Assignment
Colgate's Distasteful Toothpaste
Colgate is a well-known consumer products company based in New York. Its present products are in the areas of household and personal care, which include laundry detergents such as Ajax and Fab, health care products manufactured for home health care, and specialty products such as Hill pet food. The household products segment represents approximately 75 percent of company revenues, while the specialty segment accounts for less than 7 percent. Colgate's value has been set in excess of $5.6 billion. Through both recessionary and recovery periods in the United States, Colgate has always been advocated by investment analysts as a good long-term stock. Colgate's domestic market share has been lagging for several years. In the 1970s, when diversification seemed to be the tool to hedge against risk and sustain profits, Colgate bought companies in various industries, including kosher hot dogs, tennis and golf equipment, and jewelry. However, such extreme diversification diverted the company's attention away from its key money-making products: soap, laundry detergents, toothpaste, and other household products. The product diversification strategy ended in 1984 when Reuben Mark became CEO. At the young age of 45, he ordered the sale of parts of the organization that deviated too far from Colgate's core competency of personal and household products. He followed consultant Tom Peters's prescription for excellence: "Stick to the knitting."
Colgate's International Presence
Colgate traditionally has had a strong presence overseas. The company has operations in Australia, Latin America, Canada, France, and Germany. International sales presently represent one-half of Colgate's total revenue. In the past, Colgate always made a detailed analysis of each international market for demand. For instance, its entry into South America required an analysis of the type of product that would be most successful based on the dental hygiene needs of South American consumers. Because of this commitment to local cultural differences, the company has the number-one brand of toothpaste worldwide, Total. To gain a strong share of the Asian market without having to build its own production plant, Colgate bought a 50 percent partnership in the Hawley and Hazel group in August 1985 for $50 million. One stipulation of this agreement was that Colgate had no management prerogatives: Hawley and Hazel maintained the right to make the major decisions in the organization. This partnership turned out to be very lucrative for Colgate, with double-digit millions in annual sales.
Enter the Distasteful Toothpaste
Hawley and Hazel is a chemical products company based in Hong Kong. The company was formed in the early part of the twentieth century, and its only product of note, believe it or not, was called "Darkie" toothpaste. Over the years, this had been one of the popular brands in Asia and had a dominant presence in markets such as Taiwan, Hong Kong, Singapore, Malaysia, and Thailand. "Darkie" toothpaste goes back to the 1920s. The founder of this product, on a visit to the United States, loved Al Jolson, then a very popular black-faced entertainer (i.e., a white person with black makeup on his face). The founder decided to re-create the spirit of this character in the form of a trademark logo for his toothpaste because of the character's big smile and white teeth. When the founder returned to Asia, he trademarked the name "Darkie" to go along with the logo. Since the 1920s, there has been strong brand loyalty among Asians for this product. One housewife in Taipei whose family used the product for years remarked, "The toothpaste featuring a Black man with a toothy smile is an excellent advertisement."
The Backlash against Colgate
"Darkie" toothpaste had been sold in Asia for about 65 years. After Colgate became partners with Hawley and Hazel and its distasteful product, however, there was a wave of dissatisfaction with the logo and name from U.S. minorities and civil rights groups. There really has been no definite source on how this issue was passed to U.S. action groups and the media; however, a book entitled Soap Opera: The Inside Story of Procter and Gamble places responsibility in the hands of Procter & Gamble in an effort to tarnish Colgate's image and lower its market share. The Americans' irate response to "Darkie" was a surprise to the Hawley and Hazel group. The product had always been successful in their Asian markets, and there had been no complaints. In fact, the success of "Darkie" had led the firm to market a new product in Japan called "Mouth Jazz," which had a similar logo. A spokesperson for Hawley and Hazel remarked, "There had been no problem before; you can tell by the market share that it is quite well received in Asia." ICCR, the Interfaith Center on Corporate Responsibility, started the fight against Colgate about 10 years ago when it received a package of "Darkie" toothpaste from a consumer in Thailand. ICCR is composed of institutional investors that influence corporations through stock ownership. At the time the movement against Colgate's racially offensive product started, three members of ICCR already owned a small amount of stock in the company, and they filed a shareholder petition against Colgate requesting a change in the logo and name. In a letter to Colgate, the ICCR executive director summarized the position against the distasteful toothpaste as follows:
"Darkie" toothpaste is a 60-year-old product sold widely in Hong Kong, Malaysia, Taiwan and other places in the Far East. Its packaging includes a top-hatted and gleaming-toothed smiling likeness of Al Jolson under the words "Darkie" toothpaste. As you know, the term "Darkie" is deeply offensive. We would hope that in this new association with the Hawley and Hazel Chemical Company, that immediate action will be taken to stop this product's name so that a U.S. company will not be associated with promoting racial stereotypes in the Third World.
