COLGATE PALMOLIVE – ENVIRONMENT ANALYSIS
Introduction
Colgate-Palmolive (CP) is recognized as the world’s leader in personal care sales which included oral
hygiene products like toothbrushes and toothpastes. In 1991, its sales topped at $6 billion and profits at
$2.76 billion as it cornered 43% of the world’s toothpaste market and 16% of the world’s toothbrush
market. In the United States, the world’s largest market, CP held the number one spot in toothbrush
sales with a market share of 23%. From these statistics, one of CP’s main strengths was being the
market leader in oral care products. CP had an extensive Research and Development department
boasting 170 employees worldwide. Though having a large R&D department did not directly contribute
to increased profits, CP’s history of innovationi in the toothbrush market was linked to its current
position as the market leader in the toothbrush industry. Therefore Colgate-Palmolive’s strong
commitment to innovation through investment in R&D was a prominent strength.
In July 1992, CP senior management announced a new toothbrush model, the Precision that was set to
launch in early 1993 i.e. CP’s secret weapon in the war for supremacy in the super-premium market,
Colgate Precision, was proven to be very effective in removing plaque – 35% more effective than
existing brands – and in preventing gum disease. This advantage could be attributed to the innovative
design, high-tech research using Computer Aided Design (CAD) and infrared scanning, consumer
research and extensive product testing. Although this technology attracted a strong argument for
positioning Precision in the “super-premium” category, Colgate-Palmolive could also use its design
aspects to improve Colgate-Palmolive’s existing “professional” and “value” toothbrush lines to increase
their respective market shares. Colgate-Palmolive’s patented innovation for Precision also stood as a
strength upon which Colgate-Palmolive can lean for other market differentiating advancements.
Problem Definition
In order to meet consumer demand and market expectations to remain leader in oral care segment,
Colgate-Palmolive (CP) needed to decide as to how Colgate Precision would be positioned in the
toothbrush market, what segment of the market it wanted to target and how Precision could be
marketed to its target market. CP could introduce the toothbrush as a niche, super-premium or a
mainstream, professional product. It could also introduce the product using standard naming
conventions or introduce a new labeling system by calling it the “Precision by Colgate.” CP could
leverage existing industry relationships and make an effort to form new ones in order to gain a
competitive edge. At launch, CP could plan to offer competitive promotions, a popular offering that was
slowly becoming standard practice in the oral care industry. The company could also increase its
advertising budget to include educating the public on the dangers of gum disease. Depending on how it
chooses to introduce the Precision toothbrush to the market, 1992 could serve as an important year for
CP to establish itself as the definitive oral health care company.
Situation Analysis
Environmental Analysis
In 1992, Colgate-Palmolive (CP) was the global leader in household and personal care products. It was
also the leader in retail toothbrush sales in the United States. Prior to the 1990s, consumers were
satisfied with toothbrushes that were aesthetically pleasing. As therapeutic toothbrush sales rose, it
became apparent that baby boomers i.e. the persons born after 1950s were becoming increasingly
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concerned with their oral health, specifically their gums. As a result, the toothbrush industry
experienced a massive influx of worthy competitors and the formation of a niche, super-premium
market. In order to gain an edge each competitor worked on developing new toothbrush technology,
forming alliances with dental professionals, expanding advertising budgets and offering promotions that
would grab consumer attention.
Industry Analysis
Not only the industry could be broken down by price models (super-premium, professional, and value),
it could also broken down a second time into niche and mainstream offerings. Consumers of this
industry could further be sorted into three categories: therapeutic, cosmetic, and uninvolved.
Competitive Analysis
One promising conclusion that could be drawn from the competitive analysis is that every company had
been caught off guard by the change in consumer behaviour, emergence of new technology, and
introduction of new players entering the playing field. For example, in 1988, Johnson & Johnson
introduced “new brush technology” only to phase it out by 1992.
In order to get an edge, competitors, Johnson & Johnson, Oral-B, Procter & Gamble, and Smith Kline
Beecham (latter two were new competitors), are offering promotions in the form of coupons, mail-in
refunds, and bundles.
Environmental Analysis
Strengths
With 43% of the global toothpaste market and 16% of the global toothbrush market, CP had defined
itself a leader of household and personal care products worldwide and positioned itself as the number
one retailer of toothbrush products in the United States. CP utilized a cutting-edge infrared motion
analysis and technique to measure exact levels of plaque removed by its products in consumer tests.
CP’s Triple Action head removed 35% more surface plaque and 100% more gum line and in-between
teeth plaque than its competitors’ products. As a company with years of experience, CP had formed a
strong relationship with subcontracting manufacturer, Anchor Brush. It had also put together a task
force of research & development, marketing experts, dental professionals, and outside consultants.
