The Precision Toothbrush

Prianka Jhingan
Monday November 3, 2014
1

The launch of Colgates Precision Toothbrush results in increased

profitability and is a financially viable decision long-term.
Colgate can expect an increase in market share and can
assume position of a market leader within the toothbrush
category after the launch.
NPV Before Investment

$55,007,345

Investment Costs

$9,550,000

NPV

$45,457,345

Positive NPV suggests that Colgate can expect a gain

from launching the Precision toothbrush with a
mainstream positioning strategy in comparison to its
current market situation.

Increased advertising expenditures will result in increased

category visibility in the super premium segment

A strategic price will ensure that Colgate will remain

competitive in the toothbrush market

With an increased market share and size, Colgate is

able to expect a return on the investment costs
2

With a projected growing market size, Colgates super premium

product offering can satisfy the increasing demand in the
toothbrush category.
1989
Population
% of those using
toothbrushes
Total
Toothbrush Users

# of
Toothbrushes/Person
/Year (how many
they have)

Total
Toothbrushes

% of Toothbrushes
Coming from Retail
Total Retail
Toothbrushes

1990

246,820,000 249,620,000

88%

88%

217,201,600 219,665,600

1991

1992

252,980,000

256,510,000

88%

222,622,400

88%

225,728,800

1993
259,075,100

88%

227,986,088

1994
261,665,851

88%

Estimated to grow at approximately 1%, keeping in line with historical increases

Calculated using historical retail units sold from Exhibit 13
(Shown in Appendix 1)

230,265,949

Increasing because of the number of promotions and free brushes, so although

the number of people are not purchasing as many brushes, they are stocking.
Trend is expected to continue due to new products in the market and increased
consumer sampling.
1.5

1.5

325,802,400 329,498,400

75%

75%

244,351,800 247,123,800

1.5
333,933,600

75%

250,450,200

1.8
406,311,840

78%

316,923,235

1.9
433,173,567

75%

324,880,175

On average replace brushes every 7.5 months and 65% of people had more
than one toothbrush

460,531,898

75%

On average, one in four toothbrushes come from the dentist. In 1992, 22% of all
toothbrushes were expected to be distributed to consumers by dentists.

345,398,923

Without introducing a super premium product in this category,

Colgate will lose 3% share in 1993 and 4.5% share in 1994 in the
toothbrush market.
Base Case
% of Market Share Changes by Product/Company
Colgate Classic
Colgate Plus
Colgate Precision
Total Change for Colgate
Oral-B Indicator
Oral-B Regular
Total Change for Oral-B
J&J Reach
J&J Reach Advanced
Total Change for J&J
Crest
Total Change for P&G
Aquafresh Flex
Total Change for Aquafresh

1992-1993

1993-1994

-2.5%
-0.5%
0%
-3%
+2.5%
-2%
0%
-1.5%
+2.5%
+1%
+4%
+4%
+3%
+3%

-1.5%
-3%
0%
-4.5%
+2.5%
-1.5%
+1%
-1.5%
+2.5%
+1%
+3%
+3%
+2.5%
+2.5%

Current Colgate users, currently looking for a

super premium offering will have to switch to
another brand, resulting in loss of market share
and falling behind competition.

Super-premium brushes accounted for 35% of the

unit volume and the professional segment
accounted for a corresponding 41% . Colgate
would be excluding itself from a large portion of
the evolving market.

Base Case
Total Market Share

1992

1993

1994

Colgate

22.2%

19.2%

14.7%

Oral-B

19.8%

20.3%

21.3%

J&J

19.4%

20.2%

21.2%

2%

6%

9%

4.6%

7.6%

10.1%

Crest

Aquafresh Flex

The increase in the premium segment is coming

from the professional segment, as more
consumers are concerned about oral health and
are taking more interest in the category.
4

Colgate should establish Precisions position as being a

technological breakthrough in the oral health market.
How Precision Compares

Results of the consumer concept test

revealed the following criteria as
highest in consumer priority. Precision
is an overall superior product on
dimensions that matter to consumers.
Summary of Concept Test Results
Probably Would Buy
Plaque Removal

69%

35% More Plaque Removal/

Prevention of Gum Disease

80%

Gum Disease Only

72%

Oral-B
Indicator

Reach
Advanced Design
Crest
Complete
Aquafresh Flex
-

Evaluation: Is Precision
technologically superior?

