Matthew Laird
Gilles Boivin
Roy Shelton
Chanin Srivannusorn
Roongruk Chanprasert
Colgate
Palmolive was a global leader in the household and personal care products
arena. They have secured almost half of the toothpaste market and a high
percentage of the toothbrush market.á
The company prides itself on innovative new products and supplying these
products with superior quality and performance consumers demand.
The baby boomers are more concerned
with healthier gums than the whiteness of teeth, therefore, willing to pay more
for a superior toothbrush that would protect their gums against disease.
Initially there were two main areas
of the toothbrush market: value and premium. Now there is a possibility of a
ôsuper-premiumö market. This is the first indicator of consumers willing to pay
more for a superior toothbrush that would enhance oral care. CP is focused in
entering this new ôsuper-premiumö niche market and is determined to meet the
demand of the growing baby boomer audience.
US toothbrush market is a $330, 000, 000 dollar business.á Colgate-Palmolive commands a 23% share of
that market, or about á$77,000,000
The toothbrush market in dollar sales has grown at a rate of 9.3% since
1987.á In 1992, an increase in new
product offerings boosted dollar sales 21% and volume by 18%.á The increase in 1992 was probably an
infrequent occurrence.á Also, it is
apparent that percent volume increase is approximately 86% (18%/21%) less that
percent dollar increases.á Applying this
ratio to annual dollar increase of 9.3%, we estimate volume growth at 8%
(9.3*86%).á Dollar growth exceeded
volume growth due to the emergence of the super-premium toothbrush.
The political environment is relatively insignificant.
New entrants appeared in the early 1990Æs.á This included large companies such as Proctor & Gamble and
Smithkline Beecham.á The products for
these two new entrants were positioned in the super-premium segment.
Tooth brushes were marketed using aesthetic appeal in the late
1980Æs.á The childrenÆs market emerged
with such features as glow-in-the-dark handles and cartoon characters.á This changed in the early 1990Æs.á New product offerings to feature
technological improvements.á An
additional social development is the concern for gum health demonstrated by the
baby boom population.á Cavity prevention
was the previous concern.á The baby
boomerÆs were willing to pay more for products designed for gum care.
The new products offered in late 1980Æs and very early 1990Æs focus new
technological developments on the design of the handle and head of the tooth
brush.á The most current technology is
the action of the bristles.á
Super-premium toothbrushes emerged in the late 1980Æs with an emphasis
on greater plaque removal and gum care.
The most current technology is the action of the bristles.á Concern for gum health is demonstrated by
the baby boom population.á New product
offerings to feature technological improvements of aesthetic improvements.
Stage of Product Life Cycle
Colgate PalmoliveÆs Precision toothbrush is in the ôintroductionö stage.
A marketing characteristic will be to disregard immediate profit and shall be
promoted strictly to create awareness.
Fixed Costs vs. Variable Costs
A mainstream position requires greater fixed costs with lower variable
costs while a niche product requires less fixed costs with greater variable
costs.
Cost Structure of Industry
Marginal or additional costs of supplying increased output as a niche
product is $0.66 and as a mainstream product it is $0.64.
Product
The Precision toothbrush is a technical innovation.
Using infrared motion analysis, CP developed a unique brush with bristles of 3
different lengths and orientations. Three brush designs evolved with 35% more
plaque removing efficiency. The brush is also shown to be more effective in
reducing gum disease than the leading brushes, specifically Reach and Oral-B.
Price
Manufacturer price of Precision would be $ 2.02 for
the niche strategy and $1.76 for the mainstream strategy. Suggested retail
price would be $ 2.89 for the niche strategy and $ 2.49 for the mainstream
strategy. Under a niche positioning strategy, CP would establish a factor list
price to the trade of $2.13 and the mainstream price would be $1.85. However,
in practice a greater discount may be given and is reflected in the financial
forecasts.
Place
Retail advertising features in-store displays to
increased toothbrush sales. The Precision toothbrush will be located on the
retail shelves between the Colgate Plus and Oral-B product lines. As a niche
product, it would be carried primarily by food and drug stores. As a mainstream
product, a relatively greater proportion of sales would occur through mass
merchandisers and club stores.
Promotion
Under the niche market, we will lead a more
aggressive advertising campaign that will demonstrate technical superiority of
the toothbrush. The mainstream position will be promoted through financial
incentives such as coupon, ôbuy one get one freeö promotions. The Precision
will be promoted through professional channels such as dentists. Other consumer
promotions were considered, for example: aá
free 5 oz. Tube of Colgate toothpaste will be offered with the purchase
of a Precision brush, or we would give a 50%-off offer on any size of Colgate
toothpaste in conjunction with a 50 cent. coupon for the Precision brush in
Strong Colgate markets.