Because of its good standing relationship with retail stores, it was able to position its products on the
middle shelf, right between its competitors, Reach and Oral-B.
Weaknesses
Colgate-Palmolive’s media expenditure layout was very small compared to its rivals. It had spent only $7
million on its Colgate-Palmolive Plus marketing efforts. Since media exposure fuels consumer demand
for a new product, this was one area where Colgate-Palmolive needed to have its expenditures
equivalent to that of its rivals. Another marketing weakness that Colgate-Palmolive faced was its lack of
professional dental endorsements like Oral-B had. Although industry players were manufacturing
products to improve oral health, it had been difficult to educate consumers of the importance of
preventing gum disease (which was a common motivator to improve dental care habits). One major
advantage that the competitor, Oral-B, had over the other companies was the ability to say it was
recommended by dental professionals. Similar to Colgate-Palmolive’s lack of professional endorsement,
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the Precision toothbrush did not have the fullest endorsement from the American Dental Associations
(ADA).
Opportunities
The emergence of the niche “super-premium” category presented a golden opportunity for ColgatePalmolive to increase market share for several reasons. First, although its competitors, i.e. Oral-B,
Johnson & Johnson and Procter & Gamble, had gained a foot-hold in this niche market already, ColgatePalmolive could still make a dent with its new Precision toothbrush, thus enabling them to enter a new
and potentially highly profitable market segment. Since the “super-premium” category accounted for
35% of the volume and 46% of the dollar sales of toothbrushes, this niche category might in turn result
in a substantial profit margin. In consumer tests, 55% of consumers found the CP Precision model was
very different from other brushes and 77% claimed it was more effective. Seeing as a majority of
consumers were willing to experiment with new brands/models, CP could make being new, different,
and effective the major tenants of its marketing messaging; along with including messaging concerning
their incredible ability to fight gum disease, it should have a rock solid campaign. Further, by seeking
accreditation from the American Dental Association, partnering with dental providers, and offering
support to elementary school dental education programs, CP could not only work on educating the
public, it could also position itself to steal market share away from its main competitor, Oral-B. Finally,
since 82% of toothbrush purchases were unplanned and many consumers were unaware of the
technological and cost variation among toothbrush brands, CP could establish a media blitz with
educational ads depicting Precision toothbrushes as technologically superior to its rivals at an equivalent
cost. The ads can also serve to educate consumers about proper toothbrush replacement schedules to
ensure effective plaque removal and gum disease prevention. Ultimately, CP could leverage their
advertising campaign to boost sales and revenues.
Threats
Threat of intense segment rivalry
The super-premium toothbrush market was highly competitive, hosting many brands and private label
toothbrushes. If any of these rivals created a toothbrush which topped or even equaled the technology
of Precision, specifically if done at a lower production cost, CP may lose market share.
Threat of new entrants
Along with intense rivalry from existing competitors, CP had to deal with new competitors. In 1991, the
toothbrush market exploded with a dramatic increase in new entrants. Proctor and Gamble introduced
Crest Complete, their first toothbrush. Smith Kline Beecham entered the market with Aqua fresh Flex
and a 9% market share volume in 1991. Lever, Pfizer and Sun star all entered the market in 1991 and
earned a total 11% market share. These numbers reinforced the seriousness of the threat of new
entrants that CP would have to contend with when they would launch Colgate Precision.
Threat of substitute products
Similar to many industries, oral care technology had advanced tremendously since its inception. The
introduction of the nylon bristled toothbrush represented one of the latest quantum improvements for
the industry; however it was not the last. The introduction of electronic toothbrushes and water picks
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were threatening to usurp traditional oral care product’s market share. This was a threat which CP
needed to heed, despite its confidence in the technology of Precision.
Threat of suppliers’ growing bargaining power
CP depended heavily on Anchor toothbrush for its outsourced manufacturing. Hence, Anchor
toothbrush had a distinct supplier advantage in the relationship with CP. If Anchor toothbrush were to
increase its supply cost, it would affect CP production costs which in turn would impact Precision’s
market share potentially, by pricing it above even the super-premium segment. CP needed to maintain a
healthy relationship with Anchor toothbrush to reduce the risk of a costly supplier switching process.
Threat of buyers’ growing bargaining power
One of the factors which could cause buyers’ bargaining power to grow was when the switching costs
for buyers were low. Even if CP were to position Precision as the most expensive toothbrush on the
market, it was still a relatively inexpensive product, compared to many daily purchases (i.e. a cup of
coffee at Starbucks). Therefore, buyers can easily switch between toothbrush brands without giving the
decision much thought. To combat this threat, CP could position Precision as a superior toothbrush that
customers could not afford to be without.
