Colgate palmolive case study
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Transcript of Colgate palmolive case study
HARVARD BUSINESS REVIEW
On
COLGATE PALMOLIVE
Company background U.S. toothbrush market Product segments Consumer behaviour Competition The Precision Marketing mix Conclusion
Why study this case?
• To understand the market competition
faced by the Colgate Precision Toothbrush.
• To analyse the Consumer Behaviour of that time period.
• To summarise the profits gained by the company.
COLGATE PRECISION: A new product, toothbrush launched by CP in
August 1992 Developed over a period of 3 years SUSAN STEINBERG Precision Product Manager The person who managed the entire product
development process Responsible for recommending the
POSITIONING , BRANDING and COMMUNICATION strategies
PEOPLE WHO MADE NEW PRODUCT LAUNCH SUCCESSFUL:
• Susan Steinberg – Product Manager
• Nigel Burton – Division General Manager
• Ruben Mark – CP’s C.E.O.
CP – A Global Leader in Household & Personal
Care Products:
• The U.S. Toothbrush Market has seen many changes since ancient times ranging from Dr. West’s Miracle Tuft Toothbrush to the newly launched The Colgate Precision Toothbrush.
1. To launch new products
2. To enter into new geographic markets
3. To improve efficiency in manufacturing & distribution
4. To continue focus on CORE CONSUMER PRODUCTS
PRODUCT SEGMENTATION
• The industry executives had divided the toothbrush
category into following segments :
1. Value
2. Professional
3. Super - Premium
CONSUMER BEHAVIOUR
• CP’s Consumer Research indicated that the Baby Boom Generation Consumers were NOW becoming more CONCERNED about the HEALTH OF THEIR GUMS AS OPPOSED TO CAVITY PREVENTION and were WILLING TO PAY A PREMIUM FOR NEW PRODUCTS ADRESSING THIS ISSUE.
MEDIA EXPENDITURES
TELEVISION & ADVERTISING COPY STRATEGIES & EXECUTIONS
CP TELEVISION ADVERTISING
ADVERTISING EXPENDITURE FOR CP TOOTHBRUSHES:
• In 1992, 22% of all toothbrushes were expected to be distributed to consumers by dentists.
• Manufacturer margins on toothbrush sales through dentists were less than half those achieved through normal retail distribution
• Exhibit 13 summarizes toothbrush retail distribution trends by volume and value.
of COLGATE PRECISION
PRODUCT DESIGN
AND
TESTING
In 1989, CP had established
a task force comprising
executives from:
• R&D and Marketing
• Dental professionals
• Outside consultants
MISSION
• To “develop a superior, technical, plaque removing device.
THE 5 – GOALS:
1. Understanding the varying techniques consumers used when brushing their teeth.
• CONCLUSION : Brushing was often ineffective at removing plaque from the gum line and between the teeth.
2. Testing the between-teeth access of different toothbrush designs. • CONCLUSION: CP’s new design was superior to both Oral-B
and Reach in accessing front and back teeth, using either horizontal or vertical brushing.
3. Establishing an index to score clinical plaque-removal efficacy at the gum line and between teeth.
• CONCLUSION: Measured presence of plaque on each of the nine tooth areas.
• Then Calculation of percentages of tooth areas affected by plaque pre- and post-usage of different brushes.
THE 5 – GOALS:( contd.)
4. Creating a bristle configuration and handle design offering maximum plaque- removing efficacy.
• CONCLUSION: Clinical trials established that the 3 similar newly designed products removed an average 35% more plaque than other leading brushes and therefore helped to reduce the probability of gum disease.
5. Determining, through clinical and consumer research, the efficacy and acceptance of the new toothbrush design.
• CONCLUSION: Product design and characteristics, marketing concept, and competitive strengths were tested.
• The overall acceptance of Precision was determined via dental professional focus groups and product usage tests .
Colgate Precision’s
•Steinberg developed a marketing mix and financial projections for both scenarios.
• Volumes: Steinberg believed that :
1. With a niche positioning Precision retail sales would represent 3% volume share of the toothbrush market in year 1 and 5% in year 2.
2. With a mainstream positioning, these volume shares would be 10% in year 1 and 14.7% in year 2.
3. Total category unit volumes were estimated at 268 million in 1993 and 300 million in 1994.
• Capacity and Investment Costs: Three types of equipment were required to manufacture the Precision brush:
1. Tufters
2. handle molds
3. packaging machinery.
• Table D gives the cost, depreciation period, and annual capacity for each class of equipment.
Product Cost
and
PRODUCTION COSTS
WAREHOUSING COSTS TRANSPORT COSTS
• Steinberg consolidated - best estimate of the cost and price data as in Table E
Breakeven Analysis
• Total Manufacturing Costs + Total Advertising Costs = Input Cost( Variable + Fixed costs)
• Total Profit = Retail Price * number of brushes – Input Cost
• For Breakeven , Input Cost = Total revenue generated by selling the Precision brushes
TABLE C + TABLE E =
A Pro-forma income statement
Profit Implications - Niche Vs Mainstream Positioning Strategies
Uncertain Cannibalization
Two tests carried out: • CONSUMER CONCEPT TESTS • NAME TESTS
OUTCOME: • Under the mainstream and niche positioning
scenarios –
• 1. Cannibalization figures for Colgate Plus would increase by 20% if the Colgate brand name was stressed.
• 2. Remain unchanged if the Precision brand name was stressed.
CP’s stated corporate strategy was to build on the Colgate brand equity.
4 concept tests - conducted -among 400 adult professional brush users (Colgate Plus, Reach, and Oral-B users) -18 to 54 years of age.
RESULT OF THE FOUR CONCEPT TESTS: TEST 1: (69+68+66)/3 = 67.67 % Probably Would Buy (15+15+10)/3 = 11.67 % Definitely Would Buy TEST 2: (80+71+74+68)/4 = 73.5% Probably Would Buy (19+19+18+14)/4 = 17.5% Definitely Would Buy
RESULT OF THE FOUR CONCEPT TESTS:(CONTD.) TEST 3: (63+72+62+66)/4 = 65.75 % Probably Would Buy (13+16+11+14)/4 = 13.5 % Definitely Would Buy TEST 4: (87+61)/2 = 74% Probably Would Buy (19+48)/2 = 24% Definitely Would Buy
Consumer Research - including in-home usage tests revealed • 55% of test consumers found Precision to be very different from their current toothbrushes. • 77% claimed that Precision was much more effective than their current toothbrush.
SAMPLING OF THE PRODUCT
Several consumer promotions to back the launch: 1. a free 5 oz. tube of Colgate toothpaste (retail
value of $1.89) with the purchase of a Precision brush in strong competitive markets;
2. a 50%-off offer on any size of Colgate toothpaste (up to a value of $1.00) in conjunction with a 50¢ coupon on the Precision brush in strong Colgate markets.
COST OF COMMUNICATION PROMOTIONS WAS ESTIMATED TO BE $52.1 MILLION.
CONCLUSION
• Precision- a technological breakthrough - more than a niche product /simple line extension .
• How Precision should be positioned, branded, and communicated to consumers.
• What the advertising and promotion budget should be and how it should be broken down.
• To develop a marketing mix and profit-and-loss pro forma to enable Precision to reach its full potential.
• It should be acceptable to Burton and other colleagues, particularly the Colgate Plus product manager.
Submitted by: Ayush Choudhary, VIT University, Vellore During the 4 week marketing internship conducted by Prof Sameer Mathur, IIM Lucknow