Procter and Gamble’s mouthwash product, Scope, had a 32% share of the Canadian mouthwash market in 1990. However, the launch of Plax in 1998, a new pre-brushing mouthwash category, continues to present a challenge to Scope’s market share. Gwen Hearst, the brand manager for Scope at Procter and Gamble, is tasked with devising a strategy to maintain Scope’s profitability. Her objective is to develop a three-year marketing plan for Procter and Gamble’s mouthwash business.
Decisions include determining how to respond to the emergence of mouthwashes, like Plax, which prioritize “health-related benefits”, and whether it would be more beneficial for the company to introduce a line extension or a brand extension in order to capitalize on this growing market segment. Hearst can also advise Procter and Gamble (P&G) against pursuing a line or brand extension. Situational Analysis Market Analysis The mouthwash market in Canada is highly competitive, with sales experiencing a significant 26% increase in 1987.
The mature growth stage of the market saw a 5% yearly increase in 1990, resulting in total retail sales of $68.6 million. Within this year, drugstores accounted for around 65% of these sales, while food stores contributed approximately 35%. The market encompasses after-brushing rinses, pre-brushing rinses, fluoride rinses, and flavored rinses. To tap into the potential for higher profitability in the Canadian mouthwash market, there is an opportunity to develop innovative pre-brushing rinses like Plax and flavored rinses that offer a less intense experience than regular mouthwashes.
The Canadian mouthwash market experienced a significant shift when Plax was introduced. Competing brands faced substantial loss of market share following the introduction of Plax. According to a 1990 study, 75% of Canadian households used one or more mouthwash brands for each household member at least three times a week. Procter & Gamble’s Scope brand is the leading mouthwash brand, holding 32% of the market share. Another four brands collectively hold 48% of the market share. This market faces various economic barriers that could pose risks to new entrants.
Companies seeking to introduce products in this market must consider regulations established by the Health Protection Branch and The Canadian Dental Association. Additionally, companies with a pre-existing mouthwash product aiming to enter the Canadian market may encounter challenges regarding artificial sweeteners, as the primary sweetener used in the U.S. is prohibited in Canada, and vice versa. Moreover, companies must be prepared to make substantial investments in their marketing campaign due to intense competition from emerging rivals.
According to a 1990 survey, 40% of individuals who use mouthwash do so for the purpose of both basic oral hygiene and to combat bad breath. To make informed choices regarding oral care, consumers require knowledge of the oral health benefits provided by different products. This emphasis on health care advantages is currently shaping consumers’ decisions to use mouthwash. Despite the barriers to entry, the Canadian mouthwash market presents significant growth potential, which keeps the threat of new competitors high.
Companies can compete in the mouthwash market through two avenues: drugstores and food stores. Currently, certain brands have better performance in one avenue compared to the other, while some brands perform equally well in both. With 65% of sales originating from the drugstore avenue, potential entrants may benefit by choosing the less utilized route of food stores.
Customer Analysis: The households that use mouthwash were categorized into heavy, medium, and light users based on their usage frequency. Heavy users, who used mouthwash at least once a day on average, accounted for 40% of all mouthwash users.
On average, medium users accounted for 45% of mouthwash users and rinsed two to six times a week. In contrast, light users only comprised 15% of mouthwash users and rinsed less than once a week. The target market for mouthwash in Canada includes all users, regardless of their level of usage. Consumers use mouthwash for various reasons such as preventive maintenance in daily oral hygiene, reducing bad breath, and eliminating germs. Additionally, some individuals use mouthwash to boost their confidence, while others rinse to avoid causing offense to others.
By addressing the reasons why 25% of Canadian households do not use mouthwash, companies have the potential to tap into this untapped market. These reasons include the perception of having fresh breath without mouthwash, the belief that brushing alone is sufficient, and the preference for chewing gums or mints due to convenience. A well-developed marketing strategy can attract new mouthwash users from this demographic. Competitor Analysis: Pfizer, Merrell Dow, Colgate, and Warner-Lambert are all key players in the mouthwash industry. Notably, Warner-Lambert was the pioneer with its product Listerine.
