Colgate case

Colgate-Palmolive Company:
The Precision Toothbrush
In August 1992, Colgate-Palmolive (CP) was poised to launch a new toothbrush in the United States, tentatively named Colgate Precision. CP's Oral Care Division had been developing this technologically superior toothbrush for over three years but now faced a highly competitive market with substantial new product activity.
Susan Steinberg, Precision product manager, had managed the entire new product development process and now had to recommend positioning, branding, and communication strategies to division general manager Nigel Burton.
Company Background
With 1991 sales of $6.06 billion and a gross profit of $2.76 billion, CP was a global leader in household and personal care products. Total worldwide research and development expenditures for 1991 were $114 million, and media advertising expenditures totaled $428 million.
CP's five-year plan for 1991 to 1995 emphasized new product launches and entry into new geographic markets, along with improved efficiencies in manufacturing and distribution and a continuing focus on core consumer products. In 1991, $243 million was spent to upgrade 25 of CP's 91 manufacturing plants; 275 new products were introduced worldwide; several strategic acquisitions (e.g., of the Mennen men's toiletries company) were completed; and manufacturing began in China and Eastern Europe. Reuben Mark, CP's C.E.O since 1984, had been widely praised for his leadership in transforming a "sleepy and inefficient" company into a lean and profitable one. Since 1985, gross margins had climbed from 39% to 45% while annual volume growth since 1986 had averaged 5%. Although international sales remained CP's strong suit, accounting for 64% of sales and 67% of profits in 1991, the company faced tough competition in international markets from Procter & Gamble, Unilever, Nestle's L'Oreal Division, Henkel of Germany, and Kao of Japan.
Colgate-Palmolive's Oral Care Business
In 1991, CP held 43% of the world toothpaste market and 16% of the world toothbrush market. Other oral care products included dental floss and mouth rinses. A team of 170 CP researchers worked on new technologies for oral care products, and in 1991, new products launched in the U.S. market included Colgate Baking Soda toothpaste and the Colgate Angle and Wild Ones toothbrushes.
In 1991, worldwide sales of CP's oral care products increased 12% to $1.3 billion, accounting for 22% of CP's total sales. CP's U.S. toothbrush sales in 1991 reached $77 million, with operating profits of $9.8 million. Toothbrushes represented 19% of CP's U.S. Oral Care Division sales and profits, and CP held the number one position in the U.S. retail toothbrush market with a 23.3% volume share.
Exhibit 1 presents operating statements for CP's U.S. toothbrush business since 1989. CP offered two lines of toothbrushes in 1991—the Colgate Classic and the Colgate Plus. Colgate Classic was positioned in the "value" segment and was CP's original entry in the toothbrush market, while Colgate Plus was positioned as a higher-quality product in the "professional" segment.
The U.S. Toothbrush Market
As early as 3000 B.C., ancient Egyptians used toothbrushes fashioned from twigs. In the twentieth century, a major design advance occurred in 1938 with the launch of Dr. West's Miracle Tuft Toothbrush, the first nylon-bristle brush. In the late 1940s, Oral-B began selling a soft-bristle brush which was better for the gums, and in 1961 Broxodent launched the first electric toothbrush.  Until the late 1970s, toothbrushes were widely viewed by consumers as a commodity and were purchased primarily on price. More recently, new product launches had increased and performance benefits had become increasingly important purchase criteria. (Exhibit 2 summarizes new product introductions in the category since 1980.)
In 1991, the U.S. Oral Care market was $2.9 billion in retail sales and had grown at an annual rate of 6.1% since 1986. Toothpaste accounted for 46% of this market, mouth rinses 24%, toothbrushes 15.5% ($453 million in retail sales), with dental floss and other products making up the remainder. Dollar sales of toothbrushes had grown at an average rate of 9.3% per annum since 1987, but, in 1992 they increased by 21% in value and 18% in volume, due to the introduction of 47 new products and line extensions during 1991-1992. In the same period, media support increased by 49% and consumer coupon circulation by 48%. Consumers took more interest in the category and increased their purchase frequency. The trade, for whom toothbrushes represented a profitable, high-margin business, responded by increasing in-store promotional support and advertising features. Dollar growth exceeded volume growth due to the emergence of a "super-premium" sub-category of toothbrushes partly offset by downward pressure on average retail prices in mass-merchandiser channels and because of growth in the sales of private label toothbrushes. Unit sales growth in 1993, however, was projected to be slower due to a buildup in household inventories of toothbrushes in 1992 as a result of increased sampling of free brushes through dentists and an abnormally high number of "two-for-one" consumer promotions. 
Product Segments
In the 1980s, industry executives divided the toothbrush category into two segments: value and professional. Many consumers traded up to professional, higher-priced toothbrushes with a resulting erosion of the value segment despite growth in private-label sales. The late 1980s saw the emergence of super-premium brushes (priced above $2.00). By 1992, super-premium brushes, with retail prices between $2.29 and $2.89, accounted for 35% of unit volume and 46% of dollar sales. Professional brushes, priced between $1.59 and $2.09, accounted for a corresponding 41% and 42%, and value brushes, priced on average at $1.29, accounted for 24% and 12%.
In 1992, three players dominated the U.S. toothbrush market overall: Colgate-Palmolive and Johnson & Johnson, whose brushes were positioned in the professional segment; and Oral-B, whose brushes were positioned in the super-premium segment. New entrants in the early 1990s included Procter & Gamble and Smithkline Beecham; both had positioned their new product launches in the super-premium segment. Table A profiles the principal new products offered in the super-premium toothbrush segment in 1992.


Toothbrushes differed by bristle type (firm, medium, soft, and extra soft) and by head size (full/adult, compact, and child/youth). Firm-bristle brushes accounted for 8% of toothbrushes sold but were declining at 13% a year. Medium-bristle brushes accounted for 39% and were declining at 4% a year. Soft-bristle brushes held a 48% market share and were growing at 7% per year. Extra-soft- bristle brushes held only a 5% share but were growing even more rapidly. Sixty-nine percent of toothbrushes were sold with adult, full-sized heads, 17% had compact heads, and 13% had child /youth-sized heads. 
In the late 1980s, many new toothbrushes were introduced on the basis of aesthetic rather than functional features. The children's segment in particular had seen a variety of new products. For example, in 1988 and 1989 new toothbrushes targeting children featured sparkling handles, Bugs Bunny and other characters, and glow-in-the-dark handles. By 1991, however, new product introductions were again focused on technical performance improvements, such as greater plaque removal and ease of use.
Consumer Behavior
CP's consumer research indicated that consumers of the baby boom generation (adults born in the 1940s, 1950s and early 1960s) were becoming more concerned about the health of their gums as opposed to cavity prevention and were willing to pay a premium for new products addressing this issue. CP estimated that 82% of toothbrush purchases were unplanned, and research showed that consumers were relatively unfamiliar with toothbrush prices. Although consumers were willing to experiment with new toothbrushes, they replaced their brushes on average only once every 7.5 months in 1991 (versus 8.6 months in 1990), while dental professionals recommended replacement every three months. Due to the prevalence of "two-for-one" offers, purchase frequency lagged replacement frequency, with consumers purchasing toothbrushes once every 11.6 months in 1991 (compared to 12.4 months in 1990 and an expected 9.7 months for 1992).  Unlike toothpaste, toothbrushes were not typically shared by members of the same household.
Most consumers agreed that toothbrushes were as important as toothpaste to effective oral hygiene and that the primary role of a toothbrush was to remove food particles; plaque removal and gum stimulation were considered secondary. Proper brushing was seen as key to the prevention of most dental problems. According to CP research, 45% of consumers brushed before breakfast, 57% after breakfast, 28% after lunch, 24% after dinner and 71% before bed. Forty-eight percent of consumers claimed to change their brushes at least every three months; the trigger to purchase a new brush for 70% of them was when their toothbrush-bristles became visibly worn. Eleven percent decided to switch to a new brush after seeing their dentists, and only 3% admitted to purchasing on impulse.  Sixty-five percent of consumers had more than one toothbrush, 24% kept a toothbrush at work, and 54% had a special toothbrush for traveling.
Brand choice was based on features, comfort and professional recommendations. Exhibit 3 summarizes the main reasons why consumers used specific brands. Consumers chose a brush to fit their individual needs: size and shape of the mouth, sensitivity of gums, and personal brushing style. The handle, bristles, and head shape were perceived to be the most important physical features of a toothbrush.
Consumers differed in the intensity of their involvement in oral hygiene. Table B summarizes the buying behavior of the three groups. Therapeutic brushers aimed to avoid oral care problems, while cosmetic brushers emphasized preventing bad breath and/or ensuring white teeth. Uninvolved consumers were not motivated by oral care benefits and adjusted their behavior only when confronted by oral hygiene problems. 

