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Proctor & Gamble Scope Case

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Case Analysis: Procter & Gamble, Inc. : Scope Problem Statement Procter and Gamble’s mouthwash product, Scope, had a 32% share of the Canadian mouthwash market in 1990. However, Plax, a new category pre-brushing mouthwash launched in 1998, poses a continuing threat to Scope market share. In early 1991, Procter and Gamble’s brand manager for Scope, Gwen Hearst, must decide on a course of action for maintaining the profitability of Scope. She is tasked with developing a three-year marketing plan for Procter and Gamble’s mouthwash business.

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Decisions include how to respond to the emergence of mouthwashes, such as Plax, that focus more on “health-related benefits” and whether a line extension or brand extension would be most advantageous to the company in profiting from this emerging market segment. Hearst can also recommend that Procter and Gamble (P&G) not pursue a line or brand extension. Situational Analysis Market Analysis The Canadian mouthwash market is a competitive market that hit its peak growth in 1987 with a 26% shift upwards in sales.

The market is still in the mature growth stage with a 5% yearly increase in 1990. The market had total retail sales of $68. 6 million in 1990 with approximately 65% of those sales coming from drugstores and the other 35% coming from food stores. The market is comprised of after-brushing rinses, pre-brushing rinses, fluoride rinses, and flavored rinses. The growth potential for market profitability in the Canadian mouthwash market is possible due to the innovative development of pre-brushing rinses such as Plax as well as flavored rinses that reduced the “sting” of regular mouthwashes.

The introduction of Plax was a major turning point in the Canadian mouthwash market with competing brands suffering considerable market share loss after Plax’s introduction. In a 1990 study, 75% of Canadian households used one or more mouthwash brands at least three times a week for each household member. Procter & Gamble’s Scope brand of mouthwash is the dominant brand with 32% of the market share with four other brands comprising another 48%. There are several economic barriers that present potential threats to entrants in this market.

Companies looking to introduce products in this market must take into account regulations set forth by the Health Protection Branch as well as The Canadian Dental Association. Certain companies that have a pre-existing product who are looking to introduce that mouthwash into the Canadian market will also find an issue when it comes to artificial sweeteners because the main sweetener in the U. S. is banned in Canada and vice versa. Also, companies must be willing to invest heavily in their marketing campaign since competition is fierce due to new competitors.

In a 1990 survey, 40% of mouthwash users rinsed as part of their basic oral hygiene routine and to reduce bad breath. Consumers will need to know the oral health care benefits of products in order to decide which one is best for their oral care needs; this focus on health care benefits is the growing trend in consumers’ decisions to use mouthwash. The threat of new entrants remains high despite these barriers to entry because of the growth potential in the Canadian mouthwash market.

There are two avenues in which companies can compete in the mouthwash market: drugstores and food stores. Currently, certain brands perform better in one versus the other, and some brands perform equally well in both. With 65% of sales coming from the drugstore avenue, potential entrants may benefit from taking the less utilized route of food stores. Customer Analysis The 75% of households that use mouthwash was segmented into heavy, medium, and light categories based upon usage. Heavy users on average used mouthwash at least one time a day and comprised 40% of all mouthwash users.

Medium users rinsed on average two to six times a week and comprised 45% of users, and light users on average rinsed less than once a week and only comprised 15% of mouthwash users. The target market is any Canadian that uses mouthwash, regardless of whether he is a heavy, medium, or light user. The reasons that consumers use mouthwash include preventive maintenance in their daily oral hygiene, reduction of bad breath, and to kill germs. Some even use mouthwash to feel more confident, and some rinse as a way to not offend others.

Companies can possibly take advantage of the 25% of Canadian households that do not use mouthwash by combating the reasons they do not rinse. These reasons include the following: they do not believe they have bad breath, brushing is adequate, or they find gums or mints more convenient. A carefully executed marketing plan may open up this market to new mouthwash users. Competitor Analysis Competitor Identification. Pfizer, Merrell Dow, Colgate, & Warner-Lambert all have a hand in the mouthwash market. Warner-Lambert was the first in the mouthwash market with its product Listerine.

