This is a case study made by me during my Marketing internship under Prof.Sameer Mathur as a part of my assignment.It gives a detail analysis of Colgate-Palmolive Comapany Case.
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, CPs C.E.O since 1984, had been
praised for transforming a sleepy and inefficient
Company into a lean and profitable one
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
CPs U.S toothbrush business since 1989
CP held the top position in the U.S market with a 23.3%
volume share
CP was poised to launch a new toothbrush
in the United States, tentatively named
Colgate Precision
Susan Steinberg, Precision product
manger had to recommend positioning,
branding and communication
strategies to division
general manger Nigel Burton
Where should
we focus???
1) The U.S. Market
2) Positioning
3) Branding
4) Communication & Promotion
5) Profit and loss pro forma
6) Advertisement Budget
The U.S.
Toothbrush Market
The following summarizes new product introductions
in the toothbrush market since 1980
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
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
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
Buying behavior of 3 groups
More chances for Precision to enter
Competition
Major competitors in the super-premium segment are
Oral-B, Reach Advanced Design, Crest Complete and
Aquafresh Flex.
Toothbrush brand product lines
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
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
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
Positioning
It has chances to position itself as a
Niche or Mainstream product
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
Cons:
Niche
Less contribution to profits
Potential competitors with similar
product and technology
Mainstream
Pros:
Huge sales and great demand
Generates more profits
Easy to distribute as no need to distribute
much through dentists
Mainstream
Cons:
Causes erosion of Colgate Plus
Might need to drop one of the slow moving
childrens brush from the product line
Pressure on production might lead to
inadequate supply
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.
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 CPs strategy was to build on the Colgate brand
equity
Communication
&
Promotion
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
Summary of Consumer Concept Test results
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
Promotion
Niche Market:
Aggressive advertisement campaigns
Emphasize technological superiority of the brush
Channel through drug store , food store and dentists
Sampling
Mainstream Market:
Financial incentives
Induce trail by leveraging CPs 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
Profit and loss
pro forma
Unit volumes reaching consumers
Production costs and pricing
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%
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
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)
Hence we can say that Niche strategy is for short term
profits and mainstream strategy is for long term pofits
Advertisement budget
To increase overall CPs 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