Essay About Market Leader And New Product

Scope – Procter and Gamble in 1967
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Background and Problem Statement:Scope was a mouthwash introduced by Procter and Gamble in 1967. It was positioned as a great-tasting, mouth-refreshing brand that provided bad breath protection. By 1976, Scope had become the market leader in Canada. Now, a new product called Plax, which gained 10% market share within 2 years of its introduction in 1988, poses as a threat to Scope.  Procter and Gamble has to decide on how to respond to this, and what strategy it needs to follow. The challenge was to ensure Scope’s profitability in the midst of the competitive threats.Market and Industry analysis:Around 75% of Canadian households used one or more mouthwash brands, and on an average, the usage was three times per week for each member. The users were segmented based on their frequency of use:  40% for heavy users (one per day or more), 45% of medium users (two to six times a week) and 15% light users (less than once a week). The most important reason according to users for using mouthwash was oral hygiene and combatting bad breath, which Scope had well targeted. In 1990, Scope had 32% market share in the mouthwash market. Plax, a ‘pre-brushing’ rinse wash, was perceived as a threat as it focused on a new benefit of fighting plaques, and even claimed of removing upto300% plaques. Other competitors were Listerine, Colgate and Listermint. The mouthwash market had grown on at 3% on average, until the introduction of new flavors.Strategy Analysis:Alternative 1: Maintain Status quoRisk – If the mouthwash market becomes more segmented, and other brands like Plax grow, P&G would be left with a large share of market that focused only on ‘breath’, and hence demand might decline. They should look at other claims other than ‘breath’ that might be used by Scope and work on that.Break-even achieved at 302,451 units(Appendix A). In year 1990, 440,000 units were soldAlternative 2: Extension of the product line:P&G’s product tasted better than Plax. ‘A better tasting prebrusing dental rise’ could be introduced. The market research predicted a 6.5 % market share of the total mouthwash market for this.Risk – If they aren’t able replicate Plax’s clinical results with P&G’s stringent test methodology and if the product did not provide any greater benefit than other products, the P&G’s image and credibility with dental professionals may be impacted.Ingredient costs , packaging costs and delivery costs are higher. Incurred costs for Product testing of $20,000. Break-even is achieved at 363,770 units (Appendix B).Alternative 3: Creating a new brand to compete with PlaxRisks – The retail industry has become more stringent regarding what it would accept.To be listed on store shelves, the brand must be seen as unique from the competitors so that they can build on incremental purchases.Break even would be at 161,288 (Appendix C).If a new brand is not generating sales, retailers might replace units, or the P&G would have to pay $500,000 per stock-keep unit to add the new brand.Alternative 4: Relaunch Scope with plaque fighting formulationIt could prevent currents users from switching to Plax.Risks – A plaque reassurance was not necessary that users would buy Scope. This means that it was unlikely to generate additional volumes.The consumers may become confused if plaque assurance was claimed, and thus Scope could lose market share if this happened.Recommendations:A new rinse could be a profitable option. It would be better to protect the business of P&G than to launch a completely new product. It would take time for the product to establish itself and gain market share.APPENDIX 1:Using Exhibit 8 of the case.Manufacturing costs are: 50% is fixed, 20% Variable (Labor costs)Miscellaneous costs are: 75% is fixed, assuming  the rest 25% is variable Total(in thousands)Fixed Cost VariablePer unit cost($)Manufacturing3080154015401.40Miscellaneous11228422810.63Overhead13661366Packaging2,2442,2445.10 Ingredients359035908.16Delivery137313733.12Advertising17001700Promotion14601460Total690818.41Net Sales = $41.25/unitContribution = 41.25 – 18.41                      = 22.84Break – Even = Fixed Costs/Contribution                       = 6908,000/22.84           = 302,451APPENDIX 2: