Fox Business is reporting
that Gillette’s share of the men’s shaving market has been dropping for at
least the last six years – from nearly 70% in 2010 to 54% in 2016, and possibly
still dropping. To the best of my knowledge, there has never been any reason
why other companies could not have challenged Gillette’s domination of the
industry, any more than other companies could have challenged Frito-Lay for
control of the potato chip and corn chip industry. But as in the case of salty
snacks, it can be very difficult for a new competitor to break into an industry
that already has an entrenched competitor with vendors, distributors,
retailers, and the majority of the end users already its control. The purchase
of Gillette by Proctor and Gamble in 2005 only made things that much harder for
anyone else who might have thought to break into the market…
As a result, Gillette has
been selling razor cartridges for as much as $6 each, and is in the middle of
testing and introducing new extensions to the product line that might go even
higher. It has become something of a running joke in recent years that the
company keeps adding blades and jacking up the price. And while exactly how
much of the price was made up of profit margin remains in dispute, it has not
been much of a surprise to learn that the well-known Schick competing products
run for as little as 50% of the Gillette equivalent’s price. Finding out that
the cheapest Dollar Shave Club refill cartridge goes for as little as 20 cents
was rather more surprising, to be sure, but what was really amazing was seeing
the full-page ad in the newspapers responding to the new competition…
You can see one of the
examples at Campaign Outsider if you’d like to. Gillette was already planning
to answer the shave clubs delivery/convenience advantage by launching their own
subscription service, but apparently the threat posed by the price advantage
has caught their attention as well, and they are now publicly announcing
upcoming price reductions across their product line. If the Fox Business story
is correct, this should amount to an average reduction of about 12% on Gillette
shaving products. Whether this will be enough to counter the 90% price
advantage offered by the new online competition remains to be seen, of course…
Now, I’m not saying that the
new price reductions won’t work, or that the success of the new shave clubs
will bring additional competition into the market. I don’t begin to have enough
data to make any such predictions, and I’m not sure anybody else does, either.
For all that the situation is a classic example of a previously dominant
company having to deal with an unexpected entrant crashing their market, the
use of an Internet-based campaign and a direct-billed subscription model, not
to mention home delivery, is almost literally unprecedented in this industry
and product category. I can’t see any reason it shouldn’t work, and I’m not
sure there’s anything Gillette or P&G can do about it – except compete with
the newcomers on their own terms, that is…
Gillette is still entrenched
in the market; their product is available in virtually every supermarket, drug
store, convenience story, and general merchandise retailer in this country.
They’ve got the technology and knowledge-base to create superior products, the
distribution channels to get them into any customer’s hands, and the capital to
run better ads and set whatever price points they can get away with. It seems
possible for them to compete in this market and win, especially with the
support of their corporate parent. What they can’t do is ignore the threat that
these new competitors represent. The way they have been doing until now…
No comments:
Post a Comment