So your company has expanded to become a global powerhouse? You’ve got product in over 20 countries? Wow, that’s awesome! How are you dealing with the competition? Are your actual sales keeping up with projections? Ever think about emerging markets? Yeah, yeah, I know…it’s a gamble for sure. BUT, what if you do your homework? What if you enter those markets right? Colgate did that very thing, and you can learn from their ups and downs.
In the Beginning.
The huge multi-national company now known as Colgate-Palmolive can trace its roots clear back to 1806 when a young William Colgate started a starch, soap and candle business (not unlike my own Mountain Organix company) on Dutch Street in New York City. In 1865, Colgate introduced an abrasive dentifrice to the United States and then later in 1873, they introduced a more convenient toothpaste in jars (Colgate World of Care, n.d.). Though Colgate sold, and continues to sell, many other products, toothpaste and what is now referred to as the “oral care” segment would become the company’s largest economic driver.
In 1908, the company was officially incorporated by William Colgate’s five sons, and big-time corporate expansion began in earnest. Colgate started its quest to become an MNC (that’s a “multi-national corporation” to you and me) as early as 1920 when they began establishing footholds in Europe, Asia, Latin America and Africa. After merging with soap manufacturer Palmolive-Peet in 1926, all bets were off and the new entity Colgate-Palmolive was a seemingly unstoppable juggernaut. In 1985, Colgate-Palmolive entered the emerging country of all emerging countries, China, with a smooth acquisition of an existing Hong-Kong brand. Today, Colgate-Palmolive focuses on four core business segments that include oral care, personal care, home care, and pet nutrition. Colgate sells its 800 products in over 200 countries and territories worldwide—to the tune of approximately $15 billion in sales per year. (Colgate World of Care, n.d.). Not bad for a little starch and soap company from Dutch Street.
Colgate has had a history of fairly aggressive global expansion since about the beginning of the 20th century. In the 1920’s the company made great inroads into developed, industrialized and semi-industrialized countries like Australia, France, UK, Switzerland and Mexico. In 1937, Colgate moved into India and within another decade had a strong foothold in South America. By the mid-twentieth century, Colgate-Palmolive was firmly ensconced as one of the world’s largest multi-national corporations with facilities and distribution on 6 continents (Riani, n.d.).
Colgate’s rapid global expansion was fueled by keen competition from the likes of Proctor and Gamble, Lever Brothers (now Unilever) and Crest (now part of P&G) after the American Dental Association announced that toothpaste was indeed a good preventative health measure. Not to lose sight of the fact that Colgate-Palmolive makes a bevy of other products, but after the ADA announcement, toothpaste sales exploded and became C-P’s most lucrative segment. Competition combined with increasingly stringent regulations in the United States meant that Colgate-Palmolive needed to search elsewhere to expand its shrinking business. Increased advertising was only giving the company temporary gains (Riani, n.d.). What Colgate needed was a permanent solution, and that’s when they set their collective eyes on emerging markets. As traditional developed and industrialized markets became hyper competitive, emerging markets showed great promise for offering increased and incremental opportunity for larger multi-national companies (Kotabe & Helsen, 2010. P.3).
Why Emerging Markets?
Though the exact meaning of an “emerging market” varies depending upon whom you are asking, but the concept is generally accepted to center around economies that are rapidly growing and industrializing. We need to delve a little deeper into the meaning and implications of “rapidly growing and industrializing” in order to see the full picture and what benefits could be in store for companies who seek out these diamonds in the rough. The real upshot of an economy that is rapidly growing and industrializing is the fact that the country’s upward economic movement is typically lifting millions of people out of BoP poverty and creating giant middle classes full of potential customers– all clamoring for products and services (Khanna and Palepu, 2010). When you combine those expanding middle classes and their resulting markets with larger populations, you have the recipe for a lot of potential sales —IF, the market is entered correctly and the culture is understood and respected. A multi-national company will have a hard time making a go of it by simply showing up on the doorstep of a large emerging country like China, and trying to rely on its existing products and an existing marketing mix to do the heavy lifting. Colgate-Palmolive entered China, the poster-child for huge emerging economies, in the 1980’s and has become the country’s top oral care product provider through a combination of crafty investments and realigning their marketing mix to suit the target market (Chen & Vishwanath, 2005).
How Colgate-Palmolive Gained Access to China.
