Competitive Analysis
The battery-powered toothbrush industry has emerged mainly through a value-based strategy by all competitors in the field. This strategy stems from providing the consumer with a product that is considered to be of higher quality and durability (Messinger, 1995). Products in this industry by different firms tend to have distinctive differences in their features. Profiles of the major competitors in this industry can be found in Appendix A.
Price
The battery-powered toothbrush industry has made many consumers buy an innovative product for brushing their teeth instead of a manual toothbrush. This has been aided by the fact that this power toothbrush industry has witnessed a decrease in price points, which makes it more accessible to the average consumer (Fuller, 2001). As more and more companies introduce similar products, increased competition is driving down the price of these types of toothbrushes. It is also important to note that suggested retail prices of the battery-powered toothbrushes do not fluctuate with distribution channel.
Another aspect of prices in this industry is the unveiling of price wars. For example, the Colgate-Palmolive had introduced the Colgate Actibrush first in May 2000, priced at 19.99. Procter and Gamble (P&G) soon followed and launched the Crest SpinBrush priced at $5.99 (Young, 2002). This in turn led Colgate-Palmolive to introduce another battery-operated toothbrush called the Colgate Motion, priced at $5.99 (Young, 2002).
Product Life Cycle
The industry (as well as the products within this industry) is in the early growth stage as new companies are continually entering the market with slightly different but very similar products (Messinger, 1995). Also, prices are beginning to drop as competition gets fierce and companies are still striving to build market share and brand loyalty (Messinger, 1995). Moreover, companies are creating new demand by appealing to new market niches with product line extensions (Messinger, 1995).
Distribution
Battery-powered toothbrushes are sold in food and drug stores as well as at mass merchandisers (Anonymousa, 2001). A.C Neilsen data finds that there is an increased sales of oral care products in grocery stores and that sales in drug stores have flattened. It has been suggested that this trend is due to consumers finding it more convenient to shop for their oral care products at the same time as their groceries and toiletries (Rosen, 2000). Personal care items generally enter the drug store chains first before being introduced into the mass or food outlets (Zappiera, 2001). In the future, this supply chain may eventually need to be revamped in order to meet consumer needs.
Entering the Battery-Powered Toothbrush Industry
This industry, although still being in the early growth stage of its life cycle, is very close to being in the late growth stage. The increasing numbers of companies trying to enter this market is beginning to flatten out and soon sales growth will begin to decelerate (Messinger, 1995). A health and beauty category manager was quoted, “There are more Dr. John’s type value-priced electric brushes out there than this country will ever use up” (Zappiera, 2001, p.2). Products such as Colgate-Palmolive’s Actibrush, Gilette’s Braun Oral- B battery powered toothbrush and P&G’s Crest SpinBrush are beginning to become the dominant forces in this market. These three companies specifically are already at the stage of refining their first battery-powered toothbrush model to differentiate products to particular market segments (Zappiera, 2001). Entering the battery-powered toothbrush industry now would require alluring customers to new market niches and growing distribution channels (Messinger, 1995).
Company Analysis:
Strengths
Colgate-Palmolive
Established in 1806, Colgate-Palmolive is a $9 billion company that focuses on Oral Care, Personal Care, Household Surface Care, Fabric Care and Pet Nutrition (Colgate Website, 2002). Products are sold in 200 countries and territories in the world and can be associated with brands such as: Colgate, Palmolive, Mennen and Softsoap to name just a few. Colgate’s strengths lie in their global brand equity, technology and their commitment to their employees.
Colgate’s market share has increased globally due to products that have recently been introduced. In a statement by Colgate-Palmolive, products such as the Colgate Actibrush, Colgate Herbal Toothpaste, Palmolive Naturals soap and shower gel, and Hills Science Diet Feline Hairball Controls have significantly boosted market shares on a worldwide basis (Colgate-Palmolive Annual Report, 2001). Not only are these products successful but they have also proven rapid geographic expansion, which attests to the Company’s global brand equities.
Colgate-Palmolive has recently invested a great deal in innovative technologies that have proven to be efficient and very successful for the Company. For example, by mid-2002, 94% of Colgate-Palmolive’s business will be maintained by SAP software (Colgate-Palmolive Annual Report, 2001). This software has already proven to be helpful in improving the supply chain performance of the Company and to better customer service. More recently, benefits are being recognized from the use of online ordering by customers, management of retailer inventory, store shelf management, sales forecasting and collaborative planning with trade customers and purchasing. Trade customers benefit from online ordering and this technology allows them to check their order status, including billing information at anytime. This gives Colgate-Palmolive a competitive advantage on servicing customers around the world (Colgate-Palmolive Annual Report, 2001). For example, in Ecuador, online orders have decreased their order turnaround time by 15% and increased the average sales per order by 8% (Colgate-Palmolive Annual Report, 2001).
