BRIGHTER SMILES FOR THE MASSES- COLGATE V/S P&G

Group 11 Sec BPartha P. Chowdhury- PGP/17/099

Parvathy Rajan- PGP/17/100

Pooja Punjabi – PGP/17/102

Sandesh A – PGP/17/109

Sonia Manglani – PGP/17/114

DEFINING INDUSTRYWe have taken the Industry as

Teeth Whitening Products Industry and analyzed it on the basis on available products in the market. The market is however captured by only two major players: Colgate and P&G(Crest)

PORTER’S FIVE FORCES ANALYSISThreat of new entrants LOW

Economies of Scale High Mass production

Product Differentiation High Innovative products, patent protection, not similar products

Capital Requirement Low High R&D costs to come up with new products

Access to Distribution Channel Low Extensive, through dentists, retail, wholesale, everything is being used

Government Policy -- Not given

Competitors Rivalry HIGH

Numerous competitors High Many products available but market captured by two major players

Industry growth High Market is growing

Fixed cost Low Advertising and R&D costs are high

Exit barriers High Huge cost has already been incurred in R&D

Diversity of Rival groups Low Similar business strategies and offerings

PORTER’S FIVE FORCES ANALYSIS

Customers Bargaining Power MODERATE

Volume of Purchases Low Whitening products are to be used twice a week or month

Switching Costs Low People can switch between products

Price Sensitivity High Cheaper products are preferred but not at expense of quality

Percentage of Buyer’s Expenditure

Low Not a high percentage of monthly expense

Importance of Quality High People want whiter teeth

Number of customers High Market is expanding

Suppliers Bargaining Power -- Data not available in Case

Threat of Substitutes Low

• The dentistry charges are much higher and convenience factor is also low

• Other substitutes such as whitening toothpastes are not effective much

Industry: Unattractive (High Costs and Competition, Innovation Required)

KEY ISSUES

Key issues faced by P&G

• Market share of P&G dropped from more than 80% in August 2002 to 37% in October 2002 because of Colgate’s new product

• Price difference of 40$ (WhiteStrips) vs. 15$ (Simply White)

• Psychological perception of same whitening effect of both products

• Focus of P&G only on b* test to which there was some opposition

• Convenience of using Simply White(30 sec) as compared to White Strips which took 30 min

• Conveying the effectiveness of its product as compared to Colgate’s to the customers

Issues for further

Analysis and Recommendati

ons

• Competitive environment of P&G with the entry of Simply White

• What changes to be made in their product ? (If any)• Evaluating options to challenge Colgate based on

each’s effectiveness in gaining the market back• Mumbles advertisement- Should it be changed?• Anticipating the response of Colgate

Strengths and Weaknesses of P&G and Colgate

P&GStrengths:First entry advantagePatented TechnologyChanges in b* value of whitestrips is at least 5 times as large as Simply White, 10 times better than other products

Weaknesses:

High Price($40)High product application time (30 mins)Difficult to use

Colgate

Strengths:Low Price($15)High Contribution Margin (45%)Easy to use

Weaknesses:Less effectiveFalse claimsSimply White and Simply White Night did not have distinct features

How costly is the entry of simply white for P&G?

Before October 2002 P&G share in teeth whitening market : 83%

In October 2002 P&G share dropped to 37% ( Colgate launched simply white in August 2002 ) and to 42% in November

P&G sales (Oct-Nov 2002) in the absence of Simply White (83%): $63.63 m

P&G sales (Oct-Nov 2002) in the presence of Simply White : $30.28 m

Loss in sales : 33.35 m (excel sheet attached)

Price of White strips : $ 40

Contribution margin : 45%

Loss in contribution margin : 33.35 m * 0.45 = $15.0075 m

Assumptions :

Both P&G and Colgate has the same percentage contribution margin for their products

COLGATE

Competitive Rivalry

• Competitive Dynamics:• P & G losing the first mover advantage• Colgate being the second mover tries to capitalize on the

shortcomings of P&G• Emphasis on Innovation and Technology

• Competitive Landscape• Launch of crest white

strips by P&G• First innovative

product launch by P&G

• Launch of Simply white by Colgate as a counter

• Simply white, cheaper than white strips and easier to use

• To gain Market share• To gain Advantageous

market position• Go for Innovation

P & G

Competitive Rivalry and Dynamics

Competitive Analysis

•Market Commonality-HighBoth P&G and Colgate competed in the same geographies, same products in oral care•Resource Similarity-ModerateBoth P&G have same facilities, inventory levels etc, so similarity is high. Higher financial muscle of P&G though gives it more resources in terms of capital

Resource Similarity

M

ark

et

Com

mon

ality

Competitive Analysis

L H

L

H Drivers of Competitive BehaviourAwareness: High• Operate in the same Oral Care

market• Resources used are more or less

comparableMotivation: High• Quest to attain Market Leader

positionAbility: High• Similar tangible and intangible

resources• R&D skills are high

Inter firm Rivalry•First mover-P&G: Launched Crest White Strips•Organizational Size: P&G has upper hand•Quality: As per P&G’s tests Colgate’s product inferior•Likelihood of Response (Competitive Response)

