Global Gillette (Gillette) is a subsidiary of Proctor and Gamble and is in the business of manufacturing toiletries and shaving equipment. Its business is divided into five segments which are blades, razors, batteries, electric razors, oral care products and personal care products that include shaving and skin care products and deodorants. The some of the well known brands that come under Gillette are Braun, Duracell, Mach3, and Oral-B. As a subsidiary of Proctor & Gamble, no individual financial information is released.
History and Growth
The company was founded by King C Gillette and William Nickerson in 1901. It was first named American Safety Razor Company which was later changed to Gillette Safety Razor Company in 1902 and then The Gillette Company in 1952. The company’s first product a disposal razor was introduced to the market in 1903 for which he also acquired a patent. It started its first overseas operation in London in 1905 and then established operations in Canada, Germany, Denmark, Belgium and Italy (Datamoniter, 2005).
After its first invention the company decided to maintain its innovative pace. It introduced the idea of self-shaving by selling shaving kits during the First World War. It introduced an electric shaver in 1938 and Foamy shaving cream in 1953. It introduced Right Guard deodorants, Cricket disposable lighters and Eraser Mate pens in the 1960s. In two most significant products launched in the 90s were Mach3 razors with three blades in one razor and Ultra alkaline batteries. (Datamoniter, 2005).
As the company grew and innovated, it acquired other companies, to gain expertise and resources. It acquired Paper Mate, a ball point pen company in 1955. Braun, an electrical appliances manufacturer in 1967 and Liquid Paper in 1979 Oral-B Laboratories in 1984, Parker pen in 1993 and Duracell in 1996. (Datamoniter, 2005).
Its sales figure had grown to $9.7 billion in 1996 from $1.2 billion five years ago. In 1998 Gillette had become world leader in 13 product categories (Seymond, Matlack 1998). However from than onwards the Company’s performance begin to flounder. In 1999 “… Braun’s profits fell 4% last year, dropping below 1996 levels. Gillette’s toiletries such as shaving cream and Right Guard deodorant are down (earnings are 40% below their 1988 level, and profit margins are just 4%, compared with almost 40% for blades). And its stationery products group, which includes Papermate, Parker, and Waterman brand pens, has also flagged (profits fell 31% last year)” (Kahn, 1999). Gillette’s receivable collection process and inventory management process was also criticized as too slow and inefficient. (Kahn, 1999)
It embarked on process improvement and reorganization projects. It installed software to handle inventory and account receivable, closed down 14 factories and 12 distribution centers worldwide, consolidated 30 offices and cut 4,700 jobs (Kahn, 1999). Through a more aggressive strategy Gillette embarked on a business process engineering project to make its value chain more effective by using benchmarking techniques (Kahn, 1999, Duffy 2004)
Reevaluating its product portfolio, it sold its all its hair care businesses to Diamond Products and all its stationery products businesses to Newell Rubbermaid in year 2000. In 2003 it sold its Geep battery business which was part of Gillette India to the Thanawalla Group of companies. It became majority owner of Fujian Nanping Nanfu battery Company of China in 2003 and acquired Rembrandt teeth whiting products from Den-Mat Corporation of California in 2004. (Datamoniter, 2005).
Procter & Gamble Company acquired all Gillette businesses, facilities and brands in 2005 for $57 billion. (Datamoniter, 2005).
Strengths and Weaknesses
Not only is Gillette a popular brand amongst the consumer but is also parent to many other reputable and well known brands such as Braun, Oral-B line and Duracell. A strong brand shows that customers are well aware of the company’s product and have a positive perception about it. Gillette gains a lot from this strength by practicing a premium pricing strategy for these brands. (Datamoniter 2005). The strength of these brands can be judged by the fact that Gillete’s razors that are the most expensive in the market dominate it with 34% market share in United States (Symonds, 2005)
Gillete’s product have a reputation of dominating the markets they enter. Examples of product leadership in the world market in 2003 are Gillette blade and razor portfolio which had a 72.5% share Venus female shaving equipment which has a 32% share, Duracell with a 39% share in the alkaline battery category and Oral-B brand increased its leading global share of the total brushing market to 34% in 2003 (Datamoniter 2005). Dominating markets in so many categories increases the over all value of the company and gives it think ahead of surviving competition. The large amount of sales volume also gives the company economies of scale (Datamoniter 2005)
Gillette’s product portfolio is well diversified. It product portfolio includes shaving equiptment, batteries, oral care and personal care products. Diversification allows the company to minimize risk of market slumps.
