MKT 271 Arizona State University Colgate Max Fresh Case Study Scenario You should assume that you have been hired by the leadership at Colgate. as a marke

MKT 271 Arizona State University Colgate Max Fresh Case Study Scenario

You should assume that you have been hired by the leadership at Colgate. as a marketing consultant and you have been selected to answer several questions related to their marketing efforts. You must advise the company on what to do.

In February 2005, Nigel Burton, in his third year as president of global oral care at Colgate-Palmolive Company (CP), had every reason to feel optimistic. Worldwide market shares were strong and Colgate Max Fresh (CMF), a new toothpaste that had helped drive Colgate to a record value share in the important U.S. market, was in the global pipeline for 2005. Burton had on his desk the proposed marketing launch plans for CMF in China and Mexico. Each plan sought to maximize the business potential in the local market. Burton had to assess the plans from a global perspective.

The Challenge

You must read the HBS case and prepare a response.

You should analyze the case and address these questions as a part of your response:

Did China and Mexico each do a good job of adapting the launch to meet local consumer needs? What is the likely profit impact of each plan? Which of the proposed adaptations were “must haves” versus “nice to haves”?
From a global CMF perspective, what is the short- and long-term impact of the complexity born out of these local adaptations? Is this added complexity good or bad for the global CMF business?
What guidelines could Burton propose going forward to optimize new product introductions for CP worldwide, for the regions, and for the country subsidiaries?