Procter & Gamble successfully launched Scope as a competitor to Listerine. In the early ‘80s, Merrell Dow also found immediate and sustained success with Cepacol. Pfizer surprised the market in 1988 by launching Plax, which divided the industry into two strategic segments and achieved immediate success. Colgate also introduced its own rinse in 1988. The launch of Plax in 1988 divided the mouthwash industry into two markets, as it was integrated into a pre-brushing routine.
Currently, Plax is the sole pre-brushing mouthwash available in the market. Despite being a new entrant, it has already made an impact on competing brands like Listerine, Colgate Fluoride Rinse, and Cepacol. These brands belong to the mouthwash segment, which has built its image around two key attributes: the power to eliminate the bacteria responsible for bad breath and the ability to provide a refreshing sensation. Listerine and Cepacol have positioned themselves as oral care products specifically designed to combat bad breath-causing germs.
Colgate Fluoride Rinse and Plax have similar positioning, but Colgate received the CDA’s seal of approval. The performance and profitability results for Scope in Canada and the US differ. In Canada, Scope captured a dominant 33.0% market share, while in the US, they ranked second behind Listerine with only a 16.1% share. Despite being a newcomer with a significant marketing campaign in 1988, Colgate Fluoride Rinse held a 10% market share.
In an effort to combat Scope’s entry into the market, Listerine introduced various flavors of their product. Although this extension proved successful, it resulted in diminishing sales of their original product. While Colgate’s Fluoride Rinse received approval from the CDA for its cavity prevention claims, it gained only a 2% market share. Although this initial achievement aided in the product’s launch, sales have gradually declined, leading to speculation that Colgate may discontinue this item. Image and Personality.
According to McDougall & Ramsoomair in Kerin & Peterson (2012), Listerine positioned itself as the first therapeutic germ-killing mouthwash that eliminates bad breath. Consumers perceive Listerine as the top performer and rate it above average in all categories. However, all users perceive Plax as performing better than Listerine. Despite being on the market for a shorter period of time, Plax’s marketing campaign has been effective in the eyes of consumers.
Plax marketed itself as a pre-brushing solution that not only loosened plaque before brushing but also facilitated the removal of more plaque compared to just brushing alone. However, consumers perceived Plax as superior in plaque removal, gum and tooth health improvement, and receiving recommendations from healthcare professionals. Plax was highly favored by consumers, although Listerine remained the preferred choice among brand users. These are the current and past strategies.
The original strategy, prior to Plax, aimed to highlight the product’s effectiveness in eliminating germ-caused bad breath or its ability to freshen breath. Cepacol adopted Listerine’s approach of emphasizing germ-killing properties and achieved moderate success. The current strategy for Plax includes: a) increasing product usage by promoting more frequent use, b) enhancing the product’s taste, and c) striving for market competitiveness while appealing to loyal consumers through differentiation.
Plax has achieved success in two out of three aspects of its strategy. It remains to be seen if it can increase consumer usage frequency. Strengths and weaknesses. Scope faces a challenging decision between line or brand extension, or emphasizing more benefits of its current product. So far, competitors have only focused on promoting a single characteristic of their products; no other brand has attempted to promote multiple attributes simultaneously.
If Scope were to promote its ability to reduce plaque and freshen breath, it could demonstrate that it is capable of achieving both objectives. However, this could also be seen as a potential warning sign, as no other company has successfully managed to promote two attributes simultaneously. Additionally, introducing a new product line may result in some level of cannibalism between products, as observed with Listerine. There is also the risk that the new product line may fail to achieve the necessary sales, as seen with the Colgate Fluoride Rinse.