Competition
Exhibit 4 lists the major brands and product prices for each of the three toothbrush product segments. Exhibit 5 shows the number and type of stockkeeping units (SKUs) for each major brand, and Exhibits 6 and 7 summarize market shares over time and by class of trade. Major competitor brands in the super-premium segment included Oral-B, Reach Advanced Design, Crest Complete, and Aquafresh Flex.
Oral-B (owned by Gillette) had been the market leader since the 1960s. In 1991, it held a 23.1% volume market share and a 30.7% value share of U.S retail sales, with 27 SKUs. Oral-B relied heavily on professional endorsements and was known as "the dentist's toothbrush." In July 1991, Oral-B launched the Indicator brush, priced at a 15% premium to its other brushes. The Indicator brush had a patch of blue bristles that faded to white when it was time for replacement (usually after two to three months). In 1992, consumer promotions were expected to cost $4.5 million (5% of sales) and include $1.00-off coupons, "buy-one-get-one-free" offers and $2.00 mail-in refunds. Media expenditures for 1992 were estimated at $11.2 million (12.7% of sales). Television commercials would continue to feature "Rob the dentist" using the Oral-B Indicator product. In 1991, Oral-B's operating margin on toothbrushes, after advertising and promotion costs, was estimated to be approximately 20% of factory sales.
In 1992, Oral-B announced that it would restage its dental floss, roll out a new mouthwash, and possibly introduce a specialty toothpaste. Oral-B management stated that "to be a leader in the oral care category, we must compete in all areas of oral care."  
Johnson & Johnson (J&J) entered the U.S. toothbrush market in the 1970s with the Reach brand, which, in 1991, comprised 18 SKUs. In 1988, J&J introduced a second product line under the brand name Prevent, a brush with a beveled handle to help consumers brush at a 45% angle—the recommended brushing technique. This product however, was being phased out by 1992. In 1991, J&J ranked third in the U.S. retail toothbrush market with a 19.4% volume share and a 21.8% value share. The Reach line was positioned as the toothbrush that enabled consumers to brush in even the hardest-to-reach places, thereby increasing the efficiency of brushing. New products included Glow Reach (1990) and Advanced Design Reach (1991), which offered tapered heads, angled necks, and unique non-slip handles. Reach Between, scheduled for launch in September of 1992, had an angled neck and rippled bristles that targeted the areas between the teeth. Consumer promotions in 1992 were estimated at $4.6 million (8.6% of sales) and included 60y coupons, $1.00 refunds by mail, and "buy-two-get-one-free" offers. Media expenditures were expected to reach $17.1 million (31.7% of sales) with a heavy reliance on television commercials. Johnson & Johnson's expected 1992 operating margin on toothbrushes, after advertising and promotion costs, was 8.4% of factory sales.
Procter & Gamble (P&G) was the most recent entrant in the toothbrush market with Crest Complete, an extension of the company's toothpaste brand name, Crest. Based on successful test markets in Houston and San Antonio from August 1991 to August 1992, P&G was expected to launch Crest Complete nationally in September 1992. The brush had captured a 13% value share in test markets and was expected to reach similar total market share levels in its first year after full launch. The product had long, rippled bristles of different lengths, designed to reach between the teeth. Crest Complete claimed to have "the ability to reach between the teeth up to 37% farther than leading flat brushes." It was expected to be introduced at a manufacturer's list price to retailers of $1.67 and capture a 2.0% volume share and a 2.6% value share of the U.S. retail market by the end of 1992. Consumer promotions already announced included 55 cent coupons and $1.99 refunds on toothbrushes purchased from floor stands. Media expenditures for the last quarter of 1992 were estimated at $6.4 million; television commercials would carry the theme "Teeth aren't flat, so why is your brush."
Smithkline Beecham entered the U.S. toothbrush market in August 1991 with Aquafresh Flex, an extension of the company's toothpaste brand. Aquafresh Flex toothbrushes had flexible handles that allowed for gentle brushing. By the end of 1991, Aquafresh Flex held a 0.9% share by volume and 1.1% by value of the U.S. retail market with six SKUs. In September 1992, the line was expected to expand to include two adult compact heads and one child brush. The 1992 promotion plan, estimated at $4.6 million (25% of sales), included $1.99 mail refunds, "buy-two-get-one-free" offers, toothbrush on-pack with toothpaste, and a self-liquidating premium offer of towels. Media expenditures at $10 million (almost 50% of sales) included television commercials that showed the product brushing a tomato without damaging it, to demonstrate the "flexibility and gentleness" of the brush. Smithkline Beecham was expected to make an operating loss on toothbrushes in 1992.
Other competitors included Lever, Pfizer, and Sunstar. In 1991, Lever offered three lines of toothbrushes: Aim; Pepsodent Professional with 5 SKUs; and Pepsodent Regular with 4 SKUs. Combined, Lever held a 7.2% volume and 6.6% value share of the U.S. retail market in 1991. Lever's products were sold primarily in the value segment and the company did not have a track record of innovation in the category. Pfizer entered the market in June 1991 with its Plax brush, which had a special groove for the thumb; it had captured 1.8% of the retail market by year end. Sunstar, with its Butler brand, held 2% of the retail market in 1992 and 19% of the $45 million in toothbrushes distributed through dentists. 
Advertising and Promotion
In the toothpaste category, it was hard to increase primary demand, so new products tended to steal sales from existing products. In the case of toothbrushes, however, increased advertising and promotion enhanced the category's visibility which, in turn, seemed to fuel consumer demand.
As the pace of new product introductions quickened in the late 1980s, the advertising media expenditures needed to launch a new toothbrush rose: Johnson & Johnson spent $8 million in media support to introduce its new Reach brush; Oral-B spent $10 million to launch its Indicator brush; and Procter & Gamble was expected to support its Crest Complete brush with $15 million in media expenditures. Total media spending for the category, primarily on television advertising, was estimated to total $55 million in 1992 and $70 million in 1993. Exhibit 8 shows media expenditures and shares of voice for the main toothbrush brands. Exhibit 9 summarizes the main message in each brand's commercials, and Exhibit 10 summarizes the copy strategy of Colgate Plus's television commercials over time. Advertising and promotion expenditures for Colgate toothbrushes are given in Exhibit 11.
Growing competition also increased the frequency and value of consumer promotion events. In 1992, 8% of all brushes reached consumers either free with toothpaste (as on-pack or mail-in premiums) or free with another toothbrush (buy-one-get-one-free offers). The number of coupon events for toothbrushes increased from 10 in 1990 to 33 in 1992. In the same period, the average toothbrush coupon value increased from $0.25 to $0.75.
Retail advertising features and in-store displays increased toothbrush sales. A typical CP toothbrush display increased sales by 90% over a normal shelf facing. When Colgate toothbrushes were combined with Colgate toothpaste in a single display, toothbrush sales increased by 170%. The importance of point-of-purchase displays and the variety of items, bristle qualities, and handle colors in each manufacturer's line led each to develop a variety of racks and display units for different classes of trade. CP for example, had four display systems: Counter Tops, containing 24 to 36 brushes; Floor Stands, 72 brushes; Sidekicks (used by mass merchandisers), 144 to 288 brushes; and Waterfall displays, 288 to 576 brushes. Exhibit 12 illustrates these display racks. In 1991, the percentages of special Colgate displays accounted for by each type were 10%, 50%, 25%, and 15% respectively.
The CP toothbrush line held 25% to 40% of the category shelf space in most stores. To maximize retail sales, CP salespeople tried to locate the Colgate line in the middle of the category shelf space, between the Reach and the Oral-B product lines.
Distribution
In 1987, traditional food stores sold 75% of oral care products, but by 1992 they accounted for only 43% of toothbrush sales and 47% of toothpaste sales. Mass merchandisers gained share due to increased in-store promotional support. Partly in response and partly because of the increasing number of SKUs, food stores began to expand shelf space devoted to oral care products. Exhibit 13 summarizes toothbrush retail distribution trends by volume and value.
Though purchased too infrequently to be used as a traffic builder, toothbrushes provided retailers with an average margin between 25% and 35%, twice that for toothpaste. As a result, many retailers were more receptive to adding new toothbrush products than new varieties of toothpaste. In considering which brands to stock and feature, trade buyers evaluated advertising and promotion support and each manufacturer's track record in the category. Between October 1991 and February 
1992, the average number of toothbrush SKUs had increased from 31 to 35 for mass merchandisers, from 27 to 34 for drug stores and from 30 to 35 for food outlets. In September 1992, the average number of brands carried by these three classes of trade were 10, 12, and 8 respectively. Shelf space devoted to toothbrushes had also increased. Kmart for example, had increased per-store shelf space for toothbrushes from 2 to 7.5 feet in two years. Retail sales remained fragmented, with 60% of sales derived from 40% of the SKUs.
In 1992, 22% of all toothbrushes were expected to be distributed to consumers by dentists. With a dedicated sales force, Oral-B dominated this market segment. Manufacturer margins on toothbrush sales through dentists were less than half those achieved through normal retail distribution. Exhibit 14 summarizes competitors' shares in this segment of the market.
The Precision Marketing Mix
Product Design and Testing
The Precision toothbrush was a technical innovation. In laboratory experiments, researchers used infrared motion analysis to track consumers' brushing movements and consequent levels of plaque removal. With this knowledge and through computer aided design, CP developed a unique brush with bristles of three different lengths and orientations (see Exhibit 15). The longer outer bristles cleaned around the gum line, the long inner bristles cleaned between teeth, and the shorter bristles cleaned the teeth surface. The result was a triple-action brushing effect. In initial clinical tests, the brush achieved an average 35% increase in plaque removal, compared with other leading toothbrushes, specifically Reach and Oral-B. At the gum line and between the teeth, the brush was even more effective, achieving double the plaque removal scores of competitor brushes.
In 1989, CP had established a task force comprising executives from R&D and Marketing, dental professionals, and outside consultants. Its mission was to "develop a superior, technical, plaque- removing device." The entire research and development process was managed from start to finish by Steinberg. The task force had five goals:
• Understanding the varying techniques consumers used when brushing their teeth. Researchers later concluded that brushing usually did a good job of removing plaque from teeth surfaces but was often ineffective at removing plaque from the gum line and between the teeth.
• Testing the between-teeth access of different toothbrush designs. The tests revealed that CP's new design was superior to both Oral-B and Reach in accessing front and back teeth, using either horizontal or vertical brushing.
• Establishing an index to score clinical plaque-removal efficacy at the gum line and between teeth. In tests, a disclosing solution was used to reveal the otherwise colorless plaque, and each tooth was divided into nine specific areas. Presence of plaque was measured on each tooth area; the percentages of tooth areas affected by plaque pre- and post-usage of different brushes were then calculated.
• Creating a bristle configuration and handle design offering maximum plaque- removing efficacy. Three similar designs evolved from the above research, all incorporating bristles of different lengths that would allow freer movement of each individual tuft of bristles and thereby enable different bristle tufts to target different areas of the mouth. Clinical trials 
established that the new product removed an average 35% more plaque than other leading brushes and therefore helped to reduce the probability of gum disease.
• Determining, through clinical and consumer research, the efficacy and acceptance of the new toothbrush design. Extensive consumer research was carried out over a period of 18 months to test product design and characteristics, marketing concept, and competitive strengths. In addition, dental professional focus groups and product usage tests were conducted to determine the overall acceptance of Precision.
In July 1992, CP senior management decided to launch Precision early in 1993. It was decided that Precision would be priced within the super-premium segment and distributed through the same channels as Colgate Plus. However, the decision on how to position the product and the corresponding branding and communications strategies remained to be finalized.
Positioning
Precision was developed with the objective of creating the best brush possible and as such, becoming a top-of-the range, super-premium product. It could be positioned as a niche product to be targeted at consumers concerned about gum disease. As such, it could command a 15% price premium over Oral-B and would be expected to capture 3% of the U.S. toothbrush market by the end of the first year following its launch. Alternatively, Precision could be positioned as a mainstream brush, with the broader appeal of being the most effective brush available on the market. It was estimated that, as a mainstream product, Precision could capture 10% of the market by the end of the first year. Steinberg developed a marketing mix and financial projections for both scenarios, and this information is summarized in Table C. Her assumptions and calculations for the niche and mainstream positioning scenarios were as follows:
Volumes Steinberg believed that with a niche positioning, Precision retail sales would represent 3% volume share of the toothbrush market in year 1 and 5% in year 2. With a mainstream positioning, these volume shares would be 10% in year 1 and 14.7% in year 2. Total category unit volumes were estimated at 268 million in 1993 and 300 million in 1994. Table C outlines how these unit volumes would reach the consumer:


