1. Anasazi Exclusive Salon Products
Distribution Channel Strategy
Selective Distribution
March 2000

2. The Selective Model
Salon owners object to professional products being sold outside of the salon channel
Salon margins were being squeezed by distributors and would welcome a product sold with a higher GM
Existing intensive distribution provides no services or training to salon operators
Salon operators have little loyalty to existing brands and would readily shift

3. The Product Proposition
Create a new profit center for salons
Special product prescription to match hair type
Special massage and treatment that permits an additional price to be assessed by the salon
Permit sales at retail to be made to enhance the treatment process at home
Train all hair stylists in the product
Allow discounts, cooperative advertising, training in providing the prescription

4. Sales Expectations By 1994 By 1997 Capture 2,421 salons by 1994
Achieve net sales of 10,884,000 or $4,500/salon
Achieve close to break even
By 1997
Rapid expansion to 7,400 salons
Comparable sales increases by 1997
Highly profitable

5. Distribution Realization
In 1994
Achieve average sales run rate of over $3 MM
Gain only 1,337 salon customers
Average sales per salon at 2,
Encountering sales resistance
Sales force closing only 6 accounts per month
Growing distribution by about 1,000 salons per year
Sales force retrenchment to focus on major markets

6. Distribution Costs Sales and marketing costs running high
Sales force costs alone are almost 75% of sales
Show and education costs are half of sales costs
Marketing costs, discounts, etc. to salons are running almost 50% of sales costs
High costs reflect inability to place product in stores at expected rate and expected rate of repeat sales

7. Break Even
Current overhead and selling costs are running at $3.5 M per year
At the current 56% GM, breakeven will not occur until sales reach over $6 M, assuming overhead costs are fixed
If sales increase at $600K per year, there is 4 years to breakeven

8. Implications
With a four year time to breakeven, minimum, the company is likely to require another two to three million dollars of capital
Profits will be slow to grow after this point
Profit potential from the project has diminished enormously

9. Selective Conclusions
Why did Anasazi’s selectivity program fail?
Poor Implementation?
Sales force may not have had adequate product skills
Initial contacts with salons not maintained; weak brand
No pre-testing of the selectivity model
Weak selectivity benefits to salon owners?
Minimal congruence between salon/shampoo supplier
Shampoo not a key element in salon’s differential advantage
Stronger loyalty by hair dressers to prior brands
Would intensive distribution have been a superior alternative?