Colgate-Palmolive places a great investment in their employees as they are looked upon as valuable resources (Colgate-Palmolive Annual Report, 2001). Training to improve skills and business know-how is provided to employees. Also, the 38,500 employees that make up the Colgate-Palmolive family attend a program called “Valuing Colgate People.” This program identifies Colgate-Palmolive’s global values of caring, continuous improvement and global teamwork (Colgate-Palmolive Annual Report, 2001).
Procter and Gamble
The P&G Company started off as a small, family operated soap and candle company 165 years ago. Today, P&G markets more than 300 products to more than five billion consumers in 160 countries worldwide (P&G Website, 2002). Brands include Pampers, Tide, Always, Pantene, Bounty, Downy, Crest, and Clairol Nice 'n Easy to name just a few. Strengths of the company include their new organizational structure and their ability to pull out of a financial down turn in the past few years.
In 1999, P&G restructured the organizational structure of the Company, which has proven to provide a competitive advantage (P&G Annual Report, 2002). They merged their categories and brands into Global Business Units (GBUs). Further, they combined country and regional go-to-market capabilities into Market Development Organizations (MDOs). They are also providing single source business services through Global Business Service organizations (GBSs) (P&G Annual Report, 2002). This structural change took a while to implement but P&G is seeing great results in terms of consumer and market responsiveness and the financial benefits from this change in structure (P&G Annual Report, 2002).
P&G had experienced a downward slope of sales in recent years but 2002 has proven to be one that has been rewarding. Net sales in 2002 were 4.35 billion compared to 2.92 million in 2001 and 3.54 billion in 2000 (P&G Annual Report, 2002). In the oral care segment, Crest has regained the title as number one oral-care brand in the United States. Crest had lost this position to the Colgate brand in 1998 (Berner, 2002). Structural changes to the organization have reduced overhead and streamlined manufacturing (P&G Annual Report, 2002). Moreover, P&G is concentrating on building leading brands, growing with the biggest retail customers in the biggest geographic markets and investing in faster-growing, higher-margin businesses. Recently, P&G acquired Clairol for 4.9 billion dollars, its largest purchase ever. This move is one example of how P&G is focusing on high-margin businesses and brands that will bring global strength (P&G Annual Report, 2002).
Competitive Strategies
Colgate-Palmolive
- “360 Degree” Advertising Strategy
This strategy focuses on non-traditional forms of advertising to consumers. The main crux of this strategy entails that Colgate-Palmolive will deliver its message through many forms and will work to provide its advertising during consumers’ daily activities (Colgate-Palmolive Annual Report, 2001). For example, Colgate-Palmolive representatives will travel to movie theatres to allow consumers to sample their products. Also, Colgate-Palmolive has begun to offer free dental check ups in retail stores with the purchase of Colgate products (Colgate-Palmolive Annual Report, 2001). Being in consumers’ daily lives and surrounding them with the Colgate message is key to this strategy. When partnering with large retail stores, Colgate benefits from great displays and pricing for their products (Colgate-Palmolive Annual Report, 2001).
Colgate realizes the strength in globalization. Operating on every continent in the world (except Antarctica), Colgate-Palmolive promotes evaluating and fostering individual strengths of overseas employees and implementing ongoing education and training programs. (Woods, 2001). A team of 15 who travel to Colgate’s international offices teaches these programs (Woods, 2001). Also, Colgate is very involved in global initiatives to improve oral health. For example, Colgate supports programs such Oral Health Month, a new global initiative focused on communicating the importance of good oral health. In addition, Colgate’s Bright Smiles, Bright Futures” program on oral health care, includes free dental screenings and education to 46 million children in cities and rural areas around the world each year (Colgate-Palmolive Annual Report, 2001).
While continuing to focus on their five core categories, Colgate-Palmolive has placed a great emphasis on broadening the range of products within each category. For example, Colgate’s Actibrush is an example of how the Company came up with a product that broadened their toothbrush segment. Moreover, Colgate-Palmolive is also working to reduce the time between the product being conceived and the product reaching retailer’s shelves. For example, Colgate Motion, another power toothbrush introduced by Colgate-Palmolive in late 2001 began distribution just nine months after the product design was completed (Colgate-Palmolive Annual Report, 2001).
