Analysis of the Harvard Business Review case, "Colgate-Palmolive Company: The Precision Toothbrush"

1. CASE ANALYSIS
Colgate-Palmolive Company:
The Precision Toothbrush

2. Situation

3. COLGATE-PALMOLIVE

4. A GLOBAL LEADER
Colgate-Palmolive was a global
leader in household and
consumer care products in
1991 with a gross profit of
$2.76 billion

5. US MARKET LEADER
Colgate had 23.3% volume
share and 23.4% dollar share
of the US toothbrush market in
1991 and was the market
leader

6. CP’S ORAL CARE
In 1991, Colgate-Palmolive
held 43% of the world
toothpaste market and 16% of
the world toothbrush market

7. TOOTHBRUSH BUSINESS
Colgate-Palmolive offered two
lines of toothbrush in 1991:
Colgate Classic
(Value
Segment)
Colgate Plus
(Professional
Segment)

8. US TOOTHBRUSH MARKET
Dollar sales of toothbrushes
had grown at an average rate
of 9.3% per annum since 1987
In 1992, they increased by
21% in value and 18% in
volume

9. “SUPER-PREMIUM”
Dollar growth exceeded
volume growth due to the
emergence of a
“super-premium” sub-category
of toothbrushes

10. “SUPER-PREMIUM”
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

11. PRECISION

12. PRECISION
In August 1992,
Colgate-Palmolive (CP) was
poised to launch a new
toothbrush in the United
States, tentatively named
Colgate Precision

13. PRECISION
Colgate-Palmolive senior
management had decided to
launch Precision early in 1993

14. PRECISION
The Precision toothbrush was
a technical innovation

15. PRECISION
It had a triple-action brushing
effect: The longer outer bristles
cleaned around the gum line,
the long inner bristles cleaned
between teeth, and the shorter
bristles cleaned the teeth
surface

16. SUPERIOR TECHNOLOGY
In initial clinical tests, the brush
achieved an average 35%
increase in plaque removal,
compared with other leading
toothbrushes, specifically
Reach and Oral-B

17. COMPETITION

18. COMPETITION
In 1991, Oral-B held a 23.1%
volume market share and a
30.7% value share of U.S retail
sales, with 27 SKUs

19. COMPETITION
Oral-B dominated the market
segment to which toothbrushes
were distributed by dentists. In
1992, 22% of all toothbrushes
were expected to be distributed
to consumers by dentists.

20. COMPETITION
Johnson & Johnson (J&J)
ranked third in the U.S. retail
toothbrush market with a
19.4% volume share and a
21.8% value share (1991)

21. COMPETITION
Other major competing brands
included Crest (Procter &
Gamble), Pepsodent (Lever)
and Aquafresh (Smithkline
Beecham )

22. Issues

23. DECISION
Susan Steinberg, Precision
product manager has to devise
the positioning, branding and
communication strategy of
Colgate Precision

24. ADVERTISING BUDGET
She also has to decide what
the advertising budget should
be and how it should be broken
down

25. BRANDING
The relative prominence of the
Precision and Colgate names
on the package and in
advertising had to be decided

26. NICHE OR MAINSTREAM
The most important decision
involved was whether to
market it as a niche product or
as a mainstream product

27. Analysis

28. BRAND POSITIONING

29. NICHE MAINSTREAM
To be targeted at
consumers
concerned about
gum disease
Could appeal to be
the most effective
brush available on
the market

30. NICHE MAINSTREAM
Sales would
represent 3%
volume share of the
toothbrush market
in year 1 and 5% in
year 2
Precision could
capture 10% of the
market by the end
of the first year and
14.7% by the end of
the second year

31. NICHE MAINSTREAM
CP would establish
a factory list price to
the trade of $2.13,
a premium over
Oral-B regular and
at parity with Oral-B
Indicator
The mainstream
strategy price would
be $1.85, at parity
with Oral-B regular

32. NICHE MAINSTREAM
Would be carried
primarily by food
and drug stores
A relatively greater
proportion of sales
would occur
through mass
merchandisers and
club stores

33. NICHE MAINSTREAM
The best location
for Precision on the
retail shelves would
be between the
Colgate Plus and
Oral-B product lines
Precision could be
located separately
from the other
Colgate lines, close
to competitive
super-premium
toothbrushes

