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CLN Case Study Analysis Gillette Indonesia

Gillette Indonesia

Contents
Executive Summary Introduction External Environment Situation Analysis Financial Performance Critical Success Factors SWOT Analysis Marketing Plan Recommendations Conclusions Implementation Plan Appendix 1: PESTLE Analysis Appendix 2: Product Details Appendix 3: Financial Performance References 4 6 7 8 11 12 14 15 16 17 18 19 20 21

Gillette Indonesia | CLN Case Study | Group 5

1 Executive Summary
The aim of this report is to recommend a marketing strategy for Gillette Indonesia. These recommendations will allow Gillette to realise its mission of achieving worldwide leadership in its core product categories. The company's approach think global, act local has enabled Gillette to capture a significant proportion of the blade sales market and enjoy strong brand recognition (48% of market share for blades and 90% of the premium priced segment) (Quelch & Long 1996). Gillettes differentiated marketing strategy; persuading consumers to shave for the first time; increasing incidence of shaving among existing shavers; and, trading up shavers, appear to be very effective with a 9% increase in sales 1990 - 1995. Strong economic growth of over 7% in the last 20 years in Indonesia has increased per capita incomes and improved standards of living. With a population of nearly 196 million, Indonesia represents a significant market for Gillette in the Asia-Pacific region. Efforts to increase market share presents a few challenges: affordability - 80% of the population earn less than $10,000; shaving rate - incidence of shaving is low compared to developed countries (Indonesian shave on average 5.5 times per month compared to 12 times per month in Hong Kong and 26 times in the United States); and, regulation - restrictions on foreign companies and poor infrastructure impede the sales and distribution effort. An effective marketing strategy will allow Gillette to exploit the opportunities the Indonesian market represents and gain the first-mover advantages. This report, therefore, proposes the following: Adopting value proposition utilising the 4Ps for all market segments (McCarthy 1960). Continue to grow the brand through up-selling, cross-selling and first mover initiatives particularly in the largely untapped 66.8 million female market.

Gillette Indonesia | CLN Case Study | Group 5

Adoption of a comprehensive marketing plan based on segmentation, targeting and positioning to increase the 5.5 shaving rate amongst the urban adult male segment and create on-going value through long-term customer relationships.

Gillette Indonesia | CLN Case Study | Group 5

2 Introduction
Gillette established it operations in Indonesia in 1971 to further expand its Asia Pacific operations with a particular emphasis on providing cost effective manufacturing and exploiting the first-mover advantage in various under-utilised razor shaver markets within the country.

Empirical data from the U.S. Department of Commerce identifies Indonesia as a Big Emerging Market having the largest GDP in Southeast Asia being 7% (South Florida Business Journal 1996). In line with Gillettes mission to achieve worldwide leadership in its core product categories, Gillettes Asia-pacific business director would like to target a 25%-30% increase in blade sales in Indonesia in 1996, by increasing the investment in marketing. The objective of this report is to evaluate how the desired sales targets can be achieved by investing in marketing beyond the 1995 level. This report: considers how demand can be increased for a consumer product in an emerging market; suggests the appropriate product line mix and allocation of marketing expenditures for each stage of market development; and, recommends a marketing plan to achieve the desired outcome, including income projections to support the plan.

CLN Group 5 has been engaged to implement the fundamental marketing tools to identify how Gillette can increase its market dominance in Indonesia and protect the company from potential emerging rival threats.

Gillette Indonesia | CLN Case Study | Group 5

3 External Environment
With the implementation of the proposed marketing plan in Indonesia, Gillette will need to consider the external environment it is operating in if it is to stay ahead of its competitors (Mason, R. 2007, p.16). Indonesias demographics make distribution challenging for Gillette. Strict government regulations limit foreign companies from importing or distributing their products (Quelch & Long 1996, p. 363).

(Source: Indonesia-map Aegis.com 1996)

The Indonesian President oversees all major economic developments and changes in domestic policies and tax reform. Gillette Indonesia must ensure that its business plan and marketing strategy takes into consideration the current political sensitivities which may reflect future political instability. The Indonesian Government encouraged a high export rate with the Foreign Direct Investment (FDI) in 1994 at $23.7 billion, up from $826 million 8 years prior. Indonesias FDI is expected to grow to 74% as of 1996 (Quelch & Long 1996, p. 363). Up to 2 million people are entering the workforce every year providing the Company with an ability to attract high quality employees for its local operations (Quelch & Long 1996, p. 363).

