Gillette : Managing Product Innovation

 Case Details
 Case Intro 1
 Case Intro 2
 Excerpts

 
Case Length : 21 Pages
Period : 1990-2003
Pub Date : 2003
Teaching : Not Available
Note
Organization : Gillette
Industry : Consumer Goods
Countries : USA

Abstract:
Gillette is a company that believes strongly in
continuous product innovation. True to its
corporate mantra of 'Innovation is Gillette', the
company has introduced some of the most
successful and widely acclaimed products in the
consumer products industry.

Its product line, particularly in the razor segment,

is legendary with such brands as Sensor,
SensorExcel, Mach3 and Gillette for Women
Venus.

This case gives a detailed account of the evolution

of Gillette's product line. The case can be used as
part of a course in product development.

Contents:
  Page No.
Introduction 1
Background Note 3
Innovation at Gillette 7
The Future Agenda 14
Exhibits 2
Keywords:
Innovation, Marketing strategy, Braun products at Gillette, Deodorants, Advertising strategy,
Razors, Duracell, Gillette, Shaving, Fast moving consumer goods, MBA case study,
Management, Mach 3, Gillette SensorExcel, Gillette for Woman Venus

Case study intro 1

There are few companies with more powerful global brands than Gillette, and there are even
fewer companies that have so successfully used innovation to increase the market strength and
consumer appeal of their brands.

- James M Kilts, Chairman and CEO1

Gillette presents the classic example of innovation as product extension. Gillette used to make
razors with one blade, then it made them with two blades, and now it has razors with three
blades. That is the all-too-typical view of innovation. And there is nothing wrong with it, except
at some point adding another blade is not going to make a substantial difference to how
customers perceive the product. More important, this narrow view of innovation is very unlikely
to create new markets and new wealth. In today's economy, it is only radical innovation that will
lead to significant growth.

- Gary Hamel2

Introduction
In early 2003, Boston (US) based Gillette was the
world's leading producer of shaving products.
Gillette's product line also included toothbrushes,
toiletries, cosmetics and other household
appliances.

With the purchase of Duracell batteries in 1996,

Gillette was also a leading player in the alkaline
battery market (See Exhibit I for Gillette's product
line).

In fiscal 2002, Gillette's sales were $8.45 billion

and net income was $1.22 billion (See Exhibit II
for past financial performance and Exhibit III for
segment wise revenue split-up).

Gillette earned more than a third of its sales and more than half of its profits from razors and
blades. Over the years, Gillette had established a formidable reputation for combining
sophisticated technology and savvy advertising to launch innovative products. The company's
corporate mantra was "Innovation is Gillette.”

Introduction Contd...
Gillette had spent millions of dollars each year on
R&D in its seven laboratories located in the US,
UK, Germany and Spain.

The R&D investments had resulted in such

successful products as Mach3, Mach3 Turbo,
Sensor, SensorExcel, Gillette for Women Venus,
Oral-B CrossAction Toothbrush, etc. Mach3 and
Sensor were considered to be Gillette's most
successful product launches.

Gillette's stated goal was to achieve 40% of its

sales from products launched in the previous five
years. Gillette estimated that to achieve this goal it
needed to launch 20 new products every year.

Background Note
Gillette's history dated back to King Gillette (King), who had established his career as a product
salesman. In 1895, while working for the Baltimore Seal Company, King arrived at the idea of a
disposable razor blade, that men interested in shaving on their own would find convenient.

He also discovered that men would pay as much as $5.00 for a home shaving kit. King reasoned
that, as the blades were cheap, the cost of shaving at home would slowly decrease and more and
more men would pickup the daily shaving habit.

In 1901, William Nickerson, a MIT graduate and

a successful mechanical engineer, joined King.
Together they formed the Gillette Safety Razor
Company in Boston (The name was changed to
Gillette Company in 1952).

They quickly developed the machinery for the low

cost production of the blade. A razor plus one
 blade was priced at $5, and 20 blades at $1.

In the first year of launch (1903) only 51 razors

and 168 blades were sold. The following year, an
US patent was awarded to the product. Soon the
sales increased to 90,844 razors and 123,648
blades. Within two years, Gillette had captured
80% of the US market for razors and blades...

Innovation at Gillette
Gillette had very early on developed the belief
that continuous product development was
necessary to differentiate itself from the rest of the
competition. Gillette's policy was to generate 40%
of its sales from products that were launched in
the previous five years. One reason for Gillette's
strong focus on new product development was
that the competition had successfully learned to
imitate its products very quickly. For example,
Schick (part of Warner Lambert and later taken
over by Pfizer, known as Wilkinson Sword in
many parts of the world) had imitated Gillette's
Trac II twin blade razor within five months of the
product's launch...

The Sensor

Following the launch of the Atra in 1977, Gillette began working on an improved shaving system
that would steer customers away from low priced disposables. With disposables, the razor had
become a commodity, and the buying decision was based solely on price and convenience...

The Mach3

In May 1994, even before SensorExcel was first sold, Gillette started making plans for Sensor's
successor. This product was to be an improved version of the Sensor. Gillette's R&D department
worked for five years under great secrecy...
Gillette for Women Venus

Following the success of Mach3, Gillette launched an advanced shaving system for women, called
Gillette for Women Venus, in early 2001.

Gillette believed the product had strategic significance. The women's shaving market was growing
rapidly and Gillette had not introduced a women's product since the SensorExcel version in 1996.