Gillette has recently experienced a turnaround in the form of business process re-engineering and re-structuring of the organization and which has ended with a policy of continuous processes evaluation and improvement and (Duffy 2004). This turnaround has lead to a large increase in sales along with a reduction in overhead expenses. This has resulted in an increase in profit margin from 18.5% in 2002 to 21.7% in 2003. In the same way Return on invested capital has also increased from 23% in 2002 to 28% in 2003. Also the liquidity of the company has become more favorable with an increase of 33% between the two years (Datamoniter, 2005).
Although Gillette has a well diversified portfolio most of its profits come from its razors and blades business (68%) which is its primary business. Even with a diversified portfolio this makes the company highly dependent on its performance in this market. As a global giant with such high stakes this position is highly risky.
Gillette acquired Duracell in 1996. Since than the company has been unable to come up with any break through innovation for this brand (Datamoniter 2005) Most of the market share Gillette has managed to gain for the new alkaline battery that has been launched after the acquisition is the market share of Duracell’s older copper and black battery (Symonds, 2000). Because of lack of differentiation Gillette’s premium price strategy for Duracell’s Ultra has failed. In fact, tough competition has brought down the prices and reduced the margin of this product. “Profit margins roughly halved between 1999 and 2002 (from 22% in 1999 to 11% in 2002)” (Datamoniter, 2005). Reduction of manufacturing overheads and decreased advertising expenditure has increased the profit margin in the later years. However, Gillette’s competitors Royavac and Energizer still have lower operating margins (Datamoniter, 2005)
In 2003, Gillete’s major revenues of a whooping 13% was generated through a single customer which is Wal-Mart Stores. Similar proportion of revenues have been generated from Wal-Mart in the years before 2003 as well. This situation makes Gillette’s revenue vulnerable to the performance of a single customer just like Gillette’s revenues are vulnerable to the condition of one product market. Gillette should consider building strategic relationship with other customers to diversify its risk.
Opportunities and Threats
“Gillette is known for constantly introducing new products in the market with better technology and performance” (Datamoniter, 2005). Most of the products it has introduced have done well in the market have earned a lot of appreciation. An example of its innovation is its CorssAction Vitalizer which was launched in 2003. The product did not just do well for itself but also improved its manual brushing business as well. The consumer goods industry is characterized by the fact that the manufacturers operating within it must consistently introduce newer and better products to serve customer needs. “M3Power, a powered wet shaving system for men and Passion Pink Venus, the new shaving system for women are expected to further improve the company’s performance in 2004” (Datamoniter, 2005). Backed by state-of-the-art Research and Development facilities, Gillette is in good position to exploit the opportunity for newer products.
As already discussed Duracell is being viewed as a liability and burden on Gillette by critics. This is because; Gillette has yet to show break-through innovation in the batteries product line like it has shown in other sectors. Another criticism is that its only new product offer has a market share which is composed mostly of the Duracell’s old copper and black battery market. “True, the Ultra has grabbed 13.5% of the U.S. market so far, and Duracell claims it generates fat profit margins. But most of that market share has been cannibalized from Copper & Black” (Symonds, 2000). Thus, Gillette should see this as opportunity for expanding its market share.
The large and fast-growing Chinese battery market is good starting point to start. Keeping this in mind, Gillette has bought a majority ownership in shares in the Fujian Nanping Nanfu Battery Company, which was the market leader in China at that time (Datamoniter 2005). The increased demand produced by China is likely to create economies of scale for Gillette and hence bring down the costs.
Oral B offers a lot of opportunity for Gillette. It has the distinction of being the only brand that offers “a toothbrush portfolio that extends from manual to high-end power” (Datamoniter, 2005). Gillette can introduce this product to many international markets as a unique product and hence face little competition.
