Colgate Palmolive Consumer and Demand Analysis

Though the productÐŽ¦s introduction promised highly profitable returns, it also presented Colgate with a number of challenges including a significant financial investment, fierce competition, manufacturing limitations, and potential cannibalization. Through assessing the various consumer, competitor, and company analyses, along with evaluating the economic, qualitative, and marketing implications, CP must decide how Precision should be positioned, branded, and communicated to consumers through a structured advertising and promotion budget. They must develop a strategy that will at once conform to stated corporate goals while maximizing long-term profit gain.

ISSUES

Consumer and Demand Analysis

According to the intensity of consumersÐŽ¦ involvement in oral hygiene, there are three segments of toothbrush users: ÐŽ§therapeutic brushersЎЁ (46% of adults) who aim at functionally effective products, ÐŽ§cosmetic brushersЎЁ (21%) who search for products that deliver cosmetic benefits, and ÐŽ§uninvolved consumersЎЁ (33%) who lack interest in product distinctions. Of the 67% of involved oral health consumers, technical performance improvements such as greater plaque removal, ability to clean hard-to-reach places, and ease of use are the greatest purchasing determinants. Moreover, given their heightened concern for oral health, such consumers are willing to pay a premium for products offering performance benefits.

Along with functionality, consumers make brand choice based on their individual needs. Over half of all consumers choose a specific brand because that toothbrush fits their mouths most comfortably. With this, a toothbrushÐŽ¦s physical appearance and ease of grip are significant criteria in consumersÐŽ¦ product choice. Finally, professional recommendations greatly effect consumersÐŽ¦ purchasing decisions.

In regard to consumer behavior, 82% of toothbrush purchases are unplanned, and research shows that consumers are relatively unfamiliar with toothbrush prices. Also, consumers replace their brushes on average only once every 7.5 months while dental professionals recommend replacement every 3 months. Thus, to effectively reach the involved oral health consumer, Colgate must communicate its productsÐŽ¦ features, comfort, and professional recommendations while emphasizing the need for timely brush replacement.

Market Segmentation

The toothbrush market was divided into three sections: super-premium, professional, and value brushes. By 1992, super-premium brushes, with retail prices between $2.29 and $2.89, accounted for 35% of unit volume, 46% of dollar sales, and since its emergence in the late 1980s, had been the fastest growing product segment. Professional brushes, priced between $1.59 and $2.09, accounted for a corresponding 41% and 42%, and value brushes, priced on average at $1.29, accounted for 24% and 12%.

Competitor Analysis

In 1992, a barrage of major new products was released in the super-premium toothbrush segment, as companies sought to capitalize upon this rapidly growing sub-category of brushes. The Oral-B Indicator, Crest Complete, Aquafresh Flex, and Reach Advanced Design all offered technical performance improvements that sold at a very profitable premium.

Company Strengths and Weaknesses

In 1992, Colgate-Palmolive held the number one position in the U.S. retail toothbrush market with a 22.2% volume share. In the professional dental market their market share of 18.4% earned CP third amongst their competitors. With size comes strength, both in large cash flows to finance new projects and in brand equity serving CPÐŽ¦s financial future.

ColgateÐŽ¦s greatest weakness, however, was its limited market segmentation. They maintained their powerful market shares through their two toothbrush product lines: the value brand Colgate Classic and the professional label Colgate Plus. Though both were quite profitable, it was clear that for CP to remain competitive they must gain market share in the expanding super-premium segment.

Enter the technically innovative Colgate Precision. With its triple-action brushing effect, it achieved an average 35% increase in plaque removal, compared with other leading toothbrushes. At the gum line and between teeth, the brush was even more effective, achieving double the plaque removal scores of competitor brushes. With the Precision, Colgate was ready to enter the highly competitive and quickly expanding super-premium segment.

ALTERNATIVES

Economic and Qualitative Evaluations

With PremiumÐŽ¦s product segment determined, CP had to decide how to position this super-premium brush. It was believed that with a niche positioning, Precision retail sales would represent 3% volume share of the toothbrush market in year 1 and 5% in year 2, equating to 8 million and 15 million retail units, respectively. With a mainstream positioning, these volume shares would be 10% in year 1 and 14.7% in year 2, or 27 million and 44 million retail units each year. Certainly these forecasts were quite appealing to CP executives.

However, such market gains would not come without a cost. It was estimated that anywhere from 35% to 60% of the volumes indicated above could come from Colgate Classic and Colgate Plus. Thus, to determine the profitability of replacing such a high percentage of their current sales with new product sales, CP must first compare the productsÐŽ¦ profit margins.

As described in Table A, the release of Colgate Precision using either a mainstream or niche positioning strategy would create a higher profit margin for CP than either the Classic or Plus product lines. Although the Mainstream-1993 profit margin for Precision is lower than the current Plus profit margin, the capacity costs that drive PrecisionÐŽ¦s Mainstream-1993 costs to $0.09 below its selling price will be greatly lowered in 1994, thus creating a net profit margin for Precision Mainstream well above the Plus product line. Thus, although 35% to 60% cannibalization may occur through PrecisionÐŽ¦s release, it would mean the replacement of a less profitable product for a more profitable product, and would be in ColgateÐŽ¦s best interests to promote the Precision product line.

However, the question of PrecisionÐŽ¦s placement still remains. To determine this, CP must analyze the profit implications of the niche versus mainstream positioning strategies (see Tables B and C).

As mentioned earlier, 35% to 60% cannibalization may occur in the Plus and Classic lines as a result of PrecisionÐŽ¦s release. Furthermore, branding