Removes 35% more plaque than Oral-B

Dental professional focus groups
conducted to verify the overall acceptance
of Precision
Removes 35% more plaque than Reach
Handle design offering maximum plaque
removal
Triple action bristles short (scrub plaque
off surface of teeth), long (remove plaque
between teeth), angled (sweep plaque
from gum lines)
Bristles allow freer movement
Designed to help prevent gum disease

67% of consumers are actively involved in their oral health, searching for better products
Able to differentiate among products and search out functionally effective products
Research indicates that consumers are becoming more concerned about the health of their gums
Consumers are willing to experiment with new toothbrushes
Crucial to communicate the importance of plaque removal to overall health

With a mainstream launch, Colgate will be the market leader in

the toothbrush category, gaining 22.7% of the market share in
1993 and 27.7% in 1994.
Mainstream Case
% of Market Share Changes by Product/Portfolio
1992-1993

Colgate Classic
Colgate Plus
Colgate Precision
Total Change for Colgate
Oral-B Indicator
Oral-B Regular
Total Change for Oral-B
J&J Reach
J&J Reach Advanced
Total Change for J&J
Crest
Total Change for P&G
Aquafresh Flex
Total Change for Aquafresh

Total Market Share

Colgate
Oral-B
J&J
Crest
Aquafresh Flex

1993-1994

-3.5%
-2%
6%
+0.5%
+1%
-2%
-1%
-1.5%
+1.5%
0%
+2.5%
+2.5%
+2%
+2%

-1%
-3%
15%
+11%
2%
-5%
-3%
-3.5%
+1%
-2.5%
+2%
+2%
+1.5%
+1.5%

Mainstream Case
1992
22.2%
19.8%
19.4%
2%

1993
22.7%
18.8%
19.2%
4.5%

1994
27.7%
15.3%
16.7%
6.5%

4.6%

6.5%

8.1%

The super premium products of competitors

would have increased by significantly higher had it
not been for the launch of the Precision
toothbrush

Oral B and Johnson & Johnson, former market

leaders in the super premium segment, do not
experience a growth in their toothbrush category
overall.

Colgate experienced the largest growth in 1994,

substantially ahead of its competitors, with a
growth of 11% overall.
6

Colgate Precision should expect 6% of the market share in the

category in its first year and 15% in the next year.
How Precision will be able to capture share:
First Year: Therapeutic brushers most commonly use
Oral B Regular, J&J Reach and Colgate Plus
- Colgate Precision would be able to capture share from
the products on the basis of switching from professional
to the super premium segment
Second year: Colgate Precision would be able to take
share from Oral-B Indicator and J&J Advanced Reach as
consumers get involved with media exposure and
advertising and become aware of functionality and
features

BRAND
ORAL-B
Oral-B Indicator
J&J
Reach Advanced Design
AQUA-FRESH

1991
Vol (%)

1992E
Vol (%)

1.0

3.7

0.7
0.9

4.0
4.6

Heres What we Know:

-

Competitors have launched a super premium toothbrush

in the category and have been able to experience a growth
Past launches suggest that the professional product
offering is cannibalized by its super premium product
Precision is a product that offers consumers a benefit that
is valued and is not offered by any other product in the
market
Oral B and J&J super premium launches saw similar results
but the category is further developed and consumers are
demanding quality and are aware
Steinbergs estimate for the first year at 10% is too high
based on past launches

Aqua-Freshs Flex was the only launch that explicitly focussed on gum health and
was able to experience a higher growth than industry leaders (Oral-B and J&J).
- Aqua-Fresh is a recent entrant in the toothbrush category, Colgate has an
established name in the industry
- Advertising budget is doubled than that of Smithkline Beecham
7

Colgate Precision should increase its advertising ahead of its

competition in order to successfully support the launch of its
innovation.
1992

1993

1994

Media

$9,623,000 (11%)

$ 21,856,296 (21%)

$ 30,598,814 (20%)

Consumer Promotions

$6,978,000 (8%)

$ 13,113,778 (12%)

$ 18,359,289 (12%)

Trade Promotions

$7,457,000 (8%)

$ 8,742,518 (8%)

$ 12,239,526 (8%)

Reach was estimated to spend $17.1M and Oral-B was estimated to spend $11.2M on
media expenditures to support the launch of their product. With this advertising
budget, Colgate can expect the highest share voice %, resulting in increased exposure.

Total Colgate
Net Income

1992
$7,732,624

1993

1994

$6,149,818

$16,008,443

-Increased total advertising by 40%

every year for two years
-Results of overall promotional efforts
seen in 1994

Increased
Exposure

Increased
Enthusiasm

Increased
Product
Knowledge

Increased
Trial/Usage

Media expenditures, consumer and trade promotions are

fundamental to Precisions success as a market leader.
Media Expenditures
Increase awareness and
perceived value

Presence higher than competitors

Health Magazine, ADA

Ensure a leading
position in
competitive media
market

Consumer Promotions
Increased product education

Encourage Trial Usage

In-store sampling with dentist

professionals

Increase product
enthusiasm through
consumer sampling

Trade Promotions
Floorstands and Sidekicks throughout
the store (82% unplanned purchases)

