CATEGORY LEADER SWITCHES TO VALUE MESSAGING AFTER SHICK AND DOLLAR SHAVE CLUB STEAL MARKET SHARE
For a generation, Gillette has been among the most profitable packaged-goods brands, with regular price hikes and market shares north of 80% in the lucrative replacement-blades market.
But as challenges mount from traditional and new rivals and share starts to drop, the Procter & Gamble brand has been shifting its focus toward value messaging.
One of the rivals is Schick Hydro, launched two years ago, about the same time as Gillette's latest system, Fusion ProGlide. In recent months Hydro has added a sharper price edge to digital and direct-mail ads, and has made a superiority claim that would once have seemed unthinkable for a Schick brand heavily outsold by Gillette.
A mailer for Schick Hydro 5 states that it's "Preferred over Fusion ProGlide at a better price," a claim that according to the fine print is based on 52-week Nielsen scanner data and surveys of men considering overall performance and price. (A P&G spokesman said Gillette systems continue to win in numerous internal and external surveys and ratings of razor performance.)
That was followed by a guerrilla challenge from venture-capital-backed Dollar Shave Club, whose viral video drew more than 4 million views its first month. Club founder and co-CEO Michael Dubin asks in the video.
"Do you like spending $20 a month on brand-name razors?"
He adds that "$19 goes to Roger Federer" -- a swipe at the tennis great, who's had viral-video fame himself as a Gillette pitchman.
The direct-response Dollar Shave Club offers twin-blade razors for $1 a month ($3, including shipping and handling), or four- and six-blade models for $6 to $9, shipping and handling included.
Mr. Dubin is a former NBC page, MSNBC news writer, improv comedian and producer of custom video content for advertisers at Time Inc. He got the idea for Dollar Shave Club in 2010, after complaining about the high cost of razors to friend and co-founder Mark Levine, who had experience getting products made in China.
DSC built its concept last year at Science, the Los Angeles digital incubator headed by former MySpace CEO Mike Jones. In December and January the club won $1.1 million in backing from venture-capital firms including Kleiner Perkins, Andreessen Horowitz and Forerunner Partners.
Though Mr. Dubin would not disclose the number of DSC subscribers, it has already surpassed 2012 projections with the 12,000 who joined in the first 48 hours after the video launch. Producing the video cost about $4,500.
Gillette is responding by giving more attention to value, starting with ads last month from BBDO, New York, that show a man using a single Fusion ProGlide cartridge during a five-week trip around the world.
Still in development are plans for marketing support for Gillette's Mach 3 system, against which Schick has made its greatest inroads, said P&G spokesman Damon Jones.
Mr. Jones said.
"You can get Gillette quality at great value no matter how much you want to spend. We haven't talked about value as much as we'd like. That's where Schick and Dollar Shave Club are coming at us. We know we have to be much more competitive in that space."
But that comes at a cost, particularly the expense of bolstering a legacy system such as Mach 3, historically a low-maintenance business that delivered a tidy profit, said Deutsche Bank analyst Bill Schmitz.
Gillette's share of the $820 million replacement-blades market slipped 2.2 points last year, to 80.8%, according to SymphonyIRI data from Deutsche Bank, after holding stable at about 83% since 2004. But Gillette, which probably commands 90% to 95% of category profit, may have no choice but to give margin back to defend turf, Mr. Schmitz said.
The male-grooming business delivered a 20.3% profit margin last year, six points higher than P&G as a whole. Gillette razors are even more profitable, as lower-margin Braun shave-preparation, soap and deodorant products pulled down performance.
Despite the more aggressive value focus in general, Mr. Jones said, the new high-end ProGlide Styler trimmer-razor has done well and helped expand Gillette's profit pool.
COMMENTARY: Gillette Fusion ProGlide is perfect example of an increasing returns business model. They give away the razor handle for free, but charge you a fortune for the blades. It's a great shave, but the blades just cost too much. Most stores sell the blades in special security dispensors and I have seen the razor handles and blades locked glass display cases because they are considered too valuable and can be easily shoplifted if display on regular counter shelves. I do love the Shick Hydro 5 prices, though. That Dolar Shave Club commercial is fucking hillarious, and I think it might be the first one to use the "F" word. I don't think it will get pass the FCC censors, and ever appear on television, but it has over 4 million views on YouTube, so fuck yeah!! Send me those fucking razors.
Courtesy of an article dated April 9, 2012 apparing in Advertising Age
Jason Cruz
The prices for new razor blades cost to much... I'm to a double Edge Razor cuts better has been around for a long time.... shtick Gellite they prices need to come Down I'm not paying there high prices.... Ripoff .....
Posted by: Jason Cruz | 04/22/2012 at 10:08 AM