Raj Sanjay Karajgikar

Roll no- 21MBAMKT175

Gillette Targets Emerging Markets

As it entered the twenty-first century, Gillette faced a difficult choice. Should it continue
targeting emerging markets or not? Its strategy to move aggressively into markets in the
developing world and the former Soviet bloc had been hailed as a success only a few years
before. Recent poor earnings, however, had management considering whether this choice had
been a wise one.

The Boston-based firm was founded in 1895 and is still best known for its original products,
razors, and razor blades. By the end of the twentieth century, Gillette had grown into a global
corporation that marketed. its products in 200 countries and employed 44,000 people worldwide.
About 1.2 billion people use Gillette products every day. Its sales are about equally distributed
among the United States (30 per cent), Western Europe (35 per cent), and the rest of the world
(35 per cent).

As markets matured in developing countries, Gillette sought growth through product

diversification, moving into lines such as home permanents, disposable lighters, ballpoint pens,
and batteries. In the mid-1990s, Gillette targeted several key emerging markets for growth.
Among them were Russia, China, India, and Poland.

Russia was already a success story. Gillette had formed a Russian joint venture in St. Petersburg
and within 3 years Russia had become Gillette’s third-largest blade market.

Gillette’s move into the Czech Republic had prospered as well and in 1995 Gillette bought Astra,
a 10caI; privately-owned razor blade company. Astra gave Gillette expanded brand presence in
the Czech market. Astra’s relatively strong position in export markets ~n East Europe, Africa
and Southeast Asia proved a boon to Gillette in those markets as well. Jus.t as in other markets in
the developing world, 70 per cent of East European blade. consumers used the older, lower-tech
double-edge blade. In more developed markets, consumers appreciated product innovation and
the shaving market had moved to more high-tech systems such as Gillette’s Sensor.

Then disaster struck. A financial crisis that began in Thailand quickly spread across Asia. Many
wary investors responded by pulling money out of other emerging markets as well as depressing
economies across the globe. Bad economies meant slower sales for Gillette, especially in Asia,
Russia, and Latin America. In Russia, wholesalers could not afford to buy Gillette products.
Consequently, these products disappeared from retail stores and Gillette’s Russian sales
plummeted 80 percent in a single month.

Gillette found it could not meet its projected annual profit growth of 15-20 percent. The price of
Gillette shares tumbled 36 percent in 6 months. To save money, Gillette planned to close 14
factories and lay off 10 percent of its workforce.

Despite its recent bad experience in developing countries and in the former Soviet bloc, Gillette
was still moving ahead with plant expansion plans in Russia and Argentina that would total $64
million. Some even suggested that this was a good time to expand in the emerging markets by
buying up smaller competitors that had been hurt even worse by the crises. Meanwhile, back in
Raj Sanjay Karajgikar
Roll no- 21MBAMKT175

the developed world, another large global consumer products firm, Unilever, announced that it
would be entering the razor market.

Discussion Questions

1. Why do companies such as Gillette target emerging markets? Do you agree with this
strategy?

Answer 1: The companies such as Gillette target emerging markets because the developed
markets are already matured. The only way to maintain steady growth is to diversify product
lines, as Gillette did when it ventured into lines including home permanents, disposable
lighters, ballpoint pens, and batteries. Aside from that, the company might grow its business
operations in emerging countries, where the existence of low-quality products open the way
for multinationals to sell new, high-quality products. As a result, a new market would arise,
assisting in the development of business at a predictable rate. For example, by expanding its
company in the emerging market, Gillette was able to expand its operations to 200 countries
and employ 44,000 people. The corporation was able to obtain sales of 30% in the United
States, 35% in Western Europe, and 35% in the rest of the world in this manner. As a result,
corporate expansions in several countries result in earnings from multiple countries at the
same time. So, if a business operation has problems in one area, the earnings in another
country may compensate for it. For example, when sales of Gillette goods declined in Russia
and other Asian nations, earnings in Europe and the United States compensated (Kaden,
2006).

2. What are the dangers to Gillette of targeting emerging markets?

Answer 2: The dangers to Gillette on targeting emerging markets include the coming up of
the financial crisis that could affect the sales of the company and could lead to negative sales
figures. For example, the financial crisis that began in Thailand and expanded across Asia
had an impact on the growth of Gillette Company's sales. As a result, if a developing
country's economy turns out to be a dud, the corporation will lose money in the long term.
For example, prior to the financial crisis, Gillette enjoyed strong sales in Russia, making it
the company's third-largest user of blades. However, during the financial crisis, the same
Raj Sanjay Karajgikar
Roll no- 21MBAMKT175

country had an 80 percent drop in sales. This effectively eliminated the product from the
market. Furthermore, the company's investments have suffered a setback. For example,
Gillette had $64 million in expansion plans for Russia and Argentina that were now
jeopardised due to the risks posed by these economies slowing down. Not to mention the fact
that the company's greatest risk in emerging markets is an immediate drop in share prices,
which could result in a massive loss of capital. For example, following the financial crisis,
Gillette's stock dropped 36% in 6 months. As a result, the corporation was forced to close 14
of its factories and lay off 10% of its staff.

3. Why would local, privately-owned companies like Astra want to sell out to companies
like Gillette Why are such companies attractive acquisitions to multinational firms?

Answer 3: The local, privately-owned companies like Astra would like to sell out to the
companies like Gillette with the purpose to maintain their presence in the business. Although
these companies lose their ownership the business continues to grow and expand under the
leadership of the multinational company. The owners of the business get good money in
return for selling the business and may even secure a good job position in their own sold-out
company. The multinational company on the other hand gets the benefit of an already
developed physical distribution system and other management applications within the
organization. This way with the infusion of extra money and expertise the work process is
improved and the old and local company is made to work like a global world-class company
(Bitner, 1992). The smaller competitors are attractive to be targeted by the multinational
firms because they could buy these companies easily and utilize their already developed
business process for expanding their business in the new region. This way already developed
business processes are utilized for spreading business of the multinational company.
Raj Sanjay Karajgikar
Roll no- 21MBAMKT175

4. What global strategy would you suggest for a company such as Gillette? Explain
your choice.

Answer 4: The appropriate marketing strategy that could be suggested for Gillette would be
to apply a pull marketing strategy. Instead of depending on the wholesalers and sellers in
between who would compromise the sale of company products to earn extra profit, it would
be better to reach out to target customers all by themselves. This can be done by sending
marketing agents for door-to-door selling where they would keep ahead of the additional
benefits and gains that the customers could attain through the use of company products. Also,
the cutting-edge advantage that the company product offers to the customers as compared to
other products should be displayed. Thus the customers will continue to make a demand for
company products irrespective of the availability of low price and low-quality products
available in the market. In addition, the company could apply some levels of push marketing
also wherein they could introduce discounts and additional benefits along with the purchase
to initiate the process of purchase by the customers. This way a mixture of pull and push
marketing strategies could help in maintaining a presence in the global market.