Colgate Palmolive Toothbrush Precision

2007 FT MBA - Hong Kong University of Science and Technology Group B1: David Dore, Kasempol Amnuayruangsri, Stefano Di Genua, Grace Xie, Yu Liu, Lei Sun, Dennis Li, Shirish Jain, Kalvin Zhang

Summary

Launching strategy:

Target therapeutic and cosmetic brushers

Enter the Super-premium niche market

Move to Mainstream market

Distribute to Dentists and Drug stores

Advertising campaign:

1993 Budget: Increase overall toothbrush Ads&Promotion Budget by $19.2 M (80% over estimated $24 M )

Devote $32.5 M to Precision, $10.8 M to Plus

Ads focused on Prevention of Gum disease, Toothbrush Effectiveness (Need to develop superiority claim)

Summary Recommendations

Product Features and competitors

Main products present on the super-premium market in 1991 :

Acuafresh Flex SmithKline Beecham

Indicator Gillette - Oral B

Crest Complete P&G

Reach J&J

Designed to get a thorough clean in the areas where

plaque accumulates

Fits your toothbrush holder

Triple-action bristles

1 - Angled outer bristle massage gums

2 - Long inner bristles clean between teeth

3 - Short bristles clean tooth surfaces

High Effective Bristles Less Effective Bristles Less Comfort High Comfort Colgate Precision Crest Complete Aquafresh Flex Oral-B Indicator J&J Reach adv Customers Perception Map

Purchase Frequency Brushing Habits Customers Facts Change in toothbrush Year Duration 1990 Every 12.4 months 1991 Every 11.6 months 1992 Every 9.7 months Customer % Habits 45% Before Breakfast 57% After Breakfast 28% After Lunch 24% After Dinner 71% Before Bed Customer % Habits 48% Every 3 months 70% Bristles visibly worn 11% After seeing Dentist 3% Purchase on Impulse

Choice based on: - Features - Comfort - Professional Recommendation - Concerns about health of gums more than cavity prevention As a consequence: - Relatively unfamiliar with toothbrush prices - The old-style brushes were fine for keeping teeth clean - Willing to pay premium for products addressing these concerns - 82% of toothbrush purchases are unplanned Customers Findings

Customers Segmentation Type of Consumer % of Adults Habits Major Brands Therapeutic Brushers 46 Brush twice a day – 85% Use professional brush – 85% Floss Regularly – 54% Oral-B Angle Oral-B Regular Colgate Plus Cosmetic Brushers 21 Brush twice a day – 85% Use Mouthwash – 81% Use breath fresheners – 54% Use professional brush – 54% Floss Regularly – 69% Colgate classic Oral-B Regular Colgate Plus Uninvolved Consumers 33 Brush once a day or less – 20% Use Mouthwash – 66% Use regular brush – 28% Floss Regularly – 54% Colgate classic Oral-B Regular Colgate Plus

Toothbrush market USA market size CP appears to have a considerate share of the reference market

Toothbrush market Competitors CP appears well positioned in the reference market

Toothbrush market Channels CP must increase its focus in the Drugstore channel

Margin for Retailers: 25%-30%

Food store: 75% in 1987  43% in 1992

Mass merchandisers: promotion support

From Oct 1991 to Feb 1992:

Mass merchandisers : from 31 to 35 SKUs, 10 brands

Drug store : 27-34 SKUs, 12 brands

Food outlets : 30-35 SKUs, 8 brands

Dentists : 22%, Oral-B dominates

Margin is LOW Toothbrush market Channels

Recommendations

Recommendations Alternative Pricing as Niche Product as Mainstream Product Y1 Y2 Y1 Y2 Market Demand (Units) (volume share) 13MM (3%) 20MM (5%) 42MM (10%) 59MM (14.7%) Capacity & Initial Investment Cost Tufters (3MM annual capacity, 15Y depreciation) $0.5M *5 $0.5M *7 $0.5M *14 $0.5M *20 Handle Molds (7MM annual capacity, 5Y depreciation) $0.3M *2 $0.3M *3 $0.3M *6 $0.3M *9 Packaging (40MM annual capacity, 5Y depreciation) $0.15M *1 $0.15M *1 $0.15M *2 $0.15M *2 Annual Depreciation 0.317M 0.450M 0.887M 1.267M Manufacturer Cost per unit $0.66 $0.64 Manu. Listed Price (5% discounted) $2.02 $1.76 Advertisement $11.2M $11.7M $32.8M $29M

