1. What is Scope Canada's variable cost per unit in 1990? How much is their contribution per unit? (Show your calculation) 2. With line extension, how much will the new variable cost per unit be? Assuming they can charge a price between $41.25 and $65.09, how much is the new contribution per unit? (Show your calculation) 3. How many units can be sold with the New Scope with health benefit according to the case? How many units is likely coming from Scope's existing sales of original Scope (cannibalization)? How much contribution needs to be deducted from the New Scope? (Show your calculation) foot you )-and in 1976, Scope became the madket leader in Carasa. tioned is a "good tasting mouthwasit that fights bad bweath. Within yeat in bese achieved a. 12 percent market sk In the 1970 , Merrell Dow, a large pharatacectiol firm. Launched Copand acraller brands in the manket. which was positioned wery doee to Liverine. If achicved and held apgrosimate Duries the 1950s, the major comppetivive chapges in the Camadlan mouts. 14 percent of the matket in the early 1980 s - Listerine, which had been marketect peimarily on a "bad becath" stratco wash market were: began shifting ats position and in 1908 introduced the claim "Fights plafes and helps prevent infiamed gums cauted by plaque." In the Unined State. listerine gained the American Dental Association seal for plaque bat, a yet did not have the seal in Crmada. - Listermint added fluoride daring the carly 1980 and added the Canadian Dental Association seal for preventing eavitics in 1983. More recentiy. Ia termint had downplayed fucotide and removed the seal. in early 1987 . flawwars were introduced by a mamber of brands inchucing In early l907, Alaboas were bingadoced by a mumber of brands inciucing the market in 1997 but did not significamtly change the masket shares hadd be - Colgate Huoride Rinse was launched in 1988 . With the seal from the Canathe major brands. dian Dental Association for covisies, it claimest that *Colgate's oes fluoctio Price. THE INTRODUCTION OF PLAX it claiencd that "Itinsing with Phixy, then brushing armathe memanes ug- bo thares times more plague than just berushing alone." Pfizer Inc, a pharinaceutical finm, tanched Max in Canalu with a prumsirion. ($160,000), (3) an inseanty rodecmalike coupsen oifer ($110,0000,(4) a proficsional mailer to drug, and supermarket chadins (\$30,900), and (5) a mumber of price reaboc: total market. When Mlax was launched in the United Scates, in chained that using Pas: "remowed up to 300 percent more plaque thun fout hnuthirpe. This chaim was challengged by moushwash coenperitors and led to an linscuspation thy the Bxtier Busincss Burepu. The investigation found that the study on whach ras bused its claim hard panclists limir their soothlirushing to just 15 secomad and didnit les mot use Plax. Plax then resised its claim to "three times mose plique tham jue brashing alodae. Inforration on plaque is containcd in this case is Appendis.: HE CURR.

1. 1. What is Scope Canada's variable cost per unit in 1990? How much is their contribution per
unit? (Show your calculation) 2. With line extension, how much will the new variable cost per
unit be? Assuming they can charge a price between $41.25 and $65.09, how much is the new
contribution per unit? (Show your calculation) 3. How many units can be sold with the New
Scope with health benefit according to the case? How many units is likely coming from Scope's
existing sales of original Scope (cannibalization)? How much contribution needs to be deducted
from the New Scope? (Show your calculation) foot you )-and in 1976, Scope became the madket
leader in Carasa. tioned is a "good tasting mouthwasit that fights bad bweath. Within yeat in bese
achieved a. 12 percent market sk In the 1970 , Merrell Dow, a large pharatacectiol firm.
Launched Copand acraller brands in the manket. which was positioned wery doee to Liverine. If
achicved and held apgrosimate Duries the 1950s, the major comppetivive chapges in the
Camadlan mouts. 14 percent of the matket in the early 1980 s - Listerine, which had been
marketect peimarily on a "bad becath" stratco wash market were: began shifting ats position and
in 1908 introduced the claim "Fights plafes and helps prevent infiamed gums cauted by plaque."
