01 Sep 2015 19:50 IST

Author Analysis

Colgate needs to reconsider strategy

Toothpaste major will have to move faster to hold sway in emerging categories

In order to analyse whether Colgate’s strategy of having a single brand in India is the best strategy or not, we need to look at some aspects of the market a little more closely.

The situation so far has been fairly good for the brand in India, holding on to a more than 50 per cent share of the market.

But, in my view it is a bit strange to see just few significant brands in a huge category of ₹6,000 crore. Like in any product category, it has a long tail of some regional and sub 5 per cent share brands but just 4-5 large brands for such a large market is unusual. The product is not very technology-driven and hence there aren’t too many barriers to entry into this category. Then why is that we have 20-plus brands competing for a much smaller deodorant market with advertising spends almost matching their sales revenues, whereas the same companies are not taking a similar pot shot at this category.



Similar is the case with the hand wash category, where almost every company into personal products has entered and are spending a significant percentage of their revenues on promotions. Obviously, in both these categories the players are trying to hold a position early enough so that they are the leaders when the category evolves to a large one. And they do not feel that with similar investments they can break into the toothpaste category. So Colgate is doing something right to scare small entrants, who could nibble away at some of its shares and keeping a hawk eye on the few large competitors to keep them under check as well.

But will this work in future too? What is the likely trend in the oral care market? And, in that trend is Colgate’s current strategy the best strategy?

Let’s analyse the Colgate branding a little closer

While Colgate has many sub-brands in the market, the products with real differentiated offering are Colgate Gel and Colgate Sensitive. Rest of the products are more like variants of the basic product category: germ and tooth decay. It is essentially launching variants like Herbal, Active Salt, Total etc., which at the end of it give the same benefit of clean teeth and healthy gums. This spreads its risk and provides the consumer more choice. This as a strategy is possibly necessary when you hold over 50 per cent share and you do not want one single product to be vulnerable to attacks.



But, where do you get the customers for these variants ? Most likely from its own core base of users as they are the ones who would try a variant from Colgate. However, Colgate gel and Sensitive, are for such a specific need that other than the Colgate equity, there can be no synergies. For example, if Colgate advertises its basic variant very effectively, it is likely to sell Herbal, Active Salt and Total reasonably well under this banner of communication. However, that communication will give no benefit to Sensitive and Gel. It would have no choice but to deal with them separately. So in my view the current strategy is not about giving each differentiated product the best support but about synergies and borrowing from each other.

So if this strategy is seemingly working today, is there a future scenario that could threaten this approach?

Trends in oral care market

Like in other categories, the trend in the dental care market is also likely to change. With over 70 per cent penetration of the toothpaste and powder market, the organic growth rate of the market will slow down from the current 14 per cent plus growth rates. In more developed countries like the US and Europe the toothpaste market is hardly growing. The growth in the oral care market is coming from advanced oral care products like teeth whitening solutions and devices like electric toothbrushes. The fact that in the US only 35 per cent of the total market is toothpastes shows how evolved the market is and what could be a matured market structure. It is still the largest category but not the majority, as is the case in India. The markets in India are likely to follow similar trends, although at a much slower pace. The trends to watch out for:

Reduction in share of basic products

With an increase in the usage and penetration of products like mouth wash and saturating penetration of the basic products, growth is likely to come from the new usage categories like breath fresheners, teeth whitening and mouth wash. While these are likely to be an urban phenomenon at this stage, we are noticing that the rest of India is picking up the trends very quickly due to aggressive marketing and easy information dissemination. In this scenario will Colgate be able to maintain its single brand ‘expert in all’ positioning. The obvious answer is that it will be difficult.

It is in the nature of the human beings that they do not grant expertise to one person or a company in many areas. Hence once a category, say, for instance, mouth wash, becomes big, there will be a niche player who will focus only on that segment and take away the leadership, similarly if tomorrow, a player comes up with fresh breath products and claims expertise, they could take away a large part of the market that this category creates. After a certain period of time, if say in India, the toothpaste category becomes 50 per cent of the total oral care market and Colgate still enjoys leadership of 50 per cent, in real terms it has lost a lot of market to other categories

Niche players fragmenting basic category

While sensitive teeth is a separate category, it is clear that the person would stop using his/her regular toothpaste and switch to the sensitive toothpaste. Given the fact that Colgate has a 54 per cent market share, by sheer probability, it is a 54 per cent chance that the sensitive toothpaste user was earlier using Colgate regular. If Sensodyne takes away a majority of this market (which it has currently), then it would have plucked majority of users from Colgate.

It is always seen that as the market evolves, players try to create specialised products and fragment the market, so that they can be a leader in a small pie, when they cannot fight the giant in the category. It will not be just natural categories like sensitive teeth, but also not so obvious categories like stronger gums, teeth whitening etc which will evolve over a period of time. Surely, most will die a natural death, but some would stay. In such a scenario would Colgate be seen as an expert in these categories, as is the case in basic categories or will Sensodyne and Paradontax create significant markets for themselves? Currently, the sensitive teeth market has become a Rs. 900 crore market and Sensodyne is the leader there.

Large international players will renew efforts

It is clear that players like P&G will make more investments in this category, after it has successfully reclaimed the leadership status in the US with some focused activities. The result would be much higher noise in the category and not only the leader but also second and third players will react in order to retain their shares. This is likely to shift Colgate’s energies to its main product. But given that it has have fragmented its main product it would find it very difficult to choose one fighter against the new entrant and put full support behind it. In this kind of a scenario a single brand is sometimes more effective in dealing with a strong new entrant.

Given these trends, it is likely that the real solution lies in a combination of strategies and not really a single strategy. For Colgate it should not be difficult to devise such strategies as it is its main product category, compared to the other competitors like Levers and P&G.

Recommendation

I believe that while a strategy of having variants is good for the main product and will help diffuse competition’s focus on a single product, Colgate would have to take serious note of emerging categories like sensitive and gum care and create a strong separate brand. It can still take the lineage from Colgate to get some quick numbers, but that may really not be necessary, if we go by what Sensodyne has achieved. It is very clear that no one knows which company is behind it and why should GSK be an expert in dealing with sensitive teeth? While in most such discussions the sales synergy angle is mostly glossed over, it is the quick placement and visibility that a Colgate salesman would be able to generate that would be the key synergy factor rather than the lineage of the brand.

So in my scheme of things, Colgate’s portfolio would look like:

Colgate Dental Cream

Colgate Total

Colgate Herbal

Colgate Active Salt

Crystal Fresh (imaginary gel brand)

Sensito (imaginary)

Gum tight (imaginary)

Colgate Mouth Wash

Colgate Dental Floss

So for the future it will have to identify those segments which can become large and sway consumers and launch a new brand in those categories, before others do. In the process it better cannibalise its own brand, before others do. It is interesting how some strategies which bring you to the leadership position, needs a serious relook with a changing scenario. And, in this case I feel there is serious enough reason to take a relook at the branding strategy.