Академический Документы
Профессиональный Документы
Культура Документы
11
Case Analysis
Preparer: Tina Khaladze
Table of Contents
HISTORY 3
NDATIONS 16 CITATION
19
2
History
The razor of the 21st century can be tracked to the accomplishments of Americans, King
C. Gillette and William Nickerson. They invented, in collaboration, the first razor with a safe,
inexpensive, disposable blade. This led to the founding of the Gillette Company in 1901 selling
its first razors in 1903. Users did not have to repeatedly sharpen the blade. Gillette, on the other
In three years, Gillette had manufacturing and sales operations in Canada, England, Mexico
and soon enough in China, South America and Europe. In 2000, non-US sales accounted
Several months before Gillette’s original patent expired in 1921, the company introduced
a new and improved razor for $5, the same price as the original model and lowered the price
from the original to $1. This led to “cheap imitations”. Previously a luxury, daily home shaving
was introduced to the masses. A wide range of prices and encouraging customers to trade up, or
choose a new product continued in the 21st century. Gillette focused on product innovation and
In the early 1950s, Gillette bought Toni, women’s beauty products, marking their entry into
markets beyond shaving. For the next five decades, the company entered and exited some
businesses. However, razors and blades remained Gillette’s largest and most profitable product.
With the help of technology, they were able to earn market shares in excess of 70% in the US
Under chairman and CEO Colman Mockler Gillette defeated several hostile takeover
attempts between 1986 and 1988, convincing shareholders that the future was brighter for them
if Gillette remained independent. In 1988, Warren Buffett bought $600 million in stock to
become the company’s largest shareholder (about 10%). Gillette reorganized, closed factories
3
and started taking care of its operations and increasing efficiencies to protect themselves from
In the 1980s and 1990s, the company saw rapid growth from emerging international
markets, mostly China and Eastern Europe due to the collapse of the Soviet Union. Gillette also
introduced several key new products, one of them being the highly successful Sens shaving system,
In January 1991, Mockler died unexpectedly. Al Zei, an employee at Gillette since the late
1960s, working mostly overseas, was his successor. Zeien turned his focus on international
markets and on product lines outside of the blade and razor business. In 1996, Gillette acquired
Duracell. From 1997-2000 sales stagnated, and market share and profits declined. In 2000,
Gillette sold its struggling stationary products group. Still, in 2001, Gillette held number one
market share positions worldwide with razors, blades, and shave preparations for men and women,
Is success blinding?
After the 1998 Asian currency crisis, later spread into Russia and Latin America, the
continued rate of high growth became totally unrealistic. The company was restructured several
times and costs were cut. Everyone was working hard to focus on Gillette’s issues and why the
company was missing numbers. But they were not doing what they were supposed to do, spend
time with their customers. Gillette’s service levels were well below industry expectations and
standards. Gillette was not benchmarking itself against competitors but was blinded by past
success.
Some executives believed that Gillette’s historic success had masked some underlying
problems that came to light when the company stopped performing. There was a level of
4
conservatism in the company culture and a reluctance to change. Some other problems will
resurface after analysis of internal state, external environment and business strategies of Gillette.
Strengths Weaknesses
• Century old company; well-established brand. • Old corporate culture
• Gillette gained advantage by owning a patent and • Lack of accountability. Didn’t deliver promises
• Repeat business from blades generated high cash • Advertising expenditures, as a percent of sales
• Leading market shares in all core categories and launches while trade sales promotion had
• Product differentiation with some products, low were rising since the introduction of its new
5
• Strong global presence and broad distribution underperformed its competitors
• Defeated several takeover attempts • Too much dependence on several core product
good marketing with this product line targeting • Gillette had to exit some businesses that it started
• Organizational separation
• Trade Loading
• Blinding success
system
6
External Environment Analysis
Opportunities
• Product diversification
• International expansion
• Jim Kilts, a new CEO, marketing savvy outsider, could save the company and make actual
change
Threats
• Having to drop unsuccessful product lines
• Industry saturation
• Consumer income levels dropping; downward price pressure from customers and consumers
• Recessions in key emerging growth markets - Asia Pacific, Eastern Europe and Latin America
7
• Kilts not certain how much time he would have or how much patience he should have
expected from investors, Wall Street, Gillette’s board of Directors, customers and employees
exit some businesses that it started. In 2000, Gillette sold its struggling stationary products
group. For 14 consecutive quarters Gillette had failed to hit earnings estimates. The company had
seemingly lost its way over the past four years facing stagnant sales, declining profits, market
shares and stock prices. The company had a poor business and financial performance.
