REDEFINING THE TOOTHPASTE INDUSTRY

9B20B005

 

PRAXIS: REDEFINING THE TOOTHPASTE INDUSTRY Edward Gray wrote this case under the supervision of Ian Dunn solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to [email protected]. i1v2e5y5pubs Copyright © 2020, Ivey Business School Foundation Version: 2020-04-13

On May 4, 2019, Shangbing Jiang and Kamalpreet Minhas were contemplating the launch of their business venture—Praxis. Praxis was a toothpaste that aimed to improve the health and wellness of individuals by incorporating vitamins, minerals, and supplements (VMS) into the toothpaste. The duo wanted to assess the business environment, evaluate their product and marketing strategy, project the venture’s financial performance for the first three years of operations, and ultimately determine whether they should pursue the idea. THE VENTURE Jiang and Minhas had met during their second-year accounting and business analysis course at Western University (Western) in London, Ontario, Canada. In this course, students had to work collaboratively in groups to generate and evaluate the feasibility of a new business idea. During this process, Praxis was conceived. The creators intended for Praxis to retail two variations of toothpaste: Rise and Rest. Rise toothpaste was infused with vitamin B121 and caffeine to improve the mood and energy of its consumers; Rest toothpaste used melatonin and L-theanine2 to promote relaxation. Praxis’ mission was to facilitate a health-conscious lifestyle and empower individuals to improve their productivity and well-being. Jiang and Minhas were confident their idea was scalable beyond the classroom. They had recently won Western’s Propel Entrepreneurship Centre’s Seed Your Startup case competition, had been approached by multiple investors, and had been shortlisted to star on Dragon’s Den—the reality television show featuring entrepreneurs looking for investors. These early successes influenced both owners to consider pursuing the idea as a full-time occupation. However, both Jiang and Minhas did not want to disregard their studies and wondered whether they could manage Praxis in addition to their existing workload. If they pursued this venture, they expected to see a 30-per-cent return on their investment and wanted to withdraw a total of CA$20,0003 in dividends by the end of the third fiscal year. HEALTH AND WELLNESS Health and wellness was defined as the “active pursuit of activities, choices, and lifestyles that led to a state of holistic health.”4 This broad definition encompassed a wide range of products and services, all of which contributed to improving consumer well-being (see Exhibit 1). The recent availability of health-related information had shifted consumers’ health and wellness perspectives from a reactive to a preventative state. Canadians had become increasingly health-conscious and were actively integrating self-improvement

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Page 2 9B20B005 measures into their daily lives. According to a national survey, half of all Canadians considered health implications when making a purchasing decision, and 31 per cent were willing to pay a premium for health- enhancing products and services.5 Valued at $4.2 trillion, the global health and wellness sector had experienced a 6.4-per-cent annual growth rate since 2015, outpacing the global economic growth rate of 3.6 per cent.6 In addition, industry outlook was positive, with an expected average annual growth rate of 7 per cent throughout all sub-industries.7 Industry success was dependent on the latest macroeconomic indicators, such as gross domestic product (GDP) 8 growth, the unemployment rate, and consumer discretionary income. The health and wellness industry primarily catered to wealthy customers and was widely regarded as a status symbol.9 This in turn created a limited market, as many consumers could not afford these luxury products and services. Nevertheless, corporations established wellness programs and subsidized or covered employee health and wellness expenditures. These programs indicated an investment in human capital, increased employee morale, reduced absenteeism, attracted top talent, and improved workplace productivity.10 Corporate wellness investment was expected to grow by an annualized rate of 2.8 per cent, largely driven by 6.4-per-cent growth in corporate profit.11 THE TOOTHPASTE, AND VITAMIN, MINERAL, AND SUPPLEMENT INDUSTRIES Toothpaste The global toothpaste market had undergone a period of innovation and growth. In 2018, the industry was valued at approximately $26 billion and was projected to increase to $36 billion by 2024—a 6-per-cent annual growth rate.12 Various industry trends had been observed; these were responsible for the performance of the toothpaste market. These trends included, but were not limited to the following:13  Multipurpose products: These toothpastes focused on convenience and catered to more than one oral

or health-care issue.  Strong brand loyalty: One-third of toothpaste users purchased the same product they had used in the

past, regardless of price.  Cosmetic benefits: Teeth whitening toothpastes were outselling regular toothpastes.  Natural and organic products: As a segment, toothpaste had experienced the largest growth rate in the