Colgate’s typical entry into a developed country involved outsourcing of manufacturing to the country(ies) in question, and/or Foreign Direct Investments (FDIs) into production and job creation in those countries. Entering China however, would take a slightly different strategy. In 1985, Colgate-Palmolive acquired a Hong Kong based manufacturer called Hawley and Hazed that was known for making China’s then number one toothpaste –Darkie (Riani, n.d.). Though the acquisition helped Colgate-Palmolive gain a foothold in one of the harder markets to crack (at the time), Darkie, as shown in Figure 1. turned out out to be something of a public relations nightmare for them back in the states.
Figure 1. (Source: NewsOne).
The blatantly racist imagery, combined with a name that has long been considered a racial slur, made for some uncomfortable times for Colgate-Palmolive. Interestingly enough however, the people of China had no such outrage and considered it perfectly natural to say. In fact, the product was known as Black People’s toothpaste in the local vernacular and despite a (slight) name change and rebrand to Darlie (You’re not fooling ME, Colgate), Chinese people still refer to it the old way even today (Raini, n.d.).
China presented the ultimate prize for the emerging market hunter because it wasrapidly industrializing and had a massive population with billions of citizens in relatively compact geography. MNC’s are typically known to prefer entering an emerging market with 100% ownership, Colgate-Palmolive was no different, opting to enter China with a shiny new wholly owned subsidiary. This strategy allowed CP to assume full control of their product development and marketing, with all profits reverting to Colgate (Kotabe & Helsen, 2010. p. 312). As the company gained momentum and share in China, it created a regional division in 1992 known as Colgate-Palmolive (China) Co. Ltd (Bloomberg, 2016).
Adapting Colgate’s Marketing Mix to Suit The Market.
Despite the risks associated with entering an emerging market, Colgate had just invested significant dollars on a key acquisition and considered themselves to be “all-in” as far as the Chinese market was concerned. They made several changes to their marketing mix for Chinese consumption—some of which were subtle, and some were not so subtle.
The oral care segment accounts for over 40% of Colgate-Palmolive’s global revenues and was the segment with which they gained entry into China, so it will be the focus of the remainder of this discussion –if for no other reason that to keep this paper from becoming War and Peace.
In the West, when we think of oral care, clean teeth and fresh breath, we typically think of flavors like peppermint, wintergreen or spearmint. Asian palates and sensibilities are obviously a little different and therefore call for customized product. Colgate couldn’t go into China, guns a blazin’, and expect to sell western toothpaste to eastern tastes, so they adapted the product by using local flavors and ingredients. Colgate introduced flavors of toothpaste and mouth wash that included tea, ginger, ginseng, berry, herbal and fruit to much acclaim and allowing Colgate to reach over 50% market share in the region (Team, 2013). In fact, Colgate’s market share is by and large a function of its willingness to customize and adapt to local tastes—not just in China but globally as well. For instance, Colgate now sells a mouthwash in India called Plax bamboo Charcoal and a toothpaste called Active Salt with Neem. Both Neem and Charcoal are known for their antibacterial/antimicrobial properties and are prized in the Indian market (Morgan, 2015). They are also both know to taste like total crap to westerners, but that’s neither here nor there.
Another way Colgate chose to differentiate its product for the Chinese market was through the use of what would have then been considered innovative packaging materials.
The Chinese culture has had a long held distaste for commercial packaging that uses too much waste material, or seems overly elaborate or frivolous in any way. This attitude is directly attributable to their deep regard for environmental issues. Similarly, price conscious consumers (as the majority of China’s emerging middle class are) don’t really care about packaging materials and are more concerned with the contents therein. When the Colgate brands of toothpaste first hit the market in China, the vast majority of toothpaste manufacturers were using aluminum tubes. Colgate adopted the plastic tube because it is cheaper, more durable, lighter and safer to use—resulting in the immediate (relatively speaking) capture of one third of the Chinese toothpaste market.
Even though the country was becoming industrialized and more people were emerging from the depths of poverty, they were still cautious about spending and were fairly value-conscious. Colgate was keenly aware of the price sensitivity of the emerging Chinese middle class and adjusted accordingly. The adaptation of the plastic tube, the incorporation of locally sourced ingredients, and a reduction in overall package size all combined to allow Colgate to sell toothpaste with a recognizable brand name on par or in some cases, just slightly above the price of most local brands (Doctoroff, 2012).
Chinese consumers welcome foreign products, but they aren’t willing to pay huge price premiums to get them. Colgate managed their costs down by utilizing local suppliers and ingredients as well as shifting to local manufacturing which all resulted in their 65-gram
tube of toothpaste dropping almost 63% in price (roughly 59 cents to 22 cents). Moreover, the price difference between the Colgate brand (seen as premium) and the local brands fell from a whopping 270% differential to around 44% (Chen & Vishwanath, 2005).
