CASE WRITE-UP
October 18, 2011
POSITIONING AND BRANDING STRATEGY FOR
THE PRECISION TOOTHBRUSH
Léa PERNET
Class of 2013
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TWO STRATEGICAL ISSUES IN A COMPETITIVE SUPER-PREMIUM MARKET
Colgate-Palmolive’s products are present both in the Professional and the Value
segments of the U.S. toothbrush market. After over three years of research, ColgatePalmolive (CP) is ready to enter the third segment –the “super-premium” U.S.
toothbrush market- with its new top of range product, the Precision in early 1993 .
Over the past two years, the super-premium market –dominated by Oral-B- has
witnessed the arrival of new competitors with innovative featured toothbrushes. CP’s
triple-action toothbrush is therefore facing a highly competitive market; thus implying
extremely challenging and crucial issues in terms of positioning and branding
strategy.
It has been argued whether the Precision should be positioned as a niche
toothbrush, targeted to consumers concerned about gum diseases; or as a
mainstream product, marketed as the most effective in the market. The second issue
concerns the branding strategy. While some executives argue that stressing the
brand by calling the toothbrush “Colgate Precision” would build the brand equity,
other believe that underlining the name of the product -as opposed to the brandcalling it “Precision by Colgate” would limit the effects of cannibalization.
A STRATEGY IN TWO STEPS: FROM NICHE TO MAINSTREAM
First of all, CP should launch its Precision as a niche product targeted to therapeutic
brushers concerned about gum diseases. The company should then move to a
mainstream strategy after one or two years.
Second of all, the branding strategy should emphasize the brand’s name and opt for
“Colgate Precision” as a name for its product.
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ANALYSIS
Internal Analysis: Progressively Gaining the Professional Distribution
CP holds the first position in the U.S. retail toothbrush market, but the company is
new in the super-premium segment; its Precision’s name should therefore emphasize
the brand, in order to use its current brand equity to build trust and credibility.
CP’s main weakness with the mainstream approach is that it could result in stock out
costs in 1993. Therefore, CP should launch its Precision as a niche and then switch
to a mainstream strategy when it has built up enough stock of the product.
Diversification Strategy: Maximization of Colgate-Palmolive’s overall net profits
By introducing a new product into the super-premium market, CP uses a
diversification strategy. The risk taken must reflect the possible profitability.
Both the mainstream and the niche strategy imply that the break-even of the product
is reached in 1994 (see Exhibit 2). Taking into account the cannibalization effects,
the analysis of the overall net profits of CP Toothbrushes highlights a profit from 1993
with a niche positioning –even in the worse case cannibalization scenario- while a
mainstream strategy would imply a loss in the worse case scenario (see Exhibit 3).
On the other hand, a mainstream strategy has a better impact on net profits in 1994
than a niche strategy.
External Analysis: Entering the dentist distribution channel
A mainstream strategy implies 8MM unit sales through professionals and 3MM with a
niche strategy. Known as the “dentist’s toothbrush”, Oral-B is leader on the
professional market. CP’s main weakness is its lack of dentist distribution, the
company needs to introduce its Precision in 1993 to dentists as a niche targeted for a
precise market (consumer concerned about gum diseases) to make its place through
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this distribution channel. CP will then be able steal market share more aggressively
by implementing it as a mainstream when the product has been tested.
Target Market Behavior: Reach Therapeutic and Cosmetic Brushers
Generally, consumers have a growing trend of choosing a brush to fit their individual
needs over than price, CP can therefore chose niche strategy with a higher price if
the product responds to a specific need. The two kinds of involved oral health
consumers -the therapeutic and cosmetic brushers- use super-premium and
professional toothbrushes. The therapeutic brushers are concerned about functional
effective products such as baby-boomers -30 to 55 years old- who have an increased
interest in gum health. Consumers chose a brush to fit their individual needs over
than price. Entering the super-premium market as niche with a distinctive unique
selling proposition will therefore capture this part of the market and build a
professional and reliable image of the Precision.
Secondly, the cosmetic brushers, who already use two of CP’s SKUs, will most
probably be favorable to the Precision when it enters the mainstream approach with a
more global message of effectiveness.