Procter & Gamble then launched Scope as a direct competitor to Listerine with success. Merrell Dow then followed suit in the early ‘80’s with Cepacol, which also saw immediate and sustained success. Pfizer launched Plax in 1988 and split the market into two strategic segments while at the same time catching everyone else off guard with its immediate success. Colgate also launched a rinse of its own in 1988 as well. Strategic Groups. The mouthwash industry was segmented into two markets in 1988 when Plax was launched as part of a pre-brushing routine.

Currently Plax is the only pre-brushing mouthwash on the market, and even though it has only been on the market a short time the current players have already felt its impact. Listerine, Colgate Fluoride Rinse, & Cepacol are all part of the mouthwash segment. This segment has branded itself based on one of two characteristics: ability to kill the germs that cause bad breath or ability to freshen breath. Listerine and Cepacol both positioned themselves as the oral care product that would kill the germs that cause bad breath.

Colgate Fluoride Rinse has positioned itself in a manner similar to Plax, but Colgate was able to earn the CDA’s seal of approval. Performance. (Revenue and Profitability) Again the results between the two markets in which Scope competes were split. In Canada Scope was able to obtain a commanding 33. 0% market share, but in the US they fell into second behind Listerine, carrying only a 16. 1% share of the market. After its 1988 launch and an extremely large marketing campaign, the newcomer to the market held 10% of the market share.

In an attempt to fight off the entry of Scope to the market, Listerine did extend its brand with different flavors of Listerine. While the extension was successful, it came at the price of cannibalizing its original product. Colgate’s Fluoride Rinse did have the CDA’s seal of approval based on its cavity prevention claims, but it only achieved a 2% market share. While this initial success helped get the line off the ground, sales have since tapered off. There is speculation that Colgate may drop this product. Image and Personality.

As the first in the market, Listerine positioned itself as “a therapeutic germ-killing mouthwash that eliminated bad breath” (McDougall & Ramsoomair in Kerin & Peterson, 2012). In the eyes of the brand using consumers, Listerine is the top performer, receiving above average marks in all categories. However, in the eyes of all users, Listerine did not perform as well as Plax. Even though Plax has only been on the market for a fraction of the time of Listerine, its marketing campaign has clearly been effective in the minds of the consumer.

Plax positioned itself as a pre-brushing option that also helped to loosen the plaque before the user brushed, which would help the user remove more plaque than normally possible with brushing alone. However in the eyes of the consumer, Plax was viewed as being above average at being able to remove plaque, improve gum & tooth health, as well as being recommended by doctors and dentists. Plax outperformed all other products in the eyes of the consumer, but in the eyes of the brand users Listerine was the top performer. Current and Past Strategies.

The original strategy before Plax came along was to promote the fact that the product was either clinically proven to kill germs that caused bad breath or to promote the fact that the product freshened one’s breath. Cepacol followed the strategy of Listerine by promoting the fact that it was able to kill germs and achieved average success in doing so. The current strategy for Plax is to a) try to increase the usage of the mouthwash product by increasing the frequency of use, b) improve the taste of the product, and c) be similar enough to compete in the market but still be different enough to attract loyal consumers.

Plax has definitely succeeded in at least two of the three listed portions of its strategy, and time will tell if it is able to increase the frequency of use of the consumer. Strengths and Weaknesses. Scope has a tough road ahead in deciding whether to go with the line or brand extension or to try and promote more benefits of its existing product. Thus far all the competitors in the market have stuck to only promoting one characteristic of their products. No other brand has tried to promote more than one attribute of its product at once.

If Scope tried to promote its ability to reduce plaque as well as freshen breath, it could be a chance to show the market and consumers one can do both. Scope’s weakness is the same as its strength. The fact that no one else has been able to successfully show that you can promote two attributes could be a warning sign. Also there is the possibility, as shown by Listerine, that by introducing another product line, some level of cannibalism will occur between products. There is also the possibility the new product line could fail to achieve the sales it needs as occurred with the Colgate Fluoride Rinse.

