peng lai_sample 3 product & trend analysis

Colgate Market Landscape Analysis & New Product Launch Assessment

Peng Lai

[email protected]

1

Concept review

• 1992 the total toothbrushes market increased by 22% due to soar of “Super-Premium” category

• Professional and value are decreasing

• 4 main competitors launched their Super-Premium brands in 1991 and 1992

• Colgate must have its own Super-Premium brand, which is named Precision and prepared to launch in 1993

2

Brand Sub-brand Launch Time

Oral-B Indicator July 1991

Reach Advanced Design 1991

Crest Complete Sept 1992

Aquafresh Flex August 1991

Super-premium has been increasing to 1/3 of market share in unit and will keep growing in the next several years

3

Year1989 (MM)

1990 (MM)

1991 (MM)

1992E (MM)

1993E (MM)

1994E (MM)

Total Market

Unit Volume 243 242 261 307 250 255Unit Volume

Change-0.41% 7.85% 17.62% -18.49% 1.91%

Super-premium Unit Volume 73.20 74.41 80.91 107.45 95.09 99.45Unit Volume-

Change2% 9% 45%

-12% 5%Unit Mrk Share 28% 29% 31% 35% 38% 39%

Professional Unit Volume 99.32 101.49 112.23 125.87 97.59 96.90Unit Volume-

Change2% 11% 13%

-22% -1%Unit Mrk Share 45% 44% 43% 41% 39.00% 38.00%

Value Unit Volume 45.63 42.75 67.86 73.68 57.55 58.65Unit Volume-

Change-6% 59% 3%

-22% 2%Unit Mrk Share 27% 27% 26% 24% 23% 23%

Total 100% 100% 100% 100% 100% 100%

• The total market has soared in 1991-1992 due to a number of new Super-Premium products launched • Professional market share kept a slowly down • Value market share was also going down as the buying trend is slowly moving toward to higher price

products

Oral B is leading the Super-Premium category while Reach Advanced will be a strong competitor in this category since 1993

4

Year1989

(MM)

1990

(MM)

1991

(MM)

1992E

(MM)

Super-premium Unit Volume 68.04 70.18 80.91 107.45

Unit Mrk Share 28.00% 29.00% 31.00% 35.00%

Oral-B RegularUnit Volume 58.32 59.29 57.68 49.43

Unit Mrk Share 24.00% 24.50% 22.10% 16.10%

Oral-B IndicatorUnit Volume 0 0 2.61 11.36

Unit Mrk Share 0.00% 0.00% 1.00% 3.70%

Crest CompleteUnit Volume 0 0 0 6.14

Unit Mrk Share 0.00% 0.00% 0.00% 2.00%

Reach Advanced

Unit Volume 0 0 1.83 12.28

Unit Mrk Share 0.00% 0.00% 0.70% 4.00%

Aquafresh Flex

0 0 2.35 14.12

Unit Mrk Share 0.00% 0.00% 0.90% 4.60%

Other Unit Volume 9.72 10.89 16.44 14.12

Unit Mrk Share 4.00% 4.50% 6.30% 4.60%

TotalUnit Volume 68.04 70.18 80.91 107.45

Unit Mrk Share 28% 29% 31% 35%

• Oral-B had decreased its Regular market but gained same amount of market share in its superior Indicator brand• As a new entrant, Crest was expected to get a high market share (10%) due to its relatively low price• Reach Advanced and Aquafresh launched in 1991 with prices that are lower than Oral B and higher than Crest

Professional category was facing a low increase rate which would affect Colgate’s major business with Plus

5

Year1989

(MM)

1990

(MM)

1991

(MM)

1992E

(MM)

Professional Unit Mrk Share 45% 44% 43% 41%

Colgate Plus Unit Mrk Share 12.0% 13.7% 16.9% 17.3%

Reach Unit Mrk Share 18.1% 18.2% 17.8% 15.2%

Prevent Unit Mrk Share 2.5% 1.6% 0.7% 0.2%

Pepsodent Prof. Unit Mrk Share 2.1% 2.0% 1.4% 1.0%

Other Unit Mrk Share 10.3% 8.5% 6.2% 7.3%

Total 45.0% 44.0% 43.0% 41.0%

• Plus was leading in Professional but didn’t gain large increase in 1992 • All other Professional products was declining since 1989

