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Colgate palmolive mba case study

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Colgate-Palmolive Precision Toothbrush MBA Case Study

Colgate-Palmolive Precision Toothbrush MBA Case Study

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  • 1. Colgate-Palmolive Case Study Charles Laffiteau
  • 2. 1 Colgate Palmolive (CP), a market leader in the development and delivery of oral care products, finds itself in a promising yet challenging position in 1992 as it attempts to launch a revolutionary new product for the discriminating, “orally aware” consumer. CP has been a successful manufacturer and distributor of core consumer products with climbing margins and steady increases in sales volume under Mark Reuben, CEO. It now seeks to launch a new, technologically superior toothbrush, the Colgate Precision, in a response to the growing competition it faces in US and international market. After almost three years in development, Colgate-Palmolive hopes to gain appeal amongst consumers who place a growing emphasis on their oral Hygiene with the introduction of its Precision toothbrush. This marketing effort will not be without its challenges however, and Susan Steinburg, Precision’s product manager, faces a series of difficult decisions as she makes recommendations regarding the products positioning, branding, advertising and promotion, distribution, pricing, and communication strategies to Nigel Burton, general manager of CP’s toothbrush division. These decisions will likely determine the success or failure of the Colgate Precision toothbrush and mistakes in calculation here could cost the company millions in lost revenues due to cannibalization of its other product lines, for instance, or by failing to appeal to the more demanding consumer when compared with the competition’s toothbrushes in this promising market. Consumer and Demand Analysis Three distinct types of consumer groups have been identified based primarily on the level of intensity expressed by different consumers regarding the importance of oral hygiene. The largest of these three consumer groups accounts for 46% of all adult toothbrush users and is one of the two target markets for Colgate-Palmolive’s new
  • 3. 2 Precision toothbrush. This is a market segment characterized as the “therapeutic brushers” consumer group and consisting of adults who not only brush and floss more often than others consumers but are also more likely to use a brush which is perceived to be more functionally effective in cleaning their teeth and caring for their gums.. The other target group for Colgate-Palmolive’s Precision toothbrush is the “cosmetic brushers” market segment which at 21% of adults is less than half the size of the larger “therapeutic brushers” consumer group. While this group of consumers also brushes and flosses regularly, they are more concerned with the cosmetic benefits of doing so as opposed to their oral hygiene. The third consumer group which consists of a third of adult consumers views all toothbrushes as basically the same and is not a market segment being targeted by Colgate-Palmolive for the Precision toothbrush. Consumer demand for more functionally effective premium toothbrushes has been steadily rising since the 1980’s when Colgate-Palmolive and its competitors began marketing more expensive professional brushes with distinctive bristle and handle features. At that time industry executives viewed the toothbrush market as consisting of only two segments, value and professional. But in the early 1990’s a third segment began to take shape within the professional toothbrush market which is characterized as super- premium toothbrushes designed to be the best toothbrushes available for oral hygiene. Competitor Analysis Both of Colgate-Palmolive’s two major competitors, Oral-B and Johnson & Johnson have already launched new and improved products designed to appeal to consumers in the emerging super-premium market segment. Furthermore, two new entrants with extensive positions and brand awareness in the toothpaste market were also
  • 4. 3 in the process of rolling out new toothbrushes designed for the super-premium market segment. Colgate-Palmolive had strong product offerings in both the value and premium toothbrush market segments, but needed to have a competitive offering for the super- premium market which was also growing at a much faster pace than the other two segments it was already a major competitor in. Strengths, Weaknesses, Opportunities and Threats (SWOT) One of the strengths of the Colgate Precision tooth brush is that it is a unique brush with three different lengths and orientations. Currently, there are no other brushes with this design. This brush also removes 35% more plaque than other super premium brushes. The key word is “premium” brushes. It is one thing to remove more plaque than other regular brushes, but it is quite another to achieve that level of success against other super- premium brands. Finally, the case study also notes that consumers find the head, bristles and handle are all important when it comes to toothbrushes. One of the weaknesses that we see is that CP is already positioned in value and professional segments. By going for a more mainstream marketing approach to the Colgate Precision, CP may steal sales from the Colgate Plus toothbrush. Another potential weakness is the availability of production capacity at CP. By pursuing a more mainstream approach to capture a larger market share, there is a chance that CP may not be able to produce a large enough supply of toothbrushes to keep up with demand. That said, the Colgate Precision has the potential to become a star product. Studies have shown that consumers are becoming more concerned about the health of their gums. A product like the Precision toothbrush addresses this trend perfectly. As noted in the strengths section, the features most valued by consumers are also the main