Environmental Analysis Economic. The use of mouthwash is fairly common in the US and Canada. Overall in the late 1980’s, the market in general saw a large increase in sales as new flavors were introduced into the market. Since the introduction of the new flavors the growth rate of the industry has leveled off at 5%. Regulatory. The mouthwash industries in the US and Canada are governed by legal entities. In Canada, it is regulated by the Health Protection Branch but is also watched over by the Canadian Dental Association.

The American and Canadian Dental Associations are completely separate entities, who sometimes do not see eye to eye on which products will earn their respective seals of approval. Competitors in the mouthwash industry must create two formulations of their products in order to sell in both Canada and the US. Similar to their respective dental associations, the US and Canada do not agree on artificial sweeteners. The US allows companies to use saccharin and considers cyclamate to be a banned substance while Canada considers cyclamate safe to use but has banned saccharin. Cultural.

The use of mouthwash and oral care products within Canada and the US is fairly common. The frequency of use does vary of household to household but there is consistent use. While there is consistent use of mouthwash in general, studies showed that of the Canadian households that did use mouthwash one or more brands were used. Internal Analysis Performance Analysis. Profitability and Sales. Procter and Gamble (P&G) sells products in over 140 countries around the world. The company as a whole had net earnings of $1. 6 billion in 1990; Procter and Gamble Canada earned $1. billion in sales and $100 million in net earnings. Global sales increased by $8 billion and net earnings increased by $1. 3 billion from 1987 to 1990. Scope held the largest market share based on units sold from 1988 to 1990. It had a market share of 33. 0% in 1988 and 1989 and a market share of 32. 3% in 1990. It also held the largest share based on sales in food and drugstores; it held a 42% share in sales in food stores and a 27% share in drugstores. Since 65% of mouthwash sales occur in drugstores, Scope definitely has room for improvement in regard to drugstore sales. Customer Satisfaction and Product Quality.

P&G employees feel the company has delivered on its commitment to “develop truly innovative products to meet consumers’ needs. ”  P&G is considered “a leader in the Canadian packaged-goods industry” and its brands “lead in most of the categories in which the company competed. ”  In 1990, Scope had a 32% share of the Canadian mouthwash market. Customers who use Scope feel that it is better than average at reducing bad breath, below average at removing plaque, promoting healthier teeth and gums, preventing colds, and securing doctor and dentist recommendations, and average at killing germs.

Plax, however, is associated with plaque reduction. Brand Association. Based on a 1990 survey, customers that use Scope associate it with bad breath reduction. Mouthwash users in general do not feel the brand is “higher than average” in any category and that it is “below average” in regard to killing germs, removing plaque, and promoting healthier teeth and gums. Relative Cost. Based on retail prices for a 750-milliliter bottle, Listerine and Plax were more expensive than Scope in food stores, and Plax was more expensive than Scope in drugstores.

Scope was also less expensive than Listermint and Colgate in food stores and Colgate in drugstores. Cepacol is less expensive than Listerine in food stores as well as drugstores. New Products. The company has produced a pre-brushing mouthwash that is as effective as Plax and that has a better flavor. Employee Capability and Performance. The team created to develop the three-year plan for Scope includes representatives from product development, manufacturing, sales, market research, finance, advertising, and operations. Product Portfolio Analysis.

P&G Canada has the following five operating divisions: paper products, food and beverage, beauty care, health care, and laundry and cleaning. Scope is included in the oral care category, which is a part of the healthcare division. Determinants of Strategic Options Past and Current Strategies. Scope was able to topple Warner-Lambert’s Listerine as the market leader in the mouthwash market by marketing itself as “a great-tasting, mouth-refreshing brand that provided bad-breath protection. ”  Its marketing campaign successfully capitalized on a “perceived weakness” in Listerine, “medicine breath.  In 1976, Scope had surpassed Listerine as Canada’s market leader in the mouthwash category. Scope and other brands launched mouthwashes with greater flavor variety in 1987. Though these moves “expanded” the mouthwash market, there was little effect on the market shares of the major brands. P&G’s overall strategy has been to introduce products, “typically superior performing products,” designed to fill “unmet consumer needs. ” Strategic Problems. If Scope tries to position itself as a plague fighter, it may have difficulties competing with Listerine in that category.

