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Colgate Palmolive Case

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COLGATE-PALMOLIVE COMPANY: THE PRECISION TOOTHBRUSH

MARKETING MANAGEMENT (MKT 6301/SYSM 6318)

SPRING 2014 - CASE ANALYSIS REPORT

2/25/2014

Submitted by:-
Ellen Hsieh
Junai Kang
Gopichand Movva
Yasemin Polat
Iqra Sawani
Vivek Siva Iyer

PROBLEM STATEMENT
Colgate-Palmolive (CP) was preparing to launch the Precision toothbrush early in 1993. CP developed the Precision toothbrush with three different brush lengths and orientations to increase plaque removal and access to gums and teeth. Before proceeding with launch of the product, CP's main concern was in regards to promotion of the toothbrush, including positioning, branding, promoting and advertising. CP debated the placement of the Precision toothbrush between niche and mainstream positioning. Subsequently, CP deliberated emphasizing the branding of the toothbrush between Precision or Colgate. Finally, CP faced a dilemma in deciding the method of promotion that would best appeal to consumers while focusing on plaque removal.
ISSUES
Consumer and demand analysis
For Colgate Palmolive, determining the demand of consumers in the oral hygiene market was crucial to determine how to market the product in terms of price, design, advertising, and other promotions. Consumers for toothbrushes include the general population with any concern oral hygiene. The difference in consumers was the types of brushers . The therapeutic brushers would be CP’s best consumers since they are the most concerned about their oral hygiene. Next, the cosmetic brushers, who brush their teeth to prevent bad breath and maintain white teeth, serve as an important segment in Colgate Palmolive’s marketing campaign. Lastly, although not a large segment, the uninvolved brushers who only adjust their behavior when faced with oral hygiene issues, could be targeted through dental samples can be targeted through dental samples.
Therapeutic consumers mainly use Oral-B while cosmetic and uninvolved consumers mainly use Colgate brushes. Because a majority of therapeutic brushers do not use Colgate as their number one choice, the Precision should be marketed toward the therapeutic consumer segment in order to gain market share from Oral-B.
Since our toothbrush improves effectiveness of cleaning plaque especially at the gum line, we could reach our target consumers of the baby boom generation with a proper campaign. These consumers are more concerned about the health of their gums than cavity prevention, enough to pay a premium on a toothbrush that offers this element. This campaign also has to address the importance of changing toothbrushes every 3 months. By doing this, the average consumer will decrease their current average 7.5 month usage of a toothbrush and therefore purchase more toothbrushes. Also, since consumer toothbrush purchases are not planned, entirely based on price or researched ahead of time, placement and promotion of the product at the retailer is vital.
Because more than 65% of consumers have multiple toothbrushes, two-for-one promotions, or travel sized options could satisfy demand. Lastly, consumer purchases are based on personal preferences. The two most important ones being: a comfortable fit in the mouth and getting at hard to reach places. Using these statistics in our marketing campaign to appeal to the preferences of consumers will improve consumer satisfaction of the product once they use it.

