Harvard Case - Gillette: Cutting Prices to Regain Share
"Gillette: Cutting Prices to Regain Share" Harvard business case study is written by Benjamin C. Esty, Daniel Fisher. It deals with the challenges in the field of Strategy. The case study is 18 page(s) long and it was first published on : Nov 15, 2019
At Fern Fort University, we recommend Gillette adopt a multi-pronged strategy to regain market share and revitalize its brand. This strategy involves a combination of product innovation, pricing adjustments, marketing campaigns, and expansion into new markets, all underpinned by a commitment to digital transformation and sustainable practices.
2. Background
Gillette, a global leader in the men's grooming industry, faced declining market share due to competition from cheaper, disposable razors and the emergence of new, innovative products. The case study highlights Gillette's struggle to maintain its premium positioning while battling price-sensitive consumers and the rise of online retailers.
The main protagonists of the case are the executives at Gillette, grappling with the need to adapt their business model in a rapidly changing market. They must decide whether to continue their premium pricing strategy, risk losing further market share, or embrace a more competitive pricing approach to regain lost ground.
3. Analysis of the Case Study
To understand Gillette's predicament, we can apply several frameworks:
1. Porter's Five Forces:
- Threat of New Entrants: High, as the razor industry has low barriers to entry, allowing new players to emerge with innovative products.
- Bargaining Power of Buyers: High, as consumers have many choices and are price-sensitive.
- Bargaining Power of Suppliers: Moderate, as Gillette relies on a few key suppliers for raw materials, but can potentially switch suppliers.
- Threat of Substitutes: High, as consumers can choose alternative grooming methods like electric razors or depilatory creams.
- Rivalry Among Existing Competitors: High, as the market is crowded with both established brands and new entrants, leading to intense competition.
2. SWOT Analysis:
Strengths:
- Strong brand recognition and reputation
- Extensive distribution network
- Expertise in manufacturing and product development
- Strong R&D capabilities
Weaknesses:
- High pricing strategy
- Dependence on traditional retail channels
- Limited online presence and digital marketing capabilities
Opportunities:
- Expanding into emerging markets
- Developing innovative products with new features
- Leveraging digital marketing and e-commerce
- Focusing on sustainability and ethical sourcing
Threats:
- Increased competition from private label brands
- Growing popularity of online retailers
- Consumer preference for cheaper alternatives
- Fluctuations in raw material prices
3. Value Chain Analysis:
Gillette's value chain can be analyzed to identify areas for improvement:
- Inbound Logistics: Optimizing supply chain and sourcing strategies to reduce costs.
- Operations: Investing in advanced manufacturing processes to improve efficiency and reduce waste.
- Outbound Logistics: Strengthening distribution network and expanding online presence.
- Marketing and Sales: Repositioning the brand through innovative marketing campaigns and digital channels.
- Customer Service: Providing exceptional customer service to enhance brand loyalty.
4. Business Model Innovation:
Gillette needs to explore new business models to adapt to the changing market:
- Subscription Model: Offering razor subscriptions with regular deliveries, similar to Dollar Shave Club.
- Direct-to-Consumer Sales: Expanding online sales channels and building a direct relationship with customers.
- Product Differentiation: Developing innovative products with unique features and functionalities.
- Value-Added Services: Offering additional services like personalized grooming advice or online communities.
4. Recommendations
1. Reposition the Brand and Redefine Value Proposition:
- Product Innovation: Develop innovative products with advanced features, focusing on performance, comfort, and sustainability. This could include multi-blade razors with advanced lubrication strips, self-sharpening blades, and ergonomic designs.
- Product Differentiation: Introduce new product lines targeting specific customer segments, such as high-performance razors for men with sensitive skin, eco-friendly razors made from recycled materials, or razors with specialized features for specific grooming needs.
- Value-Added Services: Offer personalized grooming advice through online platforms, integrate AI-powered tools for personalized product recommendations, and create online communities for men to share grooming tips and experiences.
