1. Colorado State University
BUS621 – Fall 2007
Matthew Small

2. Company Introduction:
 Reason Selected:
• Industry leading Pharmaceutical company dedicated to the
Research and Development of eye care products
 Primary Industry:
• Development, manufacture, and marketing of pharmaceuticals,
surgical equipment and devices, and consumer eye care products
to treat eye diseases and disorders
 Financials and Major Trends:
• Alcon has grown sales for more than 25 consecutive years
• Since 2002 IPO, sales have grown an average of 12.2% per year
Fall 2007 2Prepared by: Matthew Small

3. Mission Statement:
 Vision:
To be the first choice for eye care products and the most trusted eye
care company in the world.
 Mission Statement:
To discover, develop, produce and market innovative, high-quality
eye care products that preserve, restore and enhance sight. We will
accomplish this by partnering with eye care professionals around the
world to advance the treatment of eye disease and help people
experience the best vision possible.
Fall 2007 3Prepared by: Matthew Small

4. Current Competitive Advantages:
 Time:
• Established in 1945
 Capitalization:
• Stock Symbol – ACL (NYSE)
• $40.18 Billion
 Company Reputation:
• Alcon is committed to delivering
the highest quality of products.
• Dedicated to helping people
around the world see.
• World’s largest Eye Care company
 Relationships:
• Research partnership with Amgen
• Eye care professionals
• Prevent Blindness America
 Competitors:
Fall 2007 4Prepared by: Matthew Small

5. Alcon Financials:
 25 consecutive years of sales growth
 Alcon’s sales have grown an average of 12.2% per year for the
last 5 years
 Solid growth in Operating Margin which has increased from 23%
to 32% over last 5 years.
$481
$511
$557
$584
$686
2002 2003 2004 2005 2006
SalesinMillions
ConsumerEye Care Sales
Fall 2007 5Prepared by: Matthew Small

6. Alcon Financials:
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 Alcon Pharmaceuticals (ACL) stock performance for the last 5 years

7. Alcon Financials:
Fall 2007 7Prepared by: Matthew Small
 Alcon Pharmaceuticals (ACL) stock performance versus Allergan
(AGN) for the last 5 years

8. Research and Development:
 Alcon has spent $2 Billion on Research and Development over
the last 5 years and expects to spend $3 Billion over the next 5
years.
 R&D spending is expected to grow faster than sales to ensure that
Alcon remains at the forefront of eye care treatments.
$323
$350
$390
$422
$512
2002 2003 2004 2005 2006
ExpenseinMillions
Research and Development
Fall 2007 8Prepared by: Matthew Small

9. Research and Development:
Fall 2007 9Prepared by: Matthew Small
Consumer5%
Surgical 38%
Pharmaceutical
57%
 Alcon currently focuses majority of R&D
resources on the development of new
Surgical products and new Pharmaceutical
drugs.
 Alcon can use R&D resources to develop
new consumer eye care products to enhance
value to new and existing customers.
 Alcon needs to increase allocation of future
R&D resources to focus on the development
of new products for consumer eye care lens
solutions.

10. Alcon’s Major Product Lines:
 Azpot
 Ciprodex
 Opti-Free
 Patonal
 Pataday
 Nevanac
 Systane
 Tobardex
 Travatan
 Vigamox
Fall 2007 10Prepared by: Matthew Small

11. Executive Summary – 5 Main Points:
 Alcon can increase market share by capitalizing on recent
competitor product recalls.
 Alcon is ready to expand manufacturing capacity to meet increased
customer demand for consumer contact lens solutions.
 Alcon needs to increase R&D of consumer products to help sustain
future market growth.
 Alcon can increase profit margin by increasing production of Alcon’s
own brand.
 Alcon needs to improve Operational Excellence in order to capture
and retain increased market share of consumer lens care products.
Fall 2007 11Prepared by: Matthew Small

12. Problem Statement:
 Problem Statement:
• Alcon will need to eliminate production of private label lens care
solutions in order to maintain increased market share due to
recent competitor product recalls.
 We Selected this problem because…
• Alcon is the market share leader among branded contact lens
solutions.
• In 2006 sales of contact lens disinfectants have grown 26.7%
• Sales of disposable contacts will grow substantially over the next
5 years and products like Opti-Free will fill customers needs for
convenience.
Fall 2007 12Prepared by: Matthew Small

13. Tools Used to Understand the Problem:
 Approach Selected:
• Tools Used:
• Logic-Tree
• 5-Forces
• Value Disciplines
• TOWS
• Data Used:
• Annual Reports
• Alcon Labs and competitors websites
• Industry reports
 This approach is applicable because…..
• This analysis will provide an understanding of how best Alcon
can compete by increasing market share and profit margin.
Fall 2007 13Prepared by: Matthew Small

14. The Problem as a Logic Tree of Hypotheses:
Logic Tree
Macro Hypotheses:
Alcon expands manufacturing
capacity
B&L and AMO loose
market share due to
product recalls.
Alcon is product
leader in lens care
market.
Alcon can increase
consumer
manufacturing
capacity.
Alcon can increase
profit with sales of
own brand of lens
care solutions.
Alcon is committed
delivering the
highest quality of
products.
Fall 2007 14Prepared by: Matthew Small
 Our macro hypotheses is…
• Because of recent competitor recalls, Alcon should expand
manufacturing capacity of it’s own brand of consumer lens care
solutions in order to increase revenue and profits.