In the Unined State. listerine gained the American Dental Association seal for plaque bat, a yet
did not have the seal in Crmada. - Listermint added fluoride daring the carly 1980 and added the
Canadian Dental Association seal for preventing eavitics in 1983. More recentiy. Ia termint had
downplayed fucotide and removed the seal. in early 1987 . flawwars were introduced by a
mamber of brands inchucing In early l907, Alaboas were bingadoced by a mumber of brands
inciucing the market in 1997 but did not significamtly change the masket shares hadd be -
Colgate Huoride Rinse was launched in 1988 . With the seal from the Canathe major brands.
dian Dental Association for covisies, it claimest that *Colgate's oes fluoctio
Price. THE INTRODUCTION OF PLAX it claiencd that "Itinsing with Phixy, then brushing
armathe memanes ug- bo thares times more plague than just berushing alone." Pfizer Inc, a
pharinaceutical finm, tanched Max in Canalu with a prumsirion. ($160,000), (3) an inseanty
rodecmalike coupsen oifer ($110,0000,(4) a proficsional mailer to drug, and supermarket chadins
($30,900), and (5) a mumber of price reaboc: total market. When Mlax was launched in the
United Scates, in chained that using Pas: "remowed up to 300 percent more plaque thun fout
hnuthirpe. This chaim was challengged by moushwash coenperitors and led to an linscuspation
thy the Bxtier Busincss Burepu. The investigation found that the study on whach ras bused its
claim hard panclists limir their soothlirushing to just 15 secomad and didnit les mot use Plax.
Plax then resised its claim to "three times mose plique tham jue brashing alodae. Inforration on
plaque is containcd in this case is Appendis.: HE CURRENT SITUATION In preparing for the
stritegic plan, Gwen Hearst revicwed the available in mation for the mouthwash matket and

2. Scope. As shown in Eathitit 2, in 15 75 percent of Canadian households used one or more
mouthwash brands, of use; "heavy" users (once per day or moee) conporised 40 pereeat of all
wieh are: in as part if mi heek inal legete Tr pere that as had terath n taik prewes At makes me
ferl mes cumficele Tha madd rifiendine oufert. sentreple maxases allowed. ExHilast 3 Consumer
Perceptions of Drand Images AII tacrs" Aimribtates Roduces bad breath Kills scrms Remones
plique Healthier teeth and zums. Good for preventing colds Recoenenended by doctees/dentists
Cleans your moeth well Biramal teers" Atrribufes Copical Colgate tisterime Listermint Pfax
Senpe. Mecluces bad berath Kills getms Remiones plaque Healrlaier teeth and quats Good for
preventing colds: Hecommended by doctory/dentists Hinctuden only the users of that brand. Jor
ecample, Cepacal is perceived by those whoke asal. brand" is Cepacal as a hrand that is
poodbetter dain miont an "rohusing bud becata." Scarce Cempany teconis.
Comperitive data were also collectes for advertinans rapenditures and remail prices. As shown in
Exhatit 5, total moted for afpending of all beande in 1990wa 85 million, with Scope, tiaterine,
and Plax acconding for foe 90 perdent of all ather Whobesale itutor mere inctaded in food anee
ales.
cheres Gremoung roonde. and Mlax were peiced at a higher level in food stores, and Plax was
prited an a premium in drugutores. contrast to Canada, Listerine held the dominant thare in the
U5, marker s. carly 19s9, Listerine had been adverticed heawily in the United spaics as the onl.
nagprescription mouthwach accepled by the Arserican Dental Avsociation far ins significint help
in preventing and reducing plaque and ginglvitis." Ia diss: cal tests in the Uinited States,
Listerine signiffcantly reduced plaque scores be raughly 20 to 35 pereent, with a simitar
reduction in gingiritis. In Canadu, the 1990 advertising campaign included the clain that
Listerine has becn ciinicalf proven to "help prevent inflamed and insitated gams caused by
plaque buildenp: Listerine's formula relied en four escential oils menthol, cucalyptol, thymol.
and methyl salicylate-all derivanives of phenat, a porserful antiseptic. Histerine had not received
the consumer product seal given by the Canadian Dental Associationt (CDA) because the
association was not convinced a mourrince could be of therapeutic value. The CDA was
carrently reviewing America rests for setenal products sold in Canada. In fact, any proposed
changes to the formulation of mouthwashes or advertising claims could require approval froe
various regulatory agencies.
