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Leaving the Hive

When John Replogle (MBA '93) became CEO of Burt's Bees in 2006, sales had been growing by over 30% per year over the previous four years across multiple, increasingly diversified channels of distribution in the United States and abroad. The company's brand leadership in the natural personal care category—itself growing by 15% per year over the same period—was secure, despite growing competition. Replogle's mantra was that all this momentum gave Burt's Bees a unique opportunity to bring natural personal care to the forefront of mainstream personal care in the coming years, a revolution that would be consistent with the original vision of Burt's Bees founder Roxanne Quimby, who thought that the natural and earth-friendly products would ultimately reach "everyone, everywhere." Replogle liked to provocatively claim that Burt's Bees wanted to become the "Starbucks of personal care," in reference to the niche coffee" brand that won over its category by imposing superior product expectations and a renewed sense of meaning in consumption. Achieving this ambitious goal, however, would require many changes for the Maine-born brand that carried an anti-commercial image of friendly quirkiness.
Already, rapid growth had propelled Burt's products into mainstream outlets such as CVS and Walgreen pharmacies. Under Replogle's leadership, the product range would be changing rapidly as well. It would still star the brand's classics, including beeswax lip balm and lip shimmers, and "hand salve" and other esoteric creams and ointments contained in small, endearing containers. Many products would continue to carry the brand's early (and highly recognizable) symbol: Roxanne Quimby's original drawing of Burt's bearded face, half shaded under a flaky hippie hat. However, new product lines, with a noticeably different look, were about to appear on Burt's Bees honey-yellow product displays. Among them, a complete line of hair products would provide efficacious hair care thanks to unique and natural ingredients. The subtly fragrant "Super Shiny" grapefruit and sugar beet shampoo, for example, would be sold in a plain-shaped yellowish plastic bottle (made with 80% post-consumer recycled materials), decorated with a still-life drawing of its ingredients, and marked "98.80% natural." Replogle and his teams were confident that these products, while arguably less "quirky" than earlier offerings of the brand, delivered authentically on the company's mission, which they spelled out as follows:
We at Burt's Bees are very committed to the environment and using natural ingredients. We use recycled packaging which you can use again or recycle in an attempt to avoid creating additional garbage on the planet. Whenever possible, Burt's Bees uses ingredients offered by Mother Nature, not synthetics manufactured in a lab. You will see a percentage natural on every single package.
Critics, and some customers, commented that Burt's Bees was becoming too commercial, losing the authentic elements that had led to its success. To those who doubted that the brand had mainstream potential, though, Replogle pointed out that with only 10% of "pseudo-natural" brand Aveeno's advertising budget, Burt's Bees had 54% brand awareness, 26% trial, and 19% usage, as compared to Aveeno's scores of 95%, 29% and 19%, respectively (see consumer conversion data in Exhibit 1). Still, the question remained: how could Burt's Bees realize Quimby's vision of growing the brand without distancing itself from the people, values and narratives that made it successful thus far?

Company Background
Roxanne Quimby was driving to work when she spotted Burt Shavitz, a reclusive beekeeper, selling honey from the tailgate of his pick-up truck on the side of a rural Maine road.' It was 1984, and Quimby, a graduate of the San Francisco Art Institute, had moved to Maine to pursue a life of "self-sufficient harmony with the land." She purchased a cabin without running water or electricity and took a job as a waitress, just to pay the bills. "I didn't want a career, I didn't want a job. I didn't want to employ any skills—I was just rejecting it all!" she said. "I truly believed that the only way I could live a life that didn't compromise the things I didn't want to compromise was to live in a very rural setting.”

Quimby and Shavitz struck up a dose friendship; he taught her beekeeping and within a few months, they were in business together. Quimby remarked:
Immediately, I saw an opportunity. Burt was selling honey in gallon jars for 12 bucks. You could get more money by selling it in smaller containers to tourists. So I took over the business end. I put honey up in cute little beehive-shaped jars. I made pretty handmade labels and started making candles out of beeswax. Then I took them to the little craft fairs in the little towns!
Quimby found a recipe book of 19"-century beeswax balms and she used it to create products ranging from stove and furniture polish to pet products and lip balm:'
At the fairs, I focused closely on what sold the most and tried to figure out why. I didn't know it then, but it was like having one focus group after another. I learned, for instance, that when people pick up a candle, they turn it over. For some reason, they want to see the bottom, so I made sure the candles were nicely finished with a sharp knife to smooth the mold. I'm not sentimental about products—they perform or they don't. We tried lots of different things. One was beeswax lip balm. It was clear, very early, that people bought lip balm 10 times faster than they bought beeswax furniture polish. Next was a moisturizing cream. It sold better than the polish, too.'
In 1989, Quimby attended the New York City wholesale gift show and discovered an opportunity to sell Burt's Bees products to gift shops. "We were the only booth at the gift show that created excitement—we had long lines," recalled Renee Quimby, Roxanne's sister and Burt's Bees' vice-president of sales. "We started in the gift business because there were few barriers to entry. Customers paid cash and we didn't have to offer trade terms. We sold candles, t-shirts and gift kinds of items. The shopkeepers liked the products, particularly the highly-consumable personal care items, because they drew consumers back to their stores better than traditional gift store fare."
After tapping into the gift shop market, Burt's Bees grew quickly, reaching sales of $3 million in 1993. By then the company had outgrown the local labor pool and its manufacturing facility—a former bowling alley in Guilford, Maine—and in 1994 Quimby announced that Burt's Bees would move its headquarters to business-friendly Durham, North Carolina.
The company began to focus on personal care products, in part because the products themselves were physically small (and therefore easy to ship and transport) and could offer significant mark-ups but also because their manufacturing was automated. "In Maine I'd start people at $5 an hour. In North Carolina, nobody would work for less than $10 an hour. Immediately, I had to get rid of any item that was handmade, including candles, which were half our sales. It was like lopping off your arm. I didn't know if we would survive it, but it was the right thing to do."
In 1995, Burt's Bees opened six short-lived retail stores. "The stores were beautiful, with wood floors and lovely fixtures. But they were only open for a couple of years before we had to dose them. We learned that we didn't know how to manage a retail operation," said Renee. In fact, Quimby had her eyes on the biggest prize of all: mass-market distribution. "Roxanne knew we couldn't make a business from gift stores because they would come and go and place small orders," remarked Renee. "She had visions of Burt's Bees being a big brand, not an exclusive brand, but how?"
In 1999, Burt Shavitz retired to his 64 square foot turkey coop in Maine, and Quimby bought out his 30% share of Burt's Bees, though she kept his image on the labels of several products lines. By then, Quimby had targeted natural and specialty food stores and was wholesaling her products to national health food chains such as Whole Foods and Wild Oats.

