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.  

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.