Gillette quickly expanded and dominated international markets. The company had been
very innovative and made high quality products. It was open to product diversification, trying
out new businesses, entering and often exiting. Despite sales growth slowing down significantly
in 1997, profits remained high. Europe and North America were strong markets for Gillette in
There were risks related to international markets (political, economical, social, and
technological environments, currency exchange etc). Other companies have been a threat to the
future take over of Gillette. Gillette competed for retail customers as well as for individual
consumers. The major geographic markets of North America, Europe, and Japan were generally
mature, highly competitive, and had low population growth. In less mature markets, consumer
income levels were lower and cultural differences forced product companies to develop new
Despite being strong, Europe and North America were mature, slow growing markets.
Key emerging growth markets in Asia Pacific, Eastern Europe, and Latin America entered
recessions. There were currency fluctuations in Eastern Europe without meaningful inflation
8
during this period. In 1999, the battery industry sales surged partially, due to consumers’ fears
about potential Y2K power outages, but in 2000 they plummeted as they had purchased stockpiles.
1921. However, the company already had a well-established brand. The company owned a
technology that no one else had in the industry, which gave it a competitive advantage and
created a barrier for new entrants. Even though the company was in a strong competitive position,
Threat of Substitutes
Introduction of private labels by retailers caused a substitution of manufacturers’
products and was a threat for Gillette to be dropped off as a supplier. The company was loosing
Supplier Power
Gillette was a dominant supplier in the industry, having a monopoly at one point. The high
quality and a well-known brand of Gillette was much wanted by retailers. However, the company
happened to be in the position of being under the risk of being dropped as a supplier. Retailers
introduced private labels, which also increased competition and a possibility to be dropped off as
a supplier. Wal-Mart accounted for roughly 12% of Gillette sales and it introduced its own
private label.
Buyer Power
Gillette had a high level of brand identity, influential purchasing point for customers and
consumers. The company had to have a product diversification, differentiation with some of the
9
product lines and low cost strategy with others. In less mature international markets, consumer
low income levels and cultural differences forced the company to develop new strategies.
Customers had a lot of power. Retailers consolidated on both national and international
scales. They started demanding better prices and terms from manufacturers such as Gillette.
In the late 1990s, sales growth slowed down and there was downward price pressure from
customers and consumers. Manufacturers started seeking growth through increased operational
efficiencies. Many companies adjusted their product portfolios through acquisitions to focus on
fewer core product categories rather than being small players in many segments. This meant
PEST Analysis
Political Factors
Breakdown of the Soviet Union opened markets in Eastern European countries such as
Belarus, Ukraine, Baltic, as well as Central Asian, Transcaucasia countries and Russia.
Economic Factors
As companies expanded their operations into more countries, managing international
currency issues became more critical. As competition became more global, especially with the
introduction of the euro, the currency of whole regions could move together, in one direction, for
long periods of time. Gillette could not offset currency losses as much as the company was
Key emerging growth markets in Asia Pacific, Eastern Europe, and Latin America
entered recessions. There were currency fluctuations in Eastern Europe without meaningful
10
Social Factors
There was low population growth in the major geographic markets of North America,
Europe, and Japan. Cultural differences in less mature international markets influenced business
Technological Factors
Gillette is a century old company with a strong image and a well-known brand. The
company gained competitive advantage by issuing a patent and being the first of its kind on the
market. They had a “know how” and owned a technology that no one else did. On top of all, selling
blades brought lucrative repeat business to the company and generated a high cash flow.
Gillette was loosing market share in several key product categories. Yet, Gillette continued
to project high growth rates and built organizational infrastructure to support assumed growth.
