Thursday, April 12, 2012

The Dollar Shave Club: Look Out Gillette?

The Wall Street Journal reports today about the rapid and surprising emergence of a new competitor to Gillette in the razor and blades business.   The Dollar Shave Club provides a subscription service, whereby customers can sign up to have blades shipped to them each month.  Customers choose from among three plans - a good/better/best set of options.  The prices range from $3 to $9 per month.   The company has garnered a great deal of attention, as a YouTube video went viral recently - surpassing 4.1 million views as of this morning. The company's motto might offend some, but it sure garners attention: "Our blades are f— great."

What's going on here?  With Gillette, we see a classic case of a company innovating constantly to try to upgrade its product quality.  The efforts result in a continuing "premiumization" of the product.  However, at some point, those enhancements "over-shoot" the needs of some customers.   The price point begins to exceed the willingness-to-pay of some consumers, as they don't necessarily see the value of the most recent product upgrades.  Is there some evidence that consumers were beginning to feel that the price did not match the value for Gillette's high-end razors?  Certainly.  As the Wall Street Journal indicates, the company had become the butt of jokes about the number of blades that they could stick on a tiny razor.  Moreover, customers have been reported to go to great lengths to try to get as many shaves as possible from a particular razor. 

The barriers to entry in the razor/blades business seemed insurmountable though.  Getting on the supermarket shelf was no mean feat.   Moreover, promoting a new line of razors could be very expensive.  However, the Dollar Shave Club has found a way around those traditional barriers to entry.   They've gone direct to consumers with a subscription service, avoiding the supermarket shelf entirely.  In addition, they've used social media to promote the product at virtually no expense. 

The question remains:  Is the Dollar Shave Club truly a better value than Gillette?  The answer: it depends.  As the Wall Street Journal reports in this complementary article, the true cost to the consumer depends on shaving habits. Those habits, in turn, depend partially upon the physical attributes of the customer.   Gillette, of course, has been trying to persuade customers that their blades last longer, making the true cost of ownership less expensive than competing blades.   That argument raises one final interesting point related to this story.   With industrial marketing efforts, customer willingness-to-pay is often something that a firm can quantify.  With B2B marketing, a company can persuade a customer of the superior economics of buying their product instead of a competitor's goods.   With consumer marketing, one can try to explain those economics to the user, but it's a bit more challenging.  You aren't sitting with a purchasing agent and walking through a spreadsheet.  You are trying to persuade someone in a 30 second commercial.  Therefore, Gillette will have to come up with a very clear and concise way to convince consumers that the total cost of shaving will be lower with their products, even though the price per blade is significantly higher. 


1 comment:

Burtk said...

I've used Gillette blades fro years, but recently calculated what I was paying for a year's worth of blades. It was a big number. My son turned me on to Dollar Shave--I used it, and so far the product is good. I think that Gillette has lost its way--the product is good, but the annual costs are ridiculous, maybe beyond ridiculous. If I had Gillette stock, I'd sell it. They have lost their way.