Value was declining rapidly even though the growth in sales of Private Label. Private Label was a big challenge for Colgate Classic

6

Year1989

(MM)

1990

(MM)

1991

(MM)

1992E

(MM)

Value Unit Mkt Share 27% 27% 26% 24%

Colgate Classic Unit Mkt Share 8.5% 8.1% 6.4% 4.9%

Pepsodent Regular Unit Mkt Share 8.4% 7.8% 5.8% 4.0%

Private Label Unit Mkt Share N/A N/A 11.2% 11.5%

Other Unit Mkt Share 10.1% 11.1% 2.6% 3.6%

Total Unit Mkt Share 27% 27% 26% 24%

• Classic decreased 3% in market share since 1990 due to private label growth and new super premium products launched

• Private label took half of the market share

Without launching Precision, total market size would decline 60 MM from 1992 due to demand decreases. Crest would seize market shares from other Super- Premium brands such as Oral B

7

(Without

Precision)Year

1989

(MM)

1990

(MM)

1991

(MM)

1992E

(MM)

1993E

(MM)

1994E

(MM)

BRAND MM Share MM Share MM Share MM Share MM Share MM Share

Total MarketUnit Volume 243 100% 242 100% 261 100% 307 100% 250 100% 255 100%

Unit Volume Change -0.41% 7.85% 17.62% -18.49% 2.00%

Unit Volume with

regular increase rate243 242 257 272 289 307

COLGATE

TOTALUnit Volume 49.82 21% 52.76 22% 60.81 23% 68.15 22% 55.05 22% 51.05 20%

Unit Volume Change 6% 15% 12% -19% -7%

Plus Unit Volume 29.16 12% 33.15 14% 44.11 17% 53.11 17% 42.54 17% 40.84 16%


Classic Unit Volume 20.66 9% 19.60 8% 16.70 6% 15.04 5% 12.51 5% 10.21 4%

Unit Volume Change -5% -15% -10% -17% -18%

ORAL-B



Oral-B

IndicatorUnit Volume 0 0% 0 0% 2.61 1% 11.36 4% 7.51 3% 7.66 3%

Unit Volume Change 0% NA 335% -34% 2%

Oral-B

RegularUnit Volume 58.32 24% 59.29 25% 57.68 22% 49.43 16% 35.03 14% 33.18 13%

Unit Volume Change 2% -3% -14% -29% -5%

J & J TOTAL Unit Volume 50.06 21% 47.92 20% 50.11 19% 59.56 19% 42.54 17% 40.84 16%

Unit Volume Change -4% 5% 19% -29% -4%

Reach Unit Volume 43.98 18% 44.04 18% 46.46 18% 46.66 15% 35.03 14% 33.18 13%


• Total market size of 1993 and 1994 were expected to go down due to over purchase in 1991 and 1992

• Crest would gain 10% of market share, which would be from Oral B, Reach, Reach Advanced and AQUA-FRESH

• Plus and Classic may keep constant in 1993 and a little decline in 1994 due to increase of private label and super premium category


8

Year1989

(MM)

1990

(MM)

1991

(MM)

1992E

(MM)

1993E

(MM)

1994E

(MM)

