Colgate Analysis

Until the late 1970’s toothbrushes were perceived as a commodity and were purchased primarily on the premise of price. Examining it can be seen that from the starting of 1977, competitors began to differentiate features between brushes (i.e. the first angled handle by Johnson & Johnson’s “Reach”, the first diamond-shaped head by Colgate-Palmolive’s “Colgate Plus”, etc.) The introduction of new competition into the market releasing new products with performance benefits became important criteria amongst consumers in the market – merely competitive pricing was no longer sufficient to keep up with the change in market demands, and it was important for Colgate-Palmolive (CP) to adjust to these shifts in the market to stay relevant. The U.S Oral Care experienced $2.9 billion in retail sales and an annual growth rate of 6.1%. The distribution among the market consisted of toothpaste (46%), mouth rinses (24%), toothbrushes (15.5%), and dental floss and other products accounting for the remainder. Dollar sales of toothbrushes were averaging a growth rate of about 9.3% per year since 1987, but increased by 21% in value and 18% in volume in 1992. Simultaneously, media support increased by 49% and coupon circulation increased by 48%. The combination of growth in the sales of toothbrushes and increased promotional and advertising efforts created an opportunity for success in the market for toothbrushes and oral care in general. Consumer interest and purchase frequency increased and this was favorable specifically for toothbrushes because it presented as an area of business operations with high margins. With the innovations and performance improvements being added to toothbrushes there was an emergence of a “super-premium” category where prices were significantly higher than those of commodity brushes (refer to Exhibit 4 for pricing details of Super-Premium versus Professional versus Value segments of brushes). There is approximately a 100% difference in price between the super-premium brands of toothbrushes on versus the value brushes, and a 25% difference in price between the super-premium brands versus the professional brands seen in Exhibit 4 (both on average using average retail price of all brands for each segment). The emergence of a new, profitable segment with high growth potential promising high margins threatened by the entry of many competitors is probably the most prominent change in the toothbrush category.

CP’s maintains a fairly strong competitive position relative to its major competitors (Oral-B and Johnson & Johnson) but is dwarfed by the success of Oral-B in certain aspects. Although Colgate has the most number of stock keeping units (SKUs) relative to its competitors (Colgate with 28 adult SKUs and 8 child/teen SKUs leading it’s next largest competitor Oral-B with 16 adult SKUs and 5 child/teen SKUs taken from Exhibit 5), the success of Oral-B’s super-premium toothbrush the “Oral-B Indicator” had generally outperformed both Colgate’s “Colgate Plus” toothbrush (professional) and “Colgate Classic” toothbrush (value) in terms of sales volume percentages and dollar market shares from 1989-1991. The 1992 estimates however seem optimistic for Colgate, as Oral-B’s market share by volume is expected to decline approximately 3.3% and 4.5% for its dollar market shares (illustrated in Exhibit 6). Although volume percentage and dollar market shares are estimated to decline from 1991 to 1992 for Colgate, this is not including the introduction