About Gillette: Strategic Management - Case Study Example

 1.1 The Industry The Consumer Products Industry comprises of Product categories covering Hair Care, Skin Care, Cosmetics and Fragrances, Deodorants, Oral Care and Shaving Products. Of these Gillette primarily covers the last three and indeed is the world leader in Shaving Products. Gillette dominates the worldwide Safety Razor Blade Industry. Ever since it commenced business over a century ago it has had the unique position of leading industry with innovations. It was the first to introduce the concept of the Safety Razor and has always been able to introduce new products and features continuously. It is this factor alone that has got it 70% of the US market in 2000 and about 50% share of the market outside the US. 1.2 Long Term Aims Over the last 3 years Gillette has been trying to recover its lost glory that it enjoyed for the decade up to 1997. In 1986 its sales were $ 2.8 billion and rose to $ 9.08 billion in 1987. Since then it has hovered around the $ 9 billion and this stagnation has eroded its stock value but fortunately not its market share. 1.2 Approach to Growth Due to its innovative approach to product development which Gillette has maintained for over a century, it retains market leadership in this segment. Gillette has unsuccessfully tried to add to its product portfolio for over 50 year. The redeeming feature has been the Safety Razor sections for men and women. A SWOT analysis of the product also suggests that this core product range is the company’s real strength. The weakness is the quarterly sales strategy of loading sales to retailers. The opportunity lies in improving its sales strategies. There are really no threats to the company from are competition. 1.3 Stakeholders and Ambitions While the majority of shares is held in public but a sizable stakeholders are employees, both present and retired ones. The single largest share holder is Buffet Warren who holds about 10% of the company stock. They are worried over the declining stock prices especially since 1997 through 2001. The decline has been sharp from a valuation of $ 4.8 billion to $ 1.9 billion. They need a quick turnaround or they fear the company will be a takeover target once again. 1.4 Capabilities & Resources Historically Gillette has always scored over the competition primarily due to its customer loyalty which has come about due to its innovations in products. This is its main strength even today. It also has a wide distribution base worldwide and its products range from entry level to premium level catering across all segments of customers. It can therefore rely on its R & D to continue to offer strong product lines in this core sector. It is still financially very sound and has a strong balance sheet. 1.5 Growth Strategy In the past Gillette tried a horizontal growth. It felt that it had peaked out by successfully covering 70 % of the US and over 50% of the rest of the world market. Its management decided that the next area of growth was different product lines and it chose to buy out many popular product categories of the day. Besides Blades and Razors, its core business, it entered Personal Care business covering shaving preparations and deodorants etc and Oral Care business including power and manual toothbrushes. Later it also entered the alkaline batteries business and took over Duracell which had 40% of the world batteries market. It also purchased Braun, a manufacturer of electric shavers as well as small kitchen appliances. Of these the Duracell, Braun and Oral-B businesses have survived and others have been hived off. 2 Impact of major factors From 1997 onwards there have been both internal and external pressures on Gillette which have resulted in stagnated sales, declining profits and eroding stock values. Internally one of the most successful Chairman, and CEO of Gillette Colman Mockler died unexpectedly and the successors enjoyed the continuing buoyancy up to 1997 and the decline thereafter was not controllable. The company culture was and continues to be development oriented and not enough attention is paid to customer services. After sales services have been below par, and below industry standard. The sales strategy has also taken hits from bigger retailers like Wal-Mart who promote their own brands. However Wal-Mart still remains the largest buyer of Gillette Products (12%). Using the PESTLE analysis, the Political changes in Eastern Europe and Russia have resulted in lower sales while social factors have been favourable as consumers are attracted to its products. Technologically it has always been ahead of competition and the consumers have got the opportunity to upgrade themselves. On the legal front it has faced no challenges and ecologically it has not been targeted by any group for harming the environment. On application of Porter’s Five Force analysis it is seen that the supply chain poses no problems. Innovations offered regularly are effectively countering the threat from competitions. However, the move by large retailers to market their private labels and by the smaller retailers to get bargains at the end of every quarter is affecting profitability. Both PESTLE and FIVE FORCE analysis show the pressures on the company which evident by its declining profits, stagnated sales and eroding stock values. 2.1 Emergent Strategies The company has bravely tried to drive its growth strategies by adding product lines different from its core operations. But its attempts have not been really successful Most of the new lines have been dropped off and those that remain are not really producing the profits that it expected. 2.2 Evaluation of Gillette’s portfolio of Products Of the remaining product lines Oral-B contributes only 5% to its profits and is not worth while. The Duracell venture is holding off but there is already a slight fall in its contributory value which has descended from 40% to 37%. Braun too contributes a paltry 11%. Had it not been for the cash cow Blades and Razor business which still contributes 59% of the profits, the company might have gone into red. It is evident that there has really been a strategic failure on Gillette’s part in its growth plans. Gillette needs to concentrate on its core activities. It needs to expand further in the emerging markets. With the onset of liberalization new opportunities are opening up. The demand for low end product is larger in these countries with middle income populations growing at a fast pace. Gillette has never been very strong on marketing and this is the main cause of the its rivals success who have been very strong on this front. They will have to forget their past performances and brace themselves up to face the new challenges and try to capture the growing new markets. The new Political factors also offer more opportunities of expansion through the Foreign Direct Investment (FDI) route that is preferred by the new emerging economies of the developing countries. Once the breaking up of the old Soviet Union had dented its business. Now the same countries that emerged out of this fragmentation offer fresh opportunities. In respect with its marketing and sales strategy it has to rethink its policy viz-a-viz its retailers. It has to adopt a fair pricing and distribution plan that will eliminate the practice of Trade Loading. It also needs to re-work its marketing policies with the large retailers and to deal with them on a more co-operative approach. One strength that it can depend upon is its R & D division which has consistently brought new product range in the market and is expected to continue doing so. It is remarkable that for over a century it has remained a leader in its class of products and it is all the more remarkable that despite many other failures Gillette has remained a force to reckon with on this fact alone. One more area Gillette should concentrate on is that Duracell can also become a cash cow like the razor blades only if the company accepts the fact that the two customers are not alike. They cannot expect similar loyalty and this segment should be treated differently. Here the after sales service is more important to retain customers unlike the blade customers who like to upgrade themselves to premium products. 2.3 Conclusions & Recommendations Now in 2001 the company finds itself on crossroads. It faces an uncertain future. Its stock value has eroded so alarmingly that it might face a takeover at anytime. The management is so bereft of ideas and so immersed in its past glories that it is unable to come out with any radical thinking to bring the company out of its present groove. There is disenchantment across the board amongst its executives and outsiders who were brought in had also not lasted long in this environment. The only conclusion that the above malaise brings to fore is the need to infuse fresh blood and fresh thinking right at the top. It is only the new management that is capable of thinking out of the box and promoting new policies that will bring back the company on a growth strategy once again. Read More