15. Insights: Sub-hypothesis No. 1
 Bausch and Lomb and American Medical Optics loose market
share due to recent product recalls.
• Top competitors forced to pull lens care solutions off market due to
FDA recall in 2005 and 2006.
• In 2006 Alcon’s market share increased from 34% in Nov 2005 to 50%
in December 2006.
• Contact lens care sales benefited from withdrawal of competing
products due to potential outbreak of fungal keratitas.
0%
10%
20%
30%
40%
50%
60%
Nov.
2005
Mar.
2006
Jun.
2006
Sep.
2006
Dec.
2006
U.S. Contact Lens Solution Market Share
Total Alcon Share Opti-Free Replenish
Fall 2007 15Prepared by: Matthew Small

16. Insights: Sub-hypothesis No. 2
 Alcon is the product leader in the lens care market.
• In 2006, Sales of contact lens disinfectants grew 26.7%
• Alcon has captured 50% market share of $1.7 Billion contact lens care
solution market.
• Alcon consumer lens care solutions are recommended in 6 out of 10
new contact lens fittings in the U.S.
Fall 2007 16Prepared by: Matthew Small

17. Insights: Sub-hypothesis No. 3
 Alcon can increase consumer manufacturing capacity.
• In order to meet short term customer demand Alcon will eliminate the
production of private label lens care solutions.
• Alcon manufactures private label products for several major
retailers: Walgreens, Rite Aid, Target, Kmart and Wal-mart.
• Alcon will add additional weekend manufacturing shift.
• Alcon currently has 15 automated, highly efficient manufacturing plants
around the world.
• In order to meet long term customer demand and increase operational
excellence Alcon will need to increase it’s overall manufacturing
capacity in order to meet increased demand for both Alcon and private
label products.
Fall 2007 17Prepared by: Matthew Small

18. Insights: Sub-hypothesis No. 4
 Alcon increases profit margin with increased sales of own
brand of lens care solutions.
• Operating profit margin has improved from 23% in 2002 to 32% in
2006.
• Alcon continues to pursue operational excellence in order to increase
manufacturing capacity.
• Alcon has gained improvements in manufacturing efficiencies due to
implementation of best practices and attention to cost controls.
$704
$879
$1,132 $1,188
$1,572
23%
26%
29%
27%
32%
20%
30%
40%
0
500
1000
1500
2000
2002 2003 2004 2005 2006
PercentageofSales
OperatingIncome
OperatingIncome OperatingProfit Margin
Fall 2007 18Prepared by: Matthew Small

19. Insights: Sub-hypothesis No. 5
 Alcon is committed to delivering the highest quality of
products.
• Alcon has spent $2 Billion on Research and Development over the last
5 years.
• Alcon expects to spend $3 Billion on Research and Development over
the next 5 years.
• Alcon adheres to ISO 9001 and 14001 standards which address
maintaining a quality management system.
• Alcon has a reputation as industry leader with the largest eye care
related R&D facility of its kind.
Fall 2007 19Prepared by: Matthew Small

20. 5 Forces Model Analysis:
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Threat of Substitutes:
+ Switching cost is low
+ Expensive to introduce new products
- Brand Image
Barriers to Entry:
+ High capital requirements to compete
+ Expensive to create new products.
+ Costly Government Approvals
+ Strong brand loyalty
+ Economies of scale are high.
Power of Suppliers:
+ Top competitors forced to recall
products
+ Reduced competition
+ Increased Profit margin
- Limited production capacity
Power of End-Users:
+ Increased value – customers willing to
pay more for higher quality of goods
+ Limited products available due to recall.
+ Product is vital to customers who use
contact lenses.
- Low switching cost for customers.
- Customers not likely to shop based on
price.
Key:
+ Good for Alcon
- Bad for Alcon
Competitor Rivalry:
+ Competitors unlikely to regain market
share
+ Customers can easily switch brands
+ High fixed costs of production
- Few competitors in growing market
with high profit margins.
Barriers to Entry
Threat of Substitutes
Power of Suppliers Power of End-Users
Competitor
Rivalry

