Colgate-Palmolive Case Analysis

MEMORANDUM

DATE:        October 12, 2015

TO:        Nigel Burton, General Manager, Oral Care Division, Colgate-Palmolive

FROM:        David Alvarez-Carbonell

RE:        The Precision Toothbrush

Colgate Precision is the new toothbrush developed by Colgate-Palmolive (CP)’s Oral Care Division. In spite of its proven benefits to consumers due to its advanced technology, Precision’s successful launch is challenged by a highly competitive and dynamic market. Therefore, a well-thought launching approach must address the market positioning of the newly developed toothbrush as either a niche or a mainstream product. Because cannibalization risk may extensively jeopardize earnings under a mainstream strategy, which also seems to be less operationally efficient, I would endorse Precision as a niche toothbrush.

My recommendation is primarily based on estimated operating profits and cannibalization risk analyses. Year 1 expected operating loses under the niche strategy is less than under the mainstream strategy (3M vs. 10M). And, although in year 2 the mainstream strategy may generate higher operating profits (18M vs. 8M), its operating efficiency (measured as Profits as % of Sales) is lower (21% vs. 24%). Furthermore, if we assume that 35% of the sale volume under the niche strategy comes from Colgate Classic and Plus products, and that under the mainstream strategy this figure is 60%, then cannibalization quantitative analysis suggests that loses would be substantially greater under the mainstream strategy than under the alternative strategy for both year 1 (38M vs. 19M) and year 2 (10M vs. 8M). Please, refer to Appendixes A (Excel Worksheet screen shot) and B (Assumptions for Cannibalization Calculations).

Although a mainstream strategy could capture an additional 10% of the US toothbrush market (CP’s US market share = 23%) by the end of year 1, it can only be priced at $1.85, bearing a greater cannibalization risk of Colgate Plus and inadequate supply. As a niche product, in contrast, Colgate Precision can target consumers concerned about gum diseases and, as a result, it can command a 15% price premium, and capture an additional 3% of the US toothbrush market by end of the first year. In US, where performance benefits are becoming more important, oral care market has been growing at 6% since ’86, with toothbrushes accounting for 16%. Similarly, with its Precision toothbrush, CP can also grow in the internationally arena, where it only holds 16% of toothbrush while up to 43% of toothpaste market. Combining Colgate Precision with toothpaste, which is more popular, may increase sales by 170%. It is also known that shelf space for toothbrushes is increasing more than for toothpaste, that 46% of adults are therapeutic brushers, and that baby boomers, because of their concerns about gum diseases, are willing to pay a premium for toothbrushes like Precision. CP’s Precision clearly addresses this issue with its triple action, the result of an outstanding R&D study that developed its most technologically-advanced toothbrush, with bristles of three different lengths and orientations.

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