Changes sales increase since 2000, implying market size

Changes to Colgate Max Fresh
(CMF) China
Marketing Launch and Justification

Colgate Palmolive decision
to change the market launch parameters was related to the dynamics of the
product in regard to the market. The immediate challenge had been the ability
to communicate positioning of the product right. The product name “Breath Strips”
did not resonate in the Chinese market since the category was niche and
unknown.

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They changed the name,
preferring “Cooling Crystals” which resonated better in quantitative tests of
consumers in the market. The other concern related was in connection with Emily
Procter who was the brand ambassador in the United States, but was unknown in
China, implying that there was need to present a known Chinese brand ambassador.

It would have been impractical
to adapt Emily Procter’s name in the Chinese market since she lacked name
recognition. Thus, the decision to use Jay Chow who was well-known in China was
practical in driving the brand to consumers. In addition, their market has different
dynamics with respect to preferred colors, so it was important to update the color
modifications.

The Chinese market
had a stronger preference for low-priced toothpaste brands with premium brands accounting
for just 30% of total sales, unlike the 55.3% in the United States. Colgate
Palmolive chose the Suggested Retail Price (SRP) of RMB 7.19 which was
competitive to the average of RMB 4 for value brands. The performance of the
brand was justified by the increased sales.

In the Chinese
market, revenue increased by 2.0% in Year 2 from $20.3 million to $23.8
million. The Chinese market in 2004, was valued at $868 million and with sales
at $20.3 million in Year 1, Colgate Palmolive attained value share of 2.3%
which grew to 2.7% based on revenue remaining at $868 million.

  The
objective in launching Colgate Max Fresh was to attain 2% value share in the
first year and 2.8% in the second year. It achieved the value share objective.
The average annual revenue growth for toothpaste in China was 9.5% based on 38%
sales increase since 2000, implying market size of $950.5 million in 2005.

Based on this metric,
Colgate Palmolive attained value share of 2.1% in Year 1 and 2.3% value share
in Year 2 based on total toothpaste market revenue of $1,040.8 million; including
assumed annual growth rate of 9.5%. Overall, the marketing changes reflected
the performance in Year 1, which exceeded targets but slowed down in Year 2.

Global Roll-Out of Colgate Max Fresh (CMF)

The global roll-out
target markets highlighted in the case were China and Mexico. The response in
China to the consumer benefit related to teeth whitening products was positive.
The market actually grew by 3.8% between 2003 and 2004 to represent value share
of 8.9%. Consumer reason for using whitening tooth paste was also high.

In China, fresh
breath ranked at 28% and was the top reason followed by anti-cavity protection
and gum protection at 14% and 11% respectively. In Mexico, the segment for
whitening toothpaste was declining from 4.9% to 2.7% in 2004 with strong
preference for anti-cavity products.

It illustrates the divergence
in consumer preferences in the two markets. The approach that was used in the
Chinese market reflected the underlying consumer trends and the choice for a brand
ambassador in a local celebrity enhanced the appeal. Chinese consumers have a
penchant for certain western brands indicating an inclination to use the new
product. So, consumers were inclined to try this because of its country of
origin being the United States.

Mexico has
strengthened cultural ties to the United States since they share a common border
and populations across the borders. There was a lot planning that went into
adapting the products for the specific target markets along with the requisite product
name. Adapting products in the manner that Colgate Palmolive did indicates
strong awareness of market requirements.

The modification of flavors
and colors and product name in the Chinese market and value perceptions by
consumer benefit in the Mexican market indicated strong market research. The
firm also had to forego using Emily Procter as the brand ambassador in the
markets option for local celebrities and different price positioning.

Furthermore, it altered
packaging sizes which enabled the firm to offer lower price levels implying
that their intention was to generate strong resonance that would drive brand
growth in the medium-term. It is difficult to ascertain whether adaption strategies
outperform global branding since the American approach was not implemented in
the either of the global markets.

