(abridged for the web)
Schulich School of Business
An earlier and simpler version of this case appeared in Peter Tryfos, Sampling for Applied Research: Text and Cases, John Wiley & Sons, 1996. The author is grateful to Alan Middleton, without whose help the case would not have been written.
Mr. Brian Conti, the new chief executive officer of Medlabs Incorporated, had a feeling that the pharmaceutical company was at a crossroads with respect to one of its products---the Tenderdent toothpaste.
Medlabs was established fifty years ago to produce and market specialty pharmaceutical products to which it held the patent. The company prospered modestly over the years, first by exploiting the original patents, and then, when these expired, by introducing successful modifications, acquiring additional patents, and developing new products.
One product in the latter category is Tenderdent toothpaste, designed to relieve the pain or discomfort produced by sensitive teeth. Tenderdent performs the cleaning duties of a regular toothpaste but, in addition, contains an ingredient which dulls sensitive tooth nerves, thereby helping relieve the pain and discomfort some people experience with cold or hot drinks and food, or tooth brushing.
Tenderdent has never been marketed directly to the consumer, but to dentists, drugstores, and hospitals as part of a promotional package that covers all the products of the company.
The promotional strategy of the major competitor, Sensodyne, has been the opposite. Relying mainly on television advertising, Sensodyne has succeeded in capturing the lion's share of the market. It is estimated that Sensodyne accounts for over 80% of the sales of toothpaste for sensitive teeth; Tenderdent's market share is thought to be about 15%.
A standard-sized (75 mL) tube of regular toothpaste retails for about $1. The retail price of a tube of Sensodyne or Tenderdent toothpaste of the same size is about $5. Medlabs' wholesale price is $3.50; the cost of production and normal marketing is $1.75 per tube. One standard-sized tube lasts for about one month of normal usage. Tenderdent's current sales are fairly steady at about 150,000 tubes per month.
Mr. Conti believes that Tenderdent is by no means inferior to Sensodyne. Laboratory tests have shown Tenderdent to be slightly more effective than Sensodyne in cleaning performance and protection against tartar formation. In clinical tests, subjects found both brands equally effective in relieving pain, but reported a mild preference for the taste of Sensodyne.
Mr. Conti believes, therefore, that the company has a good product, the potential of which has not been fully exploited. The head of Medlabs' laboratory assures Mr. Conti that the problem of taste can be resolved, and is currently carrying out experiments with this objective in mind.
By far the most important reason for Mr. Conti's optimism has to do with the company's promotional policy---or the lack of it, as Mr. Conti perceives it.
“We have two problems,” says Mr. Conti. “First, the focus of our promotion has been the dentist and drugstore. But people are not buying toothpaste for sensitive teeth as a medicine and on the advice of their doctor, dentist, or friendly druggist. They buy it as an alternative to their regular toothpaste---off the open shelves. That is the first mistake. The second,” continues Mr. Conti, “is we have not promoted it enough. I am convinced that there are many people out there who are not aware they have sensitive teeth, don't know there is something they can do about it, and don't think `Tenderdent' when they look for a solution to their problem.”
“What we've got to do,” says Mr. Conti, “is two things. First we must find out the size of the potential market for our product. If this market is large enough, we go after it with an aggressive promotional campaign. The campaign should be aimed at people who are bothered by sensitive teeth. It should make them aware of their problem, and convince them to buy Tenderdent to solve this problem. The message should play up the good lab results, and Tenderdent's new improved taste (assuming the lab finally gets this little problem licked).”
Mr. Conti's enthusiasm is not shared widely among Medlabs' Board of Directors. They tend to see Tenderdent as a minor element of the company's product portfolio, and its sales potential as small. Recently, however, they were willing to approve a proposal by Mr. Conti to commission a market research survey to shed some light on the issue. The Board, however, advised Mr. Conti to “move forward with caution” and to keep the Board informed at all stages of this venture.
To comply with the Board's request, Mr. Conti intends to proceed in three stages, the last two being conditional upon successful results at the preceding stage.
In the first stage, a conumer survey will be conducted in a selected region of the country. The survey should provide some estimates of the sales potential for Tenderdent and the characteristics of the people likely to buy it.
If the survey results appear promising then, in the second stage, a number of regions in the country will be selected to serve as test markets for confirming the estimates of the first stage and determining the best promotional policy to be applied in the third and final stage.
