Strategic Management

Friday, 02 September 2011

Case Analysis: Brighter Smiles for the Masses – Colgate vs. P&G

Submitted by:

PGP/14/260 NITESH KUMAR GUPTA PGP/14/280 MAHTAAB KAJLA PGP/14/287 PRACHI CHAWLA PGP/14/290 RAHUL MITTAL PGP/14/313 VINNY ARYA PGP/14/315 VISHAD DUBEY

Group V

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Case facts

August 2002, P&G introduced Crest Whitestrips; an over the counter teeth whitener

P&G claims that the new product is 10 times more effective as the leading toothpaste, Colgate Tartar Control whitening

By 2002, P&G controlled 80% of the at-home tooth-whitening market Sept 2002, Colgate bounces back by introducing Simply White; a more

convenient and cheaper product in the same segment One month after introduction, Simply White captures half the market with

Crest WhiteStrips losing 50% market share Even though consumers think otherwise, P&G engineers have reasons to

believe that Simply White is not as effective as Crest WhiteStrips

Strengths/Weakness – P&G(Company)

• Has the capacity to enter into new untapped markets and generate the revenues by constantly making innovative products. Eg Crest Whitestrips

• Strong Brand recognition: world’s largest consumer products company and significant amount of visibility in oral care segment

• R&D backed by sound finances; $130mn was spent on R&D and initial marketing of Whitestrips

• From Income statement: Decreasing cost of goods sold, Increase in Net Sales from 2000 to 2002, Increase in profits

Strengths

• Although there was growth in health care segment which included oral-care sector, given the high investment on R&D the segment’s contribution to net earnings was less in proportion to other segments(12% of sales)

• Low operating margin (17%)

Weakness

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Strengths/Weakness – Colgate Palmolive(Company)

• Strong R&D: As soon as P&G developed Crest Whitestrips, they replied back by making more easy-to-use product Simply White

• Strong global brand image: ranked among the top 5 in global consumer products

• New products formed 40% of total sales

• From Income statement: Decreasing cost of sales, Increase in Net Sales from 2000 to 2002, Company running in profits

• Oral care for which Colgate was known for contributed to one third sales and Toothpaste was its strongest product

• High operating margin(20%)

Strengths

• It does not have the financial muscle as P&G has

Weakness

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Strengths/Weakness – P&G(Whitestrips)

Strengths

First mover advantage into a unexplored area of untapped market

Technology was patented; thus they had competitive advantage.

Better product than Colgate’s product; the changes in b* value attained by using White strips were at least 5 times as large as Simply White

10 times better product than Rembrandt’s whitening toothpaste

Weakness

High price($40) as compared to Colgate’s product($15)

Product application time was higher(30 mins) as compared to White Strips

Difficult to use

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Strengths/Weakness – Colgate Palmolive (Simply White)

Strengths

Low Price($15) as compared to competitor’s price i.e. Whitestrips ($40)

High level of consumer satisfaction

Contribution margin was pretty high = 45%

Easy to use than Whitestrips, as consumers can even use brush for applying gel

Weakness

Less effective than P&G’s Whitestrips

Simply White and Simply White Night mostly have similar type of characteristics

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Did P&G made the Right move?

Looking at the facts P&G captured a handsome 80% share in the market for the first 2 years and also made $200 Mn. in revenues

the “first mover advantage” was definitely with P&G which unfortunately it was not able to capitalize on

Probably P&G could have been a little bit more subtle with the initial advertisement which brought it in direct rivalry with Colgate

Even after the introduction of Simply White, P&G had a reasonably good market share of 37% in October 2002 due to its early entry

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Colgate’s Reaction

Oral care contributed to one third of Colgate’s overall sales

Toothpaste was the company’s strongest product

With the introduction of Crest WhiteStrips, P&G directly attacked the Toothpaste product line of Colgate

P&G would have definitely expected a bounce back from Colgate

Colgate with it’s innovative strategy of bringing in a new product which played on the shortcomings of Crest WhiteStrips really proved to be very beneficial

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Cost Analysis

At-home tooth-whitening market worth in 2002 : $460 Mn Corresponding sales in last 2 months: 460*2/12 = $76.67 Mn Assuming 37% market share of P&G in the last 2 months of 2002 Sales: 37% of $76.67 Mn = $28.37 Mn Prospective sales, had SimplyWhite not been introduced: 80% of $76.67

Mn = $61.33 Mn Loss in sales = $61.33 Mn - $28.37 = $32.96 Mn Contribution Margin = $40 - $8 (variable cost) = $32 Loss in Contribution Margin during these two months $32.96*32/40 = $26.37 Mn

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Ayman Ismail’s Options

Getting on the offensive by challenging Colgate’s claims in NAD • Should be a good option since its confidential in nature and the proceedings

can go ahead without the normal getting to know about it • this can turn out to be counterproductive since the b* value test that it relied

on was not universally accepted • If the final decision goes in the favor of Colgate, it can really play into their

hands which they can further leverage to attach Crest WhiteStrips

Increase P&G’s current marketing campaign • Does not seem like a very favorable option since the problem is not with the

Brand visibility

Drop in price and Comparitive Advertisement Campaign • this seems to be a better option since the competitor is trying to undercut us

and drop in price together with the comparative Ads showing the superiority of Crest WhiteStrips should do the trick

Increased Use of Coupons

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Recommendations for P&G

Since P&G has already made a lot of profit with this product, its R&D cost of $130 Mn is more or less recovered

The variable cost is same for both the products, P&G, having recovered its R&D cost, can now drop its price to compete with the Colgate’s product with the added advantage of superior quality

Also now that the new markets are opening abroad, P&G might not be able to command the same premium which it enjoyed during the initial monopoly period and dropping the price should be the way ahead

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Recommendation: P&G should Avoid attacking Colgate directly i.e. filing a complaint with NAD or suing Colgate for false ads might not be a smarter move, if they want to

follow the mantra of hardball players, the more strategic step would be to drop in prices and Devastate rival’s profit sanctuaries (i.e. Colgate’s Simply White) by developing a comparative advertisement campaign directed at Simply White

McBride’s Options

McBride should now focus on carrying the success of this product to new

markets which are expanding like Europe, Asia Pacific etc. Fight back from P&G is expected pretty soon to save its Billion dollar

brand • McBride should try to improve the product probably by enhancing

the whitening capabilities • He should also be careful about publishing controversial

advertisements so as to not give P&G any chance to challenge them in NAD

Differentiating the two products Simply White and Simply White Night might help it to enhance the sales of the newly introduced brand

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Q & A

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