Gillette Indonesia | CLN Case Study | Group 5

4 Situation Analysis
Macro-Environment Company Gillette Indonesia commenced in 1971 with majority ownership in a joint venture with a local company. The Company built an automated manufacturing plant with 68 fulltime and 75 casual workers near Jakarta of which 65 of the 75 products were shaving related. In 1995, Gillette produced 150 million blades and exported 46 million generating US$23 million in sales (Quelch & Long 1996, p. 359). Razor products are segmented into three categories (refer to Appendix 2): 1. Doubled Edge Blades 2. Disposable Blades 3. System Blades Customers Indonesia has 40 million adults over the age of 18 as the primary consumer market who shave, on average, only 5.5 times per month using the low-end Gillette products. With growing Western-based influences and an increasing multi-national workforce, an increase in the number of shaving customers is expected - although Asian beards do not grow as fast as Caucasian or Latino beards. According to Quelch & Long (1996, p.359) only 4% used shaving foam or lotion; 25% used soap and water; 12% used water alone and 58% shaved dry. Competitors In the double-edged razor category, the Companys main competitors come from Eastern Europe and China with imported low-end, doubled edged blades; Tatra, Super Nacet; and, Tiger/Cap Macan. In the disposable market, BIC from the United States and locally produced brand, Bagus, are the competitors. Schick is the main competitor in the high-end razor products.

Gillette Indonesia | CLN Case Study | Group 5

Collaborators As a foreign company facing strict import regulations, Gillette Indonesia had to move from an initial single distribution model to multiple distributors throughout the country increasing sales by 60%. However, much of the Companys focus has been to market directly to supermarket chains representing only 5% in shaving sales and 8% in value (Quelch & Long 1996, p. 365). Context The PESTLE analysis has determined that strict government import regulations and cultural diversity to Western views play an important factor in market supply and acceptance.

Micro-Environment From a micro-environmental view as detailed in Porters 5 forces model (1980, p.4), the competitive advantage depends on the interaction of the five specific structural forces identified below. Gillette Indonesias competitive advantage (as the dominant company) may be under threat by its main rivals in both the doubled edged and disposable markets should BIC, the Eastern European, and Chinese rivals focus on the substantial low-end urban population.

(Source: Fathoming Porter's five forces model in the internet era 2005)

Gillette Indonesia | CLN Case Study | Group 5

Entry Barriers Gillette Indonesia has a commanding lead in market share over its competitors (Quelch & Long 1996, p. 383) with 97% of males aware of the product brand and the Gillettes Coal Red blade being the most popular amongst 55% of the population. Rivalry US-based BIC; the Chinese; and, the European brands represent the most likely contenders for market share in the low-end blades. Schick is considered to be the major contender in the premium razor market. New Entrants There are no known new entrants in the Indonesia markets at this stage. Buyers The main customers are urban males over the age of 18 of whom there are 40 million in Indonesia of which 80% shave an average of 5.5 times per month (Quelch & Long 1996, p. 359). Suppliers Local suppliers provide the Company with basic raw products including ammonia to the Indonesian production plants. Gillette has had to import cartridges and handles for the razors due to local distribution and transportation difficulties.

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Gillette Indonesia | CLN Case Study | Group 5

5 Financial Performance

Between 1990 and 1995, sales (2 million) grew by 9% annually, net income by 17% and earning per share by 18%. 9% of the gross sales were spent on Gillette's advertising and 3% on consumer promotions (Quelch & Long 1996).

(Source: Quelch,J. Long.D, 1996 p. 362)

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Gillette Indonesia | CLN Case Study | Group 5

6 Critical Success Factors


Short Term (< 5 years)
Product Quality

Gillette will need to ensure that product clones, or competitor products, will not match the build quality of the Gillette razor. All products are to be of the highest production quality. This will ensure that the new and existing customer base continue to experience the highest quality shave from the Gillette products.
Up-Selling and Cross-selling

Gillette intends to shake-up the existing grooming market. Gillette currently has a large customer base in the low-to-medium end of the razor market with 87% of all sales in Indonesia comprised of the lower-end double-edged blades. Gillette will cross-sell by promoting the values of other products in the range. 15% growth in the non-blade market in the short term is the target. Gillette will up-sell by proving the values of the higher-quality blades in its range. Growth of 20% should be achieved in the system blades range of products. Long Term (10 years)
Revenue Growth

