First, read the accompanying abridged Gillette case for background information on their 2017 price cut. GIVEN BELOW.

Than answer the below question Q1 to Q5

Also attaching data table below which was give for Problem 3 incase you need it to answer Q1 and Q2

Q1 Changes in the market for razors

1. We are, as a society, becoming relaxed about facial hair. Too relaxed, if you are in the market of selling razors. Beards, mustaches, and scruffy looks are en vogue. The country is also getting less interested in pressuring women to keep themselves as hairless as infants seven days a week (Vox, 2018). Draw a graph with supply and demand curves to model the initial U.S. market for razors in 2000. Which curve(s) move(s) as the population becomes more relaxed about hair, and what happens to the price and quantity of razors? Show the answer graphically and describe it in words.
2. Razor manufacturing involves different steps, taking place in different countries across the globe. While observers believe that demand is "back to its pre-pandemic level," there are still many problems along the supply chains relevant for razor production. As compared with the pre-Covid world, which curve(s) move(s) as a result of these manufacturing problems, and what happens to the price and quantity of razors, all else equal? Show your answer graphically and describe in words".

Q2 Gillette context and predictions

1. Now consider the demand curve that Gillette is facing. For decades, Gillette dominated the razor sector, with Schick as distant competitor. Then, in the late 90s, Art of Shaving posed a slight threat, but was soon acquired by P&G. In 2011, Dollar Shave Cluba budget subscription serviceentered the scene. Harry's soon followed in 2013. How does the entry of these firms affect the demand curve thatGillettefaces?
2. In recent years, Gillette's "sales (revenues) had declined as unit prices and competition had increased." If only Gillette's price changed, what would this statement imply about the elasticity of demand for Gillette's razors? Are there any factors influencing demand that could prevent us from drawing a conclusion for the elasticity?
3. In order to estimate the economic impact of Proctor and Gamble's price cut, we need to come up with an estimate of the price elasticity of demand for Gillette's razors and blades. Preliminary estimates suggested the elasticity of demand for Gillette's U.S. shaving business range from -0.40 to -1.20. Over this range (for each of the three categories of elasticity), predict the ramifications of the price cut for Gillette's total revenue.

Q3 Demand estimation

1. Using the scanner data provided in the Excel file "Gillette-Data(Refer below pasted)," run three separate regressions to estimate demand (Q as a function of P) for the (1) Fusion Pro-Shield Razor (2) Fusion 5-Blade Cartridge and (3) Sensor 2-Blade Razor. For each regression, list the coefficient on price and interpret its sign, magnitude, and statistical significance. [Note: You do not need to copy the full regression output from the statistics software of your choice]
2. Based on your estimations, write down the demand function for each product.
3. Which other factors (not present in the scanner data) could affect the demand? Name and briefly describe at least three

Q4. Elasticity, revenue, and marginal revenue

Suppose the original prices for the three products are:

1. Fusion Pro-Shield Razor: $10.83
2. Fusion 5-Blade Cartridge: $22.22
3. Sensor 2-Blade Razor: $11.17

Based on your estimated demand functions, compute the (own-price) elasticity of demand for each product at the above price points and indicate whether the demand at the above price points is elastic, inelastic, or unit elastic.

B. Using your answer from A), by how much will volume sold for each product change (in %) due to a price cut by 12%? We now focus on the demand for the Fusion Pro-Shield Razor.

C. Using the demand function estimated in part 3, calculate the total revenue under the original price of $10.83 and then calculate the total revenue after the 12% price cut. What is the resulting change in revenues due to the 12% price cut for the Fusion Pro-Shield Razor?

D. Using the estimated demand function for Fusion Pro-Shield Razor, derive marginal revenue at the initial price of $10.83.

Q4Competitor response

Bernstein analyst Ali Dabaji "In the near-term, the company expects pricing and sales for this business to be down year over year. It hopes for volumes to partly offset the impact of these price actions, although that will depend on competitor reactions." Suppose that after observing Gillette's price cut, Gillette's competitors also decided to cut their prices by 12%. Due to the competitors' price cut, Gillette lost half of the percentage increase in volume sold (computed in part 4b).

1. What is magnitude of the cross-price elasticity of demand between the price of the rivals' products and quantity demanded of the Fusion Pro-Shield Razor?
2. Given the competitor response, how much can Gilette expect theirrevenuefrom the Fusion Pro-Shield Razor to change due to the 12% price cut?

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CASE BACK GROUD INFO:

Individual Case Assignment - Gillette

(Abridged version of Harvard Business School Case "Gillette: Cutting Prices to Regain Share")

On February 23, 2017, Jon Moeller, Procter & Gamble's (P&G) chief financial officer (CFO), announced that P&G was going to cut the price of Gillette razors and blades by an average of 12% starting in April.

