Colgate-Palmolive CASE STUDY

Precision by Colgate; the most effective toothbrush on the market today with an amazing 35% increase in plaque removal when compared to other leading brushes.

KEY ISSUES
In reviewing the Colgate-Palmolive case there were several concerns involving launch of their new product. The management was concerned with how to position the toothbrush within the super-premium market, either as a niche product or in the mainstream market. There are issues with how to position and promote the toothbrush to try and minimize the new products affect on current company products. Some executives were worried about production shortages if in fact the new product became a hot item, granted some executives also saw this potential shortage as a positive. There also existed a debate about the dollar amounts spent on advertising and whether or not the dollars should be pulled from existing products and promotions. Lastly, the new toothbrush, to truly be successful, needed to break into Oral Bs high professional market share.

BACKGROUND
This case is concerned with the launch of Colgate-Palmolives (CP) newest toothbrush. R&D began in 1989 with the mission to develop a superior, technical, plaque-removing device. CP wanted to enter into the superpremium toothbrush segment in which they currently lacked a product. They held the number one position in the U.S. retail toothbrush market with a 23.3% volume share based on their two products Colgate Plus and Colgate Classic; but they were in the professional and value segments. The product segment, super-premium, arrived in the market in the late 1980s but by 1992 already accounted for 35% of the volume sold and 46% of dollar sales for toothbrushes. Oral B has been the market leader in this segment and Johnson & Johnson and Proctor & Gamble will both be releasing new brushes in 92 to add to this segments competition. The increase in players for this segment is due to shifting consumer behavior. As with many industries the baby boom generation was beginning to make an impact. They were becoming more and more concerned with the health of their gums and preventing gum disease versus cavity prevention. They showed they were willing to pay a premium for brushes to meet these needs and thus the super-premium market was created.

The consumers themselves can be broken down into three main segments, the therapeutic brushers (46%), cosmetic brushers (21%) and the uninvolved (33%). The primary customer segment for the super-premium brushes is the therapeutic. This segment has shown they actively search for products to meet their oral health needs and that they are aware of differences between offerings on the markets. The growing competition obviously affected advertising and promotions for toothbrushes as well. Just from 1991 to 1992 total media dollars among the top six toothbrush companies rose from $35.8 MM to $54.9MM, a 53% increase. The popular use of free brushes with purchase of toothpaste or buy-one-get-one-free offers was actually expected to create a drop in volume in 1993 due to increase inventories in the households. Retailers were also shifting their focus. Toothbrushes provided them with an average margin of 25% to 35%. This was double what they could expect from toothpaste. Naturally the outlets increased the shelf space dedicated to toothbrushes which allowed for more SKUs to be displayed to their customers. This increase in SKUs occurred in all three of the main distributers, mass merchandiser, drug stores and food outlets. Dental offices were expected to account for 22% of all volume of toothbrush distribution. Oral-B, as mentioned in the KEY ISSUES, dominated this segment and while the profit margins were significantly less this is an important distribution channel to feed repeat sales.

EXECUTIVE SUMMARY PRODUCT

In 1989 the company set out to create a superior toothbrush that would be effective on all surfaces of the tooth as well as the gum lines. They designed a brush with bristles that had three different lengths resulting in a tripleaction brushing. Clinical tests showed the brush achieved an average of a 35% increase in plaque removal when compared to the other leading toothbrushes in the super-premium segment. At the gum line and between the teeth it showed a higher 50% efficiency. These tests led CP executives to believe their new product was a technological breakthrough in oral hygiene and led to the question of whether to make the pricing of the brush at a premium to the others in the segment or on par with them.

