Strategic Management Final Report

Researching Firm Level Strategy
and Competitiveness2015
December, 2015
Corporation: Colgate Palmolive Pakistan
Address: Sarwan Shadeed Rd., Saddar Town, Karachi.
Name and Rank of the Research Partner: Mr. Asif Ali Khan (Assistant Sales Manager)
Telephone Contact: +923462033543
Name of IoBM researchers:
Amna Rafiq Mughal (14247)
Asad Ali Khan (14347)
Kashmala Riaz (14743)
Muhammad Hamza (14134)
Mehwish Khan (14212)
Naeem Ashraf (14685)
Yumna Shoaib (14496)
This research instrument is used for researching the business strategy of the selected organization: its
vision and mission, its current strategy, its external and internal researched environment, its competitors
and its strategic implementation framework.
1 | IoBM Strategic Management
CHAPTER#1
Analysis of the Industry

Structure
The Personal Care Industry Structure

Personal care industry consists of soaps and toothpaste. A typical company offers a
range of products under this category with various prices. Firms in the industry
achieve superiority through factors such as access to cheaper inputs, efficient
processes, favorable location, skilled workforce, superior technology, and/or waste
reduction or elimination.
The firms of the personal care industry have a huge market and a capacity to use
new methods of production which makes them cost effective and gives them the
edge in producing the required capacity. The adoption of such production methods
has been learnt by the firms with time. They are now able to perform in a way that
is difficult for any new comer to learn. The personal care industry involves majority
of the low-involvement products without any significant differences. These products
are advertised on the basis of a few additional benefits like flavors, fragrances, color
etc. however the core functional benefit remain same for all the products in each
category like beauty, oral care etc.
The companies in the personal care industry are Unilever, P&G and ColgatePalmolive which are strong well-known identities. The brands offered by these
companies have established brand images and identities as they have been
competing with each other for a long time. The monetary cost of switching supplier
is more or less the same however other costs such as time and experience are high
for the customer of personal care industry. These costs will be incurred by both the
small kirana shopkeepers as well as the big retailers like Imtiaz, Metro etc.
While talking about the costs associated with the personal care industry, the initial
costs are quite high since one has to set up factories for the production of paste,
soaps etc. Installation of different kinds of technologies and equipment is required
as well to facilitate the production of varieties. Further, building a network with

suppliers and distributors is also very costly in the industry.
The industry specific plants, property and equipment are highly expensive as
depicted through the investments allocated to Property and equipment in the
annual reports of the firms. The reason for such heavy investment is the desire to
bring in equipment and technology that makes the firm better in innovation than
the rival firm. Considering the high cost of establishing distributional network as
well as the strong grip of existing giants on the present networks makes it difficult
for any new comer to access the distributional channels or for any existing firm to
switch its network.
The personal care industry allows the firms to continuously improve through
performance. The use of automation, cost-effective plants, highly skilled labor force
and technological advancements help the firms to drive costs out of the processes
over time. Raw materials of personal care industry are both imported and local. As
the exchange rate continue to decline, it is becoming difficult for firms to manage
the price of raw materials. Other inputs which are used remain the same locally;
hence the suppliers of the industry remain strengthened. The existing firms and new
entrants will continue to face these challenges unless appropriate actions are taken.
The product offerings of the industry do not provide any specialty feature which can
help reduce cost as the benefits remain the same in each product category.
However, proper allocation of resources can enable the companies to drive costs
out. The legalities needed to enter and start up a toothpaste brand are moderate.
So the newcomers will not need to go through much hassle in terms of obtaining
various licenses, qualifications and insurances. However, the cost of establishment
will remain high as discussed previously.
As a matter of fact, the firms present in the industry may give a tough time to any
firms that plans to enter the personal care industry. The existing firms have been
competing for a long time and will not let any new comer take the market share
from them.
The Traders and Consumer

The firms of the personal care industry have a huge market and a capacity to use
new methods of production which makes them cost effective and gives them the
edge in producing the required capacity. The adoption of such production methods
has been learnt by the firms with time. They are now able to perform in a way that
is difficult for any new comer to learn.
Colgate Palmolive business has two types of buyers i.e. traders and small
customers. Around 80% of the traders of Colgate-Palmolive are small traders like
kirana shops and general stores which usually buy in small quantities monthly. The
other 20% traders like METRO, IMTIAZ and AGHAs buy in large volumes enabling
them to negotiate on the price. An example of the volume which big traders buy is
that the month closing purchases of Imtiaz Super Store for the month of September
were worth Rs. 20 million.
On the other hand the customer base of personal care industry is vast but the
number of firms producing such products is limited. This creates a large pool of
customers buying in small quantities. Both the customers and traders incur
significant costs in switching suppliers because of the immense brand competition
in this industry. Customer incurs costs in terms of time and experience while traders
incur costs in terms of price of the product and cost incurred while establishing new
logistic links.
The large scale traders in Pakistan also have assorted products and private brands
as in some cases these traders are capable of establishing the production facility for
soap especially. The trends in the consumer behavior of Pakistani people show that
the brand identities of established brands play an important role in the buying
decision of the people.
The Contemporary Substitutes

The substitutes to the Personal Care products (mainly Toothpaste and Soap) are the
herbal, natural or homemade products like Manjan, tooth powder, Multani Mitti.
Although these substitutes dont provide the intensity of functional benefit, the
Pakistani society has a long history of using these herbal products as the majority of
the population b longs to the rural areas. But with the improvement in the living
standard of the country and with the distributions of the personal care industry is
getting stronger in rural areas; a shift in the usage has been witnessed.
The Input Channel

There are a number of suppliers to the personal care industry as the inputs used in
the making of toothpastes and soap include abrasives, fluorides, surfactants,
artificial flavors, fat, glycerin and starch which are easily available in the market.
These inputs are standard hence cannot be substituted for any other natural or
herbal input.
Although the inputs are readily available in the market and the suppliers already
have access to it, but the capital requirement to establish the production plant and
meeting the need of the market is a difficult task which makes it difficult for the
suppliers to take the business in house.
The numbers of suppliers of the inputs to the industry is relatively high and ColgatePalmolive business is important to the suppliers but as these inputs cannot be
substituted the backward integration would cost Colgate-Palmolive a handsome
amount of money.
The Market Rivalries

The frequency of product launches in existing segments of the market and genesis
of new product segments contributes to continuous evolution of the personal care
market. The personal care industry in Pakistan is still growing rapidly with
awareness amongst masses improving every day and more and more people are
becoming conscious of their personal care needs.
As the purchasing power of the population increases coupled with increased

urbanization, there is a strong chance that the personal care industry will show
further growth.
In personal care (toothpaste and soap) market the decision-making process for
buying toothpaste is commonly regarded as low involvement action, i.e. the
consumer is not willing to search for alternatives, purchases the easiest way while
buying the familiar brand, and seeks not the optimal but only the satisfactory
solution.
Homogeneous products are available with all competitors like Unilever, Procter and
Gamble, Shield, Oral B which takes rivalry on a relatively higher scale. But alongside
the increase in demand over last five years for the products of the industry overall
forces the rivalry downwards. Majority of the competitors are MNCs which means
that they have the necessary resources and skills.
The Influence of the Macro-Environment

Politics has a certain influence on the structure of the Personal care industry in
Pakistan. The recent law and order conditions have affected the whole economy
which in turn affected the industry. This uncertainty and instability does not
encourage people to invest in the industry. On the other hand, the legal regulations
and consumer laws make it difficult for the suppliers to take the business of making
toothpaste in house where as the license for soap making is easily accessible in
house.
Secondly, the economics of Pakistan and the performance of the industry go hand in
hand as well. The overall economy of the country is showing a stable growth making
the industry to grow further. But the inflation is growing rapidly which is not a good
sign for the new entrants. Change in the interest rate increases the initial
investments required to enter the industry as well.
Depreciation in rupee, on the other hand, is increasing the cost of production as the
imported inputs become costly and margins are cut down leading to an increase in
rivalry. Interest rate cut down by SBP from 6.5% to 6% leads to lesser interest
expense. Companies may prefer bank loans over other sources of funds to invest in
the companys operations with low finance cost. Ease of Doing Business in Pakistan
deteriorated to 138 in 2015 from 136 in 2014 resulting in profit margin cuts and
making it difficult for companies to compete effectively. The decrease in corporate
income taxes results in higher profit margins for each firm already competing in the
industry.
From the consumers perspective, the improving living standards and increasing
incomes in the society, customers are becoming lesser price sensitive. However, the
increase in Sales tax rates from 16% in 2013 to 17% in 2015 is likely to make
consumers price conscious as this will have an impact on their disposable income.
Moreover, increasing demand in the market with increase in buying power of the
buyers, the companies have increased the amount of input purchased. Whereas,
labor market risk in Pakistan is 40.9 out of 100, representing an unattractive labor
market.
Thirdly, the social changes are having an important influence on the consumers
perception and buying behavior. People have become more educated and health
conscious, awareness has seen a boost too with the widespread use of internet
making access to lot of information only a push button away, especially about the
products that are closely related to human hygiene. Additionally, companies are
heavily spending on the advertising and promotional budgets to make people aware
of the benefit or the experience their product provides. The giant players in the
industry are always trying hard to increase their market share.
Lastly, technology is helping the companies to gain a competitive advantage over
their rivals. Heavy investments in research and development are playing an
important role in helping companies have an edge over the competition by
innovating new products. The technology can support if the whole system is
automated from the import of raw material to the finished goods saving a lot of time
and money.
Modern scientific development has forced the companies to provide products that
can effectively cater to the customer needs. These days there is a different flavor or
specialized tooth paste for different age groups and types of teeth respectively
which are eroding the market for substitutes.
Overall, the macro-environment has a beneficial influence on the profitability of the
industry. The overall impact makes the industry structure more profitable with the
pillars of the industry tilting in favor of the industry. The regulations and license
requirements have risen to entry for the new comers to enter the industry. The
overall betterment in the living standard of the country and the increasing
disposable incomes of families have made the customer less price sensitive and
created a large pool of consumers moving towards the branded personal care
products. The social trend of being hygiene conscious and the amount of
information the consumers gets through the internet have encouraged the
customers to leave behind the traditional alternatives and seek products with more
functional benefits. To sum up, the microenvironment has a positive impact on the
profitability of the industry.
Rivalry: A threat to the industry profitability

