1. Executive Summary

Despite enjoying a strong year with sales dollar and volume growth, Colgate-Palmolive (CP)’s

Operating and Net Income saw a decrease at the end of 2004 by the combined effect of increased

marketing spending and increases in raw material and packing costs (p.1). Looking ahead in

2005, Colgate will need to address the cost-effectiveness of adapting its marketing strategies

implemented in the developed United States (US) market for the emerging Chinese and Mexican

markets, each consisting of distinctly different consumer needs that Colgate will first need to

research and understand. Consequently, it has to evaluate how it can tailor its marketing

strategies and re-align its organizational structure to assess how it can profitably participate.

2.  US Market Situational Analysis

Colgate Max Fresh (CMF) was first launched in the US market in August 2004, with a unique

offering of dissolvable breath strips in toothpaste designed for maximum freshness. CMF

contributed to Colgate’s record value share of 34.8% that year in the US Market, successfully

upselling many existing Colgate consumers in addition to having strong repeat purchase and

consumer trial (p.5). CMF is priced at a premium, and is therefore priced higher than the

majority of its shelf-space competition (p.5). This means Colgate needed to drive new customers

to try CMF without having the price scaring them away, as well as retain existing customers,

because loyal customers attached to the brand will be more accepting of price increases. Having

high advertising spend, offline consumer plans, attractive packaging and a flavour variety (p.5)

are necessary as a Point of Differentiation in a developed market like US. This is perhaps more

so for CMF’s target consumers in the US, who have evolved preferences for “cosmetic

segment”.(p.5). The characteristics of CP (analyzed in Table 1) will affect its entry into markets.

3. Adaptations & Strategy

We believe that Colgate’s objective for its marketing strategy should be cost-effectiveness in

both Chinese and Mexican markets. Despite their significant differences, Colgate introduced

CMF using similar strategies (eg. price reduction in Table 2), with only minor adaptations to suit

local preferences. Therefore, although its marketing strategy in the US has been profitable, the

adaptations for China and Mexico may be over-complex and unnecessarily costly. Hence, we

recommend that Colgate adopt an independent marketing approach that caters to the needs of the

different markets for maximum cost-effectiveness and growth potential.

4. Chinese Market

4.1 Situational Analysis

The Chinese toothpaste market has grown by 38% to $868 million since 2000; while the market

is still heavily skewed towards therapeutic benefits (p.16), consumer preference for “Fresh

Breath” and Whitening (cosmetic benefits) translated to a promising 6.4% growth in that

segment (p.16). However, consumers tend to be “skewed towards lower-priced local brands” (p.

6), dampening this promising growth outlook. In addition, the popularity of new flavours being

introduced are accelerating the development of the market, indicating a more sophisticated

Chinese consumer demanding a wider product mix and focusing on self-actualisation traits like

confidence and appearance. Competition is intense, with Procter & Gamble (P&G)’s Crest

pressuring Colgate with a slew of new product introductions such as Crest Tea Fresh, and

Colgate battling Crest for market leadership (p.6). Contextually, the burgeoning middle class

(Song & Cui, 2009) provides CMF with a significantly-sized target market segment with

increasing disposable incomes (Euromonitor International, 2006). However, this does not

instantly translate to willingness and ability to purchase premium products such as CMF.

4.2 Adaptations & Strategy

Product: Revising CMF to “Colgate Icy Fresh (Colgate 冰爽 )” enabled translatability and

effective positioning of “freshness”. Renaming “breath strips” to “Cooling Crystals (珠子 )”,

meaning “pearl” in Mandarin, facilitates consumer understanding of the new product feature, a

must-have. Increasing sophistication and popularity of new flavours means that Colgate needs to

create new flavours, in particular flavours like tea that cater to the taste of the Chinese (Zhou,

2014) and competes directly with Crest Tea Fresh, in order to appeal to consumers and hence

improve product acceptance and shelf-life. The citrus flavour also acts as an additional point of

differentiation for CMF. The cost of flavor-testing had only marginal impact on profits (0.985%

of sales, Table 3), but 32 weeks taken for flavor development meant a later launch date; we argue

that it pays to be differentiated in urban markets (Niraj, Dawar and Chattopadhyay, 2002), which

holds CMF’s target market of middle class consumers. Hence, the investment to create new

flavours is a must-have. However, while spending $7,000 to test “10 different shades of yellow”

is minute for Colgate, it might have delayed product launch by 4 weeks (pg. 7); with quality only

marginally enhanced, it is a nice-to-have. Producing 3 sizes (50g, 100g, 165g), including a small