Thus, benchmarking
comparative performance is impracticable, but the best measure is in
performance in regard to sales and margins. Sales targets for both markets were
largely met and performance improved in Year 2 in comparison to Year 1, with
higher revenue growth and lower cost of sales, thus leading to stronger
contribution margin indicating fairly successful performance.

Justification for Choice of Mexico and China as Next Product Launch
Markets

The choice for
launching consumer products in new markets is largely driven by demographics; the
larger the populations, the greater the market potential. Cultural dynamics can
be met through product adaptations to fit consumer requirements in specific
markets. Mexico and China have large consumer bases with the latter being the most
populated nation.

Colgate Palmolive already
had existing products in these markets with a combined total of 32.1% of value share
in China and 82% of value share in Mexico in 2004. The comparative difference
in market value between China and the United States is narrowing $868 million
and $2,438 million respectively.

 The pace of growth in the United States was slower
at 8% from 2000 to 2004 denoting an annual growth rate of 2%,  while China had greater potential with total
growth during period at 38% inferring annual growth rate of 9.5%. Based on the
growth potential in the Chinese market, the choice for product launch was sufficient.

In addition, it
needed to consolidate value share in the country which had stagnated since
2001. The decision to enter Mexico was not supported by growth fundamentals
considering that it was a smaller market with a retail value of $348 million
and growing at a slower rate of 0.7% annually based on the cumulative growth of
2.6% since 2000.

However, the concept
of product lifecycle for product internationalization implying that a firm
begins expansion from countries that relate strongly to the product and branch
out would confirm this decision. Mexico and the United States have a strong
cultural connection in the populaces that are intertwined due to the fact they
share a common border and longstanding heritage.

The cultural
connection is stronger and there is high relatedness to the product. It is supported
by the fact that Colgate Palmolive’s toothpaste products dominated 82% of the
country’s value share. Consumer benefits expected from toothpaste products had
some divergent dissimilarities in the two markets.

In Mexico, the value
share of whitening toothpaste was declining considerably, while in the United
States it had grown significantly. The value market for whitening toothpaste
had shrunk to 2.7% between 2000 and 2004 in Mexico, while in the United States,
it grown from 13.9% to 30.3% representing the largest value share by consumer
benefit. The consumer benefit metric highlights strong similarities between the
United States and Chinese markets. The value share of whitening toothpaste grew
by 3.8% to 8.9% in China between 2000 and 2004 indicating growing demand. Thus,
the target consumer benefit of the product was shared among the two countries.

The concern was
largely related to product positioning with two markets strongly favoring
lower-priced variants. It reinforced the decisions to considerably alter the positioning
dynamics of the brand from pricing to packaging as well as product name. These
differences do  exist even in markets
that share strong connections such as choice of brand ambassadors.

Some of the brand
ambassadors chosen to represent different brands might not resonate in
different markets depending on the name recognition. The cost of globally
recognizable brand ambassadors is that it is difficult to ascertain potential
results of such association. Even countries that share common heritage have
underlying dissimilarities.

It is impractical to
assume that consumer benefit trends in the United States and United Kingdom
would closely match. Considering the cultural connection as the critical metric
is determining product launches into new markets foregoes sheer market
potential. In addition, some of these markets have concentrated competition
that would limit growth.

Advanced markets that
would share similar cultural leanings with the United States are likely to have
high competition and weak growth demand. Thus focusing on these markets would
require high marketing to attain significant value shares. The performance in
China illustrates the importance of sheer market potential based on revenue.

The challenge with
considering similarities between host countries and potential new markets for
product launches is that potential first-mover advantages could be lost. The
choice in targeting the Chinese market was the better decisions of the two
considering that it met its value share expectations and despite the high initial
costs, margins improved greatly in Year 2.