The rivalry among the companies in the personal care industry of Pakistan is the
defining pillar of the personal care industry structure. There is a race towards
getting the market share, acquiring distribution channels and customers. The
industry comprises of manufacturing firms thus there is an ongoing war in the
advertising and the distribution channels. The spending on advertising of the
manufacturing firms comes second, after Telecoms, as compared to other industries
in Pakistan.
The macro environment is also instigating the fire of rivalry between the
competitors as the margins are cut down by the economic policies and the political
situation of the country. The social trends and the improving living standards are
also making the companies to fight for acquiring the new customers.
To reduce the heat of rivalry Colgate has to take advantage of the trade incentives it
provides to its small and large traders helping in making the product available even
in the rural areas. Having a trade network which is the companys core competency
gives the company an edge over the other and reduces the rivalry in the industry.
CHAPTER#1
Annexure
KEY EXTERNAL FACTORS
9
10
Opportunities
Improvement in technology making
research and development more
effective. (Technology + Reducing
threat of entrants)
Increasing per capita income of the
country making buyers less price
sensitive. (Economics + Reducing
bargaining power of buyers)
Increasing demand due to awareness
about hygiene factors leading to
increased input purchases. (Social +
Reducing bargaining power of
suppliers)
Rapid urbanization leads to growth in
personal care and beauty products
industry. (Social + Reducing
Increased electronic media usage
increasing awareness and providing a
medium for communication.
(Technology + Reducing bargaining
power of buyers + Reducing rivalry
by lowering cost and increasing
margins)
High cost for establishing supplier
network and distribution channels
(Economic + reducing the threats of
new entrants)
Strong brand identities established
by Unilever, P&G and ColgatePalmolive (Social + Reducing threat
of entrants and the bargaining power
of buyers)
The reduction in Corporate Tax rate
resulting in an increase in profit
margins (Economic + Reducing
rivalries)
Increasing prices of raw materials
(Economic + Reducing threat of new
entrants)
Interest rate cut down by SBP leading
to less interest expense.
10 | I o B M S t r a t e g i c M a n a g e m e n t
RATING
WEIGHTED
SCORE
0.07
0.21
0.04
0.12
0.09
0.36
0.08
0.24
0.06
0.12
0.05
0.15
0.05
0.05
0.01
0.01
0.02
0.04
0.03
0.09
WEIGHT
9
10
(Economics+ Reducing rivalries)

Threats
Rupee depreciation increases the unit
prices as raw material are imported.
(Economic + Increasing bargaining
power of local suppliers + Increasing
rivalry)
Interest rate cut by SBP is likely to
trigger a rise in inflation. (Economic+
Increasing rivalry as the margins is
cut down).
Labor market risk is 40.9 out of 100,
representative of an unattractive
labor market (Economic + Increasing
the bargaining power of labor
suppliers)
Easily accessible technical knowledge
about hygiene products on Internet.
(Technology + Increasing the
Easily accessible patents and
licenses for the personal care
industry (Political + increasing the
threats of new entrants)
Increase in Sales tax rates from 16%
in 2013 to 17% in 2015. (Economic +
Increasing bargaining power of
buyers as they become price
sensitive)
Ease of Doing Business in Pakistan
deteriorated to 138 in 2015 from 136
in 2014 resulting in profit margins
cuts (Economic + Increasing the
rivalries)
Increased marketing budgets of
competitors (Economic + Increasing
the rivalries)
Increased Government regulations on
hygiene and oral care products.
(Political + Increasing bargaining
power of buyers)[2]
Increasing number of competitive
products with differentiation. (Social
0.04
0.08
0.03
0.03
0.05
0.05
0.07
0.21
0.05
0.10
0.06
0.06
0.09
0.27
0.05
0.05
0.03
0.06
0.03
0.12
+ Increasing rivalry)
1.00
2.29
Specific Actions:
1. Introduction of toothpastes catering different hygienic needs for e.g.
toothpaste for smokers, sensitivity, gum health, shine, strength, freshness
etc. (O3)
2. As youth is inclined towards fast food, toothpastes for smokers, fast food
lovers to cater the health needs of such consumers should be introduced.
(O3+O4)
3. Identifying methods to reduce cost in order to survive during inflation period.
(T2)
4. Create a wide variety of toothpastes specifically for different hygiene factors
to target a large group of customers and make information available on
Colgates own website (T4)
5. The company should invest in the marketing budgets to increase the
marketing activities and give a tough time to the competitors. (T8)
CHAPTER#2
Analysis of
Competitors
The Competitor
Proctor and Gamble
The tooth paste industry is one typical model of an oligopoly meaning that it is
dominated by a small number of major firms such as Colgate-Palmolive, Procter and
Gamble and GlaxoSmithKline (Aqua fresh) and Unilever. The competition among the
different companies have always been ferocious with companies launching new
products with new features regularly be it whitening toothpaste, mouth fresheners
toothpaste or economic toothpaste.
The toothpaste market in Pakistan is around 7 billion rupees while the tooth brush
and mouth wash markets are 300 million and 85 million rupees respectively. The
oral care market in Pakistan has increased between 2002 and 2007; growth rate is
average annual rate of 3.4%.The leading company in 2009 was Colgate-Palmolive
Company. The second-largest company was GlaxoSmithKline Plc. with Unilever and
P&G in third place Oral Care.
However, when it comes to innovation and advertising, P&G is the proud leader, the
evidence of which can be found in the fact that each year in the U.S., The IRI New
Product Pacesetter Report ranks the bestselling new products within the consumer
market in which over the past 14 years, Procter and Gamble has had 114 Top 25
pacesettersmore than six times the number of pacesetters of their largest
competitors combined. In the advertising portion, it would be sufficient to add that
the company spends on advertising almost twice as much as its top competitor,
namely Unilever.
The companys oral hygiene products include Crest toothpaste, Crest mouthwash,
Oral-B toothbrush and mouthwash. It also is the supplier of electric toothbrushes
and dental flosses. P&G through innovation adds more toothbrush types to its
product portfolio alongside varying flavors in the toothpastes being offered, not to
forget the different mouthwashes for varying oral hygiene related problems, in order
to catch a larger chunk of the market. Also, it supplies safeguard soap which initially
was only white but now it can be found in other colors such as pink and blue. The
pricing of the products is more tilted towards the high end consumers.
P&G has invested more than Rs. 6 Billion in terms of assets, working capital and
market development. With continuous growth and expansion P&G Pakistan has two
plants fully established which is located at HUB Baluchistan and Port Qasim
Pakistan.
The company has a strong financial position with its EPS rising at 8% in 2011 (in
2010 the EPS growth was 6%), whilst having three consecutive years of high
growth. The Ohio based consumer goods giant also recorded a turnover of Rs22
billion in fiscal year 2012 (FY2012), which according to the officials was then the
highest growth year in the companys history, recording a 50% YoY (Year over year)
increase in its turnover.
Procter and Gamble engaged a single distributor in Pakistan, Abudawood Group

(ATCO), according to the companys country head Faisal Sabzwari. This distributor,
according to Sabzwari, gave them unprecedented ability to reach the right
standards of accessibility in the retail stores. The success of the FMCG products,
among other aspects is also tied in closely to the performance of the distributors,
which ATCO is doing quite well for the company.
Furthermore, in terms of corporate social responsibility (CSR) P&G strives to be
second to none of its competitors. In 2007 Procter & Gamble pledged to reduce
their carbon emissions, mainly through reduction in packaging along with decreases
in water and energy use. The stated emission reduction goal was ten percent by
2012 in order to reduce the harmful impact of its business operations on the
environment. Also, animal testing at P&G is an exception rather than the rule, with
the aim of completely eliminating it from its practices.
Unilever
Unilever is one of the worlds top makers of packaged consumer goods operating in
190 countries and have a large brand portfolio of over 400 brands under two
divisions: Foods and Home & Personal care. Unilever is one of the worlds top three
food firms with Nestle and Kraft- and the worlds second largest packaged consumer
goods company behind Procter & Gamble. The main success factor of the company
is the constant focus on innovative product developments.
Unilever Pakistan (70.4% Unilever equity) is the largest FMCG Company in Pakistan,
as well as one of the largest multinationals operating in the country. Unilever
Pakistan Ltd., a subsidiary of the Unilever Group is operating in Pakistan since 1948.
The Companys main business lines are Soaps and Detergents, Personal Products,
Cooking Oils and Fats, Packed Teas, and Ice Creams. Unilever has a long list of
brands such as Surf, Vim, Rin, Lifebuoy, Sunlight, Lux,Rexona, Sunsilk, Close-Up,
Blue-Band, Dalda, Planta, Liptons Yellow Label, Taaza and Richbru, Brook Bonds
Supreme and Kenya Mixtures etc., which are common household names in Pakistan.
The company had a turnover of Rs. 2334238000 for the quarter year June 2015, and
enjoys a leading position in most of its core Home and Personal Care and Foods
categories, e.g. Personal Wash, Personal Care, Laundry, Beverages (Tea) and Ice
Cream. The company operates through 5 regional offices, 4 wholly owned and 6
third party manufacturing sites across Pakistan
150 million times a day, in 150 countries, people use their products at key moments
of their day. They seek to build on their global strength in R&D with local knowledge
of peoples habits and behaviors, and the benefits they gain from using Unilevers
products. Unilever has a strong competitive advantage over its competitor with a
single or few sanctuaries and it manages a number of partnerships globally
Since it was founded, Unilever established a new business in several countries, such
as the United Kingdom, Germany, Spain, USA, Argentina, Turkey, Netherlands,
Canada, China, South Africa, Italy, Sweden, Brazil, Russia, and the Czech Republic.
In household and personal care sector Unilever holds 35-40% market in terms of
turnover. There has been double digit growth in the advertising and promotion
expenditure which is approximately 1-12% of net sales.
CHAPTER#2
Annexure
Table 2 A
Competitive Profile Matrix (CPM)

