For a long time, Colgate has enjoyed market leadership in India with only HUL and Dabur as competitors. They overlooked the threat of entry of players such as GSK and P&G in new segments. Here is our analysis:
One can argue that Colgate’s single-brand strategy started out as a tactic in response to other players trying to carve out a niche for themselves, but it has indeed become a strategy now. Is it a right strategy – certainly! As mentioned in the case, entry barriers in the oral care market are mainly created by marketing muscle. It is thus easier and cost-effective for Colgate to market all their products under a famous and trusted brand name. Colgate earns 90 per cent of its revenue from oral care products, HUL 6 per cent, Dabur 9 per cent, P&G 5 per cent. In case of a marketing war, Colgate will use all its resources to protect its oral care division. This places Colgate at an advantageous position in the Game Theory sense. They can use this information as a ‘commitment device’.
Colgate may be the leader in the oral care market, but it trails its competitors (HUL, P&G) in overall revenue. Hence, it faces the risk of losing the capital-intensive branding battle if there are more number of brands.
One can argue that Colgate’s personal care segment, led by Palmolive (again single-brand strategy) is not doing very well. But, Palmolive is not nearly as popular a brand as Colgate. They were defeated in marketing.
Advantages of single-brand strategy
1. Brand recognition – All products represent the same promise of value, benefits, perception and emotional connect. Saves promotional costs.
2. Freedom to create more products with a wider price range and thus eliminating dependency on macroeconomic factors.
3. Portfolio effect – Full range of products under a single-brand permits cross-promotions and discounts on combo packs.
The Oral-B toothpaste from P&G has not been successful and has a market share of only about 1 per cent. The reasons for its dismal performance are: ‘no product differentiation’, ‘high price’ and ‘supply issue’. Colgate scores better on all these points.
GSK targeted small segments like sensitivity and gums that were previously unknown to the Indian customer. This helped them build the market share with Colgate rather than capture it from them. GSK is a threat but Colgate will be able to maintain ~ 50 per cent market share in this segment.
HUL remains the biggest competitor along with Close-up and Pepsodent. As for Pepsodent’s latest advertisement, ad wars with HUL are not new. A similar ad campaign was launched by Pepsodent in 1997, which was later found misleading.
Apart from secondary research, we conducted a survey of around 100 people. The highlights:
Brand loyalty and differentiation are the top two driving factors for a consumer. We can say that Colgate follows the right strategy since it can leverage its strong brand recognition. Also, they follow the right differentiation strategy by being very explicit in their product names – Whitening, Active Salt, etc. (Refer graph 1)
The figure says it all. Brand is very important in the oral care industry and Colgate, having established its brand, is right to use it to its advantage. (Refer graph 2)
Since most of the respondents are ready to pay premium on the brand, Colgate allows itself to come up with a new product and still charge a premium over, say, Meswak (Dabur). (Refer graph 3)
Respondents think that a new brand will face difficulties in entering the oral care market. Hence, it makes sense for Colgate to retain its brand for new products instead of fighting heavyweights like HUL and P&G, who may attack the new product. (Refer graph 4)
We believe that ‘brand Colgate’ remains the biggest entry barrier in a highly competitive and lucrative market. A switch from the current strategy will allow other big players to capture segments of an expanding market where consumers are easily swayed by advertising campaigns. Hence, Colgate should continue with its single-brand strategy.
(Arjun Rampal and Sanya Sehgal are pursuing an MBA from IMT Ghaziabad)