Growing Under a New Management Team
The company prospered and sales were over $40 million in 2002 (see selected revenue data in Exhibit 2). Quimby was tired of her commute, however; she maintained her home in Maine while living during the week in an executive hotel near company headquarters.' She sought an investor that would continue to grow the company but allow her to maintain an active role. In November 2003, she sold 80% of the company to AEA, a New York private equity firm, for $180 million. AEA had a reputation for buying small companies, improving their image and sales, and then either selling them to a strategic buyer or taking them public." Analysts expected AEA to broaden Burt's Bees' distribution channels to improve its mass-market appeal and build the company into a $500 million national brand by 2009.
Quimby stayed on in her role as CEO and continued to oversee tremendous growth, reporting sales of nearly $60 million in 2003. By then, Burt's Bees manufactured more than 150 personal care products ranging from lip balms to bath oils. The products were sold in 9,000 natural foods and specialty stores in the United States and Canada, as well as through the company's Web site.
Quimby stayed long enough to realize her vision of establishing mass-market distribution for Burt's Bees when she signed deals with the CVS and Walgreens drug store chains. In September, 2004, however, she returned to Maine permanently and AEA installed new leadership at Burt's Bees. "It was a difficult time for the company," recalled Renee, who noted that Quimby's departure created a leadership vacuum that was compounded by the sudden departure of the company's long-time chemist.
AEA spent much of 2005 bringing in managers experienced in the consumer and packaged goods industries. Doug Haensel, Chief Financial Officer, was among the first to join the company. He noted that he spent his first months strengthening the company's core operations. "We didn't have the infrastructure to support manufacturing, control, policy and procedures," said Haensel "Our overall margins were ok but we didn't have SKU data. Sixty percent of our new policies and procedures are based on industry standards borrowed from Unilever and L'Oreal for example, largely because of Mike and John." Mike Indursky, Chief Marketing Officer, had spent many years with L'Oreal and Unilever while CEO John Replogle had led Unilever's North American skin care division. Renee noted that the new team made immediate improvements, and brought fresh eyes to the business. "The company became more aligned, more corporate, and more professional," she said. By early 2006, the new management team was in place and turned to the task of growing Burt's Bees.

