CASE 3-7 Gillette: The 11-Cent Razor, India, and Reverse Innovation In April of 2010. Gillette released its Guard the razor, capturing Exhibit 1 50 percent of the Indian shaving market in just 6 months. The Straight-Edge Razor Guard was a lightweight, disposable-blade razor that was devel- oped after a year of research that involved observing Indian men as they purchased and used razors in their daily lives. The result was a 15-rupee (0.34 USD) razor with 5-rupee (0.1 1 USD) blades, uniquely designed for Indian men. To help the Guard reach the 50 percent milestone. Gillette had been aggressively promoting the product throughout the country of India, with billboards and TV commercials featuring Bollywood actors shaving with the razor. The price of the Guard was higher than that of the market leading double-edge blades, but the new razor offered a close shave without the frequent cuts that resulted from quick rusting, straight-edge razor becomes misaligned, and must be realigned double-edge models. In contrast, Gillette's leading product in the US-the Gillette and polished by stropping the blade-dragging it along a strip of leather or canvas. While looking through a Montgomery Ward Fusion ProGlide-was Gillette's most technologically innovative mail order catalog in 1895, Gillette noticed that Montgomery razor, with five blades on the skin contact surface. Gillette's Ward guaranteed that it would replace any defective razor, with frequent TV commercials touted the ability of the Fusion ProGlide the disclaimer, if "properly used and stropped on a good smooth to give a comfortable. close shave, while enabling men to create strop." Gillette recognized an opportunity to manufacture and elaborate facial hair designs. At $9.99 for the razor and $16.99 sell a razor with disposable blades that would not require main- for a four-pack of blade cartridges, the Fusion ProGlide was not tenance. Patented in 1904, Gillette's "safety razor," as it became only Gillette's most advanced razor, but it was also Gillette's most to be known, consisted of a razor (handle and blade compart- expensive and most profitable razor. ment) and a disposable double-edge razor blade. (See Exhibit 2.) John Sebastian, ' Gillette's Manager of Male Grooming products, Because customers would need to continuously buy new blades. sat at his desk at company headquarters in Boston, Massachusetts, disposable razors would provide a steady, continuous source of holding a Gillette Guard and a Gillette Fusion ProGlide in his revenue for Gillette. The company's original safety razor sold for hands, pondering next steps for. Sebastian had been given the $5 in 1904 (about $135 in 2015 dollars), and a pack of blades that task of analyzing market conditions and making a recommenda- would last a year cost $1. tion to the vice president of male grooming for the Gillette Guard After expiration of the patent in 1921. Gillette feared that global strategy. There were over a billion men in low income low cost imitators would erode his margins. Rather than sim- countries, who potentially would be willing to try the Guard. The ply reduce his prices, he took a two-pronged approach. First, Guard could be a viable low cost option for many Americans. shortly before the patent was set to expire, Gillette released an Despite the fact that the premium priced Fusion ProGlide was upgraded version of the razor with a price of $5, and marked Gillette's best-selling razor, not every American was willing to down the original razor to $1. This new upgrade kept Gillette pay such a high price. Many Americans were especially price ahead of competitors at the high end of the market. Increased sensitive due to the state of the economy, which was slowly sales of Gillette's original razor provided an even bigger boost recovering from the 2008 financial crisis. Introducing the Guard to the US market could allow Gillette to dominate the low end of the shaving industry and boost sales in a slow growing mar- ket. On the other hand, Gillette's high margin products like the Exhibit 2to the US market could allow Gillette to dominate the low end of the shaving industry and boost sales in a slow growing mar- ket. On the other hand, Gillette's high margin products like the Exhibit 2 Fusion ProGlide might suffer if the Guard began to cannibalize Safety Razor sales. Sebastian was preparing for the meeting with his supervi- sor, during which he would offer his strategy recommendations to the vice president of male grooming for the Gillette Guard. The meeting was quickly approaching. COMPANY HISTORY The Gillette Company was founded in 1901 by King C. Gillette to manufacture his invention-the disposable-blade safety