Mario Augusto de Castro Fenway Gillete Case Analysis

Introduction

Founded in 1901, Gillete is the blades and razors world leader as well as in nine categories of consume products. Its
mission is to be the leader in all core products it produces. Gillete has 50 facilities in 24 countries, operations in 200
countries. Other lines include, tooth brushes, oral care appliances, electric razors, hand blenders, etc. 1

Gillete operations were divided in three geographic divisions: Latin America; Africa, Middle East and Eastern
Europe; and Asia Pacific. Razors and Blades accounted for $2.6 Billion (40%) of the total revenues, $6.8 Billion, in 1995.
Asia Pacific represented $600 Million from the total. 1

The way Gillete launch product or expand is by launching first in the United States market and after the product is
tested and approved it is launched worldwide. In emerging market, Gillete launches its basic razors and it goes step by step
into more valued products. The way management decides how to allocate resources to each line is by doing so locally. 1

While Boston Headquarter has stamina for increasing worldwide sales and distribution within higher-margins
shaving systems such as Sensor, only few consumers, in emerging markets, were sophisticated enough to pay for Sensor
products. For instance, Indonesia was still introducing the concept of shaving with Gillete basic products. 1

Chester Allan, country manager in Indonesia, believes that Gillete should establish a growth rate of 19% over 1995
sales in blade business unit. However, Allans boss, Rigoberto Effio, business Asia-Pacific director, believes that if Gillete
invests more than the 12% gross sales, they could boost unit sales to 25-30% over 1995 sales. 1

Detailed analysis on Indonesia market will help understand whether further investment would increase sales or it
would be waste of money and promotional effort. Additionally, a consistent market research would support this decision to
increase Gillete growth rate from 19% to 25-30%, first, to get how much the Indonesia costumer understand the shaving
concept related to Gillete products and second, what is its willingness to pay. With it in hand, Gillete could take a more
accurate strategy to boost sales over its 19% initially proposed by Allan or even keep its initial rate of 19%.

Key Question:

Should Chester Allan, Indonesia Country Manager, target 19% increase in sales for the year of 1996 goal, or should he target
25-30% growth over 1995 sales, suggested by Rigoberto Effio, his boss, though his revenue target is 40% increase for 1996?

Answer:

Allan not necessarily need to grow more than 19% in units to grow Gilletes Revenues/Profits by much more than 19%,
indeed, Allan rate revenue growth is actually 40%. They should invest a little more than 12% in increasing shaving incidence,
new customers, women market and improve distribution. So Gillete can increase not only its revenue by 40% and units by
19%, but also in middle and long-term, increase the market total potential, since intruding a new concept to change habits it is
not something for the short-term goal.

I recommend a 13% investment based on gross sales focusing in products such as: Gillete Contour and Gillete Sensor and
Goal II for male and female in the High and Middle Class. For the Low Middle and Low Class, I would focus on Goal II and
Gillete Goal Red. All this brands have a high level of awareness.

I will explain further how to spread the investment within the opportunities mentioned and why I believe Allan should go
with the Indonesia pace of 19% growth in units and 40% growth in revenues, as established by him.

Source: 1.Gillete Indonesia Case Written by Harvard Business School Publishing, 1996
 SWOT ANALYSIS Table 1
Strengths Weakness
Gillete Quality customer perception Hard aces to some communities
Large product Mix High Price compared to competitors, 4 fold
Tradition Weak distribution system and partners
Technology
Innovation
Larger Investment than Gillete competitors

Opportunities Threats
Increasing number of prospects Low capacity distribution partners
Population changing habits towards using Gillete products Competitors with much lower prices
Economic fast growth rate Cultural barrier to its products
Women starting using razors and blades Supermarkets charging for shelf space
Distribution system getting better Increasing competition within supermarkets
Shaving habits increasing Increase in 12% in inflation will decrease the purchase
power since GDP will grow 6,2%
Great foreign investment Asian people has growth bear much less than other
people from other continents

Strengths

Gillete has a very strong brand with high awareness brand which helps to sell its products to customers that value quality. Its
broad product pipeline allows Gillete attend all income levels, so Gillete can profit from any improvement within the
Indonesia economy in any level.