The Natural Personal Care Category
Estimated at $3 billion in 2005 with annual growth of 15%, the natural personal care category was rapidly becoming a strategic growth opportunity for large consumer products companies and small niche brands alike (partial comparative market data regarding conventional and natural personal care can be found in Exhibits 3 through 6). With no guidelines from the Food and Drugs Administration to formally define natural versus non-natural in topical applications, brands could claim to be natural regardless of the actual ingredients included. Tom's of Maine Tom's of Maine was founded in Kennebunk, Maine, in 1970 by husband and wife team Tom and Kate Chappell. Since introducing its inaugural product—a non-phosphate liquid laundry detergent, the first of its kind in the United States—the brand had grown into multiple product categories that achieved estimated 2005 sales of $50 million. With roughly 200 employees, Tom's of Maine sold products in over 40,000 stores, ranging from specialty stores, to health food stores like Whole Foods, to mass-market channels such as CVS, Walgreens and Target. Tom's of Maine chose not to compete across all product categories in personal care, focusing instead on oral care (toothpaste, mouthwash, floss) and body care (deodorant, soap). Priced below Burt's Bees, the brand was number one in natural oral care with 60% share in dollar sales." To promote the brand, Tom's of Maine initiated a national educational tour named Tom's Dental Health for All, sponsored a public broadcasting series called Healthy Body, Healthy Mind, and collaborated with CVS and St. Joseph Health Services to donate cash and in-kind gifts to support pediatric dental clinics that served underprivileged children. In May 2006, Colgate-Palmolive, an $11.4 billion global consumer products company, purchased an 84% stake in Tom's of Maine for $100 million in cash as it aimed to build its oral care portfolio and swiftly capitalize on the trend toward natural." Tom and Kate, who owned the remaining 16% stake, continued to serve as CEO and VP, respectively. Kiss My Face Founded in 1981 by Bob MacLeod and Steve Byckiewicz, two long-time vegetarians, "obsessively natural" Kiss My Face was privately owned and operated out of its original 200-acre organic farm and feed store in Gardiner, New York. With 2004 sales of over $75 million in over 10,000 retail outlets across 19 countries, Kiss My Face was portrayed by its marketers as bringing "humor and style" to the personal care aisle . Kiss My Face covered most product categories in personal care: body, hair, face, lip, oral, sun, kids and baby, and home. Its original line featured natural products priced on par with Burt's Bees, while its "certified organic" line was generally priced at a premium to Burt's Bees. In July 2006, Kiss My Face announced its upcoming entry into color cosmetics with the launch of its Color Line platform for lips, cheeks, and eyes. Marketing Director Herbie Calves explained the new makeup line as an opportunity to "gain more crossover consumers. Natural beauty care is a legitimate trend and is trickling down to everybody." In addition to distribution in health food stores like Whole Foods and smaller specialty venues, products were sold through the company's website with limited SKUs available exclusively on (though not in CVS stores). Kiss My Face served as sponsor and official sunscreen and moisturizer supplier to the United States Ski & Snowboard Teams in 2005-2006, positioning itself with consumers as a youthful outdoors lifestyle brand and promoting "fitness and persona' confidence. The brand ventured into the mass market in October 2005 when it introduced ONBODY, a unique line of facial moisturizers, shower gels, body scrubs, hand soaps, soy candles, olive oil bar soaps, and lip balms sold exclusively at Old Navy retail stores. Old Navy heavily promoted ONBODY online, in newspaper circulars, through in-store promotions and testers, and via direct mail during the winter holidays of 2005. Nature's Gate Nature's Gate was created in Chatsworth, California in 1972 by two Russian immigrants, brothers Vladimir and Leo Weinstein, and acquired by private equity firm Harvest Partners in November 2004. The brand was number one in hair care in the natural grocery channel with 22% share in dollar sales, and it generated estimated sales of $30-40 million in 2005 While Nature's Gate was known primarily for its leadership in hair care, the brand marketed a broad range of other products, including face care, body care, oral care, fragrance, sun care, and baby care. Brand managers targeted consumers through three primary platforms: a classic platform offered basic benefits, while the organics platform and the organics advanced platform provided more sophisticated, advanced formulations. The classic line was priced at a level comparable with Burt's Bees, while the organic lines were more expensive. Nature's Gate focused its product development strategy on technological advances and innovative formulations. Face care treatments featured microdermabrasion and multiple anti-aging serums; anti-acne solution used salicylic acid and other anti-bacterial elements like oligopeptide-10. New packaging was introduced in 2006 to modernize and professionalize the brand and "emulate more conventional beauty products," attempting to convey an "upscale feel" around the products. In addition to distribution in health foods stores like Whole Foods and smaller specialty venues, products were also sold through the brand website with limited SKUs available exclusively on (though not in CVS stores) JASON Natural Products Founded in 1959 by Jeffrey Light in Los Angeles, California, JASON's stated philosophy was, "it is equally important to pay attention to what you put on your body as well as what you put in it." The brand was acquired in June 2004 for approximately $18 million by Hain Celestial, a $740 million natural and organic food and personal care products company that owned popular brands like Celestial Seasonings, Terra Chips, and Garden of Eatin'. JASON products were priced roughly in line with Burt's Bees across product categories. With estimated 2005 sales of $20-25 million, JASON offered a broad product portfolio, without leadership in any one category. The brand was seeking to challenge Burt's Bees in the mainstream drug channel, announcing in June 2006 its partnership with CVS to allocate eight feet of shelf space to test natural products in 300 select CVS outlets in California in 2007. JASON suggested that CVS feature competing brands, including Alba Botanical, Avalon Organics and Nature's Gate, alongside its products to lend greater credibility to the new natural set. Although some mass outlets already stocked natural personal care, this particular collaboration represented the first in which focused in-line shelf space would be dedicated to several major natural brands that typically retailed only in the natural grocery channel. Avalon Natural Products Avalon Natural Products was founded in 1989 by husband and wife team Mark and Stacy Egide, in Novato, California. The company outsourced all manufacturing to third parties. Originally comprised of seven personal care brands, the company was acquired in 2002 by North Castle Partners, a private equity firm, which streamlined to two: Avalon Organics and Atha Botanical. The company generated estimated annual sales of $40 million." In 2006, North Castle sold Avalon Natural Products for $120 million in cash to Hain Celestial, which intended to "create a more significant platform for continued expansion" in natural personal care. Avalon Organics products retailed at higher prices than Burt's Bees products and were marketed as "an experience that is sensual, satisfying, effective, and conscious of the greater good." The brand "honored your intelligence, your natural beauty, your well-being, and the earth.” Alba Botanical retailed at prices similar to Burt's Bees, with marketers portraying the brand as "exotic body care products . . . [that] delight your senses, enhance your natural beauty, and match your personal style.” In 2005-2006, Avalon Organics reinforced its commitment to healthy living through Consciousness in Cosmetics, a campaign designed to motivate consumers to make more informed decisions in their selection of beauty and personal care products. To reinforce this effort, the brand initiated reformulations across all product categories to ensure that only the best natural and organic ingredients were being used. The company also moved to "full disclosure labeling” and a "commitment statement" on its packaging as promises of product quality and integrity. Aveeno Burt's Bees management regarded Aveeno as one of its principal pseudo-natural competitors in mass outlets. Aveeno was founded in 1945 when the Musher brothers, in conjunction with the Mayo Clinic, introduced Soothing Bath Treatment, a gentle bath additive that was made from colloidal oatmeal to care for dry, irritated skin. Given its therapeutic origins and early collaboration with medical professionals, Aveeno was often recommended by dermatologists to treat a number of skin problems, including psoriasis and eczema. This third-party endorsement, alongside several awards by leading beauty and health magazines, helped Aveeno develop credibility and trust with consumers in the mass marketplace. Aveeno was acquired by Johnson & Johnson in 1999. Since its initial bath product, Aveeno had expanded into face care, body care, lip care, baby care, and sun care, generating estimated annual sales in excess of $200 million. All product categories made use of the brand's proprietary Active Naturals technology, which created skin-enhancing formulations from several signature ingredients, including soy; oatmeal; feverfew; and lavender, chamomile, and ylang-ylang. In October 2006, the brand announced plans to launch in 2007 a dedicated anti-aging platform called Positively Ageless that would introduce shiitake and reishi mushroom into the brand's complement of natural ingredients. Though the company claimed the brand was natural in its marketing and advertising efforts ("discover nature's secret for beautiful, healthy looking skin"), Aveeno contained parabens and other synthetic chemicals in its products. Products were sold in food, drug, and mass retailers as well as in specialty stores like Ulta. Other Mass Market Brands The personal care market was also populated with a number of famous brands that made occasional natural claims. Johnson &Johnson's Neutrogena, with estimated 2005 sales of more than $1 billion, introduced washes and scrubs made from botanical oils and featuring fruit scents, and launched in cosmetics Mineral Sheers Powder Foundation, capitalizing on the growing beauty trend in natural mineral makeup . In January 2007, Gamier, L'Oreal's $400 million brand spent $70 million on advertising and promotion to launch a new line, Nutritioniste, positioned as "natural and high-tech," to ride the health and wellness trend Herbal Essences, a $700 million Procter &Gamble brand made famous by its television commercials featuring young women having intense sensory responses to its shampoos, maintained a pseudo-natural positioning within food, drug, and mass stores, promoting the fruity ingredient bases in its hair care formulations as creating a "totally organic experience ."