Capacity and Investment Costs Three types of equipment were required to manufacture the Precision brush: tufters; handle molds; and packaging machinery. Table D gives the cost, depreciation period, and annual capacity for each class of equipment. 


Production Costs and Pricing Production was subcontracted to Anchor Brush who also manufactured CP's Plus line of toothbrushes. Production costs included warehousing and transport costs. Under a niche positioning strategy, Steinberg decided that CP would establish a factory list price to the trade of $2.13, a premium over Oral-B regular and at parity with Oral-B Indicator. The mainstream strategy price would be $1.85, at parity with Oral-B regular. In practice however, almost all sales to the trade were made at a discount of approximately 5%. Eighty percent of sales through dental professionals would be priced at $0.79 per unit; the remainder would be sold at $0.95.
Positioning Precision as a mainstream toothbrush raised concerns about the possible cannibalization of Colgate Plus and about pressure on production schedules that had been developed for a niche positioning. Production capacity increases required 10 months' lead time, and switching to a mainstream positioning could result in inadequate supply of product. Some executives argued that unsatisfied demand could create the perception of a "hot" product but others felt that the problems associated with allocating limited supplies among trade customers should be avoided if possible. They argued for an initial niche positioning, which could later be broadened to a mainstream positioning as additional capacity came on line.
The positioning decision had important implications for the appropriate shelf location of Precision. Steinberg believed that the best location for Precision on the retail shelves would be between the Colgate Plus and Oral-B product lines, with the Colgate Classic product line on the other side of Colgate Plus. She wondered however, if mainstream Precision could be located separately from the other Colgate lines, close to competitive super-premium toothbrushes such as Aquafresh Flex and Crest Complete. If Precision was positioned as a niche product, with 4 SKUs, it was unlikely that any existing SKUs would be dropped. However, positioning Precision as a mainstream product, with 7 SKUs, would probably require dropping one or more existing SKUs such as a slow-moving children's brush from the Plus line.
Steinberg also believed that the positioning decision would impact distribution and percentage of sales by class of trade. Specifically, she reasoned that Precision, positioned as a niche product, would be carried primarily by food and drug stores. Under a mainstream launch scenario, a relatively greater proportion of sales would occur through mass merchandisers and club stores. Steinberg consolidated her best estimate of the cost and price data (see Table E ). When combined with the unit volume estimates in Table C, she hoped to develop a pro-forma income statement to compare the profit implications of the niche versus mainstream positioning strategies. She remained uncertain, however, about cannibalization; anywhere from 35% to 60% of the volumes indicated in Table C could come from Colgate Classic and Colgate Plus. 

