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De La Salle University - Graduate School of Business

A Case Analysis on

The Gillette Case

Submitted by:

Vidar Halvorsen

Mike Maquilan

Submitted to:

Regina Dy

Professor of Marketing
Table of Contents

1.0 Background of the Case ...................................................................... 3

2.0 Statement of the Problem ................................................................... 3

3.0 Analysis
…………………………………………………………………………………………….…..
……………………4

4.0 Theoretical Framework


……………………………………………………………………………………………….12

5.0 Areas of Consideration........................................................................17

6.0 Alternative Courses of Action …. ………………………………..


……………………………………………. 18

7.0 Conclusion ..........................................................................................19


1.0 Background

The Gillette company


marketing group for shavings
and personal care group is
facing a strategic challenge. In
1988 the competition in the
“mens wet-shave market” was
dominated by Gillette, but with
competitors pressing on
several fronts.

The market in the razor


industry ( both disposable, and
systems ) is tightening, and Gillette feel they are losing makretshares to
their competitors, especially to
Figur 1 – market share development 1981 - 1988
BIC and Shick ( with Wilkinsons
on a weak 3rd place ). The product lines arent selling as they should, with
brands 1like Atra razors stagnating, and Trac II blades declining.
(Figure 1 )

The Gillette marketing group has debated the background of the irtuation,
where it seems Gillette have created a situationof where they have
generalized the market, and focused less on marketing than on product.
Therefore an analysis on the status and a strategic marketing plan for the
coming year(s) ahead must be prepared.

2. Statement of the problem.


With the history of the industry, the situation as it is and the chellenges
ahead, how should gillette position and market itself to gain both
marketshares and customer shares.?

3.Case Analysis

This part attemts to analyse Gillettte and the competition in terms of swot
analysis, competitor analysis , five forces and through general marketing
concepts.

3.1 Swot Analysis

Strengths Opportunities
- VERY strong focus on R&D - A largely untapped female
and innovation segment.
- General public associate - Large 17-30 Mens segment
Gilette with personal that’s still undecided in terms
grooming. of brand loyalty.
- Strong Brandname - Few competitors with the
- Long history financial backbone and
- 5 distinct company divisions; market experience Gillette
true to core competencies. has.
o Safety razors – 3 - Japan / Asian Market is
products depth available for further push
o Toiletries/cosmetics - /growth.
11 products depth
o Stationary products -
5 products depth
o Oral B / Care products -
2 products depth
o Braun Products -
5 products
- Systems razors have unique
patent, impossible to use non-
gillette cartridges on gillette
system.
- New entranants to market
must invest heavily in
systems to make blades.
- Strong financial backing
Weaknesses Threaths
- Global strategy, but weaker - Price vs percieved value to
on national adaptation. use with younger segments.
- Low profits on disposable - Low general brand awareness
razors. with younger “17-30”
- Declining advertising budgets. segment.
- Low brand loyalty with - Market positions , brand
younger men’s segment. recognition in Japan being
- Weak position in Japan (asia) dominated by Schick.
due to not using existing - New entrants from asia into
marketing channel partners the (,ow price ) market
- No clear slogan or brand
recognition theme. 4 slogans
been used over recent
history.
3.3 Porters 5 forces
model

3.3.1 Supliers Powers :

Gilette being larger than all


of its competitors combined,
represent strategic accounts
for most of its suppliers. This
give power more in Gilette’s
hands than suppliers,
thereby reducing threaths
from suppliers.
Strenghtening Gilettes
position her eis also the economy of scale Gilette incurr, securing low
resource costs compared to those of Gilettes smaller competitors, like
Wilkinsons Sword.

3.3.2 Buyers Powers:

In this area, the younger segment , men between 17-30 shows


considerable buying power. Their cost of switching to a differen brand or
product is low, as they have less knowledge about shaving, and might
simply be out for “ the quick shave”. This being an issue, brand
recognition and brand preference may not matter as much, and could
pose a problem. What option excisting buyrs have in terms of switching
would be to revert to former versions of blades, incurrring a inferior
quality. However; the buying power of the main buyer segment
( economically speaking) is increasingly getter higher spending poweer,
which mean they can also excert power on Gilette.