Product Development and Manufacturing: "Harvesting From Nature"
Burt's Bees defined its products as "harvested from nature," meaning it used natural ingredients—those derived from plants, fruits and seeds—nearly exclusively, and avoided traditional chemicals and fillers such as petroleum, sodium lauryl sulfate and propylene glycol." Burt's Bees labeled each of its products with a "natural bar," which let consumers know what percentage of the product was natural. While many were 100% natural, some contained a small percentage of lab-created chemicals. For example, vitamin E, a natural ingredient important to skin care, did not remain stable in its natural state and needed to be included in the form of an organic compound, tocopheryl acetate. The company avoided artificial preservatives, opting instead to use natural preservatives and to package its products in small containers so that consumers would finish them before the products expired. In addition, Burt's Bees products used only natural colors and fragrances. Finally, the company created its packaging from recycled materials, or, developed them with re-use in mind (see depiction of Burt's Bees product assortment in Exhibit 7).
The company's manufacturing, research and development, and quality control departments reported to Indursky. The marketing team defined consumer needs, and provided the research and development department with product guidelines that characterized the intended product benefit. Chemists then created product formulations using ingredients that supported the benefit, matched with complementary fragrances. To be included, ingredients had to be deemed natural, unique and effective. Once created, the products were tested for efficacy. "We don't do head to head tests with consumers against our competitors," said Replogle. "We test for efficacy and, by and large, our products are highly effective." Indursky agreed:
Roxanne and Burt were part of the natural lifestyle and believed they were the consumer so they had traditionally not done research. We don't ask consumers to help in creating products because they're never going to say, "We need shampoo with green tea." We use them to validate, not create.
Consumers were often surprised at how well the products worked. "We hold in-store consumer seminars where we allow people to test the products and they discover that natural products work better," said Renee. "And, smell is important. In some stores, testers are open so people can smell the product. You would think we would appeal to hippies, but not really. Our products have very broad appeal. Many consumers probably don't even know it's natural. People respond to the ingredients which are very rich, not watered down," she said.
When proven effective, products moved into manufacturing. The company used state of the art compounding (mixing) and filling machines and was able to produce as many as 120,000 lip balms per machine per day. Even so, the manufacturing process was labor intensive, particularly the pack-out, for which Burt's Bees hired contractors who worked on site. "Our core competence is blending, not packing," said Replogle.
The manufacturing plant was highly efficient and produced very little waste. "We're environmentally sensitive," said Replogle, who noted that the herbs used to infuse Burt's Bees products were used as compost mulch that was, in turn, used for bio-diesel. "Our employees use it as a substitute fuel," said Replogle. The company prided itself on its worker safety record and by 2006, had logged over 1 million hours without a work-related accident.
The company warehoused its products on site, but the vagaries of demand and the increasing product variety (162 stock keeping units, of which 22 were added in 2006) caused Burt's Bees inventory to stay below 3 turns, "very low for a business of our size," said Replogle, who had already begun the process of weeding the garden. Marginally profitable SKUs were discontinued and Replogle had plans to take another 25 SKUs off the market.
Haensel pointed out that the need to prune the product line went beyond warehouse considerations. "We have a real estate issue in stores because of the size of our shelf displays. We need to make room for more products." Replogle agreed. "We needed to rationalize the line," he said. "This meant discontinuing some products while developing full ranges within new categories, such as shampoo, where we currently offer no products. If you are going to be in personal care, you need to be in shampoo and body wash. We had three different hand creams because in Maine, everybody had chapped hands, but no shampoo," said Replogle. Indursky pointed out that although the company had long wanted to launch a shampoo line, it had been unable to develop one that would satisfy both its natural and benefit delivery claims. "We couldn't find a natural cleaner for shampoo that lathers, until this year. Consumers are uncomfortable with shampoos that don't lather but until 2006, we weren't able to develop a natural product that would meet this need so we delayed launching altogether," said Indursky.
The company insisted on only developing products that served an explicit healthful purpose. This commitment kept Burt's Bees from pursuing innovation in high-demand subcategories such as firming body lotions; lip plumpers and hair color applications, though it had experimented in the past with color cosmetics. "The line was a misfit, right down to its use of live models on the packaging," said Replogle, who noted that it was discontinued in 2006.

