Gillette Indonesia

Windsor Team 6
Andres Losada Castro Mikael Dia Kevin Jones la Rufus Mitchell Mari Sakuma Chandan Shah

INTERNATIONAL MARKETING – February 8, 2012

Table of Contents
Executive Summary...............................................................................................3 Situation Analysis..................................................................................................3 Company Analysis..............................................................................................3 First-movers Advantage:.................................................................................3 Customer Analysis..............................................................................................3 Products offered.................................................................................................3 Competitor Analysis............................................................................................4 Collaborators.........................................................................................................5 PEST Analysis.........................................................................................................5 Political:..............................................................................................................5 Economic:...........................................................................................................5 Social..................................................................................................................5 Technological.....................................................................................................5 SWOT Analysis.......................................................................................................6 Market Segmentation............................................................................................6 Target Market.....................................................................................................6 Consumer...........................................................................................................7 Cost....................................................................................................................7 Convenience.......................................................................................................7 Communication..................................................................................................8 Marketing Strategy................................................................................................8 Products.............................................................................................................9 Price...................................................................................................................9 Distribution Place...............................................................................................9 Promotion.........................................................................................................10 Short and Long-Term Projections.........................................................................10 Conclusion...........................................................................................................10 Appendix..............................................................................................................11 Appendix

Executive Summary

Situation Analysis
Company Analysis
Gillette entered the Indonesian market with double edge blade razor and cartridge. And some other products, with an highly automate plan near Jakarta employing around 68 full time and 73 casual workers. It covered almost 50 % of the market share which was a remarkable achievement and was also to some extent successful in creating the market of shavers. The production capacity of the Gillette in 1995 was 150 million of which the company exported 46 million blades. The growth in market was substantial to the extent that they fell short in productions and had to increase the efficiency and the production capacity to cater the market. First-movers Advantage: Gillette being one of the first market entrants and the market creators they enjoy the early movers benefits. It helped to get their brand name recognized and it went deep in to the people. The market coverage and the brand awareness numbers talk it all.

Customer Analysis
Cultural Factors: Culture: Indonesia Population 196m 35% living in towns and 65% in rural areas GDP growth over 7% since last 20 years Inflation expected to be 12% Subculture Languages and regional dialects 250 Social class Over two million new Indonesians workers expected each year College students and graduate entering the workforce were especially important trendsetters. Social Factors

Reference Factors: Shaving incidence influenced by the increasing awareness of western grooming practices (especially in urban areas) One president since 1965, no sign of change in 1996 Java and Bali (7% of the land - 60% of the population & 75% of the GDP –four of the five major urban centres were on Java) rapid growth – Irian Jaya and East Timor not that good (poorer regions)

Map of indonesia Roles and Status: Average standard living on Java and Bali, much higher than the rest The five major urban centres represent 60% of Gillette’s in Indonesia Jakarta, Bandung, Surabaya, Semarang (all located in Java), and Medan (located in Sumatra) expected to be the cities with most of the sales. All together 35 m habitants Grooming Products where still regarded as luxury items by many Personal Factors Age and Stage in the life Cycle: Asian beards didn’t grow as Caucasian Latino ones – Shaving incident will still be lower even in a fully developed market (Java) Occupation and Economic Circumstances: Percentage of Populaiton Income Segment >10,000 5,000 10,000 2,000 1995 15,9% 17,0% 32,7% 2000E 20,6% 19,6% 33,8% Percentage Shopping in Supermarkets: 1995 40% 25% 10%

5,000 <2,000

34,4%

25,9%

2%

Personality and Self-Concept: 40% of men who shaved use store-bought blades. The rest use dry or wet knives. The average number of blades by the 20% of the shavers, who always used blades, was 15.The average of an occasional user was 4. Only 4% of men used shaving foam or lotion. 25% used soap and water, 12% used water alone, 58% shaved dry. Lifestyle and values 66% of urban adult men has been shaving with an average of 4.5 times in 1993 in 1995 the average grew to 5.5 times per month.