If the results of the second stage are favorable, the third stage will involve a national advertising campaign to promote Tenderdent, utilizing whatever useful was learned from the test markets in the second stage. A detailed accounting of the venture will be submitted to the Board at the end of this stage. The timetable of the decisions that must be made at each stage is as follows:
You are invited to step into Mr. Conti's shoes as it were, and make these decisions. You will be evaluated in part exactly like Mr. Conti, that is, by the incremental profit or loss resulting from these decisions. You may, of course, decide to do nothing, in which case the incremental profit or loss is zero. The evaluation of the venture is outlined below. The actual numbers, of course, will depend on the decisions taken.
Outline of accounting for venture
| Total incremental sales of Tenderdent in all regions where promotional campaign was applied (February 1 to August 31): |
| Cost of incremental Tenderdent production |
| Cost of consumer survey |
| Cost of commissioned commercials |
| Cost of advertising, Stage 2 |
| Cost of advertising, Stage 3 |
| Total incremental cost (sum of B-F) |
| Incremental profit |
This is an opportunity to reflect on the case before having to make any commitments. You may be inclined to think you need more information before deciding whether to proceed or not. Rest assured that Mr. Conti must decide with essentially the same information you have. Consider also the manner in which you will be evaluated. Effectively, you will be judged at least in part by the “bottom line,” and this will depend not only on how good your decisions are, but also on events beyond your control. In other words, by how good and how lucky you are. That, in case you are not aware, is how “real life” works.
PMR, a highly respected market research firm, will carry out the consumer survey. The selected region is the Nortown Metropolitan Area, with a population of approximately 3.4 million. The Nortown Metropolitan Area is divided into 724 districts. Table 1 shows for the first few districts the number of households, the average household income, the percentage of households owning their home, the percentage of persons with some university education, and the percentage of persons who are employed. The complete data for all districts can be found in the file FCENSUS.DAT.
District information, Nortown Metropolitan Area
Number of households
Ave. household income ($000)
Percent univ. educated
. . .
. . .
. . .
. . .
. . .
. . .
There are altogether 1,119,490 households in the Nortown Metropolitan Area. The most recent census shows 1,859,473 adults residing in Nortown. Medlabs and PMR plan to select a number of households and interview all adults (persons 20 years old and older) in the selected households. PMR will not design the sample, but will implement it, interview the selected households and adults, and provide Medlabs the raw survey results in the form of a computer file. The cost of the survey will be $50 per selected household.
There is abundant documentation available to PMR concerning the Nortown Metropolitan Area, including lists of households in each district. For the purpose of this case it can be assumed that households in each district are numbered consecutively, and that they can be identified and located simply from their district and household identification numbers.
The selected adults will be interviewed along the lines of the questionnaire shown in Figure1.
TASKS TO CARRY OUT(1) Specify the type of sample to be used for the Nortown survey. The available choices are:
If the choice is (a), a simple random sample of households will be selected. If the choice is (b), a simple random sample of households will be selected from each group of households defined according to district number, income, percentage owning home, percentage with university education, or percentage employed. If the choice is (c), a simple random sample of districts followed by a simple random sample of households from each selected district will be drawn. In all cases, all adults in the selected households that agree to participate will be interviewed.
(a) simple random of households;
(b) stratified random sample of households;
(c) two-stage random sample of districts and households.
(2) Specify the total sample size of households and, if appropriate, its allocation to groups.
(3) Follow the separate instructions for the computer program TENDER1 to implement the survey.
(4) In a report addressed to the Board of Medlabs: (a) explain the rationale for your choice of sampling method and sample size; (b) describe clearly what was learned from the survey that could be of value to Medlabs.
(A.) Household information:
(B.) Personal information:
(1.) District number: ____
(2.) Household number:____
(3.) Number of adults in household:____
(4.) Number of children in household:____
(5.) Household income:____ ($000)
(10.) Are your teeth sensitive to hot or cold food or drink? Yes____ No____
(6.) Adult identification number:____
(7.) What is your age:____(years)
(8.) What is your gender? Male____ Female____
(9.) Have you attended university? Yes____ No____
(11.) How would you describe this sensitivity? ____Mild, can live with it. ____Bothers me, I wish I could do something about it.
If your answer to Question 10 was No, please go to Question 17. Otherwise,
(12.) Are you aware there are special toothpastes designed to relieve the pain and discomfort from sensitive teeth? Yes____ No____
If your answer to Question 12 was No, please go to Question 17. Otherwise,
(13.) Do you buy toothpaste for sensitive teeth? Yes____ No____
If your answer to Question 13 was No, please go to Question 17. Otherwise,
(14.) to (16.) Which brand of toothpaste for sensitive teeth do you buy?