Marketing "Natural and Earth-Friendly Personal Care Products"
The Burt's Bees brand was affectionately referred to as "quirky," even by the managers charged with growing the franchise. The bright yellow packaging, decorated with images of bees and sometimes Burt's bearded face, stood out conspicuously in a line-up of personal care brands packaged in neutral tones with sophisticated typography. "There's nothing phony about this brand," said Indursky. "The essence of the Burt's Bees brand is the greater good, but with a wink. The packaging communicates this lighthearted authenticity." Different, too, was the brand's use of fruits, seeds and vegetables in its products and its straightforward labeling that promoted these ingredients. "What's on the box is in the product," said Indursky, referring to the company's Garden Tomato Complexion Soap and Carrot Nutritive Day Crème. "Carrots repair and refresh damaged skin, and, it is a unique ingredient. No one else has a carrot lotion on the market and this adds to Burt's Bees authenticity," said Indursky. The company's drive to create unique products resulted in a somewhat cacophonous ensemble. "Our business consists of a series of masterpieces and one-offs," explained Replogle. "There's no harmony. We went for a series of hits rather than line architecture."

Consumer Loyalty and Feedback Burt's Bees managers often described their consumers as fiercely loyal. "When I tell people where I work, I get the same reaction over and over again: 'Oh. I love Burt's Bees!" said Haensel. "People who know the brand are passionate about it and truly love it." Indursky believed the passion went beyond product loyalty. "Burt's Bees is part of a lifestyle, part of a belief system," he said, crediting Quimby for creating a loyal following based largely on the strength of her own convictions about the brand. The company relied on consumer feedback received through its Web site, formalized into a monthly report circulated to senior management (see Exhibit 8). "Historically, we have had a shallow view of our products from the eyes of consumers," said Replogle. "Roxanne got regular feedback from consumers at craft fairs, read letters from consumers and relied largely on her own intuition." Renee agreed. "We had no marketing department and received only a little feedback from our sales representatives," she said. "Roxanne felt that consumers had a hard time articulating what they wanted so she didn't invest in focus groups or other systematic research methods. She preferred to watch their behavior instead." Communications In its early years, Burt's Bees grew steadily without investing in marketing communications. Indeed, retailers often called the company to inquire about distribution as they experienced consumer demand driven largely by word-of-mouth. Quimby believed strongly in the value and effectiveness of product demonstrations, however, and after the company discontinued selling at craft fairs, it began to host store demonstrations and seminars, notably at Whole Foods. In 2005, the company launched a print and radio advertisement campaign to announce its distribution relationship with CVS and Walgreens. However, company managers viewed the campaign as unconvincing, primarily as a result of weak creative execution. "We have learned that to be successful, our marketing must convince with four simultaneous elements of value proposition: efficacy, natural, socially responsible and quirky/ friendly. In that campaign, we pulled too hard on the quirky and natural levers, which caused people to wonder about the other attributes," said Indursky. In 2006, the company went back to its roots, investing most of its marketing budget on a national product demonstration tour called Bee-Utify Your World. "It was a way for us to re-create the craft fair environment on a national scale," said Replogle. "It was an ingredient and product-centric tour." The company conducted a geographic sales analysis and selected its top 30 cities as tour stops. At each city, the tour aligned with a large, existing local event such as the Eastern States Exposition, an agricultural exhibition held annually in Western Massachusetts. Once on site, managers set up a 4-room tent where Burt's Bees employees offered consumers free samples (a total of 1,250,000 samples were distributed), hand massages and over 65,000 product demonstrations. Over the course of the year, Bee-Utify Your World purported to create 10 million high quality impressions of Burt's Bees. "We looked at sales over a four week period immediately following each event and found that sales growth was five times higher than usual," said Indursky. Distribution Most personal care products manufacturers used wholesale distributors to sell their products to retailers, but Burt's Bees sold directly to nearly all of its accounts (see channel shares in Exhibit 9). In the 1990s, Quimby had met with the company that distributed the Tree of Life natural products line to inquire about establishing a relationship: They told us we would never make it in the health business. Plus, they wanted to price-promote and preferred to represent only established brands. In the end, we decided not to use them because they were expensive and we preferred to deal directly with retailers so we could dictate our own terms. Besides, retailers were coming directly to us and that gave us negotiating power. We never had to make a sales call. Through the early 2000s, the company offered its retailers generous margins—much higher than industry norms—but in exchange, withheld trade terms and accepted no returned goods. "We wanted to dissuade retailers from offering discounts to consumers," explained Replogle. "Specialty shops couldn't offer discounts or they wouldn't hit their minimum profitability margins. This kept the playing field level." As sales grew in mainstream accounts, Burt's Bees came under pressure to offer wider trade terms. "We had a limited set of terms without any real logic and they weren't strictly performance based (the retailer advertised the products in their circular, for example) so we've been cleaning this up," said Haensel. Sales forecasting had been unnecessary when the company was selling primarily to small accounts, but as it expanded, forecasting became a critical tool for managing inventory and resources. "We had limited ability to forecast, and when we moved into larger accounts, we found ourselves with a $1 million order one month and nothing the next," said Hansel "It was very difficult. In 2006 our sales reps began to work with our customers to better understand their demand and to look at their purchase order data and consumer sell-through figures to determine when they'll hit a buy point and place another order," he said. "We could see business spike during cold weather and at gift season, but beyond that, we didn't have much information," said Haensel Renee acknowledged that some specialty and health store customers were concerned about Burt's Bees' distribution through drug stores. "They think we're sending mixed signals," said Renee. "Some have left us, some have pulled back on shelf space and are finding replacement products because they need to be selling something special—not a mass market brand." Burt's Bees used dedicated end cap and in-line shelving displays called "hives" to stock and merchandise its products. While most personal care products were displayed on various shelves by category with similar products, Burt's Bees products were grouped together in the hives. "We try to fight having our products separated by category," said Haensel. "With Whole Foods, where our products were sold both in line and in the hive, we found that people bought multiple products within the range from the hive." The hives were easy to manage. "CVS in particular liked the hive because they didn't have to kick anyone off the shelf, so it was a good trial for them. But they warned us that we're going to outgrow the hive quickly," said Hansel Indeed, while the hives were novel, they had limited depth and were often able to fit only a limited number of SKUs. "Until now, we've held the space," said Replogle. "Now that we're moving from creating individual masterpieces to developing a range, the question is what the next merchandise frontier is? Are we willing to give up the hive and move onto the shelf?" he said. Product Pricing Upon joining the company, Replogle discovered that the company lacked a rational pricing scheme. "Sometimes products were priced on a cost plus basis working backwards from the consumer price point. For example, an item they wanted to price at $9 at retail was assigned a wholesale price of $4.50, regardless of production costs," said Replogle. Recognizing the complexity of managing distribution through the conflicting mass market and specialty channels, Replogle hired McKinsey consultants to help develop a new pricing and terms structure. Burt's Bees charged all of its customers the same price for its products and suggested retail pricing, which most—but not all—customers honored. Company research showed that 15% of its customers sold its products at a discount to consumers, 15% sold at a premium and 70% sold the products at the suggested retail price. Replogle was adamant that the brand not be price-promoted and sought out retailers that supported the brand's equity. "We do not price promote the brand. We have one price list," said Replogle. "We will not fund price promotions." Envoi
Though some analysts believed that Burt's Bees needed to sell consumers on the idea of natural personal care products, Replogle believed differently. "One out of every four American names health and sustainability as core consumption values, and the distinction between us and pseudo-natural products will become increasingly clear to the marketplace. Our main challenge is not to convince the marketplace," he said. "Our challenge is to evolve the company through a change from being an entrepreneurial company in a niche market to a category leader in a transformed market."
Replogle has done a good job of expanding Roxanne's vision," said Renee. "We still are what we were, but now we're trying to evolve Roxanne's vision."

