Hi-Tech Edge of the King of Blades

Dr Amit Rangnekar

Case Objectives
• How does Gillette continue to dominate the global market thro’ technology & innovation in a mature market • How does Gillette manage to persuade customers to upgrade to higher priced products • How does Gillette successfully extend its brands • There are few companies with more powerful global brands than Gillette, and there are even fewer companies that have so successfully used innovation to increase the market strength and consumer appeal of their brands. • James M Kilts, Chairman and CEO

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Innovation
• Gillette's stated goal is to achieve 40% of sales from products launched in the L5Y • Gillette presents the classic example of innovation as product extension. Gillette used to make razors with one blade, then it made them with two blades, then with three blades, and now their razors have 5 blades – Gary Hamel •
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Blades and razors category
• Among the growing toiletries market sector • Male grooming market, higher growth in N5Y • Catalyst- fundamental change in men's attitudes to grooming process over the last decade • Popularity of 'lad mags' & influential sportsmen, make men care consciously about their appearance

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Growth in grooming
• Massive influx of male grooming products • Dramatic increase in choice for male grooming • In many cases, male bathroom cabinet now rivals females, in size & choice • Female grooming also maturing • Higher growth in women razors

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History
• 1901- Founded in Boston, USA • Founder- Travelling salesman King Camp Gillette • Founding thoughts- Frustration with traditional cut-throat shaving, idea of disposable razor blade, convenient for men shaving on their own • Research- Men would pay $5 for a home shaving kit, blades were cheap so cost of shaving at home would reduce as more men start shaving daily • William Nickerson, MIT engineer, joined King to form the Gillette Safety Razor Company, Boston (Changed to Gillette Company in 1952) • Developed low cost blade production machinery • Razor plus 1 blade priced @ $5, 20 blades @ $1
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Progress
• • • • • • • • • 1903- Developed revolutionary Safety Razor Only 51 razors & 168 blades sold in first year 1904- US patent, 90,844 razors & 123,648 blades Gillette's strong technological foundations set The Safety Razor drove new processes for tempering & hardening mass-produced steel Result- The 'wafer thin' metal blade for the razor Dubbed 'technically impossible' by Edison The Safety Razor made Gillette a household name Literally changed the ‘face’ of the US
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amitrangnekar@gmail.com

Progress
• 1905- London & Paris plants, Overseas operations • Pre WWI- Annual blade sales 40 million units • "shave" and "save" plan- Gave away free razors and boxes of Wrigley's gum through banks• Attracted potential customers to self-shaving • 80% of US market for razors and blades • WWI- US government ordered 3.5mn razors & 36 million blades for soldiers who self shaved • Post- war ads to ensure self shaving continued • 1925- EU, Asia, Kolkata- 30% sales international • Slowly built brand image, through clear association between shaving and Gillette
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Innovations
• • • • • • • • • 1946- Razor dispenser 1949- Foamy shaving cream introduced 1963- Super Stainless Steel blades 1967- The Techmatic razor First system razor with a 'continuous band‘-consumers do not have to touch the blade 1971- Trac II, first twin blade razor 1976- Good News, first twin blade disposable razor 1977- Revolutionary pivot headed razor, Contour 1960s & 1970s- developments focused on blades
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Innovations
• 1980s & 1990s- improved features for a smoother, more comfortable shave • 1985- Contour Plus/ Atra Plus, + lubricating strip • 1990- Sensor- spring-mounted blades & shellbearing pivot, introduced in 16 countries • 1993- Sensor Excel- soft, flexible microfins to sweep hair up, allowing the blade to cut closer • 1998- Mach3, revolutionary triple blade razor • 2003- Mach3Turbo, improved blade technology • 2004- M3Power razor, manual razor + battery power, new segment- power wet shaving • 2007- Fusion 5 blades razor with rear trim blade
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Female Razors
• • • • • • • • Strong history of innovation 1915- First razor for women 'Milady Decollete‘ 1975- Gillette Daisy, 1st disposable women’s razor 1992- Sensor for women 1995- SensorExcel for women 2000- Venus - a triple bladed razor for women 2002- Passion Venus, in vibrant pink colour 2004- Venus Divine
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amitrangnekar@gmail.com

Key strategic decisions
• • • • • • 1930- M&A Auto Strop Safety Razor, US 1948- Diversification to Personal care / toiletries 1967- M&A Braun, electric razors 1984- M&A Oral B, oral care 1996- M&A Duracell, long life battery cells 2005- Acquired by P&G

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Gillette's portfolio
• • • • • • Significant expansion since the safety razor Cater to diverse segments Grooming range meets all consumers needs Covers sensitive price points Fully integrated grooming solution for men Acknowledged master in persuading men to trade up to more expensive shaving systems