Environmental Analysis Economic. The mouthwash market in the US and Canada has seen a rise in popularity, especially with the addition of new flavors in the late 1980s. However, its growth rate has now stabilized at 5%. Regulatory. Both countries have laws that regulate the mouthwash industry. In Canada, it is supervised by the Health Protection Branch and monitored by the Canadian Dental Association.
The American and Canadian Dental Associations are separate entities, sometimes disagreeing on which products will receive their seals of approval. Mouthwash industry competitors must create two product formulations to sell in both Canada and the US. Similarly, the US and Canada have differing views on artificial sweeteners. The US permits saccharin usage but considers cyclamate a banned substance, while Canada deems cyclamate safe but has banned saccharin. This divergence reflects cultural differences.
In both Canada and the US, mouthwash and oral care products are commonly used, although usage levels may differ among households. Nonetheless, overall usage remains consistent. Studies have shown that Canadian households typically use multiple brands of mouthwash. Procter and Gamble (P&G), a worldwide corporation, distributes its products in over 140 countries.
The company’s net earnings in 1990 were $1.6 billion, with Procter and Gamble Canada achieving $1 billion in sales and $100 million in net earnings. From 1987 to 1990, global sales increased by $8 billion and net earnings increased by $1.3 billion.
Scope held the largest market share based on units sold from 1988 to 1990, maintaining a market share of 33.0% in both years and a market share of 32.3% in 1990.
In addition, Scope had the dominant share based on sales in food and drugstores; it captured a 42% share in food store sales and a 27% share in drugstore sales. Considering that drugstores account for 65% of mouthwash sales, there is significant room for improvement for Scope in this aspect.
Hence, enhancing drugstore sales is crucial for Scope’s overall performance and customer satisfaction.
P&G employees believe that the company has fulfilled its commitment to developing innovative products that meet consumers’ needs. P&G is recognized as a leader in the Canadian packaged-goods industry, with its brands dominating most categories in which the company competes. In 1990, Scope held a 32% share of the Canadian mouthwash market. Customers who use Scope deem it superior to other products in reducing bad breath and average in terms of killing germs. However, it is below average in removing plaque, promoting healthier teeth and gums, preventing colds, and obtaining recommendations from doctors and dentists.
Plax is linked to the reduction of plaque, while Scope is associated with reducing bad breath according to a 1990 survey. Mouthwash users in general view Scope as below average in terms of killing germs, removing plaque, and promoting healthier teeth and gums. Additionally, both Listerine and Plax are more costly than Scope in food stores, and Plax is pricier than Scope in drugstores.
Scope was cheaper than Listermint and Colgate in food stores and Colgate in drugstores. Cepacol was also cheaper than Listerine in both food stores and drugstores. Additionally, the company has introduced a new pre-brushing mouthwash that is equally effective as Plax but with a more favorable taste. In terms of employee capability and performance, the team responsible for designing the three-year plan for Scope consists of individuals from various departments such as product development, manufacturing, sales, market research, finance, advertising, and operations. Lastly, there is a product portfolio analysis.
P&G Canada has five operating divisions: paper products, food and beverage, beauty care, health care, and laundry and cleaning. Scope, which falls under the healthcare division, is included in the oral care category. In terms of strategic options, Scope successfully overtook Warner-Lambert’s Listerine as the leader in the mouthwash market by promoting itself as a brand that not only tasted great but also refreshed the mouth while providing protection against bad breath.
The marketing campaign of Scope successfully took advantage of a perceived weakness in Listerine, which is known for causing “medicine breath.” By 1976, Scope had become Canada’s leading brand in the mouthwash market, surpassing Listerine. In 1987, Scope and other brands introduced mouthwashes with a wider range of flavors. Although this expansion of the mouthwash market had little impact on the market shares of the major brands. Procter & Gamble’s (P&G) overarching strategy has always been to introduce products that meet unaddressed consumer needs and are typically known for their superior performance. However, Scope may face challenges in competing with Listerine if it positions itself primarily as a plaque fighter.
