Professional Documents
Culture Documents
Anthony Garver
Issue: In 1992, Colgate-Palmolive (CP) faced a dilemma regarding the release and positioning of a new
technologically advanced toothbrush the Precision. Susan Steinberg, Precision product manager, was
weighing the option of introducing the new toothbrush to a niche market or to a mainstream market. Both
options had potential benefits and challenges.
Until 1991, the toothbrush category consisted of two segments: value and professional. Prior to 1990, industry
growth rates for the toothbrush category were in the single digits. That changed in 1992 when 47 new
products/line extensions were released. Their introduction led to 21% growth in value and 18% growth in
volume for the industry. Several factors influenced that growth, but the primary driver was the introduction of
the super-premium sub-category of toothbrushes. Exhibit 1 shows the amazing impact of the super-premium
toothbrush on the market where unit volume is second to the professional segment and unit sales exceed both
professional and value segments.
Prior to 1992, CP offered the Colgate Classic to the value segment and the Colgate Plus to the professional
segment. Market share and volume for the Classic was decreasing and market share and volume for the Plus
had marginal growth (Exhibit 2). In 1991 CP controlled 16% of the toothbrush market and toothbrushes
represented 19% of CPs overall Oral Care Division sales. In 1991, CP was the market leader with 23% of all
retail toothbrush sales.
Toothbrush selection for consumers was as important as toothpaste selection when it came to oral care. Exhibit
3 details consumer reasons for toothbrush use. The Precision toothbrush was a technological innovation with a
design that increased plaque removal by 35% compared with other brands. In consumer concept testing plaque
removal & preventing gum disease, together, ranked as the most important attribute in the purchase decision by
prospective consumers (Exhibit 4).
Recommendation: CP should pursue the mainstream positioning strategy for the Precision. Pro forma income
statement analysis supports the decision as does the cannibalization analysis. Further supporting this
recommendation, pursuing a mainstream strategy takes advantage of the rapid growth in the retail outlets (mass
merchandisers & club stores) that would purchase this new product.
Analysis of the Pro forma income statements shows the mainstream positioning strategy will lose almost
$6.7MM in year one, but earn $16MM in year two (Exhibit 5). A niche strategy loses less money in year one
($1.4MM) and makes $7.4MM in year two. Further, the mainstream strategy net income increases 142% year
one to year two. With a niche strategy the net income increases 119%. Pro forma analysis indicates supporting
a mainstream strategy.
The risk of cannibalization was analyzed in Exhibit 6. Two estimates were given for lost sales of the Plus: best
case 35% loss and worst case 60% loss. In the worst case scenario, neither strategy leads to a profit. In the best
case scenario, a niche strategy generates a profit in year one while a mainstream strategy generates a loss. In
year two, however, the mainstream strategy generates significantly more net profit than the niche strategy
generates. Cannibalization analysis indicates supporting a mainstream strategy.
Lastly, Exhibit 7 shows the impressive growth of the non-food and non-drug outlets. Mass merchandisers and
club stores have had impressive growth from 1989-1991 and they will generate a tremendous market for the
Precision in a mainstream strategy. Exhibit 8 shows the stark differences in growth for the various markets.
Analysis of the market for Precision indicates supporting a mainstream strategy.
Two other factors should be addressed by CP. First, reduce the overall number of SKUs carried. Exhibit 5
from the case shows Colgate has significantly more SKUs than their competition. Colgate should evaluate
their lowest performers and eliminate them. Second, its unacceptable that CP took 3 years to develop this
toothbrush. CP should evaluate its R&D process and implement efficiencies designed to speed their rate of
innovation.
