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STRATEGIC MANAGEMENTGILLETTE CASE

SUBMITTED TO: SIR AHSAN DURRANI

Gillette Case

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Present Strategy

Following are the different levels of present strategy (1988) of Gillette Corporation.

Corporate Strategy

1. Diversification strategy: Diversification through both internal development and acquisition in majorbusinesses Blades and razors, Stationary products, Toiletries, Oral B, Braun.

In 1988, Gillette adopted Retrenchment, sold its Jafra cosmetics in 11 countries, abandoned Misco Inc.

(Computer supply business) and ST Dupont (A luxury lighter, clock and watch maker).

Global expansion (different markets): pan European strategy selling same products with different

names. Selling Good News under the name of Blue II in UK, Parat in Germany etc.

Business Strategy

Differentiation

Differentiation themes:

1. Innovation: Trac II, Atra, Atra Plus and Micro Trac.

2. Quality Manufacturing: Gillette designed state-of-the-art manufacturing process for Micro Trac and

other razors.

3. Image top of the line: Pioneer in the industry, has built strong image over time.

4. Technology (R&D) leadership

5. Engineering design and Performance: System razors are always based on performance.

Functional Strategy

1. Marketing: Pricing strategy to charge high prices for their system razors and low for disposable razors.

Advertising expenditure was declining in previous 10 to 12 years

2. Research & Development: Continuous research and innovation to support business strategy of

differentiation.

3. Production: High quality and economies of scale.

4. Finance: Financing through debt.

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Internal Factor Analysis Summary (IFAS)

S.No. Internal Factors Weight Rating Weighted

Score

Comments

1.

2.

3.

4.

5.

6.

7.

8.

Strengths

Product Innovation

Market Share

Global Positioning

(Aggressive expansion)

Diversified Portfolio

Economies of Scale

Research and

DevelopmentPerformance and Quality

Brand name and image

0.07

0.06

0.075

0.06

0.07

0.075

0.09

0.06

4

4

4

3

4

4

3

4

0.28

0.24

0.3

0.18

0.28

0.3

0.27

0.24

Trac II, Atra, Atra Plus and Mirco

Trac innovations.

60% share in worldwide wet-

shave market.

Presence in Europe, Canada,

Japan etc. (over 200 countries)

Blades and razors, stationary,

toiletries, Oral B, Braun.

More than 30 large

manufacturing facilities.

South Boston Plant, high

investment in R&D.Focused on high performance

and quality for system razors.

Established over the years

1.

2.

3.

4.

5.

6.

7.

8.

Weaknesses

Advertising Expenditure

(Marketing)

Financial Position

Operating expenses

Women focus (Low)

Product development

cycles

Expensive Cartridge

System

Focus on other business

Distribution

0.06

0.08

0.04

0.03

0.04

0.06

0.06

0.07

2

1

2

2

2

2

1

2

0.12

0.08

0.08

0.06

0.08

0.12

0.06

0.14

Continuous declining advertising

in 80s for blade and razor.

Increased in 1988 to $43m

Increasing debt load to $2b,

negative equity in 1988.O/E Ratio = 41.3%, 41.1%, 50%

in 88, 87 & 89. While BIC was at

27.5%, 25.4% and 25.3%.

There were 62m women wet

shavers as compare to 55m men

Took 7 years to develop and

launch Atra (1977)

Selling Atra Plus at $5 while

disposable Micro Trac $0.99

Despite of diversification,

dependent on blades and razors

Failed in Japan. BICs greatestasset was retail distribution

1 2.83 Mildly Strong

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External factor Analysis Summary (EFAS)

S.No. External Factors Weight Rating Weighted

Score

Comments

1.

2.

3.

4.

5.

6.

Opportunities

Increasing Globalization

Dry Shave market

Commoditization

Innovation and

technological change

Supplier Seller

collaboration

Age distribution of

Population

0.10

0.05

0.09

0.10

0.08

0.07

4

3

3

4

4

2

0.4

0.15

0.27

0.4

0.32

0.14

Identified from driver of change,

Gillette competing globally due

to increase in globalizationElectric razors posing threat to

razor and blade, 30% men using.

(Threat of substitute)

Degree of differentiation, and

Gillette was responding through

Micro Trac and Good News.

Drivers of change, Gillette

responding through continuous

R&D and new products.

Supplier bargaining low, and

Gillette response results in high

quality and performance

General environment factor, Steel

and Plastic men.

1.

2.

3.

4.

5.

6.

