Case Study Gillette India: Sharpening the Innovation Edge in 21st Century

Dr.V.N.Bajpai, Associate Prof., I.T.S Ghaziabad On a pleasant evening of February 19, 2003, Zubair Ahmed, Managing Director, Gillette India which was incorporated on February 1984 by House of Poddar Enterprises (HOPE) and Gillette Company, U.S.A. (Gillette) at Rajsthan, points out: "Last year, our focus was on putting the business on a profitable growth path. The company entered 2003 with strong fundamentals, focused goals of profitable sales growth and consolidation of last year's gains." 1 The company's recent key strategic decisions included rationalisation of product lines, optimizing manufacturing efficiencies, reduction in overheads, exiting nonperforming categories, reducing non-strategic promotions, building on innovations and going aggressive in the mass blades segment. As a result net profit of the company was increasing steadily and by till today it was leader in the personal grooming care segment by building on its legendary incremental innovations. However, in the year 2009, April 21, looking outside the window, Zubair Ahmed wondered how long the company could go on with this. In this rapid changing environment, unless the team came up with the exceptional product ideas and effective positioning, the existing methodology of product innovation would die very soon and so might the entire business. A Brief History of Gillette India Ltd.: 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 todays economy, it is only radical innovation that will lead to significant growth.2 -Gary Hamel Since the time the first man arrived on the earth, a decision has had to be made whether to allow a beard to grow or remove it, and since then man has been fighting the unending battle with his stubborn facial hair. His face has about 25,000 whiskers, which are as hard and tough as a piece of copper wire of the same thickness, and grow at a rate of five to six inches (125 to 150mm) per year.3 Over the period of time, popularity and sales of male grooming products across the globe have ensured that the decision is skewed in favour of the later. The act of shaving and male grooming, which has been linked to attributes ranging from `ultimate machismo' to `modern effeminacy', has since evolved from sharpened flints, to iron, bronze or gold razors, to T-shaped razors and double-edge blades, to electric shavers. An average man spends in excess of 3,000 hours of his life in the act of shaving.

One company, which has been largely instrumental in this evolution, is the Bostonheadquartered Gillette Company, world leader in male grooming (blades, razors and shaving preparations), select female grooming (wet shaving and hair epilation products), and alkaline batteries. Gillette India, a subsidiary of Gillette company USA was incorporated on 9th February, 1984 at Rajasthan. The Company was jointly promoted by House of Poddar Enterprises (HOPE) and Gillette Company, U.S.A. (Gillette). The Company Manufacture stainless steel razor blades. - Gillette entered into a foreign collaboration agreement with HOPE for setting up of a company for the manufacture of stainless steel razor blades in which Gillette agreed to subscribe 24% of the equity capital. Later it increased its stake to 51%. The agreement also provided for technical collaboration by Gillette over the full range of technical know-how and technical assistance for the manufacture of razor blades, razors and shaving systems. Major Brands of Gillette: Alkaline Batteries Duracell Blades & Razors Gillette, Mach 3, Sensor, Atra, Trac, Custom plus, Good News, Oral Care Oral-B Small appliances Braun Stationary Products Parker, Paper Mate, Waterpaper, Liquid Paper, Dryliner Toiletries Gillette, Right Guard, Soft & Dry, Dry idea, Satin Care Indian Personal Grooming Care market and Challenges: It is a question to ponder that in this vast country with the population more than 1.10 billion (as per the census 2001), the number of male above 18 years of age is more than 30 million, the number of units/ industries manufacturing safety razors is very few and that too in the large sector. The small sectors has no such units manufacturing this item of mass consumption and daily usage. The major large scale units are M/s India Shaving Products Ltd. With manufacturing plant at Mysore (Karnataka), Bhiwadi (Rajasthan) and New Delhi having collaboration with M/s Gillette Inc. of USA and M/s Vidyut Metallics Ltd., at Thana (Maharashtra) having collaboration with M/s Speialty Blades Inc. USA. 3 According to AC Nielsen/ORG, the blades market is estimated at Rs 600 crore by value, and about 3.8 billion units by volume. A dominant 97 per cent of this market comprises the double-edge segment, about half of which is accounted for by salon usage. Systems and disposables account for just about 3 per cent of this market. India is the largest blade market in the world in volume, though not in value terms. Indian blade market can be grouped into four broad categories: flat blades, disposables, twin blades and three blades. First blade category, the cheapest one was dominated by Harbans Lal Malhotra & Sons. In the second and third category (representing mid and high end of the customers) Gillette had been a clear leader in terms of new product introduction and branding. The Gillette brand had a high recall and was associated with quality, precision and technology. However, Gillette's experience in India, had been a long haul, given that most of its products had been premium and within evolving

