Capturing the digital

opportunity
Kickoff document November 2, 2011

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Topics for today’s discussion

▪ Introductions

▪ Context, scope, and objectives

▪ Approach and getting started

▪ Seed some early problem-solving questions

2
Introductions

Team members
▪ Ali Lohr
Kimberly- ▪ Jeff Jarrett
Clark team ▪ Anne Jenkins
▪ David Clayton
▪ Mary Goggans
▪ Scott De Groot
▪ Jim Schuh
▪ Todd Meerdink
▪ Elane Stock (Executive Sponsor)
▪ Clive Sirkin (Advisory)
▪ David Osborn (Advisory)

▪ Becca Coggins (lead partner)

McKinsey ▪ David Edelman (global content expert)
team ▪ Duncan Miller (lead partner, international markets)
▪ Rob Yanker (global advisor)
▪ Alex Hooper (engagement manager)
▪ Betsy Holmberg (consultant)
▪ Khalilah Cooper (consultant)

3
Context: online is growing fast and the time is ripe for us to turbocharge
our global efforts

▪ Online is maturing rapidly as a channel for marketing and distribution in KC’s

categories
– CPG eCommerce has grown over 20% per year globally for the last 5 years
– In Korea, online purchasing represents more than half of all purchases sold
– A similar challenge threatens in the U.S. as online purchase of diapers
ratchets up and K-C continues to lag P&G in both sales and eCommerce
capability

▪ K-C has begun efforts to date but we are far from fair share or advantaged
positions
– CMO launched digital marketing team
– Consumer engagement sites to drive awareness and loyalty
– Regional activity (e.g. added e-tailer sales resources in U.S.)
– However, some of our current organizational processes (e.g., alignment
towards key customers) may be preventing us from capturing fair share

▪ Conditions for success are in place to turbo-charge global efforts – the Board
is excited and GSLT leaders are on board

4
Objectives of the effort and the impact at stake

How we define success for this effort Impact-at-stake is >$500mm

▪ Reach fair share in critical

markets Fair share in US 300

▪ Develop digital as an offensive Get on the growth

50
weapon curve in China

▪ Develop a global framework to Build the

10
extend our eCommerce potential Channel in Brazil
to new markets
Fair share in next
140
10 biggest markets
▪ Build capabilities required to
deliver on eCommerce goals
Total 500

5
Scope of the effort

In-scope Out of scope

▪ BCC ▪ Digital marketing strategy

▪ eCommerce (within the structure ▪ Individual strategies for “non-

that has been already developed) prioritized” markets (playbooks,
instead)

▪ Changes to KC processes that are

working well (e.g., IMP)

The lines may blur between

two (e.g., digital couponing)

6
The approach consists of 4 phases across ~16 weeks Go/no go business plan elements
Holiday breaks

High-level proposed workplan

Nov Dec Jan Feb Mar

01. 07. 14. 21. 28. 05. 12. 19. 26. 02. 09. 16. 23. 30. 06. 13. 20. 27.

Finalize market
archetypes &
1 prioritization
~4 weeks

Develop lead market strategies with business plans and

2 support initial launches
~12 weeks

2d Develop operational
Lead market #1 strategy and business
2a plan (e.g., US) plans and launch
~6-8 weeks ~4-6 weeks
▪ Develop integrated
Lead market #2 strategy and financial model for Support lead
2b business plan (e.g., Brazil) cascading perf. market quick
~6 weeks mgmt. wins
▪ Build detailed
Lead market #3 strategy and operational plans
2c business plan (e.g., China) to implement
~6 weeks ▪ Launch quick wins
3 Design new org. 4 Develop global
support structure glide path with
market scans
~4 weeks ~2-3 weeks

