Chile - Market Report

1. Chile - Market Report Ali Cheema Bobby Ferguson Jon Johanson

2. Overview Market/Country Situation Projected Sales Production Considerations Conclusion

3. Market/Country Situation Market Attractiveness Index Location: Southern South America, bordering the South Pacific Ocean, between Argentina and Peru Total Area: 756,950 sq km Population: 16,454,143 (July 2008 est.)

4. Market/Country Situation High level of foreign trade Reputation for strong financial institutions 57 trade agreements, including MERCOSUR Foreign investment of $17 billion in 2008 Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America. It has 57 such agreements (not all of them full free trade agreements), including with the European Union, Mercosur, China, India, South Korea, and Mexico. Over the past five years, foreign direct investment inflows have quadrupled to some $17 billion in 2008Chile has a market-oriented economy characterized by a high level of foreign trade and a reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America. It has 57 such agreements (not all of them full free trade agreements), including with the European Union, Mercosur, China, India, South Korea, and Mexico. Over the past five years, foreign direct investment inflows have quadrupled to some $17 billion in 2008

5. Market/Country Situation GDP: $181.5 billion (2008 est.) Labor Force: 7.32 million (2008 est.) Unemployment Rate: 7.5 percent Industries: Copper, foodstuffs, iron/steel, wood and wood products Labor force - by occupation: agriculture: 13.2% industry: 23% services: 63.9% (2005) copper, other minerals, foodstuffs, fish processing, iron and steel, wood and wood products, transport equipment, cement, textiles Labor force - by occupation: agriculture: 13.2% industry: 23% services: 63.9% (2005) copper, other minerals, foodstuffs, fish processing, iron and steel, wood and wood products, transport equipment, cement, textiles

6. Market/Country Situation Import Partners: US 16.7%, China 11.2%, Brazil 10.3%, Argentina 9.9% (2007) Export Partners: China 14.8%, US 12.5%, Japan 10.5%, Netherlands 5.8%, South Korea 5.7%, Italy 5.1%, Brazil 5% (2007)

7. Market/Country Situation Chilean peso (CLP) Chilean pesos (CLP) per US dollar - 509.02 (2008 est.), 526.25 (2007), 530.29 (2006), 560.09 (2005), 609.37 (2004) Takes .0018 USD to buy one Chile Peso (CLP)Takes .0018 USD to buy one Chile Peso (CLP)

8. Market/Country Situation Toothpaste sales in Chile, last six years (Millions of USD) Current Year: 83.1 Previous Year: 78 2 Years Ago: 78 3 Years Ago: 69 4 Years Ago: 65 5 Years Ago: 59

9. Market/Country Situation Competitive Markets Shares (%) B&B: 11.5 Caremore: 0 Driscol: 0 Evers: 0 Locals: 56.8 Regionals: 31.6 Manufacturer Sales: $83.1 million US B&B: Britesmile and Bancav Caremore Company: Clean & White, Caregate Driscol: Dentacare Evers: EversmileManufacturer Sales: $83.1 million US B&B: Britesmile and Bancav Caremore Company: Clean & White, Caregate Driscol: Dentacare Evers: Eversmile

10. Market/Country Situation Marketing Strategies of Competitors Most common is whitening, medium size, tube, paste Second: Economy/Healthy, small size, tube, gel Competition does not market towards kids Toothpaste pump is not used, only tubes Economy/healthy benefitEconomy/healthy benefit

11. Market/Country Situation Benchmarking Local One is leader Average annual profit is 7,020.2 (Mill. CLP) Caremore performed poorly every year Average annual loss is 577.2 (Mill. CLP) 7,020,000,000.00 CLP = 11,709,382. USD Chile Pesos � United States Dollars 1 CLP = 0.00166800 USD � 1 USD = 599.519 CLP 577,000,000.00 CLP = 962,436. USD Chile Pesos � United States Dollars 1 CLP = 0.00166800 USD � 1 USD = 599.520 CLP7,020,000,000.00 CLP = 11,709,382. USD Chile Pesos � United States Dollars 1 CLP = 0.00166800 USD � 1 USD = 599.519 CLP 577,000,000.00 CLP = 962,436. USD Chile Pesos � United States Dollars 1 CLP = 0.00166800 USD � 1 USD = 599.520 CLP

12. Market/Country Situation Market Share Local One consistently has largest market share among competitors Allsmile gained 100 percent of kids market by year two Year One: Local One- 62.3% Regional One - 27.1% Year Two: Local One - 48.1% Regional One � 20.8% Year Three: Local One - 32.7% Allsmile � 24.8%Year One: Local One- 62.3% Regional One - 27.1% Year Two: Local One - 48.1% Regional One � 20.8% Year Three: Local One - 32.7% Allsmile � 24.8%