Leverage being leader in

toothpaste category

Increase purchase frequency to 3

months (No BOGO)

Profitable Market Leader

Increase presence
in store to increase
category visibility
and fuel demand

With a competitive price strategy at $1.80 in the first year, and

$1.85 in the second year, Colgate can expect to be an appealing
offering to retailers.
Manufacturer
Net Price
Super-premium
Oral-B Indicator

$1.92

Oral-B Regular

$1.78

Crest Complete

$1.67

Reach Advanced

$1.66

Aquafresh Flex

$1.61

Colgate
Precision

Why Colgate can demand a higher price than $1.76:

- Based on existing product offerings in professional and value,
Colgate has been a more expensive product
- Should be lower than Oral-B Indicator to be appealing to retailers,
but higher than Oral-B Regular, as it is a super premium product

Professional
Colgate Plus

$1.35

Reach Regular

$1.30

Pepsodent Prof.

$1.08

Value
Colgate Classic

$0.69

Pepsodent Regular

$0.48

Research suggests that:

- Consumers are willing to pay a premium for new
products addressing issues regarding the health of
their gums
- Relatively unfamiliar with prices
- Even at a 20% Price Premium to Oral-B Prevent
Gum Disease, 61% were still probably going to buy
precision in the concept testing

The increase in price by 10% in year 2 is justifiable because:

- Precision will be more established in the market
- Less discount will be necessary and Precision will sell on the basis of
its features
- Established demand in the market in year 1, will increase appeal for
retailers
- The price will still be less than Oral-Bs super premium product
Placement in stores between Oral-B Indicator and Johnson and
Johnsons Advanced Reach. Price is not justified as indicator bristles are
less of a concern for consumers than gum disease prevention.
10

Colgates Precision toothbrushs UVC should expect a decrease in

comparison to its existing products.
Colgates historical cost of goods sold for all
toothbrush product lines have consistently
stayed at approximately the same percentage
of sales.

Suggested

Prediction

Manufacturer Per Unit Price

$0.64

$0.77

Manufacturer Price

$1.76

However, with moving Precisions

manufacturing with Plus, Colgate can expect
economies of scale.

Unit sales ('000s)

Net sales ($'000s)
Cost of sales

1989
55,296
43,854
23,988

(100%)
(55%)

1993
73,748
105,329
49,506

Unit sales ('000s)

Net sales ($'000s)
Cost of sales

1990
63,576
57,248
28,190

(100%)
(49%)

1991
70,560
77,001
36,827

(36%)

(100%)
(47%)

(100%)
(48%)

$1.80

1994
95,676
156,227
70,676

1992E
78,336
91,611
44,846

(43%)

(100%)
(45%)

(100%)
(49%)

11

Over the two year period, Colgate can expect a return on its
investment for the Precision product line.

Based on required quantity of 19, 492, 811 in year 1 and 51, 809, 838 in year 2.
The Total Investment Cost Amounts to $9,550,000 for the first two years of launching Precision.
12

Appendix 1: Market Size

1989

1990

1991

1992

1993

1994

Population

246,820,000

249,620,000

252,980,000

256,510,000

259,075,100

261,665,851

Retail Units Sold

(Exhibit 13)

243,000,000

242,000,000

261,000,000

307,000,000

Methodology:

1989

Retail units sold

= Number of toothbrushes in the market
% of total retail market

Percent of
People who Use
a Toothbrush

88%

1990

1991
86%

1992
92%

85%

On average, 88% of people use toothbrushes

Number of toothbrushes in the market
= Number of people who use toothbrushes
Number of toothbrushes/person/year

Number of people who use toothbrushes

Population in that year

= % of people who use toothbrushes

13

Appendix 2: Advertising Budget Allocation

Fixed Costs

Fixed Overhead (12%)

Total Advertising

1992

1993

1994

$35,481,000

$49,673,400

$69,542,760

1992

1993

1994

$4,257,720
$31,223,280

$5,960,808
$43,712,592

$8,345,131
$61,197,629

1992
Media (40%)
Consumer Promotions (29%)
Trade Promotions (31%)

Revenue
Media
Consumer Promotions
Trade Promotions

$12,489,312
$9,054,751
$9,679,217

Media (50%)
Consumer Promotions (30%)
Trade Promotions (20%)

1992

1993

1994

$84,732,596
15%
11%
11%

$105,329,402
21%
12%
8%

$156,227,387
20%
12%
8%

Fixed Costs from 1992 are based on

Exhibit 1
Increased by 40% in 1993 and 1994

1993

1994

$21,856,296
13,113,778
$8,742,518

$30,598,814
$18,359,289
$12,239,526

Significant increases in advertising in

1993 and 1994, with large
proportions allocated to media
expenditures.
14