The Precision Toothbrush
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Transcript of The Precision Toothbrush
Colgate-Palmolive Company:The Precision ToothbrushHarvard Business School Case
Company Background
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 itsmanufacturing plants and several strategic acquisitions were completed
Reuben Mark, CP’s C.E.O since 1984, had beenpraised 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 forCP’s 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 shouldwe 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 inretail 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 BehaviorPurchase frequency : every 12.4 months in 1990
every 11.6 months in 1991every 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
CompetitionMajor competitors in the super-premium segment areOral-B, Reach Advanced Design, Crest Complete andAquafresh 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 andvalue 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 locateColgate line in the middle ofthe category shelf space,between Reach and Oral-B
DistributionTraditional 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 distributedby dentists
1ess marginOral-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, whereCP 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
MainstreamPros:
Huge sales and great demand
Generates more profits
Easy to distribute as no need to distribute much through dentists
MainstreamCons:
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
Consumer concept tests were carried out by the taskforce, 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 viewedmore 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
Communication&
Promotion
Four Concept tests were conducted among 400 adult professional brush users.
Consumers were exposed to various product claims inprototype 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
PromotionNiche 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 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
Profit and losspro 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 productYear 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
AdvertisementsDepreciation
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 product35% 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 termprofits and mainstream strategy is for long term pofits
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
Thank You