1. Should Gillette enter the cassette market at all?
Gillette Safety Razor Division (SRD) would be foolish to not enter the cassette market at this time in the game. With the established and well-trusted brand name on it’s side, Gillette will be able to exploit the undeveloped marketed to it’s fullest potential. The way that Gillette can accomplish this is by utilizing some of it’s biggest and strongest assets to overcome what the consultants believe are the three major problems in the industry: (1) oversized cassette cases, (2) poor internal construction, and (3) inferior quality tape resulting in poor recordings. First, Gillette will make use of its expertise in high-volume manufacturing of plastic products to improve the sizing of the cassette casings as well as enhance the internal construction. This will help to increase the reliability of the Gillette Cassette. Secondly, by using the brand name Gillette, it will be easy for SRD to contract with high quality, reliable suppliers for the components and materials required to produce a high-grade product. Having the best components and materials will result in a cassette with excellent recording abilities. Lastly, Gillette will utilize its proficiency in marketing mass-distributed packaged goods. Due to the fact that leading brands have done minimal advertising and limited distribution, it is critical for Gillette to execute proficient marketing to increase their initial market share. By focusing its distribution channel solely on department and discount stores (where 40% of cassette unit sales are made), Gillette will be able to maximize it’s sales force potential. In addition, by emphasizing it’s marketing campaign towards the low-income college student segment Gillette will inevitably tap into a large portion of the cassette market share. Roughly 30% of the US population ages 0-29 are cassette owners with 26.5% making less than $9,000 a year.
2. What quantitative analyses can you provide to help answer question #1? What are the margins in each segment? How many cassettes would Gillette have to sell to break even? Below I have generated three tables displaying the numbers I used to calculate the contribution margins, break even in units and dollars, and the percentage of market share for three segments. These segments consist of a new, high quality segment that Gillette will introduce, the professional grade, and the standard grade. I hypothesized a potential retail price of $3.10 for the high quality grade.
By multiplying all the retail prices by 50%, I found the manufacturer price to use in calculating the contribution margins. Additionally, variable costs were different for each segment. The only variable cost that remained consistent within all three segments was the loading, packing, and inspecting cost of $0.20 per cassette. Within the variable cost table are the prices listed for professional and standard tape. Both of these numbers have been multiplied by 2.68 because there are 268 feet of tape within a 60-minute cassette and the prices listed in the case are for 100 feet of tape. Lastly, I utilized the expected number of $130 million in blank cassette sales in 1970 to configure the percentage of market share numbers.
After analyzing the tables, it is clear that whichever segment Gillette chooses to pursue they will all be successful in generating a profitable return. It is recommended that Gillette produce an advanced, high-quality cassette to maintain the Gillette brand name. This cassette will only need to acquire 5% of the predicted $130 million blank cassette sales to break even, and with $2 million dollars pumped into televised advertising Gillette could easy earn over a 5% market share by selling at least 2,099,076 cassettes in a year.
Furthermore, Gillette would be wise to have a lower priced option for consumers who do not need a high quality cassette. Therefore, by acquiring the standard grade cassette the Gillette Cassette would...
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