Besides all of the risks, there were some prospects in the company. In less mature markets,
growth rates were expected to be higher. Consumer product companies were trying to adjust lower
consumer income levels and cultural differences in less mature markets and developed new
business and marketing strategies. As an example, products covered a broad range of price
points, from disposables at the low end to Gillette’s premier product, the Mach3 at the high end.
To meet financial growth targets, Gillette continued trade loading that put them in a hole in
the start of the next quarter and caused a wide swing in sales, which stayed flat for two months and
spiked in a month. Also, retailers would often wait until the end of the quarter to buy when
11
This is a situation when form overrides the function. Managers were paying more attention
response to stagnant sales and failing market shares. It also launched initiatives to improve
working capital and reduce accounts receivables, but these initiatives were difficult to implement
because trade loading was continuing in the face of still-high targets. Wall Street analysts and
the investment community encouraged aggressive sales targets. Gillette was unable to deliver on
promises. The company was again not addressing the real problem of trade loading. Instead,
they were cutting advertising costs, which, along with listening to trade analysts, could have helped
Gillette needed a new marketing savvy outsider at the top to save the company and make
actual change. They found Jim Kilts, even though the company had previously been averse to
outsiders. He had had branding experience, successful track, and large names on the record, had
reconstructed firms and even started one. In 2001, hoping to bring necessary change, Gillette
Business-level strategy
Gillette employed product differentiation strategy with new products and a low cost
strategy with older products such as disposable razors and some other business lines one of them
being Duracell batteries. They priced them accordingly and had a wide range of prices.
Gillette operated primarily in deodorants, oral care and shaving products. The consumer
products industry also consisted of categories such as hair care, skin care, cosmetics and fragrances.
Consumer products companies introduced new products frequently but not new
product categories. Retailers typically sold several top brands and often their own labels.
12
Consumer products companies competed on several fronts: brand recognition by consumers,
performance, quality, and price of their products, advertising creativity and expenditures, and
service and responsiveness to their retail buyers. So it was important to maintain competitive
In 1996, Gillette acquired Duracell, the world’s largest alkaline battery company for $7
billion in stock. Alkaline batteries were a high growth industry. Duracell was a strong company
known for providing a superior service to its retail customers. Gillette expected scale economies
In 2001, Gillette held number one market share position worldwide with some of its
products. Of all Gillette’s businesses, competition was the least intense in blades and razors.
The absence of a strong competitor was due largely to Gillette’s product and market share
leadership, from technological and manufacturing advantages, for most of the 20th century.
Gillette’s core business, blades and razors, accounted for 37% of Gillette sales and 62% of its
profits. With high market shares and high profit margins blades and razors were a large source
of cash.
Gillett marketed blades and razors very well. They targeted both men and women with
different razors and blades. Gillette employed a trade-up strategy encouraging consumers to
never go back to old products once a new, more advanced product was introduced. Indeed,
Gillette’s market shares in the US were over 70% for razors and blades, and a declining 50% for
disposables.
Gillette’s efforts to advance brush technology, as well as its link with the dental profession,
earned it the leading position in the industry. Innovation in oral care gave it both
high growth and high profit margins, and about 25% of the toothbrush market.
13
In 1967, Gillette acquired Braun, a German company that made electric shavers and
small appliances for the kitchen and bathroom. Braun was strong in Europe, and Gillette used its
international sales force to expand Braun’s reach. Braun’s technological expertise, such as in
Since 1950 Gillette entered and exited personal care related categories. Sales dropped in
2000 when Gillette divested its hair care brands. Gillette was too slow to respond to a new
competitor introducing battery-powered brushes in the US for the price of Gillette’s manual
Part of the delay in launching battery brushes was attributed to the organizational separation
inside Gillette. The oral care business management group handled toothbrush issues and Braun
Gillette underestimated differences between the battery business and its razor and blade
business when it acquired Duracell. The company attempted to manage them the same way.
Gillette’s segmentation and trade-up strategy did not work, as consumers did not perceive a
significant enough value difference among battery brands. Also, brand loyalty in batteries was
lower than with most shaving and personal care products. Competition on price, combined with
increased trade promotion spending, and tight margins. Customer service levels dropped
significantly, and Duracell’s market share (just over 40%) was declining. All these happened
with initial expectations that acquiring Duracell, known for superior service, would result in high
growth.
