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The Precision Toothbrush

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The following presentation is the analysis of Colgate-Palmolive Company: The Precision Toothbrush, Harvard Business School case.

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The Precision Toothbrush

  1. 1. Colgate-Palmolive Company: The Precision Toothbrush Harvard Business School Case
  2. 2. Company Background
  3. 3. Colgate-Palmolive(CP) was a global leader in household and personal care products with sales of $6.06 billion and gross profit of $2.76 billion in 1991 In 1991, $243 million was spent to upgrade its manufacturing plants and several strategic acquisitions were completed Reuben Mark, CP’s C.E.O since 1984, had been praised for transforming a “sleepy and inefficient ” Company into a lean and profitable one
  4. 4. In 1991, CP held 43% of the world toothpaste market and 16% of the world toothbrush market The following table presents the operating statements for CP’s U.S toothbrush business since 1989 CP held the top position in the U.S market with a 23.3% volume share
  5. 5. CP was poised to launch a new toothbrush in the United States, tentatively named Colgate Precision
  6. 6. Susan Steinberg, Precision product manger had to recommend positioning, branding and communication strategies to division general manger Nigel Burton
  7. 7. Where should we focus???
  8. 8. 1) The U.S. Market 2) Positioning 3) Branding 4) Communication & Promotion 5) Profit and loss pro forma 6) Advertisement Budget
  9. 9. The U.S. Toothbrush Market
  10. 10. The following summarizes new product introductions in the toothbrush market since 1980
  11. 11. In 1991, the U.S. Oral Care market was $2.9 billion in retail sales and had growth at an annual rate of 6.1% Toothpaste accounted for 46%, mouth rinses 24%, toothbrushes 15.5% and other products making up the remainder Dollar sales of toothbrushes had growth at an average rate of 9.3% but in 1992 they increased by 21% due to introduction of 47 new products and line extentions
  12. 12. Product Segments In 1992, three players dominated the U.S. toothbrush market overall : CP and Johnson & Johnson, whose brushes were positioned in the professional segment and Oral-B, whose brushes were positioned in super-premium segment
  13. 13. Consumer Behavior Purchase frequency : every 12.4 months in 1990 every 11.6 months in 1991 every 9.7 months in 1992 45% brushed before breakfast, 57% after breakfast, 28% after lunch, 24% after dinner and 71% before bed
  14. 14. Buying behavior of 3 groups More chances for Precision to enter
  15. 15. Competition Major competitors in the super-premium segment are Oral-B, Reach Advanced Design, Crest Complete and Aquafresh Flex. Toothbrush brand product lines
  16. 16. Advertising and Promotion Increased advertising and promotion enhanced the visibility to fuel consumer demand Growing competition also increased the frequency and value of consumer promotion events Retail ads and in-store display increased the sales
  17. 17. CP had four display systems To maximize sales CP salespeople tried to locate Colgate line in the middle of the category shelf space, between Reach and Oral-B
  18. 18. Distribution Traditional food stores sold 75% products in 1987 but only 47% by 1992 Retailers were provided with an average margin between 25% and 35% 22% of toothbrushes were expected to be distributed by dentists 1ess margin Oral-B dominated
  19. 19. Positioning
  20. 20. It has chances to position itself as a Niche or Mainstream product
  21. 21. Pros: Niche Less erosion of Colgate Plus Increases brand equity Can enter into new super premium market, where CP hold no position Can extend later to mainstream position with additional capacity
  22. 22. Cons: Niche Less contribution to profits Potential competitors with similar product and technology
  23. 23. Mainstream Pros: Huge sales and great demand Generates more profits Easy to distribute as no need to distribute much through dentists
  24. 24. Mainstream Cons: Causes erosion of Colgate Plus Might need to drop one of the slow moving children’s brush from the product line Pressure on production might lead to inadequate supply
  25. 25. Consumer concept tests were carried out by the task force, name tests were also conducted among those consumers. Alternative names tested included Colgate Precision, Colgate System III, Colgate 1.2.3 , etc.
  26. 26. The Colgate Precision name was consistently viewed more favourably, it was deemed appropriately by 49% of concept acceptors and appealing by 31% It was estimated that cannibalization figures for Colgate Plus would increase by 20% if Colgate brand name was stressed. But CP’s strategy was to build on the Colgate brand equity
  27. 27. Communication & Promotion
  28. 28. Four Concept tests were conducted among 400 adult professional brush users. Consumers were exposed to various product claims in prototype print advertisements and then asked about the likelihood that they would purchase the product
  29. 29. Summary of Consumer Concept Test results
  30. 30. The results indicate that the toothbrush, which would prevent gum disease motivated the greatest purchase intent among test consumers 55% of test consumers found Precision to be very different and 77% claimed that it was more effective Once tried consumer indented to purchase rose dramatically, so sampling would be critical to success
  31. 31. Promotion Niche Market: Aggressive advertisement campaigns Emphasize technological superiority of the brush Channel through drug store , food store and dentists Sampling
  32. 32. Mainstream Market: Financial incentives Induce trail by leveraging CP’s star products : free 5 oz. tube of Colgate paste 50%-off offer on any size Colgate paste 50 cent coupon Channel through mass merchandisers, club stores, and food stores
  33. 33. Profit and loss pro forma
  34. 34. Unit volumes reaching consumers
  35. 35. Production costs and pricing
  36. 36. Cost of sales = manufacturing cost * total units Net sales= manufacture price * total units sold Given that all sales were made at a discount of 5%
  37. 37. Net sales Niche product Mainstream product Year 1 Year 2 Year 1 Year 2 $24.95M $38.34M $70.22M $98.65M $8.58M $13.2M $26.88M $37.76M $11.2M $11.7M $32.8M $29M $0.32M $0.45M $0.89M $1.27M $4.85M 12.99M 9.65M 30.62 Cost of Sales Advertisements Depreciation Profit
  38. 38. Cannibalization loss= (net price)*(units)* Assuming same loss for Colgate Plus and Active Plus Price : $1.35 Active Price : $0.69 (from Exhibit 4) Niche product Mainstream product 35% 60% 35% 60% Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 Year 1 Year2 4.55 7 7.8 12 14.7 20.65 25.2 35.4 4.64 7.14 7.96 12.24 15 21.06 25.70 36.11 0.21 5.85 3.11 0.75 5.35 9.56 16.05 5.49 Units(MM) units= (% cannibalization)*(volume of new product) Cannibalization loss(M) Net profit/ loss (M)
  39. 39. Hence we can say that Niche strategy is for short term profits and mainstream strategy is for long term pofits
  40. 40. Advertisement budget To increase overall CP’s toothbrush Advertisement budget by 80%. To allocate 75% of budget to Precision and remaining to Plus. Others argued that budget must be increased for Precision but they should not reduce the budget for Plus and Classic
  41. 41. Thank You

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