Gillette is threatened by two main factors in its shaving product Mach3. One is that of imitations and the other is of disposable razors. These two factors are consistently putting pressure on the company’s market share. Both imitations and disposables are priced lower than the Mach3 product and therefore customers may find it attractive to switch to these alternatives. Gillette’s own disposable razor is competing with Mach3. This is a test of consumer loyalty. It is yet to be seen how long it takes for consumers to loss interest in the superior experience offered by Mach3, for a more affordable good enough shavers (Datamoniter, 2005). “Therefore, the rapid narrowing of the quality gap between the latest systems and the latest disposable could have negative implications” (Datamoniter, 2005).
Gillette’s strategy so far is to introduce products produced using state-of-art technology and backed by through research. Thus products introduced by Gillette are of exclusive quality and have a large amount of Research and Development investment behind them. It is only fair that the company charges a premium price to recover their expenditure. However, Channel migration and consumer resistance over high prices is putting pressure on Gillette to cut down the prices of its products (Datamoniter 2005). “Gillette’s pricing power in blades is under pressure on multiple fronts as consumers migrate to value channels…These pressures are being compounded by the growing consumer resistance to paying ever-higher prices for razors and blades” (Datamoniter, 2005).
As an organization with global operations and with a product portfolio diversified into many markets Gillette has to face a lot of competition. One of its major competitor is Energizer Holdings which has acquired blade and razor business from Schick’s and the Wilkinson Sword a blade and razor business in some countries from Pfizer. Schick’s four blade razor Quanttro also give competition to Gillette’s Sensor, Mach3 and Fusion (Datamoniter 2005).
As already mentioned Gillette is facing the toughest competition in the alkaline battery market against Energizer and Royavac. In the razor and blades market product differentiation and value added advantages has given Gillette a comfortable edge. However, lack of differentiation in the battery market has caused a price war between market players.
SWOT Analysis
Datamoniter has conducted a SWOT analysis of Gillette. The strengths identified are as below
Strong brand equity
Market leadership
Well-diversified portfolio
Turnaround in operating performance
The weaknesses identified are as below
Over-reliance on a single customer
Margin pressure at the Duracell division
Profitability highly dependent on core business
The opportunities identified are as below
New product launches
Growth potential for battery business in China
Consumer trade-up in oral care worldwide
The threats faced by the company are as follows:
Imitations / disposables are a threat to the Mach3 offering
Pressure on pricing power
Competitive environment
Corporate Strategies
The company’s strategy is to strengthen Gillette in three dimensions. One is to develop a impressive product portfolio. This strategy is embodied through the recent release of innovative products in razors, toothbrushes and batteries. Second strategy is to bring down manufacturing and overhead costs. This is done through process improvement and enhancement. Third, the company uses its global presence as competitive advantage in its overseas business (Symonds, Matlack, 1998).
Innovation
Gillette places high emphasis on innovation. It is called the “world’s great innovation machines” (Symonds, Matlack 1998). Chief Executive Alfred M. “predicts that 50% of Gillette’s sales will soon come from products introduced within the past five years, up from 41% in 1996 and twice the level of innovation at the average consumer-products company” (Symonds, Matlack 1998). This shows the importance Gillette gives to new project development.
Research and Development
Consistently coming up with break-through innovations is only possible through high quality research and development facilities. Gillette research and development facilities are state-of-the-art. They have “high-speed video that can capture the act of a blade cutting a single whisker and even a microscope capable of examining a blade at atomic level” (Symonds, Matlack 1998).
Gillette invests over $200 million, to R&D, which is about twice the average for consumer products. “The company then uses a highly disciplined process to perfect its ideas.” The original concept for Sensor had been formed in 1979. Six different designs were created and dismissed until the seventh one was finally approved. The final product incorporated “22 patentable innovations on top of the original idea” (Symonds, Matlack 1998). Oral-B’s R&D has 150 researchers for manual plaque removal which is “more than any other company in the world” according to Jacques Legarde, the executive vice-president who oversees Oral-B.
Process Improvement
As already mention Gillette also tries to find out better and more cost effective ways to do business. The company has an annual 4% cost-cutting goal which has mad process improvement a continuous process. Process improvement has caused Gillette to save a large amount of costs. An example is, that there has been a cost reduction of 30% in the manufacture of Sensor since 1993, and a reduction of 60% in cost of Oral-B” (Symonds, Matlack 1998).
