SWOT Analysis for Colgate Palmolive Case Study.doc

Meg CareyMax JayapaulJulie LongmuirKate LynchRani MaromLiz SansoneMarketing 9703Dr. ChattalasColgate-Palmolive Case AnalysisApril 10, 2002COLGATE-PALMOLIVE COMPANY:THE PRECISION TOOTHBRUSHSWOT Strengths ColgateColgate-Palmolive is recognized as the worlds leader in personal care sales which included oral hygiene products like toothbrushes and toothpastes. In 1991, its sales topped at $6 billion and profits at $2.76 billionand as it cornered 43% of the worlds toothpaste market and 16% of the worlds toothbrush market. In the United States, the worlds largest market, ColgateColgate-Palmolive holds the number one spot in toothbrush sales with a market share of 23%. From these statistics, one of Colgate-Palmolives main strengths is being the market leader inpersonal oral care products. is one of ColgateColgateColgate-Palmolives extensive overseas reach is another main strength. Based on the data in the case study, ColgateColgate-Palmolivehas introduced 275 new products worldwide and setup manufacturing facilities in China and Eastern Europe, breaching the new emerging economies inof the 21st century. On top of that, international sales accounted for 64% of total sales andand profits from international operations account for 67% of the total profits for ColgateColgate-Palmolive.-PalmoliveColgateColgate-Palmolive hasa very large an extensive Research and Development department with a strength of boasting 170 employees worldwide. Though having a large R&D department does nt not directly contribute to increased necessarily constitute improvements in profits, ColgateColgate-Palmolives history of innovation Exhibit 2, ColgateColgate-Palmolive Company: The Precision Toothbrush Case StudyLaidler, N., “Colgate-Palmolive Company: The Precision Toothbrush,” Harvard Business School Case Study (1993): 38. in the toothbrush market is linked to its current position as the market leader in the toothbrush industry. Therefore ColgateColgate-Palmolives-Palmolives strong commitment to innovation through investment in R&D is amajor prominent strength. factor.With an energetic and visionary leader like Reuben Mark at the helm of ColgateColgate-Palmolive, the company has transformed itself into a lean and profitable machine, from its inefficient past, leading to increased ing profit margins and volume growth. Page 25, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 25. Clearly, having a visionary CEO is a strength.ColgateColgate-Palmolives-Palmolives positioning strategyof for its toothbrush line in food stores has aided in capturing a largetheir current dominant market share. Its in-store displays, combining toothbrushes with toothpaste packs and locating the ColgateColgate-Palmolive line of toothbrushes in the middle of the stores shelves have contributed to this dominance. its increasing market share. This strategy has been successful, asis good because toothbrush sales through food stores, drug Sstores and mass merchandising channels have produced the greatest volume and dollar are some of the top channels in terms of dollar and unitsales historically. Exhibit 13, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 45.ColgateColgate-Palmolive -Palmolive has a large number of stock keeping units for their toothbrush line. Exhibit 5, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 40. Multitudes of SKUs indicate that ColgateColgate-Palmolive-Palmolive is targeting a broad spectrum of market segments in the toothbrush market, which spreads ing tthe risk inherent to carrying any product. Diversification of product types within the toothbrush market is another strength factor Colgate-Palmolive holds. , which is a strength factor.ColgateColgate-Palmolives-Palmolives secret weapon in the war for supremacy in the super-premium market, ColgateColgate Precision, is proven has been foundto be very effective in removing plaque 35% momore effective than existing brands and in preventing gum disease. This advantage can be has beenattributed to the innovative design, high-tech research using CAD and infrared scanning, consumer research and extensive product testing. of the product. Though we plan to suggest positioning ColgateAlthough this technology is a strong argument for positioning Precision in the “super-premium” category, Colgate-Palmolive could also use its the design aspects can be copied to Colgateto improve Colgate-Palmolives existing “professional” and “value” toothbrush linesin the “professional” and “value” category in order to increaseimprove their respective market shares. Colgate-Palmolives patented Website United States Patent and Trademark Office, /patft/index.html (2002) innovation for Precision also stands as a strength upon which Colgate-Palmolive can lean for other market differentiating advancements.ColgateColgate-Palmolives -Palmolives recent plans to infuseion of new capital into its manufacturing facilities will bode well as it prepares to battle for market share in the new “super-premium” market segment. It Colgate-Palmolive will be able to canleverage its existing relationship with its manufacturing partner, Anchor toothbrush, to quickly and increase production of any new product release.cost-effectively product its newest product.WeaknessesThe impending release of ColgateColgate-Palmolives -Palmolives new toothbrush, Precision, may affect sales of its existing toothbrush lines. This may lead to a “cannibalization” of the ColgateColgate Plus and ColgateColgate Classics market of up by 35% to 60%. Laidler, N., “Colgate-Palmolive Company: The Precision Toothbrush,” Harvard Business School Case Study (1993): 34. of the expected Colgate Precision sales. Since the existing toothbrush lines isare the “cash cows” Exhibit 6, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 