Branding
At the time consumer concept tests were carried out by the task force, name tests were also conducted among those consumers positively disposed towards the concept. Alternative names tested included Colgate Precision, Colgate System III, Colgate Advantage, Colgate 1.2.3, Colgate Contour, Colgate Sensation, and Colgate Probe. The Colgate Precision name was consistently viewed more favorably—it was deemed appropriate by 49% of concept acceptors and appealing by 31%.
CP executives had not yet decided the relative prominence of the Precision and Colgate names on the package and in advertising. They debated whether the brush should be known as "Colgate Precision" or as "Precision by Colgate." Executives who believed that the product represented "big news" in the category argued that the product could stand alone and that the Precision brand name should be emphasized. Stressing Precision as opposed to Colgate would, it was argued, limit the extent of cannibalization of Colgate Plus. It was estimated, both under the mainstream and niche positioning scenarios, that cannibalization figures for Colgate Plus would increase by 20% if the Colgate brand name was stressed but remain unchanged if the Precision brand name was stressed. On the other hand, CP's stated corporate strategy was to build on the Colgate brand equity.
Communication and Promotion
Once the basic product design was established, four concept tests, conducted among 400 adult professional brush users (Colgate Plus, Reach, and Oral-B users) 18 to 54 years of age, were run during 1990-1991. Consumers were exposed to various product claims in prototype print advertisements and then asked about the likelihood that they would purchase the product (see Exhibit 16 for copies of the advertisements). The results of these tests are summarized in Exhibit 17 and indicate that a claim that the toothbrush would prevent gum disease motivated the greatest purchase intent among test consumers. Additional consumer research, including in-home usage tests, revealed that 55% of test consumers found Precision to be very different from their current toothbrushes, and 77% claimed that Precision was much more effective than their current toothbrush.
Precision's unique design could remove more plaque from teeth than the other leading toothbrushes on the market. However, the brush looked unusual and test participants sometimes had mixed first impressions. A further problem was that the benefit of reduced gum disease from extra plaque removal was difficult to translate into a message with broad consumer appeal, since few consumers acknowledged that they might have gum disease. Steinberg believed that Precision was the best brush for people who cared about what they put in their mouths but was still searching for the right superiority claim.
Consumer research revealed that the more test consumers were told about Precision and how it worked, the greater their enthusiasm for the product. Precision created such a unique feel in the mouth when used that consumers often said, "You can really feel it working." Once tried, consumer intent to purchase rose dramatically, and Steinberg therefore concluded that sampling would be critical to Precision's success.
There was considerable debate over the CP toothbrush advertising and promotion budget, which amounted to $24.1 million in 1992, with $9.6 million in advertising and $14.4 million in consumer and trade promotion. Some executives thought the budget should remain level as a percentage of sales in 1993 and be allocated among Classic, Plus, and Precision. Others believed it should be increased substantially to support the Precision launch with no reduction in planned support for Classic and Plus. One proposal consistent with a niche positioning for Precision was to increase total CP category spending by $11.2 million and to allocate this to the Precision launch. However, Steinberg believed that this was not enough to permit Precision to reach its full sales potential. She argued for an 80% increase in CP category spending in 1993, with fully 75% of all advertising dollars assigned to Precision and 25% to Plus. However, the Colgate Plus product manager, John Phillips, argued that Plus was the bread-and-butter of CP's toothbrush line and claimed that his mainstream brand should receive more rather than less support if Precision was launched. He argued that continued support of Plus was essential to defend its market position against competition.
Consumer promotions were planned to induce trial. Steinberg was considering several consumer promotions to back the launch: a free 5 oz. tube of Colgate toothpaste (retail value of $1.89) with the purchase of a Precision brush in strong competitive markets; and a 50%-off offer on any size of Colgate toothpaste (up to a value of $1.00) in conjunction with a 50(? coupon on the Precision brush in strong Colgate markets. The cost of this promotion was estimated at $4 million and Steinberg believed it should be used as part of the launch program for a mainstream positioning strategy. The Colgate Plus product manager pressed for trade deals to load the trade in advance of the Precision launch. He believed that the trade would be unlikely to support two Colgate brushes at any one time. However, Steinberg believed that the launch of Precision would enable CP to increase its overall share of trade advertising features and special displays in the toothpaste category. 
Another important tactic was to use dentists to sample consumers since professional endorsements were believed important to establishing the credibility of a new toothbrush. Steinberg believed that, under the niche scenario, 3 million Precision brushes could be channeled through dental professionals in the first year after the launch, versus 8 million under the mainstream scenario.
Conclusion
Steinberg believed that Precision was more than a niche product or simple line extension and that the proven benefits to consumers represented a technological breakthrough. She wondered how Precision should be positioned, branded, and communicated to consumers, as well as what the advertising and promotion budget should be and how it should be broken down. Steinberg had to develop a marketing mix and profit-and-loss pro forma that would enable Precision to reach its full potential, yet also be acceptable to Burton and her colleagues, particularly the Colgate Plus product manager.

Sustainable Tea at Unilever

To survive and prosper over the long term, learn how to adapt your business model by making it servant to society and the environment. Not the other way around.

Sustainable Tea at Unilever

In 2010, Unilever announced its commitment to a new "Sustainable Living Plan," a document that set wide-ranging, companywide goals for improving the health and well-being of consumers, reducing environmental impact, and, perhaps most ambitiously, sourcing 100% of agricultural raw materials sustainably by 2020. Such a goal implied a massive transformation of a supply chain that sourced close to 8 million tons of commodities across 50 different crops. Unilever CEO Paul Polman believed that the company's ambitious goals could drive savings, product innovation, and differentiation across the company's portfolio of products. But more importantly, it would create a company better suited to survive in the future that Polman envisaged:

This is a world that is challenged. When you look at the interdependent challenges that we face on food security, poverty reduction, sustainability of resources, climate change, and social, economic, environmental development, these challenges have never been greater. And I believe that these pressures will only increase as 2 billion more people enter this world and many aspire to increase their living standards.¹

The changes happening at Lipton, Unilever's €3.5 billion tea brand, were an important cornerstone of Unilever's plan. For more than five years, Michiel Leijnse, the global brand director for Lipton Tea, and the Unilever procurement team had led the transformation of the Lipton brand and its supply chain toward a goal of 100% sustainable sourcing. Approximately 25% of all Unilever tea now came from Rainforest Alliance-certified farms, and real gains had been made in the social, environmental, and economic sustainability of tea production. The scale of Unilever's mainstream partnership approach was unprecedented in the beverages industry, where "ethical" brands had failed to grow beyond niche market positions. Unilever's goal was to have all of the tea in Lipton tea bags sourced from Rainforest Alliance-certified farms by 2015, and to have every kilogram of Unilever tea sustainably sourced by 2020. Leijnse was confident that the company could achieve these goals, but it faced two critical issues as it worked to make them a reality.

The first issue was how Unilever could transform a supply chain that was not only geographically very diverse hut also highly fragmented. Unilever bought tea from all producing regions, and in many markets, the majority of production was controlled by smallholders who sold their tea at open auctions. Unilever and the Rainforest Alliance had successfully certified Unilever's own tea estates and those of many large plantations, hut the firm now faced the increasingly difficult task of convincing smallholders in worldwide markets of the benefits of changing agricultural practices and pursuing Rainforest Alliance certification. India, for example, was a major tea producer and consumer, hut the small scale of many of the farms and the nature of local farming practices made certification a significant challenge. What should Unilever do in such markets? Should Unilever insist on Rainforest Alliance certification or instead work to implement, incremental change through standards better suited for Indian practices? How could it persuade hundreds of thousands of smallholders to adopt new farming methods in markets where most tea production and consumption was local and Unilever was not the dominant buyer?

The second issue was whether and how Unilever could gain market advantage from its move to sustainable tea. While the adoption of Rainforest Alliance certification appeared to have led to market share growth in some Western markets, it was not clear either that this would continue or that the concept of a sustainability message would resonate with consumers in developing markets like Turkey, India, or Russia. How should Unilever market its sustainability efforts in emerging markets?

Beyond these two key issues, several other smaller hut also potentially important, questions consumed Unilever's attention. The Unilever Sustainable Living Plan committed the company to sourcing 100% of all agricultural raw materials sustainably by 2020. Did this mean moving to sustainable paper in tea bags and packaging or to sustainable ingredients sourced in very small amounts—such as chamomile—where there was currently no sustainable supply? If so, what was the best way to approach such moves? And more broadly, were there lessons in Lipton's experience for the rest of Unilever's agricultural supply chain and for the power of sustainability as a source of consumer differentiation?