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The first and second phases yield market strategies for the lead markets
1 2
Finalize market archetypes &
prioritization (~4 weeks)
▪ Use market data to develop “fast forward”
view of key BCC markets (market dynamics,
channel structure, KC presence)
▪ Identify current and desired KC strategic
posture in each market (leveraging portfolio
designations, executive interviews)
▪ Cluster markets into like groups by analyzing
key facts (e.g., digital dynamos)
▪ Conduct working sessions to refine
archetypes
▪ Prioritize markets based on market dynamics,
KC strategic positioning and priority
▪ Finalize market prioritization and sequencing
DETAILED WORKPLANS
IN APPENDIX
Develop lead market strategies for each
market (~12 weeks)
▪ Conduct grounding interviews (KC and external
experts) and kick-offs in lead markets
▪ Build detailed market fact base: Category and
channel, Consumer (rapid surveys), Customer,
Competitor/substitutes, KC
▪ Identify key strategic ecommerce themes;
identify and size potential opportunities
▪ Conduct collaborative ideation sessions to
generate and prioritize specific opportunities
▪ Develop detailed business case (including
investment required) and operational plan
▪ Create market roadmap and operational plans
▪ Launch quick wins
8
The team will then focus on capabilities required and the global glide path
4
3
Design organization support
Develop global glide path with market
structure to deliver on strategy
scans (~2-3 weeks)
(~4 weeks)
▪ Profile example ecommerce ▪ Refine archetypes and market prioritization
organization models with market learning, investment scale

▪ Map current organizational structure ▪ Build/adapt playbooks to be applied across

markets within an archetype

▪ Analyze current and required

ecommerce capabilities (where to invest ▪ Create 3-5 year global roadmap,
to get to distinctiveness) considering major milestones by market and
within the organization

▪ Prioritize where to invest and how (in-

house vs. outsource, etc.) ▪ Develop global and market-level
ecommerce scorecards and targets

▪ Conduct working sessions to analyze

options and key design elements

▪ Create roadmap to build out

organization and capabilities

9
How it comes to life in a week…

Initial analysis: Market Team problem- Stakeholder

dynamics solving: Defining workshop: Aligning
archetypes on archetypes and
lead markets

Team members conduct We share early drafts and After refining with input
analysis & interviews on emerging hypotheses from the team, we share
each workstream ….debating and refining with broader set of
the ideas together stakeholders to get input
Much of this happens and alignment
individually Expect this to be messy
sometimes Refine and finalize with
their input

10
Getting off to a fast start – what will happen in the next week PRELIMINARY

▪ Conduct executive and SME interviews to understand strategic and market

Understand priorities (conducted jointly between KC and McK)
starting point ▪ Interview global ecommerce experts (McK and external)
and ingoing ▪ Conduct working team kick-off interviews (~60 minutes, this week)
perspectives ▪ Gather and synthesize existing consumer/customer research, whitepapers etc

▪ Gather market-level data (financial, customer, consumer, plans etc)

▪ Conduct market/archetype expert interviews to understand ecommerce trends
Build global and dynamics (KC, McK, external)
fact base ▪ Build global database of market insights across all relevant markets
▪ Identify research/insight gaps and design plan to fill them

▪ Finalize approach and detailed workplan

Finalize ▪ Define clear roles and workstream accountability for each team member
program ▪ Calendar major milestones (e.g., market kick-offs, Steercos)
approach and ▪ Hard-wire weekly working sessions
structure

▪ Launch weekly working sessions

Roll up our ▪ Leverage fact-base to develop “fast forward” view of each market
sleeves and dig ▪ Cluster markets into like “archetypes”
in! ▪ Debate and refine strawman market archetypes

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How we will work together – meetings and dates

Key dates
▪ Once a week, 90 minute
problem solving session with
full working team Interviews with executives 11/2 – 11/11
▪ Ad hoc meetings with and SMEs
subject-matter experts
▪ Meetings to review progress
will be scheduled separately Team dinner (in Dallas) TBD (probably
11/8)
▪ In-person, VC when possible

Steering committee 1 Week 3 (week

of 11/14)

Steering committee 2 Week 8 (week

of 12/19)

Steering committee 3 Week 12 (week

of 1/16)

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How we will work together – team roles

▪ Core team members will have clear

ownership/accountability in an area of interest as well as
collective ownership of the team’s overall goals

▪ Team members will be doing real work – for many of us

that means 10-20 hours per week or more!