In 1988, Listerine began a marketing campaign to establish itself as an effective tool for fighting plaque. Additionally, Listerine obtained the American Dental Association seal for plaque in the US. However, in Canada, Listerine has not yet received this seal because the Canadian Dental Association had doubts about the therapeutic value of mouthwashes. Despite this, Scope may struggle to gain a significant market share due to Listerine’s established dominance and market leader position in the US.
Scope faces challenges in competing with Pfizer Inc.’s Plax, which entered the Canadian market in 1988 as a “pre-brushing rinse” that improves the effectiveness of brushing to remove plaque. Pfizer used significant financial resources for advertising and sales promotions in Canada during this period, resulting in a 10% market share by 1990. Plax established a strong reputation for its ability to remove plaque and promote healthier teeth and gums. Consequently, Scope may struggle to compete with Plax for market share in the plaque-fighting category.
If P&G Canada decides to introduce plaque-fighting or other claims for Scope mouthwash, regulatory agencies may need to authorize it. This could affect the timeline for introducing new products and launching advertising campaigns. Currently, Scope is considered a cosmetic product that helps with bad breath. It contains antibacterial components and has been proven to reduce plaque more effectively than brushing alone. However, if Scope claims to reduce plaque, it would be classified as a drug instead. This would subject the product to more stringent regulations. Additionally, P&G lacks clinical data to advertise Scope for the prevention of inflamed gums. This data would help compete with Listerine, which currently advertises this claim. P&G has developed a pre-brushing mouthwash that is as effective as Plax and has a better flavor. However, introducing this product may result in cannibalizing existing Scope sales.
P&G has the choice to keep its product unchanged or explore alternative “claims” that can be utilized for their current Scope product. However, if P&G chooses not to compete with Plax and similar products in the new “health-related benefits” category, Hearst is concerned that the company might become the leading brand solely focused on fresh breath, resulting in a shrinking customer base. In 1990, Scope had the largest market share in Canada in terms of units sold, representing a 42% share in food (and wholesale club) stores and a 27% share in drugstores.
Excluding store brands, all competing companies have a higher proportion of sales in drugstores compared to food stores. Despite 65% of mouthwash sales taking place in drugstores, Scope may face additional challenges in competing with Warner-Lambert’s Listerine and Listermint and Pfizer’s Plax due to their larger market share in drugstore sales. In terms of financial resources, Scope, Listerine, and Plax accounted for a combined 90% of advertising expenditures in 1990, with Scope spending the highest amount on advertising among all major brands that year.
In 1990, Scope spent $1,700,000 on advertising, while Listerine, the second largest market shareholder, spent $1,600,000. Scope had the longest duration on air with 35 weeks, compared to Listerine’s 25 weeks and Plax’s 20 weeks. Scope and Plax had the same number of gross rating points (325), whereas Listerine had the highest with 450. Introducing a new product line extension would cost $20,000 for product testing. If P&G launched an unsuccessful new brand, it would be subject to paying $50,000 per stock-keeping unit to retailers for carrying fees.
A line extension would also involve expenses for capital and marketing. The company has the option to “source the product” from a P&G United States plant, which would result in additional delivery costs of $1 per unit. Moreover, it is estimated that the cost of ingredients would increase by $2.55 per unit and packaging costs would rise by $0.30 per unit. The ability of Scope to compete with Plax may be strengthened by a Better Business Bureau investigation, which found that using Plax before brushing was no more effective than simply brushing with toothpaste. This prompted Plax to change the claims used in its advertising campaign.
Moreover, P&G has created a product that is equivalent to Plax in its ability to decrease plaque. Nevertheless, there is apprehension among employees regarding the potential risks associated with developing a line extension based on this product. The product’s performance is comparable to that of Plax or a placebo. Some individuals believe that launching such a product would contradict P&G’s customary strategy and dedication to fulfilling “unmet consumer needs.” Additionally, introducing this product might harm P&G’s reputation and trustworthiness in the eyes of dental professionals. Conversely, numerous dental professionals have endorsed Plax.
