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Procter & Gamble Issue Case Study

Essay by   •  July 17, 2011  •  Case Study  •  2,581 Words (11 Pages)  •  1,841 Views

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PRODUCT INFORMATION

Scope is a green, mint flavored mouthwash that was introduced by Procter & Gamble (P&G) in 1967. Prior to the introduction of Scope, mouthwashes had been primarily positioned around fighting bad breath and killing germs. Scope became the first brand to offer both the breath protection and a better taste. This unique combination positioned the brand in 1976 as the market leader in Canada. Until 1987, the Canadian mouthwash market experienced a steady 3% per year growth. The largest market growth, 26%, occurred in 1987 when other companies introduced flavored mouthwash. In 1990, the company's net earnings stood at $100 million (Canadian).

In 1988, a new entrant to the mouthwash market, Plax, was launched on a completely new platform. The brand offered a pre-brush rinse claiming to help remove plaque. Plax has gained a 10% share of the product category since its introduction. Other brands, including Listerine, are moving in this new direction touting plaque-fighting benefits of their respective brands.

PROBLEM

In 1990, Scope continues to be the mouthwash market brand leader in Canada. However, its market share has declined slightly from 33% to 32.3% due to the emergence of a new market segment -- pre-brush rinses that focus on health benefits rather than the protection of breath. Based to Plax's strong claims that it removes plaque, Plax has been able to capture 10% of the market share in a short 2 year period. In addition, Listerine has also added claims highlighting its ability to fight plaque and help prevent inflamed gums. If the mouthwash market becomes more segmented, Scope fears that it will lose market share if it continues to center claims entirely around fighting bad breath. Procter & Gamble needs to decide what action, if any, should be taken in order to capitalize on the changing mouthwash market.

ALTERNATIVES

Procter & Gamble has three alternatives:

1. Developing a new pre-brushing product to compete with other plaque fighting brands. (Line Extension)

2. Add plaque-reduction claims to the current Scope product. (Modify Current Offering)

3. Do nothing.

Alternative 1- Line Extension

The first alternative would be to add a pre-brush rinse to Scope's product line. The rinse would be promoted as improving oral health and contain plaque-fighting ingredients while maintaining the same great taste for which Scope has become known. According to a survey, the most important reasons for using a mouthwash are "basic oral hygiene" and "get rid of bad breath." Scope's current position as market leader indicates that it is already addressing the target market's top needs. A line extension would provide the company with an opportunity to focus solely on a pre-rinse mouthwash for oral hygiene. This would allow the company to increase market share with a Procter & Gamble branded pre-brushing line extension. The new product would capitalize on the well-known Scope brand, but would feature plaque fighting benefits. This approach would allow Scope to reach consumers in two ways: 1) offering a mouthwash with great taste and breath protection and 2) reaching consumers seeking a pre-brush rinse with an oral hygienic value.

Alternative 2- Modify Current Offering

The second alternative would be to modify Scope's current offering to include the claim that Scope fights plaque. The original Scope product would be advertised as fighting plaque as well as tasting great and freshening your breath. Although antibacterial ingredients currently contained in Scope have an effect on reducing plaque more than brushing alone, the company's advertisements currently focus on two claims: "great-taste" and "fresh breath." A modification would allow Procter & Gamble to add a third claim to all advertisements based on "plaque-fighting" benefits of the existing Scope product.

Alternative 3- Do Nothing

The third alternative would be for Procter & Gamble to make no alterations to their product line or product offering -- do nothing. Scope would continue to capitalize on its current claims of "great-taste" and "fresh breath" while ignoring the emerging market segment promoting health benefits.

EVALUATION OF ALTERNATIVES

Evaluation of Alternative 1- Line Extension

A new line extension is the most costly of all alternatives. The finance, product development, and purchasing departments each identified additional costs associated with the line extension. The finance department has advised that delivery costs will increase by $1 and packaging cost may increase 0.30ยข per unit. The purchasing department indicates that the addition of new ingredients will increase costs by $ 2.55 per unit. Although costs of goods sold for the new product will increase, it will still be less expensive than Plax, thus allowing it to compete on a cost leadership basis.

The product development team has expressed concerns about offering a new line extension. The team's research indicates in product tests that the new product does not outperform Plax. Since Proctor and Gamble's statement of purpose proclaims that they "will provide products of superior quality and value that best fill the needs of consumers (p.252)", launching a new line where the only advantage is better taste does not exactly match up with the business strategy. However, this was also the case when Scope was originally launched.

Marketing research shows that the new product's market share will likely reach 6.5% on an on-going basis, but historically, it takes about two years to reach the on-going basis. Furthermore, the new product may cannibalize Scope's existing market share by anywhere from 2% to 9%.

The sales team expressed concerns about launching the new product because of the possibility of listing fees for stock-keeping units. Retail stores do not want to keep too much stock. If the new product does not sell enough, retail stores inventory costs increase. Therefore, retail stores may request a $50,000 listing fee per stock-keeping unit for adding the new line extension to store shelves.

Procter & Gamble's business team has many reservations commonly associated with new product offerings.

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