POSITIONING
Two options in how to position the new product were decided upon. Option one was to price the brush at a premium to the others and have it fill a niche market primarily targeting those individuals in the therapeutic segment concerned with gum disease. This position would warrant a 15% price premium over Oral-B (the segment leader) and was expected to claim a 3% market share the first year and 5% after year two. Option two was to use the overall benefits of the design and roll it out as the most effective brush on the market and capture a broader appeal. As a mainstream product it would capture 10% year one and 14.7% after year two. The two options would require different investment and production costs based on the volumes involved. The new toothbrush already required new machinery, molds and packaging; but option two would require unit volumes almost three times higher. Granted the higher volumes would result in cheaper per unit manufacturing costs; so there would be some gain from economies of scale; but the net margin would still be lower due to the pricing required for the mainstream product. Concern was also raised by some executives about production being able to keep up, under option two, if the product did take off. They wanted a more conservative plan of starting as a niche product and then moving to mainstream if necessary in the future.

BRANDING
CP executives were concerned with how prominent to make the Colgate name on the packaging and in the products name. They did perform consumer concept tests and of all the names presented as options the consumers viewed the Colgate Precision name the most favorable. The debate was whether to call the product Colgate Precision or Precision by Colgate. Some felt by putting Colgate in the more prominent position at the front it would help sales by tapping into the Colgate brand recognition. However; others felt by making it less prominent it would reduce the cannibalization of the current toothbrush Colgate Plus line that was going to occur with the new entry into the toothbrush market. Estimates showed that putting Colgate first would result in 42% to 72% of the Precisions sales to actually come from Colgate Pluss volumes. By not stressing the Colgate name the cannibalization was only estimated to be between 35% and 60%.

PROMOTION
Consumer research between 1990-1991 showed that more information given to test consumers about Precisions design and benefits resulted in them being receptive to the toothbrush. Once the consumers actually tried the brush their intent to purchase responses increased dramatically. CP knew that sampling would be a key in the role out especially since some of the test subjects expressed concern with the odd look of the bristles. The advertising and budget levels for 1992 were $24.1 million. The concerns here were whether or not to increase the spending levels and how much if any should be reallocated from the Plus line to the Precision line. The Colgate Plus manager, naturally felt his line should actually see an increase in spend to help protect its market share. To help get the toothbrush and the information about the benefits into consumers hands and mouths led to the important tactic to push 3 million, for the niche, and 8 million, for the mainstream, toothbrushes via dentists. This would strengthen the professional endorsements sought by CP and educate the consumers. The product manager was also planning a combination of giveaways and coupons.

ANALYSIS Internal matrix

To determine which position to place the new tooth brush we looked at the potential profits for either strategy, year 1 and year 2. By using the data given in the study we found these results.
If Niche Strategy: Manufacturing cost Estimated units sold Retail 23 MM Promo 2 MM Prof. 3 MM

.66 unit (@2.02-.66) (@0.00-.66) (@.79-.66 for 2,400,000) (@.95-.66 for 600,000) Advertising total Total Year Profit 1 and 2 31,280,000 (1,320,000) 312,000 174,000 (22,900,000) $7,546,000

Potential Cannibalization Net Company Profits 35% $4,904,900 60% $3,018,400

If Mainstream Strategy: Manufacturing cost .64 unit Estimate units sold Retail 70.9 MM (@1.76-.64) Promo 7 MM (@0.00-.64) Prof. 8 MM (.79-.64 for 6.4MM) (.95-.64 for 1.6MM) Advertising total Total Year Profit 1 and 2

79,408,000 (4,480,000) 960,000 496,000 (61,800,000) ) 14,548,000

Potential Cannibalization Net Company Profits 35% $9,456,200 60% $5,819,200

Based on this data, and the $7 million more in profits, we believe the new toothbrush should be positioned as a mainstream product. If the product does in fact become a hot item and we have production shortages it is our belief this will actual help with future sales because the demand will show we were successful in our goals of gaining professional endorsements and educating the customers about our superior brushing tool. We expect Precision to have some impact on internal competitors, mainly Colgate Plus, so we have selected the name Precision by Colgate. Since this brush is in the super-premium segment it will be placed with our competitors we are targeting away from the other Colgate offerings. We acknowledge that we will have to replace a couple of the slow SKUs from the childrens Colgate Plus line, but since we will be adding a childrens SKU the net loss is minimal. By being specific about shelf placement and de-emphasizing the Colgate name we hope to limit cannibalization to 35% but EVEN if our worse case numbers come true and 60% of our volume is pulled from the Colgate Plus, that will still increase our company profits by $5,819,200 over the two year roll out versus the best case scenario with the niche strategy of a $4,904,900 increase.