Furthermore, the latest P&G product provides a better taste with comparable effectiveness. Introducing an unsuccessful brand can lead to the aforementioned fees. Nonetheless, by utilizing its current formula and promoting plaque-reduction in its advertising efforts, P&G can leverage its existing customer base and potentially attract new customers through health benefit claims. Additionally, this approach would prevent any potential costs associated with carrying fees.
The company faces the risk of customers rejecting the new claims and potential consumers not switching from competing brands like Listerine and Plax. Introducing a new product with claims of a “Better-Tasting Pre-brushing Dental Rinse” may attract Plax consumers but not those who don’t use mouthwash. Additionally, the new product might decrease sales of the original Scope formula. If the product is introduced as a line extension within the Scope brand, it could lead to losing current consumers who might not comprehend the new positioning.
There are several alternatives that have emerged in order to maximize market share, volume, and profitability of Proctor & Gamble’s Scope brand. These alternatives focus on the growing health related benefit segment of the rinse category. Each alternative has its own strengths and weaknesses. It is important to implement the alternative that provides the greatest benefit to the company and the Scope brand. After thoroughly researching the markets and available options, four alternatives have been identified as the most suitable for addressing the possible threat Plax poses to Scope.
The first option is to maintain the current Scope brand without making any changes. Scope has been successful in the rinse category for a considerable period of time. Unlike Plax, Scope is positioned differently and does not claim any health benefits. Nonetheless, Scope has its own strengths such as its pleasant taste and ability to refresh breath. The total rinse market is growing at a rate of 5% per year. If Scope can maintain its current 32.4% market share, this will result in increased sales and revenue for the company. To offset any loss in volume due to competition, the price would also increase by 5%.
P&G’s decision to not take any action also reduces the risk of costly changes that may not result in profitable outcomes. However, this choice could lead to Scope losing market share to competitors and restricting future growth potential in the expanding health benefits segment. The second option is a line extension, which aims to fulfill consumer demand for variety and address gaps in the product lineup that competitors have filled. Currently, Plax is the only competing brand in this category.
A line extension involves adding a new Scope product to the existing range. This new product aims to reduce plaque in the mouth before brushing. However, its effectiveness is comparable to Plax and does not surpass it. On the other hand, the Scope product would have a better taste than Plax, providing a competitive advantage. Implementing a line extension is a costly undertaking, requiring an additional $1 million per year for marketing expenses to support the new product separately from the original Scope.
Variable costs for the sourcing of development to a U.S factory, which is equipped to create the new formulation, would increase by $1.00 per unit for delivery. Additionally, the new formula includes ingredients that would cause a $2.55 increase per unit, although this amount could vary by 50% due to the availability of a newer ingredient. The setup cost for packaging will be spread over a smaller volume, resulting in a $0.30 increase per unit. The impact of the line extension was assessed using an estimated 4% cannibalization, as users of Original Scope are likely to switch to the new product, causing Original Scope to lose sales.
Plax is priced higher than other products due to its health benefits. Plax is currently sold for $65.09 per unit. The new Scope formulation is expected to be priced similarly. Market research suggests that the new product will capture a market share of 6.5% and stabilize at that level. It typically takes around 2 years for the market share to stabilize. Upon analyzing the financials, it is predicted that the line extension will result in a net income increase of $2.67 million compared to the original product, considering cannibalism. The third option is a brand extension, similar to the second alternative.
P&G will introduce a revamped version of Scope that combats plaque and will position it as a competitor to Plax. Unlike line extension, which extends the existing brand, this approach will market the new product under a completely different brand name. Due to the introduction of the new brand name, there will be additional marketing expenses of $3 million in the first year. In subsequent years, fixed costs will increase by $1 million and variable costs will rise at the same rate as the line extension.