In response to this letter, R. G. S. Anderson, Colgate's director of corporate development, replied, "No plans exist or are being contemplated that would extend marketing and sales efforts for the product in Colgate subsidiaries elsewhere or beyond this Far East area." Anderson then went on to explain that Darkie's founder was imitating Al Jolson and that in the Chinese view, imitation was the "highest form of flattery." The ICCR then informed Colgate that if the logo was not changed, the organization would create a media frenzy and help various civil rights action groups in a possible boycott. Because Colgate still refused to remove the logo, ICCR did form a coalition with civil rights groups such as the NAACP and the National Urban League to start protest campaigns. The protest took many forms, including lobbying at the state and local levels. At one point, after heavy lobbying by the ICCR, the House of Representatives in Pennsylvania passed a resolution urging Colgate to change the name and logo. Similar resolutions had been proposed in the U.S. Congress. The pressures at home placed Colgate in a difficult position, especially as it had no management rights in its agreement with Hawley and Hazel. In the Asian market, neither Colgate nor Hawley and Hazel had any knowledge of consumer dissatisfaction because of racial offensiveness, despite the fact that the local Chinese name for "Darkie" (pronounced hak ye nga goh ) can be translated as "Black Man Toothpaste." The logo seemed to enhance brand loyalty. One Asian customer stated, "I buy it because of the Black man's white teeth."
The demographics of the Asian market may help to explain the product's apparent acceptance. There are a relatively small number of Africans, Indians, Pakistanis, and Bangladeshis in the region; therefore, the number of people who might be offended by the logo is low. Also, some people of color did not seem disturbed by the name. For example, when asked about the implications of "Darkie" toothpaste, the secretary of the Indian Chamber of Commerce noted, "It doesn't offend me, and I'm sort of dark-skinned." Initially, Colgate had no intentions of forcing Hawley and Hazel to change the product. R. G. S. Anderson issued another formal statement to the ICCR as follows: "Our position . . . would be different if the product were sold in the United States or in any Western English-speaking country, which, as I have stated several times, will not happen." Hawley and Hazel concurred with the stance. The alliance was very fearful of a loss of market share and did not believe that the complaints were issues relevant to Pacific Rim countries. A spokesperson for the alliance referred to the protest campaign as "a U.S. issue." The trade-off for revamping a successful product was deemed to be too risky and costly.
Colgate's Change of Heart
The issue did not go away. As U.S. leaders in Congress began to learn about this very offensive logo and name, the pressure on Colgate mounted. Interestingly, however, the value of Colgate's stock increased throughout this period of controversy. Wall Street seemed oblivious to the charges against Colgate, and this was another reason why Colgate took no action. Colgate management believed that an issue about overseas products should not have a negative effect on the company's domestic image. However, pressures continued from groups such as the Congressional Black Caucus, a strong political force. Colgate finally began to waver, but because of its agreement with Hawley and Hazel, it felt helpless. As one Colgate executive remarked, "One hates to let exogenous things drive your business, but you sometimes have to be aware of them." Colgate CEO Reuben Mark eventually became very distressed over the situation. He was adamantly against racism of any kind and had taken actions to exhibit his beliefs. For instance, he and his wife had received recognition for their involvement in a special program for disadvantaged teenagers. He commented publicly about the situation as follows: "It's just offensive. The morally right thing dictates that we must change. What we have to do is find a way to change that is least damaging to the economic interests of our partners." He also publicly stated that Colgate had been trying to change the package since 1985, when it bought into the partnership.
