Gillette Fusion and the Fine Art of the Con

Brand: Gillette Execution: PR (news release) Link: Click Here Target: Wall Street Rating: * Reviewer: David Description: Gillette on Wednesday, September 14th announced the introduction of the world's first five-bladed razor, the Fusion. The Gillette Fusion razor (photo not available - the picture depicts the M3 Power, the most recent line extension to the Mach 3 franchise) which leapfrogs Schick's four-bladed quattro will sell for a 30% premium over current Mach 3 razors. This is in line with decades of successful new razor introductions for Gillette with steeply increased prices over previous generations. What Works: As a PR strategy, Gillette has certainly succeeded. The press has bought the PR story hook, line and sinker and even the Wall Street Journal, asking the soon to be $165mm richer Gillette CEO Jim Kilts seems content to end their in-depth analysis of the new product introduction with Kilts quote "Men are always looking for a better way to shave." Businessweek virtually trips over itself to heap praise on Gillette after it cautions "...seems like a classic case of overkill," but quickly moves to explain that, "The overkill logic may seem compelling at first glance, but it's off-base on closer inspection. Despite its high price, the launch of Fusion is probably the closest thing to a slam-dunk in the intensely competitive consumer-products industry, where many new products never gain traction. It should be a huge boon to Procter & Gamble (PG ), which is expected to wrap up its acquisition of Gillette this fall." Of course, this is the same magazine that praised Enron, WorldCom and the AOL/Time Warner merger. So clever is the spin on this announcement that Kilts and Gillette have successfully changed the dialogue on shaving from the question of reality (do five blades give you a better shave?) to perception (how do men feel about it). And the answer of course is that men are twice as likely to say they like the new shave. Not a single of the myriad articles spawned by this announcement questions Gillette's test methodology. There are valid questions to ask. There is a reason that clinical trials are conducted using a double-blind method (where neither the patient nor the doctor or clinical investigator knows whether what's being administered is the test drug or a placebo). The reason is that when people are using something they know is new in a test they are more likely to think that it is helping them. So it is no surprise that men encountering 5 blades for the first time might think they are getting a better shave regardless of whether they actualy cut themselves less or are able to shave closer to the skin without abrasion or ingrown hairs. And there is similarly no evidence that Gillette has told anyone whether that is actually the case. So Gillette has done a fantastic job in selling this new razor to the press, to Procter & Gamble (for whom the value of this razor is a key part of the acquisition price), and will undoubtedly do the same job on consumers when the blade hits shelves. What Doesn't: How could we possibly argue that a brand which has successfully raised its selling price by about 30% every 6-8 years for the past several decades could be wrong? Gillette is one of the great branding success stories isn't it? We believe it is not. Every brand rests on a value proposition. That proposition gives consumers something they need (a functional benefit) and something they want (an emotional benefit) and charges a price to get it. In competitive markets, this value proposition is enforced by competition. If I don't offer a fair value for the money, someone else will and they will steal customers and market share. Gillette has so dominated its space in the past two decades that it is not truly in a competitive market. We believe that Gillette has essentially created a hostage brand which is able to extort money from consumers by undermining confidence in competing products. By holding commanding market share, dominating advertising and dwarfing competitive R&D spending, Gillette has essentially become the only acceptible alternative in shaving. And once dominating this market, they have charged monopoly prices to consumers and stifled innovation. We would argue that this is bad marketing and bad business. What possible proof is there that this is the case? The product development cycle holds the first clue. Which product is more complex - automobiles or shaving systems? With tens of thousands of moving parts and computers, automobiles are vastly more complex than razors. Yet why do automotive companies now have a 3 to 4 year product cycle (the average time between substantial new product introductions in a particular brand line such as Honda Accord or BMW 5-Series) while Gillette has waited 8 years to move from the Mach 3 to the Fusion? The only answer is the lack of competition. We have argued in the past that paying $4 or more for a cup of coffee can be a fair value exchange. So why will paying $3 dollars a razor not be? Because it is not at all clear that we have ten times the shaving experience that we had 15 years ago. Because unlike Starbucks which has to compete with everyone from Dunkin Donuts and local coffee shops to McDonalds and truck stops, Gillette was virtually without competition until Schick started stirring the pot with Quattro. The regularity and degree of the Gillette price increases are also powerful proof of Gillette's monopoly behavior. Very few categories sustain these increases unless they are dominated by a monopolist. Many categories offering the most innovation, in fact, behave in just the opposite manner - prices fall even as product performance improves. We need to remind ourselves here that Gillette is not selling itself as a fashion brand here - the advertising has very long been centered on power and performance (to an extent that might make one wonder if there is a bit of overcompensation on the part of Gillette senior management). This being the case, the price increases should be sustained purely on the improvement of shaving performance. Which makes us suspicious that Gillette has not made a stronger scientific case for Fusion. We have very high regard for Procter&Gamble, but we have to wonder if they are overpaying for Gillette. We also have to wonder whether executing the acquistion of Gillette while at the same time trying to launch the first new razor line in 8 years is a very good idea. This advertising blog is not comforted by CEO Jim Kilts assertion that "someday there will be a Harvard Case Study on this transition." We think there will be a case study, too - just not one that Kilts will enjoy reading. We certainly hope that having acquired Gillette, P&G will carefully consider the value proposition and how it might be improved. Branding Bottom Line: Gillette launches the Quintippio - oops, Fusion - and we grab our back pocket to see if they've lifted our wallet yet.