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Colgate Palmolive Company: The precision toothbrush Group 9
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Major Changes in the toothbrush category:
y The U.S oral care market comprises mainly of Toothpaste,
Toothbrush, Mouthwash andDental floss.
y Since 1987 dollar sales have shown an average growth rate of
9.3% p.a.y The category which was divided solely into two segments
in the 1980s, i.e., Value &
Professional, saw further divisions into super premium brushes
by the late 1980s.y Retailers expanded shelf space due to margins
of 25%-35%, doubles that of toothpastes, also
resulting in an increase in the SKUs of stores.
Colgate Palmolives competitive position:
In 1991 CP held 43% of the world toothpaste market share &
16% of toothbrush share.
y In 1991 toothbrush sales reached $77 million with operating
profits of $9.8 million.y CP stood as number 1 in the toothbrush
market with a 23.3% market share.
Based on the three segments its position is as follows:
Super premium segment: No presence
Professional Segment: 16.9% by volume & 18.5% by value
Value Segment: 6.4% by volume & 4.9% by value
Toothbrush market segmentation
Product segments
y Super premium brushes (priced above $2) 35% sales unit volume
& 46% dollar salesy Profession brushes ($1.59 to $2.09) 41 %
sales unit volume & 42% dollar salesy Value brushes ( avg
$1.29) - 24% sales unit volume & 12% dollar salesBy bristle
type
y Firm bristle 8% sales declining @ 13% pay Medium bristle 39%
sales declining @ 4% pay Soft bristle 48% share growing @ 7% pay
Extra soft bristles 5% share growing rapidly
Consumer behaviour
y Consumers becoming more concerned about the health of their
gums and willing to pay apremium for that.
y 82% of the toothbrush purchases were unplanned.y Consumers
replaced their toothbrush only once in 7.5 months.
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Colgate Palmolive Company: The precision toothbrush Group 9
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Consumer segmentation
y Therapeutic brushers 46% - Search for functionally effective
products.y Cosmetic brushers 21% - search for cosmetically
effective productsy Uninvolved consumers 33% - Indifferent towards
products.
Financial Calculations analysing the two positioning
strategies:
Niche Product Mainstream product
Y1 Y2 Y1 Y2
Units Retail(projected) 8MM 15MM 26.8MM 44.1MM
Unit Price($) $3.05 $3.05 $2.75 $2.75
Net Sales($Mn) 24.4 45.75 73.7 121.28
Cost Of Sales($Mn) 8.58 13.2 26.88 37.76
Advertisement($Mn) 11.2 11.7 32.8 29Operating Profit 4.62 20.85
14.02 54.52
Cannibalization Loss
(35%) 6.97 11.46
Net Profit ($Mn) 7.05 43.06
Recommendations:
Based on the financial calculations, it seems the right approach
to follow would be to initially go
with niche strategy of positioning for the short term as clearly
this is the more financially viableoption. Also there is the fear
of cannibalization of the products falling in the value &
professional
segment.
In the next financial year, however, even after accounting for
cannibalization losses we see that
the net profit is greater for mainstream products.
We thus suggest a strategy of initially going for the niche
market in the first and year and then
onto the mainstream market in the next year.