40. of the companys oral care division, a dismal performance by the new ColgateColgate-Palmolive Precision might drain the “cash cows” of its their resources market sharealtogether. ColgateColgate-Palmolives media expenditure layout is very small compared to its rivals. Exhibit 8, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 41. It has spent only $7 million dollars on its ColgateColgate-Palmolive Plus marketing efforts and has only a 19% of the share voice. Since media exposure fuels consumer demand Page 30, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 30. for a new product, this is one area where ColgateColgate-Palmolive needs to have its expenditures equivalent to that of its rivals.Another marketing weakness that ColgateColgate-Palmolive faces is thatits lack of professional dental endorsements, with less than half that in market share and dollar sales than that of their largest competitor, Oral-B. toothbrushes are not endorsed by dentists. This technique has been effectively used by Oral-B, Colgate-Palmolives competitor in increasing toothbrush sales.Similar to Colgate-Palmolives lack of professional endorsement, the Precision toothbrush does not have the fullest endorsement from the American Dental Associations (ADA). Although the ADA issued its seal to the product, the seal alone stands for little more than recognition that the toothbrush works. In fact, only when the ADA issues its seal and an official quote stating that a product is superior to similar product types, does a product receive the fullest support possible. Not having the full backing of the ADA is a weakness which Colgate-Palmolive may have to overcome to gain the professional endorsement they seek. Dr. Matthew Kerr, DDS, personal interview, 26 March 2002.OpportunitiesMacroeconomicThe emergence of the niche “super-premium” category presents a golden opportunity for ColgateColgate-PalmolivePalmolive to increase market share for several reasons. First, alTthough its competitors, i.e. Oral-B, Johnson & Johnson and Procter & Gamble, have gained a foot-hold in this niche market already, ColgateColgate-Palmolive -Palmolivecan still make a dent with its new Precision toothbrush, thus enabling them to enter a new and potentially highly profitable market segment. This niche category commands a premium price, which in turn results in a higher profit margin. Since Tthe “super-premium” category accounts for 35% of the volume salesand 46% of the dollar sales of toothbrushes sales Page 26, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Laidler, N., “Colgate-Palmolive Company: The Precision Toothbrush,” Harvard Business School Case Study (1993): 26. this niche category may in turn result in a substantial profit margin. Secondly, Wwith the baby boomers and younger generations becomingbeing more concerned with the health of their gums, they arewill be willing to pay athe above mentioned premium for a toothbrush Page 28, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 28. which is optimized for better gum care. This is a demographic segment ColgateColgate-Palmolive-Palmolive can capitalize upon this demographic segment to ensure a successful with therelease of their “super-premium” Precision toothbrush.Finally, Ssince 82% ofthe toothbrush purchases are unplanned and many consumers are unaware of the technological and cost variation among prices of varioustoothbrush brands, Page 28, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 28., ColgateColgate-Palmolive-Palmolive could establish a media blitz with educational ads depicting that are educational and shows ColgatePrecision toothbrushesto be as technologically superior to its rivals at an equivalent cost. and accent the fact that its prices are cheaper than most rivals. The ads can also serve to educate the consumersto about proper toothbrush replacement schedules to ensure replace the toothbrushes more often so that brushing can be moreeffectiveagainst plaque removal and gum disease prevention. Ultimately, Colgate-Palmolive could leverage their advertising campaign to boost sales and revenues.MicroeconomicOne of ColgateColgate-Palmolives -Palmolivescompetitors, Johnson & Johnson, Page 29, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 29., ranked third in toothbrush sales, was phasing out one of its toothbrush lines at the time of the Precision introduction. As the toothbrush market remains rather constant, courting customer from other brands, particularly ones being phased out, is a tremendous opportunity to gain market share. Ibid 5-6. This opens the way for Colgate-Palmolive to muscle in J&Js market share with its own toothbrush line. Another competitor, Smithkline Beecham, Page 30, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 30. was to make predicting an operating loss in its toothbrush business. Page 30, ColgateColgate-Palmolive Company: The Precision Toothbrush Case Study Ibid 30. If the losses are sustained, it Sustained losses might cause Smithkline Beecham to move out of the toothbrush business all together, yet again opening the door for further gain of market share. Another competitor, Lever did not have a track record of innovation and has a small market share. Colgate-Palmolive can “eat” up the competition. Colgate-Palmolives constant innovation also provides an opportunity to convert consumers away from less advanced toothbrushes, such as those offered by Lever.ThreatsThreat of intense segment rivalryThe super-premium toothbrush market is highly competitive, hosting many brands and private label toothbrushes. If any of these rivals creates a toothbrush which tops or even equals the technology of Precision, specifically if done at a lower production cost, ColgateColgate-Palmolive Colgatemay lose market share. Threat of new entrants Along