Weakness

On the one hand distribution is a big deal for Gillete to reach customer throughout the country. On the other hand distribution
doesnt work as well as for other competitors, especially international new entrants.

Even though, Gillete has four times more expensive product than its competitors equivalent product, people pay for Gillete
quality, though unit share shows that competitors are selling more units. In 1993, Gillete had 28% unit share and Allan
project that 136,000,000 will represent 50% in 1996.

Threats

We could already realize that improvements in distribution raised sales in 60% in the past, and improvements in the future
will increase sales for sure, since the total market project has around 300 million units in 1995 and will have 360 million
units and Gillete sold 115million units in 1995 and project 136 million in 1996. Most of it happens in rural areas and places
that doesnt exist supermarkets, so distribution is a big issue.

Furthermore cultural issues have been a barrier to increase shaving habits. Regarding Hong Kong incidence shaving per
month is around 16, while Indonesia average monthly shaving is 5,5. That is one of the reasons this market is really valuable
however it will increases since habits continue to change along the years.

Table 2

Source: 1.Gillete Indonesia Case Written by Harvard Business School Publishing, 1996
 Opportunities

Men Women Distribution

High & Middle Low High & Middle 75% effort 25% effort
Higher Incidence New Customer 4.193.910 5 top cities Other and Rural
Budget 9.5% 0.5% 1.5% 1% 0.5%
Advertising Supermarket Supermarket Suppliers Incentives
Cupons Samples Samples Vendors Incentives
Promotions
Samples Promotional Grade
Portifolio/Effort % Portifolio/Effort % Portifolio/Effort % Portifolio/Effort % Portifolio/Effort %
Gillette Gil 10 Gillette Blue Blade 5 Gillette Gil 10 Gillette Gil 10 Gillette Blue Blade 5
Gillette Contour 30 Gillette Goal Red 75 Gillette Contour 35 Gillette Contour 30 Gillette Goal Red 75
Gillette Sensor 40 Gillette Goal Blue 15 Gillette Sensor 30 Gillette Sensor 40 Gillette Goal Blue 15
Goal II 10 Goal II 5 Goal II 25 Goal II 20 Goal II 5

Regarding the huge opportunity within Indonesia market, I recommend at least 14% investment from the gross sales. Table 2
expresses how to divide it. High and Middle class Male continue to be Gillete focus with 10% of the total, 1% for the Low
class since the higher level of this chunck will start consuming soon. Also, women is a good prospect in the middle-term, so
1% would be invested in free samples in supermarket and other promotional actions in shopping malls and other places.
Moreover, distributors training and campaigns would help boost sale as seem in the last expansion, which impacted 60% on
sales. Awards and incentives will be offer to best distributors and its salespeople that most sale Gillete products.

Appropriate Pace Growth for Indonesia Why Chester Allan has a quite reasonable target?

Table 3 Revenues 1995 ERevenues 1996 Growth Projected

Blades 10,3 11,2 8,74
Disposables 1,2 2,5 108,33
Sensors 5,6 10,4 85,71
Razors 2,0 3,0 50,00
Prep products 0,5 0,5 0,00
Shaving products 19,6 27,6 40,82

Mister Allan has targeted 40% growth in revenues which is, in my opinion really aggressive and also realistic. He knows very
well his market and my projections are aligned with his market view.

First of all I have calculated the total market as follow:

Source: 1.Gillete Indonesia Case Written by Harvard Business School Publishing, 1996
 Table 4

Population Shaving Habits 1995 1996

Over 18 years 40M*0,8 32.000.000 34.120.918
Month/avg shaving 5,5 6,1
Year/avg Shaving 66 73,2
Max Razor p/year 20% 15 -
Min Razor p/year 35% 4 -
Razors per Month 0,67 0,79
Avg Razors per Year 8,00 9,45

Shaves per Razor/Blade 8,25 7,75

115,000/0,48 239.583
136,000/0,50 272.000
TOTAL MARKET - Without the shaving incidence increase

Above we found razors per year per person on average, we can found the total market in 1995 and project the total market for
1996 since we have the average shaving for 1993 and 1995, so we also projected 1996 shaving average.

