success. He needed to think strategically about Toe Juice’s future growth opportunities, while at the same time working on the ground tactically to get one more retail facing of Toe Juice on the shelf and one more application of Toe Juice on new consumer’s skin. But most immediately, Rhett needed to put together a pitch that would attract the right investors at the right valuations. He needed to research the people he was pitching to, including the eccentricities that guided their investing patterns. He needed to watch previous episodes to get the tone and format of the show. And he needed to know how much to ask for and how to explain his vision for the money and the investors’ participation.
References Dollar Shave Club. (March 6, 2012). Dollar Shave Club.com – Our Blades Are F***ing Great. [Video File] Retrieved from https://www.youtube.com/watch?v=ZUG9qYTJMsI Squatty Potty. (Oct. 6, 2015). This Unicorn Changed the Way I Poop - #SquattyPotty. [Video File] Retrieved from https://www.youtube.com/watch?v=YbYWhdLO43Q Toe Juice Videos. (July 22, 2014). The Toe Juice Story… and why it Really Works!. [Video File]. Retrieved from https://www.youtube.com/watch?v=OfwgDlDA-f8 Tracy. (December 29, 2015), “5 Industries Black People Should Dominate Based on Our Consumption,” www.atlantablackstar.com, web accessed December 29, 2015, http://atlantablackstar.com/2013/10/15/5-industries-black-people-should-dominate-based-on-ourconsumption/
About the Author Scott Roberts received his bachelor’s degree in industrial psychology at the University of Missouri and his Ph.D. In marketing at the University of Utah. A dedicated teacher, he is fascinated with the challenge of bringing a mosaic of consumers and entrepreneurs, business models, cross-cultural marketing, digital media, Mexico, and corporate strategy to his students. He has published and/or presented over 75 academic papers related to marketing, international business, consumer behavior, and case studies. Scott currently runs the MBA program at the University of the Incarnate Word in San Antonio. You can follow Scott on Twitter at @elscotto.
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