Management Consulting Case Study-Toothbrush Wars

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Case scenario
A unit of a major consumer goods manufacturer that makes toothbrushes is the our client. One year ago, a brand-new rival launched a $5 battery-operated electric "spinbrush," which has since gained 1% of the global toothbrush market.

Key Problem
The Client is interested in learning if it should create a product that is equivalent to what is already unavailable. Typically, the client looks at the market in terms of margins and KPIs like "per customer per year."

Specific Information
Around the world, 20% of toothbrushes were rechargeable and 80% were manual one year ago. The 1% market share increase for the spinbrush primarily came at the expense of sales of rechargeable toothbrushes. According to client product development, a spinbrush "knockoff" may be made for $3 per brush.

The best strategy should start by figuring out how much money is made from each client every year.
Manual: [2 toothbrushes bought] multiplied by [$3 retail] and [66% profit margin] results in [$4 profit per client per year]
Rechargeable: ($12 profit per customer per year) = ([2 heads bought] x [$5 retail] x [90% profit margin]) + ([1/10 base] x [50 retail] x [60% profit margin]
Spinbrush: Assuming that the client's and its rival's manufacturing costs are equal:
[2 toothbrushes bought] x ($5 price - ($3 manufacturing cost)) = [$4 profit per customer year]

Although the profitability of the manual and spinbrush products are comparable, the manual toothbrush serves the mass market (80% market share at a $3 retail price point) and is therefore unlikely to be displaced by the spinbrush.

The spinbrush is obviously a danger to the rechargeable market, which is where the customer is most profitable. The client's successful business would probably end sooner if it responded with a "knockoff" spinbrush. As a result, the client should think of alternate ways to react to the "disruptive technology" of the spinbrush.

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By Vandana Gaur




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