ECO2
ECO2
ECO2
MANAGERS ASSIGNMENT II –
COLGATE-PALMOLIVE
Colgate is an umbrella brand principally used to sell oral hygiene products such
as toothpastes, toothbrushes, mouthwashes and dental floss. Colgate oral hygiene products were first
sold by the company in 1873, sixteen years after the death of the founder, William Colgate.
In 1992, Colgate created first factory in China to produce toothpaste for the domestic market, and by
1999 the Colgate became the top selling brand in China. Colgate-Palmolive company not only
producing toothpaste and oral segment products, they also producing personal, health care and home
care products such as soap, detergents and many more. The Company has over 60 manufacturing and
research facilities globally. The huge majority of Colgate products are manufactured in Colgate-owned
facilities.
Colgate Palmolive utilizes a vertical marketing structure in which products, wholesalers, and retailers
act as a unified system. Many customers prefer vertical markets because that means they will receive
products and services that are specifically designed to cater to their needs. The company goes for a
specific area in the market and excel in it. In this case Colgate went for the basic need of the
consumers. Colgate-Palmolive have formed contracts in which distribution is carried out with a variety
of stores. This gives consumers an easy access to their products, which promotes a loyal relationship
with Colgate consumers. As a result, Colgate can fully maximize profit and control which products to
be produced and distributed. Due to the many product locations worldwide, utilizing a vertical
marketing structure allows Colgate Palmolive to have a levelled communication system between all
retail locations. In this way, channels do not clash and Colgate can remain to make the decisions solely
by the corporation.
Figure1.1
According to figure1.1, the demand curve shift to the right. Therefore, the consumers are able to
purchase the product. In general, more income more demands of the product, so it can be considered
as a normal good. Besides, another factor of increasing demand is consumer’s preferences. Consumer
will looks for a product by following their needs to purchase a product with a function that satisfied
their needs. For example, a customer purchasing a toothpaste then they will look for what function of
the toothpaste they need and buy it. When a consumer satisfied the toothpaste and the toothpaste
meets their requirement, it will leads to an increase of demand. Moreover, buyer’s expectation is also
a way to increase the demand. Buyers are always seeking the good with the lowest possible price, if
buyer expect the price would raise in future, they will inclined to buy more now. For example, Colgate
conducting a promotion with lowered the price of toothpaste, buyer will buy more during the
promotion date because of the price of toothpaste will rise back to original price when the promotion
ended.
Furthermore, determinant of supply will affect the change in supply in Colgate-Palmolive Company
such as number of sellers, product of related product, resources price and others. One of the
important factors that would affects the change in supply which is number of seller because it will
influence overall supply. When the number of seller who is willing and able to sell Colgate toothpaste
therefore the company has greater amount of sellers, the quantity of the toothpaste will be greater.
In other word, the number of sellers increased and supply is also increased so the supply curve is a
rightward shift when supply rise. Also, prices of related products might be influence supply of product.
If the price of Another toothpaste goes up lead to quantity supply of Colgate toothpaste will goes up.
The consumers are willing to buy a lower price product rather than buy a higher price product.
Sometimes the price is more attracting the consumer than the quality. On the other hand, technology
is also influence the supply of product. Technology is most of the important factor because
improvement in technology enable more efficient of toothpaste. Therefore, the production cost will
be reduce and increase the profit. As a result, increases in technology make it more attractive to
produce so increases in technology while increase the quantity supplied of a product and the supply
curve shifted rightward.
The demand for Colgate is elastic since amount of other varieties of toothpaste which is close
substitutes are available in the market. Colgate toothpaste has a greater number of close substitutes
exists such as Crest, Aquafresh, Sensodyne , Oral-B and so on. Thus, more close substitutes will lead
to change of the quantity demand of the Colgate toothpaste. Meanwhile, when the price of Colgate
toothpaste increase in the market, consumer will switch over to the consumption for Sensodyne
toothpaste therefore this will cause Colgate’s quantity demanded decrease and then rise in the
demand for Sensodyne toothpaste. Income elasticity of demand defines as change in the quantity
demand divide by change in income. As consumer’s income increased lead to an increased demand
for Colgate toothpaste so that the income elasticity of demand is positive. Besides, it is a normal good
because more of it is purchased as the consumer higher income.
Sales revenue
It can be defined as Income from sales of goods and services, minus the cost associated with things
like returned or undeliverable merchandise. It is also called "Sales", "Net Sales", "Net Revenue", or
just plain "Revenue".
Income in Rs.Cr. Mar’17 Mar ‘16 Mar ‘15 Mar ‘14 Mar ‘13
Sales Turnover 4,520.20 4,643.21 4,238.36 3,578.81 3,163.81
Excise Duty 538.38 480.92 256.42 0.00 0.00
Net Sales 3,981.82 4,162.29 3,981.94 3,578.81 3,163.81
Other Income 39.81 8.27 33.17 114.70 49.92
Stock Adjustments -5.58 4.25 16.35 26.77 -22.20
Total Income 4,016.05 4,174.81 4,031.46 3,720.28 3,191.53
There decrease in Total income in 2017 than in 2016. The main revenue decrease was due to the
decrease in Net Sales and Stock Adjustments.