Products offered
In Indonesia, Gillette’s product line consisted of three types of double-edge blades, two trypes of disposables, and three systems blades called the GII, the Contour and the Sensor. In Indonesia, 87% of all the blades sold were doubleedge (100 million out of 115 million sold), but the share of disposables was projected to increase to approximately 20% in 1996 (as seen in Figure 1 and Exhibit 1).
Figure 1 - 1995 & est. 1996 Unit Sales (millions) per Product Line

In terms of revenue, Gillette Indonesia expects its 1996 sales to reach $27.6 million, with a gross margin of 46%, as shown in the graph below and Exhibit 2. Gillette also expects the revenue from the Sensor system to almost double. Every other product will grow, but at a much smaller margin.
Figure 2 - Gillette Indonesia Revenues (millions) for 1995 & est. 1996

Competitor Analysis
Gillette’s main competitors in the double-edge blades line are Tatra, Super Nacet, and Tiger. These imported, low-end, double-edge blades are a lot cheaper than Gillette’s products, which means that the low-income rural shavers have to settle for using non-Gillette blades.

Looking at the disposable market, Gillette has to compete against the United States brand Bic, and the locally manufactured Bagus brand. Gillette has a strong advantage in this segment because neither companies sold in high volume in Indonesia

Collaborators
We can write about the distributor’s network and the suppliers they have in the Indonesia

PEST Analysis
Political:
The case indicates that president Soharto had led the country since 1965 (a dictatorship?) this provided “continuity and stability”. Major Economic development programs, legal reforms, and domestic policy changes could not occur without the president’s support. However rumours of his pending retirement should be a concern to Gillette for the future, as a new leader can change the policy regarding the treatment of multinationals (p2 of Case)

Economic:
Indonesia averaged GDP growth of over 7% for the last 20 years. During the current 5 year economic development plan (Replita VI) more than 2 million Indonesians were expected to enter the workforce each year, thus increasing the market of men who shave. (p3 of Case). Indonesia “was expected to have the highest foreign direct investment/export ratio (74%) of any emerging market”, between 1992 and 1994 the value of committed foreign direct investment rose from 10.3 Billion U SD to 23.7 Billion USD. This underscores the growing nature of the Indonesian market and economy. (p3 of the Case) The high levels of growth and economic development however came mainly from Java and Bali, as such the standard of living in these areas were higher than the general population, and would make market penetration easier than for rural areas. Market penetration in rural areas may be a challenge. Seventy five percent of Gillette’s sales were focussed in the 5 major metropolitan areas, the four cities in Java and Medan on Sumatra. (p3 of the case)

Social
Indonesia had a population at the time of the case of 196 million people that spoke over 250 regional languages and dialects. As such issues regarding how Gillette’s market’s and packages to different regions may be important. The population was spread over 15,000 islands, with the majority of the population 60%, living in major cities in Java and Bali.

Technological
Regarding the Technological situation, the Gillette plant in Indonesia was “highly automated”. However importation of new equipment and expansion of line capacity needed by 1996 has been delayed to 1997, meaning that more overtime and improved plant productivity will be needed inn 1996. (p5 of Case)

SWOT Analysis

Market Segmentation
In addition to a target segment, market segmentation can be best described through the 4 C’s of marketing: Consumer, Cost, Convenience, and Communication.

Target Market
As stated in the PEST analysis, Indonesia averaged over 7% for the last 20 years in GDP growth. With a 2million forecasted workforce entry, the income distribution throughout Indonesia was narrowing. Western grooming and appearance practices were also spreading throughout Indonesia. Over 80% of the adult male population in Indonesia was shaving, and of those 66% were shaving 4.5 times a month. Gillette was facing two different target markets within the 18+ male segments. One segment was identified as the higher income consumers and the other identified as the lower income segments. With a unified concern of appearance and grooming throughout Indonesia, Gillette’s primary segment distribution was identified by income.