Threats

Competitive global Rivalry

Takeover threats (Entry ofmajor Firms)

Threat of new entrants

Large Buyers

Access to distribution

Channels

Pressure on pricing

0.11

0.10

0.07

0.06

0.06

0.07

4

3

3

3

2

3

0.44

0.3

0.21

0.18

0.12

0.21

In 1988, the company introduced

Trac II plus, Good news! Pivot and

Daisy Plus (Showing response)

Driver of change, Revlon groupand Coniston partners. Gillette

responding but through debt load.

Gillette responding through new

launches e.g Good News

introduced before BICs entrance

Walmart, Carrefour and other

large retailers with large

bargaining power.

Gillette showing no response in

restricting others in distribution.

Economic environment, Gillette

responding through disposables

1 3.14 Average Response

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TOWS

IFAS

EFAS

Strengths

1.Product Innovation

2.Market Share3.Global Positioning

4.Diversified Portfolio

5.Economies of Scale

6.Research and Development

7.Performance and Quality

8.Brand name and image

Weaknesses

1.Advertising Expenditure

2.Financial Position3.Operating expenses

4.Women focus (Low)

5.Product development cycles

6.Expensive Cartridge System

7.Focus on other business

8.Distribution

Opportunity

1.Increasing Globalization

2.Dry Shave market

3.Commoditization

4.Innovation and technological

change

5.Supplier Seller collaboration

6.Age distribution of Population

SO Strategies

1. Using product innovation

and economies to achieve

state of art manufacture (low

cost, high performance)

disposables. S1,5,6 O3

2. Diversified portfolio can be

utilized more in increasing

globalization. S4 O1,O2

WO Strategies

1. Increasing advertising,

reducing operating expenses

will lead to serve the needs of

plastic man W1,3 O6

2. Focus on other business

should be increased (Braun) to

capture the rising dry shave

market.

Threats

1.Competitive global Rivalry

2.Takeover threats (Entry of

major Firms)

3.Threat of new entrants4.Large Buyers

5.Access to distribution Channels

6.Pressure on pricing

ST Strategies

1. Innovation, Positioning,

Scale, R&D and Quality could

be used to overcome global

rivalry. S1, 3,5,6,7 T1.2. Performance, brand image

can help to avoid pricing

pressure and charge premium

on performance. S7,8 T6

WT Strategies

1. Improve financial position

(increasing retained earnings) to

better tackle takeovers W2,3 O2

2. Cartridge systems withincreased marketing to restrict

new entrants and overcome

rivalry and pricing pressure. W6

T3,T1,T6

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The Strategic Position and Action Evaluation Matrix (Space Matrix)

A. Financial Strength (FS)

Return on Investment (ROI): +4

ROI of Gillette is 9.4% and 8.4% in 1988 and 1987 respectively where of as ROI others are as follows,

Warner lambert = 12.6%, BIC = 12.1%, Swedish Match= 4% in 1988

So in according to this comparison FS of Gillette is average.

Leverage: +1

Measured by debt to equity ratio, which is equal to 19.8 times and 1.4 times in 1988 and 1987,

Warner Lambert = 0.32 times and other members were having low too in 1988

Liquidity: +4

Measured through current ratio, which is equal to 1.8 times in 1988 and 1.64 times in 1987

Warner lambert = 1.23 times, BIC = 3 times, Swedish Match = 1.19 times in 1988

Working capital: +6

Current asset current liabilities, which is equal to $774.3 m in 1988 and $617m in 1987

Warner lambert = $289 m, BIC = $113, Swedish Match = $196m in 1988

Cash Flow: +2

Measured by operating cash flows which is equal to $150m in 1988

Warner lambert = $512 m, BIC = $26m, Swedish Match = $107m in 1988

Ease of Exit: +4

As Gillette was operating in other business too, it can exit the wet shave market but fixed cost

associated would be high.

Risk involved in business: +3

Assumed to be average as operating risk, internal risk (within control) and legal risk were low but high

financial risk and takeover/acquisition risks.

Total financial Strength = 4+1+4+6+2+4+3=24

Average FS = 3.42

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B. Environmental Stability (ES)

Technological Changes: -4

As there was a rapid change in technology in 1980s and termed as the start of computer age.

Rate of Inflation: -2

In 1980s inflation in US fluctuated from 2% to 6% average consumer prices and its 4.1% in 1988

Demand Variability: -3

Demand for wet shave market products might increase due to number of reasons. For example;

products quality increasing, introduction of disposables and life style changes. But slow market growth

rate observed in 1980s

Price range of competitive products: -2

Prices of competing products were generally lower than Gillettes premium priced razors.