(17.) On average, how many hours a day do you watch television during the period from 6 a.m. to 7 p.m.? ____ (hours)
(14.) Sensodyne____ (15.) Tenderdent____ (16.) Other____
(18.) On average, how many hours a day do you watch television during the period from 7 p.m. to 11 p.m.? ____ (hours)
It is clear to Mr. Conti that in order to achieve an increase in sales, Tenderdent must be advertised. Mr. Conti has decided that television will be the medium for two reasons: first, because of the success of the main competitor (Sensodyne) in using this medium; and, second, because he believes that the message (“buy Tenderdent if your teeth are sensitive”) is better conveyed with images than with spoken or written words.
However, neither Mr. Conti nor PMR have any solid experience concerning the advertising outlay needed to achieve a given sales increase or the manner in which that total should be allocated between prime and off-prime time.
To provide variety to the advertising campaign, four 30-second commercials will be commissioned to be broadcast on a rotating basis. The cost of these commercials is about $20,000. If ordered now, the commercials will be available one month from now.
Because broadcast time must be purchased in block, the television campaign must run for a minimum of twelve weeks. In the Norton Metropolitan Area, the cost of broadcasting one 30-second commercial is about $200 during off-prime and $350 during prime time. For example, if there will be 30 thirty-second commercials per week on-prime and 20 per week off-prime, the broadcasting cost will be 12 [(20)(200)+(30)(350)] or $174,000. The cost per 30-second broadcast also depends on the popularity of the program in which it is carried. For planning purposes, an average figure per 30-second broadcast may be used; this assumes a fixed ratio of prime to off-prime commercials.
PMR divides the country into 140 “Television Markets (TMs)”. These are non-overlapping regions, each centered around a population center, and are similar to the “Areas of Dominant Influence (ADI)” or “Designated Marketing Areas (DMA)” used by television ratings services. Each TM consists of counties where the majority view the television stations broadcasting in that market.
Table 1 shows selected characteristics for the first few of these markets. The complete set of data can be found in file TENDER0.DAT.
Characteristics of selected Television Markets
The variables are defined as follows:
| NOHHLDS: || Number of households. |
| POPTOT: || Total population. |
| MADULT: || Number of male adults (20 years old and older). |
| FADULT: || Number of female adults (20 years old and older). |
| AVAGE: || Average age of all adults. |
| UNRATIO: || Percentage of adults with some university education. |
| AVHHINC: || Average household income ($000). |
| AVVDWEL: || Average value of residential dwellings ($000). |
| DWRATIO: || Percentage of owned dwellings. |
| CCOMM: || Average cost of broadcasting a 30-second commercial. |
Mr. Conti is considering testing the appeal of the commercials and the consumers' response to the advertising campaign in a number of these markets before embarking on a national campaign. By this approach, he hopes to test the water before diving, as it were, and assuming all the risks that this venture entails.
Clearly, in order to measure the consumer response, it is necessary to have adequate supplies of Tenderdent in each test market so as to meet any additional demand created by the campaign. Otherwise, at the end of test marketing all that will be known is that the demand exceeded supply, but not what the actual demand was.
The excess availability in one market cannot be used to meet the demand in another.
TASKS TO CARRY OUT
(1) Select the Television Markets to serve as test markets.
(2) For each selected TM, specify the monthly advertising budget and the additional number of tubes of Tenderdent to be produced and distributed each month to retail outlets in the market.
(3) Follow the separate instructions for the computer program TENDER2 to implement the test marketing.
(4) In a report addressed to the Board of Medlabs, (a) explain the rationale for your choice of test markets, and for your decisions regarding advertising budgets and production levels; (b) describe in detail what was learned from the test marketing.
Having obtained some information concerning the sales potential of Tenderdent and the effectiveness of the advertising campaign through test marketing, Mr. Conti is (as business writers like to say) “poised to proceed with a possible national marketing campaign.” In all other respects, the situation is as described in Stage II.
TASKS TO CARRY OUT
(1) Select the television markets in which Tenderdent will be sold. These could be none, all, or some of the 140 TMs listed in the file TENDER0.DAT.
(2) For each such TM, specify the monthly advertising expenditure and the additional number of tubes of Tenderdent to be produced and distributed to the retail outlets in the market.
(3) In a report addressed to the Board of Medlabs, explain the reasons for your decisions in Stage III.
(4) Following the separate instructions for computer program TENDER3, implement this national marketing.
(5) In an appendix to your report in (3), briefly review your major decisions in Stages I to III, and, with the benefit of hindsight, explain how these may have been improved.