Procter and Gamble
P&G places a great deal of emphasis on getting involved with advertising agencies, customers, joint venture partners and technology suppliers (P&G Annual Report, 2002). Lafley, P&G’s Chief Executive Officer (C.E.O), believes that “P&G will be the best company in the world at spotting, developing and leveraging partnerships in every area of the business” (P&G Annual Report, 2002). An example of a very recent successful partnership was the partnering with Dr. John’s Company, the maker of the SpinBrush toothbrushes. Within five months, P&G bought the company and then named it the Crest SpinBrush in record time (P&G Annual Report, 2002). Another benefit recognized from partnerships, is the decrease in technology and start up costs, which lowers market prices significantly (Berner, 2002).
Lafley has also helped P&G to refocus on P&G’s leading brands as these represent more than half of the Company’s sales and earnings. Today, P&G’s portfolio includes twelve “billion dollar brands” including Tide, Pampers and Crest (P&G Annual Report, 2002).
Financial Stability
Colgate-Palmolive
Colgate-Palmolive’s financial strategy includes strict discipline while emphasizing “reducing costs and improving the use of assets” (Colgate Annual Report, 2001, p.2). Colgate-Palmolive ended 2001 with their highest-ever gross profit margin (+70 basis points), operating margin, net income (+8%), earnings per share (+11%) and return on capital (+330 basis points) (Colgate-Palmolive Annual Report, 2001). These figures represent Colgate Palmolive’s healthy financial statements and growing unit sales.
In North America, unit volume increased 4.5%, sales rose 3.5% and operating profit increased by 6%. Reuben Mark, the Chairman and CEO stated, “the strength and breadth of our top-line volume growth are extremely encouraging and reinforce our optimism for 2001.” (Anonymousb, 2001, p.31).
Procter and Gamble
After running short in 1999, 2000 and 2001, P&G has increased its market share significantly in several segments in 2002. Net sales in 2002 grew (3%) to 4.35 billion compared to 2.92 million in 2001. (P&G Annual Report, 2002). P&G’s long term earning goals is to deliver double-digit core net earnings per share growth (P&G Annual Report, 2002). This was achieved as net earnings per share grew by 10% in 2002. 2002’s positive earnings reflect a decrease in material costs and an emphasis placed on savings projects (P&G Annual Report, 2002). Further, operating cash flow increased by 80% from 2001 to 2002. This is in part due to the increase emphasis on cash generation (P&G Annual Report, 2002).
Moreover, in the health care segment, there was an increase of 15% in unit volume and a 14% increase in net sales. This was mainly led by the oral care category, which was up considerably compared to 2001. The Crest brand introduced the Crest SpinBrush and Crest Whitestrips. In 2002, Crest joined the Company’s billion dollar brands (P&G Annual Report, 2002).
Although Colgate-Palmolive is a company that has been more profitable it recent years, it appears from P&G’s financial results in 2002 that they too are back in the running.
Market Positions
The industry itself is growing very rapidly. As companies are coming out with their own battery-powered toothbrushes, it is becoming an increasingly competitive market. Both P&G and Colgate-Palmolive are aware that the threat of competition lies very near. “Everyone wants to get into the power-assisted category,” stated Scott Gorley, vice president of sales and marketing for an oral care company (Zappierb, 2001, p.55). Staying in this market will mean that products will have to be differentiated and will have to display value (Messinger, 1995).
For P&G in particular, bringing itself out of a financial slump over the next couple years may allow rivals to take control of the market at P&G’s expense. This is a threat to P&G because as they begin to gain their footing, other companies that are doing well financially are able to gain market share (Neff, 2001).
Changes in Personnel
Acquiring the SpinBrush from another company was a radical step for P&G. This type of pursuit can be attributed to the new C.E.O, Alan G. Lafley, who was appointed in June 2000. The previous CEO, Durk I. Jager, heavily geared towards P&G developing its own products and unlike Lafley, did not entertain the idea of P&G not having control of every step in the product development process (Berner, 2002). Lafley feels that not all great products are made in house and this thinking will likely lead P&G to an increasing number of close partnerships with companies that not only allow P&G to market their product as their own but also allow lower start up costs to drive down market prices (Berner, 2002).
Product Analysis: Colgate Actibrush
Introduced in May 2000, the Colgate Actibrush sells for $19.99 and has customized packaging for both adults and children. The brush for children is called the Actibrush Bzzz. Refer to Appendix A and B for further details of the product.
Branding Architecture and Strategy
Colgate-Palmolive uses the “house of brands” strategy as they have independent brands that achieve results on their own (Aakar and Joachimsthaler, 2000). For example, the same company as Palmolive dish detergent manufactures Colgate Total toothpaste. These product lines cater to different target markets and thus achieve results as stand-alone brands. In this type of strategy, Colgate-Palmolive does not achieve the economies of scale it would by having one brand across many product lines but this strategy does fuel companies to tackle niche segments (Aakar and Joachimsthaler, 2000).