Barriers to entry: -5

Barriers of entry were low as analyzed through porter analysis. (Access to distribution channels, Low

retaliation)

Competitive pressure: -5

High competitive pressures as indicated in Porter analysis (Global Competition)

Price elasticity of demand: -4

Customer demand appear to be price elasticity as shown in the increasing trend of disposables and

decreasing trend of system razors due to price factor.Total Environmental Stability = - 4 - 2 - 3 - 2 - 5 - 5 - 4 = -25

Average ES = -3.57

C. Industry Strength (IS)

Growth Potential: +4

Industry members were growing in US market and global as they were fighting for the market share.

Profit Potential: +3

Low profit potential due to intense competition and increasing popularity of disposables which

generated very little profits.

Technological know-how: +5

Industry members like Gillette and BIC were having high technology know how and spend a lot on R&D.

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Resource utilization: +4

It is assumed that industry members are utilizing resources optimally to compete and earn profits

Capital Requirement: +5

Capital required in the industry was higher for manufacturing facilities, advertising and other related

expenses.

Ease of Entry: +2

Other than capital requirement other factors favored ease of entry. Access to distribution channels, Low

retaliation and low differentiation.

Productivity, capacity utilization: +4

Total Score Industry Strength = 4+3+5+4+5+2+6 = 27

Average of IS = 3.85

D. Competitive Advantage (CA)

Market Share: -1

Gillettes market share globally 60% and 61.9% of US market as of 1988

Product Quality: -2

Gillette and industry members are focusing on product quality especially in system razors.

Product life cycle: -1

Product life cycle is the stages through which a product or its category bypass. From its introduction to

the marketing, growth, maturity to its decline or reduce in demand in the market. Customers expect fast

delivery of quality products with innovative features and affordable prices. Gillette maintain competitive

advantage by proper management of its products life cycle.

Customer Loyalty: -2

Gillette steel man above the age of 30 very generally considered as brand loyal and high market share

proves customer loyalty.

Competitions capacity utilization: -4

The 3 main competitors were operating at almost maximum capacity to compete in the market

Technological Know-how: -1

Gillette main strength was its technological knowhow.

Control over suppliers and Distributors: -3

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Gillette was having control over its supplier as their size was small comparatively and switching cost was

low whereas distributors/retailers were having high bargaining power.

Total Score of Competitive advantage (CA) = -14

Average CA Score = - 2

SPACE Matrix Calculations

ES Average Score (-3.57) + Average FS Score (+3.42) = - 0.15

Average CA Score (-2.0) + Average IS Score (+3.85) = + 1.85

Graphical Presentation

FS

CA IS

Competitive Profile

ES

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Conclusion

The Strategic Position and Action Evaluation or the SPACE Matrix is a four-quadrant framework which

indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate

for a given company.

In the above analysis, Gillette falls into the 3rd Quadrant i.e. having a competitive profile. The company

having positive overall x-axis due to high competitive advantage (CA) and Industry Strength (IS). And

negative Y-axis due financially weak position (FS) and unstable environment (ES).

The vector having a low slope and it is more inclined to x-axis which means the Gillette is having

competitive advantages in a growing industry.

Three Strategies from TOWS

1. SO Strategy: Using product innovation and economies of scale to achieve state-of-the-art

manufacturing (low cost, high performance) of disposable razors.

PROS

A. High performance razors would help to achieve high prices and low cost (which would further help in

increasing profits).

B. Product innovation would help to bring new features and quality, and it will also reduce

manufacturing cost.

CONS

High competition would be faced by Gillette from BIC and other members competing for disposables, as

this product is near to commodity.

2. WT Strategy: Cartridge systems with increased marketing can be used to restrict new entrants, to

overcome rivalry and pricing pressure.

PROS

A. Cartridge razors with increased advertising would lead to differentiations which would become a

competitive advantage.

B. Premium prices can be charged which will increase profits.

CONS

Due to high priced cartridge systems, customer would switch to low priced disposables.

3. Diversified portfolio can be utilized more in increasing globalization.

PROS

Gillette electric razors and Oral B products in global markets may result in higher profits and may reduce

debt load.

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CONS

Gillette, by investing in dry shaving market, might ignore its wet shave market and therefore lose share

and profits.

FINAL STRATEGY

From 1980 to 1988, disposable razors share has risen from 22% to 41.5% market share of dollar sales

and share of systems razors was falling in these years.

As Disposables are the wave of the future, now we are proposing Gillette to adopt the strategy to focus,

in coming years, on disposable razors. The objective of this strategy would be:

- to bring innovation- to achieve high performance razors- at low cost- with additional benefits (lubricating strips, movable heads)

and using economies of scale. Gillette can segment the markets and offering value to those segments

willing to pay for it at higher prices. This would protect profitability.