Procter & Gamble v/s Colgate 2003

An Exercise in Competitive Dynamics

(From Colgates perspective) Presented By:

Group A-08

Industry Future Projections

Low entry barriers New entrants will be there P&G will resort to aggressive promotion Market will grow Natural Segmentation on the basis of price P&G might come up with a gel at a cheaper or similar price

Characteristic Entry Barrier

Minimal Customer switching costs Low

High Capital Requirements High

Increasing Demand Low

Easy Distribution channel access Low

Patented Products High

Target segment

Our segment comprises price-sensitive people who are conscious about their teeth and dental hygiene.

We target to provide value through our quality product offering at a relatively less price.

The main competitor, P&G, is active in the premium segment.

Their main competitor based on price is Rembrandt.

Competitor Both P&G Crest Whitestrips and Colgate Simply White Night target the

urban consumers who are well aware of the oral care segment.

The motivation for P&G consumers would be higher than that of Colgate consumers, as they would have to pay $44.

Investment and Recovery by P&G:

Initial Marketing $90 million

Media Campaign $33.6 million

Year 1 Net income 45% * $200 million $90 million

Year 2 Net Income 45% * 40% * 300 million $54 million

Strategy

Focus will be on Product Improvement No new product will be launched Focus on women and working professionals

Arena

Internal Developments R&D to improve products

Vehicle

Price Convenience

Differentiator

Staging & Sequencing

0 0.5 1 1.5 2 2.5 3 3.5

Mass Retail

Pharmacies

Launch New & Promotions

R&D - Stage 2

Mass Retail

Pharmacies

Launch New & Promotions

R&D - Stage 1

Launch in Mass Retail Channel

Pharmacies

Promotions

Years

Economic Logic

2001 2002 2003 2004 2005 2006

Market size 300.00 356.70 424.12 504.27 600.00

Share 30% 33% 36% 40% 44%

Sales 90.00 117.71 153.95 201.36 263.54

Profit 40.50 52.97 69.28 90.61 118.59

R&D cost (20.00) (9.00) (11.77) (15.40) (20.14) (26.35)

Investment (R&D + marketing) (60.00) (40.00) (40.00) (40.00) (40.00)

Net cash flow (20.00) (28.50) 1.20 13.88 30.47 52.24

IRR 20.59%

NPV (15% discount rate) 8.65

* All figures are in million USD

Table 1

We would continue with our own product, but would do R&D for the next few years.

Our differentiators are low price and the dual use of the product packaging. It would continue.

We have enough resources, since we are already the market leader. We would spend $10m in 2003, and would grow by 10% every year. The IRR is 20.5%.

Possible Threats

P&G poses a threat to us. They might come up with a gel and price it at around $15.

Competitors have started coming up with products with intellectual property protected ingredients. This would increase the entry barriers.

Buyers would have less power as most products have different offerings.

Thank you.