The Brand extension is similar in share and pricing to the line extension, but it has the advantage of not confusing the consumer. Loyal Scope consumers may feel discouraged or bewildered by the new product under the Scope name, which may lead them to buy a competing product instead. However, by introducing a new name, the product becomes unique and stands out to consumers. Even though cannibalism is still a concern, it is seen as preemptive cannibalism because sacrificing Original Scope sales helps retain consumers and prevents an overall loss in volume.
The line extension results in an increase of $2.67 million in net profit by the end of year 3. The lower profit in year one is due to the initial expenditure of $3 million. The fourth alternative capitalizes on the claims made by product testing regarding the antibacterial ingredients in Original Scope and their effectiveness in reducing plaque compared to brushing alone. The re-launch of Original Scope would include a product reassurance emphasizing its plaque fighting properties. The formula remains unchanged and does not incur any additional costs. Research suggests that products claiming to reduce plaque can gain a 2% increase in market share.
The Original Scope share is expected to increase from 32.4% to 34.4% with the introduction of a new health-related claim. It is predicted that this claim could drive a higher retail price increase compared to the projected 5% increase for Original Scope. To estimate the impact, a 7% price increase was considered, resulting in a $1.16 million rise in year 3 net income. Although this increase is smaller than the increases seen in line and brand alternatives, this option does not face the same capital and strategic implications as the aforementioned alternatives.
Alternatives 2 to 4 will face delays due to the need for regulatory approval for the new product and the addition of the plaque claim. It should be noted that adding the assurance will not significantly increase volume, but it may prevent current users from switching to a competitor. Therefore, it is recommended that Procter & Gamble take proactive measures against Plax to protect the market share and integrity of the Scope brand.
Not taking action will cause the company to lose sales and miss an opportunity to expand its brand and improve customer service. After carefully evaluating the four alternatives and considering their financial and strategic effects on P&G and the Scope Brand, the most effective option to increase market share, profitability, and sales volume is alternative 3, which is the brand extension. Although there are slight variances between the brand extension and the line extension, it is more strategically advantageous to proceed with the brand extension.
One of our main goals is to maximize market share. The new product is projected to capture only 6.5% of the health-related category once it reaches a stable level in year 3, but it will secure Scope’s 32.4% share of the total mouthwash market. To accomplish this, we will introduce a brand extension with a name that is separate from Scope. This will ensure that loyal customers, who are used to Original Scope, are not confused or put off. Financially, this option is slightly more expensive than the line extension, as it involves marketing costs of $3 million dollars in year 1.
To achieve the brand extension, an additional $1 million dollars in marketing expenditures is required. Upon reviewing the financial impacts and accounting for a potential 4% cannibalization of Original Scope, the combination of the brand extension and Original Scope results in a wealth increase, which is one of our key goals. This option generates higher product contributions due to a higher sale price. Projected net incomes after accounting for cannibalization increase from our benchmark of $4.7 million for Original Scope alone to $7.39 million.
This assumes that the price of the new product will be the same as Plax. However, the new product has a key advantage: it tastes much better than Plax, which can be used as a competitive advantage. This advantage could lead to increased value, not only through a higher retail price but also by capturing a larger share of the market. While there is a risk that retailers may drop units of Scope for the new product or incur a $50,000 fee per SKU, we believe that the new product is different enough from Original Scope and Plax (the competition) that this will not be problematic.
Introducing a new plaque reducing product that tastes better will result in a larger growth in market share, company profits, and sales volume compared to the other options presented.
References
- Kerin, R. A. , & Peterson, R. A. (2013). Strategic marketing problems: Cases and comments (13th ed. ).
- Boston, MA: Pearson. McDougall, G. H. , & Ramsoomair, F. (2012).
- Procter & Gamble, Inc. : Scope. In R. A. Kerin, & R. A. Peterson, Strategic Marketing Problems (13th Edition ed. , pp. 240-252). Upper Saddle River, NJ, USA: Pearson. Appendix