Competitor analysis
In 1992, CP’s competitors included Oral-B, Johnson & Johnson (J&J), Procter & Gamble (P&G), Smithkline Beecham, Lever, Pfizer and Sunstar.
During that time Oral-B was the major toothbrush market leader and was launching a new toothbrush, Oral-B Indicator. Oral-B Indicator featured innovative bristles that indicated when a replacement toothbrush was needed. Despite the launch of a new product, Oral-B was able to maintain 21 SKUs, the second largest amount of SKUs under Colgate’s 36 SKUs, as well as a 20% operating margin, which was equally as high as CP’s operating margin. The ability of Oral-B to successfully launch a new toothbrush, Oral-B Indicator, makes Oral-B a fierce competitor for toothbrush sales. Oral-B has the resources and money to advertise, spending $15.7 million on promotions and advertisement on Indicator, and still maintain a large operating margin. Oral-B’s objective is to grow in sales volume and market share by focusing on other regions of oral care such as floss, mouthwash, and toothpaste, thereby increasing competition for toothbrushes.
In 1991, J&J was the third major toothbrush market leader with the brand Reach, which comprised of 18 SKUs; however, in the previous years, J&J tried launching a Prevent toothbrush which featured a specialized handle to ensure the recommended 45% brushing angle. The Prevent product line was unsuccessful. J&J then launched Reach Between and spent $21.7 million on promotions and advertisements, expecting an 8.4% operating margin. The operating margin for the launch of the new toothbrush did not lead to operating margins as large as expected from Oral-B, indicating that operating efficiency or pricing strategy for the launch of new products needed to be improved. Additionally, phasing out of the Prevent toothbrush indicates Johnson and Johnson’s struggle to launch long-term products in such a competitive market.
P&G, with the launch of Crest Complete toothbrush in 1992, with 10 SKUs, was the newest into the toothbrush market. Crest Complete toothbrush was advertised to be 37% more effective at reaching in between teeth than flat brushes. In the company’s first year, Crest Complete captured 2.0% of volume share and 2.6% of value share in a highly competitive toothbrush market. While this was not as high as Oral-B’s 1991 values of 23.1% volume share and 30.7% value share, as well as J&J’s 1991 values of 19.4% volume and 21.8% value share, P&G could become a strong competitor with continued growth. However, since P&G was new to the toothbrush market, P&G was at a serious disadvantage because Oral-B and CP had broader product lines. This could help cushion the cost associated with production and advertisements of new products.
Another new entrant to the toothbrush market in 1991 was Smithkline Beecham with 6 SKUs of Aquafresh Flex, designed for flexibility and gentler brushing. Smithkline Beecham spent $14.6 million in advertising and promotions but was unsuccessful in launching a profitable toothbrush and eventually led to an operating loss. Smithkline Beecham was not a strong competitor in the toothbrush market because they were unable to produce a profitable product.

Company SWOT analysis
SWOT Summary
Strengths Opportunities
Good Brand Image & Reputation
Newly upgraded Facilities
High R&D Capacity
Sufficient Ads & Promotion Fund
Successful Test of Precision Big super-premium market
Ads & promotion efficiency
Increasing purchase frequency
Demand of plaque removal
Weaknesses Threats
Cannibalization
Big expenditure for new entrant Major competitor: Oral-B
New entrant: Price war Strengths:
 Newly upgraded facilities improved efficiencies in manufacturing
 A strong team of 170 CP researchers, supports the technical innovation of Precision toothbrush
 Stable increasing ads & promotion funding contributes to the promotion of new products, especially for new entrant
 Test successful achieved the 5 goals and proved the high satisfaction from customers
 As a global leader in oral care industry, CP keeps good company image and brand reputation, which is helpful to the promotion of new products also
Weaknesses:
 Due to the new product’s promotion, the possible cannibalization of Colgate Plus leads to the loss of revenue in its current market
 Becoming a new entrant in super-premium market, CP has to spend high expenditures
Opportunities:
 Taking 35% of unit volume and 40% of dollar sales, Super-premium is absolutely a big market in toothbrush industry with huge capacity for new entrants
 Ads & Promotion positively relates to the sales of toothbrush, which is also friendly to the new entrant
 At that period, consumers tend to change their toothbrushes more frequently, especially consumers who care their tooth problem (Super-premium group)
 Many consumers have the demand of plaque removal.
Threats:
 Oral-B, the biggest competitor, has dominated the market and at the same time, it’s also a global leader in toothbrush industry which is similar to CP
 Increasing demand and high profit attracts more new entrants, and might trigger price war

ALTERNATIVES
Economic evaluation
The Colgate-Palmolive had two options in determining the position of the Precision toothbrush, they were niche and mainstream offering. the niche targets the specific group of consumers who are concerned about gum disease and the other was mainstream offering, this product is targeted for all the potential buyers or the general public. so as to decide on one of the options, the economic statistics of niche and mainstream are compared. The table below shows the expenses, sales and profit of the Precision toothbrush. The expenses include the manufacturing cost, investment capacity, depreciation costs, investment on ads and promotions. the sales section includes the total sales of the precision tooth brush with a 5% discount because to the trade usually have an approximate discount for achieving market share.