Market penetration and market growth is a major factor in Gillettes long term strategy. Growth will be achieved through the following initiatives: Product sales increases of 10% p/a. From current year-end sales figures, this will amount to $US 49.3 million at the end of ten years. Non-blade shaving product growth to increase by 10%p/a. Penetration into the womens shaving market by targeting growth of 10% p/a. First mover advantage coupled with targeted marketing will allow Gillette to deeply influence this market segment.
Product Development

Gillettes product offerings in Indonesia are predominantly focused on the mens razor line, currently accounting for some $19.6 million in total sales. Gillette will expand its product line in the next ten years by introducing more products into the range. This will include a greater range of choice into the existing shaving product
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suite. Also marketing aimed at shaving creams and balms to complement existing offerings will be introduced.

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Gillette Indonesia | CLN Case Study | Group 5

7 SWOT Analysis
Strengths Brand awareness and association with high-quality blades 48% of market share for blades and 90% of the premium priced segment Product differentiation allows Gillette to target different segments of the population Manufacturing plant is highly automated, with efficient business processes Weaknesses Distribution issues including limited control over the distribution channels, weak communication networks, poor traffic conditions and lack of distribution service technology Manufacturing capacity scope to improve productivity is currently limited Cultural practises impacting employee productivity and partner (distributor) relationships Global marketing emphasis not suitable for the Indonesian market

Opportunities Population of nearly 200 million Strong economic growth - average annual Gross Domestic Product (GDP) growth of over 7% for more than 20 years has manifested in increased per capita incomes and improved standard of living Liberalisation of foreign investment Shaving is still underdeveloped, but the incidence of shaving is increasing Womens shaving market in the initial stages of development

Threats Affordability - approximately 80% of the population earn less than 10,000 Competition from cheaper brands. Gillettes retail prices were sometimes four times that of the competitive products Cultural influences low incidence of shaving Grooming products regarded as luxury items by many Government regulation prohibits a foreign company from directly importing or distributing its products

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Gillette Indonesia | CLN Case Study | Group 5

8 Marketing Plan Recommendations


The overall marketing strategy identified in Table 8.1 is focused primarily on the lowend blades market (80% of the population) with an affordable product and an expectation of upgrading these customers to higher premium products in line with the anticipated increase in economic growth. The marketing mix also reflect the process of dividing the potential market into distinct subsets of consumers with common needs or characteristics and a selection one of more targets possessing a distinct marketing mix (Schiffman et al., 2001).
Table 8.1

Recommendation One The Company adopts a comprehensive marketing campaign utilising the Segmenting, Targeting, Positioning model (Kotler et al. 2000, p.12) in the doubleedged, disposable, and system blade product markets particularly in the low-end adult male and largely untapped female shaver market segment. Recommendation Two The Company implements a value proposition utilising the 4Ps for all market segments (McCarthy 1960) to adapt its product and marketing program to the needs of a specific customer or buying organisation, in particular the 15+ age female 66.8 million population with its womens razor (CIAs World Fact Book, 1996). Recommendation Three Gillette Indonesia investigates the Companys Hong Kong marketing-mix model. (Indonesian shave on average 5.5 times per month, compared to 12 times per month in Hong Kong) Given its geographical and cultural similarities, Hong Kong represents an ideal 4Ps model following its improved economic growth outlook.

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Gillette Indonesia | CLN Case Study | Group 5

9 Conclusions
Gillette is the world leader in blades and razors. Gillette intends to remain the global market leader in the razor and blade arena. Gillette will undertake a market growth campaign based on strategic marketing, targeting and consumer education. In summary, Gillette will Continue to grow the brand through up-selling, cross-selling and first mover initiatives. The adoption of a comprehensive marketing plan based on segmentation, targeting and positioning. Create a value proposition utilising the 4Ps for all market segments.

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Gillette Indonesia | CLN Case Study | Group 5

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10 Implementation Plan
The aim to increase sales by 25-30% will also see an increase in the advertising spending. The advertising budget will increase 12-20% in comparison to 1995 as reflected below.
Table 10.1

