gilette case - v3
DESCRIPTION
Marketing case on Gilette.Any information used from this case is to be FULLY credited and sourced according to general academic rules.TRANSCRIPT
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/