Research Questions: Q1. In the early 2000s Procter & Gamble Co. [p&G] launched a

Question

Research Questions:

Q1. In the early 2000s Procter & Gamble Co. [p&G] launched a huge marketing campaign to promote new Crest toothpaste product, struggling to regain its market share from Colgate-Palmolive Co.; the later succeeded to achieve a larger share after it introduced its Total Advanced Fresh Toothpaste. This battle has pushed other competitors out of the market.

Describe the strategies that these oligopolistic companies used to fight the toothpaste war. What were the elements of success or failure?

Q.2. Creating a “real” cost-advantage can be very challenging. What is a real cost advantage? Why it is important in the complex business environment today? And give ONE example of a firm that tried doing so through innovation and adopting cheaper technologies that are not readily available to competitors? How did this work for them?  

Answer the above question and providing detailed explaination for each question.

Explanation / Answer

1. For decades Crest toothpaste was the leading brand in the market. Not many brands other than Coca-Cola or McDonald’s have been on the top for so long. But a few years ago Crest lost its leadership position to Colgate. It was an epic, once unthinkable moment in consumer marketing, like Coke losing the cola war or the Whopper outselling the Big Mac.

Crest did not keep pace with changes in the marketplace. Sitting on its laurels and relying on past reputation is not a practice a brand leader should follow. Such a practice was permeating Procter & Gamble, and consequently many of its big brands were suffering.

When Crest was launched in 1955 it was a revolutionary brand—it was the first brand that would fight cavities. Such a USP gave it a significant advantage over all other brands. Since that time, however, Crest has stayed with pretty much the same story. Yes, there have been line extensions that offer other benefits, but the “fights cavities” benefit is a fixture in the minds of consumers.

Bad breath, stained teeth, and sensitive gums have been issues in recent years. While other toothpaste makers moved in to cater to these needs, Crest kept on fighting cavities. Arm & Hammer launched a baking soda formula, Rembrandt introduced anti-aging and whitening formulas, and Aqua Fresh offered a fresh breath formula. Between 1987 and 1997, Crest’s market share dropped from 39 percent to 27 percent.

In 1997, Colgate launched an innovative toothpaste product that seemed to do everything: it fought cavities, tartar, plaque, bad breath, and most importantly, gingivitis. Gingivitis is a gum disease that all dentists harp about. More than 100 million North American consumers suffer from gum disease, and Colgate’s Total was the only brand with FDA approval to claim it fights it. By the end of 1998, Colgate had grabbed 30 percent of the market, mainly due to the popularity of its Total brand. Crest’s share stood at 26 percent.

Through various line extensions, Crest has tried to fight back. There’s Crest Extra Whitening, Crest Dual Action Whitening, Crest MultiCare, and several others. Crest’s annual sales in the United States are in the $400-million range.

Why did Procter & Gamble get left behind? “They were too focused on what they had always been and never saw the trends emerging,” says Tom Hall, a former brand manager. P&G had all of the technologies that its competitors have exploited for years, including a gingivitis-fighting formula. But instead of being in supermarkets, it was still being tested.

Procter & Gamble is notoriously slow when it comes to testing and launching new products. That way of doing business has changed now that the company is under new leadership, but what happened in the past cannot be changed. Former employees often rant about the “P&G way” of doing things. There was a set of guidelines called “Current Best Approaches” that directed employees on everything from how to conduct tests to how to approach retail customers. Instead of thinking creatively, people fell into a trap of looking up what to do. That’s hardly the proper mindset for one of the world’s largest packaged goods companies. When it comes to developing and testing new products, competitors can do it in half the amount of time it takes Procter & Gamble.

Former CEO Durk Jager tried to change P&G’s culture by tossing out the rules in the late 1990s. Instead of hiring conformists, he wanted rebels. He wanted people who would stick their neck out and go with their gut rather than the rule book. He wanted people with bold new ideas—the kind who give birth to billion-dollar brands. He scrapped the “Best Approaches” rule book and asked people to think for themselves.

Ever since the change in corporate culture, P&G has been much more innovative. Many new brands in new product categories have been introduced, including Fit, an antibacterial fruit and vegetable spray; Swiffer, a dry floor mop; Febreeze, a spray-on odour eliminator; and Dryel, a home dry cleaning product.

2. A cost advantage is a firm that can produce a particular product or service at a lower cost than the competition. Cost is a result of factors such as technology, automation, processes, productivity and resource costs.

Quality

Cost advantage is typically calculated for comparable items and doesn't apply when there is a large difference in quality. For example, an economy car with poor build quality can't have a cost advantage over a luxury car with superior build quality. For this reason, the term cost advantage is typically applied to commodity products and services where customers usually choose the lowest price item.

Price

A cost advantage doesn't necessarily mean that a firm offers the lowest price. For example, a firm with a cost advantage may be a dominant competitor that sets a price umbrella.

Firms with a significant cost disadvantage are more vulnerable to price declines due to factors such as supply and demand issues.

Advantage

In a commodity industry, a cost advantage can be a significant competitive advantage that allows a firm to dominate a market.

One of the world’s largest manufacturers of computer chips, Intel needs little introduction. However, the company needed to make a lot of supply chain cost reductions after bringing its low-cost “Atom” chip to market. Supply chain costs of around $5.50 per chip were bearable for units selling for $100, but the price of the new chip was a fraction of that, at about $20.

Somehow Intel had to reduce the supply chain costs for the Atom chip, but had only one area of leverage—inventory.

The chip had to work, so there were no service trade-offs that could be made. Being a single component, there was also no way to pay less in the way of duties. Intel had already whittled packaging down to a minimum and with a high value-to-weight ratio, the chips’ distribution costs could not really be pared down any further.

The only option was to try and reduce levels of inventory which were, at that point, kept very high in order to support a nine-week order cycle. The only way Intel could find to make supply chain cost reductions was to try and get this cycle time down and therefore reduce inventory.

Intel decided to try what was considered an unlikely supply chain strategy for the semiconductor industry: a true make-to-order scenario. The company began with a pilot operation using a manufacturer in Malaysia. Through a process of iteration, they gradually sought out and eliminated supply chain inefficiencies to incrementally reduce order cycle time. Further improvement initiatives included:

·         Reduced the chip assembly test window from a five-day schedule, to a bi-weekly, 2-day-long process

·         Introduced a formal S&OP planning process

·         Moved to a vendor-managed inventory model wherever it was possible to do so

Through its incremental approach to cycle time improvement, Intel eventually drove the order cycle time for the Atom chip down from nine weeks to just two. As a result, the company achieved a supply chain cost reduction of more than $4 per unit for the $20 Atom chip—a far more palatable rate than the original figure of $5.50.

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