A. Implementation 1 Mass marketing appeal aimed at women in Indonesia to educate them in the art of shaving. o Using leaflets that demonstrate how to shave marketed to women. o An increased focus of advertising expenditure to be allocated at the womens market over the next 12 months. o Gillette razor promotional stands to be located in supermarkets and urban kiosks to provide free samples and marketing information targeting females. Aim to increase sales by 100-200%. B. Implementation 2 To help increase the usage and sales of shaving creams and foams, free sampling of the products and learn-to-shave classes that can educate the benefits of shaving with creams and foams. o The samples can be distributed through the super markets, Universities, and even at workplaces. o There will also be free sampling stands at the supermarkets for customers to experience first-hand the benefits. Aim to increase non-shave product sales by 15%. C. Implementation 3 Use multimedia and print advertising to increase the shaving frequency (presently 51%) (Quelch,J. Long, D. 1996 p. 360) targeting customers who shave less than once a week. Increase appearance grooming education in the corporate workplace. Target customers with marketing campaigns who shave less than 10 times per month in a bid to increase the shaving frequency rate to 50%, thereby increasing product demand. Have a local celebrity identity be the public face for Gillette in Indonesia.

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Gillette Indonesia | CLN Case Study | Group 5

Appendix 1: PESTLE Analysis


Political For the past 30 years, Indonesias political system has been led by President Suharto who oversees all major economic developments and changes in domestic policies. This prese nts a political dilemma for Gillette should the political power shift to an opposing party. (Quelch,J. Long, D. 1996 p. 363) The Indonesian Government encourages a high export Economic rate to aid the existing high population growth rate to increase the nations employment prospects. Foreign investment in Indonesia for 1994 has risen to $23.7 billion, up from $826 million 8 years earlier. In 1996 Indonesias FDI is expected to grow to 74%. There are approximately 2 million people entering the workforce every year with 80% of the population obtaining an annual income of < $10,000 per year. (Quelch,J. Long, D. 1996 p. 363) Popu lation -196 million Popu lation demograph ics Indonesians are spread across 15,000 islands with 35% living in towns and 65% living in rural areas. 60% of Indonesians live on the islands of Bali and Java. (Quelch,J. Long, D. 1996 p. 363) Technological Manufacturing improvements in 1995 saw increases of 57% in productivity reducing the time to produce their blades (Quelch,J. Long, D. 1996 p. 363) The President of Indonesia oversees all legal reforms. Regulations prohibit foreign companies like Gillette from importing or distributing their products. (Quelch,J. Long, D. 1996 p.363) Indonesia has environmental legislation as of 1996 dealing with disposal of waste products resulting from manufacturing (e.g. ammonia).

Social

Legal

Environmental

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Gillette Indonesia | CLN Case Study | Group 5

Appendix 2: Product Details

(Source: Quelch,J. Long.D, 1996 p. 363)

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Gillette Indonesia | CLN Case Study | Group 5

Appendix 3: Financial Performance


Gillette Indonesia Sales breakdown 1995 (millions) Shaving products total sales Blades Disposables Sensor Razors Prep Products $10.3 $1.2 $5.6 $2.0 $0.5 $11.2 $2.5 $10.4 $3.0 $0.5 9% 108% 87.51% 50% 0% 1996 (millions)
1996

% growth

Non-Shave products

$2.0

$2.3

15%

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Gillette Indonesia | CLN Case Study | Group 5

References
Central Intelligence Agency, Fact Book, 1996, available from http://www.umsl.edu/services/govdocs/wofact96/123.htm (viewed 20th March, 2010) Country Snapshot 1996, South Florida Business Journal, vol. 2, November 8, p.1. Retrieved March 19, 2010 from http: //www .proquest.com.ezproxy.lib.rmi t.edu.au. Fathoming Porter's five forces model in the internet era [Image] 2005. Retrieved March 19, 2010 from http://www.emeraldinsight.com/fig/2720070605001.png Indonesia-map [Image] 1996, Retrieved March 19, 2010 from www.aegis.com/images/flags/Indonesiamap.jpg Kotler, Adam, Brown & Armstrong 2000, Principles of Marketing, Prentice-Hall, Sydney. Mason, R. (2007). The external environments effect on management and strategy; A complexity theory approach. Management Decision, Vol 45, 1, p. 10-28. McCarthy, J.E, 1960, Basic Marketing: A Managerial Approach, Richard D. Irwin, Homewood, IL. Porter 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press New York. Quelch, JA & Bartlett CA, 2006, Global Marketing Management: A Casebook, 5 South, Western Australia Quelch, JA & Long, DE, 1998, Gillette Indonesia, Harvard Business School. Unit 3 Marketing Management, 2010 [6] RMIT University Schiffman, Bednall, Cowley, OCass, Watson & Kanuk 2001, Consumer Behaviour, Prentice Hall, Sydney.
th

edn, Thomson

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Gillette Indonesia | CLN Case Study | Group 5