Colgate Case Analysis Essay
Sorry, but copying text is forbidden on this website!
The focal issue of this case is to determine the best marketing strategy for the launch of the new Colgate Precision. The issue can be divided into the following four major areas: 1.Positioning: Which market should be targeted?
2.Branding: Should Colgate make the most of the company’s brand? 3.Communication & Promotion: How does Colgate distribute its advisement expenditures among products? How much should Colgate invest in advertising Colgate Precision? 4.Channel: Which distribution channel should Colgate use?
Our team must analyze the two differing launch strategies – niche and mainstream – and select the path that is the best fit given consumer need and competition in the marketplace.
We will be using thorough analysis to calculate the revenues and costs of each strategy, as well as analyzing the various marketing components of the launch, in order to make an informed decision for Colgate-Palmolive. 3C Analysis
While Colgate has not previously competed in the super-premium segment, it offers a high-quality product – Colgate Plus – that can compete with super-premium brushes such as Oral-B’s products.
As a result of its popularity, Colgate Plus’ dollar market share has grown from 12.6% in1989 to 18.5% in 1992. One of Colgate’s competitive advantages is its toothpaste brand, which held 43% of the world market share in 1991. Although Colgate’s products are described as “oddly-shaped”, by combining its toothbrush with Colgate-branded toothpaste in a single display, toothbrush sales grew by 170%. Additionally, Colgate’s facility is aligned with mass production, it adopts streamlined manufacturing, and it also has a strong distribution channel in “Food and Mass” trade classes.
Customers can be classified into three segments: Therapeutic, Cosmetic, and Uninvolved. As competitors have been launching a variety of new products, customers have increasingly emphasized a preference for toothbrushes with performance benefits. Specifically, the Therapeutic segment – which makes up 46% of adults and is Colgate Plus’ main user – prefers to focus on their gum health rather than on cavity-prevention. In addition, Precision specializes in being able to clean around the gum line via its outer bristle. Another important point is that one-fourth of customers use brushes given to them by their dentists, so professional dentists are a primary channel to access customers. Competition is particularly severe in the super-premium segment, with Oral-B being the market leader. While Oral-B touts itself as the brand of toothbrush “more dentists use”, the company also produces several oral care products like mouthwash and dental floss, possibly weakening its power in the toothbrush market.
Other major competitors are J&J, P&G, and Smithkline, all of which plan to launch new super-premium toothbrushes or consumer promotion programs. Although the competition is increasing as new product lines are introduced into the market, each product is somewhat differentiated (e.g. Aquafresh has a flexible neck while Reach provides angled neck and rippled bristles). Therefore, Colgate can distinguish itself from competitors’ products based on its “efficacy and plaque focus”. From the promotion perspective, it can be assumed that J&J, P&G, and Smithkline will react aggressively when Colgate launches Colgate Precision by utilizing their vast advertising budgets.
Segmentation, Targeting, and Positioning
As mentioned above, consumer segmentation in the toothbrush industry is broadly comprised of three categories: Therapeutic, Cosmetic, and Uninvolved. With the development of the Precision, Colgate has attempted to identify a new sub-segment – consumers concerned about gum care. Based on the results of concept tests detailed in Exhibit 17, 80% of test subjects responded favorably to the claim that Precision removed 35% more plaque than competitors and helped prevent gum disease. Similarly, 87% of test subjects acknowledged they would buy a toothbrush that prevented gum disease. These concept tests seem to confirm that within the Therapeutic and Cosmetic segments there is a group of customers motivated by gum health. Larger market trends show soft and extra soft bristle toothbrush sales growing by more than 7%. As soft-bristle toothbrushes are better for gum health, the growth in this category supports Colgate’s niche marketing strategy. In addition, current competitors have yet to target this segment.
The identification of a “gum health” segment in the toothbrush market offers strong support to Colgate’s niche positioning concept. The Precision toothbrush can easily target these customers given its effectiveness at removing 35% more plaque than other leading toothbrushes and double the plaque removal at the gum line. These “gum health” customers are likely currently purchasers of Oral-B super-premium toothbrushes, and given the dollar growth of the super-premium category and Oral-B sales, these customers represent a lucrative market segment. By entering the super-premium toothbrush category with the most effective toothbrush on the market, Colgate is taking a direct shot at Oral-B’s market share and is challenging Oral-B’s branding strategy as a super-premium toothbrush manufacturer.
An additional benefit to Colgate is that, as a niche super-premium brush, Precision should be clearly seen as a differentiated toothbrush from Colgate Plus and Colgate Classic, keeping product cannibalization at a minimum. As seen in the chart below, we’ve estimated cannibalization as $5.4 million in year 1 for niche vs. $16.5 million for mainstream. Through a marketing campaign that identifies the Precision’s unique design, comfortable feel, and functional benefits over the leading toothbrushes, Colgate should be able to capture a share of the super-premium market. The high price accompanying the Precision further solidifies the brush’s positioning as the best brush on the market. Colgate should also use dentists as a distribution channel to help build the Precision’s identity as the industry’s best toothbrush. By leapfrogging Oral-B’s current generation of brushes, Colgate can better its brand image in the eyes of Therapeutic and Cosmetic customers, as well as enjoy a period of superiority given the two years’ worth of R&D spent on Precision.
The Precision toothbrush would sell at the upper end of the super-premium brush segment, both at the manufacture price as well as the suggested retail price. Oral-B, which seems to own the super-premium segment, has two brushes priced as the most expensive and second most expensive. The manufacturer price ($2.02) of the Precision would be priced right in between the Oral-B brushes; whereas the suggested retail price ($2.89) of the Precision would be higher than both Oral-B brushes. Under a niche strategy, the price would lead to a company profit that would warrant the initial investment of $3.25 million in the first year and $1.3 million in the second year.
In order to induce consumer trial, promotions, similar to the Colgate Plus and Classic, would utilize discounts and bundling together with Colgate toothpaste. Through an aggressive advertising campaign, estimated at 49% of year 1 sales and 31% of year 2 sales, Colgate will establish strong consumer recognition as a super-premium toothbrush. Colgate will use its strong distribution channels for the Precision toothbrush, but one major change is to utilize dental professionals as a channel and promotional tool to the end consumer, which is encroaching on Oral-B’s territory.
The recommendation is for Colgate to position its Precision toothbrush as a niche product, targeting consumers who are cognizant of preventing gum disease. From a financial standpoint, marketing Precision as a mainstream product cannibalizes too much of Colgate’s existing products and profits (as seen in the charts below). This strategy aims to maximize profits to justify Colgate’s investment. Also, seeing how new innovations for toothbrushes are introduced often, Colgate can later change the strategy to a mainstream position when it launches its latest and greatest toothbrush. It is easier to go from niche to mainstream than the other way around.
Recommending this approach implies that Colgate needs to maximize the Colgate brand, rather than emphasize Precision. This will allow customers to identify the toothbrush along with Colgate’s toothpaste, which owns a large part of the market. The Precision toothbrush will be the largest focus for Colgate’s advertising campaign, totaling approximately $11-$12 million in budget.
For positioning the Precision toothbrush as a niche product for preventing gum disease, it is very important that Colgate utilize dental professionals as a channel for advertising (on top of its already strong distribution channels of “Food and Mass.” Under a niche strategy, dentists represent 3 million in unit sales or 23% of total year 1 unit sales. Since the Precision brush touts itself as better for plaque removal and gum health, it makes sense to have the support of dentists, where most consumers are informed about dental health needs. Emphasizing the Colgate brand and having Dentist recommendations will help the overall Colgate brand, which will better position Colgate for its existing and new products.