Colgate PalmOlive Case Study
Colgate Palmolive Case Analysis
“Position Niche vs. Mainstream: In Respect to Sales Cannibalization”
Analysis of the marketing strategic for Colgate-Palmolive’s (CP) new product launch of “Precision by Colgate” Toothbrush. How we would recommend to position (niche vs. mainstream), brand, and communicate the product in respect to sales cannibalization of the existing Colgate-Palmolive product “Colgate Plus” to ensure achieving the highest possible return.
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Consider Appendix 1. On the X-axis we have the therapeutic consumer. This refers to consumers who use the product due to health concerns (e.g. avoid oral problems). On the other hand we have cosmetic costumers, who are more concerned with cosmetic factors such as bad breath. The middle ground between the two extremes are customers who are uninvolved and simply use the product to prevent oral problems. Furthermore, on the Y-axis, we can see the price segments: Value, Professional, and Super Premium. The Super Premium category shows the strongest growth whilst the other two categories are stagnating and declining respectively, as we know from the case (Appendix 1).
The advantage of placing Colgate precision in the mainstream market is that it would be distributed through many mass merchandise and clubs stores, reaching a larger market. The product would be priced at $1.85 and would capture more revenue than if served under the niche market, with the potential to capture 10% of the US market in one year. The disadvantages are that some SKUs from the “Colgate Plus” line e.g. from the kid’s section would have to be removed and sales of old product lines would be cannibalizated after introducing “Precision by Colgate”. The advantages of positioning Colgate Precision as a niche product are that, despite lower profits (see Appendix 2), profits are still obtained and cannibalization of the mainstream product is kept to a minimum. Price of the product would be at a 15% premium over Oral-B at $2.13 and would allow CP to capture 3% of the market in the first year. With this strategy, CP can place the product using the same SKU’s used in this market. In a niche market, the disadvantages are that the product reaches a smaller audience as it is only sold at food and drug stores. Branding:
Of the brand names tested, Colgate Precision was consistently viewed more favorably and for this reason, we therefore advise using this name for the product. Whether the product is launched as niche or mainstream, one of our main considerations is to avoid cannibalization of Colgate Plus. We believe that the product should be branded as ‘Precision by Colgate’ rather than as ‘Colgate Precision’, assuming that the argument that cannibalization figures for Colgate Plus would increase by 20% if the Colgate brand name was stressed but remain unchanged if the Precision brand name was stressed. The company’s stated corporate strategy of building on the Colgate brand is still held intact, as the name ‘Colgate’ is clearly stated. CP places the product firmly in the super-premium bracket. It is being positioned to target consumers who are concerned about gum disease. This is demonstrated in the 4th concept test in Exhibit 17. The focus of the target customer’s concern with oral hygiene rather than cosmetics places the target customer in the ‘Therapeutic’ category. Communication and Promotion:
In terms of communication and promotion budget, CP is faced with two budget decisions: Raise the total communication and promotion budget and how to distribute this raise among Classic, Plus, and Precision. productlines According to the data of in-home usage tests, ‘77% of the testers claimed that Precision was much more effective than their current toothbrush’. This shows strong evidence that a mainstream positioning strategy can be very successful for the product launch of Precision, but it strengthens the concern that Precision will cannibalize Colgate Plus’s sales. Additionally it should be mentioned that consumers stated the new look of Precision as “unusual” with the consequence of mixed feelings. According to Exhibit 11, the weight of media advertising is increasing and as we know from the report the more test consumers were told about Precision and how it worked, the greater their enthusiasm for the product was.
Also, from exhibit 8 , the shares of voice is bigger when the expenditure on media is higher. But since Precision is a product that has a unique feeling in the mouth, and the fact that after trying it, consumers’ willingness to purchase rose dramatically, CP may consider raising the promotional budget for the new product launch to allow potential customers to try Precision in-store and in the presence of
To conclude our case analysis, we would recommend positioning the new product with the name “Precision by Colgate” with 4 SKUs into the super premium segment and brand it as a therapeutic toothbrush which is highly effective in preventing gum disease. This and the shelf placement between Colgate Plus and Oral-B product lines supports a more niche positioning strategy to enable us to get with the first six months of sales data a more educated picture of the cannibalization effect over “Colgate Plus”. Our communication and promotion budget will be in total $11.2 MM distributed on TV, acquiring professionals, and promoting “Precision by Colgate” with samples, in-store displays and retail advertising features to push awareness and finally sales. A long term strategy could be to closely monitor sales data of the two products and the cannibalization effect. In this way CP can decide after one year if they wish to reposition “Precision by Colgate” into a broader market in anticipation of declining sales from “Colgate Plus” product life cycle and capture a wide market share of the broad super premium toothbrush customer.