Read the scenario carefully and develop your position using supporting arguments from the text reading material and any supporting videos. You must outline your position clearly. Any questions at the end of the case are suggestions to prompt your thinking and do not need to be answered in sequence. For the exclusive use of P. Cameron, 2016.
9-508-009
OCTOBER 23, 2007
JOHN A. QUELCH
JACQUIE LABATT-RANDLE
Colgate Max Fresh: Global Brand Roll-Out
In February 2005, Nigel Burton, in his third year as president of global oral care at ColgatePalmolive Company (CP), had every reason to feel optimistic. Worldwide market shares were strong
and Colgate Max Fresh (CMF), a new toothpaste that had helped drive Colgate to a record 34.8%1
value share in the important U.S. market, was in the global pipeline for 2005. Burton had on his desk
the proposed marketing launch plans for CMF in China and Mexico. Each plan sought to maximize
the business potential in the local market. Burton had to assess the plans from a global perspective.
He wondered if the costs of adapting the CMF marketing programs in each country would generate
sufficient incremental sales and profits to justify the added complexity.
Company Background
The Business
By January 2005, CP was a $10.6 billion global company2 operating in 200 countries worldwide.
The company focused on two core product segments: Oral, Personal, and Home Care; and Pet
Nutrition. Some of CP’s well-known brands included Colgate, Palmolive, Speed Stick, Ajax, and
Hill’s Science Diet. Colgate was the world’s leading toothpaste and toothbrush brand; Palmolive was
the world’s third largest soap brand.3 CP derived 70% of its sales outside of the U.S.4
CP had enjoyed a strong year in 2004, reporting +6.5% unit volume growth, +7% sales dollar
growth, and +0.1% point growth in gross profit margin to 55.1%. Operating profit and net income
were negatively affected (-2% and -7%, respectively, versus 2003) by the combined effect of increased
marketing spending and increases in raw material and packing material costs.5
To drive growth, CP focused on its higher margin core businesses. Advertising spending was
carefully targeted at new high margin products and at high potential markets, notably the U.S.,
China, Russia, India, Mexico, and Brazil.6 In 2004, approximately 40% of total company sales were
from products launched within the past five years. These new products drove market share growth
and market leadership in key categories.7
________________________________________________________________________________________________________________
Professor John A. Quelch and Research Associate Jacquie Labatt-Randle prepared this case. Certain details have been disguised. HBS cases are
developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effective or ineffective management.
Copyright © 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
This document is authorized for use only by Preston Cameron in 2016.
For the exclusive use of P. Cameron, 2016.
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Colgate Max Fresh: Global Brand Roll-Out
Organizational Structure
CP was organized along geographic lines with management teams responsible for the financial
results of their respective regions: North America, Latin America, Europe, and Asia/Africa. Each
region had a president with profit-and-loss responsibility who reported to the chief operating officer.
Each region oversaw local country managements. Consumer Innovation Centers (CICs) including
marketers, “insighters,” and product developers were set up to develop shorter term (2–3 years)
innovations for each region. They meshed local market knowledge with global protocols and knowhow. CICs evaluated ideas against “action standards,” an assessment tool measuring an initiative’s
ability to meet pre-determined financial, product quality, consumer acceptance, and timing
objectives. Once a marketing or product idea was qualified for a region, it was handed over to the Go
To Market (GTM) team in each CP country organization for launch planning and execution.
Separate from the geographic divisions were global business development groups organized
along category lines. Located at the corporate headquarters in New York City, global category
presidents also reported to the chief operating officer and were measured on global market share
rather than profit-and-loss. Each global group was responsible for the global category strategy,
resource allocation, and best-practices idea transfer across regions. (See Exhibit 1 for the marketing
roles and responsibilities of different parts of the CP organization.) Success in a global business
development role depended on previous credible line management experience and on an ability to
work well with regional management in the absence of any formal reporting relationships. Burton,
formerly vice president and general manager in Spain, and then later in the U.K., explained the key
challenge of his global role: “All responsibility, no accountability.”
2004 Restructuring Activity
In December 2004, CP announced the beginning of a new four-year restructuring and businessbuilding plan. The objective was to enhance CP’s global leadership position in its core businesses.
As part of this plan, CP planned to streamline its global supply chain by closing one-third of its
manufacturing facilities.8 Plans were also developed to centralize purchasing and other business
support functions. Finally, CP aimed to better concentrate its marketing resources against key
category opportunities and high potential emerging markets while consolidating organization
structures in certain mature markets.
Evolution of the Toothpaste Market
With sales of $5.2 billion,9 oral care was CP’s largest business and included products such as
toothpaste, electric and manual toothbrushes, and mouthwash. CP held a 39.7% global value share10
in toothpaste, more than double that of its nearest competitor, Procter & Gamble (P&G), at 14.7%.11
Colgate was the world’s first commercial toothpaste; Colgate Dental Cream was launched in 1873
in tins. In those days, dental creams provided little more than a superficial cleaning and had few, if
any, lasting therapeutic benefits, such as cavity or gum-disease prevention. This remained the case
until 1955 when P&G launched Crest, the first fluoride toothpaste. Field research on toothpaste with
fluoride conducted in 1950 by Procter & Gamble and Indiana University found a 50% reduction in
cavities.12 P&G patented this technology, then obtained the American Dental Association’s seal of
approval. The patent prevented competitors including Colgate from launching a fluoride toothpaste
in the U.S. until 1967. As a result, CP largely had to concede the therapeutic market to Crest and
instead promise a cosmetic “fresh breath” benefit with its toothpaste brand. During this time, CP
2