Since we have 48% market share for 115,000,000 sold within 1995 and a projection of 50% market share for 136,000,000
units in 1996, we can calculate total market also using those numbers.

With this growth rate we can affirm that Allan was in the right pace growth in units. However, lets analyze with another
perspective, trying to realize the GDP growth rate, how it will impact in the movement on the level income, how the shaving
habits will be added to it, how the 2 million new jobs can impact this growth and how much the inflation of 12% could
jeopardize the purchase power.
Table 5
Population Moves and Inclutions within the Prospect Market
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
% of
Populati GDP
on Range Costumer # 1 2 3 4 5 6 7 8 9 10
10 1000 2000 19.600.000 1063 1130 1201 1277 1357 1443 1534 1630 1733 1842
10.9 2000 3000 21.150.360 2126 2260 2402 2554 2715 2886 3067 3261 3466 3684
10.9 3000 4000 21.150.360 3189 3390 3603 3830 4072 4328 4601 4891 5199 5527
10.9 4000 5000 21.150.360 4252 4520 4805 5107 5429 5771 6135 6521 6932 7369
3.4 5000 6000 6.664.000 5315 5650 6006 6384 6786 7214 7668 8151 8665 9211
3.4 6000 7000 6.664.000 6378 6780 7207 7661 8144 8657 9202 9782 10398 11053
3.4 7000 8000 6.664.000 7441 7910 8408 8938 9501 10099 10736 11412 12131 12895
3.4 8000 9000 6.664.000 8504 9040 9609 10215 10858 11542 12269 13042 13864 14737
3.4 9000 10K 6.664.000 9567 10170 10810 11491 12215 12985 13803 14673 15597 16580
15.9 >10,000 31.164.000
147.535.080
As demonstrated above, many people around $9,500 annual average income, will go to the next level of >$10,000, and they
represent around 1,7% of the total population. For instance, I divided the range 5,000 10,000 in 5 ranges as well as the
percentage that this represents, 17%/5 ranges=3.4 for each range. Then 9,500 represent half of 3.4. Then in the table that
follows I calculate the number of people that will move up to reach the 34 million.

Source: 1.Gillete Indonesia Case Written by Harvard Business School Publishing, 1996
The same methodology we apply to the other ranges as table above shows. I identified the portion of the population that will
go up and added to the number of men who will probably buy razors and blades in 1996. In 1995, from the 40 million male
over 18 years old 80% shave with an average 5,5. Within all the additions we have now 34,120,918 customers. I am not
considering the number of women that will probably buy, neither the distribution improvements nor the growth in the size of
the population, since it is not given in the case.

In next table we will see this and the others impacts on the consumption habits.

Table 6

What I am considering above is the following:

Improvement based on the income growth as well as the number of people entering in job market.
In 1996 the market growth was given based on the number of people within each income level, its growth as
well as the increase in the shaving incidence.
40 million men above 18 years old, 80% shave and it is growing.
Growth rate of men shaving is 10%, since 1993 66% shaved and in 1995 80% of the 40 million men shaved.
Also in 1993 the average shaving was 4,5 and in 1995 it was 5,5, again in 1996 it will be 6,1.

The number of customer increased to 34,120,918 over 18 years old shaving in 1996. This growth was given by the raise in
income level, growth on incidence shaving per month, also by the number of new people in the job market. I could not only
assume or consider the person that went up in range of income level due to the increase in inflation by 12% that is less than
6.2 raise within the GDP, so the purchase power would not increase.

Moreover, Gillete would continue to focus its efforts within Java and Bali region, since 75% of GDP is there, it is also
cheaper to distribute in this area that represents 7% of the total area of the country.