Consumer
Consumer needs addresses the wants and needs that will attract consumers individually. In the case of Gillette, their consumer needs were two-fold a tool that will provide the Western look, and that was affordable. With the Urban living growing, foreign influence increasing, college students becoming trendsetters, and yet the battle of poverty still prevalent Gillette’s customers were demanding the premium product for a particle price.

Cost
Cost refers to the cost to satisfy the consumer needs. The cost refers not only to the price to sell the product, but also the price to make and market the product. As shown in Table A., Gillette, they use 70% of total revenue from the different products just to market and make the different razors. Revenues Spent on Shaving Products Variable Manufacturing Costs Variable Selling Costs Variable Distribution Costs Advertising Consumer Promotions and Merchandising Percentage (%) 36.0 2.0 8.0 9.0 3.0

General Sales and Administrative Costs Total

14.0 70

Table 1: Percentage Income Statement for Shaving Products, 1995

Convenience
Convenience focuses on the convenience to buy a particular product. Convenience addresses the “how” within the market segment. How do individuals purchase the product; via internet, the store, through their spouses etc.? Despite the income distribution and living locale, majority of Indonesians were found to purchase their grooming products from supermarkets. Table B. shows a skewed distribution for persons purchasing their grooming products at the supermarket. There is correlation between income and shopping at the supermarket, primarily because of the locale of the supermarkets within the urban area. Income Segment Percentage of Population 1995 (%) > $10,000 $5,000 - $10,000 $2,000 - $5,000 < $2,000 15.9 17.0 32.7 34.4 Percentage of Population 2000 (%) 20.6 19.6 33.8 25.9 Percentage Shopping in Supermarkets: 1995 (%) 40.0 25.0 10.0 2.0

Table 2: Supermarket Shopping Incidence

Communication
Finally communication, (the consumer perspective of promotion)1 is thought to be an interaction between the buyer and the seller. Gillette succeeded in this area. With shaving to be considered as a luxury activity, and the slow beard growth for Indonesian men, Gillette faced a great feat. After many surveys Gillette decided to maximize on what customer liked about Gillette. With simple things such as name recognition (Gillette being close to the word blade in Indonesia), different advertising methods (radio for Goal II, entry draws inside product packages, gift purchases, and more sophisticated advertising schemes for the Sensor), foreign influences, and surveys. This resulted in Gillette growing from 28% to 48% in market share.

1 Promotion is considered as seller communication and is perceived as manipulation sales.

Based off of their target segment, and the four C’s, Gillette was able to create a brand for them as the razor for the Indonesian market.

Marketing Strategy
The Gillette Indonesia marketing team should focus their attention mainly in : • Increasing supermarket penetration. • Targeting Supermarket Penetration • Product repositioning.

Increase Super market penetration
Savings done by selling in supermarkets case) = 2 % ( as per Gillette Indonesia

Number of prospective buyers in Supermarkets = 12.46 Mn ( 196mn* 15.9 % * 40 * ) Assuming 1 user on an average uses 5.5 blades/month in 1995 Gillette had 1 million customers. So if the product is placed properly in the supermarkets the potential customers is 12.46 mn which is very high. Activity 2: Tap the Rural Market. It is evident that 40 % of the Indonesian Population lives in Rural Area’s with 70 % of the population being a part of either joining the workforce or the 18 + trend setters. Tapping the market will be very good to Gillette A good marketing campaign and good credit policy for the mom – n - pop shops will help to increase in sales. The Indonesian market is already aware of the brand Gillette ( market awareness 97 % ). The target product in rural region should be the cheapest Blue Blade shaver. Broadly by now Gillette being the dominant leader in the market covers 50 % of the shavers market.

The marketing strategy has two perspectives
1. To increase the current market share 2. To increase the size of the market. In view of the current market share which is on higher end we should focus more on the 2nd option. Keeping in mind the poor and costly distribution network and the economic conditions of the rural villagers we will focus more on the urban or developed cities which have a relative better paying capacity in stage one and promote the Blue Blade in the Rural Market in Stage 2. We have discussed the options that can be undertaken to execute the plan and selected the best one that suits the situation the best.