razor. At the time. the leading shaving products were straight- edge razors. (See Exhibit 1.) After repeated use, the blade of a The character and scenario are fictional. The company and market details are factual. Source: Wikipediato profits. The new, lower price convinced large numbers of GILLETTE IN 2010 customers to try the razor. Second, Gillette strategized that once these customers owned the razor, they would be forced By 2010, Gillette's male shaving product line was led by the to buy the blades at full price to continue using the razor. Rec- Fusion ProGlide, a re-engineered version of the Fusion razor with ognizing the continuous stream of profits that resulted from five thin blades. The Fusion ProGlide was backed by a national getting the razor into the hands of customers, Gillette began advertising campaign featuring celebrities including actor Adrien selling razors at low, promotional prices, and even giving them Brody and hip-hop musician Andre 3000 with highly stylized away as a means to create demand for the high margin blades. facial hair. Retailing for $10.99 ($11.99 for the battery-powered This method of selling an initial product at a low price to stimu- vibrating version) with a four pack of blade cartridges that late demand for a higher margin related product is used in many retailed for $16.99, the Fusion ProGlide was Gillette's best-selling industries, but is still referred to as the "razor-and-blades" and most profitable product. Gillette's next most expensive prod- business model. act was the Mach 3, which retailed for 6.99 USD with a four pack Throughout the 20th century, Gillette lived up to its slogan, of blade cartridges selling for 10.49 USD. Gillette also sold several 'The best a man can get" by continuously developing the next types of disposable razors, with prices as low as 0.65 USD each "best" razor to the market every few years. Gillette's innova- when purchased in a multi pack. The company benefited from a tions included a "Twist to Open" double-edge razor (Aristocrat, "trade-up" strategy-consumers often moved up from Gillette's released in 1934), a two-blade razor (Trac II, 1971), a razor with less expensive products to its more expensive ones. but rarely a pivoting head (Atra, 1977), a razor with spring-loaded blades moved down the price scale. In this sense, cannibalization of the (Sensor, 1990), a three-blade razor (Mach 3. 1998), and a five- sales of existing products in favor of newer, more profitable ones, blade razor (Fusion, 2006). Several variations of these products was a fortuitous circumstance. were also sold, including a women's version of the Mach 3 Gillette's brand recognition, market share, and advantages in (Venus), battery-powered razors that vibrated for an ever-closer technology and manufacturing had kept it at the top of the razor mar- shave (e.g. Fusion Power), and razors with various combinations ket since the company's founding. Gillette's leading competitor- of features such as color schemes and lubricating strips. Gillette Schick-held a 15 percent global market share compared to also developed several disposable razors in which the entire razor, Gillette's 70 percent. Throughout the 2000s, however, Schick not just the blade, was to be thrown away after the blade became put pressure on Gillette as the two companies engaged in what dull. Gillette expanded into the electric shaver market in 1967 by the media referred to as the "Razor Wars." Schick was the first purchasing Braun, a German consumer products manufacturer. company to release a razor with four blades: the Quattro. Gillette's Electric shavers. in general, are faster and safer than shaving with Fusion ProGlide was then the first razor with five blades. Schick a manual razor, but are not able to provide the close shave of a quickly followed with its own five-blade razor-the Hydro 5. traditional razor. Volume growth in the US shaving industry had been stagnant From the 1950s through the end of the 20th century, Gillette for several years. with sales growth derived primarily from price expanded into product lines outside of shaving by purchasing increases attached to new, innovative products. market leading brands such as Duracell, Liquid Paper. and Cricket Gillette, however, faced stiff competition in the disposable razor Lighters. Razors remained Gillette's core business, however, category, which was at the low end of the razor market. Gillette's consistently accounting for more than half of the company's prof- lowest cost razors offered advanced features such as dual blades. its. The 1990s were an especially prosperous time for Gillette. The pivoting heads, and lubricating strips. Competitors