categories. However, the company's efforts at consolidation and market creation seemed to be finally paying off. The company closed 2002 with a net profit of Rs 6.46 crore against a net loss of Rs 27.79 crore the previous year. While grooming sales declined by 1.7 per cent, diversified operations comprising oral care, personal care and household products increased 16.4 per cent. Sensor Excel grew by 16.4 per cent while Mach 3 grew by 54.2 per cent by volumes. After dominating the premium end of the razor market, Gillette changed track. Not content with being a value leader with the highest market share in the disposable market, it now wanted to dominate in terms of volume as well and decided to enter the double edge segment (economy segment). As per Manoj Kumar, Regional Business Director, (Grooming & Personal Care), India & South Asia, Gillette India, "The topline for our grooming business needs to grow faster. The company, which has so far been creating and promoting high-end systems and disposables, will focus on the high-volume, double edge segment." With this company believed that it would have a presence in the entire shaving blades market. All these years Gillette India operated in just 3% of the market. Considering 97% of the category exists in the lower end company stretched its domain covering the entire market. The idea behind this was that an untapped large segment skewed towards the cheapest and the best. Gillette India couldn't have ignored the double-edge segment because that's where the volumes are. It whould have taken this decision much earlier. The noise Gillette intends to make within the double edge segment now, will revolve around the Gillette 7O' clock brand. Explaining the need for it, Kumar says, "Consumer surveys showed that while 7O' clock was recognised as the gold standard within double-edge blades, the brand did not necessarily enjoy top-of-mind recall." Last year (2001), the 7O' clock brand was repositioned and re-branded as Gillette 7O' clock. An aggressive marketing plan had the new television campaign,. set against the theme of a `platinum girl' concept, it was an attempt to drive home the platinum edge attribute which comes coated on the 7 O'clock blade. The `platinum girl' concept will be taken forward through on-ground activities across the year. This action of the company had an inbuilt endanger of dilution of Gillette brand. Kumar insists that it won't result in the dilution of the premium Gillette equity. Says he: "Instead, we will upgrade consumers within the double-edge segment; we want to be the Mach 3 in this segment." In any case, he points out Gillette 7O' clock has been priced about three times higher than competitors such as Topaz, Laser and SuperMax. The idea was Gillette was not going mass all-out. The focus was on the double-edge segment, but brands such as Mach 3 and the Series range remain very much at the premium end. In contrast to the blades market, the domestic shaving preparations market remained minuscule. AC Nielsen/ORG estimated this market at about Rs 150 crore, three-fourths of which was accounted for by shaving creams, with shaving foams in aerosols and tube gels making up for the remaining 20 per cent. Interestingly, recent times have seen a perceptible shift away from creams, in favour of foams and gels, in A and B class cities. as shaving creams is a declining market, while foams and gels are on the upward growth path, suits Gillette. As Kumar points out, "Brands within the cream segment are differentiated largely on fragrances. However, in case of foams and gels, differentiation can be done on technology. Gillette has patented technologies, which gives us an edge over competition."

