Colgate Max Fresh: Global Brand Roll-Out
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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 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 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 7 and market leadership in key categories. ________________________________________________________________________________________________________________ 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. 508-009 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 know- how. 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 business- building 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 This document is authorized for use only by Preston Cameron in 2016. For the exclusive use of P. Cameron, 2016. Colgate Max Fresh: Global Brand Roll-Out 508-009 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 2000 2001 2002 2003 2004 Colgate-Palmolive 39.7% 40.6% 39.8% 38.8% 39.7%a Procter & Gamble 12.2 12.5 13.8 13.9 14.7 Source: 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 sensorial- driven, 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, high- cleaning silica with an expensive but effective whitening ingredient. To address margin concerns, a cost-optimized formula was created for emerging markets.