Colgate
Critical Success
Factors
Advertising
Market Growth
Customer Service
Store Locations
R&D
Availability of product
Financial Profit
Customer Loyalty
Market Share
Product Quality
Brand Identity
Price Competitiveness
Totals
Weight
0.10
0.08
0.08
0.06
0.12
0.09
0.07
0.05
0.08
0.10
0.11
0.06
1.00
Ratin
g
2
3
3
4
3
4
2
4
4
3
3
2
Score
0.20
0.24
0.24
0.24
0.36
0.36
0.14
0.20
0.32
0.30
0.33
0.12
3.05
Unilever
Ratin
g
3
3
4
3
4
3
3
3
3
3
3
3
Score
0.30
0.24
0.32
0.18
0.48
0.27
0.21
0.15
0.24
0.30
0.33
0.18
3.20
P&G
Ratin
g
4
2
3
2
2
2
4
2
2
4
2
4
Score
0.40
0.16
0.24
0.12
0.24
0.18
0.28
0.10
0.16
0.40
0.22
0.24
2.74
Specific Actions:
1. Colgate can further improve the product quality
2. Colgate can increase the advertisements as compared to Close-up
(Unilever) and Crest (P&G)
3. Increase the R&D budget as Colgate has sufficient cash to invest in the
R&D.
4. Colgate should reduce other expenses like loss of inventory and
payments debts from customers to increase the financial profit.
5. It can also increase profits by reducing costs out of the processes
(Efficient utilization of machines, labor, networks)
6. Colgate may improve the product quality of the products it offers to
gain a competitive advantage over competitors.
CHAPTER#3
Analysips of
Colgate Palmolive
Pakistan
7.
Colgate Palmolive Pakistan

Colgate Palmolive Pakistan, one of the leading manufacturers of personal care and
consumer products in the country, began its operations back in 1985 when the US
granted the firm license to manufacture and market Colgate Palmolive products in
Pakistan, a joint venture between Colgate Palmolive (USA) and Lakson Group. Over
the years the company has successfully marketed some very popular consumer
products. Colgate Palmolive (Pakistan) is listed on the Karachi Stock Exchange with
60% equity with the Lakson Group, 30% with Colgate Palmolive (USA), and 10%
shareholder equity with the general product. The Lakson Group is a prominent
group with business enterprises in all-major sectors.
Colgate Palmolive is one of the largest ventures by the group. With assets of more
than Rs. 400 million and a turnover of Rs. 1500 million, it has emerged as one of the
largest corporations in Pakistan.
The introduction of Colgate Palmolive in Pakistan was novel in the sense that unlike
other multinational ventures, the local partners were allowed to introduce and
manufacture new brands under the Colgate Palmolive flagship. However, strict
checks on quality were imposed. Colgate Palmolive Pakistan has an agreement with
Colgate Palmolive (USA), under which it pays royalty to its parent company only on
brands, which use the words Colgate or Palmolive.
Currently, the firm is engaged in the production and marketing of some of the
leading international brands of oral and personal care products, bringing a few of
the world's most trusted household names such as Colgate Toothpaste and
Palmolive Naturals to the Pakistani market.
Colgate Palmolive is very likely to continue with its growth momentum. With the
company focused on enhancing their consumer base in both local and rural markets
on the basis of continued investments in product innovation, it is highly unlikely that
the firm will fail to meet its financial goals set out for the remaining part of the year.
The Core Values
Our three fundamental values Caring, Global Teamwork and Continuous

Improvement are integrated to everything that we do.
Inside Colgate-Palmolive
CP has a focus to ensure that their internal structure which includes financial, legal
and managerial structure, should work efficiently towards the achievement of its
objectives. Management at CP believes that the inefficient infrastructure means
wastage of resources and makes the company vulnerable to fines, sanctions and
restrictions.
Organization
Colgate has a professional organogram which outlines the flow of command. The
hierarchy includes the top management including the Divisional Directors. The top
Caring: The Company cares about people: Colgate people, customers,

shareholders and business partners.
Global Teamwork: All Colgate people are part of a global team, committed to
working together towards sustainability.
Continuous Improvement: Colgate is committed to getting better every day in
all it does, as individuals and as teams. By better understanding consumers' and
customers' expectations and continuously working to innovate and improve
products, services and processes, Colgate will "become the best."
management is followed by the middle management including General Managers
subordinated by the departments which is further subordinated by the departmental
managers. The organizational structure evidently outlines the top to down approach
where commands have to flow down the level of management.
Workforce management
On the front of people management CP strives to integrate its values in its
employees through training programs and direct its human capital related activities
to the goal of creating a sense of belongingness within its customers.
CP conducts several internship programs to create a fresh pool of talent for its
future recruitment programs. It nurtures the new talent through training and
development to make a workforce that suits the objectives of CP.
Technology
CP has a culture which is adaptive to the new technological changes. CP has
recently installed the SAP software system to effectively manage the inventory and
operations. Although the internal environment is open to the use of technology in
the manufacturing and operations, the company is still behind in the usage of the
new digital mediums for advertising and shopping.
While the competitors like Unilever and P&G are intensely focusing on the digital
mediums for value creation and minimizing the informational technology costs. CP
still has a conservative approach towards the internet as a cost saving medium and
value creating medium for digital advertising and shopping.
Procurement
CP utilizes the SAP to stay in contact with its international and local suppliers. Using
SAP reduces the time in contacting with the suppliers and helps in maintaining and
keeping the production process effective and efficient. The suppliers are selected on
the basis of their financial muscle and the presence of inputs in the market.
Inbound Logistics
CP uses the professional MIS (Management Information System) to manage the flow
of raw material from inventory to the production process and finished goods from
the production to ware house. This MIS helps CP in maintaining the integral
element of the business operations of a manufacturing firm that is inbound logistics.
The effective use of the MIS helps CP in maintaining the flow of manufacturing and
in curtailing cost of holding the stock in the warehouse.
Operations:
CP manages the outbound logistics with a strong chain of distributors who are given
handsome incentives to maintain the efficiency of the logistics. It is necessary to
have a strong distributors pool as this is the requirement of the industry. Moreover,
CP has the accessibility and the approach of its logistics. For CP logistics or
distribution to the big traders is an important aspect of business as these traders
like Imtiaz, Metro and Aghaz give CP 80% of its sales revenue. Thus CP insures that
the traders get their orders on time.
CP has a large pool of distributors and out numbers every other firm when it comes
to coverage in the market. But this large coverage comes up with its own pros and
cons. On one side the increased coverage leads to the increased growth and the
distributors run after the incentive by working effectively while on the other hand
they throw hefty amount of stock in the market to achieve targets which makes the
situation worst for the company in terms of rates.
Outbound logistics:
CP manages the outbound logistics with a strong chain of distributors who are given
handsome incentives to maintain the efficiency of the logistics. It is necessary to
have a strong distributors pool as this is the requirement of the industry. Moreover,
CP has the accessibility and the approach of its logistics. For CP logistics or
distribution to the big traders is an important aspect of business as these traders
like Imtiaz, Metro and Aghaz give CP 80% of its sales revenue. Thus CP insures that
the traders get their orders on time.
Marketing and Sales:

CP has different strategy for its different products. Colgate toothpastes are
promoted through heavy advertising and activations such as art competitions in
various schools. These activations include the awareness programs on the
importance of oral health care and hygiene. Colgate is considered as the market
leader in the tooth industry and its marketing has an important role to play in that
achievement.
The core competencies of Colgate Palmolive which give CP the edge over the others
are the strong branding of Colgate and the Trade incentives to traders. Colgate
holds 50% of the market share in the market with a superior brand image that
resonates with the word tooth paste. It is one of the top brands in the country and
enjoys the brand recall in the market the second core competency of CP is the
procedure of giving out trade incentive, given on the basis of sales per quarter,
which increases the coverage of the product even in the rural area of the country. It
provides the traders with trade plans and rewards the best performing trader every
quarter.
Services:
The value added services with the products help CP in maintaining a good customer
centered image. It provides its customer with an open channel to welcome the
complaints and suggestions. It also involves in the CSR activities mainly under its
brand Colgate to propagate awareness and knowledge about the oral health care
and education of the under privileged
Colgate Palmolive Financial Overview