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Shaving range
• • • • • • Entry level disposables BlueII, basic twin blade razor Sensor Excel Mach3Turbo Fusion Gillette series- shave gel, foam, after-shave, cooling gel, after-shave balm & splash, antiperspirants, deodorants and shower gels

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Mach3
• • • • • • • • World's first triple blade razor, most successful Technological breakthrough, set the benchmark DLC coating allows thinner and stronger blades 3 progressively aligned blades allow a close, closer, closest, shave Advanced Indicator Lubricating strip, fades away to indicate less than optimal performance 5 rubber Microfins assist the blades by stretching the skin & lifting the hairs Single point docking ensures error free blade loading Globally 90 million men use a Mach3 family razor
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Mach3Turbo
• 2003- launch • Extension built on the Mach3 heritage • Better shaving performance due to new anti friction blades • 2004- Mach3 family extended to include Mach3 Turbo Champion, in vibrant red variant • Key innovations & improvements to the Mach3 design to produce the Mach3Turbo
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Mach3Turbo innovations
• Anti-friction, comfort coat blades, reduce force required to cut through hair • Low irritation & allow shave against the grain • Indicator Lubricating Strip releases more lubrication, improves razor glide • Microfins doubled from 5 to 10, twice Mach3- allows more effective skin stretching • Blades can shave evenly and effortlessly • Razor handle with textured rubber grips • Metal grooves to improve sureness of grip • Better overall handling & control
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Gillette Fusion

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Gillette Fusion Launch
• Own- Last NPL- Mach3 manual & M3Power battery, 1998, @25% premium, but 34% US share • Rival- Quattro from Schick, 4 blades, 3% US • NPL- 5blade Fusion, 30% premium, both versions • Own male-grooming range including shave gel • Compelling technology- blades spaced 30% closer than before, closer shave, reduced irritation • Smooth blade coating, "Lubrastrip" with VitE & aloe • MR 9,000 men- 2:1 superior shaving xp over Mach3 & Quattro • NPL estimate -US, EU, Top $1 billion sales in N3Y
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Gillette Fusion Marketing
• Competition- least worry- 5 blade razor possible, but not with comparable technology & expertise • Key to Gillette’s 100 year domination • Can improve male-grooming biz’ 30% share • Attention on Fusion will generate many trials • P&G support can ensure major player status • Affordable luxury- $10 for razor+ 2 blades, $12 more for 4-blades replacement pack initially • Future cost will be 20 cents/shave or $50/year, value wrt to a Starbucks/ Big Mac/ bottled water • Father's Day campaign, Walmart- buy Fusion get $6 credit on other products • “Pushing handle sales is the key to success”
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Gillette Fusion Results
• King of Blades- enhanced power in a mature biz • 2005- Blades & razor biz- $4.3bn, profits $1.63bn • Developed Fusion & Fusion Power for < $680 mn spent on Mach3 (1998) • Efficiency gains in recent years • "Fusion will be accretive to our earnings from day one. It could become Gillette's most successful razor ever " • “The Mach3 name conveyed the power & benefit of 3 blades which Fusion doesn't convey. If the brand idea is not simple, it is extremely difficult & expensive to execute in the market“ Landor Asso.
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Venus Divine
• 2004- Venus brand extended to Venus Divine • Closer & safer shave, with soft, moisturised skin • Comfort coated blades enhanced with 2 new coating layers to ensure a more comfortable glide • First time Lubrastrip before the blades, to prepare the skin and soften the hair • 2 Lubrastips follow the shave to moisturise and replenish skin • Elastomeric cushions surround the blades, gently stretching the skin and lifting the hair
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Promotion
• Strong and sustained investment in advertising • Gillette brand- incredibly high recognition rate • 1980s- 'The Best A Man Can Get' campaign, hugely successful • Massive influence, recalling & salience • New wave of advertising for Mach3 launch • Focus- brand values, innovation & cutting edge technology • Aim- educate consumer on product advancements and improved shaving performance
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Strategic shift
• 2004- back to 'The Best A Man Can Get' ads • Original, emotive campaign but with a new & enhanced look • Strong black & white imagery, updated song • Combination creates a far more emotional connect between consumer and the Gillette brand • Product specific advertising to run alongside the campaign, communicating technological product superiority
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Sports Marketing
• Used sport as a major promotional vehicle • Strong ‘sports’ association continues • 1910- Major league baseballers endorsed Gillette razor, relationship lasting a century • 1939- US World Series radio broadcast- first sponsorship • World Cup Soccer, longest running sponsor • Global car racing • Cricket in the UK • 2004- 'Gillette Soccer Saturday’ on Sky Sports • Sponsorship, major part of Gillette's IMC strategy
amitrangnekar@gmail.com