such as Bic, company developed innovative new products in all of its major Wilkinson Sword, and Schick not only sold products that rivaled product categories, while experiencing rapid growth in new mar- Gillette's disposable razors in terms of features and price, but also kets such as China and Eastern Europe. Gillette's stock price grew produced bare-bones versions of the products. These very low-end more than tenfold from the late 1980s to the late 1990s. But by the razors could be purchased for as low as $0.20 when purchased in a early 2000s, the company's rate of innovation and international multipack. expansion had slowed, and with it, Gillette's sales. Gillette's earn- Gillette also faced competition from store brands ("private ings came in below estimates for 15 consecutive quarters, due labels"), or razors that would be carry a brand unique only to that in part to what board member Warren Buffett commented were store (such as "Great Value" in Walmart). Otherwise, nationally unrealistically high estimates. branded products were primarily sold to retailers that, in tJim Kilts was hired as Gillette Chief Executive Officer (CEO) sold the products to consumers. Throughout the 1990s. the retail in 2001. Kilts' mission was to reinvigorate the company, turn- industry underwent consolidation, with Walmart becoming the ing it around by reducing costs and reinvesting the savings into largest player and Gillette's largest customer. Walmart's purchas- aggressive research and development. This new strategy brought ing power, as well as its low-priced store brands, enabled it to Gillette back to profitability. and it posted six consecutive quar- place downward price pressure on its suppliers. Despite the lower ters of record profits. Despite the company's rebound, Kilts prices, however, the store brands did not take significant market believed that relying so heavily on razors would endanger the share from name brand products. company in the long run. Gillette merged with Proctor & Gamble (P&G) in 2005 to take advantage of the marketing and distri- INTERNATIONAL STRATEGY bution strength of P&G's global organization. Although billed as a merger. the deal was essentially a $57 billion acquisition By 2010, Gillette held 70 percent of the global market share for of Gillette. After 2005, several business units were separated razors. The market share varied by region. and Gillette's individual from Gillette, returning the company's focus to core business- country strategies of product development and pricing differed shaving products and personal care items, such as antiperspirant based on characteristics of the country, such as consumer income and body wash. levels. Europe and Australia resembled the US market, whereGillette Competition Brand Company Indian Market Share Super-max Super-max 15% Gillette vector P&G 13% Topaz Malhotra shaving products 10% Gillette mac3 P&G Shick-wilkinson sword | Energizer holdings 3% Laser Malhotra shaving products 6% consumers were willing to pay premium prices for premium prod- Gillette turned to reverse innovation to develop the Guard. The ucts. To stay ahead of competitors, Gillette introduced its high-end traditional path of a new innovation involves research and devel- razors and put significant money and effort behind marketing the opment in wealthy Western countries, where plenty of capital is innovative products. By the year 2000, there were limited opportun available for investment, followed by market entry in low income nities for growth in these regions. In less mature markets, however, countries. Reverse innovation turns the process around. beginning there were still huge opportunities for growth. Hundreds of millions with the development of an innovation in a low income country. of low income consumers in countries such as China and India then perhaps introducing it in higher income countries. For the often shaved with double-edge blades instead of using Gillette's new Indian razor, Gillette began with a price customers would be products. Only wealthy consumers in these countries could afford willing to pay, and then it built the features around the price. Gillette's high-end razors, so Gillette focused on marketing its A team of product development personnel was assembled and lower cost products, rather than promoting higher cost razors. given the task of learning what it is that Indian men wanted from a India, in particular. represented a massive untapped market for razor. The team spent thousands of hours studying and observing Gillette. Of the 1.2 billion people in India, many belonged to a group the Indian market first hand, following Indian men as they shopped referred to as