Internal and External Environment of Colgate-Palmolive Company - Case Study Example

Strategic Analysis of an Organization’s Internal and External Environment Colgate (Toothpaste) By: Introduction Colgate is a sub-brand or affiliate of Colgate-Palmolive Company. Colgate is an oral hygiene products company, manufacturing toothpastes, mouthwashes, dental floss, and toothbrushes. The company sold its first toothpaste in 1873, barely 16 years after William Colgate’s death. William Colgate is the founder of the parent company - Colgate-Palmolive (Babu 2007, pp. 171). Colgate has launched different toothpaste products since its founding in 1806. They include Duraphat, Colgate Cavity Protection, Colgate Whitens Simply, and Colgate My First Toothpaste. Duraphat paste is intended for prevention and treatment of dental caries. According to the toothpaste manufacturer, Duraphat is ideal for managing high-risk patients, including those with early, recurrent, existing or rampant root or coronal caries. Sodium fluoride is the prime constituent of the toothpaste. Colgate Cavity Protection, on the other hand, contains sodium monofluorophosphate instead of sodium fluoride as the active component/ingredient. The Colgate-Palmolive Canada manufactures the toothpaste. It helps reduce or prevent gingivitis, plaque, and cavities (Babu 2007, pp. 171). Colgate cavity Protection also whitens teeth and freshen breath. It is imperative that users of Colgate Cavity Protection use the toothpaste twice a day, and are adults or children above 12 years. Meanwhile, Colgate Whitens Simply is a toothpaste product whose whitening or active ingredient is hydrogen peroxide. According to the company, the toothpaste whitens teeth in a record 14 days by gradually bleaching the teeth. The cleaning gel and the whitening agent are two distinctive chambers of Simply White. Furthermore, the product contains a fairly strong whitening formula thanks to the hydrogen peroxide. One of the strongest marketing strategies employed by the company is that Simply White whitens the surface of teeth and below the teeth surface. In addition, the company projects the beginning of a positive, desirable outcome to the toothpaste users as barely one week after they start using it. Furthermore, the toothpaste comes in 3 flavors, including Cool Mild Mint, Enamel White, and Sparkling Mint. Lastly, Colgate My First Toothpaste is one of the latest Colgate products, launched barely two years ago (Babu 2007, pp. 171). The product is less hazardous to children because it contains fluoride relatively lower concentration. The company has specifically designed the product for children between 0 and six years. The toothpaste’s low foaming and mild mint flavor are two key marketing strategies targeted at prospective buyers in the United States and other several countries worldwide. Competitor Analysis Key competitors in the production of oral hygiene products include Procter & Gamble (P&G), Clorox Company, and Unilever. These companies, Colgate included, control the personal and home care industry. Colgate Ltd continues to lead the world in oral care. The company controls 40% of the market value. It is worth noting that Colgate remains relatively insulated from downturns due to its stronger strategic plan and market base. Colgate-Palmolive is looking forward to investing in strategies that will enable it to take away a larger market share from their competitors (Babu 2007, pp. 171). Nevertheless, Colgate is cautious about the possibility of losing a substantial market share to their competitors. Overall, the company’s heavy global presence has enhanced its venture into new markets, countries and territories. Therefore, its share of the personal care industry continues to grow even with the infrastructural advancements of Unilever and Procter & Gamble. Even though Colgate has several rival companies which can equally produce competitive toothpaste brands, it will still supply the largest segment of new potential customers. Apparently, the company enjoys a heavy global presence than any other oral hygiene product manufacturers. Besides, the company offers top-quality products to its wide range of consumers across the globe. A typical consumer is willing to pay higher prices for Colgate products because they are assured of high quality and the most desirable result. Market Analysis Colgate (Toothpaste) has achieved a remarkable growth in customer base in the past few decades. The toothpaste manufacturer has invested in adverts to reach out to the extensive market globally. The products are diverse and meet day-to-day oral hygiene needs of both male and female users. In addition, the firm aims to expand its market share further by manufacturing toothpaste products for specific demographics. For instance, Colgate My First Toothpaste (launched in 2012) with its lower fluoride concentration mainly targets children below six years. The toothpaste’s mild mint flavor and low foaming tendency makes it a perfect choice for infants and children below six years. The company developed Dr. Rabbit, an animated mascot of rabbit dentist. The rabbit dentist educates young people and children about the benefits of observing oral hygiene. In essence, the character encourages dental hygiene among adults and children (Babu 2007, pp. 171). It is also an effective strategy for marketing the company’s wide range of toothpaste brands in different markets across the globe. Accordingly, Colgate has recorded a significant increase in its turnover in the U.S. and Canada, as well as numerous other countries worldwide. The company has particularly stepped up its toothpaste marketing through print and electronic media. Adverts of Colgate different brands and products have been widespread on television channels and radio stations. The company has also invested in advertising via print media. Different newspapers and magazines across the U.S. and other countries around the world contain ads of different Colgate products and brands. The toothpaste products are among the most popular Colgate adverts in the daily newspapers and magazines. The fact that Colgate toothpaste manufacturer introduced the first paste in New York way back in 1896 makes Colgate a superior brand. In the same way, the company has vast market coverage not only