▪ We will use 1-on-1 conversations this week in order to

clarify workstreams and ownership

▪ Activities over the next 4 months will ebb and flow

– Week 1-3: Joint participation from relevant team

members for problem-solving of archetypes and market
selection, assistance in acquiring data where possible

– Week 4-12: Some will focus in-market, others on

overarching strategy

– Week 12+: TBD

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How we will work together – team norms
▪ We will manage lifestyle by working as a virtual team whenever possible, but commit to
making our schedules flexible when in-person meetings are an option

▪ We will not develop strategy by committee – each person we invite to participate should
bring a unique perspective or talent to the table. We will develop an input/update
process to ensure the rest of the organization buys into our proposal

▪ We all own the problem collectively, but each of us will have our own responsibilities

▪ Projects with strategy consulting support proceed at breakneck speed - we commit to

raise any barriers to our progress early (there is no prize for solving it on our own!)

▪ This is a working group – we should all be comfortable sharing unfinished work, early
hypotheses, new ideas, and challenging the status quo

▪ We will strive to put our personal interests aside. A great e-Commerce effort will mean
significant opportunity for all of us, so we commit to wearing our one-KC hat throughout
this effort

▪ We will make this a fun environment – we will be respectful of each other, decisive,
practical, and we will push for organizational impact even in the face of political
resistance

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Next week, we will discuss and refine our hypotheses on market
archetypes ILLUSTRATIVE

▪ What are the most critical dimensions to consider in building

“archetypes” (e.g., market economics, eCommerce maturity,
channel structure, primary ecommerce model, K-C positioning)?

▪ What dimensions are MOST important in defining the

archetypes?

▪ What “leading indicators” of market dynamics in 2015 are most

important?

▪ What is the right number of archetypes to get specific but

manage complexity?

▪ Considering the need to BOTH ring the register in the near-term

and build learning in new markets, what is the best set of lead
markets?

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We will bring initial analysis of market dynamics to debate PRELIMINARY – TO BE
potential archetypes REFINED WITH YOU

Potential pilot Most Least

Market prioritization map market attractive attractive

K-C categories Market dynamics

Online CAGR, Mix online, KC BCC BPC online Internet GDP/capita
size, 2015 08-10 2010 Share (% of total penetration, 2010 ($
($ M) (%) (%) (%) BPC)1 2010 (%) thousands)

USA 1,132 66 11 39 6 70 47
South Korea 308 17 32 65 8 77 21
Italy 109 38 7 20 1 51 34
Australia 29 89 3 70 1 66 55
Japan 141 10 3 N/A 5 64 43
France 59 18 3 17 7 67 43
United Kingdom 52 10 3 18 6 78 36
Ireland 8 18 6 24 3 58 46
Netherlands 24 5 4 14 1 >99 47
Germany 9 13 0 N/A 3 90 40
Belgium 7 3 2 7 2 75 44
Sweden 6 32 2 6 2 93 49
China 894 63 5 8 3 22 4
Russia 73 52 2 26 2 40 11
Brazil 42 20 1 24 1 17 11
Argentina 21 NA 1 37 1 24 9
Mexico 10 NA 0 70 1 18 9
Poland 9 37 1 14 7 45 12
Chile 7 69 2 31 1 25 12

Note: Spain, Finland, Switzerland, Belarus, Uruguay and Taiwan were excluded due to a forecasted 2015 online mkt size of less than $5 mm
1 Beauty and personal care sales through internet retailers as a percentage of all BPC sales

SOURCE: Euromonitor; Pyramid Research; team analysis 16

Defining archetypes and lead markets – define market structure and
strategic importance

▪ Size BCC market (2011, 2015)

Market
economics
▪ GDP/capita (2011, 2015)
▪ PC spend/capita (2011, 2015)

▪ Internet penetration (2011, 2015)

eCommerce
maturity ▪ Structural drivers – maturity level
– Broadband penetration
– Infrastructure for last mile
▪ eCommerce % total
▪ % of BPC sales online What other
▪ BCC % to ecommerce factors are
BCC channel
landscape ▪ PC/Grocery % to ecommerce critical to
▪ Momentum (past/future growth) consider?
▪ Channel mix
– Online/offline/other
– B2C vs. C2C
– Pure-play vs. brick-and-mortar
▪ Role in portfolio (share/margin/cash)
KC position
and intent
▪ Size/share
▪ Growth (past/projected)
▪ Customer fragmentation
▪ Offense / defense
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Appendix