Analyze structure and control system
The figure shows Gillette’s value chain. As it can be seen from the figure, Gillette’s value chain is very customer focused. All the processes and components within the value chain have been aligned to allow efficient flow of supplies and timely order fulfillment for the customers. To insure that all the players in the value chain understand the importance of this alignment to for customer satisfaction, their performance objectives, compensation and reward system are crated around fill rates (Newman, 2003)
Figure 1: Gillette’s Value Chain (Source: Newman, 2003)
The management does error resolution within the value chain through a self-developed process called Root-Cause Analysis. Members for each component of the value chain meet on a daily and weekly basis to identify fill rate failures and determine the root causes for the failure. They also discuss and come up with ways through which these root causes can be eliminated. To facilitate this process “reason codes have been established, as well as subsets for each reason code, to link the source of a problem to the factors causing it. The nine primary reason codes are: forecasting, local planning, systems, local warehouse, central planning, marketing, order management, product catalogue and quality” (Newman, 2003).
The most important change that the company saw in the last few years is the acquisition by Proctar and Gamble. The stakes were high on both the sides so the companies had to tread very carefully. To insure that the takeover was successful and would not result in resentment, confusion and conflict within the employees, A.G. Lafley and Jim Kilts the CEO of Procter and Gamble and Gillette respectively decided that Jim Kilt would remain the CEO of Gillette for at least one year after the takeover. The familiar leadership indeed had a very positive effect on the employees of Procter and Gamble. According to Lafley, the success of the takeover should also be credited to the fact that it happened in a collaborative environment of trust and honesty. (Laftay, Sellers 2005).
On more administrative tone, the company has introduced an energy saving program as well. This program encourages employees to proactively reduce the unnecessary use of energy in their work environment. The program has been mobilized through conservation coordinators. The energy awareness is done through films, meetings and demonstrations of energy saving ideas by the employees. Periodic incentive programs are employed to encourage an energy saving culture. (Management Review, 1982)
Recommendations
After a through analysis of Gillette, the following recommendations can be made
The company should continue its premium pricing strategy for its razors and blades. This is because Gillette’s products are perceived to be of premium brands and it is not only the shaving experience but also the brand name that customers buy when they purchase Gillette’s shaving equipment. Thus Gillette should continue the “use of superior technology and savvy advertising” (Kahn, 1998) to attract customers.
In the same way more aggressive strategy can be developed for Oral B high power end products. This is because the product is in its first lifecycle phase and its novelty will allow the firm to not only grow the product’s market but also do so at a premium price. Thus Oral B offers Gillette a comfortable lead time in terms of competition and an opportunity to make attractive profits.
However, Gillette should realize that its pricing strategy cannot be uniform over all its product categories and this holds true especially to battery product category. With a price war going on Ultra the Duracell’s product under Gillette’s reign will not survive the competition. Even though the cell last 50% longer (Symonds 2000), the customers still do not think the price is worth it. The best option available for Gillette is to lower the price and increase their sales which will eventually lead to economies of scale and increase the profit margins.
The company has recently gone through big changes one is through the business re-engineering process and organizational restructuring process and the other is through its acquisition by Procter and Gamble. An organization is naturally resistant to change and even if it manages to accept the change initially it may go back to its old ways very soon. This results in conflicts and confusion. Therefore it is necessary that company employee comprehensive change management activities which include orientation and training, a revised performance appraisal and reward system for employees and controls that evaluate the process performance against the set benchmarks.
References
Duffy, M. (2004). How Gillette Cleaned Up its Supply Chain. Supply Chain Management Review. 3(8)
Newman, B. (2003). How Benchmarking Customer Service Can Lead to Improved Service and Reduced Costs. 40
Management Review. (1982). How Gillette saved $20 million on energy. 71(4)
Litman, J. and Lohrmann, B. (2002). Innovation with Customer Intelligence. Strategic Finance. 7(83)
Datamoniter. 2005. Global Gillette. Retrieved from Business Resource Premier Database
Symonds, W. C. (2005). Gillette’s Five-Blade Wonder. Retrieved from Business Week Online
Symonds, W. C. (2000). CAN Gillette Regain its Voltage?. Business Week. 3703
Symonds, W. C and Matlack, C. (1998). Gillette’s Edge. Business Week. 3561
Kahn, J. (1999).Gillette Loses Face. Fortune. 9(140)
Lafley, A.G. and Sellers, P. It was a no-brainer. Fortune. 3(151)
