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Concluding concepts 13
Colgate: one squeeze too many?
Colgate is the world’s number one toothpaste company but
they have their eye on another market – over the counter
(OTC) drugs. What would you think of Colgate aspirin
or Colgate antacid? Would you buy Colgate laxatives or
Colgate dandruff shampoo? That is exactly what ColgatePalmolive would like to know. Colgate wants to investigate the possibility of entering the over-the-counter (OTC)
drugs market. Can it use its Colgate brand name,
developed in the oral-care products market, in the OTC
Why does the OTC market interest Colgate? The ﬁrst
reason is market size. The worldwide OTC market annually
accounts for over a50 billion in sales. It is the largest nonfood consumer products industry, and it is growing at over 6 per cent annually.
Several trends are fuelling this rapid growth.
Consumers are more sophisticated than they were and
they increasingly seek self-medication rather than seeing
a doctor. Companies are also switching many previously
prescription-only drugs to OTC drugs. The companies can
do this when they can show, based on extensive clinical
tests, that the drug is safe for consumers to use without
monitoring by a doctor. Moreover, OTC drugs tend to have
very long product life-cycles. Medical researchers are also
discovering new drugs or new uses or beneﬁts of existing
drugs. For example, researchers have found that the
psyllium ﬁbre used in some OTC natural laxatives is
effective in controlling cholesterol.
Beyond the size and growth of the market, Colgate also
knows that the OTC market can be extremely proﬁtable.
Analysts estimate that the average cost of goods sold for
an OTC drug is only 29 per cent, leaving a gross margin
of 71 per cent. Advertising and sales promotions are
the largest expenditure categories for these products,
accounting for an average of 42 per cent of sales. OTC
drugs produce on...
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