34. NICHE MAINSTREAM
Might not be able to
generate as much
revenue as when
positioned as a
mainstream product
Raised concerns
about the possible
cannibalization of
Colgate Plus and
about pressure on
production
schedules

35. PROFIT-LOSS FORMA

36. NICHE PRO-FORMA
YEAR 2
$32,766,000
$13,200,000
$19,566,000
$450,000
$11.7 million
$12,150,000
$7,416,000
YEAR 1
$18,706,800
$8,606,400
$10,100,400
$316,667
$11.2 million
$11,516,667
$-1,416,267
Revenue
Cost
Profit
Expenses
Depreciation
Promotions
Total
Net Income

37. NICHE PRO-FORMA
Although the product is at a net
loss at the end of year 1, it is
covered up at the end of year 2

38. MAINSTREAM PRO-FORMA
YEAR 2
$84,192,000
$37,824,000
$46,368,000
$1,270,000
$29 million
$30,270,000
$16,098,000
YEAR 1
$53,744,000
$26,752,000
$26,992,000
$886,667
$32.8 million
$33,686,687
$-6,694,667
Revenue
Cost
Profit
Expenses
Depreciation
Promotions
Total
Net Income

39. MAINSTREAM PRO-FORMA
Just like the niche positioning
strategy, in this case, the
product is at a net loss at the
end of year 1 which is covered
up at the end of year 2

40. Conclusion

41. RECOMMENDED
POSITIONING

42. POSITIONING
It can be positioned as a niche
product initially, and could later
be broadened to a mainstream
positioning as additional
capacity came on line

43. POSITIONING
Production capacity increases
required 10 months’ lead time,
and straightaway switching to a
mainstream positioning could
result in inadequate supply of
product

44. POSITIONING
Unsatisfied demand could
create the perception of a “hot”
product

45. POSITIONING
This way, cannibalization of
Colgate Plus which could be
somewhere between 40% to
60% can be prevented

46. PROMOTION BUDGET

47. PROMOTION BUDGET
The promotion budget of
Colgate Precision at $11.2
million in the first year for the
niche positioning would be
sufficient since the total
revenue at the end of second
year is positive

48. PROMOTION BUDGET
However, the budget of
Colgate Plus should not be
lowered by a big amount
because it has to retain its
market position against
competition

49. RECAP
Colgate-Palmolive senior
management decided to launch
Precision early in 1993

50. RECAP
Colgate-Palmolive senior management decided to launch
Precision early in 1993
Susan Steinberg, Precision
product manager has to devise
the positioning, branding and
communication strategy of
Colgate Precision

51. RECAP
Colgate-Palmolive senior management decided to launch
Precision early in 1993
Susan Steinberg, Precision product manager has to devise the
positioning, branding and communication strategy of Colgate
Precision
She also has to decide what
the advertising budget should
be and how it should be broken
down

52. RECAP
Colgate-Palmolive senior management decided to launch
Precision early in 1993
Susan Steinberg, Precision product manager has to devise the
positioning, branding and communication strategy of Colgate
Precision
She also has to decide what the advertising budget should be
and how it should be broken down
The pro-forma showed that the
product would be at a net loss at
the end of year 1, which would
be covered at the end of year 2

53. RECAP
Colgate-Palmolive senior management decided to launch
Precision early in 1993
Susan Steinberg, Precision product manager has to devise the
positioning, branding and communication strategy of Colgate
Precision
She also has to decide what the advertising budget should be
and how it should be broken down
The pro-forma showed that the product would be at a net loss at
the end of year 1, which would be covered at the end of year 2
It can be positioned as a niche
product initially, and could later
be broadened to a mainstream
positioning

54. RECAP
Colgate-Palmolive senior management decided to launch
Precision early in 1993
Susan Steinberg, Precision product manager has to devise the
positioning, branding and communication strategy of Colgate
Precision
She also has to decide what the advertising budget should be
and how it should be broken down
The pro-forma showed that the product would be at a net loss at
the end of year 1, which would be covered at the end of year 2
It can be positioned as a niche product initially, and could later
be broadened to a mainstream positioning

55. DISCLAIMER
CREATED BY VASU ARORA, JIIT NOIDA DURING A
MARKETING MANAGEMENT INTERNSHIP UNDER
PROF. SAMEER MATHUR, IIM LUCKNOW