Colgate: The Precision Toothbrush
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COLGATE: The Precision Toothbrush
PROBLEM STATEMENT
Colgate Palmolives senior management decided to launch a new toothbrush priced in the Super Premium segment. Susan Steinberg, the product manager, has to determinate the best marketing mix to implement and which of the follow options are the best in order to position the product in the market: A) Under a mainstream B) Under a niche strategy. Each strategy has involves different prices and volumes of unit sold.
SITUATION ANALYSIS
Customers: More and more customers look for toothbrushes that satisfy their needs. For example Baby boomers generation, one of our main targets, look for products that help them to have healthy gums. Colgate research identified that 82% of the toothbrush sales were unplanned, as well the average of the consumer replaced their brushes occurred every 7.5 months. Consumers differed in the industry of their involvement in oral hygiene: 1) involved oral health consumers – therapeutic brushers (46%); 2) involved oral health consumers – cosmetic brushers (21%); 3) uninvolved oral health consumers (33%).
Competition: Competition in the Toothbrush market for Colgate Palmolive was tough. Competition by segments. Value segment: Level (7.2% by volume of total market shares in 1991), Pizar and Sunstar. Professional segment: Johnson & Johnson (19.2% by volume of total market shares in 1991). Super-premium segment: Oral-B (23.1% by volume of total market shares in 1991), Procter & Gamble and Smithkline Beecham (0.9 % by volume of total market shares in 1991). Oral Bs brushes were positioned in the super premium segment. Where it had no strong competition for the moment since Johnson and Johnson, with its Reach brand focused only on the professional segment.
Company: CP – global leader in household and personal care. The company was profitable and shows annual volume growth. Their plan for 1991-1995 emphasized new product launches and entry into new geographic markets, improved efficiencies in manufacturing and distribution and focus on core consumer products (toothbrush is one of them).
Collaborators: In 1992 22% of all TB will be distributed by dentists. Because of their knowledge they can explain the main advantages of a technological breakthrough product such as the one were proposing to launch. Food and Drug retailers still account for more than 40% of the product distribution and are interested in selling it since their margins are big. Also Colgate dominated the food stores (25.9 % vol) following by Johnson & Johnson (22.3% vol).
Context: The toothbrush market has been growing steady year by year at an average rate of almost 10%. But In 1992 they increased 21% in value due to the introduction of more than 45 new products and line extension. Therefore, the advertising campaigns and promotion activities increased considerably. Subsequent the consumers are more interested on oral health care and therefore buy more sophisticated health products like toothbrushes.
ALTERNATIVE
Scenario one: Mainstream
By launching the product in the Mainstream Market, Colgate Precision could capitalize almost 10% of the market by the end of the first year, as long as the price of the factory list will be parity with Oral B Indicator ($2,13). The Colgate Precision Toothbrush will be news in the mainstream market, and could use the prestige of the Colgate Company in order to position itself in the market.
Implications: With 7 skus for adult and child, it will require a loss of two of the skus with low rotation. The probability of Colgate Precision cannibalizing Colgate Plus market share is quite high. 35% to 60% of the market that Precision will get will come from Colgate and Colgate Plus. Growing capacity cost will increase considerably, it will be around 300% more that the niche market (exhibit 6). Advertising cost will increase almost three time compared with niche. The annual packing capacity is 40 MM units and Colgate plan production is 42 MM units for the first year, therefore capacity is not enough and it would not support additional demand so market objectives wouldnt be reached. (Exhibit 7)
Scenario two: Niche with Mainstream Price
Launch Colgate Precision Toothbrush in the Niche channel at the price suggested for Mainstream. . The objective is to sell more units in an exclusive channel. So as to achieve a higher profit the sales level has to be around 42 MM units for the first year. The Colgate Toothbrushs sales forecast by 1993E at the Niche market is 73.5 MM units (exhibit 2 and 3), so launching 27 MM units (for sales) of Colgate Precision will represent 36.7% of the total Colgate Toothbrushs sales by 1993. Therefore the cannibalization of the Colgate Plus could be high and reach about 40% estimated.
OUR RECOMENDATION
We recommend launching the product with the name Colgate Precision Toothbrush in the Niche channel, positioning it in the super-premium segment, thereby competing directly with Oral-B Indicator. Since Colgate its not a player in this segment, there is a clear opportunity to do so. This option will permit Colgate to start growing their market share and increase profits, without affecting negatively the Colgate Plus market, since both products have different selling price (The estimate for cannibalization of this product is 5% in the first year).Marketing research indicates that Colgate Precision could be launched with a 15 % higher average retail price than Oral-BÒs IndicatorÒs. The recommendation is to launch the product with a $2,13 list price. It is expected to reach about 3% of the US toothbrush market in the Launching first year.
Neither Oral B, which is Colgates main competitor, and Aquafresh and Crest have done new product launches or line extensions in the past two years. Therefore Colgate has a great opportunity to compete against them with a high quality, effective and advanced product and use its prestige, power and leadership that Colgate have in the Oral Care industry (Byung-Do Kim).Since Colgates distribution would be made in Food and Drug stores, following the price strategy above mentioned, it is not necessary to discontinue another Colgate toothbrushs skus , because the number of the skus that will introduce are four.
Colgate faces to major risks: The first one Oral-B could launch a new product during the first two years with almost the same benefit as that of Colgate Precision. This will probably cause that the sales estimated