FACTORSBranding: Should the name of the product on the package and in advertising be “Colgate Precision” or as “Precision by Colgate”Communication and promotion: This is an effective way to pull a market share because it is hard to increase primary demand unless stealing sales from existing productsMajor competitors in the super-premium segment: Oral-B, Reach Advance Design, Crest Complete, and Aquafresh FlexDifferential pricing structure: Niche market vs. Mainstream marketDifferent advantages/ disadvantages: Niche market vs.
Mainstream marketDramatically change in technology advances: new toothbrushes come out very quickly and frequentlyCannibalization: New Precision toothbrush might taken away positioning of Colgate Plus and Colgate ClassicConsumer purchasing power: Personal preferences, behavior, product evaluation, and reasons in buying toothbrushesFactors impact consumers’ decision: Great influence from dental professional for people who concern about gum diseaseDesigning a pro-forma income statement to compare the profit implications of the niche vs.
mainstream positioning strategiesCENTRAL ISSUEHow can Colgate-Palmolive manage its new Precision toothbrush’s position, brand, and communication strategies and achieve the market leader position in the toothbrush market. BACKGROUND________________________________________COMPANY BACKGROUNDAs a global leader with 1991 sales of $6. 06 billion and a gross profit of $2. 76 billion, Colgate had spent about five hundred millions in its R&D and advertising. CP’s five-year plan had three strategies which are:1.
Launch new product (275 worldwide new products) and entry into new geographic markets (acquisition of Mennen men’s toiletries company, manufacturing in China and Eastern Europe);2. Improve efficiencies in manufacturing and distribution (upgrade 25 CP’s manufacturing plant;3. Focus on core consumer products continuously. Colgate-Palmolive’s Oral Care Business and The U. S. Toothbrush Market:In 1991, CP held 43% of the world toothpaste market and 16% of the world toothbrush market. In 1991, the toothpaste accounted for 46% of the U. S. Oral Care market, mouth rinses 24%, toothbrushes 15.
5%, with dental floss and other products making up the remainder. Until the late 1970s, consumers view the toothbrushes as a sensitive priced commodity. More launched new products and performance benefits determine the purchase decision. In 1992, the sales of toothbrushes had grown so fast. PRODUCT SEGMENTSTwo segments are created in the toothbrush category in the 1980s: value and professional (higher-priced toothbrushes). The late 1980s, the super-premium brushes were emerged. By 1992, super-premium brushes, with retail prices between $2. 29 and $2.
89, accounted for 35% of unit volume and 46% of dollar sales. In the other hand, Professional brushes accounted for 41% and 42% and value brushes accounted for 24% and 12%. Toothbrushes differed by bristle type (firm, medium, soft, and extra soft) and by head size (full/adult ? 69%, compact ? 17%, and child/youth ? 13%). Firm-bristle brushes were 8% of the toothbrushes sold but the decline in growth were 13%. The medium one was 39% with 4% in the decline of growth. The soft one held a 48% market share (the highest) with 7% of growth’s increase.
The extra soft held a 5% share with rapidly growth. By 1991, new product introductions were focused on technical performance improvements, such as greater plaque removal and ease of use. CP’s consumer research indicated that consumers of the baby boom generation (adults born in the 1940s, 1950s and early 1960s) were becoming more concerned about the health of their gums as opposed to cavity prevention and were willing to pay a premium for new products addressing this issue. COMPETITIONMajor competitors in the super-premium segment were: Gillette, J&J, P&G, Smithkline Beecham.
The market leader in the super premium segment was Oral-B (owned by Gillette) positioning which was known as “the dentist’s toothbrush. ” Its Indicator toothbrush price was 15% premium to its other brushes. The market challenger was Reach line (owned by J&J) which was positioned as the toothbrush that enabled consumers to brush in even the hardest-to-reach places.
The market follower was Crest (owned by P&G) that has “the ability to reach between the teeth up to 37% farther than leading flat brushes. ” The market niche was Aquafresh Flex (owned by Smithkline Beecham) which has flexible handles that allowed for gentle brushing.
Small competitors which are Lever sold its product in the value segment without a track record of innovation in the category; Pfizer, with its Plax brush, which had a special groove for the thumb, Sunstar, with its Butler brand, held 2% of the retail market but 19% of the toothbrushes distributed through dentists. All above competitors hadn’t positioned their toothbrushes for concerning the health of consumers’ gums. PRODUCT DESIGN and TESTINGCP developed a unique brush with bristles of three different lengths and orientations.