Unilever and Lipton Tea

Unilever

In 2011, Unilever was one of the world's leading consumer goods companies, selling everything from food products to personal-care and home-care goods. It was a company with a global reach, with sales coming from more than 180 countries, over half of which were in the developing world. Worldwide, over 2 billion consumers used Unilever products each day, and 2010 revenue was over €44 billion ($59 billion¹¹).² (See Exhibit 1 for income statements from 2006 to 2010.) Just over half of these sales came from foods and beverages, with 31% of sales in personal care and 17% in home care. (See Exhibit 2 for a breakdown by segment.) The company employed 167,000 people globally. Much of the company's success was due to its portfolio of strong brands. The company had 12 brands with individual sales over €1 billion per annum, including such widely recognized products as Lipton, Dove, and Axe.

The company faced competition from a number of other large consumer goods companies, including Procter & Gamble, Nestle, and Colgate-Palmolive. (See Exhibits 3 through 5 for further comparative financial figures.)

Unilever Ten

Lipton Tea was the largest tea brand in the world, with annual sales of approximately €3.5 billion.^b Unilever's tea portfolio contained a number of other strong regional brands, such as PG tips in the United Kingdom (U.K.), Lyons in Ireland, and various other brands in countries worldwide, including India, Pakistan, Russia, and Poland. Lipton's global market share was nearly three Limes that of its nearest rival, Tata Beverages, the owners of Tetley Tea.

Lipton teas were sold in over 130 countries and were particularly popular in Europe, North America, the Middle East, and parts of Asia. Growth in the developed world was around 1% to 2% a year, hut the markets of the developing world—specifically, India and China—were seen as particularly promising, with anticipated annual growth rates of close to 10%.

In 2010, Unilever sold nearly 350,000 tons of tea. Approximately 90% came from external suppliers, with the remainder coming from Unilever's own estates in East Africa, including its flagship estate in Kericho, Kenya. Every market had a distinct taste in tea, making it to some extent reliant on supply from particular countries. For example, the North American market sourced much of its tea from Argentina, since its tea was particularly well suited for iced tea, which was popular in the U.S.

The Global Tea Market

Tea was the world's most popular beverage after water. In 2009, approximately 4 million tons of tea was produced in 46 countries, with China, India, Kenya, and Sri Lanka accounting for 70% of global production.³ Kenya, where much of Lipton's tea was produced, accounted for approximately 8% of global production,⁴ hut was the world's largest exporter of tea (see Exhibit 14 for a breakdown of global tea production).⁵

Tea was consumed for a variety of reasons and in a wide variety of blends. Russia, the U.S., and the U.K. were the biggest net importers of tea, accounting for nearly 30% of global imports.¹¹ Japan, with its strong preference for green tea, consumed approximately a fifth of all the global green tea supply. In many countries, tea was an ingrained part of daily life for cultural and historical reasons. In other parts of the world, tea was becoming increasingly popular due to its perceived health benefits.⁷

Historically, global tea markets had suffered from oversupply. The resulting price pressure was exacerbated by tea's high degree of commoditization, low switching costs for consumers, and tea's perishability, which meant prices were often cut drastically to clear stocks.⁸ Despite moderate gains in the price of tea since 2000, the price of tea in real terms in 2010 was still 35% lower than its peak in the mid-1980s.⁹ (See Exhibit 6 for global average tea prices, 1960-2010.)

Ten Production and Its Consequences

Tea production was a very labor-intensive activity. With a few regional exceptions, tea production occurred year-round, as farmers carefully hand-picked the top two to three leaves of the plants every 7 to 21 days, depending on the altitude and climate.¹⁰ Tea plants^c could grow to a height of 30 feet or more, but were usually cropped at about 2 to 3 feet and then pruned regularly in order to make them easier to pick.¹¹

The leaves were plucked by hand and then processed immediately, either on-site at the plantation or at a bought-leaf factory.¹² During processing, tea leaves were withered, macerated, oxidized, dried, and sorted on-site. The processed tea was then transported to a broker or auction, after which it was blended, sometimes flavored, and packaged. Finally, it entered the relevant retail sales channel before ending up with the consumer.

Inappropriately managed, tea production could raise a number of social and environmental concerns. The industry contained a mix of large-scale estates and smallholders, each with their own challenges. Over the years, there had been reports of bad working conditions on poorly managed plantations that damaged worker health through exposure to harmful pesticides and agrochemicals. In certain cases, the workforce included migrant laborers with no protection in case of illness, pregnancy, or other factors.¹³ Workers generally received low wages and were not always given medical care, housing, education, or pensions. Further, in some cases, independent trade unions, when they existed, had been accused of corruption or ineffectiveness.¹⁴

For some smallholders who grew tea as a cash crop, tea production implied the conversion of tropical forests into agricultural land, which could lead to reductions in the diversity of local species and to soil degradation.¹⁵ However, for most farmers, unsustainable practices were a result of focus on increasing yields and not acreage. Logging for the firewood needed to dry tea could lead to local deforestation, which could in turn lead to problems in water retention. Some farms used excessive amounts of fertilizers and pesticides, which could negatively affect soil quality and pollute local soils and waterways. Years of commoditization had contributed to a downward price spiral that put pressure on workers and the environment as farmers tried to safeguard their income.

Unilever's Commitment to Sustainable Tea

Unilever first established a set of good agriculture practice guidelines in 1998. The guidelines outlined sustainable farming practices for the suppliers of its major crops, including tea, palm oil, and tomatoes, and included 10 key indicators of environmental, social, and economic performance, each with its own sub-parameters (see Exhibit 7b for more details). Unilever did not impose the guide on external suppliers, but shared it with them and with the broader public. This was the first move of this kind in the industry.

In 2006, Leijnse began the process of transforming this internal commitment into a major consumer-facing initiative. He believed that many Western consumers had become sufficiently concerned about sustainability that it might help drive product differentiation. More importantly, he saw this as an opportunity to transform the entire tea industry, benefiting not only tea workers and

^c There are two main varieties of the tea plant: China and Assam. The Assam variety, which is used in India and Kenya, is the most common. All varieties can be and are used to produce green and black tea. There are many kinds of hybrids between the varieties, and other factors like soil, climate, altitude, picking time, and processing all affect the flavor.

the environment, but also purchasers of tea who were reliant on a healthy supply chain. Aware that such a transformation was not costless, Leijnse explained the initiative's rationale:

If we didn't do something to transform the industry, at some point we just wouldn't be able to get the quality and quantity of tea we need. While we might see market share gains in some markets, it won't always be the case. It is a challenge to properly align the short-term and long-term interests of the brand.

Tea Certification and the Rainforest Alliance

Leijnse and his team decided to pursue certification for the brand and chose the Rainforest Alliance, a founding member and secretariat of the Sustainable Agriculture Network (SAN), as its certification partner. There was significant overlap in Unilever's and the Rainforest Alliance's approaches to sustainable agriculture practices; both focused on environmental, economic, and social factors. Further, the Rainforest Alliance focused on market-based premiums rather than fixed price supports (characteristic, for example, of FairTrade products) as the best way to create change. The Rainforest Alliance had some consumer recognition from previously successful campaigns certifying a range of other commodities, including bananas, coffee, and cocoa, hut had no prior experience with tea certification or on the African continent, where Unilever had decades of experience in its tea estates.

Unilever set ambitious targets for the implementation of Rainforest Alliance certification. By 2011, it had successfully achieved its initial target of having all Lipton Yellow Label and PG tips tea bags in Western Europe certified by 2010. Lipton had committed to sourcing all the tea in Lipton tea bags from Rainforest Alliance-certified estates by 2015, approximately a third of all Unilever tea volume. And if Lipton were to meet the commitments of the Sustainable Living Plan by 2020, 100% of Unilever's tea would need to be sustainably sourced, although the plan did not commit Unilever to using tea from Rainforest Alhance-certified farms.

The certification process The Rainforest Alhance evaluated farms based on 10 principles covering issues such as worker welfare, farm management, and environmental protection, each with its own criteria.¹⁶ The Rainforest Alhance certified entire farms, so that in order for any of a farm's crops to he certified, the entire production area for ah crops had to meet the standards. In order to obtain and maintain certification, a farm had to he in compliance with at least 50% of the applicable criteria associated with each principle and with at least 80% of the total set of applicable criteria. Further, there were 15 critical criteria that were mandatory for certification, regardless of overah comphance (see Exhibit 7a for information on certification standards).¹⁷

While independent farmers bore the costs of complying with the Rainforest Alhance standards (for each estate or group being certified, there was a certification cost of approximately €3,000 to €4,500, or $4,000 to $10,000, depending on farm size¹⁸), Unilever also incurred costs in choosing to buy certified tea. First, Unilever paid a premium for the tea. In 2011, this was approximately €0.08 per kilogram of tea. In 2010, the average market price per kilogram of tea was €1.69 ($2.28).¹⁹ In the market for certified coffee, there had been price premiums of 15%. From 2011, Unilever had to pay the Rainforest Alliance a participation fee of €0.0089 ($0.0125) per kilogram of tea in order to carry the organization's frog logo on its packaging. Unilever's procurement organization devoted six full-time employees to work on the rohout of global certification education and spent approximately €200,000 per year on the development and deployment of farmer training, in conjunction with the Rainforest Alhance.

