Monday, May 19, 2003

Oligopoly brief: Gillette In some businesses, the reigning metaphor is to sell the razors cheap, but charge big for the refills. That's particularly true with color inkjet printers, where the machine costs are fantastically low, but buyers soon discover they need an endless supply of costly ink cartridges to keep the machine going. Gillette, which invented the disposable razor blade in 1903, is the worldwide business that literally lives by the sell the razors cheap model. Their Mach3 three-blade razor, which reportedly took ten years to perfect and a billion dollars to design, develop, and launch, is an example. The new razor has allowed Gillette to maintain its position as the world leader in shaving equipment, with a market share estimated at 70% or more and gross sales over $8 billion in revenues. And those replacement blades play a large part in the company's success. But Gillette is in a continuing battle with rivals Schick/Wilkinson and Bic. Those two companies announced new razors and replacements blades that are designed to work with the Gillette razor. With somewhat lower pricing, they hope to take a bite out of Gillette. Gillette is fighting back on another front with its deluxe disposable razor, the Sensor 3. This is aimed right at the heart of Bic's business in throwaway razors. Schick recently announced a four-blade razor, so the war goes on. Schick, sold in parts of Europe as Wilkinson Sword, was recently sold by Pfizer to Energizer Company. That makes it a rival to Gillette in a second area, namely alkaline batteries. Gillette sells the number one Duracell brand, with 50% of the US market, Energizer is number two. Batteries also provide a link to a third Gillette business, which is small electrical appliances, under the Braun brand. These include electric shavers, electric toothbrushes, food processors, hand blenders, coffee makers and grinders, juicers, water kettles, hair dryers, and steam irons. To other areas the company now specializes in are dental care (Oral B), which is the number one brands worldwide, and deodorant (Right Guard), which is the number two US brand. The connection among all these proucts is that they are sold in the same stores (drug stores, convenience stores, supermarkets), so that they can be served with the same distribution system. Except for Right Guard, none of the non-shaving products suggest any connection to the company's name on their labels. It's remarkable that a company with a limited range of products, all in mature markets, can keep expanding and thriving. Gillette, along with its constant advertising, is driven by three major efforts: It keeps expanding internationally. About 60% of its sales are made outside its home country. It keeps developing new products even when the old ones are good enough. That's been the case with razors, batteries, electric toothbrushes, and coffee makers. It has discarded operating units in recent years, so it could concentrate on market-leading products only. It sold its stationery products division in 2000 to Newell Rubbermaid. The brands included were Paper Mate, Parker and Waterman (pens) as well as Liquid Paper white-out. Gillette also agreed to sell its hair care business (White Rain, Dippity-Do, Toni) in 2000 to health and household products company Diamond Products. Principles illustrated: Being #1 is great, being #2 is good, being #3 is difficult, being #4 or higher is a losing game. Oligopolies are tempted to go multinational. Oligopolies collect and discard brands like a gin rummy player. 5:33:21 PM

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