Reach

Advanced

DesignUnit Volume 0 0% 0 0% 1.827 1% 12.28 4% 7.51 3% 7.66 3%

Unit Volume

Change0% NA 572% -39% 2%

Prevent Unit Volume 6.08 3% 3.87 2% 1.83 1% 0.6 0% 0.00 0% 0.00 0%

Unit Volume

Change-36% -53% -66% -100% 0%

LEVER Unit Volume 25.52 11% 23.72 10% 18.79 7% 15.35 5% 10.01 4% 7.66 3%

Unit Volume

Change-7% -21% -18% -35% -24%

CREST Unit Volume 0 0% 0 0% 0 0% 6.14 2% 25.02 10% 28.08 11%

Unit Volume

Change0% 0% NA 308% 12%

AQUA-

FRESHUnit Volume 0 0% 0 0% 2.35 1% 14.12 5% 7.51 3% 10.21 4%

Unit Volume

Change0% NA 501% -47% 36%

BUTLER Unit Volume N/A N/A N/A NA 5.22 2% 6.14 2% 5.00 2% 5.10 2%

Unit Volume

ChangeNA NA 18% -18% 2%

PRIVATE

LABELUnit Volume N/A N/A N/A NA 29.23 11% 35.31 12% 32.53 13% 35.73 14%

Unit Volume

ChangeNA NA 21% -8% 10%

Other Unit Volume 59.29 24% 58.32 24% 34.19 13% 41.45 14% 30.03 12% 35.73 14%

Unit Volume

Change-2% -41% 21% -28% 19%

Total 100% 100% 100% 100% 100% 100%

• Private label would grow in the next two years according to the trend and other Value brands such as Lever thus would decline

If launching Precision, total market size would be larger due to Colgate brand influence. 35% of Precision market share was expected to get from Colgate and 65% from Super-Premium competitors

(Without

Precision)Year

1989

(MM)

1990

(MM)

1991

(MM)

1992E

(MM)

1993E

(MM)

1994E

($ MM)

BRAND MM Share MM Share MM Share MM Share MM Share MM Share

Total MarketUnit Volume 243 100% 242 100% 261 100% 307 100% 255 100% 260 100%

Unit Volume

Change-0.41% 7.85% 17.62% -16.86% 1.96%

Unit Volume

with regular

increase

rate

243 242 257 272 289 307

COLGATE


Unit Volume

Change6% 15% 12% -5% 11%

Precision Unit Volume 0 0% 0 0% 0 0% 0 0% 5% 10%

Unit Volume

Change

Plus Unit Volume 29.16 12% 33.15 14% 44.11 17% 53.11 17% 41.12 15.8% 37.21 14.3%

Unit Volume

Change14% 33% 20% -23% -9%

Classic Unit Volume 20.66 9% 19.60 8% 16.70 6% 15.04 5% 12.10 4.7% 8.85 3.4%

Unit Volume

Change-5% -15% -10% -20% -27%

ORAL-B


Unit Volume

Change2% 2% 1% -39% -9%

1993 (MM) 1994 (MM)

Total Shares from Competitors and

Colgate5% 10%

Cannibaalization 35%Precision Shares

from Colgate1.75% 3.50%

Plus 1.50% 3.00%

Classic 0.25% 0.50%

Total 1.75% 3.50%

Precision Shares from Competitors

3.25% 6.5%

Reach Advanced 0.50% 1.00%

Oral B Indicator 1.00% 1.50%

Oral B Regular 0.50% 1.30%

Crest 0.50% 1.00%

AQUA-FRESH 0.55% 1.50%

Total 3.25% 6.50%

• Assume that cannibalization is 35% of Colgate traditional market based on price difference between Precision ($1.76) and Plus ($1.42). Also Precision’s market share should take from other Super-Premium competitors


Oral-B Indicator Unit Volume 0 0% 0 0% 2.61 1% 11.36 4% 4.42 1.7% 3.12 1.2%

Unit Volume Change 0% NA 335% -61% -29%

Oral-B Regular Unit Volume 58.32 24% 59.29 25% 57.68 22% 49.43 16% 32.79 12.6% 30.71 11.8%

Unit Volume Change 2% -3% -14% -34% -6%

J & J TOTAL Unit Volume 50.06 21% 47.92 20% 50.11 19% 59.56 19% 42.94 17% 41.64 16%