21. TOWS Model Analysis:
Fall 2007 21Prepared by: Matthew Small
Strengths:
• Product Leader
• Commitment to Quality
• Operational Excellence
• Product Loyalty
• Patents required
Weaknesses:
• Brand recognition
• Limited production capacity
• Limited Consumer R&D resources
Opportunities:
• FDA Recall of Lens Solutions
• Increased Profit Margin
• Increased Market Share
• Predicted sales growth next 5 yrs
SO Strategy:
• Use Product Leader and
Commitment to Quality to retain
increased market share.
• Use Operational Excellence to
increase production capacity to
meet increased customer
demand.
WO Strategy:
• Use opportunity of FDA recall to
increase product brand
recognition.
• Use opportunity of increase profit
margin to expand manufacturing
capacity.
Threats:
• Switching cost is low
• Lost revenue from Private Label
• Similar products available
• Aggressive campaign to regain
market share
• Private label represents 20% of
Retailer Saline business
ST Strategy:
• Increase Brand awareness as
product leader to minimize
chance of customers switching
products.
• Use strength as Product Leader
to create differentiation among
similar products.
WT Strategy:
• Reduce production of private
label products to increase
manufacturing capacity.
• Increase allocation of R&D
resources to create future stream
of new products in order to retain
increased market share.
External Factors
Internal Factors

22. Value Disciplines Model Analysis:
Fall 2007 22Prepared by: Matthew Small
Product Leadership
“Best Product”
Customer Intimate
“Best Total Solution”
Operational Excellence
“Best Cost”
Minimum
To Compete

23. Risk and Impacts of Recommendations:
 Use strength as market leader and commitment to quality to
retain increased market share.
• Pros: Increased market share creates increased sales revenue and
profit margin due to sales of Alcon’s own brand versus private label.
• Cons: Alcon needs to asses if this is a temporary increase in market
share due to FDA recall or long term sustained growth potential.
• Risks: Alcon risks loosing long term revenue stream from private
label accounts.
• Next Step: Alcon needs to create a strong advertising campaign to
increase brand awareness as market leader in order to increase
opportunity of retaining new customers.
Fall 2007 23Prepared by: Matthew Small

24. Risk and Impacts of Recommendations:
 Increase brand awareness as product leader to minimize
chance of customers switching products.
• Pros: Increased brand awareness of consumer lens care solutions
will reduce chance of new customers switching back to B&L and AMO
product lines.
• Cons: Alcon will need to incur additional cost of marketing campaign
to increase brand awareness to customers in United States.
• Risks: Alcon may not have the financial resources in current year’s
budget. There is no guarantee that additional advertising will result in
a higher percentage of retained new customers.
• Next Step: Alcon will need to see if there are additional resources in
current year’s budget to cover cost of marketing expense. Request
increased marketing budget for next year to cover additional
expenses.
Fall 2007 24Prepared by: Matthew Small

25. Risk and Impacts of Recommendations:
 Use opportunity to increase overall profit margin to expand
future manufacturing capacity.
• Pros: Increased profit margin from sales growth of Alcon’s own brand
will generate additional revenue that can go towards future expansion
of manufacturing facilities.
• Cons: Alcon might need to use additional revenue from increased
profit margin to increase R&D resources for Consumer products.
• Risks: If Alcon is unable to sustain additional market share they could
end up with excess manufacturing capabilities that are not needed.
• Next Step: Since industry predicts a strong future sales growth due to
an increase in disposable contact lenses Alcon should invest
additional revenue growth in expansion of manufacturing facilities to
enable them to provide private label products to major retailers.
Fall 2007 25Prepared by: Matthew Small

26. Risk and Impacts of Recommendations:
 Increase Consumer allocation of Research and Development
resources in order to create a future stream of new products to
retain increased market share.
• Pros: New products will enable Alcon to sustain increased sales
growth due to FDA recall.
• Cons: Increased allocation of R&D resources will take away from
Surgical and Pharmaceutical segments which are more profitable.
• Risks: The introduction of new products will not ensure that
customers will not switch back to AMO and B&L.
• Next Step: Alcon should increase allocation of R&D resources for
Consumer products in order to increase the opportunity of customer
retention and future sales growth.
Fall 2007 26Prepared by: Matthew Small

27. Summary of Findings:
 Alcon has the opportunity to successfully capture and sustained a
50% market share of the eye care industry due to their strong focus
on Operational Excellence.
 Alcon has the opportunity to capitalize on competitor recalls and
position itself to sustain future sales growth of consumer contact
lens care solutions.
 Alcon has a competitive advantage in regards to overall Quality,
Research and Development as well as consumer market
penetration.
Fall 2007 27Prepared by: Matthew Small

28. Conclusions and Recommendations:
 Alcon must determine their immediate short and long term corporate
objectives by focusing on operational excellence in order to sustain
increased market demand.
 Alcon must meet market demand in order to sustain growth for
consumer eye care products.
 Alcon needs to allocate additional consumer R&D and Marketing
resources in order to increase brand awareness and ensure
continued future sales growth of it’s own contact lens care solutions.
Fall 2007 28Prepared by: Matthew Small

29. Executive Summary – 5 Main Points:
 Alcon can increase market share by capitalizing on recent
competitor product recalls.
 Alcon is ready to expand manufacturing capacity to meet increased
customer demand for consumer contact lens solutions.
 Alcon needs to increase R&D of consumer products to help sustain
future market growth.
 Alcon can increase profit margin by increasing production of Alcon’s
own brand.
 Alcon needs to improve Operational Excellence in order to capture
and retain increased market share of consumer lens care products.
Fall 2007 29Prepared by: Matthew Small