P&G's decision to cut the price of Gillette razors and blades was reminiscent of "Marlboro Friday." On that day, April 2, 1993, Philip Morris cut the price of Marlboro cigarettes by 20% to recover the market share it had lost to discount cigarette brands. Although Philip Morris did recover some market share, climbing from 22% in 1993 to 30% by 1995, the short-term impact of the price cut was dramatic: its stock plummeted 26% on the day of the announcement, and other consumer goods companies like Coca-Cola also suffered as investors suddenly began to doubt the pricing power of brand loyalty. Like Philip Morris, Gillette had been losing share to low-priced subscription services such as Harry's and Dollar Shave Club.

Background on the Market for Razors

Shaving can be divided into two broad categories: "wet" and "dry" shaving. Wet shaving entails the use of lubricants like shaving cream and water, while dry shaving involves the use of an electric razor. According to a survey of men conducted in 2013, 59% used wet shave razors, 36% used electric razors, and 5% did not use any shaving products at all.

Until the beginning of the 20th century, razors were single blades that needed to be sharpened regularly. In 1903, Gillette began selling razors with disposable blades. They dominated the market until the 1970's when they were replaced by disposable razors and disposable multi-blade cartridges. In 2015, razor cartridges accounted for 53% of the wet shave market, while disposable razors accounted for only 33%. (Non-disposable and cartridge razor handles accounted for the remaining 14% of sales.) According to one estimate, total sales in the global wet shave market were $22 billion in 2015 and were projected to grow to $31 billion by 2020. While shaving products for women became much more popular over time, the category was still dominated by products for men in large part because men shaved more frequently. Yet men were shaving less frequently as it became more acceptable in work and social situations not to be clean-shaven. This prompted one market observer to proclaim, "Scruff is in."

History of Gillette

Although Gillette began selling razors in 1903, sales did not take off until World War I when the United States government began issuing Gillette shaving kits to soldiers. By the mid 1920s, Gillette was selling millions of razors and hundreds of millions of blades across the world.

Through the decades, Gillette regularly added new razors and blades to its product line. With few exceptions, these new products were more expensive and offered new features such as more or better-quality blades. With razors selling at multiple price points, Gillette used advertising to encourage customers to trade up to higher-priced razors (i.e., up the product "ladder"). Al Zeien, Gillette's CEO during the 1990s, explained the strategy: "The key to success in the blade business is to get more and more people on the bottom of the ladder, and to get all the people who are on the ladder to keep moving up each step. That's only possible if we keep putting new rungs at the top of the ladder."

From the 1970s onward, Gillette had a full line of consumer products, but razors and blades remained its most profitable products by far. After investing $600 million in the company in 1989, Warren Buffet said that Gillette and Coca-Cola were "two of the best companies in the world." Talking specifically about Gillette, he said that its strength lay in its devotion to quality. "This mind-set caused it to consistently focus its energies on coming up with something better, even though its existing products already ranked as the class of the field," Buffet said. To accompany the successful "ladder" strategy and highlight the quality of its products, Gillette introduced a new slogan ("Gillette, the best a man can get") at the Superbowl in 1989, and used that slogan for the next 25 years.

P&G acquired Gillette in 2005 for $57 billion in what Buffet called "a dream deal." Commenting on the acquisition, P&G CEO A.G. Lafley said:

This combination of two best-in-class consumer product companies, at a time when they are both operating from a position of strength, is a unique opportunity... Gillette and P&G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities, making it a terrific fit.

Despite the optimism, Gillette's market share began to fall a few years later as Schick, a longtime competitor, began offering razor cartridges that fit on Gillette razor handles, and new competitors like Dollar Shave Club and Harry's entered the lower end of the market. By one estimate, Dollar Shave Club and Harry's combined controlled 12% of the market by late 2016.

Gillette's Competitors

Schick: Founded in 1926, Schick had historically been distant second in the market behind Gillette. While it manufactured its own products, it also offered razor cartridges to fit on Gillette's razors. Following a series of acquisitions and divestures, Schick became a part of Edgewell Personal Care in 2015. Edgewell Personal Care also owned Wilkinson Sword (another razor brand), Playtex, Hawaiian Tropic, and several other consumer product brands. As of 2016, Schick's core products for men were the Quattro, with a 4-blade cartridge, and the Hydro, with a 5-blade cartridge. Edgewell had total sales of $2.4 billion, 60% of which came from its Wet Shave Division. Over the past three years, sales and profitability of its Wet Shave Division had been declining.