Exhibit la Consumer Conversion: Awareness, Trial and Usage of Personal Care Products Burt's Herbal Tom's of Bees Aveeno Essence Gamier Aveda Maine Trial/awareness (%) 48 31 41 38 26 18 Usage/trial(%) 73 66 63 58 53 86 Usage/awareness (%) 35 20 26 22 14 15 Source: Company documents.

Exhibit lb Consumer Conversion: Awareness, Trial and Usage of Personal Care Products

Exhibit 2 Selected Revenue Data, 2000-2005 2002 2003 2004 2005
Gift/specialty store 39.9% 44.6% 48.8% 31.2%
Health stores 29.0% 24.5% 19.5% 15.2%
Drug stores 9.0% 9.0% 11.4% 29.3%
Distributor 5.1% 6.1% 7.3% 12.8%
Grocery 6.0% 5.4% 5.1% 6.9%
Other 11.1% 10.5% 7.8% 4.7%

Net Revenue 100% 100% 100% 100%
Growth 29.3% 36.8% 42.4% 26.2%
Source: Company documents.

Exhibit 3 Conventional Health & Beauty Care vs. Natural & Organic Personal Care in the United States, 2005 HBC NPC NPC NPC
Category ($ millions) ($ millions) Penetration Growth
Cosmetics 13,850 302 2.2% 18.8%
Feminine hygiene 2,620 59 2.2% 12.6%
Haircare/coloring products 9,510 1,097 11.5% 17.1%
Baby care 660 88 13.3% 14.4%
Nail care 720 19 2.6% 7.2%
Oral hygiene 4,580 453 9.9% 13.5%
Bath items 440 102 23.2% 14.0%
Deodorant 1,490 155 10.4% 18.3%
Shaving products 1,840 98 5.3% 13.4%
Skin care 8,000 2,193 27.4% 13.4%
Bath/toilet soap 3,030 716 23.6% 13.5%
Fragrances/aromatherapy 6,510 280 4.3% 14.3%
Total 53,250 5,562 10.4% 14.6%
Source: Nutrition Business Journal, Volume Xl, No. 8, August 2006, p. 3.

Exhibit 4 Partial Comparative Market Data Regarding Natural and Pseudo-Natural Persona' Care Products % of Respondents Annual Ad Spend 2005 2005, Who Considered as a % Market Share Market Share Brand Natural of Revenue Natural Grocery Drug Channel
Burt's Bees 7.30% 0.40%
Aveeno 75 1.10%
Tom's of Maine 73 1.90% 5.00%
Nature's Gate 64 0.30% 5.50%
Kiss My Face 32
Ivory 30
Neutrogena 28 2.90%
Dove 24 10.30%
Herbal Essence 20 12.80%
Oil of Olay 18 3.40%
Jason 6.10%
Alba Botanicals 4.70%
Source: Company documents.