Indirect Channel Structure
Colgate-Palmolive products are sold to the consumer through drug, food or mass merchandisers and therefore are sold through an indirect channel. Colgate-Palmolive’s use of wholesalers and agents is not reported due to lack of information.
Pricing Strategies
According to a Colgate-Palmolive spokeswoman, “there was a gap in the marketplace, with no one offering an alternative to the manual toothbrushes priced in the $2 to $3 range and the electric brushes priced at $30 or even $50” (Anonymousa, 2001, p.35). Being one of the first battery-powered toothbrushes available on the market at a moderate price, Colgate relied on heavy promotional advertising and thus had to incorporate this into their pricing (Cardona, 2000). The Actibrush is positioned alongside Colgate-Palmolive’s manual toothbrush in hopes that consumers are tempted to trade up (Cardona, 2000).
Compared to the Crest SpinBrush, Actibrush’s higher price point places the Actibrush at the premium end of the segment and it also provides motivation for retailers to prominently display the product to increase profits (Freeman, 1999).
Promotional mix used and messages
Colgate-Palmolive introduced their power toothbrush in May 2000 and spent eight million dollars on Actibrush media advertising in 2000 and just under 4 million in 2001 (Bittar, 2002). Colgate-Palmolive used various promotional methods to endorse their new battery-powered toothbrush. This included consumer advertising, direct mail, coupons and marketing materials for dental professionals (Cardona, 2000). Colgate was already using dentists’ offices to promote a large volume of other products and wanted to use this opportunity to market the new Actibrush through this prosperous channel (Cardona, 2000). Altogether, the Colgate-Palmolive has marked sales at $26 million for the Actibrush (Bittar, 2002). Colgate sits at having 16% of the total global market share in the battery-powered toothbrush segment (Neff, 2001).
Product Analysis: Crest SpinBrush
Introduced in mid 2001, the Crest SpinBrush sells for $5.99 and has customized packaging for both adults and children. The two brushes available for adults are called the SpinBrush and the SpinBrush Classic. The only difference between these two brushes is in colour. The brush for children is called the Crest Kids’ SpinBrush. Refer to Appendix A and C for further details of the product.
Branding Architecture and Strategy
P&G uses a house of brands strategy and the Crest SpinBrush is another product line within this company. When implementing the SpinBrush, P&G found itself using strategies that had never been performed by this company before. One such strategy dealt with the marketing of this product (Berner, 2002). Darin Yates, the team leader on the new power toothbrush, decided not to heavily advertise the SpinBrush for the first seven months. Traditionally, P&G’s model for debuting a new product would include heavy TV advertising from the very beginning and to therefore keep its products at a price that could bear this cost (Berner, 2002). By using this cost-based strategy, P&G could tolerate lower prices for the consumer (Messinger, 1995).
P&G acquired the SpinBrush through four Cleveland entrepreneurs who had developed the SpinBrush (known as Dr. John’s SpinBrush) in 1998 with the idea of selling it to P&G. P&G’s CEO understood that not all great ideas come from within the company. Instead of producing products in-house, products that P&G could take over would cut technology costs, making it more economical to both P&G and to consumers as market prices would decrease.
Indirect Channel Structure
P&G products are sold to the consumer through drug, food or mass merchandisers and therefore are sold through an indirect channel. Colgate-Palmolive’s use of wholesalers and agents is not reported due to lack of information.
Pricing Strategies
Once acquired by P&G, the Crest SpinBrush was priced according to the original inventors’ vision. Using a penetration pricing strategy, it was priced significantly lower than the Colgate Actibrush ($5.99 vs. $19.99). With consumers having more access to battery-powered toothbrushes due to lower price points, P&G had many vendors noticing the success of the Crest SpinBrush. “It’s the first chance they’ve [consumers] had to buy a power toothbrush at an economical price,” stated Fred Howard, the general manager and senior vice-president of the Gillette Oral B brand (Zappiera, 2001, p.52). A P&G spokesman estimated that one out of every battery-powered toothbrush sold is a Crest SpinBrush (Appendixa, 2001).
Promotional mix used and messages
To meet the intention of producing a lower priced product, P&G did not use heavy new product advertising and instead focused on packaging (Berner, 2002). For example, SpinBrush’s “try me” packaging allows consumers to try out the toothbrush right in the store (Zappiera, 2001). This type of packaging can gain consumer confidence in the product tested over other products available.