3.3.3 Barriers to entry

The manufacturing of razor sharp blades and inventing of a shaving


concept not already covered by patent made by the big 4 competitors in
the industry is relatively low. As most razors today revolve around
stainless steel blades with coated edges, there is only so much leverage
for truly new innovation. Whats left for new entrants are entry into low
price markets with either disposable razors or systems of older type which
no longer is covered by patents.

In addittion to this a global marketplace which Gilette operates in is highy


dependant n economies of scale. This cause a significant barrier to fresh
entrants as both manufacturing equipment is costly as well as the
development of markets and distribution channels can cause great
challenges.

The wet-shave market being an age old market is by today a market


where brand counts for a lot of the choices consumers make. For a new
entrant, brand recognition and brand loyalty would be a significant hinder.
Following that, brand loyalty would also cause a significant hinder for
successful market penetration, regardless of WHERE in the world the
potential new entrant would want to launch.

Also, all new entrants to markets face the beurocratic red tape. Depending
on what part of the world the new entrants coose to challenge Gillette in,
they would have to adhere to a multitude of national regulations,
certification and political hindrances.

In terms of manufacturing there are also barriers to entry, depending on


the resources needed to manufacture razors. Most razors are made of a
chromium / stainless carbonized steel1. The access to these resouces and
prices of these resources will be a natural hinder for new entrants to the
marketplace ( in coordination with the need for economy of scale). This
give few issues for Gillette to NEW entrants to the marketplace.

3.3.4 Threath of Subsidies.

In the wet-shave market there arent that many direct subsidies to choose
from .. The product is razors, in different types, so there will be
ALTERNATIVE brands to choose from, but except for electric shaver,
sorting under DRY-SHAVE, there really arent many alternatives;( hair
removal creams didn’t enter the market before the 1990s and were
targeted on women exclusively.)

Another issue which help Gilette in terms of the lack of dubstitutes is the
cultural social image of unshaven men. Most custures prefer a clean
shaven man to a man who is unshaven; as it relates to image and
percception of hygiene.

3.3.5 Industry rivals

The Common denominator for all rivals is their excisting presence in the
market, and the fact that they all have R&D facilities to further innovation
within the productlines. They also all have a certain level of brand
recognition and brand loyalty from excisting customers and consumers,
which willl be a challenge for Gilette. The cost of switching from an
existing brand to Gilette can percievably be a hinder for Gilette.

3.3.5.1 Schick

Warner-Lambert acquired Eversharp Company and the Schick brand in


1970. Since then, Schick has become the second major competitor in the
wet-shaving business.

In 1989, Schick held 16.2% of the US wet-shave market, down from 23.8%
in 1980. This loss of market share was attributed to late entry into the

1
http://en.wikipedia.org/wiki/Razor_blade_steel
disposable razor market in 1984 as well as Warner-Lambert's channeling
Schick's profits to R&D for their other businesses.

Schick feels that it can catch up in lost market share with a $60 million
allocation from Warner-Lambert, which they used to fund technological
advances in disposable razors, hire a dedicated sales team, and allocate a
huge $8 million advertising budget to market its new line of razors.

Schick dominates the wet-shave market in Japan with a distribution deal


with Seiko Corporation. Overseas revenues account for 67% of Schick's
earnings.

3.3.5.2 BIC

BIC's concentration was the best quality products at the lowers possible
prices. (Price focus)

After their success in marketing their fountain pens, ballpoint pens and
disposable lighters, BIC entered the shaving market in 1975, launching
their BIC Shaver.

BIC frequently introduced new razor products and enhancements. In


January 1985 they introduced the BIC Shaver for sensitive skin along with
a $10 million marketing campaign. Although BIC controlled only the
number three spot in the wet-shaving market by 1989, they had
generated over $52 million of sales with a 22.4% share of the disposable
razor market. BIC focused on their disposable razor market even as
Gillette promoted their system shavers.