amitrangnekar@gmail.com

Gillette Soccer Saturday 1996
• Campaign objectives: Build a brand property for Gillette to reach target, communicate information, and ensure awareness, trial, loyalty of NPD • Target audience- Men aged 18-34 • Budget: £1-£2m (per season) • Channel- Sponsor Soccer Saturday (Sky Sports), link to a must-see program for core target group • TV usage: 5/10/15 second sponsorship credits • Aim- Associate Gillette with high performance • Keep target updated on NPD/Soccer • Success- SensorExcel, Mach 3, turbo & M3 Power
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Gillette Soccer idents
• Gillette ads in a football context ensure attention • Football club officials lay out players’ kit pregame • Include essential Gillette grooming products • The idents end with “Gillette, part of the ritual” • 2006, the show averaged monthly audience of 1.3mn men aged 16-34 • Gillette effectively communicated with 24% of its target audience and over the whole season, had a reach of 46% among the target group
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Gillette Soccer Results
• Soccer Saturday sponsorship effectively launched Mach3, Turbo and M3Power • 2003- Turbo series 15% market share as launch idents integrated a football theme • 2004- M3Power- Power shaving message added to the idents, sales rise 26% ahead of expectations • 2005 Independent qualitative research- match between Soccer Saturday and Gillette, widely perceived to share similar brand attributes including, market leaders, innovative, respected, up-to-date, established and magnitude
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Overcoming Challenges
• • • • • • • • • Post 1990s- Unravelled innovations to grow But schemes & incentives ensured high inventory Recovery blocked, profits erode, discount expected 1998- sales flat and profits decline Performance- pay to reward results than effort Strategy-link innovator past & value creator future Disciplined marketing, central to revival Communication & collaboration essential Cross-functional team meetings, progress reviews
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Create total brand value
• New team, fresh ideas • NPL successes-shaving system, oral/personal care • "Our powerful marketing programs are fueling new sales & consumer trade-up to premium products, even in the face of competitive offers of steep discounts and product giveaways” Kilts • Sales up 13% • Creditable in a fairly mature, packaged goods products

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Gillette Geography
Geography North America Western Europe Asia Pacific Africa/Middle East/Eastern Europe Latin America
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Contribution % 40 33 10 10 7

P&G M&A 2005- $57 billion
For P&G
• • • • • • • Strategic fit, Scale More trade muscle Hi-growth market entry Significant EM presence Added a ‘Colgate’ to sales No Unilever presence 21 bn$ brands, $200 bn mkt cap

For Gillette
• • • • • Part of a FMCG giant Consummate marketer Adds Innovation skills Gillete global reach Mens grooming synergy

“Extra 20% premium P&G paid for Gillette's stock will make it 20% more difficult for the deal to pay dividends to stock holders" Al Ries
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Pre M&A
P&G Gillette Sales $51.4 bn $10.3 bn Profits $6.5 bn $2.3 bn R&D Spend $1.8 bn $0.2 bn Tide, Bounty, Crest, Mach3,Gillette, Leading Ariel, Pampers, Pringle, Oral-B, Duracell, Brands Wella, Olay, Head & Braun Shoulders Employees 110,000 30,000
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Why P&G acquired Gillette
• “Getting men to spend more money than they ever dreamed possible on razor blades is a specialty at Gillette. Starting with the 2 bladed Sensor in 1990, the company has devoted immense scientific & marketing resources to what was once, one of the most humble products in the medicine cabinet. And it has raked in unprecedented profits with each increase in price & blade count. Between 1997 & 2004, Gillette's overall blade & razor sales soared nearly 50%, though underlying demand barely budged, increasing in line with population. That's a big reason why P&G paid a premium price of $57 billion to buy Gillette” BusinessWeek
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Brand values
• “Dedicated to drive innovative technology to develop & produce hair removal products that deliver superior shave performance, both in closeness and comfort” • Male image- masculine, confident & wellgroomed • Female image- fun, youthful & energetic • Positioning- Premium, offering superior quality products that set the grooming industry standard • Essence- Celebrating world class products, world class brands & world class people • Committed to grow through innovation to maintain global consumer products leadership
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LKD
• Facial hair is 70% easier to cut if soaked in warm water for 2-3 minutes before shaving • The average man spends 3,500 hours of his life shaving • Removes about 30ft of facial hair

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India
• • • • • • • 2007- 454 Cr Own Plant at Bhiwadi, Haryana One of Gillette’s lowest cost producing plants 20% lower than Gillette plants, at par with China Robust local vendor development program 90% locally sourced material Global cost reduction opportunity for sourcing from Indian vendors • 20% production exported

amitrangnekar@gmail.com

amitrangnekar@gmail.com

amitrangnekar@gmail.com

amitrangnekar@gmail.com