In 1988, Listerine had already launched a marketing campaign to position itself as a plaque fighter. Also, in the US, Listerine has already secured “the American Dental Association seal for plaque. ”  It so far lacks the seal in Canada because the Canadian Dental Association (CDA) doubted a mouthwash “could be of therapeutic value. ”  However, it may nevertheless be difficult for Scope to gain market share and traction due to the status and established market share Listerine, which is the market leader in the US, has already earned in this category.

In addition to difficulties in regard to Listerine, Scope must also overcome challenges in competing with Pfizer Inc. ’s Plax, which in 1988 entered the Canadian market in a new category, positioning itself a “pre-brushing rinse” that increases the effectiveness of brushing to remove plaque. Pfizer used substantial financial resources in its advertising and sales promotions in Canada from late 1988 to 1990 and had earned a 10% share of the market by 1990. By 1990, Plax “had achieved a strong image on the ‘removes plaque/healthier teeth and gums’ attributes.  Scope may therefore have difficulties challenging Plax’s market share in the plaque-fighting category. If P&G Canada does decide to introduce plaque-fighting or other claims or develop a new mouthwash, it may need authorization from regulatory agencies, which may affect the timetable for introduction of any new products and the launch of any new advertising campaigns. Scope is now considered a “cosmetic” product that helps with bad breath. Scope is formulated using some antibacterial components and has been shown to “reduce plaque better than brushing alone.   Introducing claims that the product helps reduce plaque would cause the product to be classed instead as a “drug,” which makes the product subject to more “stringent” regulations. Also, the company lacks clinical data that would allow the company to advertise Scope in regard to “prevention of inflamed gums”; this data would allow it to compete more effectively against Listerine, which is currently using this claim. The company has produced a pre-brushing mouthwash that is as effective as Plax and that has a better flavor. However, introducing such a product may result in cannibalization of existing Scope sales.

P&G has the option of not changing its product and of instead exploring other “claims” that could be used for their existing Scope product. However, if the company does not try to compete with Plax and similar products in the new “health-related benefits” category, Hearst is afraid the company may end up being the market leader in a “breath-only” category with a diminishing customer base. Though Scope held the largest Canadian market share based on units sold in 1990, it held a 42% share in sales in food (and wholesale club) stores and a 27% share in drugstores.

Excluding store brands, each of its competitors has a larger share of drugstore sales than food store sales. Since 65% of mouthwash sales occur in drugstores, the smaller percentage of market share in drugstore sales may be another challenge to overcome if Scope is trying to competing with Warner-Lambert’s Listerine and Listermint and Pfizer’s Plax. Financial Resources and Constraints. Scope, Listerine, and Plax collectively represent 90% of all advertising expenditures in 1990. In 1990, Scope expended more in advertising than any other major brand.

It spent $1,700,000 while Listerine, which held the second largest market share in 1990, spent $1,600,000. Scope also had the largest number of weeks on the air (35 weeks) compared to Listerine (25 weeks) and Plax (20 weeks). Scope and Plax, however, had the same number of gross rating points (325) while Listerine had the greatest number of gross rating points (450). A product line extension would incur a cost of $20,000 for product testing. If P&G introduced a new brand that was not particularly successful, it may have to pay carrying fees of $50,000 per stock-keeping unit to be stocked by retailers.

A line extension would also incur capital and marketing costs. The company could “source the product” from a P&G United States plant. This would result in extra delivery costs of $1 per unit. Also, it is estimated that the cost of ingredients would increase by $2. 55 per unit and that packaging costs would increase by $0. 30 per unit. Strengths and Weaknesses. Scope’s ability to compete with Plax may be bolstered by a Better Business Bureau investigation that revealed that using Plax before brushing was no more effective than simply brushing with toothpaste; this also lead to Plax changing the claims used in its advertising campaign.

