Colgate-Palmolive Company: The Precision Toothbrush

Submitted by Group 9
Varnika Khandelwal | Aditi Bajaj | Anirudh Matam | Arun Aravind | Kalode Kaushal Vilas

Statement of the problem:

Colgate-Palmolive has come up with a new toothbrush called Precision. How should the
company position this innovative product, given the dynamic market environment of oral
healthcare industry?
Causes of the problem:
The companys long term strategy is to increase the brand equity of Colgate by new product
launches and expanding into new geographical markets. While the overall oral care market has
been growing at an annual rate of 6.1 % since 1986, Colgates product sales are increasing at
higher rates (12% in 1991), however given the high number of competitors and variety of SKUs
offered which are continuously replaced, one can say the industry is reaching a maturity
stage in product life cycle. The toothbrush Precision has close substitutes already in the market,
therefore, Colgate has the advantage of launching a better quality product and knowing
competitors positioning to develop a different social niche for Precision. But, should
Precision be branded as a solution for Super-premium consumers or the niche market, or as a
solution for the mainstream market comparable to professional segment toothbrushes.
Following this, what should be the preferred channel of distribution-mass merchandisers, drug
stores, food outlets or dentists? What is the suitable placement strategy for the product within
these retail stores?
At the same time, what should be the brands exact name, should the Colgate be emphatic,
which may cause cannibalization of Colgate Plus. We have to also look into the companys
advertising budget and allocate appropriate spending to the product.
The point of difference for the firm is clearly the triple action brushing effect that can achieve
35% greater plaque removal from the teeth surface, between the teeth and the gum line. The
competitive point of parity is that Precision is of quality superior to that of Oral B products,
which claim professional approval. However, it lacks the basic category point of parity as the
product is aesthetically not attractive causing mixed first impressions for the consumers. Given
the consumers are sure to like the product once the first trial happens, the main problem is that
what should be the category membership of Precision to give it the right competitive frame
of reference.
Positioning Precision as a niche product:
Total production cost = 13 x 0.66Mn
= $8.58Mn
Miscellaneous Expenditure = Advertising + Consumer Promotions + Trade Promotions
= $5Mn + $4.6Mn + $1.6Mn = $11.2Mn
Total Cost to Company = Total Production Cost + Miscellaneous Expenditure
= $19.78Mn
Net Cost to Company = Total Cost + Capital Expenditure + Depreciation Costs
= $23.35Mn
Total Income for the first year= $2.02 x 8Mn
=16.16Mn
Expenditure in 2nd year = 26.65Mn (Similar to earlier Calculation)
Total income in 2nd year = $2.02x15Mn
= $30.30Mn
Break-even point = 33 months (considering no further capital expenditure,
similar demand conditions and promotional and advertisement costs).
This is followed by yearly profits of $4.95Mn which gives a net profit of $11.14Mn after 5
years.
Positioning Precision as a mainstream product:
Total production cost = 13 x 0.64Mn
= $26.88Mn
Miscellaneous Expenditure = Advertising + Consumer Promotions + Trade Promotions
= $15Mn + $13Mn + $4.8Mn = $32.8Mn
Total Cost to Company = Total Production Cost + Miscellaneous Expenditure
= $59.68Mn
Net Cost to Company = Total Cost + Capital Expenditure + Depreciation Costs
= $69.68Mn
Total Income for the first year= $1.76 x 8Mn
= $47.17Mn
Expenditure in 2nd year = 71.93Mn (Similar to earlier Calculation)
Total income in 2nd year = $1.76x44.1Mn
= $77.62Mn
Break-even point = 46 months (considering no further capital expenditure,
similar demand conditions and promotional and advertisement costs).
This is followed by yearly profits of $9.59Mn which gives a net profit of $11.18Mn after 5
years.
Evaluation of distribution channels:
Colgate-Palmolive has a large number of stock keeping units for their toothbrush
line. Multitudes of SKUs indicate that Colgate-Palmolive is targeting a broad spectrum of
market segments in the toothbrush market, which spreads the risk inherent to carrying any
product. Colgate-Palmolive should not try to create an exclusive clique of Precision toothbrush
owners (such a Ferrari does with its super-premium race cars) by choosing an exclusive or
selective distribution channel. Precision is a toiletry, and it needs to be available through
intensive distribution in every possible place that toiletries are sold, otherwise the risk of losing
- or more to the point, never gaining - market share due to simple inconvenience is monumental.
Negotiating exclusive or selective distribution agreements with vendors would be prohibitively
costly for both Colgate-Palmolive and the vendor, precluding a niche positioning. Instead,
Colgate-Palmolive should focus their efforts on intensive distribution, maintaining and
increasing the strength they have in their current shelf positioning, display models and vendor
relationships and focusing on sales through mass merchandising stores as trends show that
more and more of sale of dental hygiene products are moving to such venues. Furthermore, the
other prominent channel for distribution of toothbrushes was through dentists and orthodontists
(25% of all toothbrushes were sold in this channel) and this was comprehensively dominated
by Oral-B. Pushing into this segment of distribution will involve a massive communications
campaign and a head on fight with Oral-B in their most valuable sector which is not a desirable
proposition
The product can be placed on prominent individual stands at mass merchandising stores such
as Walmart or Sainsburys as there are the places where decisions to purchase dental hygiene
products are made, usually at the spur of the moment. The channel promises the highest volume
of sale and is the channel to which the distribution of toothbrushes is spreading.
Conclusion:
From the analysis, it may be concluded that the best strategy for promotion of Precision would
be to position the product as a mainstream product rather than a niche product and use mass
merchandising stores for the distribution of the product. Although the difference in profits
earned between niche strategy and mainstream strategy after five years is minimal, further
profits are higher for mainstream strategy. Since mainstream strategy is being preferred, it is
highly essential to achieve high volume of sales and hence, mass merchandising seems the
ideal way to achieve this.
However, as the case points out, there is always a chance of a new product innovation in the
case of toothbrush and if the expected life of the product is below 5 years, it would be wise to
keep the product as a more niche product as the breakeven point is established earlier and the
product may be phased out after recovering all costs and earning the required profits.
In our case, considering that the product is there to stay, mainly among the larger category of
therapeutic brushers, the strategy suggested involves launching a mainstream product with high
volumes of sales achieved by selling through mass merchandising stores using different SKUs.