13. Market/Country Situation Retail Sales Hypermarket and Traditional sales most popular Local One dominates Traditional market Local One claimed most sales overall Hypermarket 28,316 (Mill CLP) $50,968,800 US Traditional 26,266 CLP $47,278,800 US Self Serve 18,888 CLP $33,998,400 US Web/Other 1,916 CLP $3,448,800 US Local One dominates with 65.8% of the traditional market Local One claimed 30.4% of overall total sales $41,250,672 Total retail sales in year three: 75,385,000,000 CLP = $135,693,000 USHypermarket 28,316 (Mill CLP) $50,968,800 US Traditional 26,266 CLP $47,278,800 US Self Serve 18,888 CLP $33,998,400 US Web/Other 1,916 CLP $3,448,800 US Local One dominates with 65.8% of the traditional market Local One claimed 30.4% of overall total sales $41,250,672 Total retail sales in year three: 75,385,000,000 CLP = $135,693,000 US

14. Market/Country Situation Product Pricing Three year market average price for small is (CLP) 711 Three year market average price for medium is 870.60 Three year market average price for large is 1056.67 711.00 CLP = 1.18632 USD Chile Pesos � United States Dollars 1 CLP = 0.00166852 USD � 1 USD = 599.332 CLP Small 711 * .0018 = $1.28 Medium 870.6 * .0018 = $1.57 Large 1056.67 * .0018 = $1.90 870.60 CLP = 1.45202 USD Chile Pesos � United States Dollars 1 CLP = 0.00166784 USD � 1 USD = 599.579 CLP 1,056.67 CLP = 1.76235 USD Chile Pesos � United States Dollars 1 CLP = 0.00166784 USD � 1 USD = 599.579 CLP711.00 CLP = 1.18632 USD Chile Pesos � United States Dollars 1 CLP = 0.00166852 USD � 1 USD = 599.332 CLP Small 711 * .0018 = $1.28 Medium 870.6 * .0018 = $1.57 Large 1056.67 * .0018 = $1.90 870.60 CLP = 1.45202 USD Chile Pesos � United States Dollars 1 CLP = 0.00166784 USD � 1 USD = 599.579 CLP 1,056.67 CLP = 1.76235 USD Chile Pesos � United States Dollars 1 CLP = 0.00166784 USD � 1 USD = 599.579 CLP

15. Market/Country Situation Advertising Britesmile only competitor to target younger market Regional One only competitor to target older market Economic benefit dominates Over 3 years Britesmile targets younger market for whiter teeth. Spent 3,134,500,000 CLP 3,134,500,000 * .0018 = $5,642,100 Local One targets family market pushing economical purchase. Spent 3,108,000,000 CLP 3,108,000,000 * .0018 = $5,594,400 Regional One targets older market pushing economical purchasing. Spent 2,236,800,000 CLP 2,236,800,000 * .0018 = $4,026,240 Clean & White targets family market pushing healthy teeth. Spent 926,600,000 CLP 926,600,000 * .0018 = $1667880Over 3 years Britesmile targets younger market for whiter teeth. Spent 3,134,500,000 CLP 3,134,500,000 * .0018 = $5,642,100 Local One targets family market pushing economical purchase. Spent 3,108,000,000 CLP 3,108,000,000 * .0018 = $5,594,400 Regional One targets older market pushing economical purchasing. Spent 2,236,800,000 CLP 2,236,800,000 * .0018 = $4,026,240 Clean & White targets family market pushing healthy teeth. Spent 926,600,000 CLP 926,600,000 * .0018 = $1667880

16. Market/Country Situation Promotion Channel Most promotion in hypermarket Caremore markets exclusively in hypermarket Local One only company to market in wholesale Over three years 2,200,500,000 CLP spent in hypermarket ($3,960,900 US) 1,419,800,000 CLP spent in Traditional market ($2,555,640 US) 1,354,200,000 CLP spent is Self Serve market ($2,437,560 US) 228,500,000 CLP spent in Wholesale market ($411,300 US) 66,400,000 CLP spent in web/other market ($119,520 US)Over three years 2,200,500,000 CLP spent in hypermarket ($3,960,900 US) 1,419,800,000 CLP spent in Traditional market ($2,555,640 US) 1,354,200,000 CLP spent is Self Serve market ($2,437,560 US) 228,500,000 CLP spent in Wholesale market ($411,300 US) 66,400,000 CLP spent in web/other market ($119,520 US)

17. Market/Country Situation Sales Force Allocation Hypermarket receives most sales force allocation Wholesale receives least sales force allocation Hypermarket allocation � Yr. 1 = 16 (traditional, 15) Yr. 2 = 29 (followed by traditional 21) Year 3 = 22 (tied with self serve) (traditional, 20)Hypermarket allocation � Yr. 1 = 16 (traditional, 15) Yr. 2 = 29 (followed by traditional 21) Year 3 = 22 (tied with self serve) (traditional, 20)