with intense rivalry from existing competitors, Colgate-Palmolive has to deal with new competitors. In 1991, the toothbrush market exploded with a dramatic increase in new entrants. Proctor and Gamble introduced Crest Complete, their first toothbrush Ibid 30. Smithkline Beecham entered the market with Aquafresh Flex and a 9% market share volume for 1991. Levre, Pfizer and Sunstar all entered the market in 1991 and earned a total 11% market share. These numbers reinforce the seriousness of the threat of new entrants that Colgate-Palmolive will have to contend with when they launch Colgate Precision.Threat of substitute products Electric toothbrushes can usurp market share from the “super-premium” category. Similar to many industries, oral care technology has advanced tremendously since its inception in approximately 3000 B.C. The introduction of the nylon bristled toothbrush in 1938 case study pg 2. Ibid 26. represents one of the latest quantum improvements for the industry, however it was not the last. The introduction of electronic toothbrushes and water picks are threatening to usurp traditional oral care products market share. This is a threat which Colgate-Palmolive needs to heed, despite its confidence in the technology of Precision.Threat of suppliers growing bargaining powerColgateColgate-Palmolive -Palmolive depends on Anchor toothbrush for its outsourced manufacturing. Hence,If Anchor toothbrush has a decided supplier advantage in the relationship with Colgate-Palmolive. If Anchor toothbrush were to increase its supply cost, it wouldraises its rates, this will affect ColgateColgate-PalmolivesPalmolive production costs whichin in turnwill affect would impact Precisions market share by potentially pricing it above even the super-premium segment. Colgate-Palmolive needs to maintain a healthy relationship with Anchor toothbrush to reduce the risk of a costly supplier switching process.Threat of buyers growing bargaining powerOne of the factors which can cause buyers bargaining power to grow is when the switching costs for buyers are low. Even if Colgate-Palmolive were to position Precision as the most expensive toothbrush on the market, it is still a relatively inexpensive product, compared to many daily purchases (i.e. lunch in NYC or a cup of coffee at Starbucks). Therefore, buyers can easily switch between toothbrush brands without giving the decision much thought. To combat this threat, Colgate-Palmolive could position Precision as a superior toothbrush that customers can not afford to be without. PROBLEM STATEMENTIn 1992, after evaluating the current market condition and completing its research and development, Colgate-Palmolive was ready to begin marketing its newest toothbrush, Colgate Precision. Of major concern to Colgate-Palmolive was how to position, brand and communicate this new product to the general population. Colgate-Palmolive also had to develop budget constraints and generate a marketing mix that would maximize the sales and revenues of the new product. Colgate-Palmolive was faced with the decision of whether to promote the new product as a high quality niche product marketed mainly towards individuals concerned about gum disease, or as a mainstream toothbrush that would be marketed as the best toothbrush available. If marketed as a niche product, Colgate-Palmolive would target a smaller market segment without as many competitors vying for market share. A niche market segment would also be willing to pay a premium for the new toothbrush. If, however, the toothbrush were marketed as a high quality mainstream toothbrush, Colgate-Palmolive would realize revenues from larger volumes of sales despite a lower price and more competition.To reach its verdict, Colgate-Palmolive analyzed forecasted data with regard to potential sales volumes and prices, advertising, packaging, and manufacturing costs, among other factors. A summary of this analysis, and a marketing strategy recommendation follows.EVALUATION OF ALTERNATIVESIn August 1992, Colgate-Palmolive had two options regarding the positioning strategy for their new toothbrush titled Colgate Precision. Their choice was to position the product as a mainstream offering or target the Precision toothbrush to a niche market. The positioning of the product would have little to do with any modifications to the actual design of this toothbrush, but would effect the perception of the toothbrush within the market.Mainstream or mass marketing refers to the mass production, distribution and promotion of a single product to all potential buyers. Philip Kotler. Marketing Management: The Millennium Edition. (New Jersey: Prentice Hall, 2000) p. 256 Contrarily, niche marketing is a form of micro-marketing. It refers to a specifically defined group of consumers with a need that is not currently well served. A niche is created from a subdivision of a market segment. Philip Kotler. Marketing Management: The Millennium Edition. (New Jersey: Prentice Hall, 2000)Ibid p. 257 Due to the diversity of these two market types, the decision to market the Precision toothbrush as a mass-market product or as a niche product involves analysis of the advantages and disadvantages for each.Mainstream MarketingAdvantagesThe primary reasons to use a mainstream marketing approach is that the product is made accessible to a larger market. Marketing to a more diverse audience would enable Colgate-Palmolive to construct a more simple and direct campaign that would address the common concerns of all toothbrush buyers. Consequently, the use of television and radio would be more cost effective as it would reach this larger audience.The obvious goal of such a position would be to capture a greater return on the investment Colgate-Palmolive made on this products research and development effor