Niagara University College of Business Administration

Gillette Indonesia
HBR Case Study No. 1

Global Marketing MKG 634

Submission date:

02/23/2013

MKG 634 1. What factors determine the demand for blades? The demand for blades in the Indonesian market depends on several factors. The strong growth of the Indonesian economy of over 7% in the last 20 years has increased per capita incomes. The growth in GDP has not only improved standards of living but also facilitated an increase in Western grooming practices such as shaving. It can be stated that a factor that determines the demand for blades is the strength of economic development. Economic development captures all the single aspects that are likely to influence demand on blades: an increase in GDP, a growing number of foreign direct investments (FDI) in the country, and a high number of people entering the workforce. All these single factors influence the demand for blades. It remains to mention that a developing economy will not only raise consumers spending power but also influence the development of the society in terms of consumer preferences and behavior. In this context, shaving has become a symbol of economic development. Next to the strength of economic development, demographics will play an important role in estimating the demand for blades. For Gillette the decisive number is the percentage of people living in urban areas, as these consumers have the highest spending potential and are most likely to adapt shaving as they enter the workforce. The number of people entering the workforce in 1996 is said to be two million. A further factor that indicates the demand for blades in Indonesia is the incidence of shaving per month, i.e. the number of average shaves per month of an urban adult male. An increase in this number would reflect a higher demand for blades among the target group. In this way, the statement can be made that the desire to improve ones image and/or the need to corres pond to the changing norms of society influences the demand on blades. Next to identifying these influence factors on demand, it is likely important to spot the group of people which mediates the changes in society. In the specific case of Gillette Indonesia, college and graduate students are an important focus group. They represent a new generation, they are the trendsetters with respect to shaving, and also do they partly stand for of the up-and coming workforce. Hence, the growing number of college and graduate students is another indicator to determine the demand for blades. 1

MKG 634 Ultimately, there are also product attributes that determine the demand for blades. In other words the inherent performance of blades, such as effectiveness of shaving, value for money and shelf-life determine the demand for blades. The value proposition or the utility a consumer receives from using blades, compared to substituting products such as shaving knives, is likely to influence consumer demand. Finally, the education on shaving can be seen as a further aspect that has an influence on the demand for blades. Although this factor is closely connected to the aspects stated above; it seems worthwhile to mention it. It is the intensity by which consumers are educated about the potential benefits of shaving, especially about the higher received utility of using blades as shaving tool, will have an effect on the demand for blades in Indonesia. Looking at demand from the specific perspective of Gillette Indonesia, the number of competitors in the market field will also have an impact on the companys sales forecast to produce blades in the coming future.

2. Discuss how well Gillette is doing in Indonesia. Has Gillette enjoyed a first mover advantage? Gillettes global approach to think global, act local has helped its Indonesian subsidiary to capture a significant proportion of the razor blade market. In 1995 Gillette Indonesia enjoyed strong brand recognition among consumers, holding 48% of market share for blades and 90% of the premium priced segment for razors. Looking at Gillettes in terms of sales, the companys performance is sound. In-country shaving products revenues amounted up to 19.6 million in 1995, a 17% increase in blades sales over the previous year. The projected increase of 40% to 27.6 million in 1996 in total shaving products sales reflects Gillettes confidence in the growing demand of shaving products and hence in its business operations in Indonesia. A profit margin of 20% likely indicates the firms solid position in this foreign market, especially since the market environment poses some threats to the profitability of the company (e.g. difficult distribution and governmental regulations). The doubleedged blades are Gillettes best selling product (87% of total sales). Nevertheless the company expects