The longer outer bristles cleaned around the gum line, the long inner bristles cleaned between teeth, and the shorter bristles cleaned the teeth surface. The result was a triple-action brushing effect. In initial clinical tests, the brush achieved an average 35% increase in plaque removal, compared with other leading toothbrushes, specifically the major competitors (Reach and Oral-B). The brush was more effective at the gum line and between the teeth, achieving double the plaque removal scores of the competitor brushes. SWOT ANALYSIS________________________________________STRENGTHS1.
CP’s efficient manufacturing and distribution facilities could be effective to handle the high uncertain demand of new product like Precision. 2. The advertising commitment to support Precision, such as the increase in advertising and promotion budget by $11. 2 million would help the Precision launch. An 80% increase in CP category spending in 1993, with fully 75% of all advertising dollars assigned to Precision. 3. The reputation CP in the oral care market is highly respectable and has high brand awareness. In 1991, CP held 43 % of the world toothpaste market and 16% of the world toothbrush market.
With its global experiences, the company could adapt in the U. S. Toothbrush Market. WEAKNESSES1. There would be the cannibalization because Precision would be distributed through the same channels as Colgate Plus and CP will suffer the loss of its revenue from the competition between Colgate Plus (majority market share in CP’s toothbrush market) and Precision. OPPORTUNITIES1. The shelf space devoted to toothbrushes had also increased. As a traffic builder, toothbrushes provided retailers with an average margin, twice that for toothpaste.
Many retailers were more receptive to adding new toothbrush products than new varieties of toothpastes. 2. The consumers of the baby boom generation were becoming more concerned about the health of their gums. Precision positioning would address this issue effectively. 3. Unlike toothpaste, toothbrushes were not typically shared by members of the same household. The increased in professional segment and the emergence of super-premium brushes would be the reason that the consumers are willing to trade up to professional, higher-priced toothbrushes compared to the value toothbrush.
THREATS1. Because Oral-B position was the dentist’s toothbrushes for the super-premium segment and had the high brand awareness, the consumers were not willing to pay the higher price toothbrushes from any brand besides Oral-B. Precision would be very hard in order to change the consumers’ perception about the super-premium toothbrushes. 2. If the Precision launch was fail, there would be replacement for CP executives and employees. Inconsistent commitment for Precision would be uncertain for CP’s efforts in order to support Precision. (marketing, R&D, etc).
CP as the global leader in household and personal care products would have the high bureaucracy in their management which would limit Precision progress. 3. The benefit of Aquafresh Flex (Smithkline Beecham) was to prevent the gum irritation. Most consumers believe that the primary role of a toothbrush was to remove food particles; plaque removal and gum stimulation were secondary. CP had to position exactly for the health of the gums otherwise most consumers would be prefer the Aquafresh Flex and other consumers would only buy their toothbrushes for the primary and secondary role (plaque removal and gum stimulation).
4. 70% of the consumers claimed to change their brushes was when their toothbrush-bristles became visibly worn. The buying behavior consumers were not supportive in order to increase the demand in toothbrush. RECOMMENDATION________________________________________Niche product targeted at the consumers of the baby boom generation concerned about gum disease. ADVANTAGES1. CP investment in this segment was not very risky. Just in case the Precision launch did not work, CP would only loss the small amount investment and its small number customers. 2. The CP would focus on the niche market.
Focus on the niche segment would be successful for the most other companies. They can focus to expand their niche market share and use their existence niche market share (revenue, brand awareness, etc) in order to expand the other market shares, which the company will expand in the future. 3. By limit their target for the baby boomer generation, the Precision would satisfy this target market. Focus and goals of company were more clear. 4. With more effective functions compared to its competitors, Precision would be priced by 15% premium over Oral-B.
These advantages could lead the Precision became profitable and create its brand awareness for its consumers. 5. Its clinical tests would be effective to educate the consumers about their gums and promote and advertise the Precision. Other benefit might be existed, for example, the health of the gums could limit the heart disease. 6. Mainstream strategy resulted the small profit ($1,840,234 in year 2 compared to $4,975,028 in year 2 of niche strategy) and required the investment in the long term. The competitors could clone the Precision function. If CP focused on niche market, CP’s establishment in the market
would be successful. The profit in niche market could develop the other new technical performance improvements so that the competitors could not easily clone the Precision. 7. Because of the speed distribution for Precision in niche market, the consumers could reach the Precision quickly. If they were very satisfied for Precision and conscious about the health of their gums, they would buy the Precision which were available in their nearby retail stores (high product availability). DISADVANTAGES1. If CP were not quickly to capture this market, there would be the opportunity for the competitors to cover this market.