Scaling Certification in the Supply Chain

Unilever had to certify almost a quarter of its tea volumes to meet its 2010 goals. Given the lack of any preexisting certified sources, Unilever and the Rainforest Alliance faced a significant challenge in developing large volumes of certified tea in a relatively short lime. To address this, Unilever initially focused on certifying its own production in Kenya and Tanzania, as well as some of its larger and better-managed tea suppliers.

Achieving the firm's 2015 and 2020 goals would require working further down the supply chain with smaller, less organized suppliers operating in widely varying countries, each of which had different agricultural practices, government support, and institutional capacity. Unilever had been successful in building a certified supply chain in East Africa. Could it replicate this across the entire supply chain?

The Certification of Unilever's Estates in East Africa

The Unilever estates in Kenya and Tanzania were the first sites to he certified. Unilever had actively worked to maximize¹ long-term yields and to control costs ever since planting commenced on the 13,000-hectare estate²⁰ in Kericho, Kenya, in 1928. For example, the estate left tea hush prunings on the field to rot, rather than removing them as waste or for use as firewood or cattle food; this practice maximized soil fertility and water retention. The estate also carefully managed its fertilizer use. Fertilizer was not only expensive hut also a potential threat to soil quality if mismanaged. On­site hydropower provided reliable electricity at one-third the cost of power bought from the Kenyan grid, and the tea was dried using wood sourced from fast-growing eucalyptus forests planted on the edge of the estate. In contrast to estates in Asia, Kericho was able to minimize¹ use of agrochemicals and other pesticides because of the favorable climate and appropriate management of the surrounding land, which was home to natural predators of many pests.

The Kericho estate also invested in the health and well-being of its 16,000 employees and their dependents. The employees, who were paid a fixed sum per kilo of tea plucked, typically earned two- and-a-half limes more than the local agricultural minimum wage. In addition, Unilever provided them free access to company housing and health care, including the company's hospital and pharmacies, and the employees' children were educated in company-owned schools.²¹ The company had recently invested €1.2 million to update many of these facilities.

The Kericho estate achieved some of the highest yields in the world, with annual yields of 3.5 to 4 tons per hectare, compared to an average of 2 to 3 tons per hectare in India. At the Unilever estate in Tanzania, which followed similar practices, the yields were 3 tons per hectare compared to less than 2 tons per hectare in the rest of the country. "The sustainability work we did at Kericho made good agricultural sense, and in the long run it also made good financial sense," explained Richard Fairburn, former managing director of Unilever Tea East Africa. "We understand that this is simply the way the industry needs to operate in order to survive and thrive."

To further increase the supply of certified tea, Unilever identified a priority list of its larger supphers in Africa, Argentina, and Indonesia. Many of these estates were already professionally managed and were certified following adjustments to existing practices using available tools.²²

Working Down the Supply Chain

Initial success with smallholder farmers in East Africa Certifying the 500,000 Kenyan smallholders from which Unilever purchased tea was a critical component of the Rainforest Alliance rollout because East Africa alone accounted for nearly one-third of Unilever's total tea requirement. Fortunately, Unilever was able to work with the Kenyan Tea Development Agency (KTDA) and with the IDH, the Dutch Sustainable Trade Initiative, to design a program that "trained the trainers" and led to the rapid diffusion of sustainable farming practices across the country.

The KTDA was a highly respected farmer's cooperative covering 62% of all Kenyan production through 59 factories. Its goal was to help local farmers receive better prices as well as to provide training and other extension services. In 2011, Unilever bought approximately 40% of KTDA's production.²³ Unilever worked with the KTDA and the Rainforest Alliance to educate the locally elected lead farmers who did the bulk of the smallholder training. Each factory elected 30 to 40 lead farmers, each of whom received approximately three days of training. International donors like IDH covered most of the training costs, hut the KTDA was ultimately expected to take over this responsibihty, estimated to be about €1 to €2 ($1 to $3) per tea farmer.²⁴

Each lead farmer was to train approximately 300 other farmers through group and individual training, focusing on hands-on demonstration of sustainable agricultural practices. The meetings could also be a way to increase awareness of the potential price premiums paid for Rainforest Alliance-certified tea. The certification criteria were broken down into easy-to-communicate, actionable activities, and the Rainforest Alliance helped develop simple posters and checklists that the lead farmers could distribute (see Exhibit 9 for an example). The process was designed to be very participatory. The KTDA's extension officers, who also received training, provided further technical support.²⁵

The certification process was organized at the factory level. For the external audit, the Rainforest Alliance or an authorized third party checked compliance with a sample of farmers at random. Before this, each farmer was also internally audited by a lead farmer, hut never the same lead farmer who had trained him. Lead farmers received modest financial support in the first year to cover the costs associated with their efforts.

Most of the changes expected of farmers did not require huge changes in practice or much investment. For example, getting farmers to leave their prunings in the field (to improve¹ soil quality), rather than removing it for use as firewood, required persuading them to plant trees for fuel. Tree seeds were very cheap, and Unilever subsidized the cost. It also encouraged farmers to make compost from organic waste, rather than burning it, and make better use of waste and washing water.

Some changes were expensive. For example, the Rainforest Alliance standards required the use of personal protective equipment for the spraying of (approved) pesticides. This could cost up to $30, half a month's salary for a smallholder.²⁶ However, the KTDA set up its own micro-credit scheme to assist farmers with these kinds of purchases, and in some places, the local smallholders had pooled money to buy a single set of equipment that they shared.²⁷ A Unilever pilot study in 2004 showed that total net investments were less than 1 % of total cash farm income for the first year.

Many of the farms saw yield gains of 5% to 15% from the implementation of more sustainable practices, improvements in the quality of the tea, and reductions in operating costs, as well as higher prices for their tea. Average income increased by an estimated 10% to 15%. Unilever also felt that sustainable practices would help farmers better adapt to the climatic changes, like abnormal rainfall

patterns, that many locals were already experiencing.²⁸ But, according to Fairbum, the most salient benefit to farmers was their personal empowerment: "The Kenyan smallholders are ultimately interested in creating a farm in good health that can be passed on to future generations. That was the 'sustainability' that resonated with them."

By 2011, the Rainforest Alliance had successfully certified over one-third of the smallholder farmers in Kenya, and Unilever was confident that eventually all Kenyan smallholders would gain certification. One encouraging sign was that some of the first groups to become certified had since independently renewed their certification.²⁹ Whether this model could be rolled out to other tea­growing regions like Turkey and India was, of course, still in question.

Marketing the Sustainable Message to Consumers

While Unilever's procurement organization took the lead on sustainable sourcing, Leijnse's major task was to explore whether and how the company's commitment could be translated into increased sales or market share. This effort was complicated by the fact that Unilever had a portfolio of tea brands, each with its own distinct brand proposition. Leijnse had responsibility for Lipton, the largest of the brands, hut he needed to work closely with his fellow brand managers across the category to frame appropriate messages and to communicate them well. His research suggested that an increasing number of consumers were interested in a brand's ethical position and that credible action could change consumer preferences, hut no one believed that any of Unilever's tea brands should become "green" brands. "Certification was never approached as green marketing, hut rather as a new marketing message for consumers," explained one manager involved with the U.K. campaign. "Consumers aren't choosing our product because it's green, hut because this new message was aligned with their expectations for our brand."

Retailers were very supportive of the certified tea—some even demanded it—since the product was well ahgned with the retailers' own sustainability initiatives for their businesses and supply chains. Despite this, none of the brand managers wanted to charge a premium for sustainable tea. Instead they hoped to use certification to boost brand equity and, possibly, market share.