in the U.S. but also Canada and the rest of the world. Many of the product users find it ideal for oral hygiene owing to its long history in the market. Apparently, most consumers of toothpaste products would be more comfortable associating with a product or brand that has already been tried and tested in the past. Colgate toothpaste is broadly accepted in both the rural and urban areas. For instance, the product is more popular and accepted in the urban and rural areas of India and Nepal. In summary, Colgate Toothpaste has a solid market in the U.S., the Americas, Africa, Europe, and Asia. The company established its factory in China in 1992. The primary target of the toothpaste manufacturer then was to produce the products for the domestic market (Babu 2007, pp. 171). It has since established other factories in Africa, Europe and South America. Colgate had become the leading and highest selling brand in 1999. The company had by 2002 occupied about 20 percent of China’s toothpaste share. Apart from oral care, Colgate has also invested in three other core businesses which include Home Care, Pet Nutrition, and Personal Care. In general, Colgate sells its wide range of tooth products in more than 200 countries, thereby making it one of the diverse and successful oral care companies in the whole world. Similarly, the market coverage is incredibly expansive because it actively participates in the manufacture of toothpastes and other home care and personal products. Most of its toothpaste brands contain sodium monofluorophosphate as the active ingredient. Hence, the company earns a competitive advantage over other toothpaste manufacturers. Its determination to remain unique amid market changes makes Colgate toothpaste more prominent and accepted in numerous markets across the globe. Apart from the active ingredient, Colgate toothpaste also contains Sodium Carbonate, Sodium Bicarbonate, water, Calcium Carbonate, Hydrated Silica, flavor, and Cellulose gum. Porter’s Five Forces model In an external environmental analysis, we will focus on Porter’s Five Forces. This is a tool of organizational external analysis used to understand where power lies in the situation of business. The forces that we consider for Colgate include: the bargaining power of suppliers, the incumbent rivalry, the threat of new entrants, the bargaining power of buyers and the threat of substitute products. I. The bargaining power of buyers: In the current business environment, consumer-products companies are characterized by weak buyer power due to the fact that customers are fragmented and hence have little influence on the price or the product. However, in the case of Colgate, the consumers of the products are both retailers and individuals hence the firm faces very strong buyer power. II. Incumbent rivalry: consumers of the oral health products enjoy a multiple of choices. As much as many consumers are loyal to certain brands, switching costs in the oral health industry is very low. As a result, the industry is characterized by high degree of rivalry. III. The bargaining power of suppliers: The costs incurred while switching suppliers is quite high in the oral health industry. As a result, Colgate faces an intensive bargaining power from the suppliers. That is, the power for both Collage Ltd and the suppliers is probably limited. IV. The threat of substitute products: within the industry, the brands have managed to establish a competitive advantage. However, the pricing power of each of the brands can be limited by substitutes. As a result, Colgate faces a high threat of substitutes. V. The threat of new entrants: The oral industry is characterized by high capital investment amount. Therefore, the new entrants are few hence low threats for Colgate. Environmental Analysis Apparently, the manufacturer of oral hygiene products has for many years attained tremendous achievements due to the culture of its internal environment. Colgate’s culture inspires and motivates people to show or demonstrate leadership (personal leadership) in their day-to-day activities. According to the company’s annual report 2009, personal leadership entails three essential global values namely caring, global teamwork and continuous improvement. Furthermore, the company focuses on creating a better understanding in relation to consumer behavior, product innovation, launching of new brands/products, as well as enhancing efficiency and effectiveness of its strategic goals. The company also seeks to improve its internal environment by strengthening various leadership qualities and values worldwide. PEST Analysis (political factors, economic factors, Social factors, Technological factors, Legislative factors and environmental factors). Political factor When a company successfully undergoes the internationalization process, the political and legal environment becomes varied depending on the host country of the market it is operating from. Colgate has carefully planned its international strategy to ensure that it achieves absolute cost advantage in production while maintaining the quality and standards that allow it to compete at a global stage. Since the home ground of the company offers a stable political environment, the company should have less to worry about the political landscape. However, the reality on the ground is that the global system is very volatile and unpredictable sometimes. In this regard, the firm has adopted a flexible international policy to allow it outsources production from partner counties and this make operating the business fairly easy. Economic factors Colgate Company is recognized as one of the leading multinationals in production of home and personal care products worldwide. The environment has favored the company in its quest to increase the global presence and product prominence in different parts of the world. Since Colgate had long established in nearly all the continents in the past two decades, it perfectly relates with different environments. Thus, expansion into new markets and environments has become much easier for it as opposed to the competitors. In addition, both the internal and external environments have played an integral part in transforming the American multinational to its current status. Social factor Although Colgate Toothpaste sub-brand