Because of the competitors’ high establishment in the super-premium segment, the competitors would benefit from this segment. 2. This niche market would be expected to capture 3% of the U. S. toothbrush market. Precision could be positioned as a niche product. As new product or new technical performance improvements, Precision had a lot of challenges from the consumers. The failure probability of Precision was very big. CP had never established the super-premium category in the toothbrush market. CP could use this Precision experience in order to capture other household and personal care products segment in the U.
S. if the Precision was not successful. The company could develop its brand awareness among their consumers. Like other companies who targeted their new product for niche market, for example, online banking segment. Most consumers prefer the physical banks in order to do their transaction. But with the rapid growth in technology nowadays, the physical banks should adapt their operation into the online banking. Like certain companies only targeted their online banking for the niche market (young geeks or teenagers who has the advance capability of their computers) in the beginning of their new launched product.
If the online-banking website or product has some bug (technical problem) or is failed, the company will only lose their niche customers (young geeks) compared to lose the entire most consumers (lose the bank’s brand reputation) who prefer transaction in the physically banks. The most consumers would not trust the bank if the new product or online banking which targeted for non-niche market were failed. If there were failed order of transactions, the banks had the ability to cover quickly the small niche customers’ money. The niche customers (young geeks) could also provide their feedback to improve or adjust the capability of online banking.
Finally the new product development or online banking could be captured the common customers or the entire market. The bank’s brand reputation could be represented as the toothbrush’s brand reputation. This situation could also be represented that if Precision used the mainstream strategy, there would be big amount loss in year 1 as $14,527, 240 in exhibit TN-C compared to the loss of niche strategy as $2,449,038. The majority consumers did not realize their toothbrush necessities as the plaque removal and gum stimulation.
Mainstream positioning strategy for Precision would not differentiate Precision to other competitors’ toothbrushes which have their primary and secondary role. People would ignore the new technical performance improvements of Precision. The brand equity of Precision would be not so popular and the consumers would consider Precision price as the value segment price (not super-premium toothbrush segment price). Consumers of the baby boom generation were more concerned about the health of their gums as opposed to cavity prevention and were willing to pay a premium for new products addressing this issue.
Consumers with the bad health of their gums usually visit their dentist. If CP used Precision for the mainstream marketing strategy, the dentist would recommend consumers with the bad health of their gums either Aquafresh Flex which prevents gum irritation or Oral-B which known as “the dentist’s toothbrush” or strong establishment in consumers’ brand perception. Its clinical tests could motivate the dentist to suggest their consumers in order to choose Precision compared to other brands. DETAILED STRATEGY1.
CP should educate the consumers how to brush effectively by providing the illustrated good brochures in the food and drug stores or delegating the dentist (the consumer with the bad health of their gums). It is useless to use the super-premium toothbrush brand or Precision without knowledge how to use Precision effectively. 2. The most sample of Precision must be provided through the dental professional because the dental professionals could recommend replacement every three months. It is hard to change the consumer buying behavior when there is other factor which would interfere.
For example, the consumers have the good health of their gums seldom go to the dentist and accept the dental professionals’ recommendations. 3. CP should launch Precision as the super-premium brand category or Precision by Colgate in order to differentiate Precision from Colgate Plus and Colgate Classic. Like Honda differentiate its Accura brand for the higher premium brand car compared to Honda brand. 4. CP must provide the customer complaint box through dental professional clinics, food and drug stores in order to improve its Precision products in the future if there are some defects of Precision.
The dental professionals and the regular consumers could provide its suggestion for Precision. 5. The clinical tests could be frequently held for the other segment or the same segment (consumers of baby boom generation). The clinical tests could improve the technical performance of Precision, observe the other segment which their needs could be satisfied in order to expand to the other segment in the future, and promote the healthy gums for toothbrush users. 6. CP should analyze the other features (indicator bristles, angled neck) which could be added in the Precision additional features in the future.
ALTERNATIVES: MAINSTREAM________________________________________ADVANTAGES 1. Precision could capture 10% of the market by using mainstream strategy. 2. Precision brand could develop Colgate products’ brand awareness which is Colgate Plus and classic. 3. The higher of total dollar sales in 1992 as $84,016,000 would secure CP’s market share in the long term. DISADVANTAGE1. CP generated more costs (manufacturing, advertising & promotion, etc). The investment of Precision would be more risky and CP had to wait their investment to cover their costs in the long term.