Moreover, both the therapeutic and cosmetic brushers use super-premium and
professional toothbrushes. Being present in the professional segment, CP should
choose “Colgate Precision” to reach the super-premium segment.
Competitive Advantage: Efficient Positioning for a Presence on the Whole Market
As highlighted in Exhibit 4, both the niche and the mainstream strategy enable CP to
significantly differentiate itself from its competitors in the super-premium market.
However, Oral-B dominates this market with two products; therefore CP needs to
enter it with a clear technical differentiation. Opting for a niche strategy for launching
Precision will make Precision the super-premium toothbrush for therapeutic brushers
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that prevent from gum diseases thanks to its three different length bristles. CP will
need this unique selling proposition to acquire a valuable place in this segment. In
1994, boosted by this reputation, CP will be able to reach the overall therapeutic and
cosmetic brushers with a more global position as the super-premium toothbrush for
consumers involved in oral health that provides the most efficient oral clean-up
thanks to its triple-action brush.
CONCLUSION
In order to maximize its profits and avoid any stock out costs, CP should launch its
Precision in the super-premium segment with a niche positioning targeting consumer
concerned about gum diseases. The use of the branding “Colgate Precision” will not
only ensure a better introduction in the dentist distribution channel, but also a better
brand equity to enter the mainstream approach. Indeed after having conquered the
niche market, CP’s reputation in the super-premium segment will be strong enough to
reach the mainstream market.
In both positions, CP will benefit from its product’s innovative feature to differentiate
itself efficiently from its competitors.
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EXHIBIT 3: Complete SWOT Analysis
STRENGTHS
- CP is the global leader in household and
personal care products: financial stability
- A team of 170 researchers developed an
effective product: triple action can achieve a 50%
increase of plaque removal at the gum line and
in-between the teeth
- CP’s Oral Care held 16% of the world
toothbrush market in 1991.
- CP holds the first position in the U.S. retail
toothbrush market (23.3% of volume share).
WEAKNESSES
- Low media expenditures and share voice
compared to competition.
- Not the most recommended brand by dentists.
- Possible inability to produce enough stock of
Precision to meet demand in a mainstream
strategy.
OPPORTUNITIES
- Increase of new products: new performance
benefits have become more important purchase
criteria (not only the price anymore).
- Consumers’ growing purchase frequency.
- From late 80s: emergence of a “super-premium”
sub-category of toothbrushes (35% of unit
volume and 46% of $ sales in the U.S. in 1992).
- Gum protection awareness: rapid growth of soft
and extra soft bristle toothbrushes market share
(above 7% a year).
- Baby boomers: growing concern of gum health
(as opposed to cavity prevention), willing to pay
premium for those features.
- Consumer not familiar with prices for
toothbrushes.
- Proper brushing is seen as key to the
prevention
of
most
dental
problems
(toothbrushes are considered as important as
toothpaste to effective oral hygiene).
- People replace brushes every 7.5 months;
however 48% claim they replace it every 3
months (recommended by dentists): people are
informed and concerned about their oral hygiene
but don’t have the proper behavior yet.
- 65% consumers have more than 1 toothbrush.
- 87% consumers are involved oral health
consumers.
- 46% consumers are therapeutic brushers that
search out functionally effective products
- Therapeutic consumers already use Colgate
products (Colgate Plus) (but Oral-B is their main
used brand).
- CP toothbrush line hold 25% to 40% of the
category shelf in most stores.
- 22% of toothbrushes are expected to be sold
through dentists in 1992.
THREATS
- Growth in the sales of private label toothbrushes
in the value segment.
- Unit sales growth projected to slow down in 1993
because of increased sampling through dentists
and 2for1 promotions: household inventory buildup.
- Super-premium segment already has tough
competition: P&G, J&J, Oral-B and SmithKline
Beecham, total of 24 SKUs.
- Low average replacement frequency: 7.5 months
(vs 3 months recommended by dentists).
- Low average purchase frequency: 11.6 months
because of 2for1 promotions.
- Consumers believe the main role of
toothbrushes is food particles removal, plaque
removal and gum stimulation is seen as
secondary.
- Only 3% of toothbrushes are impulse purchases.
- Most therapeutic consumers buy Oral-B
products (2 of their SKUs).