Gillette India- The Innovation SAGA: In 2003 -Gillette India had rearranged its complete range of shaving products and had identified the double edged blade segment as its growth market driver. Gillette India repositioned its flagship blade brand for which the company had devised a new communication strategy that aimed to address blades as branded products. In 2004, Gillette endorsed Beckham (a famous football player) to promote its products, and at the same time Gillette India announced the launch of new generation triple blade shaving system Mach3Turbo, which presented a whole host of advancements to the Mach3 design, primarily, improved blade technology. Today, the company continued to be at the forefront of new innovation. In 2004, the male shaving category was expanded into a whole new segment - power wet shaving - with the launch of the M3Power razor. Four key innovations and improvements were made to the Mach3 design to produce the Mach3Turbo razor.4 The most notable development was the introduction of anti-friction, comfort coated blades, which was specifically designed to reduce the force required to cut through hair, therefore reducing irritation and allowing men to shave against the grain. A true test of shaving performance. The Indicator Lubricating Strip had also been reformulated to release more lubrication over a greater number of shaves, resulting in improved razor glide. The number of Microfins had been increased to ten - twice as many as Mach3 - allowing the skin to be stretched more effectively, so the blades could shave evenly and effortlessly. Finally, the razor handle was redesigned to include textured rubber grips and metal grooves, for improving sureness of grip and providing better handling and control throughout the shave. In January, 2005, Cincinnati-based Procter & Gamble (P&G) decided to acquire Gillette for $57 billion, by that time it was on the verge of overtaking Unilever to become the world's largest consumer goods company. The acquisition was the largest in P&G's 168year history, surpassing the $6.9 billion purchase of German hair- care products company Wella AG in 2003.5 In 2006, The Gillette Fusion, a five-bladed razor was released. There were two different versions of the Fusion available: the Gillette Fusion, and the Gillette Fusion Power. All share the characteristic of having five blades on the front, and a single sixth blade on the rear that acts as a "precision trimmer". In addition, the Fusion Power was battery powered and emits "gentle micropulses" that are claimed to increase razor glide. The other features of Gillette Fusion were:6 Box of 8 replacement cartridges for the Gillette Fusion Power razor Five-blade shaving surface for a comfortable, precise shave Blades were spaced 30% closer together than Mach3 blades Enhanced indicator Lubrastrip signals when it's time to change the blade In February 2007, the Fusion Power Phantom was released with a redesigned handle and a darker color scheme than the original Fusion Power6. In February 2008, Gillette released another revision, the Fusion Power Phenom, with a new blue and silver color scheme. 7

Gillette's portfolio had expanded significantly since the release of the original safety razor, covering a product to meet the needs of all consumers, at all price points. The company came up with a fully integrated grooming solution for men with the shaving range extending from entry level disposables such as BlueII the basic twin blade razor, right through to Gillette's most advanced technology - Mach3Turbo. Gillette Series also combined shave gel and foam to enhance razor performance, along with after-shave cooling gel, after-shave balm and splash, anti-perspirants, deodorants and shower gels. In the year 2008 the company took on two shaving products currently pitched on the airwaves: the Infinity Razor, a single plastic shaver that boldly claims to be "the last razor you'll ever buy"; and the Save A Blade, which claims to keep razor blades sharp for 200 shaves. The Infinity Razor, designed with an odd, broadly curved handle, sells for $10 about the price of the most expensive single razors, but still a deal if it's the last ten bucks you'll ever spend on a blade. Sadly, it won't be. The Infinity Razor is a disappointing dud, an overpriced razor that gave a poor shave right out of the package and seems to be all marketing and no science. Metal blades get dull with use, and the question was fascinated to learn how the Infinity Razor had overcome that. The infomercial offers scant details, merely oohing and aahing that the blade is forged from "carbon-injected steel fused with tungsten carbide" alloys that would not magically render the blade immune from dulling. Good product development identifies and then fills a perceived need. And with companies finding an eager market for twin blades and then triple blades and then quad blades and now even a five-blade razor, shaving is clearly an area with plenty of consumer dissatisfaction to tap. Till recent Gillettes long term strategy was the reflection of its mission and values statement that thrust upon to achieve or enhance clear leadership, worldwide in the existing or new core consumer product categories in which the company choose to compete. Gillette India The Road Ahead Zubair Ahmad took a deep breath and was astonished to see the SAGA of innovation that led company to win various accolades in the industry over the period of time. He is worried about the pressure of handling the aspirations of future generation which had a strong belief on Gillettes strong innovation philosophy. Todays decision whether to built on existing innovation platform or to look for certain breakthrough would ripple through the very real world of business of tomorrow with the future of a leading business unit at stake. References: 1. Financial Daily from THE HINDU group of publications, Thursday, Apr 03, 2003 www.ideas4all.com, Gillette and Innovation - Which side are you on ? July 3, 2007

ALL INDIA STATUS REPORT ON SAFETY RAZOR BLADES INDUSTRY by Shri. K. Sampathkumar, Deputy Director (Met), Small Industries Service Institute, Govt. of India, Ministry of SSI 9prepared under action plan 2003-04) Superbrands case studies: Gillette, Brand Republic 29-Nov-04 http://en.wikipedia.org/wiki/Global_Gillette 2. Gillette Fusion Official Site 3. Another Gillette Razor: Fusion Phantom Power 4. "Gillette Unveils Newest Members of Its Gillette Young Guns Lineup". http://www.pginvestor.com/phoenix.zhtml? c=104574&p=irolnewsArticle&ID=1106705&highlight=. Retrieved on April 15, 2009.