The options are as below

Increasing the number of men not shaving to start shaving
Men in urban population who do not shave have a very less count . Hence targeting this small population will be costly and less effective with respect to the growth rate. Hence this policy cannot be adopted.

Converting the people who shave with conventional knifes to shaving blades.
Total of 48 % ( 80% * 60 % ) of population shave with knifes. Urban men being our first target having an advertising campaign to convert these customers from knifes to shaving blades will be productive and easy.

Increase the frequency of shaving per month
Increasing the frequency of shaving is not a very easy jobs .Also the beards of the Asian males grow less as compared to that of the Latin American beard. Although people in Hong Kong shaves 12 times a month need not necessarily mean that the Indonesian people may adopt the same frequency. Of the options available Converting people who shave with conventional knifes to shaving blades seems to be the most effective. (Increase in market size)

Products Price Distribution Place
With the Efforts of Mr Nyoman the Gillette Indonesia were successful in setting up a network of 23 distributors as below Sumatra Java Kalimatan Bali Sulawesi Irian Jaya Timor 6 5 3 3 3 3 1

As we know that 75 % of the total population lives in the four cities namely Sumatra, Java, Sulawesi and kalimatan it is obvious that the company has more number of dealers on these islands. It is also evident from the case that the Gillette selected the dealers based on their financial background and Political and social relations they had regionally.

Now as per our strategy on the 1st step we target to convert the people living in cities having high income group start shaving with the Gillette blades. It is very important for Gillette to give a boost and support to the dealers that are located in these cities so as to boost the sales. They may also workout some special incentives and bonus schemes if the targets are achieved by the dealers. Our 2nd target is the population living in the rural areas. It is seen that the transport and infrastructure is poor in Indonesia. However it is very important to have a good distribution network in that provides the stock to the mom n pop shops as and when required. Being new product and to have a product success it is very important to expand the distribution network via dealers in locations such that it becomes easy to deliver the blades in time.

Promotion
We are aware that Gillette faces a completion from the low cost blades that are manufactured by the Tarta, Bic etc companies. The Brand Gillette has been always targeting a premium class. Gillette was successful in creating a image amongst the Indonesian that using Gillette is a kind of status symbol. We have use this brand image and attract more customers. When the customer target is the rural market we have recommended the low cost blue blade , but it is very important to make people understand the cost-effectiveness over the other brands in market. It is also evident that the other brands do not give the same quality and desing comfort as the Gillette gives. In the advertising campaign Gillette should promote that the number of utilizations of the Gillette blade are more as compared to the competitors and that in long run the Gillette blades are cost effective. In the initial days the blue blades should be given for free or at a much subsidised cost as a promotional launch offer. By doing this more number of people will buy the product or use it. Once they are used to having a clean shave done most of the customers will like to keep them clean shaved and hence start buying the Gillette blades. Gillette can have some free shaving events organized in the relative high density populated areas. It will help in converting the non shving population to the shaving ones thus increasing the size of the market and creating more awareness about the Brand Gillette.

Short and Long-Term Projections Conclusion

Appendix
Exhibit 2 - 1995 & est. 1996 Unit Sales (millions)

Products A. Double-edge Blades Blue Blade Goal Red Goal Blue B. Disposables Goal II Blue II C. Systems Blades GII Contour Sensor

Unit Sales 1995 1996 (Est) 100 108 5 5 80 90 15 13 5 4 1 10 2 5 3 10 8 2 18 3 7 8

Exhibit 2 - Gillette Indonesia Revenues (millions) for 1995 & est. 1996

In-Country Shaving Product Sales Blades Disposables Sensor Razors Prep Products

Sales Revenue (millions) 1995 1996 (est) 10.3 11.2 1.2 2.5 5.6 10.4 2 3 0.5 0.5

a. What factors determine demand for blades? How can demand be increased? The Gillette Indonesia marketing team should focus their attention mainly in :

• • •

Increasing supermarket penetration. Targeting Supermarket Penetration Product repositioning.