the "Base of the Pyramid" in economic terms-the for and used razors. The team also conducted interviews and 4 billion people in the world who lived on 1 USD to 3 USD a day. in-home visits, and fine-tuned its product ideas with thousands of In India, despite the fact that such consumers had low incomes, the consumers. Every element of the razor was viewed through the sheer number of potential customers made the region very attrac- eyes of the low income Indian consumer. tive to Gillette. The majority of low income men in India-roughly The Gillette team learned several lessons from its research. The 400 million-shaved using double-edge razors, which cost only company learned that Indian men purchased razors primarily in 1.5 rupees to 2 rupees (0.05 USD) per blade. Double-edge blades kiranas-small local shops-instead of at large retailers. Gillette were inexpensive, but they rusted easily and often caused cuts. also learned that Indian men often do not shave every day. and Instead of trying to sculpt elaborate facial hair designs with a razor, when they do shave, it often happens while sitting on the floor many low income Indian men would be satisfied with a blade that with a bowl of water and a hand-held mirror, rather than standing could give them a good shave without nicking their skin and draw- at a sink with a large mirror. Through the course of its interviews, ing blood. The leading double-edge razor producer-Super-Max- the team learned that Indian consumers valued affordability first held 15 percent market share. As of 2009, Gillette's top two razors and foremost, followed by safety and ease of use. in India-the Vector and the Mach 3-held only 13 percent and The team developed the Gillette Guard to address each specific 9 percent market share respectively. (See Exhibit 3.) need. For safety. the Guard included a safety comb and an easy-to- hold grip. For affordability, the lubrication strip was abandoned; GILLETTE GUARD DEVELOPMENT only a single blade was used, and the Guard contained 80 percenthold grip. For affordability, the lubrication strip was abandoned; GILLETTE GUARD DEVELOPMENT only a single blade was used, and the Guard contained 80 percent fewer parts compared to the Gillette Vector. For ease of use, the Gillette realized that it needed to change its approach to product razor was lighter than double-edge razors and many American development and pricing to achieve success in the low income razors, easy to rinse. flexible enough to reach areas that are dif- Indian market. Gillette's previous marketing process in India ficult to reach with a double-edge razor, and able to cut longer hair. involved little more than repackaging its existing razors and since many Indian men did not shave every day. (See Exhibit 4.) changing the language on the labels. The Mach 3, which was one Gillette also set up its manufacturing and distribution with the of Gillette's leading razors in the US, had only 9 percent market Indian consumer in mind. Labor costs were much lower in India share in India, because the price for the product was too high for than in the US, and Gillette minimized shipping costs through the most Indian consumers. Gillette's lower priced offering-the use of local production. On the distribution side, Gillette devel- Vector-was closer to the appropriate price point, but still could oped relationships with a number of the local kiranas to ensure not win over more than 13 percent of the market. The Vector was that they would stock the Guard. This approach to distribution was a rebranded Gillette Atra, a product that was introduced in the US vastly different from the company's US strategy, which focused on in 1977, but had been discontinued. a few large retailers.Exhibit 4 easily to India, the Indian product may not have transferred eas- Gillette Guard ily to China. If they did, the possibilities of damaging stock-outs loomed large if production could not keep up with demand. Gillette's next decision was whether or not it should complete 1Q TRIAL the reverse innovation process by releasing the Guard in the US. OFFER Gillette had been profitable in recent years despite stagnating 15 volume growth in the US market, primarily due to high margin products like the Fusion ProGlide. Industry analysts questioned the sustainability of this strategy. If Gillette chose to release the Guard in the US. the low price would surely attract customers, but this option carried some risk. The Guard may not meet the quality demands of American customers, and even if it did, it could canni- balize sales of Gillette's higher margin products such as the Mach 3 and Fusion ProGlide. Usually cannibalization worked the other way around: trading up from a low-price product to a high-priced one. As John Sebastian prepared to deliver his recommendation to the vice president of male grooming, he considered the ripple effects each option would have on Gillette and its markets around the world. His recommendation could determine the direction of Guard the company. as well as his career, for years to come. Gillette QUESTIONS 1. Describe the razor-and-blades business model. 