When discussing distribution or “place” in the context of the four P’s, one must note that the concept refers to providing the product at a place that is convenient for consumers to find and become aware of. Products can be distributed the easy way, which would include fewer, large centralized locations, or the right way, which involves knowing the habits and customs of your target shoppers (something I preach ad nauseum). Colgate invested significant time and resources into understanding the ways in which consumers in China obtained everyday household goods.
Because Colgate acquired Hawley and Hazed, they had also acquired their distribution network and infrastructure. Colgate invested more into the distribution system to ensure that Colgate toothpaste was available, or potentially available to everyone. At the time there were no WalMarts or Kmarts or large drugstore chains that everyone instinctively flocked to. The majority of Colgate’s sales came from small neighborhood stores that were often within walking (or biking) distance from consumers’ homes. Colgate mounted an intensive ethnographic research program that sought to not only gain a deep and intimate understanding of how the stores worked and interfaced with customers, but
to work with shop owners to offer an assortment of product relevant to their specific clientele (Colgate, n.d.).
In addition to making Colgate products available in small neighborhood stores, Colgate also made smaller sized (and less expensive) packaging available through street vendors and transient merchants who dotted the rural landscape. That ensured that even those who were not in proximity to a store could still find product (Colgate, n.d.).
Colgate-Palmolive is the poster child for how to enter an emerging market in the right way. Colgate put in its research time in China and came away with an understanding that China isn’t one large homogeneous block of people who all think and act in the same way. They actually found out that there is “Coastal China” and what they referred to as “A cities”, “B cities” and “C cities” as well as the rural areas. Colgate discovered that the country was very complex and nuanced and that each segment would require a separate approach (Warc, 2010). To that end, Colgate employed an intensive, and widely varied media mix. In the US, most people get their product heads-up from TV or magazines (these were pre-internet days), but a different approach had to be used in China. Of course Colgate did use TV and print, but they also used a significant amount of outdoor advertising—particularly in the more rural areas. In the case, outdoor advertising included everything from traditional billboards to painted buildings to sandwich boards (Riani, n.d.).
Another guerilla-style promotional plan Colgate employed in China had been in their bag of tricks since 1911. They provided small tubes of toothpaste and toothbrushes to school children and provided technicians to instruct the students on proper brushing techniques (Raini, n.d.). The idea here is that if the habit starts early enough, it will be carried into adulthood.
What Colgate Could Have Done Better?
It’s hard to sit in judgment of a trail-blazer like Colgate-Palmolive. They were presented with a set of circumstances that dictated additional markets were quite literally required in order to stem the tide of slumping sales and profits. Then they acted on that information by setting their sights on several emerging countries. They (wisely) chose emerging countries because of the enormous upside potential they promise, and they moved quickly so they could be either the first, or one of the first to crack the new markets. Once there, they practiced due diligence and did the required research so they could have a complete and thorough understanding of the culture they were now entering. They leveraged their newfound cultural understanding to inform the necessary changes in their marketing mix—knowing full well that U.S. models don’t translate everywhere. So, from the market entry perspective, Colgate was on top of their game.
The one obvious and glaring mistake from an international perspective, was that Colgate acquired Hawley and Hazed and their questionably named premier product (Darkie) and then simply left it alone for over a year. Of course no one in China thought
anything about it, nor did they even suspect it was in any way offensive. Back home however, was a different story. Colgate was boycotted, costing them untold revenues until then Chairman Rueben Mark admitted it was a problem and that Colgate would make all necessary arrangements to change it. Unfortunately Colgate wasn’t moving fast enough to suit some people, so with extra pressure from the Congressional Black Caucus, the NAACP, and the US Catholic Conference, the name was finally changed to “Darlie” and the Al Jolsen logo was changed to a somewhat less offensive version of itself.
Colgate-Palmolive is a western company, and as such should have been sensitive to the situation surrounding the Darkie brand. In a perfect world, they would have negotiated a name change and logo refresh BEFORE making the deal with Hawley and Hazed. BUT, hindsight is always 20/20.
The Bottom Line:
Global expansion into developed markets can only take you so far. Granted there are large MNC’s who are doing very well for themselves by sticking mainly to the top 20 GDPs. However, if you overlook the emerging nations/markets, you are absolutely leaving money on the table. Colgate shows us an example of not only how to expand into such markets, but ultimately how to do it right. Minor faux pas notwithstanding.
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