Dollar Shave Club:Michael Dubin and Mark Levine founded Dollar Shave Club (DSC), an online razor subscription service, in 2011. At the time, Gillette and another company called Manpacks were offering razor subscription services, but neither one had been very successful. DSC offered subscriptions for 2, 4, and 6-blade cartridges at prices ranging from $3 to $9 dollars per month, which worked out to $0.60 to $2.25 per cartridge. (DSC included a razor handle in the first shipment.) DSC remained relatively unknown until it ran an edgy advertisement with the tagline, "Our blades are f***ing great!" on YouTube in March 2012. Within 24 hours of the posting, 12,000 people signed up for the service before the spike in demand caused the company's website to crash. As demand grew, DSC raised $160 million in venture capital funding, expanded its selection of razors, and grew to 8% of the market by 2016. According to Chris Ferrara, an analyst at Wells Fargo who covered P&G before Herzog, "[The] online shave category, at least so far, is as much about the irreverent, anti-establishment brand attitude captured by DSC's marketing, as it is about the convenience of auto-replenishment."

In 2016, Unilever purchased Dollar Shave Club for $1 billion. Unilever's North America President Kees Kruythoff said, "In addition to its unique consumer and data insights, Dollar Shave Club is the category leader in its direct-to-consumer space. We plan to leverage the global strength of Unilever to support Dollar Shave Club in achieving its full potential in terms of offering and reach." As the Economist noted, large consumer packaged goods (CPG) firms like Unilever were becoming more like big pharmaceutical companies preferring to buy innovation rather than doing it themselves.

Harry's:In March 2013, Andy Katz-Mayfield and Jeff Raider (a co-founder of Warby Parker, an online retailer of prescription glasses) launched Harry's, another razor subscription service, which featured a minimalist "vintage" aesthetic and "quality" German blades. It sold two razor handlesthe plastic "Truman" handle for $10 and the aluminum "Winston" handle for $25and offered subscriptions that delivered replacement razor cartridges every two to six months for approximately $2 per cartridge. In its first two weeks, Harry's sold its entire inventory and backup stock. Fearing they could not scale up the business unless they controlled the supply of blades, they raised $120 million of venture capital funds and bought the factory that produced its blades in 2013 for $100 million. According to Katz- Mayfield and Raider, Harry's manufacturing capabilities and small size gave it the ability to develop and ship new razors faster than a company like Dollar Shave Club, which was beholden to its manufacturer, or Gillette, which could produce only a few new razors every decade.

In a strategic shift, Harry's began selling its products in Target stores in 2016 for approximately the same price as its online subscriptions, and placed its products on shelves next to Gillette's products. Raider said, "When we looked for the right partner, we found that over 90 percent of our customers shopped at Target as well, so it only made sense." He emphasized that Harry's would continue to differentiate itself from other shaving companies. He said, "Our products won't be locked up behind plastic lock and key, something that frustrated the experience of buying razors in the first place...It'll be premium, have great packaging, and will be a lot more affordable than competitors."

Gillette Price Cut

In 2013, P&G reported that revenue in its Grooming Division had fallen by 3.6% to $8.0 billion. P&G CFO Jon Moeller blamed the decline on a "reduced incidence of shaving." To restore growth, Gillette, released a new, more expensive razor called the ProGlide FlexBall at the top end of its product ladder. Nevertheless, sales continued to fall. Gillette made a second attempt to stem the decline by launching a subscription service in 2015 called Gillette Shave Club featuring its mid-level (Mach 3) and high-end razors (Fusion Pro-Glide.) However, the new subscription service had limited success. Gillette tried a third approach in December 2016 by launching an advertisement directed at Harry's customers with the tagline "Welcome Back to Gillette." The advertisement asserted that "Most guys leave Harry's after trying it" and welcomed those men back to Gillette. Harry's contested the assertion and claimed the ad had a feeling of "desperation."

Having failed to stem the decline in sales, Gillette tried a fourth approach in February 2017. During a presentation at the Consumer Analyst Group of New York (CAGNY) 2017 conference, Moeller announced that Gillette would be lowering its prices on men's shaving products by an average of 12% starting in April. According to the company, the price cuts were part of an ongoing effort to "...put more resources into marketing and expanding lower-priced product lines" such as the steps P&G took in 2016 to upgrade the Mach 3. The company simply said: "You told us our blades can be too expensive and we listened." Although the move represented a significant price reduction, it was not large enough to fully close the gap between Gillette's products and various competing products.

Commenting on the price cut, an analyst at Deutsche Bank said:

In our view, Edgewell's Schick is in the crosshairs and perhaps P&G is sending a message, to Unilever or other potential acquirers of that business that they will not rollover and that they intend to aggressively defend Gillette's market share, even if it means a short-term sales growth and margin reduction.