  • 5. 4 features being touted by CP for the Precision toothbrush. Finally, since there are bigger mark-ups on toothbrushes than toothpastes, retailers should be more receptive to adding a new line of premium toothbrushes to their shelves when trying to decide between allocating shelf space to this new toothbrush or to a new toothpaste. Some of the threats to the Colgate Precision include the other competitors such as Oral B, Johnson & Johnson, and Crest. CP is also struggling against its competition in international markets. Economic Evaluation In the early 1990’s the U.S. Oral care market was becoming a profitable high margin business (see Appendix A). During this time CP had begun to emphasis new product launches. With over 275 new products world wide CP was able to increase their gross margin to 45%. With the division of the toothbrush category into three segments value, professional and super premium CP began analyzing how to price its Precision toothbrush in the changing marketplace. After assessing the Precision toothbrush cost, CP should choose to market the precision as a mainstream product. The manufacturing per unit cost would be $.64 mainstream and $.66 as a niche product. The mainstream positioning has over three times the unit volume capacity as the niche product. Such a large capacity would allow for increased sales volume and variety. As CP looks to price the Precision toothbrush the difference is $.40 suggested retail price and $.26 manufacturer price niche to mainstream marketing. Although it is more profitable by unit to market the Precision toothbrush in the niche market, the mainstream market will allow for broader customer exposure.
  • 6. 5 The advertising, consumer and trade promotions for the Precision toothbrush will be approximately three times more costly in year one for the mainstream market when compared to the niche market. The advertising activities to the mainstream market are more costly due to the competition of other CP toothbrushes and industry competitors. If the Precision toothbrush is truly a breakthrough in technology the additional advertising expenditures for the mainstream market will prove to be the best option. Qualitative Evaluation Appendix B shows a summary of consumer concept test results. The results from all four concept tests are combined in this chart. The data illustrate which features most impact potential consumers’ interests causing them to make a buying decision. The interesting observation is relative to consumer perception of the importance of gum disease. Marketing Implications Marketing Goal: CP’s 5 year plan for 1991-1995 emphasizes new product launches and entry in to new geographic markets, along with improved efficiencies in manufacturing and distribution and a continuing focus on core consumer products. Advertising and Promotion: Increased advertising and promotion enhanced the toothbrush category’s visibility which in turn fueled consumer demand. Through a series a cleverly designed promotions such as; giving away a free toothbrush with a toothpaste purchase, mail-in premiums, buy-1 get-1 free, coupons, etc. Colgate was able to successfully market their products. One of their most accomplished advertisements was in-store displays. By utilizing in-store displays sales increased 90%, and when combining toothbrushes and toothpastes within a display sales increased 170%.
  • 7. 6 Display types: Counter tops – held 24-36 brushes Floor stand – held 72 brushes Sidekicks (used by mass merchandisers) – held 144-288 brushes Waterfall displays – held 288-576 brushes Colgate strategically positioned their product line in the middle of the category isle between two of their biggest competitors, Reach and Oral-B. Because of this, Colgate held 25%-40% of the category shelf space in most stores. In the case of The Precision toothbrush a free 5oz tube of Colgate toothpaste was given with the purchase of Precision, and a 50% off offer on any size of Colgate toothpaste in conjunction with a 50 cent coupon on the Precision brush were used to catch the consumer’s attention. The costs of these promotions were estimated at $4 million and were used as part of the launch program for a mainstream positioning strategy. The launch of Precision would enable CP to increase its overall share of trade advertising features and special displays in the toothpaste category. Another approach involved the use of dentists to sample consumers who used the product and promote from a professional view point. Advertising and promotion reached $24.1 million in 1992, but to reach Precisions full potential the budget was increased by 80% in 1993, of which 75% of it went to Precision Distribution: In considering which brands to stock and feature, trade buyers evaluate each manufacturer’s track record for advertising and promotion support before deciding how much shelf space and at what level they will allocate space for a product.