In 2001, P&G spent $17 million in media advertising and pulled in $66 million in the adult and kids’ brushes sector (Bittar, 2002). The Crest SpinBrush is available in 30 markets and has a 50% volume share of the battery-powered toothbrush category (P&G Website, 2002).
What’s next for the Crest Spinbrush?: Crest SpinBrush Pro
A 30 million dollar launch in September 2002 launched a line extension of the Crest SpinBrush: the Crest SpinBrush Pro. This battery-powered toothbrush will be priced slightly higher than the original SpinBrush at $8 (USD) (Neffa, 2002). There are many improvements in this line that were not in the Crest SpinBrush line. For instance, it has a second head that moves side to side in addition to SpinBrush’s original rotating head and the handle is more ergonomically designed. This feature is most often seen in more expensive rechargeables (Neffa, 2002). This new toothbrush is targeted more at adults (Neff, 2002). According to Shekhar Mitra, the global manager of research and development for oral care at P&G, more than 8 out of 10 consumers who have tried SpinBrush Pro rate it as the best toothbrush they have ever tried (Neff, 2002).
Threat of Competition Ensues
One of Colgate-Palmolive and P&G’s biggest competitors is Gillette’s Braun Oral-B brand. In September 2000, Oral-B introduced a battery-operated toothbrush at a price of $19.99, which is also available at mass, food and drug outlets (Anonymousc, 2001). Gillette spent 19.5 million (a 70% increase from 1999) promoting this toothbrush (Cardona, 2000).
Gillette did not see the results it was hoping for as the Company was seeing its share slip in recent years as a result of lower-priced battery toothbrush offerings from P&G and Colgate-Palmolive (Neff, 2002). In response to this, Gillette is launching another battery-powered toothbrush in October 2002: The CrossAction Power comes with a suggested retail price of $6.99. This price falls between P&G's Crest SpinBrush and the SpinBrush Pro. Replaceable heads are available at a lower price compared to Crest and Colgate’s replacement heads. Another competitive feature is that it only requires one AA battery rather than the two required by rivals and has a lighter feel more like a manual brush (Neff, 2002).
According to Information Resources Inc., Gillette Oral-B is by far the leader in the powered toothbrush segment and commands 40% of the global market share in powered toothbrushes (Cardona, 2000). Although this is in part due to the popularity of its more expensive power toothbrushes, Gillette does pose a threat to all companies participating in the battery-powered toothbrush industry (Cardona, 2000). With the introduction of the CrossAction Power in October 2002, both Colgate-Palmolive and P&G may have another strong competitor to shake off.
Conclusion
The oral care industry is one that is growing at an increasing rate, especially in the power-toothbrush segment. This can be attributed to the increased importance of good health and the lower price points that battery-powered toothbrushes bring. From this analysis, it can be concluded that Colgate-Palmolive is doing very well financially. Record profit margins and increasing cash flows can attest to this fact (Colgate-Palmolive Annual Report, 2001). P&G has been working to gain back sales that were lost in recent years. P&G’s significant increase in their health care segment was mainly led by the oral care category (P&G Annual Report, 2002). This is attributable to the introduction of the Crest SpinBrush and Crest Whitestrips. With 50% of the market share, the Crest SpinBrush has definitely given P&G something to smile about.
In order to remain strong in this market, there are several issues that both companies need to consider. Price wars between companies have lead prices to decrease within the battery-powered toothbrush industry dramatically. The Colgate Actibrush, which is priced at a premium, may lose sales to companies that are offering similar products at lower prices. A major competitor for both companies is Gillette. Its new CrossAction Power brings with it many advantages over the leading Crest SpinBrush (Neff, 2002). If this product is successful, it could cause P&G to lose their lead in this industry.
While sales of powered toothbrushes are rising, there has been a sharp decline in the sales of manual toothbrushes. Sales of power dental accessories in U.S. food, drug and mass outlets grew by 21.8% while sales of manual toothbrushes declined by 8.1% between August 2001 and 2002 (Neff, 2002). Colgate-Palmolive and P&G are cannibalizing their own products (manual toothbrushes) in the course of promoting another one (battery-powered toothbrushes). This may negatively affect both companies’ oral care categories in the upcoming years.
Both Colgate-Palmolive and P&G need to keep in mind that the range for prices of their battery-powered toothbrushes need to fall between customers’ maximum willingness to pay and their production costs (Messinger, 1995). Understanding their target market and keeping in line with competition will help both of these companies to offer better products and in turn gain from higher profits.
All prices in this report are in U.S dollars.