3.3.5.3 Wilkinson Sword

Wilkinson Sword re-entered the shaving market in 1956 with an innovative


coated stainless-steel shaver that gave a comfortable shave and lasted 2-
5 times longer than conventional blades.
In 1988, Wilkinson Sword had a 4% share of the wet-shave market. Even
though they had introduced many come-and-go products over the years,
they recently introduced Ultra-Glide, its first lubricating shaving system to
go head-to-head with similar Gillette and Schick products, to be priced 5-
8% lower than their competitors. Wilkinson Sword advertising claims that
the Ultra-Glide's lubricating strip was six times smoother and preferred by
men over the industry leader.

3.4.1 Customer Segments:

The consumers are classified into the following segments:

Old buyers: ( 30+ )

- Men aged 30 and up, most whom have grown up with Gillette as the
chosen, trrusted brand. These customers have a high brand loyalty
and a high treshold for swithching brands, even for a notably lower
price ( in terms of systems segment ). This segment ( late adopters /
sceptics ) will stick to Gillette unless Gilette changes their course
drasticly. Conclusively Giletteneeds to retain customer satisfaction
and a repurchasing, rather than attracting new clients from an
already matured and loyal customer segment.

Young buyers (17-30 )

- This segment is more price oriented and have far less brand loyalty.
In general the segment ( Gen X) belong more to the early adapters,
and are susceptible to marked advances from Gilettes competitors.
In 1998 BIC holds a higher brand regocnition than Gilette2. However,
the willigness to try out new offers, products and technologies, pose
an opportunity for Gillette to use a marketing machine with decades
of experience.

Women ( 17+ )

- The womens segment for shaving was underdeveloped in 1988.


Studies3 showed there were women using wet-shave products than
2
Case study; Gillette and the Men’s wet-shaving market
3
Case study; Gillette and the Men’s wet-shaving market
there were men. Gillette already had the electric shaverLady
Elegance covering the dry-shave segment for women shaving, but
no wet-shave product specifically targeted to the female segment.
So of women using Gilette used Male targeted product. Difference
was the frequence of use. While men used 25-30 blades per year,
the female segment used 8-12 blades. This market was more
seasonal, presumably near the warmer seasons of the year( the case
does not state this specifically) However; it is notably a market that
could be worth looking into.

3.4.1 Product Mix:

Product

Gilette has always beeen a market oriented production and R&D


company, which has put much emphasis on developing better products.
Per 1998 Gilette produced and marketed 3 razors, 11 toiletries products,
2 oral care ( incl tooothbrush) products and 4 electric products under the
BRAUN brand. 2 of these were personal care products and 2 were home
alliances.

The Company had grown by a combination of quality focus,


development through technology and marketing knowledge. Even when
entering the disposable razor market, quality were still, and are today, one
of their Unique Sellling Points. In 1988 the challenge was the lack of
consumer brand recognition in the younger age segment.

A separate issue were the fact that Gilette had not stayed true to the
slogan of the brand name. 4 different slogans had been used, thus
creating confusion between the age segmetns. While Babyboomers still
recalled “look sharp, stay sharp, be sharp” Gen X’ers had little of that
slogan recall, little product knowledge and as a result products to this
segment was a challenge.

Place
Gilettes distribution channels went through its country offices and hubs,
and from there to local wholesalers. This gave Gillette ample opportunities
to see the market statistics per country region and so on. Being a research
driven company they used customer feedback as source for their further
developments.

Being an international4 organization already in 1998, with a range of


razors( as mentioned in Products) and related products, that catered to
nearly all the segments ( save women ) gave Gilette a total dominance in
the worlds Wet-shave market. In most larger cities on the planet, you
could find a gilette product.

Price

Gilette market themselves on quality, and on innovation. This gives a price


level distinctly higher than its competitors, but which has nevertheless
consistently let Gillette occupy the place as market leadder. The company
stilll carries a low-price line in terms of the disposable razors, but are on
the upper pricing range on that segment as well.