50g size, is a typical emerging market strategy catering to consumers with lower disposable

incomes who tend to purchase smaller sizes, encouraging experimentation; hence it is a must-

have. However, the clear “stand-up tube”, while aesthetically pleasing to consumers, may not be

feasible due to the high cost (11.35% of sales, Table 4) and 25mil more units to breakeven

(Table 5). In addition to the massive delay; potentially losing even more market share to Crest,

the benefit from having this stand-up tube does not justify the costs; thus, it is but a nice-to-

have.

Promotion: The first promotional adaptation was the new TV commercial, which cost an

incremental $450,000 (2.216% of sales) (Table 3). However, this adaptation is important to raise

awareness of the new product, its aspect on “freshness” (p.7), since Emily’s Procter’s character

and role in CSI are relatively unknown in China. Due to the importance of quality

communication (being a new product), and the marginal effect on cost, this adaptation is

considered a must-have. The next adaptation is the choice of the celebrity Jay Chou. Jay is

extremely popular artiste in China, being the most searched male artiste on Baidu in 2002

(Baidu, 2011). Given its price elasticity and low consumer involvement, there is passive

reception of brand information. Thus, to combat this problem, using Jay Chou enables CMF to

leverage on secondary association with Jay Chou’s “cool” image, making it a must-have

investment.

5. Mexican Market

5.1 Situational Analysis

Valued at $348 million, Colgate dominates the Mexican market with a value share of 82%,

compared to Crest’s mere 10%. With relatively flat demand and a declining cosmetic segment (-

2.6%, p.23), it is difficult to secure additional shelf-space, making delisting/cannibalization of

other Colgate products a significant risk. Consumers prioritize therapeutic over cosmetic

benefits (p. 8), and despite strong favour and support for Colgate as a brand, they perceive CMF

to be “underperforming in terms of delivering on therapeutic benefits” (p.9). Colgate’s main

competitor is P&G’s Crest; while Colgate was testing CMF in the Mexican market, Crest has

launched CWE in November 2004. Contextually, even though the middle class and disposable

income are increasing (The World Bank, 2012), it does not mean that Mexicans will consider

buying premium-priced products like CMF; ultimately, Mexican consumers may still view

CMF’s exclusive positioning of cosmetic benefit of freshness as a luxury.

5.2 Adaptations & Strategy

Product: Similar to China, Breath Strips were changed to “Cooling Crystals” because “breath

strips”(p.30) held no meaning to the Mexican consumer, allowing the customers to better relate

to the product, hence this adaptation is a must-have. As part of Colgate’s strategy of adapting

products to local taste and preferences, CMF was launched with 3 flavours (p.9). Cinnamon is an

integral ingredient in Mexican cooking (Hursh, 2004). With Colgate introducing this unique

Cinnamint flavour, it makes it easier for Mexicans to accept and try CMF. Although having a

mint flavour is what consumers expect in toothpaste (Davis, 2012), having two mint flavours

(Cool Mint, Clean Mint) for the Mexican market is questionable. Reducing the number of

flavours would reduce development costs, and is unlikely to lessen the attractiveness of CMF

given that it is not a point of differentiation. As such while the adaptation of Cinnamint to suit

local tastes is a must-have, introducing 2 mint flavours is a nice-to-have. Just like in China,

different sizes (75g &100g) are available due to lower disposable incomes and to encourage trial

in the emerging market.  This adaptation is qualified as a must-have.

Promotion Adaptations

Creating a new advertisement was a sound decision because Emily Procter and CSI which she

stars in is unlikely to be widely known given that American TV shows are only viewable on pay

TV in Mexico, which is seen in only a minority of Mexican homes (Vázquez, 2005).  While the

Snowsurfer advertisement (p.26) communicates the “coolness” and “freshness” of CMF by

creating a secondary association of CMF with snow which is seen as “cooling” and “fresh”,

increasing the attractiveness of the product to the Mexicans. Furthermore, the element of extreme

sports makes the advertisement youth oriented, applicable in this relatively young market where

almost a third are aged between 12-29 (Mexico Gulf Reporter, 2013). Thus this promotions

adaptation can be considered a must-have.

