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 Colgates 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 CMFs 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 Colgates 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 ) enabled translatability and
effective positioning of freshness. Renaming breath strips to Cooling Crystals ( ),
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 CMFs 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 musthave. 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 Emilys Procters 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 Chous 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 Crests 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). Colgates main

competitor is P&Gs 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
CMFs 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 Colgates 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 (Vzquez, 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
CPs 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 lowinvolvement. 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 CMFs 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 regions objective. Additionally, this will allow the long
term plan to be integrated to the Geographic Divisions 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 companys 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 Chinas 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 Mexicos 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 CPs 2004 restructuring plan entails generating additional
savings throughout the income statement(Colgate-Palmolive, 2014). This focus on costeffectiveness 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
Opportunities
Largest global value share (39.7%)
Growth of emerging markets
economies of scale, better bargaining power
Expanding middle class in emerging
Global leadership in key product categories
markets, e.g. China ability to
enjoy greater customer loyalty, easier to get
tailor to them premium products
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
Weaknesses
Threats
High level of marketing often required for a
Intensive rivalry in the industry and
new product launch
in each product segment
Retailers one of the major stakeholders
Threat of competition from local
determine the amount of shelf space given to
brands
CP products
Growth of private labels
Possible cannibalization of product sales and
Communication challenges due to
retail shelf space due to its existing extensive
cultural and contextual complexity
product lines
Core business: low involvement consumer
products

Table 2: Selling Price (Converted to $USD)

US
Retail
Price

$2.49
2.99

50g
100g

China
Manufacture
rs Selling
Price
$0.354
$0.870

Suggeste
d Retail
Price
$0.472
$1.077

165g

$1.167

$1.440

Size

Size

75ml
100
ml

Mexico
Manufacture
Suggested
rs Selling
Retail Price
Price
$1.047
$1.347
$1.255
$1.377

Table 3: Cost of Adaptations (% of Sales)

China
Adaptatio
ns
New
Commerci
al

Incremental Cost

450,000

% of Sales

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

Ranking:
China
(Highest
cost)
3

Celebrity
Endorser
Flavor
Testing
Packaging
Mexico
New
Commerci
al

1,000,000
200,000
(2005)
2,304,3201
(2006)
779,600

500,000

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

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

2,304,320/20,303,000 = -11.35%
1
779,600/20,303,000 = -3.27%

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)
COGS
Packaging Cost
accounted for 40% of
COGS
20% Variable Cost
Premium per
package
Capital expenditure
for filling machines
Incremental Loss
Incremental Loss as
a % of sales

2005
10,054

2006
9,745

0.4*10,054
= $4021.6

0.4*10,054
= $3898

804.32

779.6

1,500

(2304.32)

(779.6)

- 11.35%

- 3.27%

Average unit selling price

Volume % * Price of each size
Since Variable Cost = 50%
Contribution Margin = 50%
No. of Average units needed to break even

No. of Average units projected to be sold in

2005

= 0.32*$0.354 + 0.38*$0.870 + 0.30*$1.167

= 0.1132 + 0.3306 + 0.3501
= $0.7939
Contribution Margin
= $0.39695
= Fixed Cost/Contribution Margin per unit
= ($4,710,000 + $15,800,000) / $0.39695
= 51,668,975 units
= 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

2001: Breath Strip Late

Technology
2002: Global R&D started,
Aug 2004: Sep
CMF 2004:
in USNov
CWE
in USCWE
2004:
in 2005:
MexicoCMF
May
Aug
in2005:
Mexico
CMF in China
Met CIC

Figure 2: Existing Communication ChannelFigure 3: Proposed Communication

Figure 4: Communication & Adaptation Strategies

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

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