Strategic Actions by Colgate Innovative product ‘Simply White’, a

gel that ensures a similar effect

Tactical Actions Price was much lesser than P&G s

product, positioned it better Convenience factor, a big selling

point for Colgate. Claimed similar effect in 30 seconds as compared to P&G’s 30 min

• P&G’ s Reputation at Stake•Needs to come up with a tactical move

Outcomes of Inter firm Rivalry

•P&G’s Crest White strips captured 80% of the market

•First Mover Incentive was not sustainable for long

•Colgate's Simply White, came as a second mover and could capture 50% of market in 2 months-Market follows Standard cyclical Pattern

•P&G market share reduced to 37%•P&G envisaging multiple tactical options to combat Colgate’s move•Industry estimates the whitening business to be worth $4 Bn by 2010

Competitive Rivalry and Dynamics

‘Mumbles’ Commercial- A look in

Points in Favour

1. Will make the customer aware about the advantages of Crest Whitestrips over Simply White2. The Advert can also help build P&G s brand identity3. Can attract more consumers into the market

Points Against1. The veracity of the documenting method using digital imaging has not yet been standardized and there are critics like Prof Westland from Leeds University who think it is a mistake2. The Advert fails to portray more than one differentiating factor3. Consumers’ indifference to the effectiveness and longevity of whiteness as they were already satisfied with the results of Simply White.

Suggested Changes for Mumbles Commercial

1. Can also introduce a character of a scientist portraying a NAD official who is justifying the claim of P&G

2. Introduce more points of differences like uniformity, effectiveness, longevity of whiteness etc

3. Can subtly attempt to educate the consumers about its digital imaging based results

4. Can also attempt to show simplicity of usage as that was a prime differentiating factor with Simply White.

Likelihood of Response by Colgate P&G’s strategy Colgate’s response / likely

responseImpact on P&G & Colgate (possible retaliation )

Introduce a new product which can compete with Colgate’s Simply White

Anticipated by Colgate - YesActions taken – Ad campaign which emphasises on differentiating product from Simply White

Colgate – revenues are affectedP&G – a. If Colgate advertises – reduced revenuesb. If Colgate doesn’t advertise – increased revenues from new product

New value proposition for White Strips

Anticipated - yesActions taken – emphasis on the benefits and effectiveness

P&G – Positive; less if Colgate responds / retaliates

Legal or other actions against Colgate and its ad campaign bya. Filing complaint with NADb. Demanding television networks

to withdraw Colgate’s advertisements

c. Sue Colgate for false advertisement under Lanham Act

Anticipated – yesActions taken – improve media relationships-Emphasise on the effectiveness of White Strips so as to get favourable response during NAD’s customer surveyLikely response-Hire good legal expertise to fight Colgate's case

a. Colgate – affect revenues negativelyP&G – damage of brand reputation or possible fines or other actionb,c. Colgate – Effect on the brand image and credibility of the product.- Impact on profits due to increased legal costs- P&G - Conduct retest and find the actual effectiveness

Comparative advertisement campaign to counter the effect of Simply White

Anticipated – yesActions taken – ad campaign that compares Simple White, effectiveness to P&G’s productLikely response – question the effectiveness and the testing methods of P&G’s product

P&G – If the campaign backfires it would impact P & G’s brand image

Colgate – depending on the impact of the new ad campaign

Likelihood of Response by Colgate P & G’s Strategy Colgate’s

Response/Likely Response

Impact on Colgate and P & G

Drop in price Anticipating a price cut by P & G on Colgate’s new product introduction priced “Simply White” at a low price of $15

P & G’s operating margins are lower than Colgate hence a price cut would impact P & G more . Increased sales through price cut would mean a further reduction in operating margin and thus the increased sales would have to offset reduction in price to translate into higher profitability

Increased use of coupons Already priced their product “ Simply White” at a low price of $ 15

Might lead to a slight increase in revenues for P & G and would thus not impact Colgate much

Look at increased association with dentists like it did when it launched “Whitestrips”

Colgate entered the market with a strategy of low prices and aimed at communicating it product benefits through it

P & G could emphasize its product superiority through increased association with dentists ( who would recommend the same) . It could question the credibility of Colgate’s product

Increase in media weights Anticipated – yesActions taken – increase ad expenses

Decreased profit margins

Recommendations- How should Ayman Ismail respond?

Increased use of coupons ◦Substitute for price cuts ◦Leads to a rising number of repeat purchases◦Encourage shopkeepers to increase their stock of

White Strips and hence enhance brand awareness

◦ Increased customer loyaltyLaunch a comparative ad campaign but

refrain from including controversial statements since the testing methods are not standardized across the industry and those used by P&G have been repeatedly challenged (b* test)

Recommendations- How should Ayman Ismail respond?

New value proposition for White Strips – emphasising on its superior features like effectiveness, lasting impact etc

P&G can take legal action against Colgate only if it can prove the credibility of its testing methods and prove without doubt its claims of superior performance (recognised testing methods)

Introducing a new product that can compete with Simply White is not recommended because of the huge R&D costs involved and the possibility of cannibalizing the sales of White Strips

Thank you