Current ratio
Colgate Palmolives current ratio showed an increment from 3.55 to 4.12 in the recent fiscal year. This
ratio as seen independent has been fluctuating from a range of 2.21 to 4.12 in the past six years. When
compared to the industry however, the ratio has remained higher for the past three years showing that
Colgate has a less leveraged and a less risky position within the industry. The ratio determines that
Colgates ability to payback its liabilities have remained higher from its competitors in the recent years.
The increase in the ratio in FY15 can be accredited to the increase of Cash and Bank balances and the
inventory of the company. This means that Colgate will more easily be able to pay off the current
liabilities when they become due without having to sell off long-term, revenue generating assets.
Quick Ratio
A more comprehensive look at the current assets of Colgate Palmolive helped
analyzing the companys quick ratio which has been fluctuating from 0.77 to 2.79 in
the past six years. The ratio, like current ratio, remains higher than the industry
average for the past three years as well. The ratio determines the companys ability
to pay back the liabilities when they become due only through cash, short-term
borrowings, cash equivalents and receivables. The higher quick ratio of Colgate
Palmolive proves to be an evidence of paying back its debts hence favoring the
company in the eyes of investors and creditors especially. The company is better
able to maintain the quick assets through wise investments and cash maintenance
as compared to the industry.
Gross Profit Margin:

Colgate has been very consistent with this ratio through the past 6 years. Process of
manufacturing the goods is the main factor in this ratio. In 2011, the GP margin
dropped to 29% from 33% because of the increase in freight charges, more
transportation expenses and likewise operations. It fluctuated between 28%-29% till
2014. In 2015, it increased to 32%. The main activities that caused the ratio to rise
were: efficient consumption of raw materials, smart usage of power and fuel, and
the reduction in maintenance or repair cost. In comparison with the industry
average, Colgate Palmolive fails to achieve the gross profit that the average
industry is achieving (i.e. 38.8% in 2015).
Net Profit Margin:

Net profit margin for Colgate appears to be lagging behind at least 1% for the past 3
years (compared to the industry average). It increased from 7% in 2014 to 9% in
2015. The main activities that caused the increase were the fixed administrative
processes and the operations of the company. So the efficient processing of raw
materials into finished goods (production), administrative processes, and the other
processes compared to the sales were low in cost which caused an increase in this
ratio. Still, Colgate Palmolive lacks behind the industry average that is 10.9% for
2015. Lacking behind the industry average shows that although the sales keep
increasing every year but Colgate Palmolive is still struggling to efficiently manage
the processes behind the Costs.
Return on Assets:
The return on assets ratio measures how effectively a company can earn a return on
its investment in assets. In other words, ROA shows how efficiently a company can
convert the money used to purchase assets into net income or profits.
ROA for Colgate Palmolive kept fluctuating since the past 6 years from 17% to 24%.
It drastically decreased from 24% in 2010 to 18% in 2011. Then in 2015, it
increased to 19% from 17% in 2014. The reason behinds the increase were the
increase in net profit which occurred due to efficient use of assets. Industry average
is much better than the company (i.e. 22.3% in 2015). It seems that the company
did really well in 2010 (24%) and 2012 (21%), but in the following years the assets
contributed a lesser percentage to the net income. The reason could be under
utilization of assets or the resources being utilized inefficiently. The possibility of
attracting loans can be minimized if the ROA is low as it shows the companys
ability to convert the creditors money into profits.
Return on equity:
Return on equity measures how efficiently a firm can use the money from
shareholders to generate profits and grow the company.
ROE for Colgate Palmolive has been so poor since the last 6 years. They are much
far than the industry average (i.e. 124.4% in 2015) meaning that the equity has to
do very less contribution in the net profit. But in the case of Colgate Palmolive,
addition in the reserves of the company when compared with the increased net
profit causes low ROE. It increased in 2015 from 22% in 2014 to 25%, but still it is
far behind the industry average.
The possible attraction of investments due to high liquidity may be nullified by a low
ROE as the investors are critical about the companys ability to convert their money
invested as assets into profits.
Inventory Turnover
Colgate Palmolive in terms of the number of times the inventory is turned over or converted to sales has
witnessed an increase after suffering a severe downfall in 2011 after which the company seems to be
picking up the pace quite rapidly till the year 2014, while in the current year the values show a small
decrease, which on its own does not point to a big problem but yet however when compared to the
industry, Colgate suffers a low inventory turnover. The industry is almost 14% ahead of Colgate (2015); it
could point to the aspect of the company being unable to manage its production efficiently as it has excess
inventory when compared to demand. 1On close examination of the financial statements it became clear
that the cost of revenue has in fact been stable more or less yet however the inventory has increased by
almost 6% in the recent financial year alone, hence the tying up of capital if not backed by a proper
reason such as creating a buffer stock for possible decline in availability of raw material could be
detrimental to the company as excess stock with no increase in demand renders the company a return of
zero with liquidity being adversely affected as well.
Total asset turnover

Second efficiency ratio that can be used to gauge the performance of the company is the total asset
turnover ratio, which if seen independently from the industry has been fluctuating within a limited range
of 2.4 to 2.11. The company seems to be working quite efficiently when it comes to using its assets to
generate sales, this can be further confirmed by the fact that it is almost in line with that of the industry,
and even it managed to outperform it in the years 2014 and 2013 respectively.
Accounts receivables turnover

Unfortunately, the company seems to be having trouble with maintaining its credit terms with its
customers because its accounts receivables turnover ratio seems to show a rather fluctuating pattern. The
fluctuation in receivable turnover seems to be directly linked to that of the receivables in days or the
average collection period, when the latter decreases the former increases. This point to the fact that the
department responsible for managing the credit extended to customer is facing some problems or that the
customers are not satisfied since unsatisfied customers who may have received the wrong product or an
incorrect invoice are the ones that mostly delay paying on time. The possibility that the reason for the
ratios being instable and weak has to do with the credit terms and the debtors of the company can be
verified through analyzing the financial statements, where it is vivid that the sales have shown a
somewhat increasing pattern, with the accounts receivables increasing too. The company seems to be in
an even bad shape when compared to that of the industry averages where it is found that the average
collection period of the company in question is actually exceeding that of the industry by 24% in the
recent closing year, similar is the case with the receivable turnover ratio which is around 45% behind that
of the industry average. Therefore, Colgates collection department is not able to perform as better as the
industry demands, if it continues this way the company will have issues with its cash flows and may have
trouble in paying back its lenders/vendors on time which could put the company in a pretty tough
situation. Also, as accounts receivable are moneys owed on a credit agreement without interest, by
maintaining accounts receivable firms are indirectly extending interest-free loans to their clients. As such,
because of the time value of money principle, a firm loses more money the longer it takes to collect on its
credit sales.
Long term debt to equity ratio

Colgates long term debt- equity ratio has been fluctuating within a limited range of 0.05 to 0.09. In
FY15, the ratio was 0.05, lowest among the past six years. This ratio has also been lower than the industry
average for the past three years. The ratio is evident of the company being less leveraged and less risky as
compared to the competitors. The company is in a favorable position to attract loans and investments if
needed. The company is efficiently managing its debts and is able to pay them through equity too.
CHAPTER#3
Annexure
Table 2 - A
2015
2014
Colgate
2013
2012
2011
2010
Industry Averages
2015
2014
2013
Current Ratio
Quick Ratio
4.12
2.79
3.55
2.24
2.89
1.51
2.68
1.12
2.21
0.77
2.85
1.52
2.472
1.690
2.130
1.360
1.780
0.955
Long Term Debt

to Equity
0.05
0.06
0.08
0.09
0.09
0.06
0.125
0.150
0.190
Inventory
Turnover
8.81
8.94
7.06
6.41
5.88
8.60
10.209
10.360
9.755
Total Assets
Turnover
2.11
2.28
2.20
2.37
2.21
2.40
2.147
2.320
2.475
Accounts
Receivable
Turnover
36.50
35.57
38.02
38.03
44.08
36.37
52.930
51.585
54.370
Average
Collection
Period
10.00
10.26
9.60
9.60
8.28
10.04
7.631
7.830
7.380
Gross Profit
Margin
0.32
0.28
0.28
0.29
0.29
0.33
0.388
0.340
0.340
Net Profit
Margin
0.09
0.07
0.08
0.09
0.08
0.10
0.109
0.085
0.090
Return on Total
Assets (ROA)
0.19
0.17
0.17
0.21
0.18
0.24
0.223
0.200
0.225
Return on
Equity (ROE)
0.25
0.22
0.24
0.29
0.27
0.32
1.244
1.095
1.120
KEY INTERNAL FACTORS
WEIGH
T
RATING
WEIGHTED
SCORE
0.07
0.21
0.06
0.18
0.09
0.27
0.08
0.24
0.06
0.18
Strengths
1
2
3
4
5
Wise investments, cash maintenance as

compared to the industry
Company is in a favorable position to
attract loans and investments if needed
Efficiently managing the debts
Colgate is less leveraged as well as less
risky within the industry
Colgates ability to payback its liabilities
higher than the industry
Cost effective plants installed
0.07
0.21
Large distribution network
0.08
0.32
Effective marketing leading to a strong

brand presence
0.11
0.33
Strong customer service
0.10
0.30
0.04
0.04
0.03
0.03
0.05
0.10
0.05
0.10
Weaknesses
1
2
3
4
Unable to forecast appropriately