18
We will deliver four primary end-products

Market archetypes and prioritization

▪ Data-driven description of core market archetypes and associated markets
1 for each
▪ Suggested prioritization & sequencing within and across archetypes
▪ Codified methodology to refresh archetypes and market “typing”
“Playbooks” for focus markets and archetypes, including
▪ Market overview diagnostics to identify opportunities
2 ▪ Business case for each opportunity
▪ Operational plan and scorecards for implementation
▪ Codified approach, templates and “best fit” strategic option for each archetype
Capability and organization blueprint
▪ Capability blueprint: current state and focus areas for investment
3 ▪ Recommended structure for new organization to drive digital leadership;
interaction/support model with BUs
▪ Role descriptions and decision-rights for both new organization and related
roles throughout business
Global digital glidepath
▪ Market learning extrapolated across archetypes
4 ▪ Refined archetypes and sequencing
▪ Starting list of opportunities and market insights for next 2-3 markets per
archetype
▪ Multi-year road map to launch and track results

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1 Preliminary workplan: Finalize market archetypes & prioritization
PRELIMINARY – TO BE REFINED WITH YOU

Output Activity Timing

A KC category specific ▪ Use market data to develop 2010 and 2015 view for overall online market and KC Week 1
fact base for each categories in every major country globally, focused on
market – Overall country economic development level (e.g., GDP/capita)
– Internet usage and eComm comfort (e.g., broadband penetration, primary usage point,
credit card penetration)
– Online channel dynamics and evolution (B2C vs. C2C, multichannel vs. pureplay, etc.),
including cross-market models (e.g., Amazon globally) and market-specific dynamics
– KC specific category development (size, growth, channel mix, B2C/C2C mix, etc.)
▪ Develop point-of-view on overall KC global strategic priorities through interviewing/
workshops with KC executives

B Refined archetypes ▪ Cluster markets into like groups, which will require similar go-to-market approaches in the Week 2
immediate (3yr) term, by analyzing each market against market fact base, such as:
– Major macroeconomic criteria: Internet and eComm propensity (e.g., broadband
penetration, credit card usage online and offline) and overall economic development
(e.g., GDP/capita)
– Level of digitization: Channel mix across categories and in KC categories
▪ Develop forward-looking view on which underlying drivers predict a given market’s
archetype
▪ Refine archetypes through collaborative workshops with KC and further iteration
C Suggested lead market ▪ Overlay KC share and strategic priority to estimate full potential from reaching fairshare Week 3/4
in each online (as well as potential scenarios for additional offline growth), creating initial view of KC
priority/attractive market priority for online investment
and implied investment ▪ Use client working sessions to test and refine archetypes and selected markets
sequence
D Baseline “grounding” of ▪ Develop understanding of the current activity in priority markets through interviews to Week 3/4
activity in priority understand strategy, competitive landscape, marketing and launch calendar, current online
markets initiatives (if any)

E Codified methodology ▪ Document detailed approach to archetype development and pilot market selection, Week 4
for future market refresh including: data sources, rationale and criteria for prioritization, etc

20
2 Preliminary workplan: Lead market strategy and business plan (1 of 2)
PRELIMINARY – TO BE REFINED WITH YOU