HE REGULATORY ENVIRONMENT 1. Mradb Mounune himin ni. considered a banned
sebbeance. In euntine, the thined yeutes uses nos. of the samse beands compere in both canaly

3. and the tritard secites, the formula in each country is differene. THREE-YEAR PLAN In
preparing the threeyear plan foe Scope, a team lad been formed wirhin Pag to examine various
options. The team included individals from prodoc development (PDD), manuficturing, sales,
market regeach, finunce, advenising, and operations. Over the past year, the teals had completed
a variety of aciviries relating to scopet. The key issue, in Hears's mind, was how PSG should
capitalian on the emerging market segment within the rinse category thut focused more on
"health-related benefits" than the traditional becath stratras of Scope. Specifilelly with the launch
of Plax, the mouthwash market had segnented iself alneg the "breath-only" brands (like Scope)
and those promising ocher bencliss. Plax, in positioning itself as a prebrushing rinse, was noe
seen as, nor did it tase like, a "breath refreshment" mouthwash like Scope. Gwen Hearst believed
that a line extension positioned apaime Pbox, a recent. entry into the market, made the most
sense. If the moutiwash marlet becume more segmented, and if these other hrands grew, her fcar
was that PsG would more segmented, and if these odher brabds arthe large share of a segment
that focused only on "beuth" and bence might decline. However, she also knew that there were
quesions reganting both might decine. However, she also knew that there weit quesions regarting
bech the strategic and financial implications of socth a proposal. in tocent iscebing proposed,
including "doing nothing" and looking at chins
out setineth he Hardiak trsit ine mheres. Preduct Develepitient Cact, in its festing of Plak isclf,
PDI was actually unahte to teplicate the pliche eace quite different from that of Scope. The
product bebelopenent poople in particular were concermed ahoet Hearst's tifed of launching a
Eine extension becave it was a product that was only equal in cflicaty to Plax and to placeloo
rimies for plaque reduction. Tndirionally, PsG had ocly la unched peoducts that foctaked on
unmet conname necds-typically superior performing prodacts: 1 forweser, Gwen had pointest
out, because the new product cifered similar efficisy at a betier taste, this was simeilar to the
sitaation when scope was aciginally lauached. Scene PDD mezs. ters. were alse concctnod that if
they couldn't replicate Phax's clinical reqults wich Pagis stringent teet methedplogy, and of the
froduct posvibly didert pre. vide any greater bencfit than fansing. wirh any. liequid, then PogCis
inage and credibilaty with dental professionals mtight be impacticd. There was debate ee this
issae, as others felt that as long as the prochuct difl encouage better oral hygiene, it did promide a
benefit. As farther suppoit they noted that many professionals did tecotancnd Pfix. Overall,
PDD's peference was to not liunch a near product but, instead, to add plaque-teduction ifkinss so
Sope. The basie angument was that it was beter to protect the business that P&, was already in
than to launchs a completely new entity. If a liae extenting waspedrsecu. a prod. uct test costing
520,000 would be fequired. Sales The sales people lad seen the inreads Plax had been making in
the markerplace and believed that Scope should respond quickly. They had one key concem. As

4. sockieeping units (SKUs) had begun to prollferute in many categories, the te tail industry had
become mach moee stringent regarding what is would accept. Now, to be camied on ssore
shehes, a brand muse be seen as different enough (or anique) from the competition to bulld
incremental purchases-otherwive rtailers argued that catezory sales volume would simply be
spread over more units When this happened, a retail outict's profitability was reduced because
imentory costs were higher, bot no additional sales revenoe was generated. When a nes brand
was viewed as not generating more salcs, retailers might still camy the hrand by replacing units
within the exiseing line for example, drop shelf facings
Market Research plaque Soople. This nscant that it behind such a claim? 2. A "Better-7asting.