External matrix
Market for toothbrushes as a whole is smaller, volume wise, than with toothpaste since household members do not share brushes and most only replaced their brushes every 7.5 months; even though Dentists recommend replacing every 3. Since the new Precision brush is being toted as a design breakthrough CP really needs to focus on the involved group of therapeutic brushers because they have shown the tendency to search out functionally effective products. Main competition in this segment is the Oral-B brushes and Colgate Plus and Reach. To reach this market, as mentioned in the Key Issues, we must stress the better performance of the new brush to the professional market. Even though our net margin through oral health care providers is significantly less; having potential new customers receive the brush from the dentist should lead to repurchase of the product when it is time for replacement.

Matrix findings (SWOT)

SWOT MATRIX STRENGTHS Helps reduce risk of gum disease Removes 35% more plaque Appeals to the therapeutic brushers Upgrade of CP's manufacturing plants Competitive pricing vs. Super premium brands Leverage Colgate's 43% world toothpaste market Focus on the therapeutic brushers OPPORTUNITIES Baby boomers concerned with oral care Consumers willing to try new brands Toothbrush replacement only every 7 months Increase focus in drug stores (Oral B 25% volume) Increase professional endorsements WEAKNESS Inventory concerns with start of new product Mixed first impressions Potential cannibalization Lack of dedicated sales force for dental offices Sharing of Marketing dollars

Internal

THREATS Lack of education of consumers about gum disease New lines of product by competition Limited space on shelves Competition high internationally Oral B's professional endorsements House hold inventories (1992 promo leftovers)

External

Execution Proposal Product Branding

Too avoid cannibalization we propose calling the new product Precision by Colgate. Since we will be rolling the brush out as a mainstream product we want to attempt to minimize sales taken from Colgate Plus. Ideally we build on CPs 23.3% market share by taking from the Oral B product lines and the other direct competitors in the super-premium market.

Pricing
Since we are rolling the brush out as a mainstream product line we are able to take advantage of the economies of scale and thus increase our over all revenue even with the lower price per unit of $1.85 when compared to what would be charged if we rolled it out as a niche product ($2.13).

Placement (Distribution)
Distribution already exists through Colgate brands. Retailers, due to higher average margin, are more receptive to adding additional toothbrushes to their retail shelves, since we are the market leader in FOOD stores. We are looking to increase market volume share at DRUG stores to take from Oral B. In drugstores we recommend counter top displays to show the brand can stand on its own and to appeal to the unplanned purchase by consumers.

AQUAFRESH 5% CREST 5% LEVER 9% J&J 23%

OTHER 12%

FOOD
COlGATE 26% AQUAFRESH 0% CREST 0% LEVER 7%

DRUG
OTHER 26%

COlGATE 17%

ORAL-B 20%

J&J 19%

ORAL-B 31%

Promotion
Too capitalize on the Colgate brand name we recommend stressing promotions using the free tubes of Colgate toothpaste, and / or .50 coupons off on toothpaste with purchase of the Precision by Colgate toothbrush. We also recommend using an end cap display for the promo packaging with the free tube of Colgate toothpaste included with the Precision brush. This combination has shown to increase sales by 170% in previous promotions. As mentioned in the background section total media dollars among the top six toothbrush companies rose from $35.8 MM to $54.9MM, a 53% increase. CP cannot afford to keep the total spend for advertising at the same level as last year. We recommend keeping Colgate Plus and Reach at the same level. They are well established products and current spend should keep them steady with repeat buyers. However to insure Precision is successful we recommend a substantial portion of the dollars be spent in consumer and trade promotions pushing the benefits of the brush and increasing the number of units making it into consumers homes.