Cottle-Taylor: Expanding the Oral Care Group in India

Case Analysis

1. What factors influence the demand for toothbrushes in India? How can
demand be increased?

The factors affecting the demand of the Cottle toothbrushes can be pull factors - Higher
income, demographic trends, awareness, perception of the image of the product - or
push factors - advertisement, trade promotions, the utilizations of the distribution
channel.

They can be categorized as economic (GDP growth, higher disposable income) or social
factors like partnerships with IDA creating awareness in the consumer about the tooth
brushing and partnering with dentist and sharing the latest research.

a) The economic condition

- The economic and political condition of India shows growth and stability that
says the overall demand for the products are increasing, 1.4% population
growth annually and 17% growth in the last decade clearly indicate the
potential for future growth.

b) Affordability
- The disposable income and the income of the consumers.
c) Price
- As the case mentions due to inflationary pressure they were going to
increase the prices. Demand may decrease for these prices particularly in low
end segment but the case is salient about that factors.
d) Oral hygiene Awareness
- Consumer understanding on what are the key differences between good and
poor quality products in the market
e) Rise in the income of the consumer
f) Frequency of use
- Number of times a consumer brushes his/her teeth.
g) The impact of advertisement
- Advertisement is a push factor of demand. The likely hood that people
exposed to them switch to the products

h) Role of IDA
 - partnering with IDA providing free samples, free dental checkups are creating
a good image of the Cottle products
i) Change in demographic trends
j) The perception of the consumer
k) Partnering with the dentist
l) The availability of the close substitute products
m) Distribution and retailing network
- The ease with which product is accessible contributes to demand as well.
n) Shifting people toward urban area

Demand can be Increased by below measures: -

 Consumer Education: To help establish and reinforce brand awareness, Cottle

partnered frequently with the IDA to conduct research studies and dental health
outreach campaigns. As a result, Indians considered Cottle an authority on oral care
and held their products in high regard. This resulted in increase in demand.
 Consumer Perception: Because of partnership with IDA, consumer perceive Cottle
as a benchmark organization aka regulatory authority and consider their products in
high regard, leading to increase in demand.
 Brush Frequency: Because of increasing awareness of dental health benefits from
IDA, there is a chance that people might increase their brush frequency, resulting in
increase in demand
 Brush Replacement: Again because of various awareness programs ran by IDA,
people might replace brush sooner than they have been replacing till now, resulting
in increase in demand.

 Increase in Advertisement budget: By increasing advertisement budget and using

it to tap into avenues such as targeting non-user base of Cottle in rural areas,
educate rural population about the benefits of mid-level and upper-level brushes and
also preventing loyal user base of rural areas.
2. How is Cottle-Taylor doing in India? Assess their performance.

Cottle India, Subsidiary of Cottle-Taylor, focused exclusively on oral care.

Products were sold in more than 4,50,000 retail outlets, from small shops in town
to closet sized urban sidewalk vendors to super markets & specialty retailers.

We could say that Cottle have enjoyed the first mover advantage in the India.
With a vast presence of 50 years in the nation, It had reached to a level of market
leader with 38% share of the total Oral care market volume in 2009.

In the Toothbrush category, Cottle had two primary manual toothbrush

competitors in India : Hinda – Daltan with 21% market share & SarIndia with 11%
market share and 22% of market composed of low quality imported products
from China and Vietnam, Hence Cottle India was the leader in this type of
Oligopoly market with 46% share of the total tooth brush units sold in India in
2009.

Cottle India’s 4P’s across Indian Market :

Products: -

Tooth Paste,
Tooth Powder,
Tooth brush and

As the market for modern oral care products developed, Cottle planned to
introduce ancillary products, including the mouth wash and dental floss,
hence safe to say yes.

Promotion: -

3 key messages to advertise:

1) Persuade customers to brush for the first time

2) Increase the Incident of brushing
3) Persuade customers to upgrade to mid-range or premium products

Place & Distribution: -

 There were 3 categories of distributor based on the Revenue levels – 1)
20 largest distributors focused on high volume retail outlets in urban locations. 2)
250 medium sized distributors served wholesalers and retailers in semi urban
areas. 3) Last, Seed distributors in more than 300,000 outlets in small villages
across the country.

