Colgate-Palmolive

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Colgate-Palmolive Company
MEMORANDUM
DATE:
TO:
FROM:
RE:

3rd March2015
Susan Steinberg
Precision Product Manager, Colgate
Rachit Sachdeva, Marketing Consultant
Regarding the positioning of Precision brand of toothbrushes.

Colgate-Palmolive, a global leader in household & personal care products finds itself
in a promising yet challenging situation as it gets ready to introduce a new &
technologically advanced toothbrush in the United States, tentatively named
Colgate Precision.

Colgate needs to decide whether this product should be

positioned as niche product appealing to the customers in the super premium

segment or should it be marketed and positioned as a mainstream product
appealing to customers in the relatively bigger value segment.

Based on the SWOT analysis of Colgate Precision (see Table 2) and a financial
analysis of the options available with Colgate (see Table 1) I recommend that the
company goes ahead with the launch of Precision toothbrush as a niche product in
the first year and eventually scale down Colgate plus & sell Precision in the
mainstream segment.

This action will result in a revenue generation of

approximately negative 1.4 million in the first 2 years with a positive net profit of
4.6 million in the second year. This decision is recommended after taking in
cognizance the pros & cons of introducing Precision as a niche as well as a
mainstream product and I think its the best way ahead for the company.

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The positioning dilemma

At this juncture Colgate-Palmolive has two options and both these options are
evaluated below based on their merits and demerits:A. Positioning Precision as a niche product
Precision was developed as a technical innovation offering a unique value
proposition by achieving a triple-action brushing effect. Because of its ability to
remove 35% more plaque than the other leading brushes, Precision could be
positioned as super-premium product commanding a 15% price premium over OralB, the market leader in this segment. As per customer segment data available 1, this
product should appeal to the largest customer segment of therapeutic brushers,
who search for functionally effective products, and comprise 46% of adult market.
Introducing Precision would lead to a total profit of negative 6.5 million in the first
year and a positive 4.6 million in the second year (Exhibit 2).

Pros & Cons of

releasing Precision as a niche product are stated below:

Pros

Cons

1. Precision can later be broadened to a

mainstream position as additional capacity
becomes available.

1. Lesser contribution to total profit aka

smaller segment.

2. Less cannibalization of Colgate plus, as both

the products are more isolated in terms of the
customer segment they target
3. Entry into the superior Toothbrush market for
Colgate, long term advantages from the growing
customers in this segment.

Therapeutic Brushers- 46%, Cosmetic Brushers- 21% & Uninvolved oral consumers- 33%

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B. Positioning Precision as a mainstream product

Considering the size of the market for mainstream products, Colgate decides to
position Precision as a mainstream product. The manufacturing per unit cost when
selling Precision as a mainstream product would be $.64 as opposed to $.66 as
niche product. The mainstream positioning has over three times the unit volume
capacity as niche product leading to increased sales volume & product variety. With
significant economies of scale, Colgate should be able to offset the increased
advertising & distribution cost in the long run and makes Precision the household
toothbrush purchased by the majority of customers as opposed to a niche product
purchased only by customers who are oral hygiene savvy. The pros and cons of this
decision are:-

Pros

Cons

1. Greater sales numbers by introducing a product

that appeals to masses.

1. Greater erosion of Colgate Plus brand

2. Economies of Scale

2. Pressure on production schedules

resulting in adequate supply of products.

3. Limited supply might create a possible

perception as "hot selling product".

3. Possible dropping of other SKU(s) from

the inventory keeping in mind the
cannibalization effect and shelf dynamics

Recommended course of action

After analyzing the pros and cons of both the alternatives, I have come to the
recommendation that Colgate should introduce Precision as niche product targeting
the consumer demand in the super premium product category and sell the product
in the mainstream market in the ensuing years. This recommendation was given
keeping in mind the suitability of the value proposition of the product to a particular
segment, the relatively lesser cannibalization of sales of Colgate plus brand.

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Introduction of the Precision toothbrush as a niche brand might not be sustainable

over a long term period keeping in mind the advances in technology from the
competitors side and eventually Colgate can position Precision a as mainstream
project, by then they would have had time to ramp up their production capacity and
plan for reducing & eventually phasing out Colgate Plus brand. Depending on the
success of the precision brand as niche product the R&D team at Colgate can line
up more SKU(s) for the niche segment in the coming years to take Colgate
Precisions place.
Table 1

Calculation of Cannibalization Cost

Total # of Units

78336000

Share of Colgate Plus ( in units )

60500571

77%

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Share of Colgate Classic ( in Units )

Dollar Sales of Colgate Plus
Operating profit

17835429
$ 707,53,138
$84,90,377

23%
$1.2 based on the financial estimates in Exhibit 1 )
12% of Sales

Assumptions
*Cannibalization in second year will be offset by reduced sales estimates of Colgate Plus.
* Even there would be some cannibalization of Colgate Classic as well however; its not taken into account
assuming that it wont be significant in numbers.

Table 2

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