Proctor & Gamble Crest Whitestrips Advanced Seal Product Launch
Brad Vance
April 14, 2015
Financial Management 6400
Spring 2015
University of North Georgia
Cottrell School of Business
The purpose of this paper is to determine if the North America Oral Care Group (NAOC) of the Procter & Gamble Company (P&G) should launch the new Crest Whitestrips product known as Advanced Seal and what the capital budgeting plan should be. The net present value will be determined to help decide if the Advanced Seal product is launched. A decision facing the NAOC team include whether the cannibalization of the current Whitestrips product line will make it unprofitable for the new product launch. Another decision facing the team is whether the cost associated with the research and development will allow high enough pricing to recover the cost and provide a worthwhile profit margin. If the decision to launch the new Advanced Seal is made the retailers will need to be convinced that P&G is committed to merchandiser support to get sales up quickly.
P&G target audience is the world’s consumer who has money to spend on their products. Their brands currently serve 5 of the 7 billion people on earth. They have 70 to 80 brands in a dozen business contained with 4 industries. They try to stay focused within this marketing structure by divesting close to 100 brands. They recently sold Duracell which they had acquired when they bought Gillette (Proctor & Gamble to Exit Duracell Battery Business.2014. FRPT-M&A Snapshot, 5-6).
P&G consist of 4 Global Business Units (GBUs) beauty, feminine and family care, fabric and homecare and baby. Some of their brands in these categories are Tide, Crest, Head and Shoulders, Luvs, Pampers, Bounty, NyQuil and Oral B. They are also in the pet food market with Eukanuba and Iams which are part of their homecare GBU. P&G uses what it calls their five core strengths for it competitive advantage. They consist of consumer understanding, innovation, scale, brand building and go-to market capabilities. Scale is probably the biggest advantage. They have the size to deliver to just about any product anywhere in the world it will sell. Proctor & Gamble is tied to the consumer economy. Its revenue ebbs and flows with the economic winds but because of their vast product lines they are able to sustain growth year over year regardless of the economy.
The determination to launch the Advanced Seal solutions needs to first look at the cannibalization of the existing Whitestrips products. The existing line consist of Basic and Premium. The Premium line is the most profitable generating $11 per unit the Basic generates $7. Estimating the amount of cannibalization that each line would suffer will determine if the new product would add value to the product line as well as P&G’s bottom line. The goal is to attract new customers to the Advance Seal product but the expectation is that the most of the cannibalization will be from the Premium line as those consumers will move to the new product. The forecasting models determined that the launch of Advanced Seal would result in a reduction of 600,000 units in the Premium and 100,000 in the Basic. The result of 700,000 units coming from the existing line to the Advance Seal that the net new increase in units sold is between 300,000 to 400,000 units. The gross profit per unit between the Basic and Advanced Seal makes it an easy decision but since the majority of the cannibalization is stemming from Premium this makes the decision harder. The prospect of adding new customers in a product line that has seen historically little growth is very enticing. The anticipated cannibalization of the Basic and premium line could be as much as 47.77 million dollars. Even with the cannibalization from one product line to another the decision to move forward should be yes as long as the rest of factors make it a sound choice. The increase in new sales for the Advanced Seal along with the retailer’s
