CASE STUDY

Colgate-Palmolive Company: The Precision Toothbrush

Background of the company

• Founded by William Colgate in 1806.

• A global leader in the household and personal care products.

•  The company's corporate offices are on Park Avenue in Midtown Manhattan, New York City.

Issue• In 1992, Colgate-Palmolive (CP) was poised to launch a

new toothbrush in the United States, tentatively named Colgate Precision.

• Susan Steinberg, Precision product manager, was weighing the option of introducing the new toothbrush to a niche market or to a mainstream market. Both the options had their potential benefits and challenges.

• Until 1980, the toothbrush category consisted of two segments:

1. Value2. professional.• The late 1980s saw the introduction of another category of

toothbrushes called super premium brushes.• By 1992, super-premium brushes accounted for 35% of unit

volume and 46% of dollar sales. Professional brushes accounted for a corresponding 41% and 42%, and value brushes accounted for 24% and 12%.

• This shows that that super-premium brushes had an amazing impact on the market.

Analyzing consumer behavior• CP’s consumer research indicated that

consumers were becoming more concerned about the health of their gums and were willing to pay a premium for new products addressing this issue.

• Most consumers agreed that toothbrushes were as important as toothpaste to effective oral hygiene.

• They believed that the primary role of a toothbrush was to remove food particles and gum stimulation were considered secondary.

The pie chart explains the consumers reasons for toothbrush use.

• Major competitor brands in the super-premium segment included Oral-B, Reach Advanced Design, Crest Complete, and Aquafresh Flex.

• The Table shows the number and type of stock keeping units (SKUs) for each major brand.

BRAND Adult Child/Teen

Colgate 28 8

Oral-B 16 5

Reach 14 4

Crest Complete 10 0

Aquafresh Flex 6 1

Lever 7 2

Plax 2 1Total 83 21

As the pace of new product introductions quickened in the late 1980s, the advertising media expenditures needed to launch a new toothbrush rose

Growing competition increased the frequency and value of consumer promotion events.

The CP toothbrush line held 25% to 40% of the category shelf space in most stores. 

Retail advertising features and in-store displays increased toothbrush sales.

CP had four display systems Counter Tops, containing 24 to 36 brushes; Floor Stands, 72 brushes; Sidekicks , 144 to 288 brushes; and Waterfall displays, 288 to 576 brushes.

The picture illustrates these display racks.

To maximize retail sales, CP salespeople tried to locate the Colgate line in the middle of the category shelf space,between the Reach and the Oral-B product lines.

DistributionIn 1987, traditional food stores sold 75% of oral care products, but by 1992 they accounted for only 43% of toothbrush sales and 47% of toothpaste sales.

Toothbrushes provided retailers with an average margin between 25% and 35%, twice that for toothpaste.

In 1992, 22% of all toothbrushes were expected to be distributed to consumers by dentists. With a dedicated sales force, Oral-B dominated this market segment.

2 ChoicesNiche Positioning strategy

Mainstream Positioning strategy

Niche positioning strategy

1.Targeted at consumers concerned     1. Less contribution to profits as about gum disease.                                  Compared to Mainstream   2. CP could command a 15% price        positioning. premium over Oral-B.                              2. Net income increase much lesser 3. Expected to capture 3% of the           than mainstream positioning.U.S. toothbrush market by the endof the first year following its launch.

Mainstream Positioning strategy

1. Had a broader appeal of                    1. Raised concerns about thebeing the most effective brush             possible cannibalization of Colgateavailable on the market.                         Plus.  2. CP could capture 10% of the             2. Production capacity increases      market by the end of the first year      required 10 months’ lead time, andwhich is higher than niche                     switching to a mainstreampositioning.                                               Positioning could result in                                                                        inadequate supply of product.

At the time consumer concept tests were carried out by the task force, name tests were also conducted among those consumers positively disposed towards the concept.

Alternative names tested included Colgate Precision, Colgate System III, Colgate Advantage, Colgate 1.2.3, Colgate Contour, Colgate Sensation, and Colgate Probe

• The Colgate Precision name was consistently viewed more favorably—it was deemed appropriate by 49% of concept acceptors and appealing by 31%.

• It was estimated, that cannibalization figures for Colgate Plus would increase by 20% if the Colgate brand name was stressed but remain unchanged if the Precision brand name was stressed.

• But CP’s stated corporate strategy was to build on the Colgate brand equity.

CP should pursue the mainstream positioning strategy for the Precision.

Also, pursuing a mainstream strategy takes advantage of the rapid growth in the retail outlets (mass merchandisers & club stores) that would purchase this new product.

Income Pro forma

Analysis of the Pro forma income statements shows the mainstream positioning strategy will lose almost $6.7MM in year one, but earn $16MM in year two whereas a niche strategy loses less money in year one ($1.4MM) and makes $7.4MM in year two.

Hence mainstream positioning strategy will help CP in long term profits.

Mass merchandisers and club stores have had impressive growth from 1989-1991 and they will generate a tremendous market for the Precision in a mainstream strategy.

Hence, broadening into the mainstream positioning would enhance greater proportion of sales which would now also occur through mass merchandisers and club stores apart from the food and drug stores.

Steinberg should adopt a mainstream positioning strategy for the Precision because it would lead to increased performance as well as helps the company in the long run.

Also it enables Colgate Palmolive to expand its markets through mass merchandisers and club stores apart from the food and drug stores.

Created by Harshit Kataria, IIIT Bhubaneshwar during a marketinginternship under the guidance of Prof. Sameer Mathur, IIM Lucknow.