Prices:

 
 Toothbrush
o -Low-End Manual ->$0.20-$0.33
o -Mid-Range Manual ->$0.52-$0.98
o -Battery Operated ->$11.64 + refills $1.02
 Toothpaste
o -Basic (100ml) : $0.4
o -Advanced (100ml):$0.5
 Toothpowder
o -100 ml :$03

Cottle India Sales Revenues Vs. overall Oral Care Sector Growth ($ Millions)
           
2009
2008 2008 (overall  2009 (overall  2010E
  (Cottle) Industry sales) (Cottle) Industry sales)(Cottle)
Toothbrush products
total sales $59.0  $111.8  $70.1  $122.0  $100.2
     Low-End Manual $38.9   $45.4   $64.9
     Mid-Range Manual $11.6   $14.7   $22.0
     Battery-Operated
Brushes & Refills $8.4   $10.0   $13.2
Toothpaste Sales $163.0  $399.4  $194.7  $462.1  $224.3
     Basic $134.7   $161.6   $185.9
  Advanced $28.3   $33.1   $38.4
Toothpowder Sales $115.7  $301.3  $135.3  $308.1  $158.3
Total Sales $337.6  $815.4  $400.2  $895.6  $482.8

Performance of Cottle India

2008 2009
Percentage market Share (Cottle) (Cottle) 2009 Y-o-Y
       
Toothbrush products total sales 52.73% 57.49% 19%
     Low-End Manual     17%
     Mid-Range Manual     27%
     Battery-Operated Brushes & Refills     19%
Toothpaste Sales 40.81% 42.14% 19%
     Basic     20%
  Advanced     17%
Toothpowder Sales 38.39% 43.92% 17%
Total Sales 41.40% 44.69% 19%
Year on Year Growth  Oral Care Sector 2008 2009
     
Toothbrushes 11.05% 9.07%
Toothpaste 10.70% 15.71%
Toothpowder 10.70% 2.26%
Mouthwash/Floss 10.51% 16.52%
Total India Oral Care Sector Growth 10.75% 9.83%

3. Please develop contribution analysis and income statement projections for

marketing
toothbrushes in India

Contribution Analysis of toothbrush products:

From the above calculations,
Patel’s expected sales and revenues in 2010: From exhibit 7, we can get unit sales
for 2009 and also projected unit sales of 2010 by Patel. Given the unit sales of 2009
and projected unit sales of 2010, we can get % increase in unit sales as per Patel’s
projection. From this we can infer that there is 20% increase in unit sales for complete,
sensitooth, fresh gum, 7%increase in surround, 8% increase in kidsie. These %
increases account for the low-end manual toothbrushes in 2010. In 2009, unit sales of
low-end manual tooth brushes totaled to 299.5 M. With the percentage increase in 2010
projections, unit sales of low-end manual tooth brushes totaled to 356.5 M. Patel
considered a 20% increase in price to account for inflation and increase in demand for
tooth brushes. After considering increase of 20% for prices, total revenue from low-end
manual tooth brushes is $65.99 M.

Contribution Margin per unit tooth brush = (total revenue - total variable costs) /
total number of units.
Contribution margin of Low-End Manual Tooth Brushes as below:
 Complete Low-End Manual Tooth Brushes = (0.44*49.81)/276.7 = 0.079
 Sensitooth Low-End Manual Tooth Brushes = (0.44*7.75)/35.9 = 0.095
 Fresh Gum Low-End Manual Tooth Brushes = (0.44*3.89)/18.0 = 0.095
 Surround Low-End Manual Tooth Brushes = (0.44*2.21)/9.7 = 0.100
 Kidsie Low-End Manual Tooth Brushes = (0.44*2.33)/16.2 = 0.063
Contribution margin of Mid-Range Manual Tooth Brushes as below:
 Zagger Mid-Range Manual Tooth Brushes = (0.44*14.96)/43.0 = 0.153
 Direction Flex Mid-Range Manual Tooth Brushes = (0.44*6.67)/10.8 = 0.277
Contribution margin of Battery Operated Tooth Brushes as below:
 Swirl Brush Battery Operated Tooth Brushes = (0.44*13.02)/1.7 = 3.379
 Refills Battery Operated Tooth Brushes = (0.44*0.13)/0.2 = 0.295

Lang’s expected sales and revenues in 2010: Lang forecasted % increase in unit
sales of low-end manual tooth brushes as 16%, mid-range manual tooth brushes as
120% and battery-operated tooth brushes as 25%. Using these % increase in sales, we
can calculate unit sales in 2010 and also revenue in 2010. So, we can infer that total
number of unit sales of low-end manual tooth brushes is 347.42 M and revenue from
these units is 64.29$ M. Total number of unit sales of mid-range manual tooth brushes
is 94.60 M and revenue from these units is 38.26$ M.
Also, total number of unit sales of battery-operated tooth brushes is 2.13M and revenue
from these units is 14.5 $ M.
As per above forecasted values of Lang, we can calculate contribution margin:
Contribution margin of Low-End Manual Tooth Brushes as below:
 Complete Low-End Manual Tooth Brushes = (0.44*48.15)/267.5 = 0.079
 Sensitooth Low-End Manual Tooth Brushes = (0.44*7.49)/34.7 = 0.095
 Fresh Gum Low-End Manual Tooth Brushes = (0.44*3.76)/17.4 = 0.095
 Surround Low-End Manual Tooth Brushes = (0.44*2.38)/10.4 = 0.100
 Kidsie Low-End Manual Tooth Brushes = (0.44*2.51)/17.4 = 0.063
Contribution margin of Mid-Range Manual Tooth Brushes as below:
  Zagger Mid-Range Manual Tooth Brushes = (0.44*26.34)/75.7 = 0.153
 Direction Flex Mid-Range Manual Tooth Brushes = (0.44*11.92)/18.9 = 0.277
Contribution margin of Battery Operated Tooth Brushes as below:
 Swirl Brush Battery Operated Tooth Brushes = (0.44*14.40)/1.9 = 3.379
 Refills Battery Operated Tooth Brushes = (0.44*0.17)/0.3 = 0.295

