Gillette is reversing its long-held premium pricing strategy with dramatic price cuts, of up to 20%, to face-off against online competition. Claiming best in class status over the years, Gillette kept raising prices for new features while skimming the market even with their older products. Traditional competition settled under their price umbrella thus creating a lucrative market that was ripe for disruption by low-cost and low-price online competition. What should P&G do to protect its high-margin and valuable brand from bleeding market share?
Gillette’s slogan “The Best A Man Can Get“, needs to fit one of most valuable brands in the world (#28 according to Forbes). As one of the most profitable businesses for P&G since 2005, its operating margin was 29% in 2016. Online sellers like Dollar Shave Club and Harrys have been chipping away share in the U.S., but Procter & Gamble still controls 65% of the global blades and razors market led by Gillette.
Gillette’s innovation has contributed many new features to an otherwise staid product. Having three, four, and then adding the fifth blade was joked about and almost predicted by comics on television and now there is a blade warmer awaiting patent. Gillette’s product features stack higher than their competitors’ but the price comparison for blade refills is startling: Gillette at $3.50-5.60 per refill, Harrys about $2 and Dollar Shave about $1-1.50. Online competitors offer monthly subscriptions. Customers resonate with their messages, such as, Harrys’ “Have a Great Shave at a Fair Price” or Dollar Shave Club’s “Our Products are F**king Great” in a YouTube video (with over 24 million views till Feb 2017). No wonder, Gillette’s U.S. market share fell to 54% in 2016 from 59% in 2015 and over 70% in 2010.
Gillette may have to bury its premium strategy unless it relearns about customer buying behavior, life-style aspirations and price response. The company should accordingly redefine its product line-up to cover a range of discrete price points that align with customer segments and can contain the competition within that segment. For instance, discrete price levels and product bundles for super-premium, aspirational, value-seeking or economic minded customers would serve the company better than simply skimming or slashing prices across the board. Expanding its online Shave Club with the new line-up, Gillette needs to bring in new type of customer that responds better to the brand slogan, “The Best A Person Can Get for a Fair Price.”