Ability to convert inventory into finished
goods is low
Colgates collection department is not able
perform as better as the industry demands
The department responsible for managing
the credit extended to customer is facing
some problems
No online presence
0.06
0.12
Low Net Profit Margin
0.05
0.05
1.00
Specific Actions:
2.68
1.
2.
Invest in bonds/marketable securities which may increase the other

income of the company hence increasing the Net Income which is less
as compared to the competitors. 2.
Increase in Net Income will increase the shareholders expectation of
higher dividends leading to a higher share price as well. (S1)
3.
Start projects (CSR/ training programs) that need heavy investments as

loans and investments can be easily attracted (S2)
4.
The potential of managing debt is still present hence a calculated

amount of risk and investment in risky ventures can prove to increase
the profitability of Colgate Palmolive (S3 and S4)
5.
Payment of long term loans (S5)
6.
Revising the forecasting techniques to manage the inventory level as

per the demand (W1)
7.
Trainings for the collection department in order to perform as desired

(W3)
8.
Strengthen the customer feedback channels to identify problems

relating to product quality or incorrect invoice (W4)
9.
Chapter 4
Strategic Analysis
and
Recommendations
Generic Strategy
Considering the competition, which comprises of P&G and Unilever mainly, and the
overall industry structure along with the internal capabilities of the company, it
would be best for Colgate to pursue a strategy focusing on cost leadership catering
to a broader market.
The rationale behind the above decision is that both top competitors struggle to
gain a market share by operating in the top right quadrant, the focus of each is on
innovation and using their R&D to differentiate from one another, also the prices of
their products are thus tilted towards the higher end, yet however, the products do
not comply to a focused market. The left bottom quadrant also has some small
players like Medicam (focusing only on the denture care segment); therefore, there
is some activity in that quadrant too2.
Further, if this decision is analyzed in terms of its relevance with the internal
abilities of the firm in question, one can see how well it can be practically applied.
The company has a strong supply chain management system and a well laid out
distribution channel covering a larger area of the country, hence supplying to a
large market segment is nothing that the company may have to worry about.
Secondly, its price competitiveness tends to stagger when price wars take place.
Thirdly, the R&D of the company is strong, yet, not at an advantageous position
when compared with its competition, hence, a standard product with limited need
for continuous input from the R&D department would make it divert its resources
from the area it is weaker in. Fourthly, the strong brand name that is widely
recognized and has a positive perception in the minds of the consumer is likely to
help it when changing its strategy. Finally, differentiation strategy ties more
resources in raw material as differentiated products tend to have slightly different
ingredients and processes, the analyses of financial ratios has made it evident that
the company is weak in managing inventory properly, therefore, a shift towards a
standard product would make this task somewhat easier for the company.
The favorable impact of this decision can also be seen in how it affects the overall
industry. Since major competition lies in the top right corner, if one player moves
away into another quadrant it is likely to reduce the intensity of rivalry among all,
coupled with it is the fact that the pursuit of more profits through sales to a similar
category of consumers would also diversify. Similarly, it would also increase the
barriers to entry, since a strong and large company entering a cost leadership
position would make it nearly impossible for a new entrant to use market
penetration technique in order to grasp a foothold in the industry, and neither can a
new entrant use market skimming as there are already two large players playing
the game in that segment. Additionally, as in the prior analysis on buyer behavior it
was unveiled that buyers consider these as low involvement products since
products like soaps, tooth pastes, tooth brushes, etc. are used by all buyers in the
same way, selling price, not features, become the dominant factor and the
customer looks for satisfactory as opposed to optimal products, coupled with the
fact that buyers incur low switching costs in changing from one seller to another
hence they do not do any in-depth analyses when buying them, therefore, lowering
the price and reducing attached frills a little is unlikely to damage the reputation of
the company. Also, buyer power would be reduced even more as lower social class
will become a buyer group as well. Finally, as low cost items enter the market, it is
very likely that the lower social classes will abandon or at least limit the use of low
cost substitutes. Hence, making the industry snapshot appear more favorable in all
respects.
When considering the likely implication of the PEST 3 analyses, it also seems to have
a positive relation with the above decision. The uncertainty in the economy with
respect to inflation and depreciation of rupee favors the prospects of a cost leader
as opposed to a differentiator because the latter has additional cost of R&D and
more skilled labor (which is already difficult to find) that comes at a higher cost.
Further, the increased awareness among the masses relating to oral hygiene also
benefits the cost leader in the broader arena since all classes of consumers would
like to be customers of such products. The technological aspect also aids the cost
leader in maintaining that position since the advancement in this field tends to
make automation easier resulting in reduction of waste and increasing efficiency,
which decreases the costs per unit, additionally technology also makes possible the
ability to advertise at a low cost to a large target market.
Table 4 A
Cost Leader (Standard Products)

Differentiator
Broad market
3 Influence of Microenvironment
Focus market
Table 4 - B
The Internal External Matrix

The position of Colgate Palmolive in the IE matrix suggests that it should hold and
maintain its position in the industry. The internal and external forces have an
average intensity and the three basic strategies that Colgate can opt for are: Market
development, Product Development or Market Penetration.
2.73Palmolive can opt to increase its consumer
On the company specific basis, Colgate
base by seeking out new markets such as the rural areas which are underserved but
has a large population of the country residing in it. For tapping into that market the
company is well equipped because it has a huge distribution network which covers
the entire
2.3country, further, it can use its strong cash base and good profits to
persuade the distributors to make optimal supplies to the underserved areas by
increasing the incentives given to them.
Also, as seen in the internal analysis of the company, the company is holding more
inventory than is required which can be used for the dual purpose of developing
markets and products. Developing markets also requires additional units to be sold
that require additional inventory in raw materials, similarly, developing products
also takes place raw inventory too, coupled with the aspect of CP having an active
R&D department, it can use both of these (excessive stock a weakness, good R&D a
strength) to develop new products.
Market penetration is also within the achievable boundaries for the company for the
very fact that market penetration requires selling at a low cost, which favors the
companys
3.0cost effective production techniques and excess liquidity characteristics.
The company can use its production department to produce oral care products that
4.0
are satisfactory as oppose to the distinct ones. Combine it with widespread
distribution and then top it up with lower prices. This tactic will lower costs of the
company and increase revenue along with market share.
The GRAND Strategy Matrix
2.0
Considering the market growth and the competitive position of Colgate Palmolive in
1.0 of the
the industry, it is evident that Colgate Palmolive lies in the first quadrant
GRAND strategy matrix. The personal care industry is witnessing a rapid growth
with the increasing number of customers and their intentions to buy branded
products due to an increased disposable income.
1.0
Other factors of Colgate Palmolives standing in this quadrant are the variety of
offerings it provides to its customers, stronger positive brand image over
competitors and consistency in providing customers with quality product.
Table 4
C
Rapid Market
Growth
2.0
3.0
Quadrant II
Quadrant I
Colgate
Palmolive
Weak
Competiti
ve
4.0
Position
Strong
Competiti
ve
Position
Quadrant III
Quadrant IV
Slow Market Growth
To maintain its competitive advantage in the industry and to maintain its position in
the 1st quadrant Colgate can opt for a number of strategies including market
development, backward/forward integration, product development or diversification.
After relating the strengths and weaknesses of the company, one strategy that can
benefit Colgate Palmolive the most in holding its stand is the forward integration.
Colgate holds a large distributional channel across the country. It uses multiple
distributors to continue its operations. Colgate provides incentives and also has
developed a good relationship with the distributors. By acquiring some of the big
distributors, Colgate can reduce its expenditure on providing huge incentives and
maintaining the relationship. Also, as Colgate has a higher liquidity ratio as
compared to the industry it will be easier for Colgate to take the step before any
other firm does so. The acquisition will benefit Colgate by reducing the distributional
costs, ultimately lowering price of the final product. The cost-leadership will give
Colgate a competitive advantage over other Unilever and P&G who invest heavily in
R&D to gain an edge over each other
TOWS Matrix
Total IFE Score
After reviewing all the strategy sets in the TOWS Matrix, the most relevant
strategy set is the SO strategies. The set is highly relevant to Colgates
II
III
Total EFE Score
IV
VI
strengths, weakness, opportunities and threats as well as with the macro