( The case file mention nothing on pricing terms for distribution channels)

Promotion

Gilette had consistently been spending millions of dollars on advertising,


this being the dominant form of promotion. However, the amount of
resources allocated to advertising had been standing still, causing the
1987 value of the budget to sink from 61 Million 1975 Dollars to drop to a
mere 15 milllion dollar real value in 1987.
It is clear that in the addvertising area more resources can and should be
added. Also, it seems that the issue of 3 slogans / brand recognition
themes ) throughout the history has caused an inconsistent memory of the

4
http://www.fundinguniverse.com/company-histories/The-Gillette-Company-Company-
History.html
brand with the diffferent age brackets of end-users, which is a problem
that must be adressed.
Gillette advertise its to the masses, to be purchased by end-users through
the retailing industry. Therefore promotions directly to the end user
through targeting advertising like DM is impractical. The contact price
per new customer would simply become too great ( Gilette being a global
company).

4. Theoretical Frame Works

This part lists the theories used to analyse the case. The text is sourced in
its entireness from the listed locations.

4.1 PORTERS 5 FORCES MODEL( directly copies from the source:


Notes.Com)5

1. Threat of substitute products

Threat of substitute products means how easily your customers


can switch to your competitors product. Threat of substitute is
high when:

 There are many substitute products available

 Customer can easily find the product or service that you’re


offering at the same or less price

 Quality of the competitors’ product is better

 Substitute product is by a company earning high profits so can


reduce prices to the lowest level.

In the above mentioned situations, Customer can easily switch to


substitute products. So substitutes are a threat to your company.
When there are actual and potential substitute products available

5
http://notesdesk.com/notes/strategy/porters-five-forces-model-porters-model/
then segment is unattractive. Profits and prices are affected by
substitutes so; there is need to closely monitor price trends. In
substitute industries, if competition rises or technology modernizes
then prices and profits decline.

2. Threat of new entrants

A new entry of a competitor into your market also weakens your


power. Threat of new entry depends upon entry and exit
barriers. Threat of new entry is high when:

 Capital requirements to start the business are less

 Few economies of scale are in place

 Customers can easily switch (low switching cost)

 Your key technology is not hard to acquire or isn’t protected


well

 Your product is not differentiated

There is variation in attractiveness of segment depending upon


entry and exit barriers. That segment is more attractive which has
high entry barriers and low exit barriers.
Some new firms enter into industry and low performing companies
leave the market easily. When both entry and exit barriers are
high then profit margin is also high but companies face more risk
because poor performance companies stay in and fight it out. When
these barriers are low then firms easily enter and exit the industry,
profit is low. The worst condition is when entry barriers are low and
exit barriers are high then in good times firms enter and it become
very difficult to exit in bad times.
3. Industry Rivalry

Industry rivalry means the intensity of competition among the


existing competitors in the market. Intensity of rivalry depends on
the number of competitors and their capabilities. Industry rivalry
is high when:

 There are number of small or equal competitors and less when


there’s a clear market leader.

 Customers have low switching costs

 Industry is growing

 Exit barriers are high and rivals stay and compete

 Fixed cost are high resulting huge production and reduction in


prices

These situations make the reasons for advertising wars, price wars,
modifications, ultimately costs increase and it is difficult to compete.

4. Bargaining power of suppliers

Bargaining Power of supplier means how strong is the position of


a seller. How much your supplier has control over increasing the
Price of supplies. Suppliers are more powerful when

 Suppliers are concentrated and well organized

 a few substitutes available to supplies

 Their product is most effective or unique

 Switching cost, from one suppliers to another, is high

 You are not an important customer to Supplier

When suppliers have more control over supplies and its prices that
segment is less attractive. It is best way to make win-win relation
with suppliers. It’s good idea to have multi-sources of supply.
5. Bargaining power of Buyers

Bargaining Power of Buyers means, how much control the


buyers have to drive down your products price, Can they work
together in ordering large volumes. Buyers have more bargaining
power when:

 Few buyers chasing too many goods

 Buyer purchases in bulk quantities

 Product is not differentiated

 Buyer’s cost of switching to a competitors’ product is low

 Shopping cost is low

 Buyers are price sensitive

 Credible Threat of integration

Buyer’s bargaining power may be lowered down by offering


differentiated product. If you’re serving a few but huge quantity
ordering buyers, then they have the power to dictate you.