Venus was important to the company for two reasons: It was Gillette's first-ever global launch, hitting 29
countries simultaneously (Sensor for Women took two years to go global)..

xcerpts Contd...
Other Products

In 2001, Gillette introduced Mach3 Turbo, an

advanced triple- blade shaving system, with added
features like an anti friction blade that reduced the
cutting force needed to slice through hair, to result
in a much closer and comfortable shave with less
drag and pull. Mach3 Turbo also featured thinner,
more flexible microfins that stretched the skin
more effectively, resulting in even greater
comfort. An enhanced lubricating strip increased
lubrication and improved the razor glide. Priced at
$9.00, 20% higher than the earlier version, Mach3
Turbo became the top-selling razor in the US with
33% of industry sales in the 4th quarter of 2002...

The Future Agenda

In the $6 billion7 worldwide razor and blade industry, Gillette had established a strong
reputation for being an innovator. Gillette had been the first in introducing several new features-
the first twin blade shaving system (Trac II), the first twin blade disposable razor (Good News!),
the first twin blade shaving system with a pivoting head (Atra), the first twin blade shaving
cartridge incorporating a moisturizing lubrastrip (Atra Plus), the first shaving cartridge with
independent spring-mounted twin blades (Sensor), the first shaving cartridge with flexible
microfins (SensorExcel) and the first three-bladed shaving system (Mach3)...
Exhibits
Exhibit I: Gillette: Product Line and Product Mix
Exhibit II: Gillette: Eight Year Revenue and Income Summary
Exhibit III: Gillette: Segment Wise Revenue Split-up
Exhibit IV: Gillette: Key Products
Exhibit V: The 10 Top Razor Brands in The US*
Exhibit VI: The Twelve Top Razor Brands in The US*
Exhibit VII: Gillette: Advertisements
Exhibit VIII: The Top 10 Cosmetics and Toiletries Companies in 2001 by Market Share
Exhibit IX: Market Shares of Leading Players in the Wet - Shave Market

Exhibit X: Some Facts about the Shaving Market

Reuters offers 5 Five Facts on P & G and Gillette merger. Those are listed below plus other
interesting facts about this huge merger.

The combined company will have more than $60 billion in annual revenues. Here are some key
facts about the two firms.

1. Cincinnati-based Procter & Gamble was established in 1837 and made its name selling soap and
candles to U.S. government soldiers during the civil war.
2. Boston-based Gillette spends around $600 million annually on advertising.
3. In May the razor-maker paid a reported 40 million pounds ($75.4 million) to sign international
soccer star David Beckham to a three-year deal as its global face.
4. Procter & Gamble employs a workforce of 110,000 worldwide and has a market capitalization of
$141 billion. Gillette employs 29,400 employees worldwide and has a market capitalization of
$45 billion.
5. Gillette's profit beat market expectations last October after Hurricane Ivan spurred the buying of
Duracell batteries. ($1=.5303 Pound)

>

Another blog post adds this:

"The Gillette and Proctor Gamble merger, now this merger makes a lot more sense to me.
Gillette is the number 1 in razor accessories and proctor gamble is number 1 in consumer
products, a marriage of the best in their respective industries. I've always liked a good
horizontal expansion, now the newly formed company will have products being used in
most of the houses in the US (and that's probably an understatement). Those who shave
probably use Gillette, those who shower use pantene pro-v or head and shoulders or the
other products from P & G. I can't wait to see how this will develop in the future, now it's
very important for these two companies to take the process slowly, there's no hurry in the
integration process. One can only imagine how ecstatic Warren Buffett is, he will get a
share of the most popular razors,toothpaste, shampoo, soap and detergent brand in the
US.

Mr. Buffett owns about 33% of berkshire hathaway which in part owns 10% of gillette.
And at the end of the merger, he would be receiving 93million shares of the new
company, he likes whole numbers so he'll buy stocks until he gets 100million shares of
the new company that would have about 2.5 billion shares. Which would be about 4% of
a company that will have revenues of 60 billion dollars a year."

The Conglomerate blog adds their take on the merger ...

"In case you have been in a no-media zone this morning, Procter & Gamble has
announced that it will acquire Gillette Company. The WSJ article is here.

According to the terms of the deal, Gillette shareholders will receive .975 shares of P&G
for each share of Gillette that they hold. According to the press release, P&G plans to
repurchase approximately 40% of that newly issued stock (valued at between $18 and
$22 billion) within the next 12-18 months.

Of course, Warren Buffet's Berkshire Hathaway stands to benefit the most from this
merger, owning 96 million shares of Gillette and announcing that it will buy more in
anticipation of the merger.

The merger of the two companies will create "the world's largest consumer products
conglomerate." Both companies are strong, diversified companies, so one wonders what
uncaptured synergies there could be here.

The WSJ article points out that P&G is adept at taking innovations from one product and
transferring it to another product, so there may be opportunities to improve existing
Gillette products. In addition, the companies are stating that the merger will give them
more negotiating power with the most powerful buyer of consumer products -- Wal Mart.
I am sure that's true, but I can't help but notice that other closely related companies are
stating that they have to merge to compete with Wal Mart (Sears & KMart).

This merger will face some regulatory scrutiny because many of their products overlap
(Crest/Oral-B; Secret/SoftnDri; Old Spice/Right Guard. When technology companies
merge and have to explain reasons why to the DOJ/FTC, they usually throw in the
rationale that they have to merge to compete with Microsoft."

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