THE GILLETTE COMPANY
Second year of Mach3 in the market.
1. Executive Summary
The major goal is to meet the sales volume (unit and US$14400 MM) as well as estimated profits US$ 2880 MM which represents 24% of sales. *
Consolidate Mach3 as a successful launch, with the objective of recovering the investment in 2 years. *
Minimize the effect the higher price of Mach3 might have in foreign markets. *
Make consistent efforts in all countries to continue sales growth of other consumer brands: Duracell (batteries), Oral-B (toothbrushes), Parker and Waterman (pens). In China special effort on Duracell due to high potential because of consumer preference for gadgets such as pagers. Make a smooth transition from Mr. Zeien to Mr. Hawley as the new chairman. It is important not to loose focus, “few world leading products” and continue the market capitalization growth obtained in the last 12 years (from $ 3 billion to $ 66.1 billion this means 22 times).
2. Current Market Situation
Mach 3 and blades and razors
In April 1998, Gillette unveiled a revolutionary advance in shaving: the Mach 3. Gillette had spent 15 years and 750 MM developing the Mach 3. It was the company´s biggest and most important new product since Sensor. The company hoped Mach 3 had a similar successful effect as Sensor. With Sensor Gillette´s market capitalization jumped from US$ 3 billion to US$ 66.1, locating Gillette among America´s 30 biggest companies. Gillette was concerned about the higher price tag of the Mach 3, a 35% premium to Sensor Excel, currently the priciest razor on the market, and the impact it might have in its foreign markets. Gillette´s future might not exactly be on a razor´s edge –because these were mature markets, it had 71% of the North American and European market for razors and blades. Growth had slowed in the hugely profitable razors division, partly because Schick, its smaller rival, had recently launched a new razor. In August 1997, the mildest of profit warnings was enough to send the shares tumbling nearly 20%, although they had since then recovered. Gillette launched a new product only when it had made a genuine technical advance.
On the other had it had other consumer brands: Duracell (batteries), Oral-B (toothbrushes), Parker and Waterman (pens), was beloved by management consultants. Duracell Ultra due to be launched in May 1998, was an alkaline battery designed to last 50% longer than its rivals in devices that needed a lot of power, such as palmtop computers and personal CD-players. The company also promised to launch in late 1998, a “universally new, remarkable” toothbrush, which abandoned the usual practice of stapling the filaments through the brush head.
Research and Development
Gillette liked to think of itself as a giant research laboratory. It spent 2.2 % of sales on R&D, twice as much as the average consumer products company. Like a pharmaceutical company, Gillette had a product pipeline, the successor to the Mach3 was already being developed. Almost half of its billion sales in 1997 came from products introduced in the past five years, more than SmithKline Beecham or Johnson&Johnson could boast. The chairman Mr. Zeien expected to maintain that trend, helped by more than 20 big products launched in 1998 alone.
Investors had begun to fret about slowing growth, lackluster sales and an imminent change in top management.
Reduce stocks of its Sensor and Atra shavers ahead of the Mach 3 launch. While most rivals would consider this suicidal, Gillette used this strategy to ramp up prices of new products. Mach 3 would sell for around 35% more than Sensor Excel, which itself was 60% more expensive than Atra, its predecessor. Duracell Ultra cost 20% more than a conventional battery.
Chairman Mr. Zeien insisted that premium prices did not matter: “People never remember...
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