Also, P&G has produced a product that is at least as effective as Plax in reducing plaque. However, employees are concerned that developing a line extension based on this product would be risky; the product does not perform better (or worse) than Plax or a placebo. Some feel that introducing such a product would be counter to P&G’s traditional strategy and commitment of fulfilling “unmet consumer needs. ”  Introducing such a product may also damage its “image and credibility with dental professionals. ” On the other hand, many dental professionals have supported Plax.

Also, the new P&G product does offer an improved flavor at “similar efficacy. ” Introducing an unsuccessful (or not particularly successful) brand may result in the previously mentioned carrying fees. However, if P&G instead uses its existing formulation and includes plaque-reduction in its advertising campaigns, it could capitalize on its existing customer base while also perhaps attracting additional customers based on the health benefit claims. It would also avoid the potential carrying fee costs.

The company does, however, run the risk of customers not accepting the new claims and of potential consumers not switching from other brands, such as Listerine and Plax. Introducing a new product using claims of a “Better-Tasting Pre-brushing Dental Rinse” may appeal to Plax consumers but did not appear to appeal to consumers that do not use a mouthwash. Also, the new product may cannibalize sales of the original Scope formula. If the product were introduced as a line extension under the Scope brand, it may result in the loss of existing consumers who may not understand the new positioning.

Alternative Analysis In order to maximize market share, volume, and profitability of Proctor & Gamble’s Scope brand while focusing on the growing health related benefit segment of the rinse category several alternatives have emerged. Each alternative has strengths and weaknesses. The alternative that provides the greatest benefit to the company and the Scope brand should be implemented. After carefully researching the markets and available options, the following four alternatives were deemed as most appropriate for addressing the possible threat Plax poses to Scope.

The first alternative is to keep the Scope brand as it is and essentially do nothing. Scope has enjoyed a nice share of the rinse category for quite some time. The brand is positioned differently than Plax, and while it makes no claims in regard to health related benefits, Scope has its own strengths in that it tastes nice and refreshes breath. The total rinse market is growing at a rate of 5% a year. If Scope can hold its 32. 4% share of that market, this will lead to additional units sold and additional revenue for the company. Price would also increase by 5% to help counter any volume lost to competition.

By doing nothing P&G also reduces the risk of embarking on expensive changes that may not yield profitable benefits. However, by not capitalizing on the growing health related benefits segment, Scope could potentially lose share to competition and limit any future growth possibilities. The second alternative is classified as a line extension. Line extensions are used as a growth strategy to fulfill consumer’s desire for variety and to eliminate gaps in the product line that are filled by competitors. At this point in time, Plax is the only competitor.

A Line extension adds a new Scope product to the line that reduces plaque in the mouth prior to brushing. The new product is, however, only equal in efficacy to Plax and is not superior. The Scope product would, however, taste better than Plax, which would give the product a competitive advantage over Plax. Embarking on a line extension is not a cheap endeavor. Increased marketing expenditures would equal $ 1 million per year as the new product would have to be continuously supported separately from the original Scope. Variable costs would also increase by $1. 00 per unit (delivery) for the sourcing of development to a U.

S factory, which is equipped to create the new formulation, while  ingredients will increase by $2. 55 per unit due to the new ingredients found in the new formula; this figure could fluctuate by 50% up or down due to the availability of a newer ingredient. Also, packaging would increase $0. 30 per unit because setup will be spread over a smaller volume. Product cannibalism would also be a factor; an estimated 4% cannibalization was used to assess the impact of the line extension. Users of Original Scope are likely to opt for the new product; therefore Original Scope would lose sales to the new product.

Plax is priced significantly higher due to its health related benefits claim. Plax currently retails for $65. 09 a unit. It is believed the new Scope formulation will be priced similarly. Market research estimates the new product will attain a market share of 6. 5% and level off. It typically takes 2 years before the share reaches a leveling off point. After reviewing financials, the line extension would result in an increase in net income over the original product offering of $2. 67 million dollars after accounting for cannibalism. The third alternative is similar to the second but is identified as a brand extension.