The Early Successes of the Rainforest Alliance Initiative

Unilever launched the Rainforest Alliance certification with full-scale marketing campaigns for all of its biggest Western European and Australian tea brands, including Lipton Yellow Label, PG tips, and Lyons. In some markets, the campaigns had significant success. In others, however, the impact was much more limited.

The PG tips success The U.K. market was a large and important one for Unilever, representing just under 10% of the firm's tea production. The almost €990 million^d (£850 million) market was dominated by two major brands, PG tips and its rival, Tetley Tea, each of which had roughly a quarter of the market.³⁰ PG tips was a classic, black tea blend, with few line extensions.

Unilever saw the U.K. as a progressive country in terms of environmental policies. However, while Unilever's research suggested that the mass-market consumers were aware and concerned about "sustainability issues," broadly defined, they were not interested in paying more for green products. The PG tips brand was a mass-market, working-class brand that held a place in the everyday lives of its consumers, who were, in general, middle aged and middle income. The brand

^d Using exchange rate of €1 = £0.86 as of December 2, 2011.

proposition was one of sociability, family, and lightheartedness. This was captured in its ad campaigns, which were infused with offbeat British humor.

In 2008, PG tips was the only brand on the market proposing any sustainability differentiation. The marketing team treated the initiative as a major brand innovation and devoted its entire €12 million (£10 million) marketing spend in the launch year 2008 to promoting the efforts. Previous U.K. experience indicated that it took 12 to 18 months to address mental barriers and get the full message to consumers. The challenge for the PG tips team was to find a message that would resonate with its core consumers while maintaining consistency with the brand's core proposition. "It was a huge challenge," explained Neil Gledhih of the PG tips campaign. "We had to talk to mainstream consumers in a way that explained a complex topic without preaching, ah in a language aligned with the brand."

The chosen message, "do your bit: put the kettle on," emphasized the positive action that consumers could take by drinking PG tips. The campaign tried to keep the lighthearted spirit of the brand's previous campaigns and used its well-established characters: a talking monkey called Monkey and a working class man named Al. In one of the ads, for example, Monkey, presenting a shde show in the kitchen, explained to Al what certification meant, and how easy it was for him to do the right thing (see Exhibit 11 for sample ads). The campaign used TV and print, as weh as a short movie that was shown as a preview in cinemas and was ultimately included as a DVD in special promotion packages along with a tea towel. Packaging was also changed to include the certification seal and a description of the alliance.

Prior to the campaign, PG tips and Tetley Tea were bathing hard for the top spot in the British market. However, following the campaign, PG bps developed a significant lead in market share, which increased by 1.8 points, while Tetley remained relatively hat; the purchase repeat rate increased from 44% to 49%. Sales of PG tips increased by 6%. Surveys suggested that following the launch of the campaign, there had been a steady increase in the perception of PG tips as an ethical brand.

"Project Sunshine": the Australian success Like the U.K.'s tea market, Australia's market was relatively straightforward, with only a handful of available products and most of its sales in black tea. Before the launch of the campaign in 2009, the Lipton brand held nearly a quarter of the €260 milhon^e (345 million Australian dohars [A$]) market. Unilever's other brand, Busheh's, had an approximately 13% share of the market. The local team chose the phrase "Make a Better Choice with Lipton, the world's first Rainforest Alliance Certified tea," and because of the relatively small portfolio, implemented it across the majority of the products. The team felt that the phrase was aligned with the existing brand vision, which had been "Drink Better, Live Better," an attempt to increase the perceptions of quality and the health benefits of the Lipton brand. The €1.1 million (A$1.4 million) campaign covered television, print, and public relations. Unilever also supported the initiative with in-store promotions. It changed packaging to include the Rainforest Alliance seal on the front of the package, with further explanation of the initiative and its benefits on the back and sides. Customers were not charged a premium for certified tea, since surveys had found that higher prices were a perceived barrier to sustainable consumption. Relahve to the same test period the year before the campaign, sales were up 11%, and Lipton's market share rose by 158 basis points from 24.2% to 25.8%. Average purchase value per occasion rose from €3.11 to €3.23 (A$4.10 to A$4.25). The only area where the Lipton brand did not improve¹ was in perceptions of quality, which decreased shghtly during the campaign.

Full activation in Italy: The Italian tea market was estimated to be approximately €285 million in 2010. Unilever's share was approximately 12%.³¹ The Italian marketing team supported the certification with a €3 million mixed campaign of television, press, online, public relations, in-store promotions, and packaging updates. The team chose the message, "your small cup can make a big difference." Following the first year of the campaign in 2008, Lipton saw sales of its Yellow Label brand increase by 10.5% and market share increase by over two full percentage points. It also witnessed an increase in its buyer base, which came mostly from younger and more upmarket consumers. The team continued to support the campaign with in-store promotion in 2009 and a web and editorial partnership with Italy's National Geographic magazine in 2010, all of which cost €250,000.

The French market disappointment In 2010, Lipton had a 37% market share in the €430 million French tea market.³² Lipton's main competition came from retailers' private-label brands, which accounted for 30% to 40% of sales. In France, Unilever's portfolio was more diversified than in other countries: Lipton sold over 40 different tea products. Whereas in the U.K. and Australia, Unilever had been able to carry the certification message on the majority of its products, in France, it was initially only linked to the Lipton Yellow Label black tea product, representing only about a fifth of sales.

The first wave of the campaign in France retied heavily on a significant public relations effort to educate consumers and customers (i.e., the retailers) and inform them of Lipton's certification efforts. The team focused on engaging key opinion leaders and journalists with press releases, media and press conferences, and trips to the Kericho estate in Kenya. The press widely covered the brand's efforts, and the team members felt that they had made significant inroads in attracting attention. Print ads with the message "your tea can make a difference" were placed in travel and cooking magazines and were primarily focused toward current consumers, who tended to be female and over the age of 50.

The loam's research had suggested that French consumers were less likely to buy box of tea with a Rainforest Alliance seal on it. This reluctance appeared to reflect a dislike of changes in packaging rather than any lack of concern for environmental issues, hut as a result, the team chose a staggered approach to package change, whereby certification was initially announced only on the inside of packages before being added to the back. Only in 2010 did the seal start to appear on the front of the packages. This made it harder for consumers to link advertising support to the product they were seeing on shelves.

The campaign received TV support in 2009 and 2010, and held an online competition, in which the winners won a trip to Kenya, which was intended to engage consumers and bloggers. The limited television advertisements that ran in the fourth quarter of 2009 and the first quarter of 2010 contained scenes of sustainable farms in Africa, as well as information about the Rainforest Alliance (see Exhibit 11). In total, only 10% of the team's marketing spend went toward supporting the Rainforest Alliance message, with the remainder going toward more conventional promotion and support of other innovations. Lipton market share remained flat, and awareness of the brand did not increase. Further, the campaign was not successful in linking Lipton to the Rainforest Alliance, and Lipton was not seen as more ethical than other tea brands.

The U.S. experience The U.S. tea market was an almost €1.5 billion ($2 billion) market in 2010.³³ Unilever launched its U.S. campaign in the summer of 2009 with a particular focus on the brand's green tea line, where Lipton was second in the market. The mainstream black tea range was not linked to the Rainforest Alliance initiative. Company research had shown that 80% of U.S. consumers wanted to buy eco-ethical brands, although without sacrificing cost or quality. Only 5%

were willing to pay a premium. The message used was "Your Small Cup Can Make a Big Difference," although Unilever also had other messaging for its ready-to-drink beverage line running concurrently. To generate credibility, Unilever allowed National Geographic to create independent TV, print, and online content about the certification, which was published between June and September 2009. The campaign was also supported by a sponsored trip to the Kericho estate for three online bloggers and journalists, as well as advertising in online and social media. It changed the packaging to include the Rainforest Alliance seal on the front and information about certification on the side and flap of the package. A retail partnership with Walmart and Sam's Club provided information and positive images at the point of purchase, which helped reinforce perceptions of health and quality benefits (see Exhibit 13 for examples of in-store promotions). The marketing team's analysis indicated a strong ROI for the €740,000 ($1 million) campaign; however, given the size of the business, the investment was relatively small. Unilever did not see any significant effect on overall market share for Lipton or the Rainforest Alhance-certified green tea.