2. How and why do US razor consumers differ from razor consumers in India? 3. How did Gillette's product development process differ for the Gillette Guard when compared to its previous product development processes? 4. Should Gillette release the Gillette Guard in the US? Should it release the product in other low income countries besides India? This case draws from "Gillette: The 1 1-Cent Razor. India, and Reverse Innovation," written by Ryan Atkins, Terry School of Business. University of Georgia. Used by permission of GlobaLens, a division of the William Davidson Institute, University of Source: Wall Street Journal Michigan. It is intended to be the basis for class discussion rather than to illustrate either the effective or ineffective handling of a managerial situation. The Indian market's response to the Gillette Guard was Sources: Byron, Ellen. "Gillette's Latest Innovation in Razors: the 11 Cent Black." extremely favorable. In a survey, customers preferred the Gillette Wall Street Journal. October 1. 2010. Accessed January 25, 2013; Ibid; Picker, Randal C. "The Razors-and Blades Myth(s)." University of Chicago Law Review Guard 6-to-1 over double-edge razors. The positive perception of 78.1(201 1): p. 227: Thid: "The Gillette Company." Form 10-Q Quarterly Report. the Guard. along with its price that was not much more than dou- March 31, 2005. Boston: The Gillette Company; Roman, Kenneth. "The Man Who ble-edge razors, meant that the Guard became an affordable luxury Sharpened Gillette." Wall Street Journal September 5. 2007. Accessed January 25, for many customers. The Guard managed to surpass 50 percent 2013: Isidore, Chris, "P&G to Buy Gillette for $57B." CNNMoney January 28, 2005. Accessed January 25, 2013. Byron. Ellen. "Gillette's Latest Innovation in Razors: the of the razor market by volume only six months after its launch 1 1-Cent Blade." Wall Street Journal October 1, 2010. Accessed January 25, 2013: in October 2010. Whether or not these customers would trade up Walmart.com. Retail prices. Accessed January 25. 2013: "Triple Blades Hone Trade- to higher cost razors, as they often did in the US, remained to up Pitch." DSN Retailing Today 42.5, 2003: Narr. Susan McGinnis, "The Razorbe seen. but Albert Carvlaho. Gillette's Vice President of Male Wars." Early Show. CBS News, New York. December 5, 2007; Glazer, Emily. "A Grooming for Emerging Markets, felt confident that they would. David and Gillette Story." Wall Street Journal April 12, 2012. Accessed January 25, 2013; Walmart.com. Retail prices. Accessed January 25, 2013; Govindarajan, Vijay. saying, "When they start enjoying a better shave, they'll be more and Chris Trimble. "Is Reverse Innovation Like Disruptive Innovation?" HAR Blog open to all solutions." Network September 30, 2009: "Gillette Guard Fact Sheet." Ed. Proctor & Gamble. 2013: Ibid: Ibid: Govindarajan, Vijay. "P&G Innovates on Razor-Thin Margins." OPPORTUNITIES AND CHALLENGES HBR Blog Network April 16, 2012. Accessed January 25. 2013: "Gillette Guard Fact Sheet." Ed. Proctor & Gamble. 2013: Govindarajan. Vijay. "P&G Innovates on Razor- The tremendous success of the Guard left Gillette with oppor- Thin Margins." HBK Blog Network April 16. 2012. Accessed January 25, 2013: Byron, Ellen. "Gillette's Latest Innovation in Razors: the 1 1-Cent Blade." Wall Street tunities. Hundreds of millions of potential customers in China, Journal October 1. 2010. Accessed January 25. 2013; Coleman-Lochner, Lauren. Indonesia, and other low income countries still shaved with "Why Proctor & Gamble Needs to Shave More Indians." Bloomberg BusinessWeek. double-edge razors. Gillette could immediately release the Guard. June 9. 201 1. Accessed July 1. 2015: "How Gillette Execs Spent a Fortune Develop- in its present form, in each of these countries. On the other hand. ing a Razor for India Using MIT Student Focus Groups... Without Considering the Country's Lack of Running Water." Daily Mail October 3. 2013. Accessed July 1. lessons learned in the Indian market may not have applied to every 2015: Reddy, Srinivas and Christopher Dula. "Gillette's "Shave India Movement."" country. Just as American products did not necessarily transfer Fi.com/management. November 4, 2013. July 1. 2015