Output Activity Timing

A Pilot market fact base ▪ Category and channel: Create analytical profile of size, share and growth of the Week
across five major category, by channel, price tier, customer, etc identifying market headwinds and 3-6
areas: tailwinds, and KC position in each pocket of the market – use POS data
▪ Category and ▪ Consumer: Conduct rapid consumer research (quant and qual – 1-2wk total) to
channel understand the consumer decision journey, consumer preferences/behaviors, unmet
▪ Consumer needs/painpoints, etc.
▪ Customer ▪ Customer: Profile major pure-play and multichannel players in each market, as well
▪ Competitor/ as horizontal players (e.g., ShopKick, Groupon), to identify (a) where they are
substitutes investing, (b) what they are expecting from suppliers, (c) how they are intending to
use the online channel, etc. Use retailer annual reports, press search, customer
▪ KC interviews, GLG, expert interviews, etc.
▪ Competitor/substitutes: Profile top competitors in each market to understand (a)
where they are investing, (b) how they are treating the online channel, (c) overall
priority of the market, etc; further profile major substitutes (e.g., cloth diapers) and
surrounding trends in each market -- Use CPG annual reports, press search, GLG,
expert interviews, etc
▪ KC: Profile major KC priorities in each market, across all topic areas (e.g., new
product introduction, channel prioritization, new consumer group) – use internal KC
materials and interviews
B 3-5 major opportunity ▪ Use collaborative ideation sessions, starting with the fact base and a set of Week
areas for KC hypotheses, to generate and develop 3-5 opportunities (e.g., unmet consumer or 6-7
customer needs, rapidly growing consumer demand, new evolving behaviors and
channels, etc), in the market and points of KC differentiation by:
– Generating rapid number of ideas, based on market fact base
– Clustering ideas into major themes (likely 15-20 themes)
– Collectively voting on top 3-5 opportunity areas

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2 Preliminary workplan: Lead market strategy and business plan (2 of 2)
PRELIMINARY – TO BE REFINED WITH YOU

Output Activity Timing

C Prioritized 1-3 ▪ Further define each selected theme to create holistic opportunity area Week 7
opportunity areas ▪ Rapidly size, assess time to impact and establish major criteria of what it would take
for KC to win for each opportunity to narrow to 1-3 major opportunity areas to be
invested against in the next 3 years, with a bias towards overall size of the
opportunity (considering impact across all channels) balanced with need for some
quick wins
D Playbook and ▪ Develop detailed business case for each priority opportunity area, including: Week
sequence for major – Clear articulation of the opportunity/where KC will invest, unmet need or 8-10
opportunity areas market/consumer opportunity it addresses, how KC is uniquely qualified to
capture the opportunity
– Financial view of the opportunity (i.e., investment required, ROI, high-level CF)
over time
– Set of actions that need to be accomplished to capture opportunity
– Initial content required to start implementation (e.g., specific ideas and “pitch
packs” to approach Amazon)
– Roadmap and major milestones of activity
– Metrics, targets and scorecards for performance tracking
– Develop communications strategy for quick wins
▪ Create high level roadmap for each opportunity and across opportunities, with an
eye towards
– Establishing quick wins
– Investing early for longer term (3yr) growth
E Quick wins ▪ Launch and monitor performance of quick wins in each major market Week
10+

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3 Preliminary workplan: Design new organization and support structure
Output
A Profile range of organiza-
tion and process models
to support global digital
business
B Major decision points and
potential resolutions for KC
C End state of capabilities
required for KC
D Single organization
structure for KC
E Gap from current to
proposed end state
F Potential investment and
roadmap to full org
PRELIMINARY – TO BE REFINED WITH YOU
Activity Timing
▪ Develop case studies and example models of organization capabilities required support global Week 9
ecommerce/multichannel businesses (for like businesses and CPG specifically) with detail of
– Major groups and interactions among COEs and BUs, and high level decision rights in each
group
– Capabilities (processes, people, structure, training)
– Major roles and rough FTE count
– Job descriptions of key individuals/capabilities (e.g., CRM)
– Range of performance management
– Other major enablers (e.g., data warehouse, etc)
▪ Identify major decision points for organization (e.g., level of centralization v. localization for CRM Week 9
team) and tee up major pros/cons of each option
▪ Use client workshops to create optimal model for KC
▪ Diagnose existing capabilities (processes, people, training) Week 8-10
▪ Understand requirements to deliver on the strategy and key opportunity areas
▪ Prioritize where to invest and how (in-house vs. outsource, etc.)
▪ Create single view of digital/eComm org for KC, including: Week 10
– Major groups and interactions among COEs and BUs, and high level decision rights in each
group
– Major roles and rough FTE count
– Job descriptions of key individuals/capabilities (e.g., CRM)
– Performance management and how shared between COEs and BUs
– Other major enablers (e.g., data warehouse, etc)
▪ Map current KC online/multichannel org (officially and unofficial/based on activities) and size gaps to Week 11
proposed structure, with focus on required:
– FTEs and cost
– Major talent and capabilities
▪ Create high level roadmap of organization build-out, based on major market investment and Week 12
opportunity roll-out
23
4 Preliminary workplan: Develop global glide path with market scans
PRELIMINARY – TO BE REFINED WITH YOU