2. Adjust Pricing Strategy:
- Competitive Pricing: While maintaining a premium position, Gillette should consider introducing more affordable product lines to compete effectively in the price-sensitive market.
- Value-Based Pricing: Emphasize the value proposition of Gillette products, highlighting their superior quality, performance, and longevity.
- Bundling and Promotions: Offer bundled packages with razors, shaving cream, and other grooming products at discounted prices to attract value-conscious consumers.
3. Leverage Digital Transformation:
- E-commerce Expansion: Invest in building a robust online presence and expanding direct-to-consumer sales channels.
- Digital Marketing: Utilize targeted digital marketing campaigns across social media, search engines, and online video platforms to reach a wider audience.
- Data Analytics: Leverage data analytics to understand consumer preferences, optimize pricing strategies, and personalize marketing campaigns.
4. Expand into Emerging Markets:
- Market Segmentation: Identify high-growth markets with a strong demand for grooming products and tailor marketing strategies to specific cultural preferences.
- Strategic Partnerships: Partner with local distributors and retailers to establish a strong presence in emerging markets.
5. Embrace Sustainable Practices:
- Eco-Friendly Products: Develop products using recycled materials and sustainable packaging.
- Ethical Sourcing: Ensure responsible sourcing of raw materials and production processes.
- Reduce Carbon Footprint: Implement initiatives to reduce the environmental impact of manufacturing and distribution.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Leveraging Gillette's existing strengths in product development, manufacturing, and brand recognition.
- External Customers: Addressing the needs of price-sensitive consumers while maintaining a premium image.
- Competitors: Staying ahead of the competition by introducing innovative products and adapting to changing market dynamics.
- Attractiveness: Increasing market share, improving profitability, and building a sustainable business model.
6. Conclusion
By implementing these recommendations, Gillette can regain its market share, revitalize its brand, and secure a sustainable future in the evolving men's grooming industry. The key is to embrace innovation, adapt to changing consumer preferences, and leverage digital transformation to create a compelling value proposition for a new generation of consumers.
7. Discussion
Other alternatives not selected include:
- Mergers and Acquisitions: Acquiring smaller, innovative companies to gain access to new technologies and product lines.
- Outsourcing: Outsourcing certain manufacturing or distribution processes to reduce costs.
Risks and Key Assumptions:
- Consumer Acceptance: There is a risk that consumers may not embrace new products or pricing strategies.
- Competition: The market is highly competitive, and new players could emerge with disruptive technologies.
- Digital Transformation: The success of digital transformation depends on effective implementation and adaptation to changing consumer behavior.
8. Next Steps
- Develop a comprehensive strategic plan: Outline specific initiatives, timelines, and resource allocation for each recommendation.
- Pilot test new products and pricing strategies: Gather feedback from target consumers and refine offerings based on market response.
- Invest in digital transformation: Build a robust e-commerce platform, develop digital marketing campaigns, and implement data analytics tools.
- Expand into emerging markets: Conduct market research, identify potential partners, and develop localized marketing strategies.
- Monitor progress and adapt strategies: Continuously evaluate the effectiveness of initiatives and make adjustments as needed.
By taking these steps, Gillette can navigate the challenges of the modern grooming market and emerge as a stronger, more innovative, and sustainable brand.
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Case Description
After losing market share to low-priced competitors such as Harry's and Dollar Shave Club for several years, Gillette decided to fight back by launching new products and increasing advertising. When these efforts failed to stem the losses, Gillette decided to cut the prices on its razors and blades in April 2017. Bonnie Herzog, an equity analyst at Wells Fargo, must assess how the recently announced price cuts are likely to affect Gillette's earnings and its parent company's earnings (Procter & Gamble owns Gillette). As part of her analysis, Herzog must estimate the price elasticity of demand for Gillette's razors and blades. The case contains scanner data which allows students to calculate both price elasticities for a sample of Gillette products, and sufficient data to estimate the financial impact.
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