Case Study One: Gillette Gillette stock price is falling from $64 in early 1999 to $24 in 2001. Market share for the profitable disposable razor sector declined about 5 percent while its competitor picked up. The sales declined three percent in 2000. The new CEO James Kilts joined Gillette in February 2001 and realized that the market share of this high profit margin brand is dropping while debt increasing.
There are underutilized production capacity which can help the company to save $350 million; management looking at short-term success where they stuff products to distribution channels where the supply is higher than demand and caused aged stocks; to further reduce the relevant cost and solve stuck stocks he is considering brand advertising and promotions (something that Gillette seldom do to maintain leadership status). He felt that support for the brand globally got sidelined in the rush for short term results. Better forecast should be impleted to control the budget and costing better based on the market size and targeted market to penetrate. Lower down debt. Assignment questions:
1. To what extent does Gillette rely on incremental innovation or leaps in technology with each product introduction? Gillette may goes after innovation too heavily where the product is technical and sophisticated. Consumers may not understand the complexity and value the high technical functions of the product that sells at a very premium price X% even more expensive than its preceeders. While it has ignored the value perceived of customers on shavers. The company should consider both factors internally and externally for strategic marketing. Including political factors, economic factors (rising inflation), company financial situation, as part of the pricing strategy.
2. How successful has Gillette been with its trade-up pricing strategy and its ability to charge premium prices? Very successful. As the number of trade up is high. However, cost of advertising to existing customers should be much lower than new customers. Priority advertising should be targeted to new market to increase market share, aside from maintaining brand position & reinforce the brand in consumers. Message of advertisement is often simple and sharp. However, focus of the ads is very much on product with arg umentative wording, such as the best, the only. The brand may need to focus on brand advertisement for reinforcement purpose and stabilize the market share over the long run.
3. Should Gillette be concerned about the possible cannibalisation of the healthy sales of existing products by each new product launched? Yes. New products should target different market but should not cannibalise existing sales in long run. Different target market, e.g. more premium group where they are early adopters and enjoy premium brands As the company still sells old versions of shavers, it has even more reasons to target different products to different arget group to increase market share.
4. How global and integrated is GilletteŸs global marketing communications? Localised message should be applied to synergy better with other countries as different countries have different cultural background, norms and etc Gillette has a broad coverage strategy in place today and its The best a man can get theme supports this broad coverage strategy. It serves consumers ranging from disposables to high end cartridge systems. Gillette has struggled in the past when it has made attempts to add complementary goods to its offerings. Past attempts at this strategy were subsequently divested. We propose an alternative for phase 3 of the strategy. Rather than adding products that might not carry the value of a strong brand and image we propose that Gillette focus on areas of the world where they dont have strong market share. Japan is an area specifically mentioned in the case. It is mentioned that Shick has a first mover advantage in Japan.
Gillette has a very strong share of the market in the North Atlantic area. It has invested heavily in R&D and is getting ready to invest more in advertising and adding plant capacity. Gillette should work to maintain its advantage in the North Atlantic through patent enforcement, new product innovation, and building on customers perceived benefits through advertising and delivery of superior products. Solidifying its leadership position in the North Atlantic, Gillette can then focus on other areas of the world. Rather than allowing Shick to imitate its new Sensor, Gillette can aggressively go after market share in other areas of the world.
The marketing campaign will be critical to capturing market share in other areas of the world. Gillette has the opportunity for a first mover play in Japan with Sensor. Marketing campaigns should be tailored to position Gillette uniquely in different parts of the world market. Rather than going for a consistency approach, Gillette should customize the marketing campaigns to either strengthen its leadership position or establish itself as an innovator. The consistency approach to the marketing campaign as outlined in the case does not support this direction. Gillette might even consider launching Sensor in Japan or other parts of the world, followed quickly by a North Atlantic launch. A marketing campaign in Japan promoting first mover status with new technology could help capture increased market share.
Gillette has made investments in developing the Sensor system. It now needs to ensure it is capturing appropriate levels of value based on what it can build in the way of perceived benefits to consumers through advertising and superior product. Building this benefit advantage in new and existing markets will allow Gillette to price at a point where it can capture more economic profit than it does today. The investment in plant, equipment, and inventory is a bet that needs to be made for this new product.
It will be important for Gillette to be able to deliver enough product to the market and let its competition know that it is dedicated to this production and to protecting its patents. 5. Assess GillettteŸs approach to womenŸs shaving needs? Very manly design as the female designs looks very similar to the male wet shavers. Focuses on technical heavily where it may ignores the demand of consumers females are different from males during purchase decision and process. Company should penetrate female market, new and large market for the company to yield further profit from the same technology. Focus should be on female buying process and demand, e.g. color, demand, preference, etc. in order to maintain the position of leader in wet shaver market.
Both male and female markets can be equally important. However, the company can leverage on the brand equity and value of its success on male wet shaver and hence reduce the cost of advertising advantage over other products. Penetration of female market should be easier, fast, to enjoy economies of scale at high profit margin & ahead of other competitors. Should enhance on product packaging. Overall value to targeted consumers. Psychographic segmentation is concerned with identifying personality traits and distinguishing characteristics in groups of the population. Examples are young and outgoing (for the sale of new forms of music) or grey and conservative (for classical and 60s music). Pyschographic segmentation is clearly relevant to shaving patterns and behaviours. For example, busy well groomed people are likely to go for an upmarket shaving system.
In order to fully penetrate market, older versions of the wet shavers on promotions. To capture middle market and mass market. At an affordable price. Commodity and mass market products. Should achieve both cost advantage & differentiation. Didnt achieve cost advantage because there is underutilized production which may save $350 million According to the product lifecycle, it should allow higher quality at lower price Unit operation cost should go down during growth stage
The case points out that Gillettes competitors were quick to copy new products. Trac II was copied by the competition within five months and other product imitations appeared in 18 and seven months. Historically Gillette did not pursue patent enforcement because of antitrust challenges. This tactic needs to be re-thought. The R&D spend needs to be protected to help Gillette retain its competitive advantage and its position as a technology leader.
Gillette aggressively patented ideas during the Sensor development. Twenty-two different patents were applied for and obtained by end of 1988. Gillette has access to the patents as an isolating mechanism for building competitive advantage in the market. To protect the investment Gillette has made in the development of the Sensor system, it must leverage the isolating mechanism of the patents. By not pursuing the patents, Gillette maintains market share but does not increase market share. It is allowing consumers of the competitions products to stay with that brand versus switching to Gillettes products.
Why would they switch if their brand will be coming with an imitation soon? Image, reputation, and credibility all are important to protecting the superior benefits of an experience good. By not protecting the patents, Gillette is not building the consumer view that it is providing superior products. Protecting the patents will also allow Gillette to further immobilize the resource it has in technology. The equipment and plants are certainly not very mobile, but the people that developed the ideas and technology are very mobile. The patents may offer an advertising or marketing advantage; the 22 patents help Gillette illustrate the innovations they have achieved with Sensor.
Though being at the top, Gillette now deals with the problem of product innovation in a somewhat stagnant and mature shaving market and needs to find other ways to remain on top. The possible solutions relate to acquiring its competitors business, developing and expanding the womens market and further reducing the prices to reach more customers.