5.0 Global CMF

Due to the cultural and contextual complexity in each market, CP faces problems with

glocalizing CMF and making the basic CMF product more relevant to the consumers in each

market. Complexities arises from choosing the type of adaptions of the basic CMF product

prepared for the U.S market that will best suit each market. The complexities born out of these

local adaptations have short and long term impacts. The intensive Product Adaptions caused

CP’s late launch especially in Mexico (Figure1) This is detrimental if the testing proves to be

unaligned to objectives and are not value-adding, creating feature fatigue. Hence, lead users in

each market, can be further research upon in emerging markets. Additionally, the rigorous

research and testing also cost a huge financial outlay. The lower speed-to-market and investment

outlay, however, will be justified by the local consumers’ perceived quality of the overall

product, and the long-term sales for CMF as the adapted product encourages uptake. The

adaptations for Promotional activities are also deemed as necessary, especially for the

advertisements since locals from either market are not necessarily familiar with the original.

Through emotional advertising, consumers’ hedonistic value of consuming CMF is increased.

The use of a celebrity may help increase better product recognition and appeal, and consumers’

psychological benefits of using the product through being ‘cool’ despite the product being low-

involvement. Even though adapting promotional efforts and educating consumers of product

quality and user benefits may have minimal impact of speed-to-market, the adaptations will

improve the perceived quality of the product and the communication of CMF’s point of

differentiation. Though, the huge financial outlay may be justified by increase in long-term sales.

6. Recommendations for CP

With CP focusing on using new products to drive market share growth and market leadership in

key categories (p.1), new product introductions are bound to always be in the pipeline. The

organizational problems from the introduction of CMF (Table 6) seen from adaptation failures;

can be generalized to serve as guidelines to optimize future new product introductions.

6.1 Organizational Structure

Firstly, the establishment of region specific objectives should help to facilitate the means through

which the new product should be launched. Hence, GBD and the regional divisions should have

the 1st point of contact to determine the extent in which time, quality and cost should be

compromised, based on the individual region’s objective. Additionally, this will allow the long

term plan to be integrated to the Geographic Division’s short term P&L perspective. However,

the departments may have an inability to compromise; formal relationships are but baseline

initiatives. More should be done to coordinate internal activities. To help marketing and other

functions jointly determine what is in the company’s best interests, CP could provide joint

seminars, committees and analytical methods to determine the most profitable course of action

(Kotler & Keller, 2011). After which, GBD should then communicate the technology and

recommendations of the new product to the Regional CIC, avoiding double work of “technology

qualification” and “CIC Influence” (Table 6). Secondly, to ameliorate instances of failure in

status report reporting, formal communications should be established from CIC back to GBD.

Currently, the lack of communication back to GBD has led to China’s packaging failure.

However, lapses in communication can still occur even after implementing status reports. Hence,

GBD managers can relocate from their NY headquarters to the CIC region, raising

accountability. The existing and proposed communication channels are shown in Figure 2 & 3.

6.2 Guidelines on Situational Analysis

With effective organisational structure in place, CP needs to ensure proper situational analysis.

Effectively, this is the guideline which will guide discussions between GBD and Geographic

Divisions. Overall, CP should aim to be consistent in theme but reflect significant differences in

consumer behavior, brand development and competitive forces (Kotler & Keller, 2011).

6.2.1 Base Adaptations on Situation Analyses

An understanding of the situation is the foundation of any new product introduction. CP has to

leverage on the current situation with regard to the customers, company, context, competition

and collaborators. For example, the choice of which product features to emphasize should be

tailored according to preferences of the target market, and in Mexico’s case, the lack of growth

and value share in the “Freshness” aspect, may mean that CMF should not be have been

introduced. The analysis should guide CP towards one of the 5 international product and

communication strategies shown in Figure 4. However, there is also the risk of trend

development, which may limit the time to react after conducting situational analysis. Hence,

continuous R&D with back-up products should be conducted to alleviate the Trend factor.

