University College Dublin
17 October 2011
Gillette with over 70 percent market share in the wet shave market in both the US and Europe dominated the category. This dominance was born from a relentless pursuit of better shaving technology, a willingness to invest whatever was needed to manufacture its products effectively, and a formulaic, integrated marketing strategy. Gillette prided itself on its innovations in shaving technology and its ability to persuade consumers to trade up as new improved versions of existing razors were launched. In 1990, the Gillette Sensor represented a breakthrough in shaving systems technology with its twin blade cartridge. This product provided a platform for development of other members of the Sensor family, including Sensor for Women and the SensorExcel. It was believed that Sensor’s launch and subsequent success saved the company from takeover bids by Revlon. In 1998, Gillette introduced the Mach3 razor, which added a third blade to the razor. The Mach3’s introduction came at a time when the company was experiencing financial headaches, which culminated in takeover rumours involving Procter & Gamble.
Throughout the 1990s and into the new century, the company continued to spend large sums of money on developing flagship products at times of crisis, so that the company’s entire future essentially relied upon their success. There was concern at Gillette that the constant peaks and troughs faced by the company were ultimately going to affect shareholder expectations in the long term. As such, Gillette needed to find a way to smooth out the ups and downs as much as possible to provide a more consistent performance. A steady stream of incremental innovations would prove less risky and less expensive, but such an approach would not be consistent with Gillette’s brand image as technology leader – an image that had allowed it to dominate the wet shave market. It was also believed that Gillette needed to maintain focus on innovation without allowing other areas of the business, such as distribution, to escape its control. CEO James Kilts was faced with the decision of which route Gillette should take.
The Wet Shave Market in the 1980s and 1990s
Since Bic had introduced the first disposable razor in 1975, Gillette seemed to accept that razors would be sold on price. The company pared down its advertising budget, depending on price cuts to maintain its commanding 65 percent share of the world’s $2.4 billion shaving market by making its own disposable razor the market leader. By the mid-1980s, disposable razors accounted for about half the market, only a decade after their introduction. _____________________________________________________________________ Copyright © 2011 Professor Frank Bradley, Michael Smurfit School of Business, University College Dublin, Ireland
Commentators argued that it was at that point Gillette began to realise that the dramatic growth of lower-margin disposables was eating into its profits and dimming the lustre of its once-valuable brand name (The Economist, 15 April 1992).
In 1987, razor and blade sales accounted for $1 billion of the company's $3.2 billion in revenues, and $334 million of its $523 million in operating profits. Although this represented a 33 percent profit margin, it had slipped by about one percentage point a year for several years. While some thought the drift to commoditisation was inevitable and irreversible, Gillette believed it could create a new category, the shaving system, and take control of it while at the same time eroding the increasing market share of the disposable categories. The Sensor represented the company's attempt to defy a decade-long trend in Europe and America towards disposable razors.
Between 1986 and 1988 Gillette fought off four take-over bids, the first three by Revlon and the last by Coniston Partners, a New York investment firm....