Making the assumption
that underlying cultural dynamics are different is ill informed since the
demand for western products in China based on the country of origin being the
United States is growing relatively fast with vastly improving economy. Focusing
efforts on markets that share cultural similarities like the United Kingdom
would imply that Colgate Palmolive has the advantage of strengthening brands in
emerging markets.

The market potential
of emerging markets like China is immense and cementing brand profile has
long-term benefits. The potential of
the market indicated that revenues were growing robustly while cost of sales
declined increasing contribution and marketing expense also declined sharply.

The choice for Mexico
might not have been appropriate based on the market dynamics and potential especially
with the slowing growth and small market share and the fact that the firm dominated
the market with existing brands.

Prioritization of Additional Countries in the Colgate Max Fresh (CMF)
Roll-Out

An important aspect
to consider in rolling out the product to additional countries is the market
potential with respect to demographics and growth in the toothpaste market. The
focus should be strongly placed on emerging markets which have greater
potential considering that majority are experiencing economic renaissance
boosting disposable income levels.

Majority of the
countries that could promote strong growth are in the Asian region including
India and Indonesia. There are similarities in cultural aspects, with regards
to pricing differentials, and packaging preferences. The most attractive aspect
in these markets is the sheer population size that implies that it is relatively
easier to carve out niche consumer segments.

  It is possible to build on the performance
that it has attained in the Chinese market to expand to the regional markets
within the Asian region. The advantage of the approach is that there would be
awareness of the product in the region considering the trade relationships that
their regional countries share with China, thus reducing marketing costs related
to the product launch.

Furthermore, Colgate
Palmolive understands that targeting advanced markets that are mature would not
create future benefits and reduces diversity to market shocks. Diversifying to
emerging markets would enable the firm to consolidate existing market share and
also cover all consumer benefits segments allowing for diversified and
consistent growth in these markets.

Comparison between CMF’s Mexico and China Launches

The performance in
the Chinese market was considerably strong and actually exceeded value share
expectations in Year 1. In addition to meeting the value share projections,
expenses in the market also reduced greatly in Year 2. Both markets required
product and brand name adaption to reflect domestic requirements. Comparative
revenue performance favored the Chinese market with twice the revenue.

Mexico’s revenue
increase by 3.0% compared to China’s 2.0% indicating that the market reception
in Mexico was favorable. However, the value share of the target for Colgate Max
Fresh is rapidly shrinking in the Mexican market while it is growing in the Chinese
market. The value share in Year 2 in Mexico was 3.0% based on $348 million
market.

The Chinese market in
regard to value share met the target expectations for Year 1 and actually
exceeded but slightly underperformed the projections for Year 2. Comparatively,
in Mexico, the target value shares for both years were not attained. From this perspective,
the launch in China was more successful as it nearly matched the marketing objectives.

In spite of the
strong performance with respect to value share, the Chinese launch remained
loss-making in the two years while Mexico’s market indicated growing profitability
for Colgate Max Fresh. The profitability aspect favors the Mexican market but
growth that exceeded the industries average could imply that the product was cannibalizing
existing brands.

The significant
reduction in costs in the Chinese market indicates that it is likely to attain
profitability in Year 3 and consolidate the value share of Colgate Palmolive.
The Mexican market might be difficult to predict based on the strong
performance of product after launch since the overall market dynamics are weaker
than in the Chinese market with stronger growth.

Product launches in
the two global markets illustrated the need to engage in adaptation in order to
address specific market requirements. It is impractical to make the assumption
that the different markets will have positive response to a global marketing
approach.

The approach
undertaken to promote Colgate Max Fresh in China attained success. It performed
reasonably well in the Mexican market. Understanding market resulted in the strong performances. Considering cultural
similarities prior to expansion might reduce competitive advantage in markets
that do not have quantifiable correlation.

Pursuing adaptation through
understanding the market enhances learning, which is critical for success in
the international market. Local knowledge is priceless and it enables the firm
to use the knowledge attained from the launch process in future product
launches. 

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