- Oral B is the market leader since the 1960s and
has strong reliable brand equity as “the dentist’s
toothbrush” emphasized by their communication
through “Rob the dentist”, they are competitive in
the whole oral care market and announce they
would increase the length of each of their product
lines.
- Increased competition implies increased
consumer promotion costs.
- Dentist distribution dominated by Oral-B.
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EXHIBIT 2: Net profit Margin Analysis
NICHE
COSTS
Professional Market
REVENUE
Market
Retail
Year 1
MAINSTREAM
Year 2
Year 1
Year 2
Units Sold
8,000,000
15,000,000
26,800,000
44,100,000
Unit Price to Retailers $
2.02
2.02
1.76
1.76
Net Retail sales $
16,100,000
30,300,000
47,500,000
77,400,000
Units Sold
3,000,000
3,000,000
8,000,000
8,000,000
80% Units Sold
2,400,000
2,400,000
6,400,000
6,400,000
Unit Price to Dentists $
0.79
0.79
0.79
0.79
Net sales $
1,896,000
1,896,000
5,056,000
5,056,000
20% Units Solds
600,000
600,000
1,600,000
1,600,000
Unit Price to Dentists $
0.95
0.95
0.95
0.95
Net sales $
570,000
570,000
1,520,000
1,520,000
Net Professional Sales $
2,466,000
2,466,000
6,576,000
6,576,000
Total Unit Sold
11,000,000
18,000,000
34,800,000
52,100,000
Total Net Sales $
18,566,000
32,766,000
54,076,000
83,976,000
Manufacturer/unit cost $
0.66
0.66
0.64
0.64
Cost of goods sold $
7,260,000
11,880,000
22,272,000
33,344,000
Units of Promotion Sampling
2,000,000
2,000,000
7,000,000
7,000,000
Cost of sampling promotion
1,320,000
1,320,000
4,480,000
4,480,000
Advertising costs $
11,200,000
11,700,000
32,800,000
29,000,000
Capacity costs
316,667
450,000
886,667
1,270,000
Total Costs $
20,096,667
25,350,000
60,438,667
68,094,000
(1,530,667)
7,416,000
(6,362,667)
15,882,000
TOTAL NET PROFIT (before taxes) $
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EXHIBIT 3: Cannibalization Analysis
There are no sales forecasts of Colgate Classic and Colgate Plus sales for 1993 and
1993. Therefore, the following cannibalization analysis was based on the 1992
income statement and the following assumptions:
-
Colgate Classic and Colgate Plus volume sales have been increasing by 14%
in 1990, 10% in 1991 and 11% in 1992. The overall toothbrush U.S. market
projected growth for 1993 is expected to be a little bit slower because of
increased sampling and 2for1 promotions (increased household inventory).
Therefore, the following analysis considers an average growth of 7% in
volume in 1993 and 1994.
-
For Colgate Classic and Colgate Plus forecasts of 1993 and 1994, the cost of
sales were kept at 49% of net sales, the total fixed overhead at 12% of the net
sales and the total advertising costs at 27% of net sales; as it was in the 1992
income statement.
-
As there is 78,336,000 units sold in 1992 and $ 91,611,000 net sales,
calculations have been done with an average unit price of $ 1.17 for Colgate
Classic and Colgate Plus combined.
-
Forecasts for Colgate Precision are based on the net profit margin analysis (cf.
EXHIBIT 1).
Two scenarios of cannibalization have been considered:
-
Best scenario: Colgate Precision takes 35% in volume of Colgate Classic and
Colgate Plus combined.
-
Worse scenario: Colgate Precision takes 60% in volume of Colgate Classic
and Colgate Plus combined.
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Net profit with Colgate Precision positioned as a niche
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Net profit with Colgate Precision positioned as mainstream
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EXHIBIT 4: Competition Positioning Map on the Super-Premium Market
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Sources (images)
http://partners.nbmbaa.org/ExhibitorList/Details/Default.aspx?ID=675
http://www.prweb.com/releases/Northeastern_University/International_Business
http://www.greatestlogo.com/oral-b#.TpzYqd6Pbm0
http://www.yourlogoresources.com/johnson-johnson-logo/
http://all-free-download.com/free-vector/vector-logo/smithkline_beecham_1_129495.html
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