environment analysis.
The acquiring of suppliers or distributional network is easy for Colgate due to
its strong brand image as well as high liquidity position. This acquisition will
help Colgate to reduce the costs of network maintenance and incentives as
well. Colgate can cash on this as the establishment cost of suppliers and
distributional network is very high for the industry. Owning the networks will
give Colgate a cost advantage over existing firms as well as any possible
new entrant reducing the chance of entries.
VII
VIII
IX
Further, if Colgate opts for strengthening its customer service it can cash on
the opportunity of emerging brand identities. The sole reason is that if the
company has strong customer service it is more likely to be recalled as a
customer-oriented brand. Colgates identity will become stronger as the
customer relationship enhances with the company. The possible outcomes
will then be increased sales, higher brand recall, loyalty and commitment.
Another strategy that Colgate can choose is the investments in R&D,
machinery, plant and equipment. Colgate can acquire loans and investments
to implement the strategy. Due to Colgates higher ability to pay back the
loans, investments would be easier. Also, as the company is less risky as
compared to the industry, investors will not deeply question the need of
investments. The reduction in the interest rate is a great opportunity for the
company if it wisely uses this to take loans and invest for the development of
its operations. Colgate can further gain competitive advantage over the
competitors and come out with new innovative products or cost-reduction
through investments in R&D, plant and machinery.
Table 4 D
SO Strategies
1 O6 & S7 Colgate can use its own distributional channels to drive few costs like the costs of
outsourcing
2 O10 & S2 CP can gain advantage of taking loans for machinery and plant as the interest rates has
been decreased
3 O7 & S10 CP can gain competitive advantage of being a customer-oriented company by enhancing
its customer service further
4 O3 & S7 The costs associated with purchasing and delivering raw materials to the factory can be
derived out by using the company owned suppliers channels
ST Strategies
1 T1 & S2 CP can attract loans and investments as the price of raw material increases due to rupee
overvaluation
2 T3 & S6 CP can make its process more machine-oriented to reduce cost as labor market risk is high.
3 T4 & S9 Use the strong brand positioning through effective marketing on internet to attract
customers
4 T7 & S1Investments in other business can increase the profit margins of CP which is low due to
reduction in the Ease of doing business in Pakistan
WO Strategies
1 O5 & W5 As the media usage increases, CP can increase its social media presence and reduce the
advertisement expenditure
2 O8 & W6 Reduction in Corporate Tax will increase the Net Profit margin of CP
WT Strategies
1 T4 & W5 Increase in the social media presence will help CP to help customer gather important
information on hygiene and oral care
2 T1 & W1 If the forecast method is critically evaluated, the company can be saved from importing
excessive raw material thereby controlling the expenditure
3 T1 & W2 If the company forecasts efficiently, the inventory will be utilized in a certain time lap and
the rate of inventory turnover will decrease.
4 T8 & W5 If CP moves into social media marketing, it can gain a competitive advantage by reducing
its marketing expense as compared to Unilever and P&G.
SPACE Matrix
The possible strategy for Colgate Palmolive for the aggressive quadrant of the
Space Matrix can be:
Backward, forward, horizontal integration
Market penetration
Market development
Product development
Diversification
Colgate can pursue forward integration by buying in the distributors as Colgate is
not financially weak; it has a good liquidity position as shown by analysis of its
liquidity ratios which are in excess of the industry. The liquid money can be utilized
by buying in the distribution network which would eventually lower the expenses
Colgate incurs on external distributors
Market penetration is also a viable option for Colgate as also discussed in its generic
strategies and IE Matrix as it has the potential and good prospects to strive to be a
cost leader.
Market development is also in the domain of Colgate as it can use its cash reserves
and R&D in order to tap underserved markets such as the rural areas which can be
served better than the competition if CP also employs cost leadership strategy.
Internal Analysis
Financial Position (FP)
Return on Investment (ROI)
Leverage
Liquidity
Inventory turnover
Cash Flow
Financial Position (FP) Average
Competitive Position (CP)
Market Share
Product Quality
Customer Loyalty
Technological know-how
Product life cycle
Competitive Position (CP) Average
External Analysis
5
6
7
3
4
Stability Position (SP)

Rate of Inflation
Technological Changes
Price Elasticity of Demand
price range of competing products
Barriers to Entry into Market
5.0
Stability Position (SP) Average
-1
-2
-4
-3
-4
Industry Position (IP)

Growth Potential
Financial Stability
Ease of Entry into Market
Resource Utilization
Profit Potential
-2.8
Industry Position (IP) Average
-5
-5
-5
-6
-3
-4.8
3
5
5
2
4
3.8
Table 4 E
The New Strategy

The final strategy suggested to Colgate Palmolive is to strengthen its
distribution chain by forward integration through the acquisitions of
outsourced distribution networks along with lowering its investment in R&D.
This strategy can be well implemented as Colgate holds the ability to acquire
as well as invest in these resources. It will help CP to reduce the costs
associated with managing the distribution chain and production of products
which will increase the profit margins. It will also favor Colgate Palmolive to
reduce the rivalry as the profit margin increases.
The strategy with the highest score has the potential to improve the industry
structure as well. To back this statement it is sufficient to say that the
company will move out of the region where there is competition, hence, it
not only will give itself some space to breathe, but also leave the others with
a lesser competition to wage war against. Further, as product becomes basic
and more affordable, it increases the customer base, hence diluting their
individual power even more, complementing this factor by owning some prior
customers itself i.e. distributors; the company insulates itself from any threat
from their side. Additionally, as the products become so affordable and
readily available, the threat of cheap substitutes is further diminished. Yet
another aspect is that any new potential entrant will simply be scared away
to see a huge MNC operating at such low costs, because a new entrant does
not have the ability to operate at low costs initially, All in all this strategy has
the highest potential of making the industry structure attractive.
The decision also justifies the costs that may be incurred such as the
revamping of the distribution and production system. As the strategy comes
into action, it will serve to increase the revenue generated along with
reduction in costs. The latter is possible because firstly, own distribution
system if managed properly, serves to be more cost effective. The reasons
are that owned distribution system does not take huge commissions and
neither is a threat to get attracted to other firms upon providing good rates.
Secondly, revenue will tend to increase as well. As we mentioned earlier in
the text, consumers want just satisfaction, not an optimal product. They do
not spend time reading the ingredients, the differentiating factors or any
other element due to the low involvement product category. Hence,
whatever is easily available at good rates is usually bought. Therefore,
whatever the company invests in implementing the first strategy will be
recovered quite quickly.
The strategy also passes the better off test because as revenues escalate
along with reduction in operating costs, they will give impetus to net profits
to grow. Such growth will boost the EPS ultimately making the shareholders
happier and hence better off!
Table 4 F
Owning the
Distribution
channels and
lessening the
differentiation
aspect
QSPM
Opportunities
1
0.
Improvement in technology making

research and development more effective.
Increasing per capita income of the country
making buyers less price sensitive
Increasing demand due to awareness about
hygiene factors leading to increased input
purchases
Rapid urbanization leads to growth in
personal care and beauty products industry
Increased electronic media usage increasing
awareness and providing a medium for
communication
High cost for establishing supplier network
and distribution channels
Strong brand identities established by
Unilever, P&G and Colgate-Palmolive
The reduction in Corporate Tax rate
resulting in an increase in profit margins
Increasing prices of raw materials
Interest rate cut down by SBP leading to
less interest expense
Threats
1.
2.
3.
4.
5.
6.
7.
8.
9.
1.
2.
3.
4.
5.
Rupee depreciation increases the unit prices

as raw material are imported
Interest rate cut by SBP is likely to trigger a
rise in inflation.
Labor market risk is 40.9 out of 100,
representative of an unattractive labor
market
Easily accessible technical knowledge
about hygiene products on Internet.
Easily accessible patents and licenses for
the personal care industry
Invest in R&D
to add
momentum to
differentiated
product portfolio
Weight
AS
TAS
AS
TAS
0.07
0.07
0.28
0.04
0.04
0.12
0.09
0.27
0.09
0.08
0.32
0.24
0.06
0.12
0.12
0.05
0.20
0.05
0.05
0.15
0.15
0.01
0.02
0.01
0.02
0.06
0.02
0.03
0.06
0.03
Weight
AS
TAS
AS
TAS
0.04
0.12
0.08
0.03
0.12
0.06
0.05
0.10
0.15
0.07
0.14
0.14
0.05
0.10
0.10
6.
7.
8.
9.
1
0.
1.
2.
3.
4.
5.
6.
7.
8.
9.
1.
2.
3.
4.
5.
6.
Increase in Sales tax rates from 16% in

2013 to 17% in 2015
Ease of Doing Business in Pakistan
deteriorated to 138 in 2015 from 136 in
2014 resulting in profit margins cuts
Increased marketing budgets of competitors
Increased Government regulations on
hygiene and oral care products.
Increasing number of competitive products
with differentiation. (Social + Increasing
rivalry)
Strengths
Wise investments, cash maintenance as

compared to the industry
Company is in a favorable position to
attract loans and investments if needed
Efficiently managing the debts
Colgate is less leveraged as well as less
risky within the industry
Colgates ability to payback its liabilities
higher than the industry
Cost effective plants installed
Large distribution chain
Effective marketing leading to a strong
brand presence
Strong customer service
Weaknesses
Unable to forecast appropriately

Ability to convert inventory into finished
goods is low
Colgates collection department is not able
perform as better as the industry demands
The department responsible for managing
the credit extended to customer is facing
some problems
No online presence
Lownetprofitmargin
TOTALS
0.06
0.12
0.06
0.09
0.36
0.09
0.05
0.10
0.10
0.03
0.06
0.09
0.03
0.09
0.12
Weight
AS
TAS
AS
TAS
0.07
0.21
0.07
0.06
0.24
0.18
0.09
0.27
0.18
0.08
0.16
0.16
0.06
0.18
0.18
0.07
0.08
2
4
0.14
0.32
3
2
0.21
0.16
0.11
0.22
0.33
0.10
0.20
0.20
Weight
0.04
AS
3
TAS
0.12
AS
2
TAS
0.08
0.03
0.12
0.06
0.05
0.10
0.10
0.05
0.10
0.10
0.06
0.05
2
3
0.12
0.15
2
3
0.12
0.15
5.27
4.38
Chapter # 5
Blue Ocean
Strategy
The Competitors Strategy Canvas