MKG 634 an increase in demand in higher margin products by 20%. This in fact would also positively play into the firms profitability for the coming years. Gillette Indonesia is doing particularly well with respect to market penetration. A survey indicated that the brand currently (1995) has 97% of brand awareness among male adult consumers in Indonesia. 55% of who used one Gillette brand most often. The high market penetration points to the effective marketing strategy and market segmentation the company has employed in recent years. Gillettes marketing strategy for 1996 is based upon three main objectives: persuading consumers to shave for the first time; increasing incidence of shaving among existing shavers and trading up shavers. These objectives illustrate how the firm was able to capture market share in the previous years. Educating Indonesian males about the benefits and the actual way of shaving has helped the company to achieve it strong position in the market. Not only does the word Gillette resemble the Indonesian word for blade, the company was able to make the brand the epitome for shaving among the target group. This is the result of Gillette utilizing its first-mover advantage. Also their market segmentation strategy, Gillette targets the urban area(s) responsible for 75% of the countys GDP, can be seen as core success factors and a gain from entering the market at an early stage. Yet, the company is not only doing well in terms of the brand it has established. Their operations and distribution system also highly contribute to the firms success. Gillette has achieved production efficiency through high standard manufacturing facilities. Reduction in the manufacturing time has led to increased capacity. Implementing a new, enhanced distribution system, Gillette was able to increase sales by 60%. Nevertheless the company also faces certain challenges that could impact their current strong position in the Indonesian shaving market. There is intense competition for supermarket shelf space, an important outlet for the companys product especially among its target group of urban males. Failure to capture this could impact the brand in its value proposition. Although Gillettes distribution system is somewhat advanced, distribution issues pose a major threat to the firms performance. Many of the distributors Gillette utilizes still use antiquated distribution and accounting methods. This impedes ontime payment and timely delivery of products. 3

MKG 634 Other weaknesses include cultural issue, i.e. cultural practices that differ between the firms employees and the distributors, communication problems as well as the inability of the company to meet demand for the upcoming year without setting up new production facilities. Moreover, the difference between brand awareness and actual use of the Gillettes blades could create a future dilemma. Although 97% of the target customers know the brand, only 55% effectively use it. This fact may point to a weakness. Considering the increasing competition in the market in the next years, mainly from lower end products, this could become a major threat for Gillette in Indonesia. All in all, Gillette Indonesia is doing considerably well. Among other reasons, the first-mover advantage has helped the firm to obtain a great amount of market share and great brand awareness in the blade market. Nevertheless the company must pay attention to weaknesses and try to turn threats into opportunities in order to maintain their profitable growth in the years to come.

3. How should Gillette accelerate the development of the blade market in Indonesia? Develop a measured estimate of the market potential for Gillettes products. There is future market potential to further increase the sale of blades in the Indonesian market From a marketing point of view Gillette may continue to develop the brand through up-selling, cross-selling and first mover initiatives. Compared to other countries in Asia the shaving rate in Indonesia is still incremental. Hence, Gillette must follow their approach and further persuade consumers to shave for the first time. This can be accomplished by using educational messages in multimedia and print advertisement that communicate the benefits of shaving, and specifically shaving with blades to nonblade users. Capturing further market share for blades could also be achieved with the help of local celebrities, so-called testimonials who promote the use of the Gillette. This would be in fact not only a tool to promote first use of the brand but also to increasing the 5.5 average monthly shaving rates among the urban adult consumer. Looking at the product lifecycle, the market for blades is still in an early stage. Early adopters, i.e. current users of double-edged blades must now been motivated to shift to higher-end products. 4

MKG 634 A way to motivate the customers to shift to Gillettes higher margin products could be facilitated by increasing lucky draw, gift redemptions .Also the testimonial could be an effective instrument to shift existing customers to different products. The use of free samples of the product as well as complimentary products such as shaving cream could further push demand for blades. Another alternative how to accelerate the development of the blade market is through tapping into the female shaving market. In the same way Gillette has educated urban men about the art of shaving, the company holds the resources, to mass market the razor also to women. Creating demand or desire among women for shaving could be achieved by strengthening POS presence as well as increasing spending on promotional items (give aways, free samples, and leaflets). Ultimately, Gillette may take care create demand with help of establishing or extending supplier relationships. First of all the company should deepen relations with supermarket chains, in order to secure shelf space but also for promotional purposes such as promotional stands to market new products and increase testing of products. Yet, Gillette may also want to establish closer relations with their distributors, e.g. support them in increasing efficiency or train them to reduce damage. At the end of the day its in the distributors control to bring the product to the market, especially in the less developed areas. As these are assumed to catch up in spending in future, thus most likely adapt shaving, strong partners are essential to be able to tap into this market.

MKG 634 Measured estimate for market potential for Gillettes products in Indonesia

Projection for the blade market: Indonesia 1996

% Total Population Urban population Urban males >18 Percentage male > 18 Rural population Rural males > 18 Total males >18 Urban men > 18 shaving types Always Occasional Estimated potential for blade market 20% 80% 22,86 15 blades/year 91,43 4 blades/year 35% In million 196,00 68,60 40,00 58% 127,40 74,29 114,29

65%

100%

708,57