4.2 SWOT MATRIX


( Source :Quickmba.com)6

A scan of the internal and external environment is an important part of the


strategic planning process. Environmental factors internal to the firm
usually can be classified as strengths (S) or weaknesses (W), and those
external to the firm can be classified as opportunities (O) or threats (T).
Such an analysis of the strategic environment is referred to as a SWOT
analysis.

The SWOT analysis provides information that is helpful in matching the


firm's resources and capabilities to the competitive environment in which
it operates. As such, it is instrumental in strategy formulation and

6
http://www.quickmba.com/strategy/swot/
selection. The following diagram shows how a SWOT analysis fits into an
environmental scan:

SWOT Analysis Framework

Environmental Scan
/ \
Internal Analysis External Analysis
/\ /\
Strengths Weaknes Opportunities Th
ses reats
|
SWOT Matrix

Strengths

A firm's strengths are its resources and capabilities that can be used as a
basis for developing a competitive advantage. Examples of such strengths
include:

• patents
• strong brand names
• good reputation among customers
• cost advantages from proprietary know-how
• exclusive access to high grade natural resources
• favorable access to distribution networks

Weaknesses

The absence of certain strengths may be viewed as a weakness. For


example, each of the following may be considered weaknesses:

• lack of patent protection


• a weak brand name
• poor reputation among customers
• high cost structure
• lack of access to the best natural resources
• lack of access to key distribution channels

In some cases, a weakness may be the flip side of strength. Take the case
in which a firm has a large amount of manufacturing capacity. While this
capacity may be considered a strength that competitors do not share, it
also may be a considered a weakness if the large investment in
manufacturing capacity prevents the firm from reacting quickly to changes
in the strategic environment.

Opportunities

The external environmental analysis may reveal certain new opportunities


for profit and growth. Some examples of such opportunities include:

• an unfulfilled customer need


• arrival of new technologies
• loosening of regulations
• removal of international trade barriers

Threats

Changes in the external environmental also may present threats to the


firm. Some examples of such threats include:

• shifts in consumer tastes away from the firm's products


• emergence of substitute products
• new regulations
• increased trade barriers

5.0 Areas of Consideration

Place in mind of young segment:


Given the information on the erratic brand loyalty of the younger male
segment, it seems clear Gillette neeeds to firmly establish itself in the
mind of this consumer group. This is after all the fathering generation of
Gillettes next user generation ( generation Y ) whom would need to know
the brand name Gillette from someone else than just advertising.

By making a push for a cemented 1st place in consumers mind, Gilette can
secure a stronger market position that can easiler be defended. Significant
efforts should be placed into a coherent strategy for a stable, coherent
and unchanging advertising approach that appeals to the younger
segments without affronting the excisting older segment.

Entrance into the female shavers market.


There are a notable untapped market for lady shavers. This could
represent a significant and profitable market for Gilette in the years to
come. Gillette need to tap into their research divisons and find lady
shavers needs and wants, and develop products to fill these needs.

Japanese / asian Marketing channels.


The asian market and the distribution challenges facing Gillette is
something that needs to be adressed. Like Schick in Japan, there should
be distribution specialists avaialble for partnership to secure a distribution
which also take into consideration the local consumer / marketing
environment, and the way companies / products connects with the
consumer.

Disposable razor segment.


There is significant competition in this segment, which is cause for much
worries. Clearly Gillette needs to develop a market approach which
combine the brand name with an affordable price, and which teaches the
consumers the value of Gilettes brand quality over that of the
competitiors. Market approcahes to this segment ( of all ages ) should
combine the qualiity and value of the well-known Gilette razor systems,
with the availability and affordability of disposable razors.

6.0 Alternative courses of actions

Strategic alliances.
Gilette is at this point a corporation revolving around a few product lines.
By forming strategic alliance with distribution experts, especially in
markets with significantly different consumer environment, this could
strengthen their position. Alternately Gillette could look into forward
intergation ( buying a distribution network)-

Stock market security.


As Gilette is an attractive corporation for professional investors, They need
to stay strong and secure to avoid attracting unwanted attention by
proffessional M&A corporations. One way would be to secure buy-back
options over time, in ordder to prevent hostile takeovers or strategic buy-
ins.

