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 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

Figur 1 – market share development 1981 - 1988

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

- VERY strong focus on R&D and

innovation

- General public associate Gilette with

personal grooming.

- Strong Brandname

- Long history

- 5 distinct company divisions; true to

core competencies.

o Safety razors – 3 products

depth

o Toiletries/cosmetics -

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

Opportunities

- A largely untapped female segment.

- Large 17-30 Mens segment that’s still

undecided in terms of brand loyalty.

- Few competitors with the financial

backbone and market experience

Gillette has.

- Japan / Asian Market is available for

further push /growth.

Weaknesses

- Global strategy, but weaker on

Threaths

- Price vs percieved value to use with

national adaptation.

- Low profits on disposable razors.

- Declining advertising budgets.

- Low brand loyalty with younger

men’s segment.

- Weak position in Japan (asia) due to

not using existing marketing channel

partners

- No clear slogan or brand recognition

theme. 4 slogans been used over

recent history.

younger segments.

- Low general brand awareness with

younger “17-30” segment.

- Market positions , brand recognition

in Japan being dominated by Schick.

- New entrants from asia into the (,ow

price ) market

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

1 http://en.wikipedia.org/wiki/Razor_blade_steel

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 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

2 Case study; Gillette and the Men’s wet-shaving market

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 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.

3 Case study; Gillette and the Men’s wet-shaving market

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 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

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

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 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

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

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 selection. The following diagram shows how a SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Environmental Scan / \

Internal Analysis External Analysis

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

/ \ / \Strengths Weaknesses Opportunities Threats

|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/