Projected Income Statement

INCOME STATEMENT PROJECTED

  % 2009 Patel 2010 Lang 2010
10
Gross Revenue 0 70.1 100.95 117.59
Less: Trade Discounts 10 7.01 10.10 11.76
Net Revenue 90 63.09 90.86 105.83
Less:        
Variable,
Manufacturing, Selling
and Distribution Costs 46 32.25 46.44 54.09
Gross Margin 44 30.84 44.42 51.74
Less:        
Advertising 9 6.31 9.09 14.11(Ad 12%)
Consumer Promotions 3 2.1 3.03 3.53
Selling, General and
Administrative Costs 14 9.81 14.13 16.46
Profit from Operations 18 12.62 18.17 17.64
From the above projected income statement, we can see that revenue from Patel’s
projection is 100.95$ M. After you deduct variable costs, gross margin is 44% of gross
revenue, which is 46.44$ M. After you deduct expenses such as advertisement,
promotions, SG&A, profit from operations will be 18.17$ M.
In the same manner, as per Lang’s projection, gross revenue will be 117.59$ M. After
you deduct variable costs, gross margin is 44% of gross revenue, which is 51.74$ M.
After you deduct expenses such as advertisement, promotions, SG&A, profit from
operations will be 17.64$ M.

Because of higher advertisement expenses (12% of sales), profit from operations is

lower for Lang compared to Patel.

4. Based on your analysis, what should Cottle Taylor do to accelerate the

development of the toothbrush market in India?

Following are the few measures that can be implemented by Cottle to accelerate
the development of toothbrush market in India

 Focus on increasing market share for Low End Manual Toothbrushes in

rural areas:
There is a huge opportunity for Cottle to exploit the rural marketplace for
toothbrush since more than 50% of the rural Indians are not even using the
toothbrushes. They should encourage more people to use the toothbrush and
make marginal changes by probably playing the volume game for low end
manual tooth brushes in rural areas.
Focus on hiring local teams who speak local dialect and engage them in the
supply chain. This will help build strong network chain of people which would
help people relate to the products in a better way.

 Increase awareness about brushing frequency and brush replacement:

 Among the people, those who already use brushing to clean their teeth, very few
follow the IDA guidelines which suggest brushing twice a day and changing the
toothbrush once in every three months. As of in 2009, only 8.6% toothbrush
users replace their toothbrushes every three months. Cottle India has an
opportunity to increase their sales by encouraging people to change their
toothbrushes frequently specially in urban areas.

 Implement different Marketing Strategies in Urban and Rural Areas:

The below marketing strategies can be perhaps used in these segments
Urban Areas: They can go for celebrity endorsements, getting bill boards in
place for advertisements or link their work to CSR activities by showing
significant work being done on dental hygiene in rural areas.
Semi Urban and Rural Areas: They can probably go for free dental checkup
camps, and provide them free samples for first usage. This would help them get
the engagement going for further sales.

 Give priority to Consumer Education:

Cottle-Taylor should collaborate with Indian Dental Association and put in efforts
to increase the consumer awareness about the benefits of dental hygiene. Cottle
India should spread awareness among people as it has been found that people
when educated start using the toothbrushes.

 Improving skill set of local labor:

Huge number of dentists had left India and they do not wish to work in India
especially in rural areas of the society because of lack of skilled labor to support
these dentists and technicians. Cottle should focus on training programs to
improve skill set of labor in rural areas so that the dentists can stay and work in
rural areas which would help them get a strong foothold in the rural market via
the dentists who can recommend using toothbrushes to the rural population of
the country.

 Focus on increasing margins for Mid-Range Manual Toothbrushes:

 The margins for mid-range manual toothbrushes especially the Zagger category
is the lowest among their toothbrush portfolio. They should try to increase their
margins for this product.

 Develop separate marketing plans for urban and rural areas:

The focus in the rural segment of the market should be to make them use the
toothbrush for the first time and make them aware of the benefits of dental
hygiene and make them increase the frequency of brushing whereas in urban
areas the focus should be firstly on up selling of products and secondly making
people change their brushes after every three months and encourage them to
increase the frequency of brushing.