Exhibit 5 Comparative Retail Prices per Ounce, 2005
Body Lotions!
Category Hair Face Care Cosmetics Lip Balm Soap & Bath Creams
Burt's Bees $0.62 $3.75 $35.90 $16.67 $0.58 $ 3.50
Aveeno $1.40 $23.27 $0.54 $ 2.00
Johnson & Johnson $ 1.43
Dove $0.42 $ 2.20
Neutrogena $0.48 $ 1.31 $19.93 $ 2.00
Eucerin $ 1.85
Vaseline $ 1.83
Aubrey Organics $10.00
Dr. Hauschka $71.88 $11.74
JASON $0.43 $ 1.07
W.S. Badger $3.25
Zia $7.62
Pantene $0.34
Suave $0.15 $0.22
Herbal Essences $0.33
Aveda $3.09
Biolage $0.71
Ponds $1.04
Almay $71.29
Bonne Bell $21.36
Physicians Formula $14.26
Chapstick $10.87
Blistex $10.60
Alba Botanical $23.27 $0.71
Natures Gate $14.96
Kiss My Face $23.33 $0.56
NPC cateqory size, 2006
(in millions) 59 58 15 13 66 34
Burt's Bees Rank 14 4 1 1 11 3
Category Leader Naturtint Dr. Hauschka Jason Alba Botanicals
Source: Company documents.

Exhibit 6 Growth Rates in the Natural Personal Care Category

Exhibit 7 Burt's Bees Product Assortment

Exhibit 8 Selection of Consumer Quotes For Burt's Bees Products, Week Ending September 15, 2006