Unit Volume Change -4% 5% 19% -28% -3%

Reach Unit Volume 43.98 18% 44.04 18% 46.46 18% 46.66 15% 36.43 14% 36.43 14%

Unit Volume Change 0% 5% 0% -22% 0%

Reach Advanced

DesignUnit Volume 0 0% 0 0% 1.827 1% 12.28 4% 6.51 2.5% 5.20 2.0%


Prevent Unit Volume 6.08 3% 3.87 2% 1.83 1% 0.6 0% 0.00 0% 0.00 0%

Unit Volume Change -36% -53% -66% -100% 0%

LEVER Unit Volume 25.52 11% 23.72 10% 18.79 7% 15.35 5% 10.41 4% 10.41 4%

Unit Volume Change -7% -21% -18% -32% 0%

CREST Unit Volume 0 0% 0 0% 0 0% 6.14 2% 24.72 9.5% 23.42 9.0%

Unit Volume Change 0% 0% NA 303% -5%

AQUA-FRESH Unit Volume 0 0% 0 0% 2.35 1% 14.12 5% 5.33 2.1% 2.86 1.1%


BUTLER Unit Volume N/A N/A N/A NA 5.22 2% 6.14 2% 5.20 2% 5.20 2%

Unit Volume Change NA! NA 18% -15% 0%

PRIVATE LABEL Unit Volume N/A N/A N/A NA 29.23 11% 35.31 12% 33.83 13% 39.03 15%

Unit Volume Change NA NA 21% -4% 15%

Other Unit Volume 59.29 24% 58.32 24% 34.19 13% 41.45 14% 34.35 13% 31.75 12%

Unit Volume Change -2% -41% 21% -17% -8%

Total 100% 100% 100% 100% 100% 100%10

Income statement of Precision in 93/94 if we set price at $1.76. Colgate will gain $9 MM net profit by its own in 94

Income Statement of PrecisionYear 1992 (MM) 1993 (MM) 1993 O/O 1994 (MM) 1994 O/O

Market Size - Units 255 260

Market Share 5.00% 10.00%

Units Sold 13 26

Selling Price Per Unit $1.76 $1.76

Revenue / Sales $22 $46

Total Variable Costs $8 36.36% $19 41.95%

Contribution Margin $14 63.64% $27 58.05%

Total Fixed Costs $17.0 $18.0

Cash Flow / Net Income

-$3 $9

11

• Market size will be 5 MM larger than without Precision due to huge brand impact of Colgate on the market

• Market share was expected to increase to 10% by 1994 as the total super premium will increase, the price of Precision is lower and declining of other brands

• Net income would grow dramatically to more units sold and lower fixed cost

With 35% cannibalization of Plus and Classic, Colgate traditional market would marginally decrease

Income Statement of Total Plus and Classic

Year 1992 (MM) 1993 (MM) 1993 O/O 1994 (MM) 1994 O/O


Market Share 22% 20.45% 18.70%

Units Sold 52 49



Total Variable Costs $32 50.35% $32 50.84%

Contribution Margin $32 49.65% $31 49.16%


Cash Flow / Net Income $2 -$9

12

• Market share of Plus and Classic would decrease due to the impact of Precision and private label• Total variable costs would keep constant when units sold declines and unit variable cost slight increases every year • Net income would be negative in 1994 as fixed cost also increases (adv, consumer and trade promotions)

Colgate would gain market share and generate higher contribution margin and net income if launch Precision

Income Statement of Total Colgate with Precision

Year 1993 (MM) 1994 (MM)



Units Sold 65 72



Variable Manufacturing Cost Per Unit

$0.62 $0.68

Total Variable Costs $40 $49

Contribution Margin $46 $56

Contribution Margin per Unit

$0.71 $0.77

Advertising Cost $16 $20

Consumer Promotions $10 $12

Trade Promotions $9 $10

Fixed Headover $13 $14

Total Fixed Costs $47 $56

Cash Flow / Net Income -$1 $0

Cash Flow / Net Income per Unit

-$0.01 $0.00

13

Income Statement of Total Colgate without Precision

Year 1993 (MM) 1994 (MM)



Units Sold 55 51



Variable Manufacturing Cost Per Unit

$0.62 $0.65

Total Variable Costs $34 $36

Contribution Margin $34 $29

Contribution Margin per Unit

$0.61 $0.58

Advertising Cost $10.3 $10.8

Consumer Promotions $6.6 $7.0

Trade Promotions $7.8 $8.2

Fixed Headover $12.6 $13.8


Cash Flow / Net Income -$4 -$10


-$0.07 -$0.20

• With Precision, the units will grow in the next two years while without Precision, Colgate would lose its units growth.