Exhibit 1
Unit Volume
24%
35%
Dollar Sales
Professional
41%
12%
Super-premium
Value
46%
42%
Super Premium
Professional
Value
Exhibit 2
Market Share - Volume
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
1989
1990
Plus
1991
1992E
0.0
1989
Classic
Source: CP Case Exhibit 6 - Principal Toothbrush Brand Product Unit & Dollar Market Shares: 1989-1992E
1990
Plus
1991
Classic
1992E
Exhibit 3
Reasons for Use
Other
5%
Therapeutic
Use
41%
Indifferent
Users
33%
Cosmentic
Use
21%
Source: Colgate-Palmolive Company: The Precision Toothbrush Table B
Exhibit 4
Concept Test 2
Prevent Gum
Disease
74.0%
18.0%
68.0%
14.0%
Exhibit 5
Niche Positioning Pro Forma
Revenue
COGS
Gross Profit (Loss)
Year 1
$18,706,800
$8,606,400
$10,100,400
Year 2
$32,766,000
$13,200,000
$19,566,000
Revenue
COGS
Gross Profit (Loss)
Year 1
$53,744,000
$26,752,000
$26,992,000
Year 2
$84,192,000
$37,824,000
$46,368,000
$32,800,000
$886,667
$33,686,667
$29,000,000
$1,270,000
$30,270,000
($6,694,667)
$16,098,000
Expenses
Advertising
Depreciation
Total Expenses
$11,200,000
$316,667
$11,516,667
$11,700,000
$450,000
$12,150,000
Expenses
Advertising
Depreciation
Total Expenses
Net Income
($1,416,267)
$7,416,000
Net Income
Exhibit 6
Plus Sales (79%)
Classic Sales (21%)
Precision Sales
Total Revenue:
Mainstream Positioning
Best Case 35%
Worst Case 60%
No Cannibalization
Year 1
Year 2
Year 1
Year 2
Year 1
Year 2
$92,146
$117,233
$59,895 $76,201
$46,893 $23,958
$24,406
$31,051
$15,864 $20,183
$12,420
$6,346
$53,744
$84,192
$53,744 $84,192
$53,744 $84,192
$170,296
$232,475 $129,503 $180,576
$113,057 $114,496
No Cannibalization
Year 1
Year 2
$92,146
$117,233
$24,406
$31,051
$18,707
$32,766
$135,259
$181,049
Niche Positioning
Best Case 35%
Worst Case 60%
Year 1
Year 2
Year 1
Year 2
$59,895 $76,201
$36,858 $46,893
$15,864 $20,183
$9,762 $12,420
$18,707 $32,766
$18,707 $32,766
$94,466 $129,150
$65,328 $92,079
$52,528
$13,913
$37,824
$104,265
$28,051
$7,430
$26,752
$62,233
$34,143
$9,043
$37,824
$81,011
$21,011
$5,565
$26,752
$53,328
$11,220
$2,972
$37,824
$52,016
Plus COGS
Classic COGS
Precision COGS
Total COGS:
$43,155
$11,430
$8,606
$63,192
$52,528
$13,913
$13,200
$79,641
$28,051
$7,430
$8,606
$44,087
$34,143
$9,043
$13,200
$56,387
$17,262
$4,572
$8,606
$30,441
$21,011
$5,565
$13,200
$39,776
$88,958
$128,210
$67,270
$99,565
$59,729
$62,479
$72,067
$101,408
$50,378
$72,763
$34,887
$52,303
$22,223
$19,025
$8,976
$12,392
$29,000
$1,270
$92,885
$15,933
$13,530
$7,914
$9,613
$32,800
$887
$80,677
$22,223
$19,025
$8,976
$12,392
$29,000
$1,270
$92,885
$15,933
$13,530
$7,914
$9,613
$32,800
$887
$80,677
$22,223
$19,025
$8,976
$12,392
$29,000
$1,270
$92,885
$22,223
$19,025
$8,976
$12,392
$11,700
$450
$74,765
$15,933
$13,530
$7,914
$9,613
$11,200
$317
$58,507
$22,223
$19,025
$8,976
$12,392
$11,700
$450
$74,765
$15,933
$13,530
$7,914
$9,613
$11,200
$317
$58,507
$22,223
$19,025
$8,976
$12,392
$11,700
$450
$74,765
$35,325
($13,407)
$8,281
$6,680
($20,948) ($30,406)
$13,560
$26,643
($8,128)
($2,002)
($23,620) ($22,462)
Exhibit 7
70%
Volume Growth
100%
90%
60%
80%
50%
70%
60%
40%
30%
50%
40%
30%
20%
20%
10%
0%
Dollar Growth
10%
0%
% Growth
% Growth
Exhibit 8
400%
350%
400%
350%
300%
Club Stores
300%
Club Stores
250%
Mass Merch.
250%
Mass Merch.
200%
Military
200%
Food Stores
Food Stores
150%
Drug Stores
100%
Other
50%
0%
% Growth
Drug Stores
150%
Military
100%
Other
50%
0%
% Growth