18. Market/Country Situation Distribution Coverage Web/Other Home ignored except by Britesmile Local one and two focus on Traditional Clean + White focus on Hypermarket only Number of outlets in each channel of distribution and the different brands are distributed in each channel. Over three years� Britesmile = 12 web/other outlets Local One = 2845 traditional Local Two = 1845 traditional�all others ignore traditional Clean & White = 100 hypermarketNumber of outlets in each channel of distribution and the different brands are distributed in each channel. Over three years� Britesmile = 12 web/other outlets Local One = 2845 traditional Local Two = 1845 traditional�all others ignore traditional Clean & White = 100 hypermarket

19. Projected Sales Strongest Cross Sections Younger/Economy Older/Economy Families/Economy Families/Kids Focus marketing on strongest X-section in each segment; Younger/Economy, Older/Economy, Families/Economy, Families/Healthy Focus marketing on strongest X-section in each segment; Younger/Economy, Older/Economy, Families/Economy, Families/Healthy

20. Rehash previous slide. There is 0 focus on the kids market currently by competitors. BriteSmile will exploit and attempt to increase the kids market. Rehash previous slide. There is 0 focus on the kids market currently by competitors. BriteSmile will exploit and attempt to increase the kids market.

21. Unit Sales by Tube Size: Period 1 (Pre-entry) Contribution of the sales of each tube size (pre-entry) Contribution of the sales of each tube size (pre-entry)

22. Projected Sales Pricing by Tube Size, Period 2 (Market Entry) Focus on undercutting price of cost leader Undercutting prices of cost leader upon entry and will continue to do so. Undercutting prices of cost leader upon entry and will continue to do so.

23. Projected Sales Pricing Prices for each tube size will increase by approximately half the rate of inflation each period (based on benchmark of cost leader) Rate of inflation = 8.8% Increasing prices for each tube size by ~ half of the rate of 8.8% inflation. Increasing prices for each tube size by ~ half of the rate of 8.8% inflation.

24. Projected Sales Upon Market Entry: Unit Sales Considering heavy competition, market entry will provide small initial revenue All Smile will take 100% of kids market in each segment Considering heavy competition, market entry will provide small initial revenue All Smile will take 100% of kids market in each segment

25. Projected Sales Total Sales Summary: Market Entry Total unit sales: 8.77 million Total CLP sales: 6,227.33 million Total U.S. $ sales: $12.23 million Total market share: 9.26%

26. Projected Sales Recommended Strategy Undercutting pricing of cost leader will result in stronger overall market share in period after entry Focus strong marketing on Families/Healthy cross section

27. Much stronger market presence during period after entry. Much stronger market presence during period after entry.

28. Projected Sales Total Sales for All Smile Summary: Period 3 Total unit sales: 22.16 million Total CLP sales: 16,370.10 million Total U.S. $ sales: $32.16 million Total market share: 22.83%

29. Projected Sales Cumulative Sales, Periods 2 and 3 Total Unit Sales: 30.93 million Total CLP Sales: 22,597.43 Total Sales in U.S. $: $44.39 million

30. Production Considerations Tariffs Shipping Charges Volume When looking at whether or not to build a factory, you must take a few things into consideration. That is going to be your tariffs and duties, shipping charges, and volume of production. In the game, there are no tariffs or duties between US and Chile, so it wouldn�t much of a difference on whether or not to build based upon that alone. But when you consider expanding into other countries, because of Mercosur, there aren�t any tariffs between Chile, Brazil and Argentina. The next thing to consider is shipping. With shipping from the US, you get charged three cents on every unit. That is three cents if you are sending the product anywhere besides Mexico. If you were to ship out of Chile though, you would only pay one cent per unit, regardless of where it was going. The only exception is Mexico, where it would be 1.5 cents. Production is going to be the last part which ties everything together. Naturally, It wouldn�t make much sense to build a factory if you aren�t going to be producing a lot. If you would see a financial benefit from these shipping and tariff costs, then you should build a factory. During our simulation, we did see a benefit, and then we built. When looking at whether or not to build a factory, you must take a few things into consideration. That is going to be your tariffs and duties, shipping charges, and volume of production. In the game, there are no tariffs or duties between US and Chile, so it wouldn�t much of a difference on whether or not to build based upon that alone. But when you consider expanding into other countries, because of Mercosur, there aren�t any tariffs between Chile, Brazil and Argentina. The next thing to consider is shipping. With shipping from the US, you get charged three cents on every unit. That is three cents if you are sending the product anywhere besides Mexico. If you were to ship out of Chile though, you would only pay one cent per unit, regardless of where it was going. The only exception is Mexico, where it would be 1.5 cents. Production is going to be the last part which ties everything together. Naturally, It wouldn�t make much sense to build a factory if you aren�t going to be producing a lot. If you would see a financial benefit from these shipping and tariff costs, then you should build a factory. During our simulation, we did see a benefit, and then we built.

31. Conclusion Market/Country Situation Projected Sales Production Considerations