Challenges Going Forward

A few years after the launch of the certification scheme, many of Unilever's major competitors responded with their own certification programs. Tetley, Twinings, and Yorkshire Tea all made arrangements for some or all of their tea suppliers to obtain Rainforest Alliance certification, while Pickwick and Carmien Tea opted to use UTZ, a certification scheme originating in The Netherlands. Yorkshire Tea announced a goal of selling 100% Rainforest Alliance-certified tea by 2015.³⁴ Twinings had goals of 100% certification by 2015 for its Everyday brand tea.³⁵ Tata's Tetley Tea vowed to have 100% of its branded tea certified by 2016, a year after Lipton.³⁶ The surge in demand placed pressure on the Rainforest Alliance, which expected to be certifying close to 20% to 25% of the world's tea supply by 2015.³⁷

The Emerging Market Challenge

With competitors committing to third-party certification, sustainable tea at Unilever faced a number of challenges going forward. On the supply side, the company had to improve farming practices in some very difficult markets in order to meet the company's targets. On the marketing side, Leijnse and his colleagues had to decide how to proceed in emerging markets. Could consumers in countries like Turkey, Russia, or India be persuaded to value certified tea? If so, how? And how could Lipton maintain a point of difference in countries where competitor brands had followed suit?

Reaching 100% Sustainable Sourcing

In 2011, Unilever sourced approximately 25% of its global tea requirement from India; most of India's tea was consumed domestically. Some Indian tea growers had already achieved Rainforest Alhance certification, hut they were generahy exporters and Unilever purchased a significant share of their production. Converting smaller domestic producers to sustainable practices presented (at least) two tricky challenges. First, developing an organizational model that could handle training and rohout was likely to be difficult. A large proportion of India's tea was grown by smallholders who sold to local tea factories. However, in contrast to the situation in Kenya, there were no government- sponsored tea cooperatives, and farmers were free to seh to any factory. Some factories did provide extension services and training for their farms, hut the quality of these services varied dramatically.

Second, farming practices in India were in conflict with the Rainforest Alliance over two main issues, child labor and pesticide use. The standards did not permit certified farms to employ anyone under the age of 15, hut Indian law and the United Nation's International Labor Organization permitted the employment of 14-year-olds in developing countries. Moreover, in India, the pesticide Paraquat was widely used in tea production. It was quick and effective, hut it was also highly toxic when ingested or if absorbed by a person without protective equipment.³⁸ It was implicated in many suicides in the developing world due to its low cost, potency, and widespread availability. The European Union banned the use of Paraquat, hut the U.S. allowed its use, with restrictions.³⁹ Rainforest Alliance standards did not permit its use, and since the ban on Paraquat was one of its critical criteria, it could not make exceptions by country.⁴⁰

Unilever could potentially address these issues by introducing an alternative standard tailored to India's local practices. This standard could act as a stepping stone toward future certification. Unilever would almost certainly need partners to transform Indian tea growing. One option was to work with local NGOs, as it had in Kenya; another was to implement industrywide initiatives.

Marketing in India and Other Emerging Markets

Getting the messaging right in India would he another important challenge. Tea was the traditional hot beverage of India, and the market was estimated to be €1 billion^f (RS 64.6 billion), with Unilever the market leader with a share of around 30%. Demand for tea was robust, with the market growing an estimated 12% per annum by value and 3% per annum by volume from 2005 to 2010. The demand for tea had actually outstripped the growth in national tea production, resulting in tea price increases in 2010.⁴¹

Approximately two-thirds of the market, by volume, was sold as unbranded loose black tea (in bulk). Only one-third of the market was branded tea, which was almost exclusively loose black tea in packets. Tea bags represented less than 2% of the market, but were a growing segment. Green tea was another high-growth category, particularly in urban areas, because of its perceived health benefits.⁴² Almost three-quarters of all tea was still sold through independent small grocers, but supermarkets and hypermarkets had begun to slowly increase their share as rising incomes began to shift consumers' buying behavior. Branded coffee shop chains had also become popular, particularly with young Indian consumers, who increasingly viewed tea as an old-fashioned beverage.⁴³

Unilever's Indian subsidiary, Hindustan Unilever, sold mostly through two major brands, Brooke Bond and Lipton, which had market shares of 19% and 6%, respectively, in the branded tea market. Its main competitor was Tata Global Beverages, which had a market share of 26%, mostly under its Tata Tea brand, which had almost 20% of the market by retail value.⁴⁴ But Unilever also faced competition from regional tea companies, which took pride in tailoring their blends and preparation methods according to local preferences and which often competed aggressively on price.

Under the Sustainable Living Plan umbrella, Hindustan Unilever had begun to introduce products designed to improve¹ the quality of life of India's poorest consumers, including new, highly effective hand soaps and a range of water purifiers. (See Exhibit 12 for an illustration of the plan.) The company had also been marketing Surf Excel, a concentrated laundry detergent, which required two fewer buckets of water for washing than competing products.⁴⁵ The company believed that if the environmental issue was tangible and had an immediate local impact, people's awareness and

f Using exchange rate of €1 = RS 69.6 as of December 2, 2011.

appreciation of the issue was generally high. But it was less clear if Unilever could communicate the comparatively distant benefits of sustainable tea farming.

Leijnse wondered whether the company's recent experience in Turkey could provide any lessons. In Turkey, the tea-growing industry played a prominent role in national cultural identity, and the Turkish loam had chosen a message that suggested that certified tea offered national benefits, highlighting gains to domestic producers, as well as to the country's tea crops (see Exhibit 8 for sample packaging in Turkey). Should Leijnse attempt something similar in India?

He also had to consider how tea could be marketed in emerging markets where there was no tea­growing base. One such example was Russia, where Unilever had a 16% share of the almost €3 billion!’, (115 billion rubles [RUB]) market in 2010. Tea was a traditional Russian drink consumed by almost everyone.⁴⁶ A domestic tea manufacturer led the market, and while volume growth had been limited, sales in the market had been growing at close to 15% since 2005, as consumers switched to more expensive varieties of tea and as the major Russian brands continued to expand the range of their offerings.⁴⁷ Could Unilever's sustainable tea platform serve as the basis for product differentiation that would drive growth and market share in Russia? Or should Unilever forgo any promotion of sustainability and instead focus on other ways of competing in the Russian market?

Concluding Thoughts

With the launch of Rainforest Alliance certification in 2007, Unilever had started the transformation of the tea industry and improved the lives of hundreds of thousands of farmers. It had also demonstrated that in certain markets, certification could increase market share. However, with most major tea manufacturers implementing aggressive certification targets of their own, it appeared that sustainability might, at least in Western markets, become increasingly more a cost of doing business and less a source of competitive advantage. Unilever needed to decide not only how to ensure that 100% of its supply chain could he sustainably sourced, hut also how that message could be communicated in a diverse group of emerging markets.

Leijnse also needed to decide how far he could push sustainability in the brand. If Unilever were to reach its targets under the Sustainable Living Plan, it would eventually need to sustainably source all agricultural raw materials, including the paper and board used for the tea packaging and tea bags (see Exhibit 10 for its agricultural raw materials by volume). Could it communicate this to consumers in a useful way?

Looking across Unilever, Leijnse wondered if his experiences in tea had anything to contribute to marketing managers grappling with the potential benefits of 100% sustainable sourcing. From a marketing perspective, tea and the Lipton brand had been an obvious place to start addressing sustainability, given the tight link between the raw material and the end product. The same could not be said for many of the other raw materials that Unilever purchased. For example, Unilever was the world's largest buyer of sustainable palm oil, and it had committed to ensuring that all its purchases came from sustainable sources by 2015. Consumers did not ultimately buy sustainable palm oil, hut rather, products that contained it, such as soap and edible fats. Unilever was uncertain whether to make consumers aware of its efforts. Moreover, Leijnse had experienced increased attention and criticism from activists since launching the Rainforest Alliance partnership; would the Sustainable Living Plan potentially make Unilever a bigger target for scrutiny? Were there any lessons that could be learned from Lipton?

“Sustainable Tea at Unilever” 

1) Why did Unilever commit to sustainably source 100% of its tea? 

3) What should Unilever do with its tea business in India? Should it pursue Rainforest Alliance certification? Should it market sustainable tea to consumers?