Friday, April 18, 2014

P&G Emphasizes Premium Strategy in Razor Market

Over the past few years, Proctor and Gamble has struggled with the question of whether to deviate from the premium/differentiation strategy that made it so successful during the first tenure of A.G. Lafley.  When Bob McDonald succeeded Lafley, he deviated from that strategy as he coped with consumers "trading down" to lower-priced rival products and private labels during the recession.  The moves left P&G in danger of becoming "stuck in the middle" - trying to be both differentiated/premium and low cost at the same time.   

The razor market offers an interesting example of this challenge.  Over the past few years, the company's Gillette division has seen a new disruptive threat emerge, in the form of lower-priced competitors such as Dollar Shave Club (see inexpensive YouTube marketing below).  How would P&G respond? It essentially informed customers that they could always use an older version of the Gillette products if they wanted a less expensive option.  However, Gillette chose not to come out with a new low-price product.  Now we learn from the Wall Street Journal that Gillette will push even higher into the premium space with a new high-priced technologically advanced product.   Gillette is counting on some consumers to trade up as they have many times in the past, when the firm has brought out advanced razors.   Is this one step too far, or will consumers be receptive?   It will be interesting to see.   Sometimes, firms facing disruptive threats can "over-shoot" the high end of the market, offering consumers an advanced product that actually exceeds the needs of most people.   On the other hand, going down market with a cheaper product brings its own challenges, as premium players often are not capable of also competing in the low cost segment of the market.   In a way, we should not be surprised by this move from P&G.  Lafley is back as CEO, and he was very successful with this premium strategy in the past. Moreover, the economic recovery may provide perfect timing for a move to push deeper at the high end of the market.  

1 comment:

Jagadeesh Venugopal said...

The cost per removed whisker for the average male has been increasing every few years since Gillette started adding blades to its cartridges. At some point, customers are going to balk.

We're already seeing it now. If you look at Gillette's marketing, they now claim that eight fusion cartridges are good enough for six months. In other words, we are as cheap as the Dollar Shave club.