A financial analysis of the two market positions indicates a profit over
a two year time frame for both market positions.á The Niche position generates a greater estimated net profit over
two years ($12,527,333).á The mainstream
net profit over two years is estimated at $9,515,333.á In addition, some sales of the new product are anticipated to
come at the expense of sales of other existing Colgate products.á (See Exhibit 1)
In the niche position, an estimated 35% of sales would come form other
products decreasing ColgateÆs overall toothbrush net profit by $2,507,400 in
year one and $3,970,050 in year 2.á In
the mainstream position, an estimated 60% of sales would come from exiting
products decreasing ColgateÆs overall toothbrush net profit by $15,044,400 in
year one and $21,133,800 in year two.á
Including the results of the cannibalization effect in the financial
forecast of the niche and mainstream market positions, only the niche market
generates a profit over a two year period.á
(See Exhibits 1 and 2)
Emphasizing the Colgate name on the new Precision toothbrush would cause
additional cannibalization of the existing Colgate toothbrushes.á Additional cannibalization is estimated at
20% (See Exhibit 3).á However, using the
Colgate name would be congruent with ColgateÆs strategy to build the Colgate
brand equity.
Communication
& Promotion
WeÆve gathered other information that may
contribute to success.á Four concept
tests were conducted among 400 adult professional brush users (Colgate Plus,
Reach, and Oral B). The results indicate that the consumers were highly
motivated by the Precision toothbrush claims.á
Additional in-home usage tests were conducted.áá 77% claimed that Precision was much more effective than their
current toothbrush.á Other consumer
research revealed that the higher the exposure to the product the greater
consumer acceptance
Skills &Financial Resources
As mentioned earlier Colgate Palmolive has spent $243 million to upgrade
25 of its 91 manufacturing plants.á They
have participated in several strategic acquisitions. E.g. Mennen, a menÆs
toiletry company.áá Manufacturing
capabilities began in China and Eastern Europe the same year.á If needed, some production can be
re-directed to manufacturing sub-contractors which CP currently uses for other
products.
CP holds 43 % of the global toothpaste market and 16% of the global
toothbrush market.á Sales have increased
12% to $1.3 billion, accounting for 22% of CPÆs total sales.á Toothbrush sales amounted to $77 million
with operating profit of $9.8 million.á
What does this mean?áá Colgate
Palmolive, without any doubt, has the means and abilities to take on the
endeavor.
Pros and Cons of Positioning
Mainstream
Cons
1.
Greater erosion of
Colgate Plus
2. May require dropping one of the slow moving
ChildrenÆs brush from the Plus line.
3.
Possible pressure on
production schedules resulting in inadequate supply of product.
4.
More competition.
Pros
1.
Unsatisfied demand
could create the perception of a ô Hotö product, which may increase sale.
2.
Possible increase in
sales.
Niche Positioning
Cons
1.
Less contribution to
net profit in future years.
áPros
1.
Niche could later be
broadened to a mainstream position as additional capacity came on line.á This would be an easy transition in the
product life cycle.
2.
Less erosion of
Colgate Plus.á The products are more
isolated.
3.
Entry into new
superior toothbrush market which CP currently holds no position.
4.
CP would face less
competition.
á
Recommendation (Decision)
We feel CP would have a strong position against
competitors on the basis of product attributes. E.g. itÆs a better product,
better performance.á The new product
development was specifically focused on a gum effectiveness brush.á We will position the brush in the Super
premium Segment specifically tailored to therapeutic brushers.
R&D investment concludes Super premium Niche
segment is more consistent than mainstream market for the advanced gum care.
Implementation
Professional endorsement from dentists will be a
factor for success.á With that said over
3 million brushes would need to be channeled through Dentists in the first
year.á We will pursue an aggressive
advertising campaign as described in marketing plan.
Re-tooling for the new product will require 8
months set up time.
The Marketing plan includes detailed budgets,
schedules, and sales projections and will serve as a guide for the launch of
the product.á Managers will be given
specific assignments and tasks to guide them through the project.á A variety of controls will be put in place
to examine whether planned results are being achieved.
Control Approaches
Sales and financial analysis will be performed by top
and middle management.á Market share of
the product will be continually monitored.á
Profitability Analysis will be conducted which will aid in determining
where the company is making/loosing money.á
Efficiency Controls will be put in place to evaluate the sales impact of
marketing expenditures.á Tailored
strategy controls will allow top management to quickly evaluate business
conditions.
Contingency Planning
We have tried to prepare for any unanticipated
conditions and marketing failures.á Our
contingency plan will include protocols in the event of severe downward pricing
pressure.á It will also contain actions
to react to poor sales.
In the event of a simultaneous launch of a similar
product, CP may be forced to reposition.á
Changing the product to a mainstream position may be an effective
alternative.á Colgate PalmoliveÆs
current tried and tested product line will continue to have full support.
Implemented control and monitoring strategies will
help identify the need and assembly of a contingency plan.á Full benefits are realized at least 1 year
after full production.á A thorough
assessment at that point will determine the future of the campaign.