BOX 7.6 CUT-THROAT COMPETITION CASE STUDIES AND APPLICATIONS The UK razor market The market for wet razors and their blades is worth razor cartridges. Its impact on the way many customers approximately $400 million in the UK. It was traditionally purchase razors has been dramatic. Online sales in the USA dominated by two producers, Gillette and Procter & Gamble have increased rapidly and now account for 8 per cent of the (P&G), with more than two thirds of sales between them. razor market. When they merged in 2007, the result was a new unified firm Other new start-ups, such as Harry's, Razor Co and Shave with substantial monopoly power. The Wilkinson Sword brand, Mob, have also entered the growing online market. In the owned by Edgewell Personal Care, was the next largest USA, P&G has responded to this competition by launching its manufacturer in the UK, with around 18 per cent of sales. own subscription service for its Gillette brand in 2014. These two businesses also dominate the $3 billion US market. The industry displays many of the characteristics we would New entrants: the UK market expect of a market dominated by one large firm - very high Similar changes have also occurred in the UK market. The King levels of advertising and strong branding that make it difficult of Shaves razor was launched in 2008, with a view to building for new entrants. There is also evidence of ongoing on the success of the brand's shaving gel and foams. The innovation: where once the twin-blade razor was a novelty, company worked on developing a lower-cost, lightweight now five blades are the norm. alternative to the products offered by Gillette and Wilkinson Sword. It also tried to make greater use of online advertising, New entrants: the US market e-mail and social media to market its product. Yet, despite all the potential barriers to entry, some new firms However, the company has found it tough to compete have successfully entered the market in recent years and successfully. It made losses of 1959 000 in 2014 before changed the way that many customers purchase their razors. making a profit in 2016 for the first time since 2009. Its The most successful of all these businesses is the Dollar Shave recent improvement in performance appears to have come Club. Founded in California in 2011, this company has had a from switching more of its sales to its online subscription significant impact on the US market. It introduced an service. innovative subscription service: customers sign up via the Cornerstone also operates a subscription service in the UK company's website for a year's supply of 60 standard twin- where customers can have razor blades and skincare products blade razor cartridges, which are delivered to their homes for delivered every 2, 6 or 18 weeks. $1 per month. Perhaps the biggest threat to P&G's dominant position in Perhaps the most novel aspect of this business was its this global industry will come from the decision of Unilever to marketing strategy. As a new start-up, it did not have the enter the razor market. In July 2016, it purchased the Dollar multimillion-dollar advertising budget to compete with Shave Club for $1 billion. With the financial backing of the Gillette and Wilkinson Sword in traditional methods of third largest consumer goods company in the world, this new marketing. It decided, instead, to launch its products using entrant could now pose serious competition. It will be humorous YouTube videos featuring the company's CEO interesting to see if the Gillette brand name can maintain its Michael Dublin. Its first video cost $4500 and included dominant market position. advertising messages such as 'Do you think your razor needs a vibrating handle, a flashlight, a back scratcher and 10 blades? 1. What are the characteristics of the razor market that .. . So stop paying for shave tech you don't need. present barriers to entry for new firms? How have The focus of the business is clearly on price rather than companies, such as Dollar Shave Club, sought to product differentiation. overcome these barriers: Within two hours of posting its first video the company's 2. High levels of innovation have been a key website crashed and within six hours it had completely sold characteristic of the market for wet razors for many out of stock. The video has been viewed over 20 million times years. Do these always benefit the consumer? and has proved to be a very successful marketing tool. Sales 3. It has been estimated that Gillette makes a profit of increased from $4 million in 2012 to $200 million in 2016 and 3000 per cent on each razor blade sold. Explain how the company has a 15 per cent share of the US market for this figure might have arisen