Prebrushling tiental Hinse" peodoct alles resurate the armong Plax users, but dild not increase
putctuse inscut aming pery. going basis, Hissorically. it had taken approximascly twa years to get
us the ongoing level. Howeyer, there was no way foe them to accaratuly assess potential Scope
cannibatiration. "Tre yoer jadpene," they had said. Howerer, they cautioned that although it mas
a peoduct for a different usage occasion, it was unlakely to be 100 percent lncremental benkness.
Hearst's best rough gaess was that this peodoct might cannibalide somewhere between 2 and 9
percent of Scope's siles. An unresobed issue was the product's name-if ir were launchel, shoold it
be under. the Scope name or noe One fear was that if the soope name was used it would elither
"turn off" loyal users who am Scmpe as a breath tefreshment product or confuse them. MR had
questioned Hears as to whether she had really looked at all angles to meet her objective. Because
much of this work had been done quickly, they wondered whether there weren't same other
benefits Seope ceald talk about that would interest consumers and hence achieve the same
obiective. They suggested that Hearst look at other alternatives beyond /ust 'a plaque reassarance
on Scope" or a "line extension porsitioned as a "Better-Fasting Prebrushing: Rinse, HH Finance
The point of view from finance was mixed. On the onc hand, Plax commaoded a higher dollar
price per liter and so it made sense that a new rine might be a profitable option. On the other
hand, they were concerned about the eapical costs and the mariketing costs that might be
involied ro launch a line extension. One option would be to source the product from a US plant
where the necer sary equipment already existed. If the product was obeained from the Uniged
States delivery costs would increase by $1 per unit. Seope's furment marketing and financlal
picture is shown in Exhibits 7 and 8 on page 250 and an estimate of and financial picture is
shown in Exhibis 7 and Plax fin on page 251 .
Extheir 9 Piax Finthrial ru. Purchasing The purchasing manaser had reviewed the formile for the

5. the enemaion and had estimated that the ingredients mot would incrave be 12.55 per urit diae to
the addition of new ingredients, llut, bocuuse one of the ingrederes was very Packiging coses
would be so. 30 per unitit hagher owing to the fiet that the werup. charges would be spead over a
per valier base. Advertising Agency The advertising agency felt that making any new claits for
feope was a hoge strategic shift for the brand. They favored a line etemvion. Soopes stratess tuat
always been "breath refreshment and good nsting' focosed, and they aw the plaque claims as very
different, with posentially sigeificans stadegic implications. The one time they had focused
adventising only ce tase and ditht ielaflonse breath efficacy, share fell. They were concerned that
the current sompe consunes could be confused if plaque or any "nonbreath" chims were adied
and that. Scope could actually lose market share if this oceurnd. They also pointed out that trying
to communicate two different ideas in one cuemertit was very difficult. They believed the line
extension was a completely diffrente probact from Scope with a different benefit and use
occasion. In their minds a line exersion would need to be supported on a going basis sepurately
from Scope. TO RECOMMEND? Hearst knew the business team had thought long and hund
aboot the ssue. she knew that management was depending on the Scope bowincss teum to coene.
up with the right long-erm plan for PSG-even if that meant not introducing. the new product.
However, she felt there was too much riok asockied with PSG's long-term position in oral rinses
if nothing was done. Tbere was no eay answer-and compounding the exigencies of the slaution
was the fact that the business team had differing points of view. She was ficed with the
dilenmme of providing recommendations about Scrpe, but also needed to ensure that there was
alignment and commitivent from the busioess team, of serior munugement would be unlikely to
agree to the proposil.
STRATEGIC MARKETING PROBLEMS Cases and Comments
Procter & Gamble, Inc.: Scope Gordon H. G. McDougall and Franklin Ramsoomair