In late 1970, after the split-off of the Toiletries Division, the Gillette Safety Razor Division (SRD) is considering a proposal to enter the blank recording cassettes market to try to achieve its assigned earnings growth target. The blade and razor business is mature and the SRD knows it won’t be able to achieve the growth target there, so it’s evaluating a diversification strategy to enter the new business. As in any diversification strategy, they are facing a new market, with a new product. The first thing that SRD should do, in order to profitably satisfy customer needs, is to do a situation analysis. The firm first must understand its external and internal situation (strengths and weaknesses), including the customer, the market environment, and the firm's own capabilities. Furthermore, it needs to forecast trends in the dynamic environment in which it operates. The first thing to understand is the environment, where three different technologies (reel-to-reel tapes, eight-track cartridges and cassettes) are competing to satisfy the same need (of course with differences). But according to the information in the case, because of its advantages in cost, size, general recording capabilities and off-the-air recording trend among young people, the cassette seems to be the one that will win this competition. The one thing that we need to notice regarding the regulatory environment, is that government agencies and consumer safety advocates had strongly discouraged the installation of cassette equipments in automobiles. This is very important, because the automobile segment is vital for the cassette technology to grow. Second, to understand the customer base, we can see that this is a fast growing market with 1970 expected sales of $130 million (60% over 1969) and expected average growth rate of 30% per year through the 1970s. Also the market is divided in three product segments based in the quality of the cassettes: •
Professional quality: Higher price ($2.98) but...
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