SALES (ALL PRICES IN US $) Niche Mainstream Year 1 Year 2 Year 1 Year 2 Unit Price: 2.89 Unit Price: 2.49
Retail 23.12 M 43.35 M 66.73 M 109.81 M
Dental Professionals 2.47 M 2.47 M 6.58 M 6.58 M
Subtotal 25.59 M 45.82 M 73.31 M 116.39 M
Discount (5%) ˗ 1.28 M ˗ 2.29 M ˗ 3.67 M ˗ 5.82 M
Total 24.31 M 43.53 M 69.64 M 110.57 M

EXPENSES (ALL PRICES IN US $) Niche Mainstream Year 1 Year 2 Year 1 Year 2
COGS 8.58 M 13.20 M 26.88 M 27.76 M
Ads 5.00 M 5.00 M 15.00 M 12.00 M
Consumer Promo 4.60 M 4.00 M 13.00 M 10.00 M
Trade Promo 1.60 M 2.70 M 7.00 M
Investment 3.25 M 1.30 M 9.10 M 3.90 M
Depreciation 0.32 M 0.45 M 0.89 M 1.27 M
Total 23.35 M 26.65 M 69.67 M 71.93 M

NET PROFIT = TOTAL SALES - TOTAL EXPENSES (ALL PRICES IN US $) Niche Mainstream Year 1 Year 2 Year 1 Year 2
Total 0.96 M 16.88 M ˗ 0.03 M 38.64
From the above table, we could conclude that, even though initially for the first year we have a loss of $0.03M as a mainstream product, in the second year the profit of mainstream is $38.64 M which is twice that of niche. Therefore, by promoting Precision toothbrush in the mainstream market will generate more profits as compared to niche, starting from second year.

Qualitative evaluation How consumers choose a toothbrush was based on its features, a professional recommendation and last but not the least the comfort of using it (in terms of its size & shape with respect to their mouths, brushing style, sensitivity of gums, handle and bristles). In research conducted by Colgate Palmolive, it was found that consumers changed their toothbrushes based on a few reasons as mentioned in the below table.
YEAR FREQUENCY
1990 Every 12.4 months < < < < < < <
Increasing Frequency
< < < < < < <
1991 Every 11.6 months
1992 Every 09.7 months

The timeline of the changes in the design patterns of the major competitors (Oral-B, J&J, P&G, Smithkline Beecham) is shown in the below table.
COMPETITOR TIMELINE OF DESIGN CHANGES Year Designs
Oral-B 1950s Classic - Traditional square head 1989 Ultra - Improved handle 1990 Art Series - Cosmetic feature 1991 Indicator - Bristles change color

Johnson & Johnson 1977 Reach - First angled handle 1988 Prevent - Aids brushing at 450 angle 1990 Neon Reach - Neon colored handle 1991 Advanced Reach - Rubber-ridged, non-slip handle

Procter & Gamble 1992 Crest Complete - Rippled bristles

Smithkline Beecham 1991 Aquafresh Flex - Flexible handle neck

Other (Lever/Pfizer/Sunstar) 1986 Lever Bros. Aim - Slightly longer handle 1989 Pepsodent - "Commodity" brush 1991 Pfizer Plax - Groove for thumb
Keeping these designs and consumer behavior regarding selection of a toothbrush in mind, CP set five prime goals for achieving a new and innovative design to suit the market needs and simultaneously maintain sustenance in 1989. The R&D team which was assigned the task of achieving these goals by 1992, to launch the new product, led to the results as below.

S. NO. GOALS R&D TEST RESULT HOW IT HELPED
1 To understand different brushing techniques used by consumers Brushing helped remove plaque from teeth surface but not from gum line and between the teeth Precision ensured good health of gums and teeth by reaching and cleaning gum line and between-teeth
2 To test between-teeth access of all competitive designs New design had easy access to unreachable parts of teeth, and was thus superior to both Oral-B and Reach
3 To quantify efficiency of clinical removal of plaque at gum line and between teeth Percentage calculation of tooth areas affected by plaque pre- and post-usage of varying brands of brushes were revealed using a disclosing solution Precision showed considerable decrease in plaque pre- and post-lab tests on most of nine areas of the teeth
4 To design brush and handle configuration to achieve high plaque-removal efficacy 3 similar designs came up with different size and thereby freer movement of bristles to access different areas of mouth Clinical tests proved reduction in gum disease owing to 35% more plaque removal ability of Precision than other brands
5 To perform clinical and consumer research to determine efficiency and acceptance of new design 18 month research was done to successfully test new design, its characteristics, competitive strengths and marketing concept Dental professional focus groups and product usage tests revealed successful acceptance of Precision Finally, in July 1992, CP decided to launch the new Precision with the “triple action brushing effect”. It was designed with 3 different lengths and orientations of bristles:-
(a) longer outer bristles that cleaned through the gum-line;
(b) long inner bristles that cleaned between the teeth; and
(c) short bristles that cleaned the teeth surface