Exhibit-1 Gillette firsts in Industry Since the company's inception, Gillette has introduced a number of technologies that are now a part of nearly every razor.

Safety razor (Gillette Safety Razor invented in 1895[and patented in 1904) Razor marketed specifically to women (Milady Dcollete, 1916) Razor dispenser (1946) Stainless Steel blades (Super Stainless, 1963) Double-blade razor (Trac II, 1971) Disposable double-blade razor (Good News!, 1976) Razor with a pivot point (Atra, 1977) Razor with a lubricating strip (Atra Plus, 1985) Razor with spring-loaded blades (Sensor, 1990) Razor with microfins (Sensor Excel, 1995) Razor with three blades (Mach3, 1998) Manual Razor with battery power (M3Power, 2004) Razor with five blades (Fusion, 2007) Razor with rear trim blade (Fusion, 2007)

Exhibit-2

Gillette
Building a fortress around the basic Invention/ technology
Vacuum chamber in which the DLC blade coating was applied Use of 3 staggered Blade getting progressively closer to skin

Single point cartridge loading system - Avoiding upside down attachment

Mach 3 Core Technology (Diamond like Coating)

New forward pivot design positioning the blades in an optimal shaving position

Indicator strip signaling when the shaver is no longer experiencing the optimal shave

Rubberized contour grip for better handling

Exhibit 3 Gillette - Profit & Loss Account

Profit & Loss Account Dec '03 12 mths 78.61 90.31 0.01 90.30 18.19 0.00 72.11 2.02 74.13 29.88 44.82 154.42 0.00 27.70 4.70 325.85 13.75 85.00 88.00 Dec '04 12 mths 97.78 109.90 0.00 109.90 16.05 0.00 93.85 3.79 97.64 36.66 61.22 173.00 0.00 27.70 3.62 325.85 18.79 85.00 97.17 Dec '05 12 mths 107.45 123.79 0.00 123.79 15.57 0.00 108.22 0.89 109.11 40.62 68.72 182.72 0.00 32.59 4.57 325.85 21.09 100.00 106.86 Jun '07 18 mths 168.22 233.85 0.00 233.85 22.30 0.00 211.55 6.60 218.15 73.61 142.36 256.39 0.00 57.02 8.72 325.85 43.69 175.00 110.35 Jun '08 12 mths 176.18 201.63 0.00 201.63 13.98 0.00 187.65 0.20 187.85 64.82 117.37 184.42 0.00 40.73 6.92 325.85 36.02 125.00 130.55

Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) Source : Asian CERC

Sales/ Profit (Rs. Cr.)

S le / Poit w eP r omn e a s r f is e g r a c
80 0 70 0 60 0 50 0 40 0 30 0 20 0 10 0 0 63 8 52 9 31 6 40 1 46 5 N t S le ( s C.) e a s R. r N t Poit ( s C.) e r f R. r

2003

Ya er

2004

2005

Ya er

2007

2008

Exhibit-4 Gillette and competitors (2008)

Market Cap.
(Rs. cr.)

Sales Turnover 16,660.38 2,083.40 1,473.38 1,568.78 887.59 654.77 645.02 588.84 583.71 372.12

Net Profit

Total Assets 1,527.76 544.98 166.9 585.82 285.09 1,494.08 346.64 425.4 324.2 329.37

HUL Dabur India Colgate Marico Godrej Consumer Godrej Ind P and G Gillette India Emami Jyothy Labs Source : Asian CERC

50,137.15 8,360.96 6,254.31 3,711.86 3,409.78 2,572.46 2,550.28 2,381.98 1,258.13 556.24

2,101.47 316.77 231.71 143.42 148.1 78.06 131.41 117.37 92.75 53.85

Exhibit 5

H c nv n n e igh o e ie c hn m P a to

?? ?
L wv e o alu e to Pu Vc r l s OC c P II 7 l k o r so Pe t ah Mc 3

ui n F so 3P w r M oe 3T r o M ub H v lu igh a e

L wc n e n e o o v nie c

P r e tu l M pf r ec p a a o Gll tteS a i gR z r ie h vn a o s