Strategic M&A of competitors.


One course of action Gillette could pursue is also strategic Acquisition oc
Its smaller competitors. A quick look at the competitors shows that Shick
would be our of reach, musch because it’s the main competitor and it
would be economically unadvicable to enter into a set of hostile take-over
attemts as this could be costly and expose the ecomony of Gilette for
years to come. Secondly, a friendly merger would most surely be denied
as Shicik belongs to a highly successful Pharmaceutical company which
has defined the razor market ( personal grooming / hygiene) as one of its
core business areas.

BIC would also not be an obvious buy-out of merger candidate. As BIC


operates in onlly the disposable razor market, and has adopted a price
oriented market approach, the very concept goes agains Gillettes core
values.
Likewize , looking at the scale of BIC in the disposable market, M&A or
hostile takeover could prove to be far beyond whats economically
defenseable.

Wilkinsons Sword Seems to be the only potential candidate for buy-out or


M&A. With market shares harddly recognized by its competitors, and the
Wilkinsons Sword line being a sideline of Swedish Match ( whos primarily
within clothes and fashion ), low budgets and slow growth, this competitor
could be the only available competior available and advisable for strategic
purchase. Givven the legals battles between the 2 parties, a buy out from
Gillette could be a viable option to end the feuds, and leave both
companies with a solution they could accept.

Strengtening of position and push to improve brand awareness /


preferences.

Perhaps the wisest course of action is that of reinforcing and


strengthening. Gilette already have a brandname; reinforcing this
brandname to the undecided young mass market is a better way of
solidifying a position in the market, than undertaking M&A’s and other
strategies. Investing in brand awareness, brand preference, improved
distribution ( where neeed ) and increased market/consumer shares seem
to be the more prudentt approach to the problem definition. The young
segment is more susceptible to advertising as it has little brand
experience passed down from its parent generation, and as such, mass
advertising and end-user marketing could prove to be profitable.
Also; Gilette could in many countries / markets revisit the strategy that
made their fortune during WWII. Obtaining strategic supply contracts with
countries defence forces is an excellent way to gain access to the young
segment. By subsidising parts of the cost of the product, young men
would be exposed to Gilette when entering the defense forces of their
respecctive countries, and gain the brand awareness/ loyalty / preference
Gilette is looking for. Also – The contact price per new consumer using this
way would be far lower than through conventional merketing approaches.

7.0 Conclusion.

Considering the analysis given in this case, the group finds that the best
course of action would be a ( by SWOT analysis) STRENGT+
OPPOTRUNITIES approach.
We suggest the follwong changes to Gilettes Strategic Marketing plans.
1) Secure an up to date marketing budget, closer to the 61 milllion in
1975.

a. Use this to formulate a stable and lasting brand image, value


proposition and brand slogan that securely sticks to
consumers mind.

b. Significantly increase marketing / advertising budgets for both


systems and disposable, but targeting their individual
segments needs, while both playing on the core value
propositions of gillette.

c. Put efforts into researching the womens shaving market and


develop products that fit into the gilette product promise( of
mens market), while adapting to womens needs.

2) Redo the global market strategy, to promote a global brand based


on national consumer psychology.

3) Develop strategic distribution partnerships in markets where sales


and brand recognition is low, especially in japan / asian markets.
( alternately look into forward integration , buying a distribution
expert. However, this is unadviseable as their sales and brand
coverage in these markets don’t defend the costs of purchasing such
distribution networks).

Sources:

- Marketing Management 12th Ed;


Philipp Kotler, Kevin Keller
Pearson Prentice Hall
- Wikipedia: topic on razors.
http://en.wikipedia.org/wiki/Razor_blade_steel

- Gilllette history:
http://www.fundinguniverse.com/company-histories/The-Gillette-Company-
Company-History.html

- Porter’s 5 Forces Model:


http://notesdesk.com/notes/strategy/porters-five-forces-model-porters-
model/

- QuickMBA – Online businesss resources:


http://www.quickmba.com/strategy/swot/