“Natural and Organic Personal Care” market.  Tooth sensitivity: One in every two adults experienced tooth sensitivity, leading to an increase in

demand for toothpastes that addressed the issue. The Canadian toothpaste market was highly saturated, was dominated by industry conglomerates and private label brands alike, was valued at $883 million, and expected a 1.3-per-cent compounded annual growth rate (CAGR) over the next five years.14 In comparison, the Canadian GDP had slowed from 3 per cent in 2017 to 1.8 per cent in 2018.15 The average retail price for toothpaste in Canada had risen from $2.54 in 2015 to $2.94 in 2018.16 Vitamins, Minerals and Supplements (VMS) VMS consumption was often viewed as an efficient way of maintaining consumer health and wellness. According to Health Canada and Statistics Canada respectively, 75 per cent of Canadians had used a natural

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Page 3 9B20B005 health product, and 45 per cent of all Canadians had used a nutritional supplement within the last year alone.17 The use of these products and supplements was partially due to changing dietary behaviours. Approximately 70 per cent of the global population had reduced its meat consumption or was eliminating meat altogether and transitioning toward a more plant-based diet.18 However, many necessary vitamins, specifically vitamin B12, were obtained only through the consumption of meats and dairy, increasing the need for over-the-counter vitamin products.19 Finally, the industry had recently experienced dozens of product recalls, mislabelling claims, and public scandals. The effect that these incidences would have on future industry performance was unknown.20 THE COMPETITION Jiang and Minhas had segmented their competition into three categories: niche private label toothpastes, multinational consumer goods corporations, and over-the-counter VMS brands. The duo wanted to establish a list of key success factors to help differentiate Praxis from industry players. Power Toothpaste21 Power Toothpaste retailed a caffeinated toothpaste available individually or as a value pack of two tubes priced at $14.99 and $24.99, respectively. Power Toothpaste had initially generated impressive media attention through its Indiegogo crowdfunding22 campaign, achieving over 2,000 pre-order unit sales valued at approximately $40,000.23 Nevertheless, the business had since ceased almost all operational efforts, its business website had been discontinued, and the product was difficult to access. While Power Toothpaste was no longer a direct threat, Jiang and Minhas believed they could learn from that company’s historical performance. Twice24 Twice marketed itself as a naturally sourced health-and-wellness toothpaste. With a minimalistic and aesthetically pleasing design, Twice retailed two variations of toothpaste: Early Bird for the morning and Twilight for the evening. Both variations provided teeth whitening capabilities; sensitivity relief; vitamins A, C, and E (see Exhibit 2); and various botanical extracts such as lavender, aloe vera, wintergreen, and peppermint. Nevertheless, Twice toothpaste also included fluoride, a mineral that had been recently criticized by many dental associations. Fluoride encouraged strong bone formation and was well known for preventing dental cavities; however, some sources reported that regular ingestion of fluoride was dangerous, as accumulation within the body could have lasting chemical effects.25 Twice toothpaste was sold individually as well as in combination packs of two or four tubes and was priced at $9.00, $17.00, and $32.00, respectively. Hello Products26 Hello Products (Hello) was the leading natural oral-care brand, offering a diversified product portfolio beyond just toothpaste. Hello retailed over 16 variations of toothpaste, as well as mouthwashes, toothbrushes, dental floss, and various gift baskets. Hello was backed by dental professionals and advertised itself as an environmentally- and vegan-friendly organization. None of Hello’s product lines incorporated VMS ingredients; its most similar product was an a.m./p.m. fluoride-free bundle that retailed for $9.99.