• Contribution margin and net income would suffer if don’t launch Precision due to increasing fixed costs.

Advertisement expenditure should be spent 8 MM on Precision to reach 5% market share in the first year and keep the same level for Plus and Classic

Without Precision With Precision

1989 1990 1991 1992E 1993 1994 1993 1994

Total fixed overhead

$ 4.43 $ 6.30 $ 10.01 $ 11.42 $ 12.57 $ 13.82 $ 12.57 $ 13.82

Media $ 3.67 $ 6.99 $ 8.76 $ 9.62 $ 10.30 $ 10.81 $ 16.00 $ 20.00

Consumer promotions

$ 4.54 $ 5.89 $ 5.29 $ 6.98 $ 6.63 $ 6.96 $ 10.00 $ 12.00

Trade promotions $ 3.46 $ 4.13 $ 6.29 $ 7.46 $ 7.83 $ 8.22 $ 8.50 $ 10.00

14

Without Precision

1993 1994

Plus+Classic Precision Plus+Classic Precision

Media $10.3 $0.0 $10.8 $0.0

Consumer

promotions$6.6 $0.0 $7.0 $0.0

Trade

promotions$7.8 $0.0 $8.2 $0.0

With Precision

1993 1994

Plus+Classic Precision Plus+Classic Precision

Media $8.0 $8.0 $10.0 $10.0

Consumer

promotions$4.0 $6.0 $5.0 $7.0

Trade

promotions$5.5 $3.0 $6.0 $4.0

• Media should be spent on Precision at least 8MM to reach 5% and 10MM in the second year to reach 10%

• To keep the traditional market, Colgate should spend the same amount of advertising on Plus and Classic

• There will be more consumer promotions on Precision than traditional market

• Trade promotions should be given more to traditional market due to it’s limited resources

Same amount of investment costs will occur in the second year due to increased Precision units sold

1st Year Investment

Cost

2nd Year Investment

Cost

Tufters $2.17 $2.17

Handle Molds $0.56 $0.56

Packaging $0.15 $0.05

Total $2.87 $2.77

15

1st

Year 2nd

Year

Capacity 13 13

Units Sold for Precision

13 26

Net Cash Flow for Colgate with Precision would reach 10.5 MM and NPV $5MM in 2014. IRR would reach 87.6% which indicates a very optimistic return for launching Precision

Year 1992 1993 1993 1994

(MM) (MM) O/O (MM)

Cash Flow / Net Income

-$2.9 $3 -$2.8 $10


$0.28 $0.48

Cash Flow / Net Income % of Sales

14.81% 25.47%

Net Cash Flow -$2.9 $0.0 10.05

Hurdle Rate 10%

NPV $5

Internal Rate of Return

87.6%

16

Recommendations

• With optimistic IRR and NPV, launching Precision with mainstream strategy (Price with $1.76) in Super-Premium category is strongly suggested

• Even though Super-Premium category will be facing increasingly fierce competition, its total market is still growing. Thus Precision would generate a good amount of revenue and market share from Oral B, Reach Advanced, AQUA-FRESH and Crest

• The first year of launch of Precision, 8MM adv cost should be spent on Precision to make sure the expected 5% market share gained

• To keep the competitive advantage of Colgate traditional market, Colgate should invest the same amount of adv expenditures on Plus and Classic

• In the second year Colgate should keep investing in adv and promotions to reach the target of 10% market share for Precision and 18% for traditional market

• The prices of Plus and Classic would increase at a constant level due to the market trend. However due to the price sensitive, more consumer promotions are suggested

17

peng lai_sample 3 product & trend analysis

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