Colgate's Plan of Action to Repair the Damage
The protest campaign initiated by ICCR and carried further by others definitely caused Colgate's image to be tarnished badly in the eyes not only of African Americans but of all Americans. To get action, some members of the Congressional Black Caucus (including Rep. John Conyers, D-Mich.) even bypassed Colgate and tried to negotiate directly with Hawley and Hazel. To try to repair the damage, two years after ICCR's initial inquiry, Colgate, in cooperation with Hawley and Hazel, finally developed a plan to change the product. In a letter to ICCR, CEO Mark stated, "I and Colgate share your concern that the caricature of a minstrel in black-face on the package and the name ‘Darkie' itself could be considered racially offensive." Colgate and Hawley and Hazel then proposed some specific changes for the name and logo. Names considered included Darlie, Darbie, Hawley, and Dakkie. The logo options included a dark, nondescript silhouette and a well-dressed black man. The alliances decided to test-market the options among their Asian consumers; however, they refused to change the Chinese name ("Black Man Toothpaste"), which is more used by their customers. They decided that changes would be implemented over the course of a year to maintain brand loyalty and avoid advertising confusion with their customers. There was the risk that loyal customers would not know if the modified name/logo was still the same toothpaste that had proven itself through the years. Altogether, the process would take approximately three years, test marketing included. Colgate also decided to pay for the entire change process, abandoning its initial suggestion that the change be paid for by Hawley and Hazel. Colgate and Hawley and Hazel then made a worldwide apology to all insulted groups. Although Hawley and Hazel was slow to agree with the plan, a spokesperson emphasized that racial stereotyping was against its policy. It also helped that Hawley and Hazel would pay no money to make the needed changes. It felt that the product was too strong to change quickly; thus, three years was not too long to implement the new logo and name fully into all Asian markets. Further, it insisted that as part of the marketing campaign, the product advertising use the following statement in Chinese, "Only the English name is being changed. Black Man Toothpaste is still Black Man Toothpaste."
Response Worldwide
Colgate and Hawley and Hazel still suffer from the effects of their racially offensive product. In 1992, while dealing with its own civil rights issues, the Chinese government placed a ban on Darlie toothpaste because of the product's violation of China's trademark laws. Although the English name change was implemented across all markets, the retained Chinese name and logo still were deemed derogatory by the Chinese, and the government banned the product. Also, Eric Molobi, an African National Congress representative, was outraged at the toothpaste's logo on a recent visit to the Pacific Rim. When asked if Darlie toothpaste would be marketed in his country, the South African representative replied, "If this company found itself in South Africa it would not be used. There would be a permanent boycott." Today, the name of Colgate cannot be found anywhere on the packaging of what is now called Darlie toothpaste. In a strategic move, Colgate has distanced itself completely away from the controversial product. In the Thailand and Indonesia health-products markets, Colgate even competes against Darlie toothpaste with its own brand.
Questions for Review
1. Identify the major strategic and ethical issues faced by Colgate in its partnership with Hawley and Hazel.
2. What do you think Colgate should have done to handle the situation?
3. Is it possible for Colgate and Hawley and Hazel to change the toothpaste's advertising without sacrificing consumer brand loyalty? Is that a possible reason for Colgate's not responding quickly to domestic complaints?
4. In the end, was a "no management rights" clause good for Colgate? What could have happened during the negotiations process to get around this problem?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.