General Just wanted to say how much my family loves your products. Please add me to your mailing list and thanks for making such great products! I just wanted to let you all know, that I love your products, and you do a great job! Thank you for making such great things and for providing such a great product for us. I just wanted you to know how wonderful the products I have used from Burt's Bees have been. I used to give the complexion soaps for great Christmas Stocking stuffers or presents, and then I found your lip balms, and toners. I adore your products and love the natural aspect of them. I am a customer for life and continue to add my friends to your customer base. Keep up the good work!!! A BIG THANK YOU FOR BEING CRUELTY FREE AND A MEMBER OF PETA. MY 4-LEGGED BABIES SEND A BIG GOD BLESS YOU TO YOU ALSO!!!!! Baby Bee I just want to thank you for curing my 6 month old son's eczema. Yes, that's right.., it's g-o-n-e. He has had it since he was about a week old (about the same time we began bathing him in the "leading" baby brand wash. Hmmmm) and it got so bad that he was pretty much covered with red, scaly blotches. It was horrible to look at and must have been even more horrible for him. Anyway, I began using the Baby Bee Buttermilk Bath, Buttermilk Soap and Buttermilk Lotion on him a month ago and tonight as I was applying his lotion after his bath noticed that the last of his eczema has disappeared. I totally credit Burt's Bees and I will continue to purchase Baby Bees not only for my family but for all of my friends' kids! Thank you, thank you from the bottom of my heart. And if my son could speak, I'm sure he'd be saying, "Burt's the man." Face I have recently been turned onto your products and I absolutely love them. I wasn't sure if the tinted moisturizer and vanishing powder would provide enough coverage, but they did! And no confusion over color selection like you get with "department store" brands. The light worked perfectly with my skin and it looks healthy and fresh ... not caked on! I love Burt's Bees! I recently purchased my first jar of the Lemon Poppyseed Facial Cleanser and quite honestly am amazed at the immediate results I have had. I have rosacea and have to be careful what I use on my face. I've tried dozens of products and this is the only one I've found that makes my face look and feel like a newborn baby's butt—only cleaner! It's wonderful and I will use it forever. The Radiance Night cream is absolutely phenomenal! I have sensitive skin, and my face had scarring from several years ago. To my astonishment, it has started to heal the scars! I mean I have only been using it for about a week, and I am so pleased! It literally has brought tears to my eyes, because the scarring is so much less noticeable! I can't thank you enough for this fantastic product! I will never put anything else on my face! I am forever grateful for your product. Thank you for making me feel and look better! Body I just wanted to let you know how much I LOVE your herbal deodorant. I have had a very hard time finding a deodorant that works for me and I was very skeptical about the herbal deodorant. However, I am amazed! Not only does it work for a few hours but it works all day! I am in the military and spend a lot of time in hot/humid areas—but this stuff does the work! Thank so much for making such a wonderful product! I had been looking into an all natural deodorant for a long time. Being a natural healthcare professional I know how important it is to take care of the largest organ of the body particularly the underarms for women. I had tried many natural deodorants only to find that they left me with a horrible rash that lasted for months or they did not treat the odor. Your herbal deodorant - The Defender" not only has been a fantastic deodorant it treated the rash as well! Please do not discontinue this fabulous product. I also have experienced when I find something I like, the manufacturer discontinues it. I will make sure I share this with my patients. Thanks Burt! As the manager of a garden center, spring is an extremely hard time of year. After sitting by the fire for two months in winter, the old body gets a little out of shape! A friend gave me a gift pack with the bath crystals in it. One night I decided to give them a try. I stepped out of my tub feeling like a new person! They are now part of bath nearly every night. Bravo, Burt for making me feel young again! I just recently picked up a jar of your day radiance crème, so maybe I can look as good as I feel! Thanks! Hair I made my first Burt's Bees purchase, Super Shiny Grapefruit & Sugar Beet Shampoo. I love it, I have lots of gray and its soft, and manageable and has body. I will be trying your new radiance skin care, thanks for your products. Lips I just wanted to let you know that I love Burt's Bees honey for the lips!!!!!!!!!!!! It's awesome. All I can say is "Wow!!" about the Lip Shimmer. For years, I've been searching for the perfect sheer color that looks natural, with a little shine to it. I hate sticky, thick gloss -- but this is the best of both--the Burts Bees lip balm I absolutely LOVE, with a little color. PERFECT! Great job! Marketing Your hive at the Oyster Festival in Norwalk this weekend was great! The people who represented your company were all super! And it was a great chance for me to check out some of the products that I've seen online but never in my local stores. Hey, and thanks for the Blue Spruce twig. I've planted it in my yard and hope that someday that twig will be big enough to sport some festive lights in future Decembers. Discontinued Products (Bay Rum discontinued men product). I previously purchased this product at the Flaming Ice Cube in Youngstown, Ohio. It was in a men's gift kit, smelled great and did an excellent job. Do you no longer make this product? If not, WHY??!!!! A day of too much sun in Florida, or blemishes from excess perspiration are easily healed with this product. I think the kit, also included lip balm and spice type cologne. Is it the balm available? Thanks! Hello, A few year's ago someone gave me a gift of Burt's men's aftershave balm - I believe it was bay rum. It was great stuff. I have sensitive skin and most other aftershave lotions irritate my skin a bit, or smell awful. I don't see it on your site. Is there a way to still get the bay rum aftershave balm? Greetings from Australia! Situation: I used to live in the USA and used your excellent products, out here, I cannot get any. Solution: Our daughter is coming out here to visit us and can bring a supply with her, now, here we seem to be in an interesting situation as I cannot fine any mention of the Bay Rum products. Do you no longer make them? Please advise. Many thanks. Have you really discontinued the bay rum after shave products? If so are you planning on replacing them with another line? I have been using this for about 3 years - no longer able to find it and did not see it on your web site. So - why did you quit making it? I really liked it. We switched to natural products when my wife had cancer 4 years ago. She is now cancer free after following a natural program put together by Dave Frahm in A Cancer Battle Plan. Have a good day! Hi, This is my favorite shaving lotion and it looks like you have discontinued it. Is this true? If not, where can I find it. If so, how can I source where it still may be in-stock? Thanks! This was an awesome product ... My husband loves it! Do you still make it? I can't find it on your website. There used to be a shaving cream. I can't find it anymore, will it come back? I was CRUSHED when a friend pointed out you discontinued you Bay Rum Shaving Soap. It was my absolute favorite, as it was my friend's. I know that one only needs a tiny bit and therefore does not buy bars that often. But the quality of soap and the scent were unequalled! PLEASE, PLEASE reconsider your decision. It was the closest thing to cologne I was willing to wear, and would always get great comments about how I smelled after shaving, and made shaving so easy. PLEASE RECONSIDER!!!! I was real disappointed when I found you no longer ke t bay rum scented shaving soap. I was told it was not a big seller. I think that's because it last long. Maybe you could make it dissolve faster so you could sell more of it. I especially enjoyed the way my wife reacted to the scent. It improved my life in so many ways. She also enjoyed the bay rum exfoliating soap, which you also discontinued. Is there any chance you might have any of these products left in a warehouse somewhere? If so I would like to purchase as much as I can. I have searched high and low for fig lipstick but cannot find it anywhere, including your online store. Whole Food s in Sebastopol CA said that you have discontinued this color. Not only myself, but three friends all wear this color and would be sad if that is true. None of your other colors work with our complexion and you would loose us as customers. We would like to continue to support your company. If you can locate any of that lipstick color let us know and we will gladly buy it. Thanks. ALWAYS PURCHASED YOUR LIPSTICKS (LATEE &PLUM AND DIFFERENT SHIMMERS TOO) AT LAVENDER BLUE (LB) IN BAY RIDGE BROOKLYN NY. THE LAST LATTE LIPSTICK BROKE OFF DURING NORMAL USE AND I HAVE BEEN ADVISED BY LB THEY NO LONGER CARRY ANY OF YOUR LIPSTICKS (SAID THAT YOU NO LONGER MAKE AND TO LOOK ON LINE) AND I CANNOT USE THE BROKEN ONE. PLEASE TELL ME IF THERE IS SOME WAY TO GET REPLACEMENT/NEW ONE?? Hello, I was wondering if the fig lipstick was just temporarily going to be out-of-stock or is this a permanent thing? I have always loved this shade and I hope this is just temporary. HELP!!! I just went to buy more of my favorite color of my favorite lipstick and was informed you are discontinuing the product. Tell me it isn't so. You have the best product on the market anywhere. I have used the dept store brands and drug store brands you beat them all hands down. Please DO NOT discontinue a GREAT product. Please respond. I am still have trouble finding the fig lipstick! and you are also out of it -- what is the DEAL? I can't live without it. I have used this lipstick for years and hope it's not gone forever. Will you be bringing this product back? Do you know where I can find any now? Help .... I've contacted all local suppliers, hoping to buy out the FIG color lipstick which is apparently no longer going to be available, and can't get it online. Is there any way a search can be done to find out if there's any in back storage there? I'd be glad to buy a case load, if necessary. Please let me know. Dear Burt's Bees -- You are breaking my heart. First you discontinued your HONESTY lip pencil and now no FIG LIPSTICK!!!! I have tried ever other natural lipstick and NO other one tastes, feels or looks as good on me! I beg you to bring FIG back! I will model for you. I will scrape honey combs. Whatever. Source: Company documents.

Exhibit 9 SKU Sales per Channel, 2005

2005 Sales All Other % of Sales
Channel Top 30 SKUs SKUs Total Top 30 SKUs Drug stores 33.5% 23.9% 29.6% 68% Gift/specialty 33.4% 20.1% 28.1% 71% Health food store 10.9% 21.6% 15.2% 43% Distributors 10.1% 16.8% 12.8% 47% Grocery chains 6.6% 7.0% 6.8% 59% Internet companies 2.4% 4.2% 3.1% 46% Burt's Bees Website 1.2% 4.5% 2.5% 29% College bookstores 1.9% 1.7% 1.8% 62% Other 0.1% 0.2% 0.1% 39% Total, all channels 100% 100% 100% 60%
Source: Company documents

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