Marketing implications
In order for CP to market to the target audience, it is important to understand how consumers make purchase decisions. Consumers made brand purchase decisions based on three different factors: features, comfort, and professional recommendations. Physical features of toothbrushes may have included the handle, bristles, and head shape. Brushing styles, sensitivity of gums, and the size and shape of the mouth were individual needs that consumers were trying to fit when purchasing toothbrushes. Most consumers believed toothbrushes were mainly used for removing food primarily. Removing plaque and gum stimulation were secondary roles for toothbrushes according to consumers.
MAIN REASONS FOR USING A BRAND PERCENTAGE OF CONSUMER
Fits most comfortably in the mouth 63%
Best for getting at hard-to-reach places 52%
Bristles are of right softness 46%
Bristles are of right firmness 36%
Dentist's recommendation 35%
Important part of my oral care regimen 30%
According to the market research displayed in the chart above, most brand-loyal consumers based toothbrush purchases on their satisfaction with the toothbrush’s ability to meet their needs and their dentist’s recommendation. In order for CP to create brand loyal customers for the Precision toothbrush, consumers must be able to test the ability of Precision to meet their individual needs. CP must also market directly to dentists since 35% of consumers use toothbrushes that their dentists recommend. Providing consumers with free samples through dentists and coupons will be viable marketing options for Precision in order to create brand loyal consumers by allowing customers to “test drive” the product. CP must make sure that the advertising and promotion support is comparable to their competitors in order to continue to have retailers support stocking their toothbrushes. All of CP’s competitors used television as a major source for advertisements. The commercial for Precision should focus on the aspects that differentiate itself from its competitors while showing that it still has the same aspects that its competitors focus on. CP should focus the Precision's advertisements on the effectiveness of plaque removal compared to competitor brushes.
CP should use concept test 2 or 4 in Exhibit 17 (Refer: "Colgate-Palmolive Company: The Precision Toothbrush", 9-593-064, Rev Apr 20, 2006, Page 24) because it focuses on preventing gum disease and plaque removal. It also states that the brush is 35% more effective than Oral-B or P&G products. Concept test 4 is the most effective for advertising Precision because it has the greatest percentage of people who will be willing to buy the product.
Since few consumers stated that they had gum disease, it is important for CP to strategically market Precision in order for it to be effective. CP might consider providing facts about gum disease in their advertisements such as the percentage of Americans that have gum disease and causes of gum disease. Plaque build-up causes gum disease which is preventable. Precision can help prevent gum disease because of its ability to effectively remove plaque more efficiently. CP should also mention how Precision can help consumers who already have gum disease manage it and prevent it from progressing further.