Activity 1 Increase Super market penetration Savings done by selling in supermarkets = 2 % ( as per Exhibit 4)

Number of prospective buyers in Supermarkets = 12.46 Mn ( 196mn* 15.9 % * 40 * ) Assuming 1 user on an average uses 5.5 blades/month in 1995 Gillette had 1 million customers. So if the product is placed properly in the supermarkets the potential customers is 12.46 mn which is very high. Activity 2: Tap the Rural Market. It is evident that 40 % of the Indonesian Population lives in Rural Area’s with 70 % of the population being a part of either joining the workforce or the 18 + trend setters. Tapping the market will be very good to Gillette A good marketing campaign and good credit policy for the mom – n - pop shops will help to increase in sales. The Indonesian market is already aware of the brand Gillette ( market awareness 97 % ). The target product in rural region should be the cheapest Blue Blade shaver. Broadly by now Gillette being the dominant leader in the market covers 50 % of the shavers market. Marketing Strategy The marketing strategy has two perspectives 1. To increase the current market share 2. To increase the size of the market. In view of the current market share which is on higher end we should focus more on the 2nd option. Keeping in mind the poor and costly distribution network and the economic conditions of the rural villagers we will focus more on the urban or developed cities which have a relative better paying capacity in stage one and promote the Blue Blade in the Rural Market in Stage 2. We have discussed the options that can be undertaken to execute the plan and selected the best one that suits the situation the best. The options are as below Increasing the number of men not shaving to start shaving Men in urban population who do not shave have a very less count . Hence targeting this small population will be costly and less effective with respect to the growth rate. Hence this policy cannot be adopted.

Converting the people who shave with conventional knifes to shaving blades. Total of 48 % ( 80% * 60 % ) of population shave with knifes. Urban men being our first target having an advertising campaign to convert these customers from knifes to shaving blades will be productive and easy. Increase the frequency of shaving per month Increasing the frequency of shaving is not a very easy jobs .Also the beards of the Asian males grow less as compared to that of the Latin American beard. Although people in Hong Kong shaves 12 times a month need not necessarily mean that the Indonesian people may adopt the same frequency. Of the options available Converting people who shave with conventional knifes to shaving blades seems to be the most effective. (Increase in market size)

b. How is Gillette doing in Indonesia? Has Gillette enjoyed a first mover advantage?

c. How should Gillette accelerate the development of the blade market in Indonesia? This can be done in the ways described below • • • • • • Persuade customers to shave the first time i.e college students and people entering the workforce as they are the trend setters Increase the incidence of shaving among the existing shavers Trading existing shavers into higher margin , sophisticated shaving practices Focus on urban areas where the demand is likely to increase Train sales persons and distributors Good distributors network having good relations, establishment, rich with working capital, with high line of credit from the bankers so that they can stock the products and reduce the gap between order and delivery to the end user. Suitable price adjustments: they can reduce the price to make it attractive and attract potential customers. Gillette currently has a gross margin of 46%. Reducing prices by 10% would result in a reduction of profit from operations from 20% to 10%. However, if costs were reduced by giving less trade discount and reducing advertising to 6%, net profits could be stabilised at approximately 18%. This 2% loss represents a $640,000 loss if present unit sales were met. It is proposed that this 10% reduction in price will result in an increase of

sales of approximately 5%, representing an increase in profit of $900,000, and an increase in market share of 5%. If this alternative were to be successful, more severe cost reduction mechanisms and price reductions could be introduced in the future. {I think this Needs Rephrasing} • Motivate current double edge product users to use the more sophisticated products

SWOT Strengths • 50% Market Share • 97% Brand Awareness, and 55% brand most used ratings Weaknesses • 19% volume increase in market that has increased approximately 30%. • Inability to meet demand for the coming year, until the new capacity is implemented Opportunities • Capitalise on growth of income within Indonesia to increase sales • Increase demand for higher end, higher margin products Threats • Lower priced products, more suited to the Indonesian income brackets, stealing market share

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