Case study discussion – Gillette loses face
This is a deceptively simple-looking case. The lazy student will simply adopt the critical line on the company’s strategy being fed to him or her by Jeremy Kahn, the author of the article. In fact, things are by no means so clear-cut, students need to do some careful analysis, particularly in the area of Gillette’s corporate-level strategy, before this becomes plain. They have to be prepared to think hard about the success factors in the different businesses – if they simply pick out the points proffered by the case study, then they will not derive the full benefit from the case.
1. What were the most important strategic issues confronting Gillette in November 1999? If we go through the analytical process proposed in the chapter, the following points emerge.
At corporate level, the (1) share price has fallen 48% to below its 1996 level. Although prices may overshoot once negative market sentiment takes hold, in this case the company has contributed to that sentiment by a (2) persistent failure to achieve its own sales targets. This indicates either some fairly deep-seated problems in motivating staff to meet those targets, or a lack of ability to set realistic targets, which may in turn indicate that the firm is out of touch with its market place.(3) The problems with credit periods and inventories are further evidence of management problems.
There is not a great deal about the environment in the case study. The economic downturn in Asia has affected Gillette but since the downturn appears to be temporary, there is no clear case for the company to take measure to respond to it. The tone of the case implies that there are no other environmental issues that might have affected demand for Gillette’s products.
Within individual businesses Gillette is:
• (1)Market leader in razors and blades (40% profit margins), alkaline batteries, toothbrushes. In these businesses, the company is positioned as a differentiator with global scope, which yields high shares and high margins. This positioning rests on proven distinctive capabilities in innovation and communication, and strong brands and reputation. There are issues about how Gillette may wish to leverage these strategic resources. • (2)Market leader in hand blenders and high share of market for many other electrical appliances, but profits at Braun have fallen 4%. There is little information in the case about what precisely is going wrong here, but given the difficulties being experienced by Kenwood in the US and Pifco in the UK, this may well be in part a problem of maturity or decline within the industry to which Gillette must respond. There are also questions about whether this business belongs in Gillette’s portfolio at all, which we return to later. • (3)Among the leaders in electric shavers, but demand for electric shavers is declining, in part because Gillette itself has revived the wet shaver (an interesting example of how a company can influence its own environment). How the company should respond to this is an issue. • (4)Owner of a fast-growing electric toothbrush business, with 65% market share and high margins. The issue here is how Gillette responds to the growth potential. • (5)Market leader in pens, but stationery products profits down 31%. There appear to be issues here relating to poor product positioning and lack of innovative capabilities, which the company is already addressing. • (6)Suffering falling profits in its toiletries division. There is an issue of what to do about the apparently unsuccessful positioning of these products, whose high prices do not, the case implies, match consumers’ perceptions of the brand’s value. The fact that margins are low despite the high prices implies that there is an issue with the cost structure in this division.
The fact that Darman cannot spend too heavily to implement his turnaround plan for Papermate implies that Gillette’s financial resources are...
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