6.2.2 Ensure Cost-effectiveness

One of the three main objectives of CP’s 2004 restructuring plan entails generating additional

savings throughout the income statement(Colgate-Palmolive, 2014). This focus on cost-

effectiveness can be translated in new product introductions by streamlining product

development. For example, excessive colour testing should not be carried out. The point is to

always strike a balance between incremental costs and the expected sales or profits from

implementing that adaptation. While CP should seek to satisfy customer needs and expectations,

it has to be objective when it comes to satisfying customer wants – CP should not implement

adaptations if the payoffs do not justify the costs. In addition, it is possible for CP to come up

with an easily customisable commercial. The cost to adapt these commercials to the various

markets would certainly be lower than developing whole new commercial for multiple markets.

Table 1: SWOT analysis for the CP brand

Strengths Largest global value share (39.7%) →

economies of scale, better bargaining power Global leadership in key product categories →

enjoy greater customer loyalty, easier to get into minds of consumers than to convince them that you are better than competition

Extensive reach and distribution with a strong global presence in over 200 countries

Extensive R&D department → Product development initiatives to continuously reinvent itself

Opportunities Growth of emerging markets Expanding middle class in emerging

markets, e.g. China → ability to tailor to them premium products

Weaknesses High level of marketing often required for a new

product launch Retailers – one of the major stakeholders –

determine the amount of shelf space given to CP products

Possible cannibalization of product sales and retail shelf space due to its existing extensive product lines

Core business: low involvement consumer products

Threats Intensive rivalry in the industry and in

each product segment Threat of competition from local

brands Growth of private labels Communication challenges due to

cultural and contextual complexity

Table 2: Selling Price (Converted to $USD)

US China MexicoRetail Price Size Manufacturer’s

Selling PriceSuggested Retail Price

Size Manufacturer’s Selling Price

Suggested Retail Price

$2.49 – 2.9950g $0.354 $0.472 75ml $1.047 $1.347

100g $0.870 $1.077 100ml $1.255 $1.377165g $1.167 $1.440

Table 3: Cost of Adaptations (% of Sales)

China

Adaptations Incremental Cost % of Sales Ranking: China (Highest cost)

New Commercial

450,000 450,000/20,303,000 = -2.216% 3

Celebrity Endorser

1,000,000 1,000,000/20,303,000 = -4.925% 2

Flavor Testing

200,000 200,000/20,303,000 = -0.985% 4

Packaging

(2005)2,304,3201 2,304,320/20,303,000 = -11.35%

1(2006)

779,600779,600/20,303,000 = -3.27%

Mexico

New Commercial

500,000 500.000 / 10,336,000 = -4.837% -

Table 4: Calculations For Packaging (If carried out)

Table 5: No. Of Average Units needed to Breakeven (China – 2005)

2005 2006COGS 10,054 9,745

Packaging Cost accounted for 40% of COGS

0.4*10,054= $4021.6

0.4*10,054= $3898

20% Variable Cost Premium per package

804.32 779.6

Capital expenditure for filling machines

1,500 -

Incremental Loss (2304.32) (779.6)Incremental Loss as a % of

sales- 11.35% - 3.27%

Average unit selling price

Volume % * Price of each size

= 0.32*$0.354 + 0.38*$0.870 + 0.30*$1.167 = 0.1132 + 0.3306 + 0.3501= $0.7939

Since Variable Cost = 50%Contribution Margin = 50%

Contribution Margin= $0.39695

No. of Average units needed to break even = Fixed Cost/Contribution Margin per unit= ($4,710,000 + $15,800,000) / $0.39695= 51,668,975 units

No. of Average units projected to be sold in 2005 = Net Sales / Average unit selling price= $20,303,000 / $0.7939= 25,573,749 units

Table 6: Problems with CMF Launch (Organizational Structure)

1 Calculated from Table 4: Calculations For Packaging (If carried out)

Figure 1: Delay in CMF Launch in Mexico

Figure 2: Existing Communication Channel Figure 3: Proposed Communication

Figure 4: Communication & Adaptation Strategies

Aug 2005: CMF in China

May 2005: CMF in Mexico

Nov 2004: CWE in Mexico

Sep 2004: CWE in US

Aug 2004: CMF in US

Late 2002: Global R&D started,

Met CIC

2001: Breath Strip Technology

Source: Kotler, P., & Keller, K. (2011)

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