does not have much influence on the external environment, it is working round the clock to improve on its connections with local authorities, communities, and residents (Babu 2007, pp. 171). The company has particularly taken it upon itself to improve its relations with external forces by increasing its participation in Corporate Social Responsibility (CSR). For instance, Colgate-Palmolive is working closely with different humanitarian organizations, countries and territories in which they operate to conserve the environment. They also participate in building and construction of social amenities such as hospitals and schools. Local wholesalers and small shop owners play a vital role to ensure greater success in the various initiatives and projects that Colgate has started or intends to start in different areas around the world. Finally, the multinational takes advantage of the arguably positive consumer trends in most of the emerging economies to compensate the sluggish growth in industrialized nations. Technological factors Colgate has successfully used the diffusion of technology theory to capture external markets. This has been facilitated by the exploitation of the EU, Africa, Asia and America markets. Colgate has also, in the recent times, adapted the research and innovation in order to stay afloat in the oral health business. It is worth noting that, Colgate has unveiled a re-branding strategy that will include the use of distinguished customers to be able to revive the brand. Customer Analysis Colgate sells its toothpaste brand depending on the chain reactions. For instance, the demand for oral hygiene products (including toothpaste) increases following a rise in the population growth rate in the local markets or the entire world. Colgate toothpaste is today on high demand with the world population currently standing at 6.85 billion people. However, the demand for toothpaste and other oral hygiene products is projected to rise in the near future (Rao & Krishna 2005, pp. 195). Colgate is more likely to increase its production of toothpaste when the world population hit the 9 billion mark by mid-century. According to the UN World Population Prospects (2008), Colgate will have to meet the needs of an additional 2.1 billion potential customers of its toothpaste by 2050. Although the toothpaste market has several rival companies which can equally produce highly competitive toothpaste brands, Colgate will still serve the largest segment of new potential customers. Apparently, the company enjoys a heavy global presence than any other oral hygiene product manufacturers (Rao & Krishna 2005, pp. 195). Besides, the company offers top-quality products to its wide range of consumers across the globe. A typical consumer is willing to pay higher prices for Colgate products because they are assured of high quality and the most desirable result. Meanwhile, the company usually takes into consideration chances of consumers of competitors’ products changing their minds and starting to consume Colgate products or brands. Similarly, various global challenges such as heightened competition and economic downturn might force small companies and new entrants to bow out eventually. Internal Analysis Culture of Colgate-Palmolive’s internal environment has been vital to its substantial growth in the past many decades. The culture inspires and motivates people to show or demonstrate leadership (personal leadership) in their day-to-day activities (Rao & Krishna 2005, pp. 195). The company’s annual report (2009) reveals that personal leadership entails three essential global values namely caring, global teamwork and continuous improvement. Financial analysis Source: Yahoo finance Source: Yahoo finance Source: Yahoo finance Source: Yahoo finance SWOT Analysis The Company focuses on identifying the most suitable marketing strategies for its short-term and long-term goals. Strength The strength of Colgate primarily lies on its global presence for many decades. The demand for its oral hygiene products will effectively increase with the anticipated increase in the world population growth rate. Colgate has also invested in strategic groups, as well as segmented the market to reach out to a large group of potential customers from different countries globally. Its value chain is also less complicated compared to that of competitors. Weakness The companys main weakness is its inadequate reaction to the rapid technological and socio-cultural changes. In addition, the company does not have properly defined subsets of consumers because of weak market segmentation. It primarily focuses on selling a wide variety of home care and personal hygiene products to the mass market. Opportunity The highly projected growth in world population from the current 6.85 billion to over 9 billion by mid-century will provide Colgate with an opportunity to increase its production of oral hygiene products (Rao & Krishna 2005, pp. 195). Colgate can potentially increase its production and delivery of new products into the market thanks to its elaborate global supply and value chains. Threat The biggest threats to Colgate are the new entrants to the oral hygiene industry that are likely to employ modern production techniques and technological innovation to expand. New entrants that adopt segmentation by defining or dividing the target market into various subsets of consumers with common priorities and needs will front a huge marketing test to Colgate. In addition, the entrants may as well dominate several markets that were initially considered Colgate territories. The SWOT analysis can be summarized in the table below: Strengths focus on innovative and new products diverse business operations strong business planning developments strong financial performance Weakness highly leveraged product research high taxation rates opportunities implementation of advanced technologies in production emerging market growth development of new products for the youthful market threats increased commodity prices unstable political environment competition from other private label growth References Babu, G. R. (2007). Portfolio management: including security analysis. New Delhi, Cocnept Pub. Co. Rao, V. S. P., & Krishna, H. V. (2005). Management: Text and Cases. New Delhi, Excel Books. Read More