Demand, supply, sales revenue curves
DEMAND CURVE
The shift of a demand curve takes place when there is a change in any non-price determinant of
demand, resulting in a new demand curve. When income increases, the demand curve shifts
outward as more will be demanded at all prices. The demand for Colgate products increased due to
the factors mentioned in the above section.
SUPPLY CURVE
As the demand increases supply also increase as per law of supply. As more people demands more
products company creates more supply by producing more commodities.
Price elasticity
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticiy, of
the quantity demanded of a good or service to a change in its price. More precisely, it gives the
percentage change in quantity demanded in response to a one percent change in price. Price
elasticities are almost always negative, although analysts tend to ignore the sign even though this can
lead to ambiguity. Only goods which do not conform to the law of demad, such as Veblen and Giffen
goods, have a positive PED.
Ep = dQ/Q
dP/P
Cross elasticity
The cross elasticity of demand measures the responsiveness of the quantity demanded for a good to
a change in the price of another good, ceteris paribus. It is measured as the percentage change in
quantity demanded for the first good that occurs in response to a percentage change in price of the
second good.
Market Structure
Market structure is the characteristic of the market, which are identified and classified by the
economist. Different market structures will have different characteristic in productions, competition
and others.
The market structure for the colgate toothpaste falls under monopolistic competition because:
(1) it characterized by a relatively large number of sellers
(2) has differentiated products and has many close substitutes
(3) it is freedom to entry and exit from the industry
There are many type of toothpaste are present in our market like close up,sensodyne,danth kanthi
etc.Each firm produce similar but slightly variant products. Moreover this is known as the monopolistic
competition in the market. This means there are larger amount of buyers but relatively smaller
amount of sellers. There is total freedom to enter or exit the market, as each company in the market
will promote their products with their outstanding brand name. The toothpaste industry turns out
variation of product which is differentiated by texture, flavour, services, promotion, product attribute,
brand names and packaging. Since there are many firms in an monopolistic competition industry, firms
will utitlise promotional tools such as advertisments to encourage and influence people to purchase
their product.
Competitor
Although colgate has gained a large market share in the toothpaste market in the world, it still faced
the competition from other toothpaste companies in this industry.Colgate has survived in this industry
for such a long time and has established its influence among the customers. It has successfully making
the customers to have brand loyalty toward Colgate. Besides that, Colgate has different types of
toothpaste, which can satisfy different needs of the customers. This has fulfilled the needs and wants
of the customers and directly competes with many of the same products which exist in the
wold. Nowadays, a lot of people are facing different types of teeth problems, such as sensitive teeth,
gum disease and tooth decay. Therefore, they tend to buy the toothpaste which can help them to
solve their teeth problems. Sensodyne is focusing on solving sensitive teeth problem and is
recommended by dentist to be used. It has shaped the brand image of Sensodyne to become
professional and high class tooth paste.In India many local brands came with ayurvedic tooth paste in
the market like dabur,dand kanthi etc. Due to Colgate’s large product portfolio and its dominance in
oral care, it’s very difficult for a new company to enter the market with a similar range of products.
However, the relatively lower capital cost required for this business has given rise to a number of
smaller local players worldwide.
Pricing Strategy
Price strategy is the methods and techniques a firm uses to set their prices of the goods to achieve
different outcomes. It takes into consideration market condition, competitor actions, and ability to
pay, input cost and account segment. Pricing strategies play a very significant role in each
organization’s strategy. A process of establishing a pricing strategy consists both of economic and non-
economic conditions. According to the traditional marketing mix includes products, promotion, price,
place, people, processes and physical evidence. Another approach is that price is determined by
measures such as costs, revenues and profits. Pricing is definitely a dynamic process, as nothing will
remain constant: the economy, taste, innovations, as well as competitors actions and reactions.There
are many ways in which pricing strategies can be ued they are;
Price skimming is used especially when new technology is introduced. There are always some
consumers who are willing to pay more for a new launched product. When the demand is inelastic,
this technique is most effective. Colgate set their prices at the same level as their competitors and at
the price the consumers could afford to pay .Cost plus pricing is a pricing technique that is based on
the cost structure of the company, which relies on the accountant for their reliability. Colgate could
apply this technique when they want to maximize their profits because all cost need to be accurately
accounted. This technique tends to neglect the demand and the competition and gives importance in
the production.Position pricing can be used in the strategy in which colgate can collect the customer
need and want.According to the customers view of the product colgate can make their pricing
decisions of the particular product. Dynamic pricing is a flexible pricing mechanism made possible by
advances in information technology. By responding to market fluctuations or large amounts of data
gathered from customers ranging from where they live to what they buy to how much they have
spent on past purchases .Dynamic pricing allows companies to adjust the prices of identical goods to
correspond to a customer’s willingness to pay. This technique enables colgate to achieve a better
reputation and bigger output of consumers. Colgate have to set their processes according to the price
that consumers are willing and ready to pay in order to apply this technique.
CONCLUSION
In the conclusion, Colgate is a world-leading group with globally well-known brands such as Colgate
Oral Care and Palmolive Body Care. The mission of Colgate is to offer Colgate with a significant
competitive benefit by reducing total delivered cost, extending technology resources and developing
superiority in purchasing, logistics and sourcing processes.. I believe the Colgate-Palmolive will last
longer still being a world-leading organization because there are over millions people trusting Colgate-
Palmolive and using their products every day.