14
Structure and Control Systems
Part of the delay in launching battery brushes was attributed to the organizational separation
inside Gillette. The oral care business management group handled toothbrush issues and Braun
Gillette was able to defeat several hostile takeover attempts by reorganizing and developing
operational efficiency. Investors believed in the company. It was popular on Wall Street.
However, there were some flaws in the way the company conducted business on operational
Poor Reorganization.
As an attempt to restore company performance, achieve cost savings and respond to retail
business having its own worldwide organization, he created a matrix structure putting functional
activities into separate global organizations. Costs were reduced. It was a good idea but poorly
implemented. Matrix organization caused unclear roles and responsibilities. While matrix-style
structures have their advantages in meeting customer needs, they often create conflict and
confusion in organizations. They could result in a lot more inefficiency because employees need
to talk to each other, have more meetings and it is often unclear who is making the decision.
The Gillette culture was characterized as a place valuing seniority over competency. Matrix
structure also brought in unclear lines of accountabilities. The company had a poor compensation
system that did not discriminate well between levels of performance. The organization was “too
friendly” rather than realistic and healthy. This was an old environment,
where targets were so unrealistic that missing commitments was commonplace.
15
Recommendations
One of the first issues Kilts needs to address is the organizational structure in Gillette.
This is a very important issue for an organization of a size such as Gillette. There is a possibility
of an organizational separation, which was the case in the company, because it is so large.
Departments need to be more interactive, collaborative and there should be exchange of knowledge
between people working in separate departments. There should be departments for some functional
and strategic areas overall for the organization. Gillette had an attempt of matrix structure,
which was not successful because employees had conflicts with reporting. It also caused unclear
roles and responsibilities. The solution for Gillette should be integration of separate departments
with clearly defined roles of employees. I support matrix structure for this organization but it
Secondly, Kilts should address problems related to the corporate culture of the company.
He should change the whole mentality and communicate current issues clearly, so that
employees and executives are aware of Gillette’s problems and take them seriously. He should
create a healthy environment where incentives are given fairly and straighten out compensation
system.
Kilts should also emphasize marketing in the organization so that Gillette does not make
the same mistakes as it did by approaching the battery business the same way as the razor and blade
business. Integration does not mean that every business unit should use the same strategy,
especially if product lines are so different. When an organization has several business units, it is
possible and even necessary for each business to have a separate strategy. However, goals
Gillette should do something about trade loading as it has bad consequences. It gets
harder to predict sales and therefore manage them. Gillette has had a huge problem with
16
prioritizing. Pressure from managers at headquarters seemed to drive trade loading in an effort
to achieve company sales targets. However, over the long term it made it hard to manage sales
for field sales managers. This hindered the ability to generate accurate forecasts, but they
hesitated to challenge this practice too strongly. Company allowed for form to override function.
Managers at Gillette have been staring into books, listening to what Wall Street has to dictate
and following short term financial goals with unreasonably estimated projections instead of
listening and responding to the market needs and pursuing long term goals.
Most importantly, the company should protect itself from risks associated with international
markets. The inherent nature of conducting international business is risky as it exposes the
organization to additional threats not existent domestically. Gillette should manage currency
issues more effectively, hedging itself against risks related to exchange rates on financial
markets. The company should also chose new product lines much more carefully so that it does
not end up constantly adding and withdrawing from businesses. Resources are wasted in R&D,
The company will establish a better brand identity, learn about international markets by conducting
market research and customize marketing and other business strategies to different cultures. By
raising brand awareness and establishing a strong brand, Gillette will not have to worry so much
about downward price pressure from consumers as well as customers and being replaced by private
labels or dropped as a supplier because it will be able to differentiate itself from other products and
corporate culture, puts more efforts in domestic as well as international marketing, stops trade
17
loading, improves international business strategies and hedges itself against international risks,
18
Citation
Ranter, R. M., and Weber, J. (2004). Gillette Company (A): Pressure for Change. In Ranter, R.
M., Confidence: How Winning Streaks & Losing Streaks Begin & End (285-296). New
York: Crown.
19