RECOMMENDATION & PLAN OF ACTION
Colgate Precision should be positioned as a niche product in the beginning of its launch and later positioned as a mainstream product during the maturity stage of the product life cycle. This would allow CP to price the Precision at a higher rate while avoiding the possible cannibalism of CP’s mainstream toothbrush, Colgate Plus. If CP positioned the Precision as a mainstream product initially, there would be the risk of an inadequate supply. This would lead to unhappy customers and a loss of revenue for CP. Positioning Precision as a mainstream product would also require removing slower moving toothbrushes from retail stores shelf space, while positioning it as a niche product would not. CP’s corporate strategy was to build brand equity but Colgate was also worried about cannibalization. To address that, CP should brand the product Precision by Colgate when it is introduced as a niche product. CP needs to remain #1 in the US retail toothbrush market, and also try to increase its 23.3% volume share. In order to increase its volume share, it is important that Precision does not take away sales from other Colgate toothbrushes. The toothbrush innovations in Exhibit 2 (Refer: "Colgate-Palmolive Company: The Precision Toothbrush", 9-593-064, Rev Apr 20, 2006, Page 14) mostly focused on the shape of the head or changes in the handles. Bristles only changed colors or softness. Crest Complete may be a major competitor for Precision because it is the only toothbrush in the super premium segment with changes in bristles. Colgate’s marketing team may want to address the issues of the differences between Crest Complete’s rippled bristles and Precision’s triple action bristles since the benefit of reaching between teeth was the same in both toothbrushes. Crest Complete was also priced lower than the Precision ($2.40 vs $2.89). Since toothbrushes were mainly purchased based on price in the past, consumers may not understand why they should pay an extra $0.49 for the Precision if the benefit of both brushes is their ability to clean between teeth. Luckily there was a shift in consumer buying patterns and performance benefits such as plaque removal and ease of use became important criteria. CP should focus their advertisements on the Precision’s ability to remove plaque better than the other leading brands. Since CP wants to position Precision as a niche product, it is important that gum stimulation is emphasized, but the main role of removing food should be focused more heavily since it was viewed as the primary role of toothbrushes by consumers. Because Precision can clean between teeth, gums, and on the surface it combines the benefits of all of the super-premium competitor’s toothbrushes listed in Table A (Refer: "Colgate-Palmolive Company: The Precision Toothbrush", 9-593-064, Rev Apr 20, 2006, Page 3) except Oral-B’s indicator brush. Oral-B’s indicator bristles may be a good feature to add to the Precision in order to increase consumer replacement for toothbrushes. CP may want to only manufacture medium, soft, and extra soft bristles. Firm bristles did not have a very high percentage of sales and they also had a high decline rate per year. CP may also want to mostly manufacture soft bristles because of the high market share and growth rate. By the same analysis, CP would mainly want to produce adult full sized head toothbrushes, followed by compact heads and then child youth sized heads respectively.
CP may not want to create Precision for kids if they want to market Precision for a niche market for gum disease as baby boomers would be the main target for this toothbrush. It is important that CP’s baby boomer target market is large enough in order for the Precision to be successful. Even so, the Precision has features that will allow it to be successful in other markets. CP may also want to offer a lower priced compact travel brush to target consumers who keep a special toothbrush for work, traveling, or the gym. CP must also strategically use promotions for the benefit of Precision’s success in the marketplace. The case stated that there would be a slower sales growth in 1993 due to the buildup of household inventory of toothbrushes. Therefore, CP should examine the benefits of offering samples to consumers especially if samples will increase household toothbrush inventories even further. Because Precision is going to be marketed as a niche product, it may not have a huge effect on increasing household inventories. The benefits of providing samples of the Precision brush to consumers are great because many consumers were impressed with the product after testing it, stating that they could feel a positive difference.
According to Exhibit 3 (Refer: "Colgate-Palmolive Company: The Precision Toothbrush", 9-593-064, Rev Apr 20, 2006, Page 15), 35% of consumers picked brands based on dentist recommendations. Unfortunately, Colgate was number three in the US Professional Dental Market for toothbrushes below Oral-B and Butler. Colgate must gain more of this market share in order for the Precision to be successfully marketed as a niche product. CP should advertise through channels such as newspapers, magazines and television advertisements. Also, in retail stores, the best way to promote the product will be with floor stands at the front of the oral care aisles. This is vital in promoting a new product, even if it is an extra cost.
It is important that CP is able to convince dentists that the Precision is right for their patients. CP must determine a way to gain market share from Oral-B by educating dentists about the Precision brush. This will help consumers gain exposure to the Precision and keep them purchasing the same toothbrush. CP needs to market to dentists by providing free samples for dental professionals and offering discounted rates to dentists to provide to their patients. 63% of consumers picked branded based on comfort therefore CP wants to make sure the Precision was comfortable by doing proper consumer surveying and testing.

REFERENCE
"Colgate-Palmolive Company: The Precision Toothbrush", 9-593-064, John Quelch & Nathelie Laidler, Harvard Business School, Rev Apr 20, 2006

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