2. Positioning Precision as a mainstream toothbrush raised concerns about the possible cannibalization of Colgate Plus which was $12,536,573 in year 1 and $18,625,766 in year 2. 3. The pressure on production schedules that had been developed for a niche positioning. Or mainstream positioning could result in inadequate supply of product. The consumers could choose the other toothbrushes because of the availability of other brands. 4. The triple-action brushing effect function would become the generic function of other toothbrush brands.
The competitors could use this function and add the new other functions in order to market their new products. 5. The low demand of toothbrush generated the low profit in mainstream strategy because the past toothbrush marketing strategy “two-for-one” offered, the huge promotion in 1992 (buy-one-get-one-free offers, the increase in coupon value) and 70% of consumers change their brushes when their toothbrush-bristles became visibly worn compared to the dental professionals recommendation which is every three months. The high revenue in mainstream strategy would seem impossible to be achieved in the long term.
CAPACITY COSTS ANALYSIS________________________________________Scenario and Year# and Types ofEquipmentCost & DepreciationPeriodCapacity costsNiche, Year 1,13 m units5 Tufters2 Handle Molds1 Packaging(5 x $500,000)/15 years(2 x $300,000)/5(1 x $150,000)/5166,666. 67120,000$316,667Niche, Year 2,Additional 7 m units2 Tufters1 handle Mold(2 x $500,000)/15(1 x $300,000)/566,666. 6760,000Total $450,000 or $443,333Mainstream, Year 1,42 m units14 Tufters6 Handle Molds2 Packaging(14 x $500,000)/15(6 x $300,000)/5(2 x $150,000)/5466,667360,00060.
000$886,667Mainstream, Year 2,Additional 17 munits6 Tufters3 Handle Molds(6 x $500,000)/15(3 x $300,000)/5200,000180,000$1266,667CP could end up a lot of machine equipment if CP uses the mainstream strategy. The Precision position for mainstream strategy would need the higher capacity. If Precision of mainstream strategy were failed, CP would lose their big investment in machine equipment. The other consideration was the high maintenance fee and upgrade costs for the machine equipment. In 1991, $243 million was spent to upgrade 25 of CP’s 91 manufacturing plants.
The mainstream profit in year 2 as $1,840,234 could not cover the upgrade of more equipment which would be installed if the mainstream strategy was implemented. The percentage of profit margin for niche as 218. 14% was bigger than the profit margin of mainstream strategy as 108%. NICHE & MAINSTREAM FORECAST________________________________________PRO FORMASource of dataNicheMainstream Year 1Year 2Year 1Year 2Unit VolumeTable E13,000,00020,000,00042,000,00059,000,000Retail Unit salesTable C8,000,00015,000,00027,000,00044,000,000Retail dollar sales * manuf.
Price(Table E)16,160,00030,300,00047,520,00077,440,000Professional unit salesTable C3,000,0003,000,0008,000,0008,000,000Professional dollar sales * 2,466,0002,466,0006,576,0006,576,000Total unit sales + 11,000,00018,000,00035,000,00052,000,000Total dollar sales + 18,626,00032,766,00054,096,00084,016,000Manufacturing costs * manuf.
cost(Table E)7,260,00011,880,00022,400,00033,280,000Sampling costs1,320,0001,320,0004,480,0004,480,000Advertising & PromotionTable E11,200,00011,700,00032,800,00029,000,000Capacity costs316,667450,000886,6671,270,000Total costs +  + 18,776,66724,030,00056,086,66763,550,000Operating profits – -150,6678,736,000-1,990,66720,466,000Profits as % of sales / -0. 81%26. 66%-3. 68%24.
36%Cost of cannibalization2,298,3723,760,97212,536,57318,625,766Profit after cannibalization – -2,449,0384,975,028-14,527,2401,840,234Profit after 2 years of launch[yr2] ? [yr1]2,525,990-12,687,006 Professional unit price = $0. 82 = 80% * $0. 79 + 20% * $0. 95 Sampling cost = # of samples (Table C) * manufacturer / unit cost (Table E)(Sampling cost already included in the promotion expense ) Capacity costs per annum are derived from Table D.
In order to achieve the planned capacity volume, a certain number of tufted, mold, and packaging machines must be purchased, and the investment cost is spread over the depreciation period.  Cost of cannibalization = % cannibal from Classic and Plus (Table E) * total unit sales  * contribution per unit, where the contribution per unit for Classic and Plus = $0. 60 = (net sales ? cost of sales) / unit