Output Activity Timing

A Playbooks adapted ▪ Generalize playbooks to be applied across markets within an archetype, Week
for cross-archetypes grouping opportunities into buckets of: 13
roll-out – Applicable across markets
– Applicable with heavy market adaptation
– Market specific opportunities only

B Re-prioritization ▪ Revisit market prioritization, considering major investment KC will be making Week
of markets, with and capabilities KC will be developing in each archetype, to: 14-15
an eye towards – Refresh archetypes, moving countries between groups considering any
additional lead new learnings in each market
markets (wave II) – Create second wave of prioritized markets, considering how to maximize
return of existing investments and prioritizing near term growth

C Multiyear roadmap ▪ Create 3-5yr global roadmap, considering major milestones by market and Week
within the organization 15

D Scorecard and ▪ Support roadmap and milestones with major metric targets (e.g., share by Week
metrics for success channel and market, mix of sales between online and offline channels etc.) 15

24
What working with us is really like…

Research consumers in context Follow shoppers to understand Collide business trends and analytics Identify global innovations &
with consumer insights to identify
to understand unmet needs behavior and unmet needs white space emerging technologies

▪ Welcome any and

all ideas

▪ Co-create, don’t
work in silos

Collide multiple lenses together
in cross-functional workshops
▪ Work on-site
Collaborate with frontlines and Visualize & quickly build Rapid-fire tests with
(Corporate and
end users to design solutions prototype concepts consumers Parks), get
involved
We benchmark funding vs. peers to highlight opportunities DISGUISED EXAMPLE
for negotiation on a vendor scorecard Above benchm ark

▪ Build capabilities
Below benchm ark

Sales Funding* Gross profit Payment and Supply Funds

Retailer’s Gross profit Gross profit

& tools to repeat

Vendor YOY share w/o VF w/ VF Damages
YoY change Percent of change of funding Percent of Percent Percent of
$ Millions Percent $ Millions purchases Percent Percent of total sales of sales Cash terms actuals

Peer Company A 1,350 7 77 7.1 3.0 57 20 26 2.0% @ 19 days 72

process
Peer Company B 1,200 10 64 8.7 (2.0) 41 25 30 2.0% @ 26 days 70

Peer Company C 437 4 62 17.6 10.0 35 19 33 1.5% @ 25 days 100

Peer Company D 377 11 46 14.7 35.0 29 17 29 0.0% @ 30 days 6

Peer Company E 247 5 17 9.4 (16.0) 52 25 32 0.0% @ 15 days 100

Peer Company F 234 1 18 9.7 28.0 32 22 30 2.0% @ 34 days 48

Peer Company G 222 3 18 9.0 18.0 43 9 17 2.0% @ 18 days 100

Peer Company H 213 8 24 14.2 23.0 43 19 31 1.0% @ 16 days 100

Peer Company I 201 13 9 6.7 14.0 17 31 35 0.0% @ 27 days 100

Peer Company J 189 14 36 21.0 5.0 44 10 29 0.0% @ 15 days 100

Run in-store pilots and track Closely monitor pilot results & Model economics to turn ideas Rollout at the frontline through
Weighted average** - 10.3 43.5 24 32 - -

Retailer benchmark** - 12.7 45 31 38 2.0% @ 30 days 100

customer behavior iteratively refine prototypes

* Only includes demand funds; excludes supply funds, payment terms and any marketing funds
** Branded vendors only into real, viable businesses training and tools
SOURCE: McKinsey proprietary vendor benchmarking database, team analysis McKinsey & Company | 12

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