INTEROFFICE MEMORANDUM

TO: NIGEL BURTON

FROM: SUSAN STEINBERG

SUBJECT: COLGATE PRECISION MARKETING STRATEGIES

DATE: 08/01/1992

Depending on how we choose to introduce our new product, the Colgate Precision toothbrush, into the market, this
year serves as an important course of action for Colgate-Palmolive (CP) to establish itself in a highly competitive
US toothbrush market. I recommend using a two-level approach. First, CP should introduce the Colgate-Precision
brush as a niche product targeting the baby boomers within the Therapeutic Brushers consumer segment. Educating
the public on the dangers of gum disease and securing professional endorsement will ensure that consumers will pay
a premium cost to Oral-B. Second, by 1994 or 1995 when CP has the appropriate time to build up stock of the
Colgate Precision toothbrushes, CP should then transition into the mainstream, professional market by lowering the
cost. Lastly, in order to avoid cannibalizing our flagship Colgate Plus model, we need to rename our model to
“Precision by Colgate” before introducing it into a niche, super-premium market.

While the year 2 profits (seen in Exhibit 1 and Exhibit 2) using the mainstream positioning are larger than that of the
niche positioning, there is much more to consider. By using a two-level approach, CP can reach its full potential
across all possible market segments while minimizing the cannibalization costs and pressure placed on production
schedules. The task force, through clinical trials, discovered that compared to other leader tooth brushes, the
technical innovations on the precision brush resulted in a 35% increase in plaque removal and is even more effective
at cleaning the gum line. Focusing on gum disease prevention, CP can differentiate Precision by positioning it as a
niche product and launching it first into a narrow market made up of Therapeutic Brushers who account for 46% of
the adult population, and also the baby boomers who are becoming more concerned about their health, allowing CP
to charge a 15% premium than that of the Oral-B Indicator (between $2.65 - $2.89). Additionally, we can leverage
our strong relationship with our retail stores and place the Precision brush on the middle shelf, between Reach and
Oral-B. To further reach this target market, CP should focus it’s messaging on being able to claim its ability to
drastically decrease the likelihood of future gum problems, instead of talking about rubber handles or head shape
like other competitors. However, Oral-B has heavy professional endorsement from dentists that heavily influence
consumers on brand choice during point of purchase. Thus, on top of the claims, CP should seek accreditation from
dentists and the American Dental Association, and even start a dentist sampling program to further fuel demand.
While most consumers do not understand the risks they face, the placement of the brush within the shelves, the
claims against gum disease, and the accreditation given by professionals should move the Precision toothbrush to a
position where even Oral-B consumers would make a “in the moment” decision and choose our product.

One of the biggest threats to CP is the company itself. If we were to first enter into the mainstream market in the
professional product segment, not only would the Colgate Plus model would be at risk of being dropped in order to
make room for another product on the shelf but we would also go another year or more without a product entering
the super-premium market segment. To further decrease the cannibalization effect, we should change the name to
“Precision by Colgate.” We would also face the cost of shortage of our inventory at Anchor Brush. Thus, after we
increase production capacity, we should switch from niche positioning into mainstream positioning by decreasing
the cost to no lower than $1.75 (the lowest pricing currently in the super premium segment), and increase our reach
to the other consumer segments to ensure profits in the long-run. At this time, the precision toothbrush can take a
seat next to the Colgate Plus model and once again, make room for another new super-premium Colgate product.
 Appendix

Exhibit 1: Profit and Loss Forecasts for Precision Toothbrush – Niche Positioning

1993 1994
Planned capacity unit volume 13,000,000 20,000,000
Retail unit sales 8,000,000 15,000,000
Retail dollar sales 16,160,000 30,300,000
Professional unit sales 3,000,000 3,000,000
Professional dollar sales 2,466,000 2,466,000
Total unit sales 11,000,000 18,000,000
Total dollar sales 18,626,000 32,766,000

Manufacturing costs 7,260,000 11,880,000

Sampling costs 1,320,000 1,320,000
Advertising/promotion 11,200,000 11,700,000
Capacity costs 3,250,000 1,300,000
Total costs 23,030,000 26,200,000

Operating Profits -4,404,000 6,566,000

Profits as % of sales -23.64% 20.04%

Cannibalization Projections 35% 35%

Exhibit 2: Profit and Loss Forecasts for Precision Toothbrush – Mainstream Positioning

1993 1994
Planned capacity unit volume 42,000,000 59,000,000
Retail unit sales 26,800,000 44,100,000
Retail dollar sales 47,168,000 77,616,000
Professional unit sales 8,000,000 8,000,000
Professional dollar sales 6,576,000 6,576,000
Total unit sales 34,800,000 52,100,000
Total dollar sales 53,744,000 84,192,000

Manufacturing costs 22,272,00 33,344,000

0
Sampling costs 4,480,000 4,480,000
Advertising/promotion 32,800,00 29,000,000
0
Capacity costs 9,100,000 3,900,000
Total costs 68,652,00 70,724,000
0

Operating Profits -14,908,000 13,468,000

Profits as % of sales -27.74% 16.00%

Cannibalization Projections 60% 60%