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Colgate Max Fresh: Global Brand Roll-Out
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focused on developing its business internationally and quickly established dominance in most global
markets while Crest continued to dominate in the U.S. (See Table A.)
Table A
Global Toothpaste Market—Value Share
Colgate-Palmolive
Procter & Gamble
Source:
2000
2001
2002
2003
2004
39.7%
12.2
40.6%
12.5
39.8%
13.8
38.8%
13.9
39.7%a
14.7
Company records.
aIncludes 1.1 share points from GABA acquisition, a Swiss-based company with brands marketed in Switzerland, France, Italy,
and Germany.
By the 1990s, virtually all toothpastes in the U.S. offered fluoride protection and consumers had
evolved to additional oral care concerns including stained teeth, sensitive gums, and bad breath.13 In
December 1997, CP launched Colgate Total in the U.S. as a premium product that promised 12-hour
protection against a full range of oral health problems including gum disease, gingivitis, and
plaque.14 Colgate Total threatened Crest’s dominance of the therapeutic toothpaste market.
Launched with a $100 million marketing campaign, Colgate Total enabled Colgate to soon become
the leading U.S. toothpaste brand with a 30% value share,15 upsetting Crest’s 30-year reign. Colgate
still retained its share lead in the U.S. in February 2005.
Colgate Max Fresh Product Development
Global Research and Development (R&D) worked with the CICs to develop new products. Once
a promising technology was identified, discussions between R&D and the CICs were held to agree on
the product formula, particularly the sourcing of ingredients and selection of flavors in light of local
consumer preferences.
In late 2002, R&D invited the CIC directors to a briefing on a new toothpaste formula, a sensorialdriven, breath-freshening product that was later launched as Colgate Max Fresh. This product
utilized its patented technology of dissolvable mini breath strips as a point of differentiation. The
breath strip category, which had been introduced to the consumer in 200116 by a leading mouthwash
manufacturer, was developed to provide consumers with a convenient alternative to traditional
mouth fresheners. The product consisted of small pieces of “tape,” packaged in a convenient
carrying case, which dissolved on the tongue releasing a flavor designed to freshen breath. By 2002,17
the product category was estimated to generate $250 million in retail sales globally and was
particularly successful in the U.S. where it obtained strong distribution and impulse sales at retail
check-out counters.
Regional interest in the “breath strip in toothpaste” technology was strong, but high
manufacturing costs were of concern to CP managers from emerging markets because they could not
be easily passed through in higher retail prices. The basic formula contained a high-quality, highcleaning silica with an expensive but effective whitening ingredient. To address margin concerns, a
cost-optimized formula was created for emerging markets.
3
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For the exclusive use of P. Cameron, 2016.
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Colgate Max Fresh: Global Brand Roll-Out
Initiatives and Cannibalization
When evaluating any project’s viability, CP looked at total franchise growth, net of
“cannibalization,”18 in addition to the individual product’s volume and profit potential. Experience
showed that four factors most influenced franchise growth: consumer substitution, marketing
spending, distribution penetration, and transaction size.19 Consumer substitution with the parent
brand usually equated to “fair share” or higher.20 If marketing dollars were diverted from the longestablished parent brand to support a new product, the result was often a decline in parent brand
share. Though the parent brand did not lose shelf space, its low-performing stock keeping units
(SKUs) were often delisted to find room for the new product. A final challenge was that average
transaction size was typically lower for a new product than the parent brand because consumers
experimented first with smaller sizes.
U.S. Toothpaste Market
In 2004, the $2,438 million U.S. retail toothpaste market had grown in dollar value by 8% since
2000 and was dominated by four manufacturers.21 (See Table B.)
Table B
Value Shares of Leading U.S. Toothpaste Manufacturers
Manufacturer
Brands
Colgate-Palmolive
Procter & Gamble
GlaxoSmithKline
Church & Dwight
All Other
Colgate
Crest
Aquafresh, Sensodyne
Arm & Hammer, Close-Up, Mentadent, Aim, Pepsodent
Source:
2004 Value Share of
Toothpaste Market
34.8%
31.6
14.5
10.2
8.9
Company records.
Since 2001, Crest’s value share of the retail toothpaste market had been growing, thanks to new
product initiatives such as Crest + Scope (C+S), launched in the U.S. in January 2002, and Crest
Whitening Expressions (CWE), launched in September 2004.
C+S was positioned as a toothpaste and mouthwash product that also whitened teeth. Results
were strong with C+S achieving a 5.4% retail value share in 2004.22 CWE was positioned as a “flavorbased experiential toothpaste that also whitens teeth.”23 CWE was supported by heavy advertising to
drive awareness and trial, and achieved a 5.2% share by the end of 2004 behind an 18.8% media
advertising share of voice.24 Adding to the competition in the cosmetic segment of the toothpaste
market was Aquafresh Extreme Clean, launched in September 2004, which promised to “go beyond
clean and fresh breath.”
Market Segments
Consumer research (see Exhibit 2A) indicated that cavity/fluoride protection was the key benefit
sought, followed by reduction in plaque build-up, breath-freshening, and tartar control. The
importance of the whitening segment was growing yet was considered by CP to be the “price of
entry” with any premium-priced product launch.
4
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Colgate Max Fresh: Global Brand Roll-Out
508-009
In 2004, the U.S. toothpaste market was split evenly between toothpastes that emphasized
therapeutic (cavity/fluoride protection, sensitivity relief) benefits and those that stressed cosmetic
benefits (freshening, whitening). (See Exhibit 2B for market segment trends by benefit.) Historically,
Crest had dominated the therapeutic segment with its patented fluoride anti-cavity formula until
Colgate launched Colgate Total in 1998. To offset losses in the therapeutic market, Crest turned to
the cosmetic segment, historically Colgate’s stronghold, with the launch of C+S and CWE, which
appealed to consumers’ concerns about personal appearance. Between 2000 and the end of 2004, the
cosmetic segment had nearly doubled its value share of the toothpaste category.
The toothpaste category could also be segmented into four retail pricing tiers: super premium
($3.49+), premium ($2.49–$2.99), mid-tier ($1.99–$2.49), and value (
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