An analyst at Barclay's said:

Though P&G has long called the consumer "boss," it clearly lost sight of that mantra for far too many years... [W]hile we think the jury's still out on whether or not Gillette price cuts will ultimately spur volumes and share gains, P&G has finally accepted that trade up via super premium innovation is not the only way to win in the category & may not be a winning strategy today... P&G is finally listening to what the consumer has effectively been saying over the past five years.

Scanner Data on Sales of Gillette Razors and Blades, 2016-2017
	Fusion Pro-Shield Razor		Fusion 5-Blade		Sensor 2-Blade Disposable
	Razor & 2 Cartridges		Cartridge (4 count)		Razor (12 count)
Week Ending	Unit Sales	Price per Unit		Unit Sales	Price per Unit		Unit Sales	Price per Unit
03-Apr-16	30	$11.26		45	$21.67		18	$12.54
10-Apr-16	49	$11.56		35	$21.75		21	$12.78
17-Apr-16	36	$11.35		32	$21.78		18	$13.35
24-Apr-16	36	$11.42		52	$21.82		17	$12.44
01-May-16	49	$11.34		38	$21.92		16	$12.47
08-May-16	33	$11.16		52	$20.84		29	$10.38
15-May-16	86	$11.25		34	$22.27		29	$12.82
22-May-16	91	$11.71		53	$21.20		28	$11.68
29-May-16	76	$11.41		43	$21.93		22	$11.50
05-Jun-16	108	$11.06		35	$21.71		17	$10.09
12-Jun-16	102	$11.30		37	$22.07		24	$11.35
19-Jun-16	58	$11.52		35	$21.79		18	$12.67
26-Jun-16	57	$11.15		44	$22.19		25	$12.71
03-Jul-16	50	$11.12		44	$21.91		21	$12.88
10-Jul-16	63	$9.52		42	$20.38		20	$9.27
17-Jul-16	68	$8.45		49	$21.05		33	$10.35
24-Jul-16	54	$9.96		33	$21.67		32	$9.84
31-Jul-16	46	$10.58		26	$22.87		15	$12.14
07-Aug-16	67	$9.71		38	$22.72		20	$8.39
14-Aug-16	63	$10.50		34	$22.52		17	$11.62
21-Aug-16	37	$9.63		44	$22.31		23	$10.14
28-Aug-16	31	$10.25		38	$22.70		12	$13.01
04-Sep-16	56	$9.50		44	$22.14		28	$9.04
11-Sep-16	58	$9.74		37	$22.73		19	$8.88
18-Sep-16	55	$10.13		39	$22.70		22	$9.19
25-Sep-16	34	$9.94		38	$22.41		19	$8.41
02-Oct-16	51	$9.98		34	$22.23		22	$9.80
09-Oct-16	38	$10.72		44	$21.99		20	$11.92
16-Oct-16	28	$10.88		34	$22.37		20	$8.98
23-Oct-16	19	$10.92		25	$22.87		22	$9.34
30-Oct-16	34	$10.83		28	$22.27		16	$11.38
06-Nov-16	30	$10.60		24	$22.63		10	$11.53
13-Nov-16	31	$10.49		37	$22.21		21	$10.09
20-Nov-16	27	$10.63		36	$22.75		17	$10.57
27-Nov-16	55	$9.16		33	$22.22		9	$11.10
04-Dec-16	36	$10.58		36	$22.47		24	$11.04
11-Dec-16	42	$10.73		26	$22.06		26	$8.97
18-Dec-16	68	$10.87		17	$22.05		17	$12.75
25-Dec-16	44	$10.48		37	$22.46		19	$12.41
01-Jan-17	156	$9.71		36	$22.32		14	$12.83
08-Jan-17	25	$11.99		27	$23.32		15	$12.95
15-Jan-17	27	$12.07		35	$23.01		15	$12.83
22-Jan-17	21	$12.01		45	$22.87		13	$11.27
29-Jan-17	23	$11.52		34	$22.73		19	$12.45
05-Feb-17	23	$12.25		57	$22.75		28	$8.46
12-Feb-17	17	$12.46		43	$22.69		18	$11.39
19-Feb-17	27	$12.35		57	$22.57		16	$11.78
26-Feb-17	24	$12.14		62	$22.55		17	$12.58
Average	49	$10.83		39	$22.22		20	$11.17
Products/Unit		2			4			12
Price/Product		$5.42			$5.55			$0.93
Source: This data was provided by and is used with permission from Information Resources Inc. (IRI, Chicago, IL). The data comes from product sales in major drug store chains located in Cleveland, Ohio.