  • 8. 7 Precision Toothbrush Objective: Creating the best brush and as such, becoming a top-of-the range, super-premium product and to “Develop a superior, technical, plaque removing device” 5 Goals of the Research and developing task force: o Understanding the varying techniques consumers used when brushing their teeth o Testing the between-teeth access of different toothbrush designs o Establishing an index to score clinical plaque-removal efficacy at the gum line and between teeth o Creating a bristle configuration & handle design w/maximum plaque-removing efficacy o Determining through clinical and consumer research, the efficacy and acceptance of the new toothbrush design. CP researchers used infrared motion analysis to track consumers’ brushing movements and consequent levels of plaque removal and utilizing computer aided designs they developed a brush with bristles of three different lengths and orientations. o Longer outer bristles cleaned around the gum line o Long inner bristles cleaned b/w teeth o Shorter bristles cleaned the teeth surface o Triple action brushing effect Positioning/Marketing Precision was to be positioned as a niche product to be targeted at consumers concerned about gum disease. Within this position Precision would be able to command a 15% price premium over competitor Oral-B and capture 3% of market after first year. Alternative positioning was as a mainstream brush with the broader appeal of being the
  • 9. 8 most effective brush available on the market. This positioning would capture 10% of market by the end of the first year Branding: Corporate strategy was to build on the Colgate brand equity: The more consumers were educated on how Precision worked, the greater the enthusiasm for the product. Precision created a unique feel in a consumer’s mouth, “you can really feel it work.” Therefore sampling was critical to Precision’s success. Recommendations As stated in our Economic Evaluation, we believe that it is in CP’s best interest to position its Precision toothbrush as a mainstream product. The main reasoning behind this recommendation is the potential CP will have for high sales volume. This is the same concept behind Wal-Mart’s success. The profit margin per item may be lower than if positioned as a premier or niche product, but when multiplied over the substantially larger sales volume it more than offsets the difference. CP should strive to have the Precision toothbrush be the household toothbrush that the majority of individuals purchase versus being the specialty toothbrush that the oral hygiene savvy consumer would buy. By doing this they will make an entry into more households, which will increase the exposure of their name and their products to new repeat customers. Repeat customers that may further consider additional CP products in this market such as toothpaste and mouthwash. Action Plan It is clear that Colgate-Palmolive has a myriad of choices in marketing its new product. The question remains, however, what will be the best and most strategic move
  • 10. 9 for the long term welfare of the company and not just for this particular product launch. We recommend the following strategy: 1) The Colgate Precision toothbrush will be marketed as a mainstream product. Our justification for doing so is based on the presumption that our product will serve to capture a far greater portion of the available market share from competitors and thus will be more profitable for the company itself in the long term. 2) The Colgate Precision will be advertized as a better brush in comparisons with other super-premium toothbrushes from competitors instead of their premium toothbrushes. We will continue to market the Colgate Plus against competitor’s Premium brands so we will not lose market share in that category while we expand the overall market for both premium and super-premium toothbrushes. 3) Over time, the plan is to wrestle market share away from the competition in both their Super Premium and Premium lines by pricing our Super Premium product below the competitors. The benefit here is that we have more of an available consumer base to serve as newer products develop in the Super Premium category in the coming years. 4) As the Precision gains popularity, we will use some of the advertising and marketing expenditures for out Premium lines to advance our Super Premium brush in the mainstream. Marketing the product in this way certainly will result in cannibalization of some of our own Premium product line but we feel that the benefit of capturing potentially a great deal of the competitors market share by providing a better product at a lower price serves our interests as a company in the long term.
  • 11. 10 Appendix A – US Oral Care Market Colgate Palmolive - Precision Toothbrush Financial Comparison Year 1 Niche Product Mainstream Product Difference Planned Capacity Unit Volume 13mm 42mm (29mm) Depreciation Costs $316,667 $886,667 ($570,000) Manufacturer per unit cost $0.66 $0.64 $0.02 Manufacturer Price $2.02 $1.76 $0.26 Suggested Retail Price $2.89 $2.49 $0.40 Advertising $5 Million $15 Million ($10 Million) Consumer Promotions $4.6 Million $13 Million ($8.4 Million) Trade Promotions $1.6 Million $4.8 Million ($3.2 Million) Year 2 Niche Product Mainstream Product Difference Planned Capacity Unit Volume 20mm 59mm (39mm) Depreciation Costs $450,000 $1,270,000 ($820,000) U.S. Oral Care Market (1991) 46% 24% 16% 14% ToothpasteMouth Rinse ToothbrushesDental Floss etc.
  • 12. 11 Manufacturer per unit cost $0.66 $0.64 $0.02 Manufacturer Price $2.02 $1.76 $0.26 Suggested Retail Price $2.89 $2.49 $0.40 Advertising $5 Million $12 Million ($7 Million) Consumer Promotions $4 Million $10 Million ($6 Million) Trade Promotions $2.7 Million $7 Million ($4.3 Million) Appendix B - Summary of Consumer Concept Test Results