The company has identified the value vectors for the competitors strategy canvas,
which includes the following:
Sampling & Brand activations
Advertisements
Smell/Fragrances
Flavors
After sales service (Trade)
Availability of product
Product Quality
The competitor chosen for the blue ocean strategy is Close-up. While analyzing the
competitor and the company, we identified the value vectors which have a great
influence on the value addition for the customers.
The toothpaste industry is driven by the heavy marketing which includes sampling,
brand activations and advertising. The firms in the industry believe that experience
of a product is vital to encourage purchase behaviors. Sampling and brand
activation gives consumers a firsthand experience of the product which helps them
in evaluating the benefit they can seek.
While, heavy advertisement is regarded a crucial factor to success it costs the
company a major chunk of its revenue as well. Firms take advertisements as a
necessary action although heavy advertisements dont lead to increased purchase
or higher satisfaction due to the low-involvement in the product.
While experiencing the product, the major elements which can add value to the
product are flavors and fragrance. These elements provide both emotional as well
functional benefits to the consumer. Flavor and fragrance deliver the functional
benefit as they are aimed to remove the bad smell. On the other hand, fragrance
develops mouth freshness which instigates a sense of confidence within the person
that enables him to talk to people without the fear of bad breath.
Next value vector identified is the after sales service provided to the traders of
Colgate Palmolive. The after sales service is very crucial for big traders like METRO,
IMTIAZ etc. as they buy in big volumes the revenue of which is in million. For the
month of September, the sales of these big traders worth Rs. 20 million. Big
purchase comes with greater assurance of quality from the manufacturer. In this
regards, Colgate always provides immediate response to these buyers in case of
any faults/ damages.
Manufacturing companies like Colgate-Palmolive, needs to have a strong

distribution network to maintain the availability of the products on the shelves of
the stores. As toothpaste is a low-involvement product, lack of availability will not
enable customers to wait for the brand rather they will shift and buy another brand
which is available. Hence, availability of the product is an essential value vector for
the company.
As toothpaste belongs to the oral care industry it is important that the product
delivers quality and hygiene. The quality of the product keeps customers to the
product and prevents dissatisfaction.
Competitor's Strategy Canvas

10
9
8
7
6
Colgate
Close up
5
4
3
2
1
0
Sampling (Brand activations) Smell/Fragrance After sales service (Trade) Product Quality
Visual Exploration
In order to create the blue ocean for itself, Colgate needs to look beyond its own
industry, to find a space through operating in a mix of alternate industries.
Therefore, the journey or Blue Ocean begins with looking into the pharmaceutical
industry which apart from focusing on research, availability, quality and price also
looks into the education and awareness of medicines. On the other hand, in the oral
care industry, it was found that cost plays a significant role in whether people go for
a regular oral care (MUHAMMAD UMAIR DASTGIR BHATTI (BDS, 2012). The oral
health care in Pakistan is not considered a necessity rather considered as something
which only the rich can avail and hence the private sector contributes 70% and
public sector only 30% in providing this service, hence only a handful of people
availing these services, the country continues to be burdened with oral related
diseases (Naseem, 2014). Furthermore, the masses visit their dentist only when
they have detected something themselves as needing medical assistance, or for
emergency pain relief, only a very small number of people avail dental services for
routine checkups. It was also confirmed that routine checkups prevent many
possible oral care problems (Nagina Parveen, 2011)
Secondly, the strategic groups identified with in the industry were cost leadership
(focus) and differentiation. The major competition lies in the differentiation sector
(broad) as both, P&G and Unilever have a R&D department which is used
extensively to continue to bring new products in the market to combat competition.
Whereas, in the cost leadership arena there exists only small players such as
Medicam which owns a small market share and smaller distribution channel stick to
only a limited number of customer base.
After analyzing the alternate industry and the strategic groups already in play,
Colgate can actually redefine the buyer groups that it has the potential to serve. In
doing so, the buyer group may be extended to those people who are non-customer
of dental service industry in terms of not going for routine checkups owing to the
belief that the cost does not justify the value that they get. The buyer group may
further be extended to underserved areas such as the rural areas where there is no
standard quality of education imparted in terms of creating awareness regarding
oral care or dental colleges with sufficient resources to make sure the future
availability of credible dentists.
When the buyer group has been identified, Colgate can focus on scope of product or
services to provide. It is not limited to only toothpastes, toothbrushes, dental flosses
or mouth washes, yet, the list can be extended to providing dental services and also
the oral education, for instance, in holding sessions to create awareness for oral
care, and a dental college both efficient and effective can be one product too in
order to make sure of a stream of qualified dentists to serve the population because
one major reason of limited dental services being availed is the low trust levels put
in the public sectors dentists.
The fifth aspect for a blue ocean to be devised is the functional emotional
orientation. The oral care sector has many add-ons in their product like crystals in
the toothpastes or various categories of tooth brushes which are a medium to push
the prices upwards, but also, without which a customer a can be equally happy.
Keeping this view in mind, Colgate can attempt to strip off the extras from its
products which would lower its costs and hence the prices or the customers this
aspect goes in line with the prior finding that unveiled the fact that the customer
actually does not get impressed much by the extras embedded in the oral care
products, they just want something that does the job sufficiently well. Secondly, the
emotional aspect can be tapped into by making oral health not to be associated in
the minds of customers as a need only but rather as a life style. Similarly, dental
care to be availed not only when you have a problem, but rather as a way of raising
the standard of living, by incorporating the availing of dental services on a routine
basis as a life style.
Consequently, if the above are implemented Colgate will be able to operate
proactively. It will not be confined to comply with the laws set by macro
environment or the already operating forces of the industry structure; instead, it will
be able to redefine its boundaries for others to comply with. For instance taking
buyer power in consideration, the buyer will not be able to exercise much power on
Colgate because of the very fact that he will not have an avenue to opt to if he
wants to be seen as a threat by Colgate, the products and services Colgate offers,
are only of Colgate to offer. It can also be viewed in the sense that since a superior
value proposition is offered, buyer does not have to exercise any power against
Colgate. The other aspect can be the rivalry, which can be completely bypassed
since Colgate will essentially go out of that boundary into another where the
competition cannot harm it.
Alternate
industry
Pharmaceutical industry providing its customers

knowledge and awareness about the products
and offerings
Strategic
groups
Playing in the differentiating quadrant by

investing heavily in R&D, bringing new flavors
and benefits
Redefining the buyer group by including the nonBuyer group consumers of dental services & checkups due to
expensive treatments
Scope of
product or
offering
Increased scope of products and offering by

providing knowledge, awareness and education
about the importance of dental care
Functionalemotional
orientation
Instigating the emotional aspect by treating

dental issues not as a need but as a lifestyle that
is chosen by the consumers
Time
Proactive approach to redefine the economic and

social forces before the competition
Colgates Value Proposition

The ERRC Grid for Colgates Value Proposition
Eliminated:
1. Sampling
2. Brand activations
Raised:
1. After sales service (Traders)
2. Availability of the product
3. Product Quality
Reduced:
1. Flavors & smell
2. Advertisements
Created:
1. Oral care education
2. Oral health facility
Eliminated:
The vectors eliminated to form the blue ocean of Colgate includes Sampling and
brand activations. The decision is made on the basis that Colgate is a wellestablished brand and a majority of the users of the toothpaste have experienced it.
For a brand that resonates in the mind of the consumer when they think of
toothpaste, eliminating the sampling will be the easy think.
Reduced:
The vectors reduced are Advertisements, Smell, and Flavors.
The reason behind reducing these is that development of fresh smell and flavor
involves a variety of inputs and as the import prices continuously raise, the cost of
formulating different flavors and fragrances keep increasing. The reduction on these
vectors will help company drive costs out of the variant input purchases and help
reduce the supplier power. Also, as the competitor has a lot of flavors to offer,
reducing the flavors will help us to make the competition irrelevant and reduce
rivalries.
On the other hand, the reduction in advertisements causes the company to reduce
its marketing budget thereby increasing the profit margins. Since the competitor
already invests heavily in the advertisements, the company can make the
competition irrelevant by not competing for the advertisements and reducing the
cost. This will help reduce the rivalry among the competitors of oral care industry.
Raise:
The vectors raised include product quality, after sales service and availability of the
product.
The product availability and quality are raised above the industry standards to cater
the different market of the oral care industry. The competitor has a lower quality
and availability which cater the market of toothpaste users which are less qualitysensitive. To make the competition irrelevant the market that Colgate aims to cater
will be the market that asks for higher quality products. The company has cost
effective plants and a large distributional network which will enable it to make the
product available on every shelf of stores.
The after sales service (for traders) of the company will be raised due to the
presence of a strong customer service department which provides a continuous
service to the traders. It uses its large distributional channel and also provides
incentives to these traders. This helps the company gain a competitive advantage
over the competitor.
Created:
Education and awareness regarding oral care is the most important and most
neglected value vector in the oral care industry. Consumers dont have a regular
dental checkup and would only use the medical facilities in case of emergencies and
aches.
The company will start a Not-for-profit Oral Care Institute and Medical Center. The
institute will provide educational facilities for the BDS programs. It will include a
medical center where these students will practice their skills and expertise on
patients. The medical center will be free of cost for patients who cannot afford the
expensive dental treatments through private doctors. The hospital will invite
volunteers who are willing to contribute to the medical center to provide free
treatment to the patients.
Value proposition
10
9
8
7
6
5
4
3
Colgate
Closeup (unilever)
2
1
0
Colgates Profit Proposition

Business Model
Comparison
Types of Income
Categories of Expense
Close up
-Actual sales
-Investment
-Other Incomes
-Advertisements cost
-Sampling and activation
costs
-Distribution costs
-Other operating
expenses
Colgate
-Actual sales
-Investments
-Other Incomes
-Oral care institute
income
-Distribution costs
-Other operating
expenses
-Oral care institute
expenses
The ERRC Grid for Colgates Profit Proposition