Short-term, Niche  Long-term, Mainstream Recommendations Pro-forma Income Statement – Cannibalization analysis (pos. Main.) as Niche Product as Mainstream Product Y1 Y2 Y1 Y2 Net Sales $26.26M $40.4M $73.92M $103.84M Cost of Sales $8.58M $13.2M $26.88M $37.76M Advertisement $11.2M $11.7M $32.8M $29M Operating Profit $6.48M $15.5M $14.24M $37.08M Plus Price: $1.35 100% from Plus 50% Plus & 50% Classic Classic Price: $0.69 35% 60% 35% 60% Gross Margin: 50% Y1 Y2 Y1 Y2 Y1 Y2 Y1 Y2 Quantity (MM) 14.7 20.65 25.2 35.4 7.35 7.35 10.325 10.325 12.6 12.6 17.7 17.7 Cannibalization Loss (M) 9.92 13.94 17.01 23.9 7.5 10.53 12.85 18.05 Net Profit (M) 4.32 23.14 -2.77 13.9 6.74 26.55 1.39 19.03

Why?

10 Month lead time for mainstream

Cost of shortage of inventory

Niche strategy cannot hold long

Potential competitors with similar product/technology

Relative easier move from high end to low end

Market of Precision will be broader

Profit numbers from Cannibalization calculation

When total sales are higher enough, profit from Precision

will exceed cannibalization

Recommendations Positioning Short-term, Niche  Long-term, Mainstream

Recommendations Channels – Short Term

Recommendations Channels – Long Term

Colgate Precision Colgate 1.2.3 Colgate Advantage Colgate System III Colgate Contour Colgate Sensation Colgate Probe Relative Prominence of “Precision” and “Colgate” - Precision should be emphasized - Limit the cannibalization Colgate Precision Recommendations Branding

Recommendations Advertising Strategies

1993 Budget:

Increase overall CP toothbrush Ads&Promotion Budget by $19.3 M to $ 43.4 M (80% over estimated $24.1 M)

Recommendations Advertising Strategies PRECISION PLUS $32.55 MM $10.85 MM 75% 25%

70-80% of consumers would buy Precision;

77% of in-home usage claimed Precision was much more effective;

Recommendations Advertising Strategies Sampling will be critical to Precision’s success

Slogan: Advertising Channel: Recommendations Advertising Strategies Your Dentist in Your Home PRECISION

Print Ad Sample: Recommendations Advertising Strategies

Recommendations Communication and Promotion

Action Plan

Slogan: Advertising Channel: Action Plan Advertising Strategies

Establish good relations with ADA

Secure ADA Approval (by Oct ‘92)

Begin Colgate Brand Reminder Campaign

Contract with Young & Rubicam, N.Y.

Launch Reminder Ads with ADA Accreditation (Fall ‘92)

Indirect Competitive Ads (Nov./Dec. ’92)

Direct Competitive Ads Dec. ‘92-January ‘93

Your Dentist in Your Home PRECISION

CP’s Oral Care Division Strategic Concern

Strategic positioning Schedule * Targeted Specifically at Least Developed Countries Q1 1992 Q1 1993 Q1 1994 Q1 1995 Super Premium ($2.29 < P < $2.89) Professional ($1.59 < P < $2.09) Colgate Plus Value (Avg. P $1.29) Colgate Classic X-Value* (P < $0.89)

Strategic positioning Elements of C-P’s Oral Care Division Marketing Program

Strategic positioning Elements of C-P’s Oral Care Division Marketing Program Therapeutic users, Baby boomers

Colgate Precision Launch: Positioning, Branding and Communication Strategic positioning Elements of C-P’s Oral Care Division Marketing Program

Oral Care Division: Classic, Plus, Product X, Product X ² , Total Toothpaste Strategic positioning Elements of C-P’s Oral Care Division Marketing Program

Strategic positioning Schedule * Targeted Specifically at Least Developed Countries Q1 1992 Q1 1993 Q1 1994 Q1 1995 Super Premium ($2.29 < P < $2.89) Professional ($1.59 < P < $2.09) Colgate Plus Value (Avg. P $1.29) Colgate Classic X-Value* (P < $0.89)

* Targeted Specifically at Least Developed Countries Strategic positioning Schedule Colgate Precision

* Targeted Specifically at Least Developed Countries Strategic positioning Schedule

* Targeted Specifically at Least Developed Countries ? ? Strategic positioning Schedule

Q&A Thank you! How Can CP Oral Care Division improve its Time-to-Market so that it can remain in the Super-premium Segment ?