Group 9_Colgate Palmolive-The Precision Toothbrush

Colgate Palmolive Company: The precision toothbrush

Group 9

Major Changes in the toothbrush category: y

y y

y

The U.S oral care market comprises mainly of Toothpaste, Toothbrush, Mouthwash and Dental floss. Since 1987 dollar sales have shown an average growth rate of 9.3% p.a. The category which was divided solely into two segments in the 1980s, i.e., Value & Professional, Professional, saw further divisions into super premium brushes by the late 1980s. Retailers expanded shelf space due to margins of 25%-35%, doubles that of toothpastes, also resulting in an increase in the SKUs of stores.

Colgate Palmolives competitive position: In 1991 CP held 43% of the world toothpaste market share & 16% of toothbrush share. y y

In 1991 toothbrush sales reached $77 million with operating profits of $9.8 million. CP stood as number 1 in the toothbrush market with a 23.3% market share.

Based on the three segments its 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 sales

y

Profession brushes ($1.59 to $2.09)  41 % sales unit volume & 42% dollar sales

y

Value brushes ( avg $1.29) - 24% sales unit volume & 12% dollar sales

By bristle type y

Firm

bristle  8% sales declining @ 13% pa

y

Medium bristle  39% sales declining @ 4% pa

y

Soft bristle  48% share growing @ 7% pa

y

Extra

soft bristles  5% share growing rapidly

Consumer behaviour y

Consumers becoming more concerned about the health of their gums and willing to pay a premium for that.

y

82% of the toothbrush purchases were unplanned.

y

Consumers replaced their toothbrush only once in 7.5 months.

Page 1

Colgate Palmolive Company: The precision toothbrush

Group 9

Consumer segmentation y

Therapeutic brushers  46% - Search for functionally effective products.

y

Cosmetic brushers  21% - search for cosmetically effective products

y

Uninvolved consumers  33% - Indifferent towards products.

Financial Calculations analysing the two positioning strategies: Niche Product Y1 Y2

Mainstream product Y1 Y2

Units Retail(projected)

8MM

15MM

26.8MM

44.1MM

Unit Price($)

$3.05

$3.05

$2.75

$2.75

Net Sales($Mn) Cost Of Sales($Mn)

24.4 8.58

45.75 13.2

73.7 26.88

121.28 37.76

Advertisement($Mn)

11.2

11.7

32.8

29

Operating Profit Cannibalization Loss (35%) Net Profit ($Mn)

4.62

20.85

14.02

54.52

6.97 7.05

11.46 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 viable option. 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 i s 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.

Page 2

Colgate Palmolive Company: The precision toothbrush

Group 9

Page 3