Eliminated:
1. Sampling and activation costs
Raised:
1. Distributional cost
2. Sales revenue
3. Investments
Reduced:
1. Advertisement cost
Created:
1. Oral care institute revenue
2. Oral care institute costs
The profit proposition is the pathway that a company designs to make the
competition irrelevant. The company creates its own blue ocean to operate and
make profits. To create a blue ocean for Colgate, it needs to eliminate, reduce, raise
and create the revenue and cost vectors which will help them to have a new
operating and profit generating space.
Eliminated:
The vectors eliminated are brand activations and sampling costs. In order to go on a
different path Colgate has to eliminate brand activations and sampling which are
common practices done by a number of manufacturing firms. Colgate is an
established brand with strong brand recall and eliminating sampling and brand
activations wont have a marginal impact of the profits rather helps to reduce costs.
Reduction:
Marketing budgets of the products will be reduced as there has been a waging war
between the productions firms to market their products through advertising and
promotions. Colgate must step away from the red ocean of competition in the
marketing and take advantage of its strength i.e. the strong brand image and recall.
Raise:
With the blue ocean strategy directed towards the establishment of a dental college
and medical center, Colgate has to invest in the project heavily. This investment will
be continued till the college starts to generate its own revenue.
Further, as we are expecting an increase in demand with the growth in the
economy, the availability of the product will be essential for which Colgate will raise
the distribution cost of the product. This availability will generate higher sales
revenue. The reason to increase the distribution costs is that the distribution cost,
which is a part of operating expenses, increases with the subsequent increase in
sales. Also, as we plan to increase the value vector of availability of product, the
distribution cost will have to increase.
Create:
The created blue ocean profit propositions are the cost and income the oral care
institute will generate. As Colgate is stepping in the educational industry it will
create a new space for its operation and generating profits. The college will earn its
own revenue through fee and Colgates investments to cover its expenditures and
costs.
Profit Proposition
10
9
8
7
6
5
4
3
2
1
0
Colgate
Closeup
Colgates People Proposition

The ERRC Grid for Colgates People Proposition
Eliminated:
1. Patients expenditure in dental
services
Raised:
1. Awareness of the dental issues
Reduced:
1. Monetary benefits provided
2. Communication barriers
Created:
1. Contribution of medical
students practicing dentistry
2. Pride and fulfillment
Eliminated:
Analyzing the strengths and weaknesses of Colgate, it was discovered that the
company has a high liquidity position as well as it can attract investments easily.
Further, by starting the oral care institute, Colgate will generate revenue which will
be allocated to the Medical center and the treatment of patients. Since the center
will have volunteers and students who are studying in the same institute the
contribution will be on a philanthropic basis. However, the cost of running the
medical center and the medications associated with the treatment will be provided
by the company itself through investments and part of sales revenues.
Reduced:
Comparing to the industry, Colgate will have more people working for the cause
including employees, volunteers and students. The monetary benefits like salary,
incentives etc. will only be provided to the employees working for the core
operations. The contribution of students will be their requirement of the degree. The
volunteers will contribute solely by their own choice. This will help Colgate prevent
its expenses (salaries and wages) to increase further and reduce the profit margins.
The decision will also strengthen the brand image of Colgate in the mind of the
consumers.
Next, the communication barriers of Colgate will be reduced. By providing education
and awareness about Oral Care Colgate will instigate the culture of Colgate Family
within the organization. This family cares for the dental problems of consumers, the
awareness and education of oral health in Pakistan and the facilities provided to the
people who are unable to afford expensive dental treatments. The aim of the
company will be to work together to address these areas by providing instruments
(Toothpastes, mouthwashes, gels), education (BDS degree and awareness
programs) and treatments (Medical center facility). As a family stays and grows
together, Colgate will reduce communication barriers within and outside the
organization and continue to work for humanity.
Raise:
Colgate will raise the awareness of Pakistani society regarding dental issues. It will
be able to do so by visiting rural areas and providing free checkups often on a
quarterly basis. The urban population will be served by proving educational
opportunities for students who want to pursue the BDS career. Also, the lower class
will be served by providing free dental treatment in the medical center of the Oral
Care institute.
Created:
Compared to the competitors, Colgate will create the vector of Contribution
(Students and volunteers) to run the medical center. The patients will be treated by
students of the institute. Volunteers will be welcomed to examine the patients. The
contribution without monetary rewards will provide a sense of Pride and Fulfilment
to the students and volunteers. They will develop a sense of belonging to Colgate.
They will be the integral pillars of the Colgate Family and will continue to
associate themselves with Colgate.
People Proposition
9
8
7
6
5
4
3
2
1
0
Colgate
Close up
Alignment
The three propositions are aligned because the value proposition where sampling
and brand activations are eliminated along with the reduction in advertisement
costs which are not highly valued by the customer. The elimination is
complemented by the raising of dental awareness and the creation of contribution,
experience and fulfilment in the students and volunteers in the people proposition.
The effect of which can be seen in the profit proposition where on one hand the
costs from sampling and activations is eliminated with the reduction in overall
advertising costs and on the other hand the revenue vectors are raised through
increased sales and created through the institutes income.
Then the vectors raised in value proposition are fairly in line with profit proposition
where the distribution costs increase along with increase in sales revenue for the
very fact that the high availability of its products along with high quality and
benefits provided are likely to make the revenues boost. This factor will be the
driving force behind the welfare segment of the company where it will eliminate the
expenses people incur on dental. It will provide the fuel to run the dental care
center which will treat the underprivileged for free. The remaining fuel will come
from the volunteers in giving funds or treating patients as per their choice and
taking pride in being a part of a cause where the less fortunate are helped making
their lives better.
Further, the oral health facility will be run by students and volunteers from other
institutes but who want to utilize and enhance their expertise by helping the people.
The practicing dentists who want to voluntarily take part in the companys mission
and to be a part of the Colgate family will also contribute in treating the patients.
Finally, the company will not have to give salaries to these partners because it will
employ other ways of attaining their loyalty such as actively seeking their
contributions in running the company by reducing the top to down flow of
information.
Value Proposition
Oral care Education
Oral care facility
Availability of the product
Quality and after sales service
Profit Proposition
Mass awareness through the
institute eliminated the need of
activations
Increased avalibility and quality
raised the distributional costs as
well as sales revenue
Contribution and experience of
students created through the
establishment of the institute
People Proposition
Contribution. pride and fulfilment
Experience
Mass awareness
Bibliography
MUHAMMAD UMAIR DASTGIR BHATTI (BDS, M. A. (2012). INFLUENCE OF VOLUME OF
DENTAL TREATMENT ON SELF REPORTED ORAL HEALTH OF PATIENTS VISITING
UNIVERSITY COLLEGE OF DENTISTRY LAHOR. Pakistan Oral & Dental Journal
Vol 32, No. 3 .
Nagina Parveen, B. A. (2011). ORO DENTAL HEALTH: AWARENESS AND PRACTICES .
JUMDC Vol. 2, Issue 2.
Naseem, M. (2014). AN OUTLINE OF THE ORAL HEALTH CHALLENGES IN PAKISTANI
population AND A DISCUSSION OF APPROACHES TO THESE CHALLENGES.
JPDA.

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Researching Firm Level Strategy

1 | IoBM Strategic Management

Analysis of the Industry

2 | IoBM Strategic Management

The Personal Care Industry Structure

3 | IoBM Strategic Management

as well to facilitate the production of varieties. Further, building a network with

The Traders and Consumer

4 | IoBM Strategic Management

The Contemporary Substitutes

The Input Channel

The Market Rivalries

5 | IoBM Strategic Management

As the purchasing power of the population increases coupled with increased

The Influence of the Macro-Environment

6 | IoBM Strategic Management

Rivalry: A threat to the industry profitability

7 | IoBM Strategic Management

8 | IoBM Strategic Management

9 | IoBM Strategic Management

KEY EXTERNAL FACTORS

(Economics+ Reducing rivalries)

Procter and Gamble engaged a single distributor in Pakistan, Abudawood Group

Competitive Profile Matrix (CPM)

Colgate Palmolive Pakistan

The Core Values

Our three fundamental values Caring, Global Teamwork and Continuous

Caring: The Company cares about people: Colgate people, customers,

Marketing and Sales:

Colgate Palmolive Financial Overview

Gross Profit Margin:

Net Profit Margin:

Total asset turnover

Accounts receivables turnover

Long term debt to equity ratio

Long Term Debt

KEY INTERNAL FACTORS

Wise investments, cash maintenance as

Cost effective plants installed

Large distribution network

Effective marketing leading to a strong

Strong customer service

Unable to forecast appropriately

Low Net Profit Margin

Invest in bonds/marketable securities which may increase the other

Start projects (CSR/ training programs) that need heavy investments as

The potential of managing debt is still present hence a calculated

Payment of long term loans (S5)

Revising the forecasting techniques to manage the inventory level as

Trainings for the collection department in order to perform as desired

Strengthen the customer feedback channels to identify problems

Cost Leader (Standard Products)

The Internal External Matrix

The GRAND Strategy Matrix

Slow Market Growth

Total EFE Score

strengths, weakness, opportunities and threats as well as with the macro

Stability Position (SP)

Stability Position (SP) Average

Industry Position (IP)

Industry Position (IP) Average

The New Strategy

Improvement in technology making

Rupee depreciation increases the unit prices