CASE STUDY: COLGATE PALMOLIVE PRECISION TOOTHBRUSH

Submitted by: Group-10 Section-A

Anuj Peepre D. Arvind Kumar

Nitish Chawla Rahulkumar Koli Vaibhav Maheshwari

Richa Gupta Shishir Raut

Quantitative Analysis

Alternative 1 (Niche Product): Profit/Loss Calculation

Total unit sales Year 1 = 11 million (8 retail + 3 professional) Total dollar sales Year 1 = Retail qty * Retail price + Professional qty * Professional Price (weighted) = 8*2.13 + 80% @0.79 + 20%@0.95 = $19.51 million Costs Year 1 = Manufacturing + Promotions = 13*0.66 + 5 + 4.6 + 1.6 = $19.78 million Loss = $0.27 million

Total unit sales Year 2 = 18 million (15 retail + 3 professional) Total dollar sales Year 2 = Retail qty * Retail price + Professional qty * Professional Price (weighted) = 15*2.13 + 80% @0.79 + 20%@0.95 = $34.42 million Costs Year 2 = Manufacturing + Promotions = 20*0.66 + 5 + 4 + 2.7 = $24.9 million Profit = $9.52 million

Alternative 2 (Mainstream Product) Profit/Loss Calculation

Total unit sales Year 1 = 35 million (27 retail + 8 professional) Total dollar sales Year 1 = Retail qty * Retail price + Professional qty * Professional Price (weighted) = 27*1.76 + 80% @0.79 + 20%@0.95 = $54.09 million Costs Year 1 = Manufacturing + Promotions = 27*0.64 + 15 + 13 + 4.8 = $59.68 million Loss = $5.59 million

Total unit sales Year 2 = 52 million (44 retail + 8 professional) Total dollar sales Year 2 = Retail qty * Retail price + Professional qty * Professional Price (weighted) = 52*1.85 + 80% @0.79 + 20%@0.95 = $ 98.09 million Costs Year 2 = Manufacturing + Promotions = 52*0.64 + 12 + 10 + 7 = $66.76 million Profit = $ 31.33 million

We have not taken into account the cannibalization Precision would have on the existing mainstream Colgate Plus. Considering the worst case cannibalization of 60%, Using exhibit 1, Net sales in 1992= $91.611 million

Cost of sales = $44.846 million Total sales units= 78.336 million Therefore contribution per unit = $ 0.5969 Cost of cannibalization in year 1=$ 12.53 million Cost of cannibalization in year 2=$ 18.62 million Effective loss in first year after launch= $ 18.12 million. However, we see that in the second year we will have a estimated net profit of $12.71 million dollars.

Decision & Conclusion positioning of a niche product gives more profit during its initial phase. This is because in a niche market buyers are willing to pay a higher price provided to get the satisfactory product. Mainstream product will yield profit in long run. Thus, considering these factors, although Precision would yield lower profits in the short run if its introduced as a niche product, it makes sense to continue with this strategy because of far higher competition, cannibalization and risks involved in positioning it as a mainstream product, not to mention the increased production capacity required. Thus, Precision must be launched as a niche product and accordingly the marketing mix must be designed.