I recommend the following mix of products, exactly the same as Allan did :

Source: 1.Gillete Indonesia Case Written by Harvard Business School Publishing, 1996
 Table 7
1995 1996 SP per unit Gross Margin Awareness Often Used
Double-edge blade 100 108
Gillette Blue Blade 5 5 0,06 47% 14 1
Gillette Goal Red 80 90 0,11 50% 97 55
Gillette Goal Blue 15 13 0,08 48% 49 5
Disposable 5 10
Goal II 4 8 0,21 32% 41 4
Blue II 1 2 0,35 52% 9 0
System blades 10 18
Gillette Gil 2 3 0,45 52% 12 1
Gillette Contour 5 7 0,55 52% 9 3
Gillette Sensor 3 8 0,65 40% 12 1

With these projections, Gillete will have 40% rate growth in revenues and 19% growth in units. All projections show that the
market will grow around 20%, habits will change around 10% and inflation will be double than the 6.2 GPD growth
diminishing the purchase power. Finally, Allan recommendation is audacious enough.

Gross Margin % Table 8

1995 1996 SP per unit Gross Margin 1995 1996 Gross Margin $ Million
Double-edge blade 100 108 1995 1996
Gillette Blue Blade 5 5 0,06 47 235 235 9,58 13,31
Gillette Goal Red 80 90 0,11 50 4000 4500
Gillette Goal Blue 15 13 0,08 48 720 624
Disposable 5 10 Marketing Budget
Goal II 4 8 0,21 32 128 256 1995 1996
Blue II 1 2 0,35 52 52 104 12% 13%
System blades 10 18 2,352 3,588
Gillette Gil 2 3 0,45 52 104 156
Gillette Contour 5 7 0,55 52 260 364
Gillette Sensor 3 8 0,65 40 120 320
5619 6559
48,86 48,23

Gillete Indonesia will grow from 1995, $19,6 million revenues, to $27,6 million in 1996 and will keep its average gross
profit. It was 48.86% in 1995 and with the product mix above, it will generate 48,23 in 1996.

Value Proposition:

For sophisticated men that want high quality shaving. Our blades and razors will you provide you with much more comfort
and during more shavings.

For men who never tried to shave, you will experience a smooth skin with an international brand. High quality and fair price.

Source: 1.Gillete Indonesia Case Written by Harvard Business School Publishing, 1996
What would be different within a scenario like this in 2013?

First of all, the marketing approach should be really different. For instance, internet would help reach more customers in
Indonesia. A pay per click campaign would be consider, since upper and middle class are the main target. Other tactics as
golf tournaments, media advertisement, and others, however, around 20% of the marketing budget would pay web
campaigns.

Second, analysis would be more or less the same, disregarding the information provided by the web campaign that would
help evaluate customer profile.

Also, market research would be completely different with the help of the web.

Other problems such as distribution, inflation, regulamentation and politics would remain almost the same.

Conclusion

Chester Allan is in the right pace and should show his boss, Effion that he is proposing 40% growth in revenue, keeping the
gross profit of 48% from the previous year. Additionally, he can show that even though GDP will grow 6.2%, inflation will
grow 12%, so the purchase power will not grow. So his target of 19% growth in units to 1996 is audacious but it according to
growth projection of the market, regarding 2 million entering in the job market, female prospects, improvements in
distribution, raise in shaving incidence that will total around 20% increase in the total market. Thus 25-30% unit growth
would not be realist.

I recommend a 13% investment based on gross sales focusing in products such as: Gillete Contour and Gillete Sensor and
Goal II for male and female in the High and Middle Class. For the Low Middle and Low Class, I would focus on Goal II and
Gillete Goal Red. All this brands have a high level of awareness.

With all that applied in the middle and long term, definitely Gillete will have 75% market share in Indonesia that is held
globally.

Source: 1.Gillete Indonesia Case Written by Harvard Business School Publishing, 1996