Threat of various promotional schemes
Because of the recent market saturation, the various producers of oral health care products had rushed
to offer promotional incentives including two-for-one, buy-one-get-one-free and mail-in refund coupon
deals. In order to combat this threat, CP could plan to launch the Precision brush paired with similar
promotional offers and introduce fresh promotional offers such as coupling the toothbrush with Colgate
brand toothpaste. With the increase of in-store advertising, toothbrushes and toothpastes had been
found to sell 170% better when located in close proximity.
Threat due to placement of the product
The most worrisome threats to CP were from the company itself. If CP were to place the Precision brush
into the mainstream market as the “Colgate Precision,” not only would it knock the children’s ‘Plus’
brush off of the shelves, it might also cannibalize its flagship Plus model. In order to avoid this, CP should
introduce the model into the niche, super-premium market as the “Precision by Colgate.”
Strategic Alternatives
The first option that CP had was that it could enter the Precision into the market as a niche, superpremium product. As a niche product, compared to the other CP models, the Precision would expect
earn roughly 35% volume share and 46% value share. A positive factor of introducing the Precision as a
niche product is not only would it give Colgate enough time to build up a stock of the product, CP would
also be able to avoid taking the Children’s Plus model off store shelves.
With the Precision toothbrush, CP could finally introduce a super-premium product into the mix and give
the therapeutic consumer segment some much needed attention. One key feature of the Precision
toothbrush was that it was incredibly successful at removing significant amounts of plaque from teeth,
especially when compared to competitor brushes.
Another option that CP had was that it could enter the Precision into the market as a mainstream,
professional product. As a mainstream product, the Precision would expect to earn roughly 41% volume
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share and 42% value share, when compared to other CP offerings. At a price of $0.79, and in order to
boost referrals, CP would expect to earn 80% of its sales by distributing the toothbrush to dental
professionals. One negative result of channelling the Precision toothbrush through the mainstream
market was that the Children’s Plus model would need to be dropped in order to make room for another
product on shelf among the other professional models. As a result, CP would also go another year
without any super-premium SKU on the market.
Proposed Strategy
Colgate-Palmolive should focus on launching its unique product to a narrow market and introduce the
Precision brush first as a niche, super-premium product for therapeutic consumers. By 1994 or 1995,
when it has had time to build up its stock of the Precision toothbrushes, it should move it to the
mainstream, professional market in order to add cosmetic and uninvolved consumers to its target
markets. By using this two-level approach, CP would be able to reach its maximum potential across all
possible market segments. In order to move as many units as possible, CP should start the Precision at a
retail price slightly higher than the Oral-B Indicator ($2.65 - $2.89). After moving it to the mainstream
market at a price no lower than $1.75, CP could focus on changing its strategy to offering a low cost
product to the population as a whole (approximately 260,3271 Americans). Although it would not do as
much to help the company’s brand equity, CP should launch the Precision with the name, “Precision by
Colgate,” in order to avoid cannibalizing its flagship i.e. Plus model. By the time Colgate moves the
Precision to the mainstream tier a year or two later, it can take a spot next to the Plus model to make
room for a new super-premium toothbrush.
CP should plan to spend money educating the public on the dangers of gum disease. The American baby
boomers, ages 32-46 (in 1992) with an estimated population of 621,453 were particularly concerned
with the health of their gums and were willing to spend extra money to give their mouths the best
protection possible. Many companies could be found focusing on rubber handles and angled heads, but
only CP can claim the ability to dramatically decrease the likelihood of encountering future gum
problems by having consumers use its brush. The major hindrance to pushing a product based on its
effectiveness to prevent gum disease is that a majority of consumers do not understand what risks they
face. In order to educate the public and to form a stronger bond with dental professionals, CP should
seek accreditation from the American Dental Association (ADA). Not only would this be a powerful
disclaimer to add to advertisements, but CP would move into a position to steal sales away from Oral-B.
Using this approach, Colgate-Palmolive should be able to reach a significant portion of the consumer
population. Its main focus should be on seeking ADA accreditation (thereby stealing sales from Oral-B)
and promoting its effectiveness to fight gum disease. It would be helpful to launch the Precision with
coupons and new promotional ideas such as a toothbrush/toothpaste bundle. In order to insure an edge
on the competition, Precision might want to look into offering some sort of dentist sampling program
with a “satisfaction guaranteed” refund offer if the state of their oral health does not improve after
using the Precision for a solid 6 months. This plan, paired with Precision’s efficacy, should prove to bring
Colgate-Palmolive a successful year in the oral health care industry.
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