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Colgate Precision Toothbrush Case Study Analysis
Colgate Precision Toothbrush Case Study Analysis
Section C Group 11
PGP 2011-13
Roll Number
PGP2011532
PGP2011617
PGP2011696
PGP2011770
PGP2011823
PGP2011843
PGP2011944
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Section C Group 11
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Section C Group 11
hand placed in high price niche segment offering aesthetic, therapeutic and cosmetic value,
while others were placed in the mainstream segment for the masses.
Competitive Analysis
There is considerable fragmentation in the market and hence, there is severe competition
amongst the players. In order to get an edge, competitors, Johnson & Johnson, Oral-B, Procter
& Gamble, and Smithkline Beecham, are offering promotions in the form of coupons, mail-in
refunds and discounts. The companys competition may be analyses on the basis of stock
keeping units (SKUs) and on the basis of the price segments. The company faces tough
competition in super premium segment from companies such as Oral-B, Reach Advanced
Design, Crest and Aquafresh Flex. In addition, all companies spend a sizeable share of their
revenues on advertisement, which adds up to the competition. Also, the players have been
fairly lenient in allowing other players to enter into the market, fostering competition. Players
have exhibited some slackness on their parts, by remaining ignorant to some of the
technological advancements and shift in consumer behavior. As an instance, in 1988, Johnson &
Johnson introduced new brush technology only to phase it out by 1992. Hence there are
healthy competitions in the market.
Product Segmentation:
On basis of Price: Toothbrush industry is divided into mainly three segments on the basis of
price: Value, Professional and Super Premium.
Value brushes priced average at $1.29 accounted for 24% of unit volume and 12% of dollar
sales on the other hand Professional brushes, priced between $1.59 and $2.09, account for
corresponding 41% and 42%. Super Premium brushes category emerged in late 1980s and by
1992, its retail prices were between $2.29 and $ 2.89 and it accounted for 35% of unit volume
and 46% of dollar sales.
On the basis of attributes: In this, toothbrush differed by bristle type( firm, medium, soft ,
and extra soft) and by head size( full/adult, compact , and child/youth)
Demographic Segmentation:
In this market is divided into groups on the basis of variables such as age, family size, family life
cycle etc. They are often associated with consumer needs and wants and are easy to measure.
In 1980s, toothbrush industry had market on the basis of adult and child aesthetic. The children
segment had variety of new products like brushes with sparkling handles, bugs and bunny etc.
and later new products mainly focused on technical performance improvements.
Psychographic Segmentation:
PGP 2011-13
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cost of $8.58 million. The total expenditure for advertisement, consumer and trade promotions
would be $11.2 million, thus putting the total cost to the company at $19.78 million. Assuming
capital expenditure of $3.25 million and depreciation costs of $316,667, the net cost at yearend would be $23.35 million. According to Steinberg if Precision were positioned as a niche
product, about 8 million brushes would be sold through the retail channel in the first year and
thus accounting for an income of $16.16 million, considering manufacturers price of $2.02 per
piece. In the second year, expenditure would come out to be approximately $26.65 million and
considering sales of 15 million brushes through retail channels, income would stand at $30.3
million. Considering no more capital expenditure from the third year, stagnant demand and
similar promotional expenditure as that in the 2nd year breakeven would occur in the 33rd
month, followed by yearly profits of $4.95 million. At the end of 5 years, the net profit would
stand at $11.14.
The manufacture ring cost per unit for Precision as a mainstream product is $0.64 per piece. A
total of 42 million brushes would be manufactured, resulting in a total manufacturing cost of
$26.88 million. The total expenditure for advertisement, consumer and trade promotions
would be $32.8 million, thus putting the total cost to the company at $59.68 million. Assuming
capital expenditure of $9.1 million and depreciation costs of $886,667, the net cost at year-end
would be about $69.68 million. According to Steinberg if Precision were positioned as a
mainstream product, about 26.8 million brushes would be sold through the retail channel in the
first year and thus accounting for an income of $47.17 million, considering manufacturers price
of $1.76 per piece. In the second year, expenditure would come out to be approximately $71.93
million and considering sales of 44.1 million brushes through retail channels, income would
stand at $77.62 million. Considering no more capital expenditure from the third year, stagnant
demand and similar promotional expenditure as that in the 2 nd year breakeven would occur in
the 46th month, followed by yearly profits of $9.59 million. At the end of 5 years, the net profit
would stand at $ 11.18 million.
As it can be seen, both the strategies give an almost equal total profit at the end of 5 years.
From the 6th year onwards, positioning the toothbrush in the mainstream category would give
more profits than in the niche category. However, the assumption made is that the demand will
remain constant in both the categories from the 2nd to the 5th year. It must be remembered
however, that toothbrush as a product is prone to technological innovation and competition.
Due to this, it becomes increasingly difficult to imagine a product life of greater than 5 years.
Therefore, assuming a product life of less than 5 years, it makes sense to position the
toothbrush in the niche segment rather than in the mainstream, which will give more profit for
a period less than 5 years.
Also, by setting up Precision retail shelves close to the super-premium toothbrushes of the
competitors, Colgate hopes to make consumers aware about the additional benefits of
Precision as compared to the competitors niche brands. Furthermore, none of the 4 SKUs
would be dropped if Precision were launched as a niche product. A negative result of
channeling the Precision toothbrush through the mainstream market is that the Childrens 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 superpremium SKU on the market. Moreover, production capacity would require 10 months leadtime and this sudden switch would also cause a shortage in supply.
PGP 2011-13
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