P&G would proceed with a new formulation of Scope that fights plaque and that will be positioned against Plax. The difference between brand extension and the above, line extension, is that the new product will be marketed under a new brand name instead of the Scope name. Because of the new name, extra marketing costs of $3 million dollar will be incurred in year 1. After year one, additional marketing costs of $1 million dollars will be added to fixed costs, and variable cost increases will be identical to the line extension increases.

Similar share and pricing are found in the Brand extension. The brand extension is superior to the line extension in that it will not confuse the consumer. Loyal Scope consumers may be turned off or confused by the new product under the Scope name and may therefore purchase a competitive product. By offering a new name, the product will be distinctive to consumers. While cannibalism is still a factor, it is viewed as preemptive cannibalism because the sacrifice of Original Scope sales retains consumers and overall volume loss is prevented. Similar to the line extension, net rofit increases by $2. 67 million by the end of year 3; year one profit is lower due to the initial $3 million expenditure. The fourth alternative takes advantage of product testing claims that antibacterial ingredients in Original Scope led to better plaque reduction versus brushing alone. Original Scope would be re-launched with a product reassurance of plaque fighting. The formula would have no extra costs as it is the same as Original Scope. Research estimates products that claim to reduce plaque can earn a 2% increase in market share.

This would take Original Scope share from 32. 4% to 34. 4%. It is also believed that the new health related claim could lead to a greater increase in retail price over the projected 5% Original Scope price increase. For estimate purposes, a 7% price increase was used. This increase resulted in a $1. 16 million increase in year 3 net income. Although this is a smaller increase than the line and brand increases, this alternative did not face the capital and strategic implications of the former alternatives.

Alternatives 2 to 4 will also all face some type of delay because approval of regulatory agencies will be needed for the new product and for the addition of the plaque claim for this alternative. It is important to note, however, that it is highly likely that adding the assurance will not generate a huge increase in volume but could possibly prevent current users from switching to a competitive brand. Recommendation Procter & Gamble should take the proactive route against Plax because the product does present a danger to the market share and integrity of the Scope brand.

By not acting the company faces lost sales and will miss a great opportunity to grow its brand and better serve its consumers. After carefully reviewing each of the four alternatives and the resulting financial and strategic impacts each hold for P&G and the Scope Brand, the best alternative to maximize market share, profitability, and sales volume is alternative 3, the brand extension. While there are little differences between the brand extension and the line extension, it makes more strategic sense to proceed with the brand extension.

One of our main goals is to maximize market share. While the new product is only estimated to capture 6. 5% of the health related category once it levels off in year 3, it will secure Scope’s 32. 4% share of the total mouthwash market. The brand extension will make way for a new product with a name independent of Scope. This will retain Scope’s original share by not confusing or turning off loyal customers who are accustomed to Original Scope. Financially this option is slightly more costly than the line extension with marketing costs of $3 million dollars in year 1.

This option must also be constantly supported with an additional $1 million dollars in marketing expenditures. After reviewing the financial impacts and accounting for a possible 4% cannibalization of Original Scope, the brand extension paired with Original Scope leads to a wealth increase in the company, one of our main objectives. Product contributions are much higher with this option due to a higher sale price. Projected net incomes after cannibalization is accounted for jump from our benchmark of Original Scope alone of $4. 7 million to $7. 39 million.

This is assuming a price identical to Plax. However, one key advantage of the new product is that while exactly the same in efficacy to Plax, it tastes much better, which will be used as a competitive advantage, and could lead to increased value through not only a higher retail price but a larger than predicted share of the market. Although the risk of retailers dropping units of Scope for the new product or a $50,000 fee per SKU to those retailers is real, we feel the new product is different enough from Original Scope and Plax, the competition, that this will not be an issue.

A brand extension including a new, better tasting plaque reducing product will lead to a greater increase in market share, company profits, and sales volume than any of the other alternatives 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

Cite this Proctor & Gamble Scope Case

Proctor & Gamble Scope Case. (2016, Sep 16). Retrieved from https://graduateway.com/proctor-gamble-scope-case/

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